CMA Final · Risk Management in Banking and Insurance

General Insurance: formula sheet

Full chapter guide

Key formulas

Classes of insurance business (s.10(1)): Life | Fire | Marine | Miscellaneous; An insurer in more than one class must keep a separate account of receipts and payments for each class.
Sub-class accounts in miscellaneous business (s.10(1)): Separate account per sub-class specified by regulations, unless the Authority waives in writing; No sub-class is prescribed if its contracts are terminable by the insurer at intervals of at most twelve months and the insurer's liability to pay benefit ceases within one year of the claim arising.
Sub-class funds (s.10(2AA)): Receipts of each sub-class → separate fund; assets kept separate and distinct; Funds cannot be applied directly or indirectly except as the Act or regulations expressly permit.
Life insurance fund (s.10(2) and (3)): All life receipts → life insurance fund, kept distinct from other assets; It is security for life policy-holders and cannot be used for any purpose other than the insurer's life insurance business.
Motor third party obligation (s.32D): Every general insurer must underwrite the minimum percentage specified by regulations; The Authority may exempt insurers primarily in health, re-insurance, agriculture or export credit guarantee.
Councils (s.64C): Life Insurance Council and General Insurance Council; The General Insurance Council represents insurers carrying on general, health insurance business and re-insurance. The section names health and re-insurance alongside general insurance.
Section 64C: Life Insurance Council: Existing Life Insurance Council = representative body of insurers carrying on life insurance business in India, deemed constituted as the Council under the Act; Covers life insurers only.
Section 64C: General Insurance Council: Existing General Insurance Council = representative body of insurers carrying on general, health insurance business and re-insurance in India, deemed constituted as the Council under the Act; Health insurers and re-insurers are included here.
Nature of constitution: Deemed constitution on and from the date of commencement of the Act; The Councils are statutory by deeming; the section does not set up new bodies.
Related rule: Executive Committee of the Life Insurance Council (Section 64F(1)): 4 elected representatives of members + 1 eminent person (nominated by the Authority) + 3 persons (agents, intermediaries, policyholders; nominated by the Authority) + 1 each from self-help groups and Insurance Co-operative Societies; One of the four elected representatives is elected Chairperson.
Related rule: Executive Committee of the General Insurance Council (Section 64F(2)): 4 elected representatives of members + 1 eminent person (nominated by the Authority) + 4 persons (agents, third party administrators, surveyors and loss assessors, policyholders; nominated by the Authority); One of the four elected representatives is elected Chairperson.
Related rule: Duration (Section 64H(1)): Term of Executive Committee = 3 years from its first meeting; Outgoing members continue until a new committee is constituted.
Function (a): conduct and service: Aid and advise general insurers on standards of conduct, sound practice and efficient service to policyholders; Directed at insurers carrying on general insurance business.
Function (b): expenses: Advise the Authority on controlling insurers' commission and other expenses; Advice goes to the Authority, not to insurers.
Function (c): prejudicial conduct: Bring to the Authority's notice any insurer acting prejudicially to general policyholders; The Committee reports. It does not penalise.
Function (d): incidental matters: Act in matters incidental or ancillary to (a) to (c), as notified by the Council in the Gazette with Authority approval; Both notification and approval are needed.
Fees, Section 64L(2) and proviso: Collect fees as per Council bye-laws; Council may waive for a year by resolution, and if the Authority approves, no fees are collected for that year; Waiver needs both the Council's resolution and the Authority's approval.
Functions of the Executive Committee (Section 64L(1)): (a) aid and advise insurers on standards, sound practice, service; (b) advise the Authority on expenses and commission; (c) report prejudicial insurers to the Authority; (d) incidental matters notified in the Gazette with the Authority's approval; Learn these four in order. Most questions test one clause.
Fees (Section 64L(2)): Fees as laid down in the Council's bye-laws, collected from general insurers; The Council may waive fees for a year by resolution; if the Authority approves, the Committee collects no fees for that year.
Expense advice (Section 64M(1)): Executive Committee meets at least once before 31 March each year to advise the Authority on expense limits; The Authority fixes the limits and may fix different limits for different groups of insurers.
Warnings (Section 64M(2) and (3)): Contravention of expense provisions → warning after hearing; two warnings disregarded → prescribed action; The Authority, not the Council, warns and acts.
Composition of the Executive Committee (Section 64F(2)): 4 elected insurer representatives + 1 eminent person nominated by the Authority + 4 persons nominated by the Authority for agents, third party administrators, surveyors and loss assessors, and policyholders; One elected representative is Chairperson. The Authority may nominate to fill a vacancy if an election fails.

