Setting Up of Business, Industrial and Labour Laws · Financial Services Organization

Insurance Act, 1938: Notes for CS Executive

Updated 11 October 2026 · Fact-checked

The Insurance Act, 1938 regulates insurance business in India. It deals with who may carry on insurance business, how insurers are registered, and how they are supervised through the Authority (IRDAI). Section 118A keeps the Authority's powers out of an IFSC and gives them to the IFSCA for products and institutions permitted there.

Understand Insurance Act, 1938

Insurance is a contract where the insurer takes a premium and promises to pay money on a defined event. Because insurers hold the savings of millions of policyholders, the law does not leave them unregulated. The Insurance Act, 1938 is the main statute that controls insurance business in India.

The Act works through a regulator, called the Authority in the Act (the Insurance Regulatory and Development Authority, IRDAI). The Authority registers insurers, supervises their business, and can act when they breach the rules. Its powers come from the Act and from the IRDA Act, 1999.

You must also know the two broad classes of business. Life insurance covers human life and pays a sum on death or survival to a stated term. General insurance covers non-life risks such as fire, motor, marine and health. The Act also provides for the Life Insurance Council and the General Insurance Council, which are self-regulating bodies of insurers. Under section 64R, each Council can appoint officers and servants and fix their service conditions, decide how a prescribed fee is collected, and maintain a list of member insurers. It can also make bye-laws on elections, meetings and quorum, information to be submitted by insurers, fees, and other matters needed for its duties.

Insurance also touches other regulators. Section 45Y of the RBI Act sets up a Joint Committee to settle a difference of opinion on whether an instrument, such as a life insurance policy, is a hybrid or composite instrument. The Finance Minister chairs it and the RBI Governor is Vice-Chairperson. Its decision binds the RBI, SEBI, IRDAI and PFRDA.

Finally, section 118A deals with International Financial Services Centres (IFSCs). The Authority's powers under the Act do not extend to an IFSC set up under section 18(1) of the Special Economic Zones Act, 2005. Instead, the International Financial Services Centres Authority (IFSCA) exercises them, but only for regulating financial products, services and institutions permitted in the IFSC. Sections 51A of the Banking Regulation Act and 57A of the RBI Act do the same for the Reserve Bank.

Key rules to remember

Section 118A: IFSC carve-out: Authority's powers under the Insurance Act: (a) do not extend to an IFSC; (b) are exercisable by the IFSCA; Applies only so far as regulation of financial products, services and institutions permitted in the IFSC is concerned. It operates notwithstanding any other law in force. Inserted by Act 50 of 2019, effective 1-10-2020.
Parallel IFSC provisions: Insurance Act s.118A | Banking Regulation Act s.51A | RBI Act s.57A; Same wording and effect: the regulator's powers (Authority, Reserve Bank, Bank) do not extend to an IFSC and pass to the IFSCA.
Section 64R: powers of the Councils: Life/General Insurance Council may appoint staff, fix service conditions, determine fee collection, keep list of member insurers, make bye-laws; Under s.64R(2), the Council may authorise its Executive Committee to use the powers in clauses (a), (b) and (c) of sub-section (1).
Section 45Y RBI Act: Joint Committee: Reference by RBI Governor, IRDAI, SEBI or PFRDA head; decision within 3 months; binding on RBI, SEBI, IRDAI, PFRDA; Chair: Union Finance Minister. Vice-Chair: RBI Governor. Convener: Secretary, Department of Financial Services. Applies to a difference of opinion on hybrid or composite instruments.

How to solve Insurance Act, 1938 questions

Use this method for any question on the Insurance Act, 1938, whether it is a short note, a case study or a question on regulatory powers.

1Identify what is asked: registration, regulation, the Authority's powers, the Councils, or the IFSC position.
2State the governing provision in plain words and name the Act and section only where you are certain of it, such as s.118A, s.64R, or s.45Y of the RBI Act.
3Name the right body: the Authority (IRDAI), the Life or General Insurance Council, the IFSCA, or the Joint Committee.
4Apply the rule to the facts given. Check the condition, for example whether the entity operates inside an IFSC or the matter is a regulatory difference.
5Check limits: s.118A applies only to products, services and institutions permitted in the IFSC.
6Write a clear conclusion in one or two lines that answers the exact question.

Quickest way: Who regulates? Three-question check

When to use it: Use it for short-note or case questions asking which authority has power over an insurance matter.

