Since digitisation came into play, life has become smoother, with technology simplifying even the most complex tasks. But as this new era brought convenience, it also opened doors to unseen threats—fraud waiting in the shadows of cyberspace. To battle these dangers, the “Know Your Customer” (KYC) initiative was launched, which acts as a guardian to protect against cybercrime, particularly in the insurance, banking, and investment sectors.
Imagine a city where everything runs on invisible threads of data. One day, a wise old gatekeeper was appointed to the main gate, which ensured only those with good intentions could enter. This gatekeeper, KYC, now watches over every transaction to protect the city from the tricks of unseen invaders. KYC isn’t a policy; it’s a safeguard, a tool introduced to curb risks and secure the services people rely on every day.
In this post, we’ll discuss the meaning and importance of KYC in insurance and how to enroll yourself with KYC.
What is KYC in Insurance?
KYC, or “Know Your Customer,” is a simple but crucial process used by insurance companies to confirm your identity and address. It’s designed to protect both you and the company from fraud, money laundering, or even financing of illegal activities. Essentially, it ensures that the person buying or claiming a policy is exactly who they say they are.
When you’re purchasing an insurance policy, you’ll need to complete the KYC process. It’s a one-time formality that happens when your policy is issued. But that’s not the only time KYC might come up—you’ll also need to provide KYC details if you’re filing a claim, surrendering the policy, or updating important details like changing your nominee.
Think of KYC as a safety net. Without it, anyone could potentially misuse your information to buy a policy or make claims under someone else’s name. By providing your KYC documents, you’re helping the insurance company issue the policy in your name and making sure everything stays secure and legitimate.
Importance of KYC in Insurance
KYC, or “Know Your Customer,” plays a vital role in the insurance world and other financial institutions. Here’s why it’s so important:
- Ensures Legitimate Clients and Legal Transactions
One of the biggest and most important aspects of KYC is that it helps insurance companies, banks, and other financial institutions ensure that their customers are who they claim to be. It ensures that the person buying an insurance policy or conducting financial transactions is genuine and that the activities are legal.
- Prevents Illegal Activities
Another major significance of KYC is that during the process of onboarding a new customer, KYC helps stop serious crimes like money laundering, terrorism financing, and corrupt activities. By verifying customers’ identities early on, financial institutions can block these illegal practices from taking place through their services.
- Mandatory for Financial Institutions
One of the interesting significance of KYC is that banks and insurance companies are legally required to follow KYC regulations. If they don’t comply, they can face hefty fines and penalties, making it a serious responsibility.
- Tracks Suspicious Accounts and Big Transactions
Last but not least, KYC also helps financial institutions keep an eye on “Benami Accounts” (accounts held under a false name) and monitor high-value transactions. Thus, it allows them to detect suspicious activities that could point to illegal dealings or financial crimes.
What are the Types of KYC?
There are two types of KYC in insurance:
- Offline KYC
In this method, customers need to provide physical copies of their KYC documents to the insurance company. The company will check these documents and finish the KYC process.
- Online KYC
Here, customers can complete the KYC process through the Internet by uploading their KYC documents to the insurance company’s website. The company will then verify these documents and complete the KYC process.
What are the Benefits of KYC in Insurance?
Let’s take a look at the benefits of KYC in the insurance sector.
Transparency between the Insurer and the Insured:
One of the biggest benefits of KYC is that these insurance companies often handle sensitive financial information about their clients. To protect this information and ensure accuracy, KYC is crucial. It helps insurers collect reliable proof of identity and address, allowing them to provide the right insurance coverage to the right people. Furthermore, this transparency builds trust between the insurer and the insured, which ensures that claims are processed fairly and correctly.
Keeps Track of Transactions:
KYC is essential for monitoring transactions within the insurance sector. It helps financial institutions avoid doing business with individuals or organizations that may be involved in illegal activities, such as corruption, fraud, or terrorism financing. By adhering to KYC norms, these organizations can safeguard their services from misuse and ensure they only deal with legitimate clients.
Helps in Risk Management:
Another major benefit of KYC is that it is vital in managing risk within the insurance industry. By identifying suspicious transactions, it reduces the chances of money laundering, theft, and other fraudulent activities. When insurers collect and verify important client information, they pass it on to KYC Registration Agencies (KRAs). These agencies store the information in a central database. If there are any changes to a client’s details in the future, only the relevant information is updated, which ensures that the data remains current and accurate.
How to Do KYC in India?
Since there are two methods to do KYC in India, let’s first discuss the offline method and then move on to the online method.
Offline Method:
- In the first step, you must visit the nearest branch of the insurance company you are working with. The location can be found on the company’s website or by calling customer service.
- Once you arrive at the branch, ask for the KYC form. Take your time to fill it out carefully, providing all the required information. This form is important for verifying your identity.
- After filling out the form, gather the necessary documents. You will need to provide photocopies of identity proof, address proof, and photographs.
- Once you have everything ready, hand over the form and the attached documents to the company executive at the branch. They will ensure that all your information is collected properly.
- The insurance company will then verify your documents and it will take time.
- Once the verification is completed, your KYC will be successfully registered, allowing you to proceed with your insurance policy.
Via Online:
To complete the KYC process online, start by visiting the official website of your insurance company. Look for the link labelled “Online KYC” and click on it. You will find a KYC form that needs to be filled out; provide all the required information accurately. Next, you will need to upload scanned copies of your KYC documents, which typically include your identity proof, address proof, and a recent photograph. After ensuring everything is filled out and uploaded correctly, submit the form along with the documents. The insurance company will then verify your submissions, and once completed, your KYC process will be finalized.
Documents Required to Verify Your KYC
Listed below are the documents required to submit to verify your KYC.
For ID proof documents, you can submit:
- PAN card
- Driving licence
- Aadhar Card
- Passport
- Voter’s ID
For the address proof documents, you can submit:
- Driving Licence
- Voter’s ID
- Aadhar card
- Passport
Conclusion
So, there you have it! Whether you choose to visit a local branch or submit your information through the company’s website, the goal remains the same: to establish a secure and trustworthy relationship between the insurer and the policyholder. With the implementation of KYC procedures, insurance companies can better protect themselves and their clients from potential risks. This not only fosters a safer environment for transactions but also enhances the overall customer experience, which may allow you to enjoy the full range of insurance benefits without unnecessary complications or concerns.
