CS Professional · Banking and Insurance - Laws and Practice

General and Health Insurance: formula sheet

Full chapter guide

Key formulas

Classes named in Section 10(1): Life + Fire + Marine + Miscellaneous; General insurance is understood as everything except life. Section 10(1) names the four classes but does not itself define general insurance. Motor and health are usually shown under miscellaneous.
Separate accounts rule: Section 10(1): separate account of receipts and payments for each class; Applies where the insurer carries on more than one class. For miscellaneous, separate accounts for each specified sub-class unless the Authority waives in writing.
Proviso to Section 10(1): No sub-class if contracts are terminable by insurer at intervals ≤ 12 months AND liability ceases within 1 year of the claim; Both conditions must be met for the proviso to apply.
Life insurance fund: Section 10(2) and 10(3): all life receipts → separate fund, kept distinct, used only for life business; Fund is absolute security of life policyholders.
Sub-class funds: Section 10(2AA): receipts of each sub-class of insurance business → separate fund; Applies to the business of insurance by sub-class, not only general business. Funds cannot be applied directly or indirectly except as the Act or regulations expressly permit.
Motor third party obligation: Section 32D: every general insurer underwrites a minimum percentage of third party motor risks, as specified by regulations; The Authority may by regulations exempt insurers primarily in health, re-insurance, agriculture or export credit guarantee.
Average clause (underinsurance): Claim payable = Loss × Sum insured ÷ Value of property at time of loss; Applies where the policy has an average clause and the property is underinsured. Payment is also capped at the sum insured.
Indemnity limit: Claim payable ≤ lower of (actual loss, sum insured); The insured cannot recover more than the loss suffered.
Marine insurable interest: Interest must exist at the time of loss; It need not exist at the time of taking the policy. Fire insurance needs interest at both inception and the time of loss.
Surveyor report rule, Section 64UM(4): Claim ≥ amount specified by the Authority → report from an approved surveyor or loss assessor needed; The insurer may still settle at a different amount. Below the limit, under Section 64UM(8), the insurer may use another person if a surveyor is impracticable and costly.
Subrogation: After paying, insurer steps into insured's rights against the wrongdoer; The insurer recovers only up to the amount it paid.
Core rule of section 32D: Every general insurer must underwrite a minimum % of motor third party business, as specified by regulations; The percentage is not fixed in the section. It is left to regulations. Do not quote a figure.
Exemption proviso: Authority may, by regulations, exempt an insurer primarily engaged in health, re-insurance, agriculture or export credit guarantee; Only these four areas are named. The power is exercised by regulations.
Who is bound: Insurer carrying on general insurance business; Life insurers are not covered by this section.
Time reference: Obligation applies after commencement of the Insurance Laws (Amendment) Act, 2015 (5 of 2015); Section inserted w.e.f. 26-12-2014.
Policy types: Act only = third party liability; Comprehensive = third party liability + own damage; Section 32D concerns third party risks.
Indemnity limit: Claim payable ≤ lower of (amount left after exclusions, sub-limits, deductible and co-payment, sum insured); Mediclaim pays actual loss only, never a profit. Sequence: admissible expense after exclusions and sub-limits, then deductible and co-payment as the policy provides, then cap at the sum insured.
Co-payment: Insurer pays = admissible claim × (100% − co-payment %); Use this when the policy has co-payment only. If it also has a deductible, the order depends on the policy wording. This page assumes deductible first, then co-payment on the balance. Then check against the sum insured.
Deductible: Insurer pays = admissible claim − deductible; The deductible is fixed in rupees and borne by the insured first. If a co-payment also applies, apply it to the balance after the deductible, unless the policy wording says otherwise. Then cap at the sum insured.
Floater sum insured: Total claims by all members in the policy year ≤ one shared sum insured; Individual policy: separate limit per person.
Record of claims (Section 14): Record = claim date + claimant name and address + date discharged, or date and grounds of rejection; Section 14 allows the record to be kept in electronic mode as specified by regulations.
Assignment of a policy (Section 38): Endorsement or separate instrument + signed + attested by at least one witness + notice to insurer; The assignee gets no right to sue the insurer until written notice and the instrument or certified copy are delivered to the insurer.
Section 40C duty (current): Every insurer transacting insurance business in India → furnish details of expenses of management → to the Authority → in manner and form specified by regulations; Applies to general, health insurance and re-insurance business per the heading. It is a reporting duty, not a numeric cap.
Section 40B (life business): Expenses of management in a financial year ≤ amount specified by regulations; Use this only to contrast with 40C. It applies to life insurance business.
Section 64M(1) advice: Executive Committee of General Insurance Council meets at least once before 31 March every year → advises the Authority on limits; Authority has due regard to conditions in general insurance business in the preceding year and may fix different limits for different groups of insurers.
Section 64M(2) warning: Contravention of 40C → hearing → Authority may administer a warning; Hearing must be given first.
Section 64M(3) escalation: Two warnings disregarded → Authority may take such action as may be prescribed; Action is as prescribed, so do not invent a specific penalty.
Section 64L(1)(b): Executive Committee advises the Authority on controlling expenses of insurers, in commission and other expenses; Source of the Committee's advisory role on expenses.
Section 64C: who the Councils represent: Life Insurance Council = life insurers; General Insurance Council = insurers in general, health and re-insurance business; Both are deemed constituted under the Act. Do not say the General Council covers only general insurance; health and re-insurance are named.
Section 64L(1): functions of the Executive Committee: (a) aid and advise insurers on conduct, sound practice and service; (b) advise the Authority on controlling commission and other expenses; (c) bring prejudicial insurers to the Authority's notice; (d) incidental or ancillary matters notified in the Gazette with Authority's approval; Learn as Advise insurers, Advise Authority, Alert Authority, Ancillary.
Section 64L(2): fees: Fees as laid down in the Council's bye-laws; Council may waive for a year by resolution; if the Authority approves, no fees are collected for that year; Waiver needs both the Council's resolution and the Authority's approval to bind the Committee.
Section 64F(2): composition: 4 elected + 1 eminent person (nominated by Authority) + 4 nominated by Authority = 9 members; The nine total is a sum of the clauses. The Chairperson is one of the four elected members.
Section 64H: duration: 3 years from first meeting; outgoing members continue until a new Committee is constituted; The Committee stands dissolved at expiry, but there is no gap in office.

