What is the difference between incurred loss ratio and loss ratio, which is a better measure? Why do some people cite the loss ratio as being low?

The loss ratio is sometimes cited as a simple measure of premiums collected and the claims paid out in each year. This is an incomplete approach as it omits a large part of what premiums are meant to support, namely future short and long term claims and premium rebates. For example, MediShield Life’s benefits cover a dialysis patient’s treatment over many years. These are future liabilities that will not be taken into account in the loss ratio by comparing premiums versus claims paid over only one year. 

The incurred loss ratio over an extended period, on the other hand, is a more holistic measure that compares total inflow to total monies required for the Fund to meet its liabilities in the future, by taking into account changes to reserves. 

Total monies required for the Fund includes claims paid in each year and changes in reserves needed for future payouts. Reserves are monies that the Fund needs to set aside to honour projected future policyholder benefits (liabilities of the scheme). The incurred loss ratio over 2016 to 2016 was an average of 104%. Between 2016 and 2019, a total of $7.5 billion in premiums were collected. $3.5 billion in claims were paid out while $4.3 billion were set aside as reserves to support future commitments.

This information provided here is sourced from the MOH website.