Quick revision

Section 64C: Life Insurance Council and General Insurance Council are deemed constituted under the Act.
The General Insurance Council represents insurers carrying on general, health insurance and re-insurance business.
Section 64E: the authority of each Council is its Executive Committee.
Section 64F(2): four elected insurer representatives, one eminent person, four nominated persons.
The Chairperson of the General Insurance Council's Executive Committee is elected from the four insurer representatives.
Section 64L(1)(a): advise insurers on conduct, sound practice and efficient service to policyholders.
Section 64L(1)(b): advise the Authority on controlling commission and other expenses.
Section 64L(1)(c): bring to the Authority's notice an insurer acting prejudicially to policyholders.
Section 64L(2): fees may be collected as laid down in the Council's bye-laws, and can be waived by resolution approved by the Authority.
Section 64H: Executive Committee lasts three years from its first meeting; outgoing members continue until a new one is formed.
Section 64M: Executive Committee must meet at least once before 31 March every year to advise on expense limits under Section 40C.
Section 64M: the Authority may warn an insurer after a hearing; action can follow after two warnings are disregarded.

Common mistakes

Treating motor and health as separate main classes under the Act Fix: Remember section 10(1) names four classes: life, fire, marine and miscellaneous. The sub-classes of miscellaneous business are those specified by the regulations. Motor and health are commonly treated as miscellaneous business in practice, but the Act text does not name them as sub-classes.
Saying section 32D applies to all insurers including life insurers Fix: The section says every insurer carrying on general insurance business. Life insurers are not covered.
Placing health insurers under the Life Insurance Council. Fix: Remember the wording: the General Insurance Council covers general, health insurance business and re-insurance.
Saying Section 64C creates new Councils. Fix: The section says the existing Councils are deemed constituted. Use the words 'existing' and 'deemed'.
Saying the Executive Committee can penalise an insurer that acts against policyholders. Fix: Under Section 64L(1)(c) it only brings the case to the Authority's notice. Warnings and further action under Section 64M come from the Authority.
Confusing the General Insurance Council with its Executive Committee. Fix: The Council is the representative body of insurers (Section 64C). The Executive Committee is its authority (Section 64E) and performs the Section 64L functions.
Saying the Council fixes expense limits for insurers. Fix: Under Section 64M the Committee advises. The Authority fixes the limits and may fix different limits for different groups of insurers.
Confusing the Life Insurance Council with the General Insurance Council. Fix: Remember that the General Insurance Council covers general, health insurance and re-insurance. Check the business type in the question.

Exam tips

Learn the four classes in section 10(1) by heart. Say that motor and health are commonly treated as miscellaneous business, but do not claim the Act names them as sub-classes.
In case scenarios, name the class before you cite any section. Examiners reward the link between facts and class.
For section 32D, always write 'as specified by the regulations' and mention the exemption list.
Use a short life versus general comparison (term, payment basis, fund rules) as a ready paragraph for descriptive answers.
No negative marking applies in Section A, so attempt every MCQ.
Learn the exact phrase 'existing ... deemed to have been constituted'. MCQs often test it by offering 'newly created' as a trap.
Memorise the General Council's full list: general, health insurance business and re-insurance.
Keep 64C (constitution), 64E (authorities), 64F (composition), 64H (duration) and 64L (functions) in separate boxes in your mind.