Professional Knowledge
Professional Knowledge is the differentiator in NICL AO Mains. For the insurance/generalist stream it tests the principles of insurance, the structure of the Indian insurance market, products, underwriting, claims and the IRDAI regulatory framework; other streams get discipline-specific papers, but insurance fundamentals recur across them.
Core principles
- Insurable interest: the legal right to insure. It must exist at the time of loss in general insurance; in life insurance it must exist at inception.
- Utmost good faith: both parties must disclose every material fact.
- Indemnity: the insured is restored to the pre-loss financial position, no better. It does not apply to life or personal accident covers.
- Subrogation: after paying a full indemnity, the insurer steps into the insured's shoes to recover from the negligent third party.
- Contribution: where several policies cover the same loss, each pays rateably so no profit arises.
- Proximate cause: the nearest efficient cause decides whether a peril is covered.
- Solvency: general insurers must maintain a solvency ratio of at least 1.5 (150%).
Worked example
A property loss of ₹5 lakh is covered by Policy A (sum insured ₹6 lakh) and Policy B (sum insured ₹4 lakh), both indemnity policies on the same property. Total cover is ₹10 lakh, so contribution applies: A pays 5 × 6/10 = ₹3 lakh and B pays 5 × 4/10 = ₹2 lakh.
Traps
- Confusing contribution (same insured, same interest, several policies) with reinsurance (an insurer ceding risk to another insurer).
- Applying indemnity to a life policy.
- Forgetting that motor third-party liability is compulsory under the Motor Vehicles Act, 1988.
- Mixing the property coinsurance clause (insured bears a share) with co-insurance among several insurers sharing a large risk.