As per the new KYC mandate, all the general insurers are compulsorily required to collect KYC documents from the customers at the time of issuing the policy.
The insurance industry is going through a regulatory update to ensure transparency and a smoother onboarding process. The recent changes in the KYC norms for general insurance companies are expected to bring some positive changes. As per the new KYC mandate, all the general insurers are compulsorily required to collect KYC documents from the customers at the time of issuing the policy. Earlier, it was not compulsory and KYC was required only at the time of making a claim.
Let us discuss different types of KYC processes in car insurance as per the new regulations.
What is KYC in Car Insurance?
KYC or Know Your Customer is a verification process in which the insurer authenticates a customer’s identity and address information before any financial transaction such as opening a bank out, digital money transfer, or purchasing insurance. To establish a customer’s identity and address, the insurer needs supporting documents including a PAN card, an Aadhaar Card, a photo id, and proof of address. A periodic KYC update ensures that a customer is genuine and prevents money laundering.
In this verification process, the first step is the collection of the personal information of the customer. The customer fills out a KYC registration form and validates the information provided by attaching supporting documents. Finally, the information in the documents is verified to confirm the identity of the customer.
What are the documents required for KYC?
Documents used for the identity verification of customers are called Officially Valid Documents (OVDs). The government has specified 6 documents as OVDs which can be used for the KYC procedure. The table given below enlists documents needed for KYC.
- Unique Identification Number (UID) – Aadhaar Card/Voter Id Card/ Driving licence/ Passport
- PAN Card
- ID Card issued by government authorities, financial institutions, universities, or any other professional entity
- Voter Id Card/ Passport /Rental agreement / Ration Card / House maintenance bill / Driving licence / Insurance copy
- Utility bills including phone bills, gas bills, electricity bills, etc.
- Bank account statement
- Self-declaration by the judges of high court / supreme court
- Proof of residence issued by gazetted officer/ Notary / Parliament and government departments / Legislative Assembly elected representative.
What are the different Types of KYC Processes Approved by IRDAI
IRDAI has approved different types of KYC processes for customer identification? They include
- Paper-Based KYC
It is an in-person form of verification, in which the customer provides physical copies of the documents required for KYC such as proof of identity and proof of address. It is an effective method as the customer is present physically for identity confirmation and there is less scope for errors. However, this method is old and a customer can easily forge documents if proper verification is not done. It is also time-consuming.
- Offline KYC
Offline KYC is often confused with physical KYC but they are different. In offline KYC, a database is used to verify the customer’s identity without using any biometrics. The customer fills out a KYC form and attaches relevant documents. This form is submitted to a KRA (KYC Registration Agency) which issues an application number that can be used to check KYC status. KRA uploads the customer’s details on its system which can be accessed by insurers.
- Online KYC
For online KYC, the customer registers at the portal of the KRA and submits details like name, address, and date of birth with an Aadhaar number and registered contact number. All the documents are verified by entering the OTP received on the registered number. The customer then uploads a self-attested copy of the e-Aadhaar and accepts the declaration for e-KYC. Online KYC is also done using biometric authentication.
- Video KYC
This is a completely paperless digital process in which the customer’s presence is also not required. The customer submits all the required documents and performs a video verification through a web portal or web app. Video verification can be easily done using a mobile phone. This process is the fastest KYC process and enables smooth customer onboarding.
The revised KYC norms will help the insurers in fetching a detailed customer profile resulting in better risk evaluation. It will also ease the claim process, as the KYC documents will be available before the claim process thus preventing any fraudulent claims. It will also help the insurers in providing better customer service.
Frequently Asked Questions
What is KYC?
KYC stands for Know Your Customer, and it refers to the process of verifying the identity of a customer, client or user. KYC is a critical part of the due diligence process that businesses, financial institutions, and other organizations undertake to comply with regulations and to mitigate the risks of fraud, money laundering, terrorism financing and other illegal activities.
The KYC process typically involves gathering identifying information and documentation from the customer, such as name, address, date of birth, government-issued identification, and financial information. This information is then verified using various methods, such as identity verification software, in-person identification, and document authentication.