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CMA Final · Risk Management in Banking and Insurance

Introduction to Insurance Business for CMA Final Paper 20B

Introduction to Insurance Business covers what insurance is, the principles behind it, the classes of life and general insurance, and the legal framework in the Insurance Act, 1938 and the IRDA Act, 1999. To score, learn each principle with a short example, then link every regulatory power to its section.

What this chapter covers

This chapter is the base of Paper 20B, Risk Management in Banking and Insurance. It explains what insurance is, why it works, how the business is divided into life, general and other classes, and who regulates it. Later chapters on underwriting, claims, reinsurance and insurance risks all assume you know this ground.

The chapter has two halves. The first is concept: risk transfer, pooling, and the principles that govern an insurance contract, such as insurable interest and utmost good faith. The second is law: the Insurance Act, 1938 and the Insurance Regulatory and Development Authority Act, 1999. Under the IRDA Act, the Authority has the duty to regulate, promote and ensure orderly growth of the insurance business and re-insurance business.

The last topic, Sec 32B of the Insurance Act, is short but testable. It requires every insurer to undertake specified percentages of life and general insurance business in the rural and social sectors. Section 32C then spells out who must be served. The two sections are best read together.

Paper 20B opens with a compulsory Section A of 10 standalone MCQs and one case scenario with 5 MCQs, and this chapter gives you quick, definition-based questions that are easy to get right if your basics are clear. The principles also help you read case scenarios in later chapters, and the regulatory topics are often asked as short notes. It is a low-effort, high-return chapter if you learn the statutory wording precisely rather than from memory of general ideas.

Introduction to Insurance Business: topics in the order to study them

  1. 1Concept and Principles of InsuranceStart here because every other topic uses these ideas: risk, pooling, insurable interest and utmost good faith.
  2. 2Classes and Structure of Insurance BusinessOnce you know what insurance is, learn how the business is divided into life, general and other classes and who the players are.
  3. 3Insurance Act, 1938: Framework and RegulationStudy the law after the classes, so you can see which rules apply to which business and how the IRDA Act powers fit with it.
  4. 4Insurance Business in Rural and Social Sectors (Sec 32B)Take this last because it applies the regulatory framework to one specific obligation and needs Sec 32C and the Authority's powers as background.

How to prepare Introduction to Insurance Business

Split your time between concepts and statute. Concepts need examples; law needs exact wording. Plan about two or three short sessions in total.

  1. Write each insurance principle in one line and attach one Indian example, such as a shop owner insuring stock against fire.
  2. List the main classes of insurance in two columns, life and general, and note one product under each.
  3. Read Section 14 of the IRDA Act, 1999 and group its clauses: registration, policyholder protection, intermediaries, rates, accounts, investment, solvency, disputes, penalty and rural or social sector.
  4. Read Section 114A of the Insurance Act, 1938 and note that it empowers the Authority to make regulations consistent with the Act, and that regulations are laid before Parliament for thirty days.
  5. Learn Sections 32B and 32C together: 32B sets the percentages, 32C names the groups served and says the policies shall include crop insurance.
  6. Practise MCQs by turning each principle and section into a one-line question, then test yourself without notes.
  7. Finish with one case-style question: read a short scenario and name the principle or provision involved.

Common mistakes in Introduction to Insurance Business

  • Mixing up the two Acts and their sections.

    Fix: Remember that the Insurance Act holds Sections 32B, 32C and 114A, while the IRDA Act, 1999 holds Section 14 on the Authority's duties and powers.

  • Writing that Sec 32B fixes a numerical percentage.

    Fix: State only that the percentages are as specified by the Authority in the Official Gazette. The section itself gives no number.

  • Treating Sec 32B and Sec 32C as the same.

    Fix: Say that 32B creates the obligation and 32C says the obligation is to be discharged by serving the named groups, including through crop insurance.

  • Listing principles without showing how they apply.

    Fix: For each principle, give a one-line rule and a short example, and use them to answer case scenarios.

  • Ignoring the regulation-making process.

    Fix: Note that regulations are notified in the Official Gazette, must be consistent with the Act, and are laid before Parliament for thirty days.

Last-day revision: Introduction to Insurance Business

  • Insurance transfers risk from one person to a pool managed by an insurer in return for a premium.
  • The main split is life insurance business and general insurance business.
  • Under the IRDA Act, 1999, the Authority must regulate, promote and ensure orderly growth of insurance and re-insurance business.
  • The Authority's powers include registration, renewal, modification, suspension, cancellation and withdrawal of registration.
  • It protects policyholders on assignment, nomination, insurable interest, claim settlement and surrender value.
  • It specifies qualifications, code of conduct and training for intermediaries and agents, and the code of conduct for surveyors and loss assessors.
  • The Authority also regulates investment of funds and maintenance of solvency margin.
  • Section 114A of the Insurance Act lets the Authority make regulations by notification in the Official Gazette.
  • Regulations are laid before each House of Parliament for a total of thirty days.
  • Section 32B: every insurer must undertake specified percentages of life and general business in the rural and social sectors.
  • The percentages are specified by the Authority in the Official Gazette.
  • Section 32C: serve rural residents, unorganised or informal sector workers, and economically vulnerable or backward classes; policies shall include crop insurance.

Introduction to Insurance Business practice questions

Introduction to Insurance Business in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Introduction to Insurance Business: frequently asked questions

Which paper contains the Introduction to Insurance Business chapter?

It is part of Paper 20B, Risk Management in Banking and Insurance, one of the three electives in Group IV. You choose the elective when you enrol for the Final Course.

What does Section 32B of the Insurance Act, 1938 require?

It requires every insurer to undertake specified percentages of life and general insurance business in the rural and social sectors. The Authority specifies the percentages in the Official Gazette.

How is Section 32C different from Section 32B?

Section 32B sets the obligation. Section 32C says the obligation is discharged by providing policies to rural residents, unorganised or informal sector workers, and economically vulnerable or backward classes, and that such policies shall include crop insurance.

Is it enough to learn only the IRDA Act for this chapter?

No. You need both Acts. The IRDA Act, 1999 sets the Authority's duties and powers, while the Insurance Act, 1938 contains the rural and social sector provisions and the power to make regulations.