All About KYC Norms in Two-Wheeler Insurance

by SMCIB on Sunday, 11 June 2023

All About KYC Norms in Two-Wheeler Insurance

In today’s world, you can find as many two-wheelers as humans, weaving through traffic on busy streets. These two-wheelers provide a fast and convenient way of commuting, allowing riders to get to their destinations quickly. However, you cannot deny the possibility of accompanying risks as well. Accidents can occur unexpectedly, regardless of the precautions taken. The unexpected can turn your joyride into a nightmare, whether it is a minor fender bender or a major collision. This is why two-wheeler insurance is recommended – to protect you and your vehicle against the uncertainties of the road.

But here's the catch - to unlock the full potential of your insurance coverage, you must navigate the labyrinth of KYC (Know Your Customer) norms. It is a crucial procedure designed to authenticate and validate one's identity.

In this article, we discuss everything about KYC norms in two-wheeler insurance, from their purpose to significance.


What is KYC?

KYC, as mentioned earlier, is a process that insurance companies undertake to verify the identity and address of their customers. It acts as a powerful tool in the battle against fraud, money laundering, and other illicit activities that could jeopardize the integrity of the insurance industry. In short, KYC is not just a box to tick; it is a requirement that ensures transparency and authenticity.

When it comes to KYC, insurance companies collect and verify personal information about their customers. This typically includes details such as –

  • Your name
  • Your address
  • Date of birth
  • Government-issued identification numbers like an Aadhaar card or PAN card, etc.

By diligently gathering this information, insurers can ensure that their policies are being issued to legitimate individuals. This enhances customer protection and minimizes the risk of identity theft, financial fraud, and other unlawful activities.

In a recent circular, dated 10th October 2022, the IRDAI has made it mandatory for all insurance companies to verify the identity of policyholders, effective from 1st January 2023. The primary objectives of implementing the KYC process are to combat fraudulent activities, promote transparency in transactions, and provide improved protection for customers.

The Master Guidelines on Anti-Money Laundering/Counter Financing of Terrorism (AML/CFT) initially set November 2022 as the enforcement date. However, after carefully considering requests from insurance companies, the deadline for KYC compliance was extended to 1st January 2023.


Why is KYC Mandatory?

Let's delve into the reasons why KYC holds such paramount importance –

  1. For Identity and Address Verification
    KYC enables insurance companies to verify the policyholder’s identity and address with precision. By conducting thorough checks, insurers can confirm that the policy is being issued to the right individual - thwarting any fraudulent activities.

  2. Acts as a Safeguard Against Fraud
    By incorporating a stringent verification process, insurance companies can authenticate that the policy is issued to the right individual. This significantly reduces the risk of identity theft, deceitful claims, and other fraudulent practices.

  3. For Regulatory Compliance
    Insurance companies are required to comply with comprehensive regulations set by the Insurance Regulatory and Development Authority of India (IRDAI). These regulations highlight the importance of following a strict and transparent KYC process.


What are the KYC Norms?

Here are some of the KYC norms that insurers uphold to ensure the integrity of their operations -

  • Confirming True Identities
    Money launderers exploiting insurance services have become increasingly common. Insurers are now required to go the extra mile in determining the true identity of their customers. It is a proactive measure to safeguard everyone against illicit activities.

    When dealing with individual clients, insurers must confirm their identity and address as well as obtain a recent photograph. These thorough verification procedures ensure that the customer is legitimate and trustworthy.

  • Self-Declaration
    If a customer wants to provide an address different from what is mentioned on their Aadhaar Card, a mandatory self-declaration becomes necessary. This adds an extra layer of verification and ensures accurate record-keeping.

  • Alternative Options instead of Aadhar
    Alternate options are available for individuals who are unable to undergo Aadhaar authentication. This includes those who are injured, ill, elderly, or simply unwilling to go through the process. By submitting Officially Valid Documents (OVDs) during the commencement of an account-based relationship, they can prove their identity without any hassles.

  • Diligence for New Customers
    To establish an account-based relationship with a new customer, their KYC documents shall be verified as part of comprehensive client due diligence procedures.
  • KYC Collection for Existing Customers
    KYC is mandatory for existing ones too.  If KYC is not available for existing customers, it should be collected within 2 years for low-risk customers and 1 year for high-risk ones.

Procedures That Can be Used by Insurers for KYC

Insurers employ various procedures to carry out the KYC process to provide a hassle-free experience for their policyholders -

1️⃣ Aadhaar-Based KYC
Aadhaar-based KYC simplifies the process of verifying your identity for your two-wheeler insurance policy by linking it with your Aadhaar number. For authenticating the Aadhar number you have provided, an OTP (One-Time Password) is sent to your mobile number. This streamlines the process without extensive paperwork.

2️⃣ Video-Based KYC
Video-based KYC is a modern and convenient way to verify your identity with insurance companies. You simply need to provide your identity proof, such as an Aadhar card, and a live video with it. After completing the video KYC process, the insurance company will verify your details and proceed with your insurance application.

3️⃣ Physical KYC
If you prefer a more traditional approach, you can visit the insurance company's office and personally provide your identity proofs and documents. The company's representatives will then carefully scrutinize the provided documents for authenticity and complete the KYC process.

4️⃣ OTP-Based KYC
OTP-based verification is a process where you receive an OTP (One-Time Password) on your registered mobile number. The insurance company will use this OTP to authenticate your identity and complete the KYC process. This method eliminates the need for extensive paperwork and lengthy procedures - allowing you to effortlessly validate your identity.

To conclude,

KYC (Know Your Customer) has become a vital requirement in the insurance industry. It helps insurers verify the identity and legitimacy of policyholders. The KYC process was introduced to prevent fraud, money laundering, and illegal activities while promoting transparency and customer protection. By adhering to KYC guidelines, insurers can ensure a trustworthy relationship with their customer - ensuring a reliable insurance industry overall.

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