Question 1: Is the business inside an IFSC? If yes, the IFSCA exercises the powers for permitted products, services and institutions (s.118A).
Question 2: If not in an IFSC, is it an insurance matter under the Act? Then the Authority (IRDAI) acts.
Question 3: Is it a dispute among regulators about a hybrid instrument? Then refer to the Joint Committee under s.45Y of the RBI Act.
Close with the section and the one-line conclusion.

Common mistakes in Insurance Act, 1938

Saying section 118A removes the Insurance Act from an IFSC completely.
Students read the heading 'not to apply' and stop there.
Fix: Write that only the Authority's powers do not extend to the IFSC, and the IFSCA exercises them for permitted products, services and institutions.
Writing that the Reserve Bank regulates insurers under the Insurance Act.
The three IFSC sections look alike and the regulators get mixed up.
Fix: Link each Act with its regulator: Insurance Act with the Authority, Banking Regulation Act and RBI Act with the Reserve Bank.
Confusing the Insurance Councils with the Authority.
Both appear in the same Act and both make rules.
Fix: Remember the Councils are bodies of insurers with bye-law and administrative powers under s.64R. The Authority is the regulator.
Mixing up the members and role of the Joint Committee.
Section 45Y lists many officials.
Fix: Recall: Finance Minister chairs, RBI Governor is Vice-Chair, and the Secretary, DFS convenes. Its decision binds RBI, SEBI, IRDAI and PFRDA.
Using a section number you are unsure of.
Students try to show precision.
Fix: Quote only sections you know well, such as 118A and 64R. Otherwise state the rule in words.

Worked examples

Example 1

A foreign insurer sets up a branch in an IFSC established under the Special Economic Zones Act, 2005. Which authority exercises regulatory powers over its permitted insurance products, and under which provision?

Show the solution

Provision: section 118A of the Insurance Act, 1938 says that, notwithstanding any other law, the Authority's powers under the Act do not extend to an IFSC set up under section 18(1) of the Special Economic Zones Act, 2005.
Facts: the branch operates inside such an IFSC and deals in permitted insurance products.
Analysis: those powers are instead exercisable by the IFSCA, established under section 4(1) of the IFSCA Act, 2019, so far as regulation of financial products, services and institutions permitted in the IFSC is concerned.
Limit: the transfer covers only what is permitted in the IFSC.

Answer: The IFSCA, not the Authority (IRDAI), exercises the regulatory powers over the branch's permitted products, under section 118A.

Example 2

Explain the powers of the Life Insurance Council under section 64R of the Insurance Act, 1938.

Show the solution

Provision: section 64R(1) gives the Life Insurance Council or General Insurance Council powers for efficient performance of its duties.
Administrative powers: appoint officers and servants and fix their service conditions; determine how a prescribed fee is collected; keep an up-to-date list of member insurers.
Bye-laws: it may make bye-laws on elections other than the first elections, meetings, conduct of business and quorum, submission of statements or information by insurers, levy and collection of fees, and any other matter needed to carry out its duties.
Delegation: under s.64R(2), it may authorise its Executive Committee to exercise the powers in clauses (a), (b) and (c) of sub-section (1).

Answer: The Council has administrative powers (staff, fee collection, member list) and bye-law making powers, and may delegate the first three to its Executive Committee under section 64R(2).

Exam tips

Learn section 118A word by word. Examiners can ask for the condition, the body that takes over, and the limit.
Always compare the three IFSC provisions (118A, 51A, 57A) in one short table-style paragraph, since they share the same wording.
Keep a one-line distinction ready between life insurance and general insurance.
For Joint Committee questions, memorise the chair, vice-chair, convener, the three-month period and the binding effect.
End every answer with a clear conclusion naming the authority and section.

Practice questions from Financial Services Organization

Insurance Act, 1938 in other exams

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

CS ProfessionalGeneral Insurance Council and Executive Committee

Insurance Act, 1938: frequently asked questions

What does section 118A of the Insurance Act, 1938 say?

It says the Authority's powers under the Act do not extend to an IFSC set up under the Special Economic Zones Act, 2005. The IFSCA exercises them instead, for products, services and institutions permitted in the IFSC.

What is the difference between life insurance and general insurance?

Life insurance covers human life and pays on death or survival. General insurance covers non-life risks such as fire, motor, marine and health. The Act has a separate Council for each class.

Who is the Authority under the Insurance Act, 1938?

It is the Insurance Regulatory and Development Authority, commonly called IRDAI, established under section 3 of the IRDA Act, 1999. It regulates insurers and insurance business.

What are the powers of the Insurance Councils under section 64R?

They can appoint staff, fix service conditions, determine fee collection, maintain the list of member insurers and make bye-laws on elections, meetings and information from insurers. They may delegate some powers to the Executive Committee.