KYC for Travel Insurance Made Mandatory by IRDAI in 2023

As per the recent IRDAI regulations, from January 1, 2023, KYC (Know your Customer) will be mandatory for all types of insurance, including travel insurance. These guidelines apply to the purchase of new policies as well as the renewal of existing policies. Basically, this brings into effect the guidelines issued in August 2022. These regulations are applicable irrespective of the policy premium. Before this, KYC was not mandatory for general insurance.

In this article, we will understand why KYC for travel insurance has been made mandatory and the KYC process for travel insurance, what documents are required for it, how long the process is, and other related aspects.

What is KYC?

KYC is a process to verify a customer’s identity, particularly in the financial services industry. Its primary objective is to protect financial institutions from scams or corrupt practices. In India, the RBI made it mandatory for all financial institutions to verify the identity of all their customers. The Prevention of Money Laundering Act of 2002 made KYC compulsory.

The KYC process involves collecting information such as the customer’s full name, address, date of birth, and identity proof like an Aadhaar Card, PAN Card, or Passport. The list of documents for verification of a person's identity may vary according to the type of policy. This process is essential for all types of financial transactions, including opening bank accounts, applying for loans, and now even for general insurance, including travel insurance.

KYC is of two types: Aadhaar-based KYC and in-person verification (IPV). Aadhaar-based KYC involves electronic verification and is both remote and paperless. Customers can complete this process online by providing their Aadhaar Number and biometric details for verification. In IPV, one can choose to do it online and submit the required documents. A person can appear for the verification process via video conferencing on Skype. Earlier, one had to be physically present for authentication.

KYC is a simple one-time process whether one chooses to do online KYC or offline KYC. Once completed, customers can use their verified identity for all future transactions. It protects financial institutions from scams or illegal activities and helps to maintain transparency in monetary transactions.

Why is KYC Mandatory for Travel Insurance?

The IRDAI issued a set of guidelines in August 2022, which made KYC compulsory for all types of insurance policies, including travel insurance plans. These guidelines came into effect on January 1, 2023. Consequently, all travel insurance companies must get KYC verification done for their existing and future clients. These regulations aim to protect the travel insurance sector from illegal activities like identity theft, money laundering, and terrorist financing and ensure transparency in the industry.

By verifying the identity and address of the policyholder, travel insurance companies can prevent scamsters from purchasing policies under fake identities and making false claims. Travel insurers will be in a better position to identify the risk profile of their customers and price their policies accordingly. KYC also helps in maintaining accurate and updated customer information. This will help in a seamless and quicker claim settlement. Following these guidelines also ensures compliance with the IRDAI’s requirements.

While it may seem like an unnecessary hurdle for policyholders, it is a necessary step towards safeguarding their interests and ensuring that they receive the policy’s benefits without unnecessary delays. In essence, it is an important step in ensuring the integrity and transparency of the insurance sector.

Which Documents Are Needed for KYC?

IRDAI’s guidelines on “Anti-Money Laundering/Counter Financing of Terrorism” state that insurers can use the following methods for KYC verification for travel insurance:

• Aadhaar-based KYC: One can opt for online KYC or offline authentication.
• Digital KYC: For these guidelines have been specified in the “Prevention of Money Laundering Rules”.
• KYC identifier: Under this method, the Central KYC Registry allows a unique PIN to the customer.
• Video-based identification: If an applicant agrees, insurers can use this method.
• Officially valid documents: An applicant must submit officially valid documents to the insurer.
• PAN Card or Form 60: One can submit either of these documents depending on the application.

Here is a list of the documents that are required for KYC to buy travel insurance policies:

• Voter ID Card
• Aadhaar Card
• Passport
• Driving License
• Ration Card with complete details like name and address, etc.
• NREGA Job Card attested by the required government personnel
• National Population Register’s letter that contains demographic details
• Any other documents that the Central Government may notify after consulting with the Insurance Regulatory and Development Authority of India

In addition, customers may have to submit other documents based on the nature of the insurance policy or the insurer’s requirements.

How long will KYC approval process be?

In general, the KYC approval process can take from a few hours to a few days, depending on various factors.

• The duration of the KYC approval process depends on the insurance company’s policy and the completeness of the documents submitted.
• The process involves verifying the customer’s identity, address, and other personal information by submitting documents such as an Aadhaar Card, PAN Card, Passport, Driving License, and Voter ID Card.
• An online process can significantly reduce the turnaround time for approval. It is faster and more convenient as it allows customers to upload their documents from anywhere, and the approval process is automated, reducing the time taken.
• The offline KYC process generally takes more time and may even take up to a week. Since it involves submitting physical copies of the KYC documents to the insurance provider, it may take longer as the process involves manual verification.
• In case the documents are inaccurate or incomplete, it may delay the approval process.
• Customers should ensure that they provide all the required documents promptly to avoid delays.
• Customers can check the status of their KYC approval process online or by contacting the insurer’s customer service.

Once the KYC process is complete, the insurer will issue the travel insurance policy to the customer.

Conclusion

In conclusion, beginning January 1, 2023, the KYC process has become mandatory for travel insurance in India.

• With the travel industry rapidly growing, the importance of having proper documentation and verification has become even more critical.
• Through KYC, travel insurance companies can verify the identity and personal details of their customers, ensuring that the policy gets issued to a genuine person.
• It helps reduce the risk of fraud, money laundering, and other financial crimes. It also helps improve customer service by ensuring that customers get the right policies as per their requirements.
• The KYC process can be done through several methods as authorized by the IRDAI, including Aadhaar-based KYC, digital KYC, video-based identification, etc.
• On the face of it, it may seem cumbersome, but it is a necessary step in ensuring the safety and security of travellers.
• As a traveller, it is important for you to understand and comply with these procedures to ensure that you avail the protection of travel insurance with ease.

Overall, the mandatory KYC process for travel insurance in India is a positive step towards creating a more secure and trustworthy travel insurance industry that benefits both the customers and the insurance providers.