Ramesh Singh Test : Insurance In India - UPSC MCQ

The primary purpose of the Deposit Insurance and Credit Guarantee Corporation (DICGC) in India is to ensure financial stability and protect depositors. It was established by merging the Deposit Insurance Corporation and the Credit Guarantee Corporation with a focus on safeguarding depositors, instilling confidence in the banking system, and helping mobilize deposits. By providing deposit insurance, the DICGC aims to protect the interests of depositors in case of bank failures, thereby contributing to financial stability in the banking sector.

- Pair 1: Deposit Insurance and Credit Guarantee Corporation (DICGC) - Merged in 1978
This statement is correctly matched. The DICGC was indeed set up by merging the Deposit Insurance Corporation (1962) and the Credit Guarantee Corporation (1971) in 1978.

- Pair 2: Export Credit Guarantee Corporation (ECGC) - Under the Ministry of Finance
This statement is incorrectly matched. The ECGC is under the Ministry of Commerce and Industry, not the Ministry of Finance.

- Pair 3: National Export Insurance Account (NEIA) - Established in 2006
This statement is correctly matched. The NEIA was set up by the Government of India in March 2006 to promote medium-and long-term exports by providing credit insurance support in cases where ECGC was not able to provide cover on its own.

- Pair 4: Insurance Penetration - Ratio of premium underwritten in a given year to total population
This statement is incorrectly matched. Insurance penetration is defined as the ratio of premium underwritten in a given year to the Gross Domestic Product (GDP), not the total population. The ratio of premium underwritten to the total population is called insurance density.

Thus, only pairs 1 and 3 are correctly matched.

Answer: Option B

Statement-I accurately describes the nature of 'third-party' insurance, which covers the legal liability of the insured for third-party property damage or injury. This type of insurance does not provide direct benefits to the insured but rather protects against liabilities arising from incidents involving third parties. Statement-II, on the other hand, incorrectly suggests that the 'third-party' insurance policy offers benefits to the insured, which is not the case. The primary purpose of such insurance is to cover the insured's legal obligations towards third parties, not to provide personal benefits in case of accidents. Thus, while Statement-I is correct, Statement-II is inaccurate, making Option C the correct choice.

1. Statement 1 is correct. The Deposit Insurance and Credit Guarantee Corporation (DICGC) was indeed set up by merging the Deposit Insurance Corporation (1962) and the Credit Guarantee Corporation (1971) in 1978.

2. Statement 2 is correct. After the merger, the focus of the DICGC shifted to credit guarantees, partly because most large banks were nationalised, which was aimed at persuading banks to extend credit to less creditworthy clients.

3. Statement 3 is correct. The National Export Insurance Account (NEIA) was established in March 2006 to support medium- and long-term exports by providing credit insurance for projects that ECGC could not cover due to its limitations.

Thus, all the statements are correct, making the correct answer Option D.

Statement-I is inaccurate because after the merger in 1978, the focus of DICGC shifted primarily to credit guarantees, not deposit insurance. On the other hand, Statement-II correctly describes the establishment and purpose of the National Export Insurance Account (NEIA) in 2006 to support medium- and long-term exports when ECGC could not provide credit cover independently. Therefore, the correct option is D, as Statement-I is incorrect while Statement-II is accurate.

1. Statement 1 is correct. The Insurance Regulatory and Development Authority of India (IRDAI) did introduce market-linked adjustments in third-party insurance premiums by early 2020 to enhance the sector of non-life insurance.

2. Statement 2 is correct. The Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY) indeed offers a renewable one-year term life cover of ₹2 lakh to subscribing bank account holders in the age group of 18 to 50.

3. Statement 3 is incorrect. The National Health Protection Scheme (NHPS) under Ayushman Bharat aims to provide coverage of up to ₹5 lakh, not ₹10 lakh, to over 50 crore vulnerable families.

Thus, the correct answer is Option B: 1 and 2 Only.

- Statement 1: The Insurance Laws (Amendment) Act, 2015 indeed increased the foreign equity investment cap in an Indian insurance company to 49 percent, up from the previous cap of 26 percent. This is correct.

- Statement 2: The Act allows public sector general insurance companies, which are required to be 100 percent government-owned as per the General Insurance Business (Nationalization) Act, 1972, to raise capital. This is also correct.

- Statement 3: This statement is incorrect. The Act does not mandate that all insurance agents must be appointed directly by the IRDAI. Instead, it entrusts the responsibility of appointing insurance agents to insurers and provides for the IRDAI to regulate their eligibility and qualifications.

Thus, the correct answer is Option B: 1 and 2 Only.

1. Life Insurance Corporation of India (LIC) - Set up in 1956
This pair is correctly matched. LIC was established in 1956 when the life insurance business in India was nationalized.

2. General Insurance Corporation of India (GIC) - Started operation in 1972
This pair is incorrectly matched. The GIC was formed in 1972, but it started operation on January 1, 1973.

3. Agriculture Insurance Company of India Limited (AICIL) - Set up in 2003
This pair is incorrectly matched. AICIL was set up by the Government of India in December 2002 and commenced its business in April 2003.

4. Insurance Regulatory and Development Authority (IRDA) - Set up in 2000
This pair is correctly matched. The IRDA was established in 2000, following the passage of the Insurance Regulatory and Development Authority Act in 1999.

Thus, pairs 1 and 4 are correctly matched, while pairs 2 and 3 are not. Therefore, only two pairs are correctly matched.

1. The Life Insurance Corporation of India (LIC) was set up as a government-owned entity in 1971.
   • This statement is incorrect. The LIC was set up in 1956, not in 1971.
2. The General Insurance Corporation of India (GIC) was notified as the Indian Reinsurer in November 2000.
   • This statement is correct. The GIC was indeed notified as the Indian Reinsurer in November 2000.
3. Agriculture Insurance Company of India Limited (AICIL) is responsible for the Prime Minister Fasal Bima Yojana (PMFBY).
   • This statement is correct. AICIL is responsible for the Prime Minister Fasal Bima Yojana (PMFBY) since January 2016.

Therefore, only statements 2 and 3 are correct. Hence, the correct answer is Option C: 2 and 3 Only.

Third-party insurance primarily covers the legal responsibilities of the insured party for third-party losses, such as death, disability, or property damage. This type of insurance is mandatory for all vehicles in India, as per the Motor Vehicles Amendment Act of 2019. It differs from comprehensive insurance, which also includes damages to the insured's vehicle.