Module 6

Commercial lines and reinsurance

Short primers so you can follow conversations on corporate and SME insurance.

Commercial lines protect businesses rather than individuals. Policies are larger, more often underwritten by hand, and almost always reinsured.

Main commercial lines

Each line has its own wording, rating basis and claims process.

Fire and property: Bharat Sookshma Udyam (assets up to ₹5 crore), Bharat Laghu Udyam (₹5–50 crore), Bharat Griha Raksha (home).
Property policies cover fire, lightning, explosion, storm, flood and similar perils. IRDAI's standard 'Bharat' products fix the wording according to the size of the business, and a standard home product covers houses.
ExampleA small textile unit with ₹3 crore of stock and machinery buys Bharat Sookshma Udyam; a factory with ₹30 crore of assets buys Bharat Laghu Udyam.
Marine cargo and hull; engineering (contractor's all risk, machinery breakdown).
Marine cargo covers goods in transit by sea, air, rail or road; hull covers the ship itself. Contractor's all risk covers a construction project while it is built; machinery breakdown covers sudden mechanical or electrical failure.
ExampleAn exporter takes an annual open marine cargo policy that covers every shipment from the factory to the buyer's warehouse.
Liability: public, product, directors and officers, professional indemnity, cyber.
Liability policies pay amounts the business is legally liable to pay others, plus defence costs. Directors and officers (D&O) cover protects directors personally; cyber cover pays for breach response, ransom and data liability.
ExampleAfter a data breach at an online shop, cyber cover pays for forensic investigators, notifying customers and legal defence.
Group health and group term as employee benefits (18% GST still applies).
Employers buy cover for staff under one master policy. These are not individual policies, so they did not receive the 2025 GST exemption.
ExampleAn IT company covers 2,000 employees and their families under one group health policy and pays 18% GST on the premium.

Reinsurance

Insurers buy insurance too. Reinsurance spreads large losses and lets an insurer write more business than its own capital would allow.

See the diagram: Reinsurance: quota share and excess of loss →

Treaty (automatic, a whole portfolio) vs facultative (one risk at a time).
A treaty covers every policy of an agreed type for a year without case-by-case approval. Facultative reinsurance is negotiated for a single large or unusual risk.
ExampleFire policies up to ₹100 crore go into the fire treaty automatically; a ₹2,000 crore refinery is placed facultatively.
Proportional (quota share, surplus) vs non-proportional (excess of loss, catastrophe).
In proportional reinsurance the reinsurer takes a fixed share of premium and claims. In non-proportional reinsurance it pays only the part of a loss above a retention.
ExampleQuota share 30%: on a ₹10 lakh claim the reinsurer pays ₹3 lakh. Excess of loss of ₹5 crore above ₹1 crore: on a ₹4 crore loss the insurer pays ₹1 crore and the reinsurer ₹3 crore.
Obligatory cession to GIC Re; the 2025 Act cut the net owned funds requirement for foreign reinsurers to ₹1,000 crore.
Indian general insurers must pass a set share of most business to GIC Re, the national reinsurer. Lower capital requirements make it easier for foreign reinsurers to open branches in India.
ExampleOn each policy covered by the rule, the insurer passes the required share of premium to GIC Re, and GIC Re pays the same share of any claim.