General Insurance and the Regulator
Motor and Health Insurance
Motor insurance. The Motor Vehicles Act, 1988 requires every motor vehicle used in a public place to carry insurance against third-party liability (death or injury to others, and damage to their property). That is the only compulsory motor cover. A liability-only (Act-only) policy gives just this. A package (comprehensive) policy adds own damage (OD) to the insured's own vehicle for accident, fire, theft and similar perils. Own damage is sold on the insured declared value (IDV), which is broadly the vehicle's market value after age-based depreciation, and the owner earns a no-claim bonus (NCB), a discount on the own-damage premium only, for each claim-free year; it is lost when a claim is made. It never reduces the third-party premium.
Worked example (NCB). Own-damage premium ₹12,000, third-party premium ₹3,000, NCB 35%. Discount = 35% of 12,000 = ₹4,200, so OD payable = ₹7,800 and the total is 7,800 + 3,000 = ₹10,800. Taking 35% off the whole ₹15,000 (giving ₹9,750) is the classic error.
Health insurance comes in two designs. Indemnity plans reimburse actual hospital expenses up to the sum insured. Fixed-benefit plans (hospital cash, critical illness) pay a stated amount on the event, whatever the bill. Claims are cashless when the insurer or its third-party administrator (TPA) pays a network hospital directly, or by reimbursement when the insured pays first and claims later. Terms to know: waiting periods (an initial period, commonly 30 days except for accidents; and longer ones for pre-existing and specified diseases); sub-limits (caps on room rent or particular treatments); co-payment (a fixed share of every claim borne by the insured); floater (one sum insured shared by a family); and portability, the right to move to another insurer or plan at renewal with credit for the waiting period already served.
Rules from the IRDAI Master Circular on Health Insurance Business (29 May 2024): the pre-existing-disease waiting period may not exceed 36 months (earlier 48), and after 60 continuous months (the moratorium, earlier 96) a claim cannot be rejected for non-disclosure, except in proven fraud. Reports give a 30-day free-look period for health policies. Worked example (co-payment): an admissible claim of ₹90,000 with a 20% co-payment: the insured bears ₹18,000 and the insurer pays ₹72,000 (within the sum insured).
Fire, Marine, Crop, Accident and Liability Covers
Fire insurance is sold on the Standard Fire and Special Perils policy: it covers fire, lightning and explosion, with special perils such as storm, flood, riot and impact added. It pays for material damage; the profit lost while a factory is shut needs a separate consequential loss (loss of profit) cover. The average clause applies: if the sum insured is below the value at risk, a partial loss is paid in proportion. Worked example: stock worth ₹20 lakh is insured for ₹10 lakh and a fire causes a ₹4 lakh loss. Payment = 4 × (10 ÷ 20) = ₹2 lakh.
Marine insurance (governed in India by the Marine Insurance Act, 1963) has three classic subjects: hull (the vessel's body), cargo (the goods carried) and freight (the carrier's earnings for transport). A voyage policy covers a named journey; a time policy covers a period; an open policy covers all shipments of a trader over a period. In marine insurance the insurable interest must exist at the time of the loss, not necessarily at inception.
| Cover | What it pays for | Key point |
|---|---|---|
| Crop insurance | Yield or weather loss to notified crops | Area-based assessment; main scheme is PMFBY (section 6) |
| Personal accident | A stated sum on accidental death or disability | Benefit (fixed-sum) cover, not indemnity |
| Public liability | Legal liability to third parties | Public Liability Insurance Act, 1991 makes it compulsory for owners handling hazardous substances |
| Professional indemnity | Claims from negligence in professional service (doctors, auditors) | Liability cover for a professional's own errors |
| Employer's liability | Compensation owed to employees injured at work | Linked to the employee-compensation law |
GIC Re and the Agriculture Insurance Company
Reinsurance is insurance for insurers: a company passes a share of the risks it writes to a reinsurer. GIC Re (General Insurance Corporation of India) is India's national reinsurer. After the 1972 reorganisation it served as holding company and reinsurer; GIC was renotified as the Indian Reinsurer in November 2000, and since 21 March 2003 it is a stand-alone government-owned reinsurer. Compulsory cessions of general insurers' business to it have existed in various percentages over time, so do not memorise a percentage.