Quick revision

General insurance means non-life business such as fire, marine, motor and health.
Section 32D: every insurer doing general insurance business must underwrite the minimum percentage of third party motor risks specified by regulations.
Under the proviso to Section 32D, the Authority may by regulations exempt insurers primarily in health, re-insurance, agriculture or export credit guarantee.
Section 40C now requires every insurer to furnish details of expenses of management in the manner and form specified by regulations.
Section 40B (life insurance) bars spending on management expenses above the amount specified by regulations.
The Executive Committee is the authority of each Council (Section 64E).
The General Insurance Council's Executive Committee has four elected members, one eminent outsider and four nominees for agents, TPAs, surveyors and loss assessors, and policyholders (Section 64F).
An Executive Committee lasts three years from its first meeting; outgoing members continue until a new one is formed (Section 64H).
No act of the Executive Committee can be questioned merely because of a vacancy or defect in its constitution (Section 64G).
Section 64L: the Committee advises insurers on standards, advises the Authority on expenses and commission, and reports prejudicial conduct.
Section 64M: after a contravention of Section 40C, the Authority may warn after a hearing; after two ignored warnings it may take prescribed action.
Councils can make bye-laws on meetings, elections, information from insurers and fees (Section 64R).

Common mistakes

Writing that the Act lists motor and health as separate classes in Section 10(1). Fix: Section 10(1) names four classes: life, fire, marine, miscellaneous. Treat motor and health as miscellaneous in practice.
Saying separate accounts are needed even when the insurer carries on only one class. Fix: State the condition first: separate accounts apply where the insurer carries on more than one of the classes.
Treating fire cover as covering every cause of damage. Fix: Check the perils named in the policy. Other perils need an extension or an add-on.
Saying insurable interest must exist at inception in marine insurance. Fix: State that in marine insurance interest must exist at the time of loss.
Quoting a fixed percentage as the section 32D requirement Fix: Write that the percentage is as specified by regulations. The section itself gives no number.
Applying section 32D to life insurers Fix: Begin every answer by confirming the insurer carries on general insurance business.
Treating critical illness cover as reimbursement of hospital bills. Fix: Say critical illness is a benefit cover paying a fixed lump sum on diagnosis of a listed illness, subject to the policy terms.
Applying deductible and co-payment after capping at the sum insured. Fix: Find the admissible claim after exclusions and sub-limits, apply deductible and co-payment in the order the policy wording gives (state your assumption if it is silent), then compare with the sum insured.
Stating that section 40C fixes a percentage cap on expenses. Fix: Say the current section requires insurers to furnish details in the manner and form specified by regulations. Mention the substitution by Act 5 of 2015.
Applying section 40C to life insurance. Fix: Life business is under 40B, which uses an amount specified by regulations. 40C covers general, health and re-insurance.

Exam tips

Learn the four Section 10(1) classes by heart. Examiners often ask you to name them.
In case questions, check the trigger words: 'more than one class', 'waives in writing', 'life receipts'.
For difference questions, give four points and one section reference each, rather than long prose.
Quote Section 32D together with its exemption proviso when motor third party risk appears.
Do not cite section numbers you are unsure of. Describe the rule in plain words instead.
For case questions, follow the order: policy type, principle, peril, computation, conclusion.
Learn one clear line for each marine class: hull is the ship, cargo is the goods, freight is the earnings.
Write the average formula first and then substitute figures, so marks for method are secured.