KYC in Car Insurance: Process, Documents & IRDAI Rules Explained

KYC or Know Your Customer is now mandatory for all types of insurance, including car insurance plans. Insurance Regulatory and Developmental Authority has instructed all the insurers to start with the KYC process. The implementation of KYC happened in order to make the insurance process more convenient as well as reduce the fraud claims associated with insurance. While KYC is mandatory for all types of insurance, in the section below, we have enlisted the KYC process for car insurance.

What is KYC in Car Insurance?

KYC is a short form for ‘Know Your Customer’, which is a successful government initiative launched in 2002. Since the launch of e-KYC in 2012, it has been very popular and is being massively used due to the safety and transparency it provides. KYC has become an essential element of the car insurance industry as it involves verifying and documenting the identity of policyholders. 

Given below are some of the most crucial purposes of integrating KYC with car insurance:

1. Identity Verification: The primary aim of KYC is to confirm the identity of the person purchasing the policy. It helps to prevent fraud and theft and makes sure that the person buying the policy is the actual owner of the car.

2. Risk Assessment: By collecting detailed information about the policyholder and their vehicle, insurance companies can better assess the level of risk associated with insuring that particular individual and vehicle. This information helps determine appropriate premium rates.

3. Fraud Prevention: Cases of fraud or attempts to fraud are often observed in the insurance industry. KYC helps the insurer to verify the identity of the policyholder and the details of the vehicle. 

4. Regulatory Compliance: IRDAI has made it mandatory for all insurance providers to complete the KYC process with every customer before selling the policy. To maintain compliance with the rules set by IRDAI, all insurance providers have standardised KYC as part of their insurance purchase process.

5. Customer Profiling: A benefit of KYC is that it helps companies gather data which enables them to structure customer profiles. These profiles help companies to provide personalised service, offer suitable products, and improve their customer experience. 

6. Anti-Money Laundering (AML): Another key feature of KYC is to identify the source of funds that are being used to pay the premium for the policy. 

During the KYC process for car insurance, insurance companies collect and verify the following details associated with the customer and their car:

• Personal Details: Name, address, Date of birth, contact number, Email address

• Vehicle Details: Make, Model, and Make, Registration Number, Chassis Number, Engine Number, and previous policy documents. 

• Identification Document of owner ( Aadhar Card/ PAN Card/ Driving License)

• Certificate of Registration of Car

Integrating KYC with the process of insurance purchase has enabled the companies to enhance their operations and protect the company from potential fraudulent activities. It also creates a sense of trust and credibility between the insurer and the policyholder. 

What Has Changed With KYC Process?

The newly mandated car insurance KYC is more of a customer-centric approach regulated and mandated by IRDAI. Earlier, there was an option to choose whether to submit the document for KYC or not. However, IRDAI has now made it mandatory to provide the KYC Details. Earlier, it was only required to do the KYC in case of claims of more than 1 lakh rupees.

Also, because the KYC process becoming mandatory, the insurers will have a better chance of eliminating the false claims and receiving customer information in a completely transparent manner.

Benefits Of KYC In Car Insurance

Know Your Customers/ Clients (KYC) is extremely important today for a variety of reasons. It benefits you and your insurer in multiple ways and safeguards you from unwarranted events. Some of the major benefits of KYC are listed below:

1. Strengthens Security Against Identity Fraud: As the name suggests “Know Your Customers” - KYC helps insurance companies to validate your identity and prevents you against any identity fraud. This means no one else can make a claim against your policy since your important identity details will be first validated to check whether or not the claim being made is genuine.

2. Fastens Claim Settlement Process: When your insurer has all your essential identity details - that means accurate and up to date information, it helps in fastening the process of claim settlement. Accurate information cuts down the chances of disputes during claim settlement thereby making the process smooth and hassle free.

3. Complete Record in One Place: Your KYC details also helps the insurer to keep your complete claim/ insurance record in one place to ensure you receive the needed support or assistance in time while renewal, porting or making a claim.

