Unit 4: Reinsurance & management in insurance
Insurance Services Management notes · PTU syllabus (BCOP 522-18)
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Unit summary
Insurers spread risk through reinsurance and run their business through marketing, people, finance and technology. This unit covers the concept and importance of reinsurance, tax benefits under life insurance policies, marketing of insurance policies, HR issues in the insurance sector, financial management applications and the use of information technology in insurance.
After this unit you can
- Explain the concept, methods and importance of reinsurance
- Explain tax benefits available on life insurance policies
- Explain marketing of insurance and HR issues in the sector
- Explain financial management and IT applications in insurance
PTU syllabus topics
- Concept and importance of reinsurance
- tax benefits under life insurance policies
- marketing of insurance policies
- HR issues in the insurance sector
- financial management applications
- use of information technology in insurance
- 1Policyholder
Buys cover from an insurer
- 2Insurer
Keeps part of the risk
- 3Reinsurer
Takes the rest for a premium
- 4Large loss
Shared, so no single insurer is ruined
Topic 1
Reinsurance
Reinsurance is insurance for insurers — an insurer (ceding company) transfers part of the risk it has underwritten to another insurer (reinsurer) for a share of the premium.
Facultative
Risk-by-risk; reinsurer may accept or reject each
Treaty
Automatic agreement covering a class of business
Proportional
Quota share (fixed %), surplus (above retention)
Non-proportional
Excess of loss, stop loss (catastrophe cover)
Importance
- Enables insurers to accept large risks (aviation, refineries) beyond their capacity.
- Stabilises results and protects against catastrophes (earthquakes, floods).
- Improves solvency and capacity to write more business.
- Provides technical expertise in pricing and underwriting.
- GIC Re (General Insurance Corporation of India) is the national reinsurer; obligatory cession (now 4%) to GIC Re; foreign reinsurers operate branches in India.
Topic 2
Tax benefits under life insurance policies
| Provision | Benefit (old regime unless stated) |
|---|---|
| Section 80C | Premiums for self, spouse and children deductible up to ₹1.5 lakh (premium within 10% of sum assured for policies after April 2012) |
| Section 80CCC | Contribution to annuity/pension plans (within ₹1.5 lakh overall) |
| Section 80D | Health insurance premiums — ₹25,000/₹50,000 plus parents |
| Section 10(10D) | Maturity proceeds exempt if premium ≤ 10% of sum assured; not for ULIPs with annual premium above ₹2.5 lakh or non-ULIP policies with premium above ₹5 lakh (issued after 1 April 2023); death claims always exempt |
| Section 194DA | TDS at 2% on the income portion of taxable maturity proceeds |
- Under the new regime, 80C/80D deductions are not available, but Section 10(10D) exemption on proceeds still applies.
- GST: individual life and health insurance policies are exempt from GST from 22 September 2025.
Topic 3
Marketing of insurance policies
- Characteristics: intangible, long-term, often "sold not bought", trust-based, needs explanation.
Product
Term, ULIP, health, riders, customisation
Price
Premium based on actuarial risk, competitive pricing
Place
Agents, bancassurance, brokers, online, CSCs
Promotion
Advertising, digital campaigns, financial literacy drives
People
Trained agents and service staff
Process
Easy proposal, quick issuance, fast claims
Physical evidence
Policy documents, branches, apps
- Rural and social sector obligations require insurers to market in villages and to weaker sections.
- Challenges: mis-selling, low trust, high lapse rates, low awareness; solutions — needs-based selling, digital KYC, simplified products, financial literacy.
Topic 4
HR issues in the insurance sector
- High attrition among agents and sales staff due to targets and commission-based income.
- Recruitment and training — licensing exams, product knowledge, ethics, soft skills.
- Performance pressure and target-driven culture can cause mis-selling.
- Skill gaps in actuarial science, underwriting, data analytics, IT and risk management.
- Compensation and motivation — commission caps (IRDAI's Expenses of Management regulations), incentives, career paths.
- Employee unions in public sector insurers; integrating culture after mergers.
- Diversity and women agents — growing role in rural markets (Bima Sakhi Yojana by LIC, 2024).
Topic 5
Financial management and IT in insurance
Financial management applications
- Premium pricing using actuarial techniques — mortality tables, morbidity, interest, expenses.
- Reserving: policy liabilities, unexpired risk reserve, IBNR (incurred but not reported) claims reserves.
- Investment management: asset–liability matching, IRDAI investment norms, returns vs safety.
- Solvency and capital management — 150% solvency ratio; risk-based capital.
- Expense management — limits on expenses of management and commissions.
- Claims management and fraud control.
- Reinsurance strategy for capacity and stability.
Use of information technology
Digital sales
Online purchase, e-KYC, e-insurance accounts (e-IA)
Underwriting
Data analytics, AI risk scoring, telematics for motor
Claims
Mobile apps, photo-based motor claims, automated settlement
Customer service
Chatbots, portals, Bima Bharosa grievance system
Fraud detection
Machine learning, data sharing
Platforms
Bima Sugam marketplace, National Health Claims Exchange, Account Aggregator, blockchain pilots
- Dematerialised policies: IRDAI mandates issuance of policies in electronic form (e-insurance accounts through insurance repositories).
- Challenges: cyber security, data privacy (DPDP Act, 2023), legacy systems, digital divide.
Key terms
- Reinsurance
- Insurance purchased by an insurer to transfer part of its risk
- Facultative reinsurance
- Reinsurance arranged risk by risk
- Treaty reinsurance
- Automatic reinsurance of a class of business
- Section 10(10D)
- Exemption for life insurance maturity and death proceeds subject to conditions
- InsurTech
- Use of technology to innovate in insurance
Quick revision
- Reinsurance: facultative vs treaty; proportional vs non-proportional; GIC Re.
- Tax: 80C, 80CCC, 80D, 10(10D) with premium limits; GST exempt on individual policies from Sept 2025.
- Marketing: 7Ps, needs-based selling, rural obligations.
- HR issues: attrition, training, mis-selling pressure, skill gaps.
- Finance: pricing, reserving, investments, solvency; IT: digital sales, AI underwriting, claims apps.
Important exam questions
Practice questions written to the PTU exam pattern for this unit's syllabus: short answers (Section A style) and long answers (Sections B and C style).
Short-answer questions
- Q1.Define reinsurance.
- Q2.Distinguish facultative and treaty reinsurance.
- Q3.What is obligatory cession?
- Q4.When are life insurance maturity proceeds exempt under Section 10(10D)?
- Q5.State two HR issues in the insurance sector.
- Q6.What is an e-insurance account?
Long-answer questions
- Q1.Explain the concept, methods and importance of reinsurance.
- Q2.Explain the tax benefits available under life insurance policies.
- Q3.Discuss the marketing of insurance policies and HR issues in the insurance sector.
- Q4.Explain the applications of financial management and IT in insurance.
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