As health insurance penetration rises among the masses, especially post Covid, insurers are also getting more efficient in underwriting and managing risks.

Analysis of insurance regulator IRDAI’s annual reports shows that the Incurred Claims ratio (ICR) of health insurance companies has been improving after being hit during the pandemic. Standalone health insurers fare the best on ICRs and outperform public sector and other private insurers (not standalone health players) when it comes to profit margins on health insurance.

The ICR is essentially the ratio of net incurred claims to net earned premiums and is an indication of the profitability of the insurer based on its ability to underwrite and manage risks. For instance, if a company has an ICR of 75 per cent, it means that for every premium of ₹100 collected, the company pays ₹75 as claim settlement. Lower the ICR, the better the profit margins.

Public vs private

Public sector insurers appear to be faring badly on this metric. Their ICR was at 102 per cent in FY20 and zoomed to 126 per cent by FY22 and since then has been stable at 105 per cent and 103 per cent in FY23 and FY24 respectively. For private sector players (non-standalone), the ICR stood at 89 per cent in FY24. But for standalone health insurers (SAHI), ICR has remained between 60 per cent and 81 per cent in the last six fiscals. Even at the pandemic peak, it was 81 per cent in FY22. ICR was 65 per cent for FY24.

Debashish Banerjee, Partner – Insurance Sector Leader, Deloitte India, says that ICR should be viewed as an indicator of efficiency of risk underwriting. “As SAHI players focus only on one business line, their ability to analyse risks in the segment and manage the healthcare enterprises network and the management of claims is better than other type of insurers. Further, the standalone players are also investing more in technology and data analytics use and thus are able to bring down frauds and manage it better,” he added.

IRDAI data shows that SAHI players Care Health and Niva Bupa feature in the top five in terms of the best ICRs for FY24 at 58 per cent and 59 per cent respectively. The public sector insurance companies such as United India (109 per cent) and New India (106 per cent) are among companies with poorest ICRs for the fiscal.

Narendra Ganpule, Partner, Grant Thornton Bharat, says that ICR of SAHIs is also likely low due to high rate of new business growth. “Many SAHIs have grown their new business significantly over the last few years. In the initial years, products have waiting period and that leads to lower ICR,” he adds. He also stressed that SAHIs have been mainly focusing on retail business which have better ICRs vis-a-vis group business. “This is also the reason why PSU players show higher ICR,” he says.

Analysts also note that while ICR is an indication of profitability of the insurers, it need not necessarily be a yardstick for customers to judge who is more likely to settle their claims.

Overall, the net incurred claims under health insurance business of general and health insurers stood at ₹76,160 crore in FY24 and reported around 18 per cent increase from the previous year. The ICR for the entire health insurance sector decreased slightly from 88.9 per cent in FY23 to 88.2 per cent in FY24.