What is Incurred claim ratio in insurance?
An incurred claim ratio is the ratio of net claims incurred and the total premium earned by the
company. So an ICR of 80% means that the health insurance company is spending Rs. 80 for every Rs. 100 it charges as premium.
Incurred Claims Ratio (ICR) shows the ability of a company to make payments towards claims. If the ICR of a company is more than 100%, it indicates that the amount of money given away by the company as claim is more than the amount of money collected by the company as premium. In such cases, the company will find it hard to survive, and as a result, will either resort to rejecting some borderline claims, raise the price to better manage claims, or change their product altogether.
If the ICR of a company is between 50% and 100%, it indicates that the company has collected more money as premium than it has given away as claims. In such cases, the company makes profits and the company has not only launched good plans, but has also sold them to customers.
If the ICR is less than 50%, it means that the company is either hardly paying claims or is making relatively large profits.
However, the fact that the company is generating considerable profits is not necessarily a good thing as all Health Insurance companies should offer products that actually pay out claims within the correct limits. In case claim payouts are low, then customers who purchase such products realise over a period of time that the Health Insurance policy is costly and/or the number of exclusions in the policy are way too many, and thus shift to a better or more efficient product. Hence, the right value of ICR ranges between 75% and 90%.
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