The insurance regulator IRDAI, publishes its annual report, which also showcases the Incurred Claims Ratio (ICR) data for every financial year for the general insurers operating in India.
Table Content
- What is Incurred Claims Ratio (ICR)?
- How Incurred Claims Ratio (ICR) is Measured?
- Incurred Claims Ratio (ICR) for FY 2016-17:
- Incurred Claims Ratio (ICR) Ranges:
- Why it is important to check the Incurred Claims Ratio (ICR)?
- Key Points regarding Incurred Claims Ratio (ICR):
- Other Key Findings of IRDAI’s Annual Report:
- Related posts:
What is Incurred Claims Ratio (ICR)?
Incurred Claims Ratio (ICR) is the value of all claims paid by a general/ non-life insurance company for the net amount of premium earned during the financial year. It is the ratio of the claims settled to the premium received. ICR indicates the company’s ability to pay the claims raised by the insured. Incurred Claims Ratio (ICR) suggests the financial capabilities of the insurance company in conjunction with revenues received and claims paid.Incurred Claims Ratio is calculated for various lines of business such as Health, Motor, Fire, Marine and others for a general insurance company. Individual ICR data on different lines of business can be looked upon to judge the claims settlement data for a respective class of insurer.Collectively, the figures are represented as a total Incurred Claims Ratio (ICR).
How Incurred Claims Ratio (ICR) is Measured?
Incurred Claim Ratio is calculated as the net claim settled by an insurer to the net premiums collected in any given year.
| Incurred Claims Ratio = Net Claims Incurred/ Net Earned Premium An Incurred Claim Ratio of 85% implies that the company has compensated Rs 85 as claim payout for every Rs 100 collected as premium |
Incurred Claims Ratio (ICR) for FY 2016-17:
| Private Sector General Insurers | Net Earned Premium (in crores) | Claims Incurred (in crores) | Total ICR (FY 2016-17) |
|---|---|---|---|
| Bajaj Allianz | 4937.05 | 3476.29 | 70.41% |
| Bharti AXA | 1138.79 | 988.92 | 86.84% |
| Cholamandalam | 2248.07 | 1638.96 | 72.91% |
| Future Generali | 1087.9 | 841.09 | 77.31% |
| HDFC ERGO | 1651.58 | 1270.07 | 76.90% |
| L&T (now HDFC ERGO) | 989.1 | 769.8 | 77.83% |
| ICICI Lombard | 6163.6 | 4954.33 | 80.38% |
| IFFCO-TOKIO | 3511 | 2877.72 | 81.96% |
| Kotak Life | 32.86 | 24.01 | 73.09% |
| Liberty Videocon | 416.97 | 329.99 | 79.14% |
| Magma HDI | 327.09 | 258.74 | 79.10% |
| Raheja OBE | 37.46 | 25.84 | 68.97% |
| Reliance | 2088.95 | 1926.72 | 92.23% |
| Royal Sundaram | 1720.99 | 1344.67 | 78.13% |
| SBI | 1476.42 | 1107.52 | 75.01% |
| Shriram | 1682.33 | 1725.49 | 102.57% |
| TATA AIG | 2407.45 | 1741.12 | 72.32% |
| Universal Sompo | 662.45 | 469.75 | 70.91% |
| Public Sector General Insurers | Net Earned Premium (in crores) | Claims Incurred (in crores) | Total ICR (FY 2016-17) |
|---|---|---|---|
| National Insurance | 10803.62 | 10506.68 | 97.25% |
| New India Assurance | 17814.79 | 16256.92 | 91.26% |
| Oriental Insurance | 8383.26 | 9398.09 | 112.11% |
| United India Insurance | 12032.31 | 12881.5 | 107.06% |
| Standalone Health Insurers | Net Earned Premium (in crores) | Claims Incurred (in crores) | Total ICR (FY 2016-17) |
|---|---|---|---|
| Aditya Birla | 13.48 | 14.92 | 110.68% |
| Apollo Munich | 1101.31 | 605.59 | 54.99% |
| Cigna TTK | 181.77 | 87.5 | 48.14% |
| Max Bupa | 544.28 | 282.81 | 51.96% |
| Religare | 484 | 244.5 | 50.52% |
| Star Health | 1911.45 | 1156.71 | 60.51% |
Source: IRDAI Annual Report 2016-17
Incurred Claims Ratio (ICR) Ranges:
A higher Incurred Claims Ratio (ICR) may not be as healthy as a higher claim settlement ratio (CSR) of the insurer. The claim settlement ratio is the amount of claims settled as compared to the claims intimated where as incurred claims ratio is the amount of claims paid as compared to premium earned over a financial year.