4. Ensures Legal Compliance: As per the Insurance Regulatory and Development Authority of India (IRDAI), it is mandatory for a customer to submit their KYC for legal compliance. There are comprehensive guidelines issued by IRDAI for KYC processes.

5. Helps Insurer Offer Tailored Solutions: Your KYC details also helps the insurer to understand your requirements better, thereby offering you plans as per your needs.

6. Accurate Premium Calculation: Based on the policyholders risk profile insurers check their driving history and personal details through KYC. This helps them in calculating the right premium for the policyholders and maintains transparency and fairness.

Documents Required for KYC Process in Car Insurance

Listed below are the essential documents required for KYC in car insurance:

• Passport
• Driving License
• Aadhar card
• PAN card
• Voter’s Identity Card
• Passport size photograph

IRDAI Approved KYC Processes

There are multiple ways of completing a KYC. Among the many ways, IRDAI has clearly mentioned the methods of KYC that can be used in the insurance industry. Below given is a list of KYC approaches that insurance providers can take to complete the KYC of a customer. 

1. Physical KYC: This is a traditional way of submitting documents. Customers have to submit the required documents after self-attesting them. This approach is suitable for offline purchase of policies where customers visit the insurer's branch office or an executive visits the residence of the customer. 

2. Digital KYC: This is a digital way of verifying the customer's identity. It is done online and does not include any paperwork. The customer simply needs to upload the required documents or photos on the portal provided by the insurer. This process involves a digital signature and confirmation through an OTP(One Time Password). This process is way faster than the traditional approach of physically completing KYC. 

3. Video KYC: This process involves the customer and a company executive on a live video call. During this process the customer has to show his original documents and the executive verifies the details simultaneously. This is a slightly less popular method of completing KYC but proved to be very effective during COVID lockdown. 

4. e-KYC through Aadhaar: This is the quickest and most popular way of completing the KYC of a customer. This process involves the AADHAR card. The customer just has to share his or her AADHAR number with the insurance company's executive and they can seek the data through the number using the UIDAI database. The customer will also have to verify through biometric verification or OTP authentication.  

5. c-KYC (Central KYC): This feature is available across all the financial institutions. It is a standardised method where after going through the process of KYC once, the customer can get a c-KYC number which is a 14-digit unique number. After getting this number, customers don't have to go through the process of KYC again and again at different financial institutions like banks, insurance providers, and mutual funds. The data of c-KYC is managed by the Central Registry of Securitisation Asset Reconstruction and Security Interest (CERSAI) and is fetched directly from there by financial institutions. 

Note that all these approaches serve the same purpose and do not have any pros and cons differentiating them. Insurance providers may choose a certain way to complete KYC according to their convenience and resources.

KYC Guidelines For Individual Policyholders

The KYC guidelines for individuals are put in place to ensure that the right individual gets the policy based on the information provided by them and to avoid fraudulent activities or identity theft. Mentioned below are the details on kYC norms for individual policyholders while purchasing a car insurance:

1. Policyholder’s Name: As per the kYC guidelines, the policyholder is required to provide their full name for disclosure as per their identity proof mentioned in a valid document proof like Aadhaar Card, Pan Card or Voter ID Card.

2. Address Proof: The policyholder is required to provide their valid address proof as per mentioned in their Aadhaar card, bank statement or utility/ electricity bills.

3. Proof of Identity: The policyholder is also required to provide a valid identity proof such as their Aadhaar Card, Passport, Voter ID Card or PAN card.

4. Contact Details: The policyholder is also required to provide their original contact details like phone number, email address.

5. Photographs: The policyholder will also be asked to provide their two recent passport sized photographs for the KYC process. In some cases only one is also asked at times. 

6. Other Documents: For KYC process, the policyholders may also be asked to submit additional documents like income proof, proof of occupation etc.

