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.
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.
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.
Documents Required for KYC in Insurance
Here are the documents required for KYC in insurance:
I. Identity Proof
- A Unique Identification Number (UID) such as your Aadhaar, Voter ID card, Passport, or Driving license
- PAN number
II. Address Proof
- Ration Card
- 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:
a. 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.
b. 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.
c. 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.
d. 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.
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
a) It does not require manual access to policy documentsb) You can manage all your life insurance policies in your single accountc) 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 companiesd) Opening and operating EIA is free of coste) You can assign admins to manage your policies and claims after your demisef) 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:
a) PAN or UID cardb) Address proofc) DOB proofd) Canceled cheque
Canara HSBC Oriental Bank of Commerce 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.