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Incurred Claims ratio is the ratio of all paid claims versus all paid premiums of an issued insurance policy for a particular account. It is sometimes called Combined Ratio that is total amount of paid claims /total amount of premium. Very important for calculating the renewal premium as higher incurred claims will affect the rate to be used by underwriters in renewing the terms and conditions of the policy which is normally increase in premium . if there is low Incurred Claims ratio then premium can be pegged at a lower rate.
Claims intimated are claims that are just reported or notified and can be withdrawn or closed anytime by the insured or broker because of various reasons ( i.e. minimal amount within the Deductible, not quantified or not pursued anymore by the insured because claim has been recovered from other party who may have been the proxmate cause of the loss. Intimated claims are also claims reported to the Insurer or reinsurer just to comply with claims protocol and claims reporting requirement under the policy. Loss reserve for intimated claims is normally given by the Insured's vendor, supplier, contractor and not the usual loss reserve recommended by third party persons like adjusters or forensics. Claims Paid on the other hand are cliams settled because of its merits and compensabiity under the policy terms and conditions and are usually net of deductible. It is also the total of all claims filed , processed within the commencement and termination of the insurance cover.
Incurred claims ratio is a ratio between all paid and outstanding losses over the total premium generated during the the underwriting Year.
i.e incurred claims paid = all paid and outstanding losses / total premium
It is very important for both insurance and reinsurance underwriters to know the incurred claims ratio upon renewal as it reflects the performance of the risk to the insurance underwriter and the performance of the treaty to the reinsurance underwriter and according to this performance good( low ratio ) or bad( high ratio ) the premium rates are determined.
Intimated or estimated and paid claims are both inclusive in the incurred claims.
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