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How & Why the Insurance Companies Conduct Background Checks
Sep 2, 2022

Why and How the Insurance Companies Conduct Background Checks

A third-party policy is a minimum required insurance cover for driving a vehicle legally in India. Failing to comply with the Motor Vehicles Act attracts penalties and steep fines. In addition to providing legal coverage, a car insurance policy also protects your finances in case of accidents and damages to your vehicle. Thus, skipping on solid insurance coverage may cost you in the future. Since car insurance is a legal requirement, car insurance companies are now facing the risk of fraudulent claims (that are used in a way to seek undue advantage of the insurance policy). For that reason, insurance companies carry out background checks before extending their coverage to any policyholder. Here’s Why and How the Insurance Companies Conduct Background Checks:
  • Conducting an identity verification is the first reason why a background check is conducted. Knowing about the policyholder’s identity helps them verify if the buyer is required to legally buy an insurance cover for their vehicle. *
  • Second, background checks help insurance companies safeguard themselves against the risk of possible fraud. There are instances where few individuals with criminal intentions have been seen to approach the insurance company with false third-party claims. These individuals try to profit by raising a fraudulent insurance claims. *
  • Background check is also carried out in a way to prevent honest buyers from the possibility of identity theft. Generally, unsuspecting buyers are being tricked into obtaining their personal information and their money via phone insurance scams. *
  • Further, a background check enables the insurance company to charge a different premium for every policyholder based on the underwritten risk. Different driving habits and past claim history are instrumental factors in determining the premium for every policyholder. Hence, premiums are appropriately adjusted after a background check. *
  • Lastly, every insurance company is governed by the regulator, the Insurance Regulatory and Development Authority of India (IRDAI), which specifies certain requirements by way of the know-your-customer (KYC) requirements. You can visit the official website of IRDAI for further details. *
*Standard T&C Apply What are the Different Factors Insurance Companies Check When Running a Background Check? When running a background check, the insurance company checks for not any one particular factor, but many factors at once, as seen below:
  1. Personal Information
The identity of the policyholder is the first thing checked by the insurance company when extending their policy coverage. This check, just like any other financial business, is performed keeping in mind the KYC requirements. *
  1. Credit Report
The credit score of the individual is a measure of their financial health and their prudent financial behavior. This is also used by insurance companies when performing a background check by the insurance company. *
  1. Driving History and Vehicle Information
A person’s driving history is a critical factor that is considered when extending car insurance coverage. The driving history helps the insurance company know about how safe the driver is and accordingly determines the car insurance prices. Other than driving history, the vehicle information is also a part of the background check for the insurance company to know before issuing the policy. This is generally done by way of vehicle inspection before issuing the policy coverage. * *Standard T&C Apply To summarise, a background check is conducted by the insurance company valuing the policyholder’s privacy and keeping in mind the statutory requirements. It is carried out for all insurance plans, be it third party car insurance or comprehensive insurance covers. Insurance is the subject matter of solicitation. For more details on benefits, exclusions, limitations, terms and conditions, please read the sales brochure/policy wording carefully before concluding a sale.

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