What is KYC in Insurance and Why is it Important?

2024-06-01

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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. KYC is done before or during conducting financial transactions with the customers.

Hence, it is the process by which your identity is checked and verified by financial institutions.

KYC in insurance is very mandatory compliance regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Additionally, the KYC procedure is specified by the Reserve Bank of India (RBI) and the Securities and Exchange Board of India (SEBI) for commercial banks and other financial institutions. These include asset management companies (AMCs), NBFCs and stockbroking firms.

Key Takeaways

KYC in insurance is mandatory for verifying customer identity and preventing fraud.
Aadhaar-based eKYC offers a quick, digital, and paperless verification process.
Offline KYC requires physical document submission and is essential for high-value policies.
KYC compliance ensures transparency between insurers and policyholders.
Canara HSBC Life Insurance simplifies KYC and EIA processes for seamless policy management.

Why is KYC Important?

Financial institutions gather vital information related to the identity of a customer through this KYC. The KYC increase procedure is mandatory for ensuring proper legal vigilance to minimize the chances of fraud or money laundering.

What are the Types of KYC?

Know Your Customer (KYC) is a mandatory process that enables financial institutions, including insurance providers, to verify the identity of their customers. The Insurance Regulatory and Development Authority of India (IRDAI) requires KYC compliance to enhance transparency and prevent fraudulent activities.

When purchasing a life insurance policy, individuals can complete their KYC through different methods. Below are the two primary types of KYC used in the insurance sector:

Aadhaar-based KYC (eKYC)

Aadhaar-based KYC, also known as electronic KYC(eKYC), is a digital verification method that allows policyholders to complete their KYC process using Aadhaar details. This method of KYC in insurance is quite a convenient and efficient approach to verifying yourself. Here’s a quick overview of the Aadhaar-based KYC process:

The policyholder provides their Aadhaar number to the insurance company.
The insurer requests authentication from the Unique Identification Authority of India (UIDAI).
Authentication is completed through either an OTP-based verification sent to the Aadhaar-linked mobile number or biometric verification.
Once verified, the insurer receives essential KYC details such as name, date of birth, and address, reducing the need for physical document submission.

Once you follow the process and have successfully done the verification, you can enjoy its benefits. However, Aadhaar-based KYC in insurance also has certain limitations. It can only be used for policies that fall within specific regulatory limits. For high-value policies, additional verification through offline KYC is required.

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Offline KYC or In-Person Verification

Offline KYC, also known as In-Person Verification (IPV), is a physical verification process. Here, the policyholder submits documents directly to the insurer or an authorised KYC Registration Agency (KRA). This KYC insurance method is generally used for purchasing high-value life policies. Here’s what you need to do to obtain the same:

The policyholder visits the insurance provider’s branch or an authorised KRA.
Self-attested copies of identity and address proof are submitted.
An authorised representative verifies the original documents in person.
A photograph and signature verification may be required to complete the process.

Now that you know what steps you must take to get in-person KYC verification done, also remember to take the following documents:

Identity Proof Documents: Aadhaar, PAN, passport, voter ID card, or driving licence.
Address Proof: Utility bills (electricity or telephone), bank statements, or rental agreements.
Additional Documents: Some insurers may request financial documents to assess the applicant’s background, ensuring compliance with KYC insurance guidelines.

Where do you Need KYC?

KYC is compulsory compliance mandated by various regulators such as IRDA, RBI, and SEBI. Moreover, the KYC process also enables the customers to access various premium financial products. Here are some of the services where you require KYC:

KYC for Banks

Banks conduct KYC and update customer KYC regularly, based on their perception of risk.

Hence, customer KYC is a primary step while carrying out transactions like opening bank accounts, investing in fixed deposits or recurring deposits, various types of mutual funds, and other online investments.

KYC for Insurance

KYC for insurance companies is equally important as it is for banks. It is necessary to ensure the authenticity of the investments and the insurance policy purchased.

It ensures that the insurance coverage is received by the family of the real policyholder. KYC also ensures proper tax compliance on investment, thereby eliminating chances of black money.

Especially, if you are buying a ULIP, the KYC procedure is the first process you have to undergo. All the life insurance and mutual fund investors are required to adhere to the KYC Registration Agency (KRA) as per the guidelines laid by the IRDAI and SEBI.

Did You Know?

Did You Know?

As of January 1st, 2023, KYC in insurance policies is a legal compliance, regardless of the policy type.

