Buying health insurance? Look up these key numbers before choosing a plan

Comparing insurers on parameters like incurred claims ratio and claim settlement ratio can help you make a better choice

When buying health insurance, you should compare the policy features of various players. But a bit of number-based filtering can also help you zero in on the right company and product. Here are some of the key numbers you should look up.

Incurred claims ratio: The recently published IRDAI annual report provided the average incurred claims ratios (ICR) of various categories of insurers for 2017-18. ICR is the percentage of total claim amount paid to the total premium collected. The average for public sector general insurers was very high in 2017-18, at 109.86 per cent. Private sector general insurers came next at 71.32 per cent. Standalone health insurers had the lowest figure of 59.58 per cent. “Public sector general insurers have a high ICR because of their product mix. They have a higher proportion of group health business where more claims get accepted. Standalone health insurers, on the other hand, do more retail business, which is why their average ICR is much lower,” says Kapil Mehta, co-founder and managing director, Secure Now Insurance Broker.

ICR also gets affected by a few other factors. “Some companies are more top line-focused. They tend to have more relaxed norms regarding the kind of risk they are willing to accept. Others are more bottom line-focused and hence tend to have more stringent underwriting norms. Some companies also keep their premium levels lower compared to others as they want to build their books,” says R Kannan, executive director-claims, Iffco Tokio General Insurance.   

Experts say that the ICR should be neither too high, nor too low. If it is too high, say 110 per cent, it means that the business pays out more in claims than the premium it collects. “An ICR of above 100 per cent may reflect poor underwriting on the insurer’s part. It is also not a viable situation. You can expect such an insurer to hike its premiums fairly soon, because it cannot operate at an ICR of above 100 per cent for long,” says Deepesh Raghaw, founder, PersonalFinancePlan.in, a Sebi-registered investment advisor.

If the ICR is less than 60 per cent, it could, on the positive side, indicate that the company has good underwriting norms. If it selects only healthy customers, and its policies are young, such a company would receive fewer claims. On the other hand, a low ICR could also indicate that the company’s premium rates are on the higher side and there is scope for bringing them down, or that its cost structure is high. Another possibility could be that the ICR is low because the company rejects a lot of claims. “I would recommend avoiding companies whose ICR is more than 90 per cent or less than 60 per cent,” says Mehta. ICR data for the retail business of each insurer is also available in the IRDAI annual report.   

Claim settlement ratio: This is another key number that prospective buyers should look up. It tells you the percentage of total claims (by number) that were paid out. “Opt for an insurer with a claim settlement ratio of 90 per cent or above,” says Mehta.

There is one caveat, though. Be careful about jumping to conclusions in the case of younger insurers. Health policies come with waiting periods, which are of three types. The first, called the cooling period, lasts for 30 days during which nothing, except accidents, is covered. The second waiting period could be for up to two years, during which time certain ailments specified in the policy (such as cataract and knee replacement) are not covered. The third is the waiting period for pre-existing ailments which could last for two to four years. “Typically, in the first two or three years of the policy, many claims get rejected because customers make a claim overlooking the waiting period norms,” says Nikunj Gheewala, vice president and head-health underwriting and product development, Bharti Axa General Insurance. Companies with a larger proportion of two- or three-year-old policies may have a lower claim settlement ratio, but this may not be truly reflective of the company’s intent or policy towards claim settlement.

Grievance-related numbers: Another indicator you could look up is the number of grievances a company has received vis-à-vis the total number of policies issued by it. Go to ‘public disclosures’ on an insurer’s web site and then to Form NL-41. In case of general insurers, the grievance-related numbers would be for the company as a whole, and not for health policies alone. Nonetheless, they are guidance.

Premium comparison: Do compare the premiums of various players as well so that you don't overpay. However, premiums should not be compared in isolation. You should also factor in the benefits offered. An insurer may charge a higher premium, but this may be justified if its policy has richer features.

Once you have satisfied yourself on quantitative parameters, turn to policy features. “Some policies offer wider coverage and have fewer exclusions. They are more liberal in paying pre- and post-hospitalisation claims. They have fewer sub-limits and caps, such as on room rent, and have lower or zero co-payment requirement. Some policies also come with wellness benefits. Such policies should be preferred,” says Kannan. Also check the waiting period for pre-existing diseases. These can range from two-four years, so opt for an insurer with a lower waiting period.

Finally, at the time of buying the policy, read the policy wording carefully to avoid unpleasant surprises later, and make proper disclosures of your health condition.

PSU insurers' Incurred claims ratio (%) Public-sector insurers' ICRs have fallen but are still too high, averaging 109.86 per cent in 2017-18
Insurer	FY17	FY18
National Insurance	126.98	115.54
New India Insurance	102.94	103.19
Oriental Insurance	118.23	113.86
Source: IRDAI annual report 2017-2018