Car Insurance Background Check: Why and How is it Done?

Posted on: Jun 20, 2022 | | Written by:

Car Insurance Background Check: Why and How is it Done?

No matter how experienced you are as a driver, Indian roads can be unpredictable. Also, no one knows how moody the weather can get or when a riot might break out, given the population and diversity of our country. Which is why, having a car insurance policy, especially a comprehensive one, is essential. It can cover you against accidents, fire, theft, natural calamity and third-party liability. As per the Motor Vehicles Act, 1988, every motor vehicle owner in India must have at least a basic third-party car insurance policyto drive a car on the road. A comprehensive policyoffers financial assistance against personal as well as third-party liabilities and saves you from both mental stress and financial hassles.

Now, since car insurance companies cover huge financial risks ofpolicyholders,before granting insurance coverage or processing a claim, they conduct thorough background checksonthe potential policyholder to verify the information they have shared.And based on the background check reports, insurance companies either accept or reject insurance applications and claims.

Let’s take a look at why car insurance background checks are performed in India and how they are done.

Why and howare car insurance background checks done?

Before granting acar insurance policy or settling a claim, insurance companies perform certain background checks to verify the following:

1. Profile authenticity:

Some people create fake profiles to buy car insurance policies. They then raise false claims to enjoy financial benefits even without suffering any damage or injury. This is what makes it important for insurance companies to perform background checks on prospective policyholders. Background checks help confirm the identity of the policyholder and the insurance company knows that they are issuing the policy to a legitimate person.

2. Information authenticity:

When filing an insurance claim, some car owners may provide incorrect information to the insurance company to enjoy more financial benefits. For instance, when claiming for a recent accident, a policyholder mayinclude old damages. Insurance companies do not cover multiple events, and hence, claiming old damages with the new onesis not allowed. Certain policyholders may even approach insurance companies with fake claims

3. Fraud cases:

Some policyholders create a car theft-like situation and file a claim with the insurance company for the total value of the car. Such cases can involveserious legal actions against the offenders.

4. Driving behaviour or background checks:

Before issuing a car insurance policy, the insurance company also checks the driving behaviour of the potential policyholder and adjusts premium prices accordingly. A person who files claims often may have to pay higher premiums compared to those who file claims occasionally.

5. KYC compliance:

This is another reason to conduct background checks on the prospective policyholders. According to the Insurance Regulator and Development Authority of India (IRDAI), all car insurance companies must comply with KYC (Know Your Customer) and anti-money laundering regulations. A car insurance company can issue policies only after complying with these regulations.

6. Identity theft:

There have been instances when certain fraudsters used the identity of car owners, bought car insurance, and made fake claims. To avoid such hassles in the future, insurance companies conduct necessary background checks.

7. Third-party claims:

In case a car insurance policyholder is involved in an accident with a third-party, the policyholder must pay for the injuries or damages caused. The third-party can also approach the policyholder’s insurance provider and raise a claim. In such cases, a background check of the thirdparty is important to avoid deceitful claims.

What all do insurance companies verify during background checks?

• Car owner’s information:

The insurance company checks the basic information of a car owner, such as name, residential proof, ID proof and more. Basically, the insurance company must check all information for KYC compliance.

• Car details:

The insurer also checks car details, like the car make and model, manufacturing year, registration details, etc.

• Credit report:

Many insurance companies approach credit rating agencies to get a credit report of the prospective car insurance policyholders. This report is an important document that saysa lot about the financial health of the policyholder.

• Driving record:

This is important to know if the car owner is a responsible driver or not. A person with a history of many traffic violations, accidents, license suspensions and more may have to pay higher premiums for their car insurance policy.

• Criminal record:

This is a serious point to consider during background checks. Insurance companies may not provide insurance coverage to someone with criminal records.

Conclusion

To sum up, a car insurance policy offers the much-needed financial backup to car owners and saves them from untimely expenses and hassles. However, before granting insurance, an insurance company performs some important background checks to avoid any fraudulent practices and hassles later. All information collected during background checks is kept confidential by insurance companies, so there is no reason to worry.

Disclaimer: The above information is for illustrative purpose only. For more details, please refer to policy wordings and prospectus before concluding the sales.

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