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CS Professional · Banking and Insurance - Laws and Practice

Functions in Insurance and Compliance related thereto

This chapter covers how an insurer actually works: underwriting, claims, reinsurance, actuarial and investment work, and distribution, along with the compliance each function needs. It also covers the General Insurance Council Executive Committee under the Insurance Act, 1938. Solve questions by naming the function, stating the rule, applying it to the facts, and concluding.

What this chapter covers

This chapter follows an insurance policy through the insurer's departments. Underwriting decides which risks to accept and at what price. Claims management pays or rejects losses. Reinsurance passes part of the risk to other insurers. The actuarial, investment and valuation functions keep the insurer solvent. Marketing and distribution bring in the business through intermediaries.

The last topic moves from the insurer to the industry body. Under the Insurance Act, 1938, the Life Insurance Council and the General Insurance Council work through Executive Committees. You need their composition, term, vacancies and functions. These are short, factual provisions, so they are easy to score on if you learn the exact wording.

The chapter belongs to the Insurance Laws half of Paper 7.4, Banking and Insurance - Laws and Practice, which carries 50 marks for Insurance Laws. It links to the earlier chapters on the structure of insurance law and the regulator. It also supports later chapters on policies, contracts and regulatory compliance. Papers are written and case-based, and the elective is open book. You still need to know where each rule sits so you can find it fast and apply it.

This chapter is practical, so it suits case-based questions. Examiners can give a short fact pattern, such as an agent offering a reward for referrals, an insurer overspending on management expenses, or a vacancy in a council committee, and ask for the provision, analysis and conclusion. Several rules here have exact conditions, such as the three-year term of an Executive Committee, the ban on principal agents and multilevel marketing, and the dividing principle prohibition. If you state them precisely, you gain marks over students who only write general ideas. The function-wise topics also let you write structured answers on compliance in any department.

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

  1. 1Insurance Underwriting Function and ComplianceUnderwriting is the first step in the policy cycle, so it gives you the base for pricing, risk selection and the dividing principle rule.
  2. 2Claims Management and SettlementClaims follow underwriting, and you can see how the accepted risk turns into a payment obligation and what compliance applies.
  3. 3Reinsurance Function and ComplianceReinsurance protects the insurer against large claims, so it is easier once you know how claims and underwriting exposure arise.
  4. 4Actuarial, Investment and Valuation FunctionsThese functions support solvency and bonuses, and they build on pricing, claims and reinsurance figures.
  5. 5Marketing, Distribution and IntermediariesDistribution rules, including Section 42A, are best read once you understand the product and the insurer's internal functions.
  6. 6Functions of the General Insurance Council Executive CommitteeThis is a self-contained statutory topic with exact provisions, so it is best learnt last and revised by rote and application.

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

Prepare this chapter function by function, then learn the statutory provisions word for word. Use this order.

  1. Draw one flow chart of the insurer: underwriting, policy, claims, reinsurance, actuarial and investment, distribution. Attach compliance points to each box.
  2. For each function, write three lines: what it does, who regulates it, and what can go wrong. Practise turning these into a provision, analysis and conclusion answer.
  3. Read Section 52 and Section 42A in the Insurance Act, 1938 carefully. Note the exact prohibition, the proviso on bonuses, and the three sub-sections of Section 42A.
  4. Make a table of the Executive Committee provisions: composition (Section 64F), duration (Section 64H), vacancies (Section 64G), functions (Section 64L), expenses (Section 64M), general powers (Section 64R), and joint meetings (Section 64N). Learn who nominates and who elects.
  5. Solve at least five short case problems on distribution, expense limits and committee vacancies. Write the full answer in exam format and time yourself.
  6. In your open-book copy, flag each section with a tab and a one-line note so you can find it in seconds, but do not rely on the book to think.

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

  • Mixing up the Life and General Insurance Council committee compositions.

    Fix: Learn the differences: the life committee includes self-help groups and co-operative societies, while the general committee includes third party administrators, surveyors and loss assessors.

  • Saying the Authority nominates to fill every vacancy.

    Fix: State that casual vacancies are filled in the manner laid down in the bye-laws of the Council concerned (Section 64G(2)), while the Authority may nominate where a body fails to elect (Section 64F(3)).

  • Treating the dividing principle ban as a ban on all bonuses.

    Fix: Always add that allocating bonuses to life policyholders after a periodical actuarial valuation is permitted, as reversionary additions, immediate cash bonuses or otherwise.

  • Writing generic function descriptions with no compliance link.

    Fix: For every function, end your answer with the compliance requirement and the consequence of breach, applied to the facts given.

  • Missing the multilevel marketing facts in a distribution case.

    Fix: Check whether persons not authorised are soliciting, whether there is commission or chain enrolment, and then apply Section 42A(2) and (3).

  • Confusing the duties of the Executive Committee with powers of the Authority.

    Fix: Write that the Committee advises and reports, and the Authority fixes limits, gives warnings and takes action.

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

  • Section 52 bans business on the dividing principle, but insurers may allocate bonuses to life policyholders after a periodical actuarial valuation.
  • Section 42A(1) bars appointing principal agents, chief agents and special agents after the 2015 amendment commenced.
  • Section 42A(2) prohibits offering any inducement to take out, renew or continue a policy through a multilevel marketing scheme.
  • Under Section 42A(3), the Authority can have an authorised officer complain to the police about multilevel marketing.
  • The Life and General Insurance Councils act through Executive Committees (Section 64E).
  • Life Insurance Council Executive Committee has four elected members, one eminent outsider, three nominees for agents, intermediaries and policyholders, and one each from self-help groups and insurance co-operative societies.
  • General Insurance Council Executive Committee has four elected members, one eminent outsider and four nominees for agents, third party administrators, surveyors and loss assessors, and policyholders.
  • The Chairperson of each Executive Committee is elected from among the four elected members.
  • An Executive Committee lasts three years from its first meeting, and outgoing members continue until a new one is formed (Section 64H).
  • The General Insurance Council Executive Committee must meet at least once before 31 March each year to advise on expense limits (Section 64M).
  • After two disregarded warnings under Section 64M, the Authority may take prescribed action against the insurer.
  • Vacancies or defects in constitution do not invalidate the Committee's acts (Section 64G(3)).

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

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

What does the chapter Functions in Insurance and Compliance cover?

It covers underwriting, claims, reinsurance, actuarial, investment and valuation, and distribution, with the compliance needed in each. It also covers the Executive Committees of the Insurance Councils under the Insurance Act, 1938.

Which sections of the Insurance Act, 1938 should I learn for this chapter?

Learn Sections 42A and 52, and Sections 64E to 64H, 64L, 64M, 64N and 64R. They deal with distribution, the dividing principle, and the council committees. Know their exact conditions.

How long does an Executive Committee of an Insurance Council last?

Three years from the date of its first meeting, after which it stands dissolved and a new one is constituted. Outgoing members continue to hold office and discharge prescribed duties until the new Committee is formed.

How should I answer a case-based question from this chapter?

State the relevant provision, apply it to each fact given, and conclude clearly. Add practical compliance steps, such as what the insurer should do or report, to show you understand the working side.

Can I use the Act in the open-book exam for this chapter?

Elective papers are open book, so you may refer to the Act, but time is limited. Tab the key sections and make short notes beforehand so you spend the exam time on analysis.