In the insurance industry, financial fraud and terrorism are growing rapidly. However, the banking and other financial sectors are primarily the central platforms for money laundering. Yet, with the improved security systems and AML controls, these criminals have moved toward insurance firms to commit financial crimes.
Since insurance agencies often implement less efficient fraud prevention, there are more possibilities for fraudulent activities to occur in the insurance industry. But, with the rise of such terrorist activities in the sector, insurers seek some innovative ways to integrate KYC guidelines for insurance companies and prevent future fraudulent attacks.
In this blog, let’s explore how insurance firms implement KYC effectively to mitigate financial fraud and money laundering practices.
What is KYC in Insurance?
KYC in insurance is the procedure of verifying a customer’s identity and evaluating their risk level as a client. This procedure usually involves obtaining details such as the customer’s name, residential address, and government-issued identification, along with examining their transactional history and other financial records. The primary objective of KYC is to identify and hinder fraudulent activities and money laundering while adhering to applicable laws and regulations.
How do Insurance Companies Integrate KYC?
Insurance industries usually incorporate the KYC framework in order to comply with the AML regulations and reduce fraud risks. The KYC guidelines for insurance companies outline the main steps mentioned below:
Collecting User Information
So the first step to the KYC guidelines for insurance companies during the custom onboarding process is collecting user information. Firms usually gather fundamental data about the customer including their names, date of birth, home address, and contact information. However, some companies may also collect some additional data such as passports or driving licences to verify user identity. On the other hand, some may ask for financial information such as the source of income, transactional history, and so on.
Verifying Gathered Data
The insurance agent successfully gathers the customer information and the company uses some third party to verify the client’s identity. The third-party checks the information by comparing it to user data stored in the government database and ensures the authenticity of the information. Not only this but it is also analysed that the data provided by the customer is not modified or stolen.
Executing Risk Assessment
In case, the customer is likely to determine any risk or threat, insurance companies instantly run risk management measures. To assess the user’s financial and transactional background and identify any history of criminal activity, this process uses data. The data is also utilized to determine the most suitable service for the customer based on their risk level.
Ongoing Monitoring
Another step in KYC guidelines for insurance companies is continuous monitoring of user transactional activities. This stage involves keeping track of unusual or anonymous transactions in order to review possible financial fraud. Thus, in case of any suspicious activity, insurance firms may conduct further investigations to report and mitigate these practices.
Wrapping Up
Integrating KYC guidelines for insurance companies has benefits. It helps the industry to remain compliant with the AML regulations. It also reduces possible risks for financial fraud. Therefore, the insurance agents mitigate these risks by collecting necessary information from the client, verifying the data, and determining the risk level associated with the customer. This information is further used to investigate user transactional histories to assess any fraudulent activity. If you also want to determine customer risk level, learn KYC AML Guide for more information and prevent your company from any possible threat.
