KYC is Mandatory for Buying Insurance as per New IRDAI Guidelines
Insurance Regulatory and Development Authority of India (IRDAI) have issued new norms, making Know Your Customer (KYC) mandatory when purchasing and renewing all types of insurance: life, general and health. This rule will be applicable from January 1, 2023.
In compliance with the Anti-Money Laundering Master Guidelines, IRDAI has mandated KYC guidelines for insurance companies. Read on to know about KYC, why it is mandatory for insurance policies, the necessary documents and more.
What is KYC in Insurance?
Like banks and other financial institutions, insurance companies are required to legally comply with guidelines on Anti-Money Laundering/Counter Financing of Terrorism. This requires them to follow customer identification procedures while establishing a client-based relationship and monitor every transaction.
Know Your Customer (KYC) is the process of tracing and verifying the basic credentials of the customers by the financial institutions viz. banks, insurance companies, stockbrokers, etc. A customer's name, address and other basic details are easily verified through KYC before the issuance of their policy. KYC is done before or during conducting of financial transactions with the customers.
Why is KYC Mandatory for Insurance?
IRDAI has mandated insurance companies to collect KYC details from clients and customers to ensure insurance products and services are not being used to launder unlawfully derived funds or to finance terrorist acts.
The concern for insurance companies, like other financial institutions, are money laundering (a process or activity of moving illegally acquired money through financial systems so that it appears to be legally acquired), fake accounts, stolen identities, application fraud and other types of fraud. To ensure that they know who their customers are, they use KYC processing. This also helps to stay in compliance with the Anti-Money Laundering regulations.
Earlier, customers were required to provide KYC details voluntarily at the time of claims and during health insurance claims if those claims are greater than Rs 1 lakh. Now, the new process will require customers to provide details at the time of purchasing as well as renewing the policy.
Why is KYC Important?
Financial institutions gather vital information related to the identity of a customer through KYC. The KYC procedure is mandatory for ensuring proper legal vigilance to minimise chances of fraud or money laundering.
The basic details that are available through KYC are used to:
Ensure that the person availing the policy is a genuine customer.
Create a customer profile to better target and sell products.
Get basic customer details to contact a policyholder in times of need.
Where do you need KYC?
KYC is a mandatory compliance that is required by regulators, including IRDA, RBI, and SEBI. KYC is also used when opening bank accounts, demat accounts, investing in mutual funds, stocks, buying insurance, using mobile wallets, and many other financial transactions!
What are the Benefits of KYC in Insurance?
Some of the benefits are mentioned below:
Transparency between the Insurer and the Insured: Insurers handle the personal identifiable information of their clients. As a result, companies must guarantee the accuracy of the information belonging to their clients—both persons and institutions. KYC assists insurers in gathering sufficient evidence so they may offer adequate insurance coverage to the appropriate customers.
Keeps Track of Transactions: KYC aids financial institutions in avoiding dealings with individuals or groups engaged in corruption as well as those with criminal intentions, such as laundering money and/or financing terrorism. This assists in risk management as financial institutions can prevent misuse of their services by correctly implementing the KYC standards.
What are the Steps and Procedures for KYC Validation through Digit Insurance?
Purchasing an insurance policy through Digit is simple! We have our portal, app and partners to assist you through the entire journey. If you’re looking to renew or buy a new insurance policy, KYC verification is necessary.
Any customer, those who have or have not done KYC previously with us, can refer to the below steps. We've mentioned the procedures to easily verify your KYC documents with us, to get the best of our services.
After a successful payment, follow these given steps:
Step 1
Enter the customer's mobile number and date of birth.
Step 2
Choose the method of ‘KYC’ if the customer has previously done e-KYC (electronic KYC) for any financial product. Choose ‘CKYC’ (Central KYC) through PAN, or Aadhar verification through DigiLocker. If not, choose ‘Manual Document Upload’.
Step 3
If you select ‘Manual Document Upload’:
- Upload customer's photo
- Upload any one ID (Aadhar, Passport, Voter ID, Driving Licence).
Step 4
If there is a mismatch, we'll issue a policy with the details mentioned on the government ID. Select ‘Ok, I agree’ to confirm issuance or close the tab to cancel.
Step 5
To know more or if you face any issues, then you can contact Customer Happiness at 1800-258-5956.
You must submit a signed, scanned copy of documents for processing. You also need to include a copy of all these documents at the time of policy issuance.
What are the Different Types of KYC?
There are different types of KYC. Some of them that we use here in Digit are:
• Aadhar-based e-KYC: Data collected through UIDAI (Unique Identification Authority of India) is used to authenticate customers remotely. This can be done through OTP generation or biometric verification.
• Central KYC (CKYC): The CKYC procedure requires providing necessary documentation and establishing your identity before the data is added to the central repository. A 14-digit number is generated and can be used to access this central repository, maintained by the Central Registry of Securitization Asset Reconstruction and Security Interest of India (CERSAI). Once a person receives a KYC identity number, known as a KIN, they can use it for any financial services.
• Scan Copy KYC: Scan copies of address and identity proofs are submitted.
FAQs on KYC Process for Insurance
What is KYC?
Know Your Customer (KYC) is a simple process of seeking and verification of customers' details such as name, address, etc. before issuance of a policy.
Is it compulsory to do KYC?
IRDAI has issued Master Guidelines making KYC a mandatory step before policy issuance from 1st January 2023. You will also be required to provide KYC details at the time of renewal of your policy, if not already provided.
Can I do KYC at home? What kinds of KYC verification is accepted for my insurance policy?
Yes, you can do the KYC verification process from your home. You need to have the right government documents and a stable internet connection. The above is done online through CKYC or Aadhar based KYC. Alternatively, offline method of KYC verification is also available.
What if my name as per VAHAN and the name on my PAN card are not the same?
Digit's integration system recognises a 70% accuracy in the matching of the insured's name. E.g. - If someone has entered their name as Rohit Singh but their name as per PAN is Rohit Kumar Singh, the system will accept it. Only if there is a complete mismatch, the system will ask to re-enter the right name according to KYC details or another policy will be issued with the right name.
Is KYC only required if I (the insured) purchase directly? What if I take it through an agent or aggregator?
KYC will be done for all retail policies irrespective of whether it was bought through an agent, intermediary or directly through Digit’s website or the Digit app.
I don't have PAN card or Aadhar. Can I still do KYC?
During the KYC process, you can share your Driver's licence or Voter's ID if you don't have a PAN or Aadhaar card. The same will be used to verify your details.
If there are more people covered in the policy, who all are required to do KYC verification?
Only the proposer/policyholder/primary member (the person who will be paying the premium) needs to do the KYC verification.
If I have multiple address details in my documents, for example, residing address is different from the ID address, how will KYC happen?
If the address doesn't match, then the address mentioned in the KYC documents will be considered as permanent address and the one given by the proposer shall be the communication address. The insurance company will ask for a ‘self-declaration’ in case of address mismatch.