Risk Management in Banking and Insurance · Introduction to Insurance Business

Classes and Structure of Insurance Business in India

Updated 11 October 2026 · Fact-checked

Insurance business in India falls into life, general (non-life), health and reinsurance. Insurers carry the risk, reinsurers share it, and intermediaries such as agents and brokers connect customers to insurers. IRDAI regulates all of them. To answer a question, identify the class, the risk covered and the participant's role.

Understand Classes and Structure of Insurance Business

Insurance is a way to transfer the financial cost of an uncertain loss from you to an insurer, in return for a premium. The insurer pools many similar risks, so a few losses are paid out of the premiums of many.

The business is divided into classes because the risks behave differently. Life insurance covers death, survival to a stated age or similar life events. It is usually long term and often has a savings or protection element. General insurance covers non-life risks such as fire, motor, marine, property and liability. Cover is mostly for a year and is based on indemnity. Health insurance covers medical expenses and related events. The Insurance Act, 1938 treats it as a separate business next to life and general. Section 64C, for example, describes the General Insurance Council as representing insurers who carry on general, health insurance business and re-insurance.

Reinsurance is insurance for insurers. An insurer that has written a large risk passes part of it to another insurer, the reinsurer. This protects the insurer's capital, lets it accept larger risks and spreads losses. Under Section 101A, every insurer must re-insure with Indian re-insurers a percentage of the sum assured on each policy, as specified by the Authority (IRDAI) with the previous approval of the Central Government. That percentage cannot exceed thirty per cent of the sum assured on the policy. Section 101A applies to policies in general insurance business transacted in India and does not cover a re-insurance policy. An Indian re-insurer is an Indian insurance company registered to carry on only reinsurance business in India.

The structure has several participants. Insurers (life, general, health and reinsurers) take the risk. Intermediaries such as agents, brokers and corporate agents bring in business and serve policyholders. Surveyors and loss assessors assess losses. Councils represent the insurers: the Life Insurance Council for life insurers and the General Insurance Council for general, health and re-insurance insurers (Section 64C). The regulator is IRDAI. Under Section 14 of the IRDA Act, 1999, it must regulate, promote and ensure orderly growth of insurance and re-insurance business. Its functions include registration of insurers, protecting policyholders' interests, setting conduct and qualification rules for intermediaries and codes for surveyors, regulating investments and solvency margin, and penalising violations.

A foreign insurer that sets up a place of business in India, or appoints a representative to obtain insurance business, must file particulars with the Authority within three months (Section 63). These include its constitutional documents, list of directors, the name and address of a person in India authorised to accept service of process, its principal office address in India and the classes of business it will carry on.

Key rules to remember

Cap on compulsory reinsurance cession: Percentage specified for re-insurance with Indian re-insurers ≤ 30% of the sum assured on the policy; Section 101A(2)(a) proviso. It applies to general insurance policies. It is set by IRDAI by notification with prior Central Government approval, and different percentages may apply to different classes.
Reinsurance cession in rupees: Amount ceded = Sum assured × Cession percentage; Insurer retains Sum assured − Amount ceded. Use this for numerical or case-based questions.
Fire business alternative under Section 101A(3): Annual premium paid on re-insurance with Indian re-insurers ≥ specified percentage × premium income of that fire business for the year; Premium income is taken without counting reinsurance ceded or accepted. The insurer may instead reinsure such amount out of the first surplus as it thinks fit.
Foreign insurer filing deadline: Filing with the Authority within 3 months of setting up a place of business or appointing a representative in India; Section 63. Later changes in the filed particulars must be furnished forthwith.

How to solve Classes and Structure of Insurance Business questions

Use this order for any theory or case question on classes and structure of insurance business.

1Read the facts and name the risk involved: death or survival, loss of property or liability, medical expense, or an insurer's own large exposure.
2Match the risk to a class: life, general, health or reinsurance. Say why, for example short-term indemnity cover points to general insurance.
3Identify each participant in the case: insurer, reinsurer, agent, broker, corporate agent, surveyor, council or regulator.
4State the role or duty of each participant in one sentence, using the law where it applies, such as Section 14 of the IRDA Act for IRDAI.
5If reinsurance is involved, apply the Section 101A limits. Check the 30% ceiling and compute the cession and the retention.
6Write a short conclusion that answers the exact question asked, then stop.

Quickest way: Class-Participant-Rule check

When to use it: Use it for MCQs and short case questions where you have a minute or two.

Underline the risk and the party in the question.
Choose the class from the risk, and the participant from its function.
Test the option against any numerical limit, such as the 30% ceiling.
Eliminate options that mix up classes or give a wrong deadline or authority.

