Difference Between Claim Settlement Ratio and Incurred Claim Ratio

When selecting an insurance provider, two key performance indicators help assess reliability: the claim settlement ratio (CSR) vs the incurred claim ratio (ICR). CSR reflects the percentage of claims settled by number, while ICR shows the proportion of premium income used for claim payouts and reserves. Although both are referenced in IRDAI filings, they measure different aspects of insurer behaviour. Understanding the difference between claim settlement ratio and incurred claim ratio helps policyholders evaluate both claim-handling consistency and long-term financial sustainability.

For more clarity on how claims move through the system, explore our claim settlement process.

What is the Claim Settlement Ratio (CSR)?

The claim settlement ratio represents the percentage of claims an insurer settles out of the total claims it receives in a financial year. It offers an overview of how consistently an insurer honours valid claims and is often one of the first benchmarks customers review when comparing insurers.

CSR is calculated using the formula:

Total number of claims settled (including claims settled from previous year’s outstanding list) ÷ Total number of claims received × 100.

For example, an insurer settling 9,500 out of 10,000 claims records a CSR of 95%.

While CSR is helpful, it also has limitations. It does not reveal whether the insurer settled high-value or low-value claims, or whether reductions were applied during assessment.

CSR also does not indicate how long the settlement took. An insurer may take several months to close a case but still report a high CSR because the ratio reflects only whether the claim was eventually settled.

For Life Insurance, figures shown on corporate websites are sometimes combined across multiple policy types, such as term, ULIPs, and endowment plans, which can limit comparison for a specific product.

What is Incurred Claim Ratio (ICR)?

The incurred claim ratio is a measure of the percentage of net earned premium an insurer allocates to claim payouts, including provisions for reported but unsettled claims. It highlights financial stability by showing how much premium income is used to meet claim obligations.

Life insurance ICR is calculated using the formula:

Net Claims Incurred (including outstanding claims) ÷ Total Premium Earned (sometimes calculated as Benefits Paid ÷ Total Premiums Received)

This reflects both settled claims and future liabilities accounted for in the insurer’s books. For Life Insurance, an ICR between 30% and 60% is usually considered balanced, showing adequate payouts and sustainable long-term reserves. For non-life insurance products, an ICR persistently above 100% indicates the insurer is paying more in claims than it earns through premiums. A ratio consistently below 50% may suggest strict underwriting, higher instances of rejections or limited benefit payouts.

New insurers often record temporarily high ICR values because they begin with smaller premium pools while still honouring legitimate claims. In such cases, a ratio above 100% in early years is not always a long-term indicator.

Key Differences Between Claim Settlement Ratio and Incurred Claim Ratio

Understanding both metrics individually is helpful, but comparing them side by side gives a clearer picture of how an insurer truly performs. Here are the key areas where CSR and ICR differ.

Conclusion

The comparison of the claim settlement ratio vs the incurred claim ratio demonstrates that each metric offers different insights. The claim settlement ratio highlights operational consistency in settling claims, while ICR reflects financial capacity and the insurer’s ability to maintain sustainable payout levels. A balanced insurer usually maintains a strong CSR along with a stable ICR in the mid-range. Customers should review both ratios together and rely on IRDAI disclosures for segment-specific accuracy.

Frequently Asked Questions

1. Is a high Claim Settlement Ratio always reliable?

No. CSR does not show settlement speed or payout amounts. It measures only the number of claims settled.

2.Is an Incurred Claim Ratio above 100% a red flag?

It can be a concern if sustained, though it may occur temporarily for new insurers with small premium bases.

3.Should I choose an insurer with high CSR but very low ICR?

Caution is advised because this combination may indicate leniency toward small claims but strict handling of major claims.