Incurred Claim Ratio (ICR) and Claim Settlement Ratio (CSR) are two among the most important terms when it comes to an insurance policy. You may have come across these terms while searching for an insurance plan. Most of us make an assumption that both are same. But ICR and CSR are different. Let's know about them in detail in this article.

What is Claim Settlement Ratio?

• The claim settlement ratio of an insurer is the number of claims settled against the number of claims filed. Higher the ratio, better the insurer. When choosing the insurer, you must check the claim settlement ratio. What is the point of availing insurance if your insurer rejects the beneficiary’s policy claim? Hence, you need to ensure that your insurer has a good claim settlement ratio.
• Claim settlement ratio is a crucial factor to consider as it depicts an insurer’s trend of settling claims. You must compare the claim settlement ratio of various insurers before choosing one.

Claim settlement Ratio = Claims settled in the year/ Claims received in the year *100
For example,
Company A settled 9,500 claims out of the 10,000 claims for 2020-2021. Its CSR will, thus, be 95% (9,500/10,000*100).

What is Incurred Claim Ratio?

• The ICR for a specific insurance policy is the ratio of the total claims that have been approved or settled by the insurance company and the total value of premiums that have been paid to the same insurance company. Both of these must be calculated over the same time period.
• The more the ICR of an insurer, the more the claims that have been accepted by the company. Although a high ICR may indicate an easier time getting your claims, if it is more than 100%, it means that the company might be at a loss. In that case, it might not be safe to buy the policy in the long run.

Incurred Claim Ratio = Net claims incurred / Net premiums collected * 100
For Example,
Company ABC in the year 2020 earns Rs. 10 lakhs in premiums and settles total claim of Rs. 9 lakhs then the incurred claim ratio will be 90% for the year 2020.

What is difference between Incurred Claim Ratio & Claim Settlement Ratio?

Incurred claim ratio is commonly mistaken for claim settlement ratio, but they are not the same. The incurred claim ratio is equal to the value of all the claims the company has paid divided by the total premium collected during the same period. On the other hand, claim settlement ratio is the total settled claims divided by the total claims filed.

Important points to note

• While a higher CSR is an indication of a good life insurance company, a high ICR is equally a bad sign for a health/general insurance company. Make sure that a high premium shouldn’t come your way to choose a good insurance plan, if the CSR/ICR is impressive.
• But a high Claim settlement ratio also shouldn’t be the only criteria to choose a good insurance company. You should also consider parameters such as the quality of the service provided, the sensitivity for the claimants as well as the time taken for claim settlement before you narrow down your search