Common mistakes in Classes and Structure of Insurance Business

Treating health insurance as part of general insurance with no separate identity.
Health policies are often sold by general insurers, so the two blur together.
Fix: Remember that the Act names life, general, health and re-insurance business separately. Say that the General Insurance Council represents insurers in general, health and re-insurance business.
Saying reinsurance is a policy the customer buys.
The word 'insurance' suggests a policyholder.
Fix: Write that reinsurance is a contract between an insurer and a reinsurer to share risk. The original policyholder is not a party to it.
Stating that the reinsurance percentage is fixed by statute at 30%.
Students remember the number and forget the mechanism.
Fix: Say that IRDAI specifies the percentage with the previous approval of the Central Government, and that no percentage may exceed 30% of the sum assured.
Applying Section 101A to re-insurance policies and to life policies.
The section is read as a general rule for all insurance.
Fix: Remember that 'policy' in this section means a policy in general insurance business transacted in India and excludes a re-insurance policy.
Confusing the regulator with the councils.
Both appear in the same chapter and both deal with insurers.
Fix: IRDAI regulates and licenses. The Life Insurance Council and General Insurance Council are representative bodies of insurers.
Mixing up who must file particulars under Section 63.
Students assume all insurers file within the same period.
Fix: Section 63 applies to an insurer with its principal place of business or domicile outside India that establishes a place of business in India or appoints a representative here. The filing is due within three months.

Worked examples

Example 1

An insurer writes a fire policy with a sum assured of ₹20,00,00,000. IRDAI has specified a 20% cession to Indian re-insurers for this class. Compute the amount ceded and the retention, and check whether the cession is within the statutory limit.

Show the solution

Cession percentage specified = 20%.
Amount ceded = ₹20,00,00,000 × 20% = ₹4,00,00,000.
Retention = ₹20,00,00,000 − ₹4,00,00,000 = ₹16,00,00,000.
Check the limit: Section 101A(2)(a) proviso says the specified percentage must not exceed 30% of the sum assured. 20% is below 30%, so it is within the limit.

Answer: Amount ceded ₹4,00,00,000; retention ₹16,00,00,000. The 20% cession is within the 30% ceiling.

Example 2

Match each situation to the class or participant: (a) a person wants cover for hospital expenses, (b) a car owner wants annual cover for accident damage, (c) an insurer wants to pass part of a large risk to another insurer, (d) an agency wants to bring in policies and serve clients on behalf of insurers.

Show the solution

(a) Medical expenses are covered by health insurance.
(b) Accident damage to a car is a non-life, indemnity risk, so it is general insurance (motor).
(c) One insurer passing risk to another is reinsurance. The receiving insurer is the reinsurer.
(d) A party that brings business and serves clients is an insurance intermediary, such as an agent, broker or corporate agent. IRDAI specifies their qualifications, code of conduct and training under Section 14(2)(c) of the IRDA Act.

Answer: (a) Health insurance; (b) General insurance; (c) Reinsurance; (d) Insurance intermediary.

Exam tips

Link each class to its risk type in one phrase. Examiners reward the link, such as life for death or survival and general for property and liability.
When a question mentions a percentage of sum assured passed to re-insurers, check it against the 30% ceiling and compute the cession and retention.
Quote the exact section only when you are sure of it. Safe ones here are Section 64C (Councils), 101A (reinsurance with Indian re-insurers), 63 (foreign insurers) and Section 14 of the IRDA Act (IRDAI functions).
In a case scenario, list the participants first and then assign a role to each. This structure collects marks even if you miss one detail.
Use a one-line definition for each class in 2-mark MCQs and keep your longer answers for roles, limits and regulation.

Practice questions from Introduction to Insurance Business

Classes and Structure of 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.

Classes and Structure of Insurance Business: frequently asked questions

What are the classes of insurance business in India?

The main classes are life insurance, general (non-life) insurance, health insurance and reinsurance. The Insurance Act, 1938 refers to life, general, health and re-insurance business. Each has its own risks, contract features and regulatory details.

What is the difference between life insurance and general insurance?

Life insurance covers events tied to a person's life, such as death or survival, and is generally long term. General insurance covers non-life risks like fire, motor, marine and liability, usually for a shorter period. The Life Insurance Council and General Insurance Council represent the respective insurers.

What is reinsurance and why is it needed?

Reinsurance is insurance bought by an insurer from another insurer, the reinsurer. It lets the insurer take on larger risks, protects its capital from big losses and spreads risk. Under Section 101A, insurers must also reinsure a specified percentage of the sum assured on general insurance policies with Indian re-insurers.

Who regulates the insurance business in India?

IRDAI regulates it. Section 14 of the IRDA Act, 1999 makes it IRDAI's duty to regulate, promote and ensure orderly growth of insurance and re-insurance business. It registers insurers, protects policyholders, regulates investments and solvency margin, and can impose penalties.