Insurance and Financial Market Awareness
This section differs from general awareness: instead of events, it tests conceptual command of how insurance and financial markets actually work - products, principles, regulation and instruments.
Insurance concepts that recur
- Principles: insurable interest, utmost good faith, indemnity, subrogation, contribution, proximate cause.
- Life versus non-life: life policies are benefit policies, general insurance is indemnity-based; premium = risk premium + expense loading + margin.
- Health: waiting period, pre-existing disease, TPA, cashless versus reimbursement, portability.
- Regulation: IRDAI licensing, the 150% solvency margin, claim-settlement timelines, policyholder protection, the Insurance Ombudsman, and reinsurance through GIC Re and foreign reinsurance branches.
- Distribution: individual agents, corporate agents, brokers, web aggregators, bancassurance.
Financial market concepts
Money market (Treasury bills, commercial paper, certificates of deposit, call money, repo) versus capital market (equity, debentures, mutual funds); primary versus secondary market; SEBI's mandate; RBI's monetary toolkit; NBFC versus bank; development finance institutions such as NABARD, SIDBI and EXIM Bank; NPCI and UPI.
Worked example
A property worth ₹20 lakh is insured for ₹10 lakh. Fire causes ₹4 lakh of loss. The average (under-insurance) clause applies: claim = loss × sum insured ÷ property value = 4 × 10/20 = ₹2 lakh. The insured bears ₹2 lakh for under-insuring. Had the sum insured matched ₹20 lakh, the full ₹4 lakh would be payable, subject to any deductible.
Traps
Classifying marine hull, crop or credit insurance as life business; quoting the solvency margin as 100%; and confusing subrogation (the insurer steps into the insured's shoes after payment) with contribution (two policies sharing one loss).