Let us analyze the interpretation of various ranges of Incurred Claims Ratio (ICR)
ICR between 70%- 90%: An ideal ICR range could be between 70% to 90%, which implies a healthy settlement of claims by the insurer against the premium collection over a period of time. It infers that for every Rs 100 collected as premium, an insurance company is paying less than Rs 100 as a claim in the same year. The insurance company is disbursing the lesser amount of claims than what it has earned as premium. So, the company is making profits.
ICR higher than 100%: It indicates that for every Rs 100 collected as premium, an insurance company is paying more than Rs 100 as a claim in a financial year.Incurred Claims Ratio greater than 100% indicates that the insurance company is incurring losses which, could be due to faulty claims, bad underwriting practices,etc.Having more than 100% ICR can also be because the insurance company is a new enterant in the industry and doesn’t have substantial premium earning in the initial years of business operation.
ICR below 40%: If the ICR is below 40%, implies that the insurance company is making huge profits as the outflow in terms of claim settlement is far low where as the inflow in terms of premium earned is quite high. Low claims intimation, could be because of the robust underwriting guidelines of the insurance company or charging higher premium rates than other insurance companies in the industry. Lower ICR implies that the insurance company products are expensive, lesser policy coverage, too many exclusions and the claim disbursements are lower. Lower claim payout means is not good for the policyholder’s perspective.
Why it is important to check the Incurred Claims Ratio (ICR)?
The Incurred Claim Ratio indicates the ability of the insurance company to pay the claims. Choosing an insurance company having an ideal ICR is a wise choice, as it indicates that the insurance company is paying the claims. But, having a very high ICR over 100% signifies that the insurance company is incurring losses as outflow is more than the inflow of earnings.Going with companies having very high ICR or very low ICR is risky. It is advisable to pick a general insurer which has ICR in between 70% to 90%, as it indicates a healthy financial capacity of the insurer as far as settlement of claims is concerned.
Key Points regarding Incurred Claims Ratio (ICR):
- ICR signifies the ratio of claim settled against the premiums collected during the same year. However, it doesn’t indicate the time taken to settle the claim. An insurance company having a high ICR may have a lengthy claim settlement process.So it is important to assess the overall claims settlement process of the insurer as well.
- The Incurred Claim Ratio is different for different general insurance business like Motor, Health, Fire, Marine and others. The total ICR of a company is determined by combining ICR of all its insurance businesses.
- ICR is one of the key parameters in assessing the financial health of the general insurance company. However, it is not the only criteria to analyze the company. Before buying a non-life product such as health, motor, home, fire insurance, etc., you are advised to make a comparison of insurance plans, its benefits and coverage available and choose an insurer which suits your insurance requirements.
Other Key Findings of IRDAI’s Annual Report:
- In terms of both the market share & premium collection, New India Assurance, United India Insurance, National Insurance, Oriental Insurance and ICICI Lombard are the top five general insurers.
- The gross direct premium income by private sector general insurers during FY 2016-17 is Rs 53,804.96 crore with an increase of 35.55% than the previous year. All the 24 private insurers reported an increase in premium underwritten for the year 2016-17.
- All four public sector general insurers expanded their business in terms of premium collection. In total, these insurers collect the gross direct premium of Rs 60,218.36 crore with an increase of 26.27% than the previous year. New India the largest general insurance company in India with the direct premium collected of Rs 19,115 crore. The market share of all the public sector insurers decreased, when compared to the previous year.
- The standalone health insurers collect the gross direct premium of Rs 5857.83 crore. They registered a growth rate of 41.06% against 41.12% growth rate during the previous year. The specialized insurers registered a growth rate of 70.33% as against 18.04% during the previous year. They collect the gross direct premium of Rs 8247.19 crore.