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CS Professional · Banking and Insurance - Laws and Practice

Functions in Insurance and Compliance related thereto (Part I)

This chapter covers the core functions an insurer performs: underwriting, claims, distribution, reinsurance, actuarial work and investment, plus the compliance attached to each. It also covers the General Insurance Council's Executive Committee under the Insurance Act, 1938. In the exam, you state the rule, apply it to the facts and conclude.

What this chapter covers

This chapter walks through how an insurer actually works, function by function. You start with underwriting, which decides which risks the insurer takes and at what price. You then move to claims, intermediaries, reinsurance, actuarial valuation and investment. For each function, the exam asks what the insurer must do and which compliance obligations follow.

The chapter also has a statutory block on the Insurance Act, 1938: the Executive Committee of the General Insurance Council. Here the law is precise. You must know its composition, term, vacancies, functions and its role in advising on expenses of management. Questions in this block are often straight recall wrapped in a short fact pattern.

This chapter sits in the Insurance Laws half of the Banking and Insurance paper, which carries 50 of 100 marks. It is the practical base for later chapters on regulation, products and the regulator. If you understand the functions first, the later legal provisions become easier to place. The paper is written and case-based, so you need to apply each provision to the facts given.

This chapter is worth your effort because it feeds both theory and case questions across the Insurance Laws half of the paper. The functional topics let you write structured answers on how an insurer operates, while the Council provisions give you exact, quotable law that scores when you state it correctly. Many questions mix the two, for example asking what an insurer or a Council body must do in a given situation. Since all answers are written, clear structure of provision, analysis and conclusion earns more than loose general knowledge.

Functions in Insurance and Compliance related thereto (Part I): topics in the order to study them

  1. 1Underwriting in InsuranceIt is the first step in the insurance cycle, so it gives you the base for pricing, claims and reinsurance.
  2. 2Claims Management and SettlementIt follows underwriting naturally: the risk accepted is what later becomes a claim.
  3. 3Role of Intermediaries and DistributionIt shows how policies reach customers, and links the sale to the underwriting and claims you have just studied.
  4. 4Reinsurance and Risk Management FunctionsOnce you know risk acceptance and claims, you can see why insurers pass on part of their risk.
  5. 5Actuarial Function and ValuationIt explains pricing, reserves and bonuses, and builds on the risk and claims ideas before you reach investment.
  6. 6Functions of Executive Committee of General Insurance CouncilThis is statutory text from the Insurance Act, 1938. Study it after the functions so you can see where the Council fits in the industry.
  7. 7Investment and Regulatory Compliance of InsurersIt ties the whole chapter together as compliance, and is best revised last because it draws on every earlier function.

How to prepare Functions in Insurance and Compliance related thereto (Part I)

Split your time between understanding the functions and memorising the exact statutory wording. Both are tested in written form.

  1. Read each function in the study order and write a one-page flow: what the insurer does, who is involved, and what compliance applies.
  2. For the Council topic, read the sections themselves: Sections 64C, 64E, 64F, 64G, 64H, 64L, 64M, 64N and 64R of the Insurance Act, 1938. Note who is in the Executive Committee and who nominates them.
  3. Make a small table in your notes of the Executive Committee of the General Insurance Council: four elected representatives, one eminent person nominated by the Authority, and four nominated persons for agents, third party administrators, surveyors and loss assessors, and policyholders.
  4. Learn the three functions in Section 64L(1)(a) to (c) in your own words: advise insurers on conduct and service, advise the Authority on expenses, and report prejudicial conduct to the Authority.
  5. Practise two or three short case problems per topic. Write the provision, apply it to the facts, and end with a clear conclusion.
  6. Revise Section 64M separately: the meeting before 31 March each year, the warning, and the action after two disregarded warnings.
  7. In the last week, answer past-style questions under timed conditions and check that each answer names the correct provision only when you are sure of it.

Common mistakes in Functions in Insurance and Compliance related thereto (Part I)

  • Mixing up the composition of the Life and General Insurance Council Executive Committees.

    Fix: Learn them side by side. General has four nominated persons for agents, third party administrators, surveyors and loss assessors, and policyholders. Life has different categories.

  • Saying the Executive Committee is dissolved and members leave immediately after three years.

    Fix: Add that under Section 64H(2) the outgoing members continue to hold office and discharge duties until a new Committee is constituted.

  • Stating that vacancies are filled by nomination of the Authority.

    Fix: Write that casual vacancies are filled in the manner laid down in the bye-laws of the Council concerned, as Section 64G(2) now says.

  • Treating Section 64M as a power to penalise at the first breach.

    Fix: State the sequence: opportunity of being heard, then a warning, and action only after two warnings have been disregarded.

  • Writing generic descriptions of insurance functions without applying them to the facts.

    Fix: Use the provision, analysis, conclusion format and refer to the named insurer, policy or event in the question.

  • Quoting section numbers or limits you are not sure of.

    Fix: Cite a section only when certain. Otherwise state the rule clearly in plain words.

Last-day revision: Functions in Insurance and Compliance related thereto (Part I)

  • Underwriting decides which risks to accept and on what terms and price.
  • Claims management covers intimation, assessment and settlement of claims.
  • Intermediaries distribute insurance and must act within the regulator's rules.
  • Reinsurance lets an insurer pass part of its risk to another insurer.
  • The actuarial function supports pricing, reserves and valuation.
  • Section 64E: the authority of each Council is its Executive Committee.
  • Section 64F(2): General Insurance Council Executive Committee has four elected members, one eminent person and four nominated persons.
  • The Chairperson of that Committee is elected from among the four elected representatives.
  • Section 64H: the Executive Committee lasts three years from its first meeting; outgoing members continue until a new one is constituted.
  • Section 64G(3): no act of the Committee is questioned merely because of a vacancy or defect in its constitution.
  • Section 64L(1): advise insurers, advise the Authority on expenses, and report prejudicial conduct.
  • Section 64M: the Committee must meet at least once before 31 March each year to advise on expense limits under Section 40C.

Functions in Insurance and Compliance related thereto (Part I) practice questions

Functions in Insurance and Compliance related thereto (Part I) in other exams

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

Functions in Insurance and Compliance related thereto (Part I): frequently asked questions

What does the Executive Committee of the General Insurance Council do?

Under Section 64L(1), it advises insurers on standards of conduct and efficient service to policyholders. It advises the Authority on controlling expenses such as commission, and brings to the Authority's notice any insurer acting prejudicially to policyholders. It may also act in incidental matters notified with the Authority's approval.

Who sits on the Executive Committee of the General Insurance Council?

Section 64F(2) lists four members elected by the Council's members, one eminent person not connected with insurance business nominated by the Authority, and four persons nominated by the Authority to represent agents, third party administrators, surveyors and loss assessors, and policyholders. The Chairperson is elected from the four elected representatives.

How long does the Executive Committee stay in office?

Section 64H provides a term of three years from its first meeting. After that it stands dissolved and a new Committee is constituted. Until then, the outgoing members continue to hold office and discharge the prescribed administrative and other duties.

Do I need to memorise section numbers for this chapter?

Learn the key ones for the Council provisions, as the paper is law-based and answers should be anchored in the Act. Use a section number only when you are sure. If not, state the rule in plain words with the correct conditions.

What happens if an insurer breaches the expense limits?

Under Section 64M, the Authority may give the insurer a hearing and administer a warning. If two warnings are disregarded, the Authority may take such action as may be prescribed.