General Insurance Products, Motor, Health & Reinsurance — Practice

Question 1

Is motor Third Party insurance mandatory or optional in India?

Accepted Answer

Mandatory, under the Motor Vehicles Act, 1988.

Question 2

Name the two modes of health-insurance claim settlement.

Accepted Answer

Cashless and reimbursement.

Question 3

What is reinsurance?

Accepted Answer

Insurance that an insurance company itself buys, transferring part of its own risk exposure to another company (the reinsurer).

Question 4

Distinguish Third Party motor insurance from Own Damage cover.

Accepted Answer

Third Party covers the insured's legal liability for injury/damage caused TO OTHERS and is mandatory. Own Damage covers damage to the INSURED'S OWN vehicle (accident, fire, theft, natural calamity) and is optional; a Comprehensive policy combines both.

Question 5

Why do health insurance policies impose a pre-existing disease waiting period?

Accepted Answer

To prevent adverse selection — without it, a person could buy insurance only after already needing treatment for a known condition, undermining the risk-pooling logic insurance depends on.

Question 6

Distinguish cargo insurance from hull insurance.

Accepted Answer

Cargo insurance covers goods in transit (by sea, air or land); hull insurance covers the vessel itself.

Question 7

Explain why catastrophe risk specifically drives the need for reinsurance, in a way ordinary claim volumes do not.

Accepted Answer

Ordinary insurance pooling relies on individual policyholders' risks being largely independent/uncorrelated, allowing an insurer to predict aggregate claims reliably even though no individual claim is predictable. A catastrophe event (major flood, earthquake, cyclone) causes CORRELATED losses across many policyholders simultaneously, breaking this independence assumption — a single such event could threaten an individual insurer's solvency even if its everyday risk pricing was entirely sound. Reinsurance spreads this correlated risk across a wider capital base than any single insurer holds.

Question 8

A policyholder switches to a new car after 3 claim-free years on their old vehicle's policy. Can they carry forward their No-Claim Bonus?

Accepted Answer

Yes, typically — NCB is tied to the POLICYHOLDER's claims history, not the specific vehicle, so it can generally be transferred to a new vehicle's policy, subject to the insurer's specific transfer rules. It would be lost, however, if a claim had been made in the relevant policy year.

Practice — General Insurance Products, Motor, Health & Reinsurance

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