3 Steps to Optimize KYC in Insurance

Insurance CIO Outlook | Thursday, September 24, 2020

The threat posed by money laundering is becoming more sophisticated in the insurance industry. As a result, insurers look to take appropriate steps to verify customer identity by employing KYC.

FREMONT, CA: Insurance companies are also subject to enhanced due diligence when concluding new contracts. Checking and verifying customer information has become a mandate for insurers to precisely analyze risks and draw insights about the economic background of the insured. KYC enables insurance companies to validate the integrity of customers, thereby allowing a risk classification. To run an effective KYC program, insurers require the following elements.

Customer Identification Program (CIP)

Identity theft is widespread in Europe, affecting over 16.7 million consumers and accounting for 16.8 billion dollars stolen in 2019 alone. For obliged entities, like insurance companies, it is legality more than the financial risks. For these reasons, insurance companies in Europe now mandate that any individual customers need to have their identity verified, to limit money laundering and other illegal activities. The critical element to a successful CIP is a risk assessment. With this, an institution can determine the exact level of risk and policy for that risk level.

Customer Due Diligence

Top Insurtech Consulting/Service Companies in EuropeFor any insurance firms, one of the first analyses made is to determine if that firm can trust a potential client. Firms should make sure that a potential client is trustworthy; that is, Customer Due Diligence (CDD). It is a crucial element in KYC, which helps in effectively managing risks. For that, insurers should ascertain the identity and location of the customer and gain a good ground for their activities. Insurers should also classify customer's risk categories to define the type of customers.

Ongoing Monitoring

One-time customer check might not be sufficient to draw results that seem complete, and hence, insurers must opt for a program to monitor customers on an ongoing basis. The ongoing monitoring includes oversight of transactions developed as part of customer risk profiles. The level of monitoring heavily relies on a risk-based assessment. 

Looking ahead, the insurance industry is to faces several key challenges. Given the scale and severity of these challenges, insurers must maintain risk management frameworks. To avoid a potential loss, insurers must be able to demonstrate and run robust KYC procedures that comply with regulatory expectations. 

See also: Top Insurance Technology Solution Companies

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