The Agriculture Insurance Company of India (AIC) is a specialised insurer for farm risks. It was incorporated on 20 December 2002 and began business on 1 April 2003. At its formation, ownership was: GIC Re 35%, NABARD 30%, and 8.75% each for the four public-sector general insurers. Check: 35 + 30 + 4 × 8.75 = 100. AIC is a major insurer under PMFBY, which is open to many insurers.
| Body | Role | Dates to hold |
|---|---|---|
| GIC (1972) | Holding company of the four insurers until 2003 | Incorporated 22 Nov 1972; ended as holding company 21 Mar 2003 |
| GIC Re | National (Indian) reinsurer | Renotified Indian Reinsurer, Nov 2000 |
| AIC | Specialised farm-risk insurer | Incorporated 20 Dec 2002; began 1 Apr 2003 |
IRDAI and the Legal Framework
The Insurance Regulatory and Development Authority of India (IRDAI) is the statutory regulator of insurance under the IRDA Act, 1999, following the reform direction of the Malhotra Committee (1994). It became the regulator in 2000 and is headquartered in Hyderabad. IRDAI's own page describes the Authority as a Chairperson, five whole-time members and four part-time members, all appointed by the Government of India; Ajay Seth took charge as Chairman on 1 September 2025 for a three-year term (an office-holder, so check the current position). Its statutory duty is to protect the interests of policyholders and to promote the orderly growth of the industry.
- Registers and supervises insurers and reinsurers; sets solvency and investment norms.
- Licenses intermediaries: agents, brokers, surveyors and loss assessors, and others.
- Frames regulations on products, policyholder protection and disclosure; handles grievances through its systems.
- It does not sit as a court on each claim: individual disputes go to the Insurance Ombudsman (under the Insurance Ombudsman Rules, 2017), consumer commissions or courts.
| Law | What it did |
|---|---|
| Insurance Act, 1938 | Principal law on registration, solvency, investment and intermediaries; includes Section 64VB (premium in advance) |
| LIC Act, 1956 | Nationalised life insurance into LIC |
| GIBNA, 1972 | Nationalised general insurance, effective 1 Jan 1973 |
| IRDA Act, 1999 | Created IRDAI; opened the market to private players (foreign stake capped at 26% then) |
| Insurance Laws (Amendment) Act, 2015 | Raised the foreign-investment ceiling from 26% to 49%, Indian-owned and controlled |
| Insurance (Amendment) Act, 2021 | Raised the ceiling from 49% to 74% |
| Sabka Bima Sabki Raksha (Amendment of Insurance Laws) Act, 2025 | Passed December 2025; amends the 1938, LIC and IRDA Acts; raises the ceiling to 100% and creates a Policyholders' Education and Protection Fund (reports of Dec 2025; check commencement) |
Government-Linked Insurance Schemes
Four schemes recur in the exams. Match each to what it covers, its launch year and its headline figure. Figures below are the stated scheme terms; premium and enrolment numbers are dated because they change.
| Scheme | Cover and launch | Terms |
|---|---|---|
| PMJJBY | Term life cover for death from any cause; launched 9 May 2015 | ₹2 lakh, one-year renewable, ages 18 to 50; premium ₹436 a year (PTI, 9 May 2026; it was ₹330 earlier) |
| PMSBY | Accidental death and disability; launched 9 May 2015 | ₹2 lakh for death or total disability, ₹1 lakh partial; ages 18 to 70; premium ₹20 a year (PTI, 9 May 2026; ₹12 earlier) |
| PMFBY | Crop loss from non-preventable natural causes; approved 13 January 2016 for kharif 2016 onwards | Farmer pays at most 2% (kharif), 1.5% (rabi food and oilseeds), 5% (commercial and horticultural crops); government bears the balance |
| Ayushman Bharat PM-JAY | Hospitalisation for eligible poor and vulnerable families; launched 23 September 2018 at Ranchi | Up to ₹5 lakh per family per year for secondary and tertiary care, cashless |
Scale (dated). A PTI report of 9 May 2026 gave over 27 crore enrolments under PMJJBY and over 58 crore under PMSBY since 2015. Worked example (PMFBY): a farmer insures a kharif crop for a sum insured of ₹80,000; at the 2% ceiling the farmer pays ₹1,600, and the government and the insurer's actuarial rate account for the rest.
