New Insurance Rules: IRDAI Makes KYC mandatory for health, auto and other insurance from January 2023

The Insurance Regulatory and Development Authority of India (IRDAI) has announced that Know Your Customer (KYC) documents will be required for all new health, motor, travel, and home insurance policies purchased beginning January 1, 2023. This rule applies to all types of insurance, including life insurance, general insurance, and health insurance. Customers were not previously required to share their KYC documents when purchasing an insurance policy. However, insurers will be required to conduct a Know Your Customer (KYC) exercise before selling a policy under the new rules.

Concerning existing policyholders, the insurance sector regulator has set a deadline for insurers to comply with KYC standards. Insurance companies have been given two years to complete KYC for low-risk policyholders and one year to complete KYC for all other customers, including high-risk customers. The insurers will notify policyholders about the required KYC documents and other information via SMS or email.

Insurance experts believe that the new rule will result in faster claim settlements because insurance companies will have a more detailed profile of their customers as a result of KYC. They also claim that it will help to prevent fraudulent claims and ensure that payments are made to the legal heirs of policyholders. A proper KYC mechanism will also aid in the maintenance of a centralised database of policy records, benefiting all stakeholders in the insurance value chain.

Photo identification and proof of address (PoA) documents, such as a passport, driver's licence, and utility bill, are required for KYC. If a policyholder's total insurance premium in a fiscal year is Rs 50,000 or more, they must currently submit a PAN card. Existing policyholders with less than Rs 50,000 in insurance in a fiscal year must obtain a PAN/Form 60 by a date set by the government, according to IRDAI rules.

Because KYC documents provide insurers with a more detailed profile of their customers, the new rule is expected to result in faster claim settlement. This will aid in the prevention of fraudulent claims and ensure that payments are made to the legal heirs of policyholders. It will also enable insurers to maintain a centralised database of policy records, benefiting all stakeholders in the insurance value chain.

When purchasing a new general insurance product, customers are currently given the option of providing KYC documents. Regardless of premium amount, the new rule requires insurers to collect KYC documents from all customers who purchase a new non-life insurance policy. Policyholders who have not yet provided their insurer with their KYC details should contact the company as soon as possible and provide the required information.