Table of Content:
Introduction
What is the Claim Settlement Ratio?
Why is it important to consider CSR?
Incurred Claims Ratio V/s Claim Settlement Ratio
How to analyse the CSR and ICR of insurance companies
Frequently Asked Questions
Introduction
The healthcare infrastructure in India functions primarily on two major aspects - Healthcare Insurance Providers and the network of hospitals covered by them. These may range from public units providing basic care to highly specialised units that provide niche care and after-care facilities as a part of their offering. The smooth functioning of this nexus between health insurance providers and hospitals enables you to ease the burden of rising healthcare costs in India.
This financial buffer health insurance providers offer becomes critical in accessing quality healthcare across all income strata. Most, if not all, insurance providers have a list of medical expenses they cover. These usually include hospitalisation costs, the cost of medicines, and, in some cases, pre- and post-care.
What is the Claim Settlement Ratio?
Claim Settle Ratio (CSR) in insurance refers to the total number of claims settled by the insurer compared to the total number of claims received in a particular time period, for example, a year. As such, it indicates the promptness, efficiency, and reliability of the insurer in that time period. A higher CSR indicates better efficiency and a lower one might indicate a slow or unreliable insurance settlement for the insured.
CSR = (Total claims settled or paid) / (Total claims received + Outstanding claims at the beginning of the year).
Thus, if an insurance company receives 100 claims in a year and settles about 90 of them, its CSR is 95%. A good CSR depends on many factors, such as the nature and type of the insurance policy, customer demographics, regulatory environments, claim verification and fraud detection practices, and more.
Why is it important to consider CSR?
Broadly speaking, a high Claim Settlement Ratio is considered a good indicator of the insurer company’s health and organisational practices. Insurers with a higher CSR are often preferred by people when choosing a health insurance provider for their health insurance needs.
However, it is important to note that a higher CSR doesn’t always translate to a higher premium for insurance holders. While a high CSR indicates an insurer’s reliability and commitment to settling claims, various factors, including market competition, risk management practices, and reinsurance arrangements, play crucial roles in determining the premium levels.
A higher CSR also indicates the company's financial health and operational efficiency, along with its ability to make timely interventions for claims settlement. This factor is crucial in matters such as health insurance, as timely claims settlement can affect the care offered to those affected.
Incurred Claims Ratio V/s Claim Settlement Ratio
The Incurred Claims Ratio (ICR) stands for the proportion of total claims incurred to total premiums earned during a specified time period. It is calculated using the formula:
ICR = Total Claims Incurred / Total Premiums Earned x 100
Total claims incurred include all paid claims and reserves for outstanding and unreported claims, while total premiums earned are the premiums collected minus any refunds or cancellations.
Compared to CSR, a lower ICR indicates better financial stability for the insured company.
An ICR above 100% indicates that an insurer is paying out more in claims than it earns in premiums, suggesting potential financial difficulties.
Conversely, an ICR below 100% signifies profitability and financial stability, as the insurer earns more in premiums than it pays out in claims.
The ICR is crucial for assessing an insurer’s financial health, pricing strategies, and compliance with regulatory requirements. It helps insurers evaluate the adequacy of their premiums and risk management practices.
Stakeholders, including investors and regulators, use the ICR to gauge an insurer's performance and efficiency. For example, an ICR of 50% means that 50% of the earned premiums cover claims, indicating a stable financial position.
How to analyse the CSR and ICR of insurance companies
Make sure you analyse the CSR and ICR of insurance companies over a larger and consistent period of time to ensure the consistent health and financial security of the insurance companies. Even the number of claims received by the insurance companies indicates their presence in the market and thus their ability to access the healthcare machinery and make the required settlements.
It is also essential to study the reasons for which the company may be rejecting claims. Sometimes, a higher level of scrutiny is also warranted in case of a lower CSR to determine if the reasons for the same are fraudulent claims, pre-existing conditions, expired policies, and more.
Frequently Asked Questions
What exactly is a Claim Settlement Ratio (CSR)?
The CSR is a percentage that reflects how often an insurance company pays out on claims. It's calculated by dividing the number of claims settled by the total number of claims received in a specific period (usually a year).
Is a higher CSR always better?
Where can I find a company's Claim Settlement Ratio?
Are there limitations to using CSR as the only factor when choosing an insurer?
Does the CSR apply to all types of claims within a company?