The IRDAI, or the Insurance Regulatory and Development Authority of India, has recently implemented new regulations concerning Know Your Customer (KYC) procedures in the car insurance sector. These regulations, which came into effect on January 1, 2023, require all motor insurance sectors, including comprehensive car insurance, to comply with the KYC process. KYC plays a critical role in verifying the identities of customers and preventing fraudulent activities within the motor insurance industry. This blog gives a comprehensive overview of the latest IRDAI regulations, sheds light on the importance of KYC in car insurance, and offers guidance to policyholders and insurers on successfully navigating the KYC requirements for a seamless motor insurance experience.
The Objective of the Regulations
The main objective is the detection and reduction of insurance-related crimes.
- KYC is mandated to combat fraudulent activities such as money laundering
- IRDAI aims to strengthen KYC norms to safeguard the car insurance industry
KYC Requirements for Individual Policyholders in Car Insurance
- Insurers must make diligent efforts to verify and authenticate the identity of individual policyholders
- Insurers must take measures to prevent policies under anonymous or fictitious names
- Special procedures should be in place to identify both new and existing customers accurately
- Insurance companies must verify a customer’s identity, address, and recent photograph
- If a customer wants to submit an address different from the one mentioned on their Aadhaar Card, insurers must obtain a self-declaration from the customer
- In cases where customers are unable to authenticate their Aadhaar due to injury, illness, age, or other valid reasons, insurers can request Officially Valid Documents (OVD) as an alternative for verification
KYC Requirements for Judicial Persons or Entities in Car Insurance
- Measures to establish a client’s identity and beneficial owner
- Insurers must take all necessary measures to identify the client’s identity and determine the beneficial owner
- There should be stringent checks and verification processes for judicial persons/entities
- Verification of legal status through specified documents
- Insurers need to verify the legal status of the entity or person through relevant documents
- Documents required include proof of the entity’s name, proof of existence and legal form, address of the registered office, and authorised persons responsible for the client and the beneficial owner
Importance of Compliance with KYC Norms
- Detection and prevention of fraudulent activities
- Strong KYC practices help identify and mitigate potential risks, such as money laundering and fraudulent claims
- Protects insurers and policyholders from financial losses
- Enhanced security and trust in the industry
- Compliance with KYC norms ensures a more secure and transparent insurance ecosystem
- Builds trust among policyholders, leading to long-term customer satisfaction and loyalty
- Legal and regulatory compliance
- Adhering to KYC guidelines ensures compliance with IRDAI regulations and legal obligations
- Non-compliance can result in penalties and reputational damage for insurers
Benefits of KYC for Policyholders and Insurers
- Faster claims settlement process
- KYC eliminates the need for insurers to collect KYC documents during claim settlement, resulting in faster processing and reduced inconvenience for policyholders
- Improved risk assessment and fraud prevention
- Accurate identification and verification of individuals help insurers assess and manage risks effectively
- Prevents instances of fraudulent activities, enhancing the overall integrity of the insurance industry
- Personalised services and competitive premiums provide
- A better understanding of policyholders’ profiles enables insurers to offer personalised services and tailored coverage options
- Improved risk assessment allows for more accurate premium calculations, ensuring competitive pricing for policyholders
- Enhanced customer satisfaction and industry reputation
- Streamlined KYC processes lead to a smoother customer experience, enhancing overall satisfaction
- Strong KYC practices contribute to a positive industry
Accepted KYC Methods
- Online Aadhaar-based KYC authentication
- Customers can use their Aadhaar number and undergo biometric authentication to complete the KYC process online
- This method offers convenience and speed, as it utilises the government-issued Aadhaar card for verification
- Offline-based KYC authentication with physical documents
- Customers can provide physical copies of their identity proof and address proof documents, along with a duly filled KYC application form
- Accepted identity proof documents may include Voter ID, Aadhaar Card, Passport, and other government-issued identification cards
- Accepted address proof documents may include bank statements, utility bills, rental agreements, and other official documents verifying the customer’s residential address
- Video-based identity authentication
- This method involves customers providing their KYC details through a video call with the insurance company
- The customer’s identity and information get verified in real-time through the video call, ensuring accuracy and authenticity
- PAN-based KYC authentication
- Customers can authenticate their identity using their Permanent Account Number (PAN)
- They must submit a self-attested copy of their PAN along with address-proof documents, such as voter ID, Passport, utility bills, etc., for verification
- OTP-based e-KYC
- This method utilises the One Time Password (OTP) sent to the customer’s registered mobile number for authentication
- The customer enters the OTP in the e-KYC form to verify their identity
Required Documents for KYC of Individual Customers
- Identity proof options
- Voter ID
- Aadhaar Card
- Passport
- Other government-issued identification cards: PAN Card, driving license, etc.
- Address proof options
- Bank Statement
- Utility Bills
- Rental Agreement
- Other official documents: Registered sale agreement, property tax receipt, etc.
- Recent passport-size photograph
- Other documents, as per the insurer’s requirements
Conclusion
In conclusion, the new IRDAI regulations for car insurance, including comprehensive car insurance and motor insurance, aim to combat fraud and enhance security. These regulations streamline processes, improve risk assessment, and offer personalised services. They result in faster claims settlement, enhanced industry reputation, and compliance with legal requirements. Adhering to these regulations ensures a robust and transparent car insurance ecosystem, benefiting all stakeholders involved.