KYC Guidelines for Judicial Persons/ Entities 

There are minor differences between the KYC guidelines for individuals and judicial persons/ entities however, there are additional information that is needed out of judicial persons or entities as listed below for your understanding:

1. Name of The Judicial Person/ Entity: The proper name must be provided of the judicial person or entity.

2. Legal Certificate: Along with submitting the KYC form, a legal certificate has to be provided which proves the judicial person or entity’s judicial authority and status.

3. Address Proof: A valid address proof is also required that can verify the individual or entity’s address.

4. Other Documents: Other documents like your income proof certificate or occupation proof might be asked for the KYC process by the insurer.

Note that irrespective of which car insurance type you choose - third party, stand alone own damage or comprehensive car insurance - you will have to provide KYC details.

Importance of Compliance with KYC Guidelines

The KYC process is designed to protect both the policyholder and the insurer from fraudulent activities and financial misuse. Ensuring accurate and honest submission of all required KYC documents will facilitate a hassle-free experience when dealing with your insurance provider, be it at the time of purchasing the policy, renewal, or claim settlement.

Common Reasons for KYC Rejection & How to Fix Them

One of the biggest reasons why potential customers fail the KYC verification process for car insurance is the presence of incorrect details in insurance documentation. Some of the common examples include names/name mismatches, invalid/missing addresses, expired documents, etc. We discuss these problems and their fixes in detail below.

Name Mismatch

This is a common issue faced by most applicants. In India, where people change names for various reasons, a KYC rejection due to inconsistent names on different documents is common. 

How To Fix It?

If your names are inconsistent on official documents, the best way to fix this is to issue an affidavit containing a list of your name’s variations and stating that all the names refer to you. Get it signed by an official notary and submit a copy while applying for car insurance. Another way to go about it is to publish an advertisement in your local newspaper, stating that you have changed your name and submitting a copy of the same.

Illegible Documentation

Documents such as birth certificates, domicile certificates deteriorate with time. Since these are paper-based documents, it is highly possible that crucial information could become difficult to read after some time.

How To Fix?

The best way to fix this problem is to scan your documents and upload clear copies in your online storage facility.

Invalid/Expired Documents

Documents such as driving license and passports, which are used as address proof, come with expiry dates. 

How To Fix It?

If your documents are nearing expiry or expired after you submitted them for verification, the best way is to keep track of these dates and proactively get them renewed.

Incomplete documents

If you haven’t read your policy requirements thoroughly, you may miss out on submitting crucial documents. This leads to KYC rejection.

How To Fix It?

Read the policy statements carefully and make a list of all the documents that you need to submit. Once you put them together, cross-check with the list of documents mentioned in the policy and then submit them.

FAQs

Q: Is KYC mandatory for buying car insurance?

Yes, KYC is mandatory as per IRDAI regulations. Insurance companies must complete the KYC verification process before issuing any policy to adhere to regulatory requirements and prevent fraudulent activities.

Q: Can I use the same KYC documents for multiple insurance policies?

A: Yes, If you have a c-KYC (Central KYC) number, you can use it across all financial institutions, including different insurance companies. This saves you from submitting documents repeatedly.

Q: Which is the fastest way to complete KYC for car insurance?

A: e-KYC through Aadhaar is the quickest method. You only need to share your Aadhaar number and authenticate it through OTP or complete a biometric verification. The insurance company can directly fetch your details from the UIDAI database.

Q: What happens if there's a mismatch in my KYC details?

A: Any mismatch in KYC details can lead to policy issuance delays or even claim rejection. It's crucial to ensure all information provided matches your official documents. If you notice any discrepancy, contact your insurance provider immediately to get it corrected.

Q: Can I update my KYC details after buying the policy?

A: Yes, you can update your KYC details if there are any changes in your personal information (like address or contact details). Contact your insurance provider and submit the relevant documents supporting the change.

Also read: Reasons for Car Accident in India