Key takeaways
- General insurance is mostly one-year indemnity cover; premium in advance is the rule under Section 64VB of the Insurance Act, 1938.
- 1972 Act, effective 1 January 1973: 107 insurers became four (National, New India, Oriental, United India); GIC held them until 21 March 2003. Life was 1956 and LIC.
- Only third-party liability is compulsory in motor insurance; NCB discounts the own-damage premium only. Health terms: waiting period, sub-limit, co-payment, moratorium, portability.
- Fire pays material damage under the average clause; marine has hull, cargo and freight; personal accident is a fixed-sum benefit; liability covers third parties.
- GIC Re is the Indian reinsurer (renotified November 2000); AIC (formed 2002, began April 2003) was owned 35% GIC Re, 30% NABARD, 8.75% each by the four insurers.
- IRDAI (IRDA Act, 1999; Hyderabad) protects policyholders and regulates. The foreign-investment ladder is 26, 49, 74 and 100 per cent. Match PMJJBY, PMSBY, PMFBY and PM-JAY by cover.
Practice questions (18)
Attempt each one before opening the answer. Every explanation names the tempting wrong option as well as the right one, because that is where marks are lost.
Which Act nationalised general insurance business in India, with effect from 1 January 1973?
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Answer: C — The General Insurance Business (Nationalisation) Act, 1972
The 1972 Act (GIBNA) nationalised general insurance from 1 January 1973. The LIC Act, 1956 nationalised life insurance, which is the tempting wrong choice because both are nationalisation laws, but it dealt only with life business.According to GIC Re's own history, how many insurers were taken over in the 1972 nationalisation and grouped into four companies?
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Answer: A — 107 (shares of 55 and undertakings of 52)
The 55 Indian insurers whose shares were taken and the 52 whose undertakings were taken make 107, which were grouped into four. 245 is the 1956 life number; 55 and 52 are only the two parts of the 107.Match each insurer with its head office, as listed by the General Insurance Council (2020-21). Insurers: P National Insurance, Q New India Assurance, R Oriental Insurance, S United India Insurance. Offices: i Kolkata, ii Mumbai, iii New Delhi, iv Chennai.
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Answer: D — P-i, Q-ii, R-iii, S-iv
National is in Kolkata, New India in Mumbai, Oriental in New Delhi and United India in Chennai. Swapping the first two pairs is tempting because both Kolkata and Mumbai are old insurance centres, but National Insurance began in Kolkata.Which of the following statements about the General Insurance Corporation of India (GIC) is NOT correct?
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Answer: B — It was formed in 1956 along with LIC to take over life insurance companies
GIC was incorporated in November 1972 and dealt with general insurance, not life; LIC is the 1956 life body. The other three are dated facts from GIC Re's history. The 1956 claim is the tempting statement because 1956 is a nationalisation year, but for life.Under the Motor Vehicles Act, 1988, which cover must a motor vehicle used in a public place carry?
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Answer: B — Third-party liability insurance
The Act makes third-party liability cover compulsory. Own damage, theft and add-ons are optional extras for the owner's own protection. Own damage is the tempting choice because a package policy is common, but it is not required by the Act.A car owner's own-damage premium is ₹12,000 and the third-party premium is ₹3,000. The owner has a 35% no-claim bonus, which applies to the own-damage premium only. What is the total premium payable?
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Answer: A — ₹10,800
35% of ₹12,000 is ₹4,200, giving ₹7,800 as own-damage premium; adding the unreduced ₹3,000 gives ₹10,800. ₹9,750 wrongly takes 35% off the whole ₹15,000, and ₹7,800 forgets the third-party premium.A health policy has a sum insured of ₹5 lakh and a 20% co-payment clause. An admissible hospital claim is ₹90,000. How much does the insurer pay?
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Answer: C — ₹72,000
The insured bears 20% of ₹90,000, which is ₹18,000, so the insurer pays ₹72,000. ₹18,000 is the insured's share, which is the tempting answer if the share borne is confused with the share paid by the insurer.Judge these statements on health insurance. P: A hospital-cash or critical-illness plan pays a stated amount whatever the bill. Q: A cashless claim means the insurer or its administrator pays a network hospital directly. R: Under the IRDAI Master Circular of 29 May 2024, after 60 continuous months a claim cannot be rejected for non-disclosure, except in proven fraud. S: Portability means the insured loses credit for waiting periods already served. Which are correct?