Source: Livemint

Documents Required for KYC in Insurance

Here are the documents required for KYC in insurance:

Identity Proof

A Unique Identification Number (UID) such as your Aadhaar, Voter ID card, Passport, or Driving license
PAN number

Address Proof

Ration Card
Passport
Aadhar letter
Voter ID Card
Driving license
Bank statement (not more than 6 months old)
Verified copies of
- Electricity bills (not more than 6 months old),
- Residence Telephone bills (not more than 6 months old) and
- Registered Lease and License agreement / Agreement for sale.
Self-declaration by High Court and Supreme Court judges, giving the new address in respect of their accounts.
Identity card/document with address, issued by
- Central/State Government and its Departments,
- Statutory/Regulatory Authorities,
- Public Sector Undertakings,
- Scheduled Commercial Banks,
- Public Financial Institutions,
- Colleges affiliated to universities; and
- Professional Bodies such as ICAI, ICWAI, Bar Council, etc. to their Members

Benefits of KYC in Insurance

Here are the benefits of KYC in Insurance:

Transparency between the Insurer and Insured: Life insurance companies deal with confidential details of clients related to their finance. Hence, they need to ensure the authenticity of the data of their clients, both individuals, and institutions. KYC helps the insurers collect adequate proof so that they can provide adequate insurance coverage to the right claimants.

Also Read about - Who is the Insurer and Insured?

Keeps Track of the Transactions: KYC helps financial entities to avoid transactions with persons or organizations involved with corruption, politically exposed persons (PEPs), and those with criminal motives such as terrorist financing and fraud. By following the KYC norms correctly, financial organizations can ensure that their services aren’t misused.
Helps in Risk Management: KYC effectively minimizes the instances of money laundering, theft, and other monetary fraudulent practices, by detecting the entities with suspicious transactions as sensitive and critical.

Upon collecting and verifying the critical information, they send it to the KRAs (KYC Registration Agencies). KRAs then upload the same in the central database. In the event of any changes in the information in the future, only the relevant section is updated.

Opening Electronic Insurance Account (EIA): KYC in insurance helps in opening the Electronic Insurance Account or EIA. EIA allows you to manage your insurance policies from anywhere in the world.

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What is EIA (e-Insurance Account)?

Electronic Insurance Account or EIA is the digital account of the policyholders that gives them access to their life insurance portfolio with a click of a mouse.

Every EIA has a unique EIA Account number, and every account holder is given a unique Login ID and Password. With these login credentials, they can access his policies online.

Benefits of EIA

It does not require manual access to policy documents
You can manage all your life insurance policies in your single account
If you have made any changes to your contact details in the insurance repository, it will get auto-populated in all your policies across all life insurance companies
Opening and operating EIA is free of cost
You can assign admins to manage your policies and claims after your demise
Claim filing becomes an easy and simple process with a single-window submission

Documents for Opening EIA

The following documents are required to be submitted to the office of the Insurance Repository for the opening of the EIA:

PAN or UID card
Address proof
DOB proof
Canceled cheque

Canara HSBC Life Insurance offers ease of opening EIA. You are just required to submit the above-mentioned documents to any of their branch offices. Thereafter, they will further process your application for EIA and will open your Electronic Insurance Account.

In case you have already opened an e-Insurance Account, and you want to buy a new insurance policy in electronic form, all you need to do is mention your unique EIA number in your insurance proposal form. Your new insurance policies will be issued in electronic format.

Conclusion

Completing KYC in insurance is essential for ensuring security, transparency, and regulatory compliance. Whether opting for eKYC or offline verification, policyholders must provide accurate details to avoid complications. With Canara HSBC Life Insurance, you can seamlessly complete your KYC process and manage policies effortlessly through an Electronic Insurance Account.

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Glossary

EKYC: Electronic Know Your Customer, a digital method for identity verification using Aadhaar.
KRA: KYC Registration Agency, responsible for maintaining KYC records in the insurance and investment sectors.
EIA (Electronic Insurance Account): A digital account for policyholders to manage multiple insurance policies online.
UIDAI: The Unique Identification Authority of India, which issues Aadhaar numbers and authenticates eKYC requests.
In-Person Verification (IPV): A process where insurers verify policyholders' identities through physical document validation.

FAQs

KYC in insurance is a verification process that ensures policyholder identity authentication, reducing fraud and enabling secure financial transactions.

You can complete KYC online via Aadhaar-based eKYC using OTP or biometric authentication for quick and paperless verification.

KYC requires identity proof (Aadhaar, PAN, or passport) and address proof (utility bills, rental agreements, or bank statements).

Aadhaar-based eKYC is valid for most policies but may require additional verification for high-value insurance plans.

Offline KYC requires in-person document submission, whereas eKYC is a digital verification process done via Aadhaar authentication.

Disclaimer - This article is issued in the general public interest and meant for general information purposes only. The views expressed in this blog are solely those of the writer and do not necessarily reflect the official policy or position of Canara HSBC Life Insurance Company Limited or any affiliated entity. We make no representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, suitability, or availability with respect to the blog or the information, products, services, or related graphics contained in the blog for any purpose. Any reliance you place on such information is therefore strictly at your own risk. You should consult with a qualified professional regarding your specific circumstances before taking any action based on the content provided herein.