The Insurance Regulatory and Development Authority of India (IRDAI) recently announced the establishment of a task force dedicated to enhancing the ‘know your customer’ (KYC) processes in the insurance sector using Aadhaar. In a circular issued on May 17, 2023, the insurance regulator highlighted the challenges faced by the insurers in on-boarding customers and preventing fraud due to the absence of a Unique Customer Identification number.
Here are the implications of IRDAI’s decision and the potential benefits it offers to both insurance providers and policyholders.
Streamlining Customer On-boarding: One of the primary objectives of the task force is to suggest measures for simplifying the customer on-boarding process using Aadhaar.
At present, insurance companies can utilise Aadhaar for customer identification with consent management, as per the UIDAI framework.
By leveraging Aadhaar-linked KYC, insurers can streamline the on-boarding procedure, reducing paperwork and enhancing efficiency. This move is expected to result in a smoother and more convenient experience for customers when purchasing insurance policies.
Mitigating Fraud Risks: Fraud management at the underwriting and claims stages is a crucial concern for insurance companies.
The utilisation of Aadhaar for KYC purposes can play a vital role in addressing these challenges. The task force aims to recommend measures that strengthen fraud prevention mechanisms by leveraging Aadhaar’s unique identification capabilities.
By verifying policyholders’ identities and ensuring their authenticity, insurers can significantly reduce the risk of fraudulent claims, while safeguarding the interests of both insurers and genuine policyholders.
Enhancing eKYC & Offline KYC: The task force will also focus on facilitating electronic KYC (eKYC) and offline KYC processes for insurers, intermediaries, and agents. The seamless integration of Aadhaar authentication into these processes can streamline and expedite customer verification, while eliminating the need for physical documentation in many cases. This not only improves operational efficiency, but also enhances the overall customer experience by minimising time-consuming procedures.
Improving Traceability And Reducing Unclaimed Amounts: Traceability of customers and beneficiaries is another aspect the task force aims to address.
By leveraging Aadhaar’s robust identification framework, insurers will be better able to track policyholders and beneficiaries, thereby reducing instances of unclaimed policy amounts. This
initiative will also contribute to ensuring that policyholders receive the rightful benefits of their insurance policies while minimising unclaimed funds within the industry.
Utilising National Death Registry And Linking ABHA ID: The task force seeks to facilitate insurers’ access to the National Death Registry by leveraging Aadhaar. This integration allows insurers to promptly identify and process claims in the event of a policyholder’s demise. Additionally, the task force proposes linking the ABHA ID with Aadhaar, which further enhances the efficiency and accuracy of customer identification processes. ABHA ID card will help one in finding health centres and medical professionals and also share their medical records seamlessly with doctors across India.
Enhancing Access To Policyholder Information: Efficient access to policyholder information is critical for insurers. The task force will recommend measures for insurers to link Aadhaar with policyholders’ bank accounts, similar to the Central KYC (CKYC) framework. This linkage streamlines the process of payouts to policyholders and ensures seamless transactions, thus fostering convenience as well as transparency.
Addressing Aadhaar Availability Challenges: Recognising that Aadhaar may not be available for all policyholders, the task force will explore solutions for “reverse seeding” by insurers. This mechanism enables insurers to establish customer identities, even in cases where Aadhaar is not accessible, thus ensuring comprehensive coverage and inclusivity.
The establishment of a task force by IRDAI to facilitate Aadhaar-based KYC in the insurance sector marks a significant step toward enhancing customer on-boarding, fraud management, and overall operational efficiency. By leveraging Aadhaar’s robust identification framework, insurers can streamline processes, improve traceability, and provide seamless services to policyholders.