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Answer: D — P, Q and R only
P, Q and R are correct. S is reversed: portability lets the insured keep credit for the waiting period already served when moving insurer or plan. Including S is tempting because the word suggests a transfer with losses, which is wrong.A trader's stock worth ₹20 lakh is insured under a fire policy for ₹10 lakh. A fire destroys stock worth ₹4 lakh. Applying the average clause, what is the claim payable?
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Answer: B — ₹2 lakh
The sum insured is half the value at risk, so the loss is paid in the ratio 10 : 20, which gives ₹2 lakh. ₹4 lakh is the full loss, which would be paid only if the stock were insured for its full value.A shipping company wants to insure the body of its vessel against perils of the sea. Which marine subject does it insure?
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Answer: D — Hull
The body of the ship is the hull. Cargo is the goods carried and freight is the carrier's earnings from transport; the vessel itself is neither, so cargo is the tempting but wrong choice for those who think of the ship as carrying value.Under which law is public liability insurance compulsory for owners who handle hazardous substances?
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Answer: A — The Public Liability Insurance Act, 1991
The 1991 Act requires owners handling hazardous substances to carry public liability insurance for victims. The Motor Vehicles Act makes only motor third-party cover compulsory, and the Marine Insurance Act deals with marine contracts.At the formation of the Agriculture Insurance Company of India (incorporated 20 December 2002), GIC Re held 35% and NABARD 30%. The four public-sector general insurers held equal shares of the rest. What was their combined share?
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Answer: C — 35%
100 − 35 − 30 = 35%, which is 8.75% each for the four. 8.75% is the share of one insurer, which is the tempting answer if the question is read as a single company's share.In which year was GIC renotified as the Indian Reinsurer after the insurance market was opened?
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Answer: B — 2000
GIC Re's history records the renotification in November 2000. 2003 is the year GIC ceased to be the holding company, which is the tempting answer; 1973 is when nationalisation took effect.Judge these statements on IRDAI. P: It is a statutory regulator under the IRDA Act, 1999. Q: Its headquarters is at Hyderabad. R: Its Chairperson and members are appointed by the Government of India. S: It sits as the Insurance Ombudsman on each individual claim dispute. Which are correct?
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Answer: A — P, Q and R only
P, Q and R are correct. S is wrong: individual disputes go to the Insurance Ombudsman (a separate mechanism under the 2017 Rules), consumer commissions or courts, while IRDAI regulates the industry. Including S is the tempting error.Arrange the legislated foreign-investment ceilings in Indian insurers, earliest first. P: 74% (Insurance (Amendment) Act, 2021). Q: 49% (Insurance Laws (Amendment) Act, 2015). R: 100% (Act of December 2025). S: 26% (the limit when the market opened under the IRDA Act era).
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Answer: B — S, Q, P, R
The ceiling was 26% at the opening, 49% in 2015, 74% in 2021 and 100% in December 2025, in that order. Reversing P and Q is tempting for anyone unsure whether 74 or 49 came first; the ceilings only rose.Match each scheme with what it covers. Schemes: P PMJJBY, Q PMSBY, R PMFBY, S Ayushman Bharat PM-JAY. Covers: i death from any cause (term life), ii accidental death and disability, iii crop loss, iv hospitalisation up to ₹5 lakh per family per year.
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Answer: C — P-i, Q-ii, R-iii, S-iv
PMJJBY is term life for death from any cause and PMSBY is accident cover; PMFBY covers crops and PM-JAY covers hospital care. Swapping the first two is the common error, since both began on 9 May 2015 and cost very little.Under PMFBY guidelines as stated in 2026, a farmer pays at most 2% of the sum insured for a kharif crop. For a kharif crop insured for ₹80,000, what is the farmer's maximum share?
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Answer: D — ₹1,600
2% of ₹80,000 is ₹1,600. ₹1,200 uses the rabi rate of 1.5%, and ₹4,000 uses the 5% rate meant for commercial and horticultural crops; the balance of the premium is borne by governments.In which year were PMJJBY and PMSBY, the two social-security insurance schemes, launched together?
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Answer: A — 2015
Both were launched on 9 May 2015. 2016 is the PMFBY year and 2018 the year of PM-JAY, which are the tempting distractors from the same family of schemes.