Insurance & Financial Products

1Life vs general insurance

Indian insurance law splits the sector into life insurance and general insurance — often called non-life. Life insurance pays when the insured person dies or, in endowment and ULIP plans, combines a savings or investment element with that life cover. General insurance covers every other insurable risk: health, motor, fire, marine, travel and property damage.

The split is always by what is insured — a person's life versus health, vehicles, buildings and other assets — not by where the policy is sold. A term plan sold through bancassurance is still life insurance; a motor policy sold at the same counter is still general insurance.

Figure. Split by what is insured: life cover (and endowment/ULIP savings) versus general/non-life risks (health, motor, fire, marine, property). Where it is sold does not change the branch.

2IRDAI — the insurance regulator

The insurance sector in India is regulated by IRDAI, the Insurance Regulatory and Development Authority of India, headquartered in Hyderabad. One financial sector, one dedicated regulator — insurance maps to IRDAI the way banking maps to the RBI and securities markets map to SEBI.

Exam traps swap regulators across sectors: an option that ties insurance supervision to the RBI or SEBI is testing whether you know the sector map, not whether you can spell the acronym. PFRDA supervises pensions; IRDAI supervises insurers and insurance intermediaries.

Figure. Insurance maps to IRDAI (Hyderabad) the way banking maps to the RBI and securities to SEBI. PFRDA is pensions — a common swap option.

3Bancassurance

Bancassurance is the arrangement in which a bank sells the insurance products of an insurance company to its own customers. The bank acts as a distribution channel — a corporate agent — and earns commission or fee income; the insurance company underwrites the risk and pays valid claims.

The bank is the distributor, not the manufacturer. It does not carry the insurance risk on its balance sheet the way it carries loan assets. Reinsurance is insurers sharing risk among themselves; coinsurance is multiple insurers sharing one policy — neither is the bank selling policies at its branches.

Figure. Bancassurance: the bank distributes an insurer's products for fee income; the insurer underwrites the risk and pays claims. The bank is not the risk carrier.

How the arrangement works

1. PartnershipA bank signs with an insurer to market selected policies to the bank's customer base.
2. Sale at the counterBank staff or authorised agents explain products and collect the premium; the policy contract is with the insurer.
3. Risk stays with the insurerClaims are assessed and paid by the insurance company; the bank receives distribution fees, not claim liability.

4Core insurance principles

Every insurance contract rests on a handful of principles that exams name directly. Utmost good faith (uberrimae fidei) requires both parties to disclose material facts honestly. Insurable interest means the policyholder must stand to lose financially if the insured event happens — you cannot insure a stranger's house for profit.

Indemnity restores the insured to the financial position before the loss, not beyond it — general insurance pays the loss, not a windfall. Subrogation lets the insurer pursue the party who caused the loss after paying the claim; contribution splits a loss among overlapping policies. Proximate cause identifies the dominant reason for the loss when several events chain together.

Figure. Core principles: utmost good faith, insurable interest, indemnity (restore, not enrich), and subrogation after payment. Contribution and proximate cause complete the usual six-name set in the table.

5Public sector insurers

Life insurance in the public sector centres on LIC, the Life Insurance Corporation of India, established in 1956 and still the largest life insurer. General insurance in the public sector includes New India Assurance, National Insurance, Oriental Insurance and United India Insurance — each a general (non-life) insurer covering motor, fire, health and related risks.

GIC Re, the General Insurance Corporation of India, is India's national reinsurer — it provides reinsurance support to direct insurers (including obligatory cessions on general policies) rather than selling policies to retail customers. That national reinsurance role belongs to GIC Re, not LIC and not any of the four general insurers.

Figure. LIC (1956) dominates public-sector life. Four PSU general insurers cover non-life. GIC Re is the national reinsurer — it supports insurers, it does not sell retail policies like LIC.

6Financial products banks distribute

Modern banks distribute more than loans and deposits. Fixed deposits lock a lump sum for a fixed tenure at a stated rate; recurring deposits collect a fixed instalment every month into a term savings plan. Both are bank deposit products — principal protection and interest are the core promise.

Mutual funds pool investors' money into market portfolios and are regulated by SEBI, not IRDAI, even when sold at a bank counter. ULIPs combine life insurance cover with market-linked investment in one premium and sit under IRDAI as life insurance products. Pension and annuity products — including NPS-related offerings — target retirement income and fall under pension regulation where applicable.

Figure. Banks distribute deposits (FD/RD), SEBI-regulated mutual funds, IRDAI life ULIPs, and pension/annuity products. The counter does not change the regulator.