KYC Insurance

KYC in Insurance: Compliance Standards and Policyholder Protective Measures

According to a 2022 investigation by LexisNexis Risk Solutions, financial organisations encounter an average fine of approximately $2.7 million every year because of the incapability of fulfilling KYC and AML compliance. However, these institutions usually include investment corporations, banks, insurance firms, and asset management companies.

Presently, numerous insurance companies outsource other large enterprises to get services for verifying the identities of thousands of employees simultaneously. Yet, the current policies in the existing KYC insurance organisations want these corporations to gather and verify forms from employees, which help them improve the poor CX and extensive enrollment times.

Nonetheless, another research was conducted by International Monetary Frauds, which states that money laundering in insurance firms is believed to account for 5% of global GDP. As these companies are involved in the flow of money, it becomes more challenging to monitor large aggregates, due to the potential for the increase of money laundering or illicit financial activities.

Thus, in this blog, KYC AML Guide will take you through some demonstrated policyholder protective measures through which you can implement KYC in insurance to fulfil compliance standards.

What is KYC in Insurance?

KYC insurance refers to the process of verifying the identity of a customer and assessing their potential risk as a client. This typically includes collecting information such as the customer's name, address, and government-issued ID, as well as reviewing their credit history and other financial information. The goal of KYC is to prevent fraud and money laundering and to comply with laws and regulations.

However, after the 9/11 event, the US led it to conquer financial fraud. Thus, in 2012, the US financial industry regulatory authority claimed that every broker-dealer should strive to know about their customers and keep records of the data which is crucial.

It means that they need to be responsible to verify their customers’ identities. Well, it is comparatively simple to achieve just by asking these clients to provide their passport and driving licence copies, and medical records. Although getting these things not only helps verify the customer's identity, it may cause the client onboarding procedure to take a lot of time-taking.

Thus, it is one of the challenges that may lead your customers to leave due to process delays. However, the way insurance is currently purchased makes it challenging to establish a connection with those who are buying your products.

Why does the Insurance Industry Need KYC Compliance?

KYC in insurance is significant to bring strict KYC and AML checks to overcome the risks and threats in the industry. Although the manual KYC process may be time-consuming, numerous insurance industries are now moving towards KYC automation to get rid of manual procedures and streamline documentation.

Nonetheless, insurance industries are always at risk of financial fraud, which is why incorporating KYC guidelines for insurance companies is required. Some most common financial frauds in this industry are:

   i. Forgery

Usually, most financial crimes involve fake documentation and identities, which is why insurance firms strive to extract information about their clients. Still, these companies are not secure from fraud.

According to the RGA survey, more than 10% of insurance clients do not have any problem with people sticking to insurance firms. It means, it varies from not being against the insurance forgery to being comfortable with delivering precise and authentic information to the insurance companies.

However, with the rise of insurance fraud, it is no surprise that compliance officers and regulators pressurise insurance agents to stop weak declarations and increase the focus on KYC for insurance claims to resolve these crime problems.

   ii. Fake Illness

A financial criminal may claim insurance for fake injury or illness or incurred expenses for medication, and then seek reimbursement for their losses. These fraudsters may also have fake certificates to their death. They often do this by utilising presumed identities and enabling them to make multiple claims under different insurance policies.

   iii. Identity Theft

Financial terrorists may acquire a person's data and personal documents to take out life insurance by showing their name and other information. Identity theft is one of the most common frauds in the insurance industry claims for death or illness.

How KYC Helps Insurance Firms Know their Customers?

KYC insurance is done through a number of methods, which include collecting customers’ personal information and documentation, executing background checks, monitoring criminal backgrounds, and identifying financial transactions or any suspicious activities. Not only this, advanced KYC procedures are implemented by insurance firms to recognise their customers in more detail. These advanced KYC steps include:

   i. Optical Character Recognition

Optical Character Recognition or OCR is done through KYC tools that help to scan the text documents and read them digitally thoroughly. It means your customers can scan their identity and medical records through their smartphone cameras and deliver them to you for verification.

Further, you can use OCR to validate the information automatically. Once the data is verified and approved, you can instantly approve the customer onboarding without any further requirements for the team to review the documentation.

   ii. Integrated Video Calls

One of the KYC guidelines for insurance is integrated video calls. In any case, where fraud is suspected or the organisation wants to investigate the customer in more depth, they automatically connect their agents for a video call to verify and confirm their customer identity. It helps them run health screening remotely and verify whether the customer needs medical insurance.

   iii. eSignature

Another step of KYC insurance trending in the industry is digital or e-signatures. Since manual documentation takes a lot of time and cost. Sending documents to the client for life insurance to get them signed and waiting to receive them back may consume a lot of time. Thus, KYC also allows your customers to sign documents virtually and send them immediately for a quick procedure.

   iv. Facial Recognition and Verification

This technology is quite similar to the OCR, in which the facial features are scanned through a camera instead of the written document. With the help of AI in KYC, facial recognition is done to verify the customer’s identity while verifying their documents. Through this, they can simply turn on their mobile or laptop cameras, and the technology will automatically recognise their face and detect if it matches their identity. It will confirm that the associated client is genuine and authentic.

   v. Real-Time Detection

How do insurance companies prevent fraudulent customers from using a photograph or video of a passport to trick facial recognition technology? With the help of the liveness detection AI tool, KYC helps you verify that the platform is interacting with a live human, rather than a static image.

Bottom Line

The insurance industry and other associated institutions should consider acquiring KYC to get benefit from rapid technological evolution. However, with the rise of these technologies, financial fraud and crimes are getting increased. Therefore, it has become crucial for every industry to integrate KYC in insurance through client onboarding procedures. It not only helps you execute a smooth and secure process but also helps retain your clients by proving them with quick services and building trust among them.

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