By Ashwini Dubey
The regulatory outlook for the insurance industry has witnessed a welcome change. Insurance, as a principle, works on trust, and therefore transparency is of utmost importance. This can be seen in form of the recent measures that have made the insurance ecosystem more transparent, enabling and frictionless. Among the many norms that have introduced clarity and accessibility into the sector, the most recent is the change in KYC compliance norms for general insurance policies from January 1, 2023, onwards.
While generally insurance is considered to be more of a voluntary purchase, motor insurance is a mandate by law for anyone who owns a vehicle. Therefore, it is important to be duly compliant with the recent norm introduced by the IRDAI. From fraud reduction to smoother claim settlement, the KYC compliance move is expected to bring about some very positive changes in the insurance ecosystem.
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Here’s all that you need to know about what has changed and how it will impact policyholders.
What’s the new mandate and what has changed?
As per regulation, from January 1, 2023, it is mandatory for insurance companies to collect KYC documents from customers at the time of issuance of any general insurance policy. This is applicable for health, travel, two-wheeler, car insurance and any other general insurance policy. Earlier this wasn’t a mandate for purchasing policies.
What has changed is that customers could earlier buy a policy and would be required to produce KYC documents only at the time of claim, especially if the claim amount would exceed Rs 1 lakh. However, customers now would have to provide KYC details at the time of purchase or renewal of their policies. KYC is a simple enough process and already exists for other financial products such as loans, bank accounts, Demat, mutual funds, etc. This rule has now been extended to general insurance.
Three ways for policyholders to be KYC-compliant:
C-KYC or central KYC is a simple process for anyone who has ever invested in stocks, mutual funds, holds a Demat account or has taken a vehicle loan in the last few years. These policyholders would already have a C-KYC number, which can be provided to the insurer at the time of purchase. In case they don’t have it, they can provide their PAN and insurers can fetch the C-KYC number.
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e-KYC is a fairly common requirement even for non-insurance purchases. For instance, e-KYC is a mandate even if you want to obtain a prepaid or post-paid mobile number. This is an Aadhaar-based digital verification process. The process can easily be done online and verified with an OTP, after which they can provide the KYC number to the insurer and be compliant with the new rule.
Proof of identity and address
In case policyholders don’t have any of the above documents, they can provide the insurer with proof of identity and proof of address. They would need to produce a copy of their passport or driving licence and the insurer can fetch their KYC number.
This progressive move will lead to better transparency and allow a more seamless flow of information in the industry. This will also provide insurers with a more detailed customer profile and, therefore, levers for better risk assessment. Also, having KYC documents in place before the claim is filed will ease the claim settlement process. For general insurance policies, this will help keep fraudulent claims in check and ensure that the rightful person receive the claim. The new process will facilitate better customer service and support both for new policy issuance and also for renewals.
What happens if you haven’t provided KYC details yet?
Since the regulatory norms are applicable to new policy purchases as of now, customers will be issued the policy only after KYC compliance is duly followed. However, existing customers can be KYC-compliant within the next one year. So, existing customers whose policy is due for renewal will not be required to submit KYC documents from January 2023 onwards unless the insurer actively reaches out to them. Nevertheless, it’s recommended that they should get KYC-registered within the stipulated time frame.
The author is head, Motor Insurance Renewals, Policybazaar.com