General insurers’ incurred claim ratio improves

The incurred claim ratio represents the total claims paid from the net premiums collected during the year.

General insurers saw an improvement in their incurred claim ratio, from 94 per cent in 2017-18 to 91 per cent in to better pricing and claim management. In 2016-17, the ratio for the industry was 105.6 per cent.

The incurred claim ratio represents the total claims paid from the net premiums collected during the year.

Premiums received versus claims paid

A claim ratio of over 100 per cent indicates that a company is paying out more towards claims than the amount of premiums it earns, which can adversely impact its viability. A ratio of less than 100 per cent implies that the business is profitable. 

“I believe an incurred claim ratio of between 60 and 90 per cent is optimal because it suggests that the insurance is viable, yet not overly profitable for insurers,” says Kapil Mehta, Co-founder, Securenow.in.

The government business segment – which now includes the Pradhan Mantri Jan Aarogya Yojana (PMJAY) – has seen the sharpest improvement, from 115 percent in 2017-18 to 90 per cent in 2018-19, as per the handbook of Indian insurance statistics 2018-19 released by the Regulatory and Development Authority of India (IRDAI). “This is due to better claim management and price corrections (increase in premiums) during the financial year,” says Sanjay Datta, Chief, Underwriting, Claims and Insurance Reinsurance, ICICI Lombard.

While the PMJAY was rolled out in September 2018, only a few insurers, including Apollo Munich (now merged with HDFC ERGO) and Bajaj Allianz, have participated in the scheme, as states have largely preferred the ‘trust’ model. In this model, insurers are not involved. Instead, claims are paid out of a pool created using contributions from central and state government contributions.

Group business declines for private insurers

However, the private sector slipped in the group business (non-government), with the incurred claim ratio increasing from 85 per cent in 2017-18 to 91 per cent in 2018-19. “Stiffer competition has made pricing challenging. The premiums were lower during the year,” explained Datta. Overall, though, improvement in public and standalone insurers’ numbers meant that the consolidated industry posted a better picture – from 107 per cent in 2017-18 to 105 per cent in 2018-19. While the public sector’s incurred claim ratio improved marginally from 116 per cent to 115 per cent, standalone insurers posted a sharper improvement, from 85 per cent to 78 per cent. The individual business continues to be largely stable. “Retail continues to be a profitable segment for the industry,” Datta.

The individual (other than family floater) segment’s incurred claim ratio for the industry remained unchanged at 73 per cent. The family floater segment showed a nominal deterioration – from 70 per cent to 71 per cent – though public sector insurers saw their incurred claim ratio worsen from 87 per cent to 92 per cent. “This could be largely because of a higher proportion of policyholders from the older age-groups in their portfolio,” says Mahavir Chopra, an independent insurance consultant. Older individuals’ health status increases the chances of higher and more frequent claims.

While the ratio is an important metric for the industry, how should policyholders view it? “Individual policyholders should not make a simplified judgement about the insurer based on the incurred claim ratio. These are complex ratios based on the age of the insurer, kind of plans, demography the insurer caters to, and whether the insurer has a large proportion of ageing population in its portfolio,” says Chopra.

You can, however, keep track of the rise in the incurred claim ratio to figure out whether the insurer will hike premiums in the future. “A very high ICR can hint at an upcoming hike in insurance premiums, especially for senior citizens,” says Chopra.

Incurred claim ratio need not be a determining parameter, but can be a guiding factor.