General Insurance and Reinsurance Knowledge
General Insurance and Reinsurance Knowledge
This section tests how risk is transferred, priced, and retroceded - not just definitions. Expect questions on insurance principles, Indian general-insurance products, the Insurance Act 1938 and IRDAI framework, and treaty and facultative reinsurance. GIC Re, incorporated in 1972, is India's national reinsurer; its role in the prescribed order of preference for cessions is a recurring theme.
Core rules and concepts
- Insurable interest must exist at inception, and at the time of loss for indemnity policies; utmost good faith requires disclosure of material facts.
- Indemnity restores the insured to the pre-loss financial position; subrogation and contribution prevent double recovery.
- Proximate cause decides which peril triggers cover, not the last event in the chain.
- Proportional reinsurance - quota share and surplus - shares premium and claims in the same cession ratio.
- Non-proportional reinsurance - excess of loss and stop loss - responds only above an attachment point.
- Facultative is case-by-case; treaty is automatic for risks within its terms. Retrocession is reinsurance bought by a reinsurer.
Worked example
A policy suffers a ₹7 crore claim. The cedent has a ₹5 crore excess-of-loss layer attaching at ₹1 crore. The cedent retains the first ₹1 crore, the reinsurer pays the next ₹5 crore, and the remaining ₹1 crore above the exhaustion point falls back on the cedent. Total cedent outflow is ₹2 crore; the reinsurer's share is ₹5 crore. The layer is a slice, not a percentage.
Traps
Do not apply proportional shares to premium only; claims follow the same cession ratio, while ceding commission is separately negotiated. Do not treat facultative cover as automatic. Do not assume reinsurance changes the insurer's liability to the policyholder - the original contract still stands.