Professional Knowledge - Insurance and Allied Subjects
What the section tests
Professional Knowledge examines insurance principles, products, underwriting, claims and regulation. You must know life and general insurance, reinsurance, intermediaries and policyholder protection. Questions often apply a principle to a short situation rather than ask for a definition.
Core rules
- Insurable interest: the insured must benefit from the subject’s survival and suffer loss from its damage. In life insurance it must exist at proposal; in property insurance at the time of loss.
- Utmost good faith: the proposer must disclose material facts; non-disclosure can avoid the contract.
- Indemnity: property and liability insurance restore the insured to the pre-loss financial position, not better. Life insurance is not a contract of indemnity.
- Subrogation: after paying a claim, the insurer acquires the insured’s right to recover from the third party who caused the loss.
- Contribution: where two or more policies cover the same risk, insurers share the loss rateably.
- Proximate cause: the dominant, efficient cause of loss determines whether the policy responds.
Worked example
Stock actually worth ₹20 lakh is insured for ₹10 lakh. A fire causes ₹5 lakh loss. Under the average clause, claim = (sum insured ÷ actual value) × loss = (10 ÷ 20) × 5 = ₹2.5 lakh. The insured bears the remaining ₹2.5 lakh because the property was underinsured; the insurer does not pay the full ₹5 lakh.
Traps
- Applying indemnity and subrogation to life insurance.
- Confusing subrogation with contribution.
- Ignoring the average clause in underinsurance problems.
- Treating an agent as the insurer when explaining authority.
- Forgetting that a reinsurer contracts with the insurer, not the original policyholder.