Car Insurance Background Checks: All You Need to Know

Posted on: Aug 2, 2022 | 3 Min | Written by: HDFC ERGO Team

Car Insurance Background Checks: All You Need to Know

Insurance for vehicles, or anything for that matter, might not be the most interesting topic in the world. However, you must be insured. This will ensure that any unforeseen circumstances do not faze you. Buying a car insurance policy is also similar. While one would hope to never get into any mishap on the road, given the massive number of vehicles on the road, the possibilities are less.

A car insurance policy can offer a lot of important coverage for your car. That includes protecting it from accidents, theft, destruction of the car, and so on. The coverage depends vastly on the type of policy that you choose for your car. However not having a policy can hurt you a lot in the event of an unforeseen event. Also, it is mandatory by the law to have a car insurance policy.

Checks and Balances

Checks and balances are important processes through which motor insurance companies in India keep themselves protected against fraud and scams that stem from fake claims. Many people get car insurance plans with the wrong intention. To ensure the prospective policyholder is genuine and will not lead the insurance provider to any type of fraud, the insurance provider carries out certain checks before approving the car insurance application. These range from determining the true identity of the prospector to seeing how well he drives. The process allows the insurance provider to get an idea of the risk it is undertaking by covering the policyholder.

Reasons for car insurance background checks

Providing insurance for various entities is a profitable business. However, insurance companies need to be sure of certain things before they can hand out policies. There are a few checks and balances in place for such occurrences. And there are some good reasons for them being in place. Here are some of the reasons why insurance companies opt for background checks in India.

• To Verify the Customer

Insurance providers usually opt for background verification to confirm, which you say you are. One of the major intentions behind this exercise is to determine if the correct coverage is being given to you or not. There is one more benefit of conducting a background check on a potential customer. It helps insurance companies to allocate policies to identify theft victims.

• Prevent the Possibility of Fraud

Insurance companies themselves are not immune to acts of cheating or fraud being carried out by policyholders. It is, therefore, the responsibility of the insurance provider to find out all the details that they can about a potential customer or policyholder. And all of this must be done before they can issue a policy. Thus, insurance companies perform routine background checks on potential customers before handing them out policies. Also, performing these additional checks helps with improved customer service for policyholders as well.

• To Determine Premium Amount

The premium amount that one policyholder must pay, might differ from another policyholder. It depends on a variety of factors, their records being one of them. A potential customer that has a track record of multiple claims in the past, might end up paying higher premiums. This is because insurance companies would perceive such customers as high-risk customers. Since they are more likely to claim the policy, the insurance premiums would increase accordingly.

• Skim Fake Profiles

There have been quite a few instances where individuals create fake profiles just to claim a car insurance policy. Individuals when raising a claim, without an accident or any kind of injury or damage taking place in the real world. Insurance companies constantly check to ensure that they are not issuing policies to any fake profiles. Thus, ensuring that they only issue to real people and real profiles.

What Kind of Information Do Insurance Companies Look For?

Now that we know why insurance companies do background verification checks, the next step would be to understand the information that they seek. Here is a list of all the standard information that an insurance company usually looks for.

• Credit Score

One of the most important parameters that insurance companies look at is the financial health of a potential customer. A good way to assess the financial health of an individual is to look at their credit score. Since the credit score tracks historical financial transactions, it gives a good indication of how they deal with their finances. Thus, insurance companies look at credit scores provided by agencies.

• Identity

All the personal information that you provide to your insurance company, is verified. Insurance companies follow a similar protocol as financial institutions do. They adhere to KYC norms to help and identify individuals, to prevent any kind of fraudulent activities.

• History

Insurance companies usually do not like to be associated with policyholders who have a criminal history. Thus, insurance providers look at the records of individuals and perform background checks to ensure that they do not end up with surprises.

• Driving History

When applying for a car insurance policy, the insurance provider usually checks your past driving records. It follows a similar logic as the previous steps. Someone with a bad driving record might end up paying a slightly higher insurance premium than someone who has a clean driving record. Thus, looking at the driving history and habits of a driver is carried out before issuing a policy.

• Details of the Vehicle

It should not come as a surprise that insurance companies would look at the condition of your vehicle before issuing a policy. It serves a couple of purposes. Firstly, it allows the insurance companies to take stock of the car and see its current condition. Secondly, it also allows them to assess if the policyholder will claim the policy within the tenure.

Visual inspection can happen in different modes. The insurance company might send someone to visually inspect your car or ask you to send a walkaround recording of your car by uploading it to their website.

Conclusion

If you have a vehicle, you must opt for a CAR INSURANCE POLICY. And there are quite a few reasons for the same. Firstly, it is mandated by the law to have valid insurance at all times. If you are caught driving without insurance, you are looking at hefty traffic penalties.

In the event of an accident with another vehicle or individual, the onus is on you to take care of all the expenses. If you drive without a car insurance policy and there is an accident, you will end up paying for all those expenses from your pocket. And in the worst-case scenario, if an individual is injured during the accident, the medical bills can be quite deep.

FAQs

1. What is involved in a car insurance background check?

A car insurance background check is when the insurance companies verify your driving history, credit score, and other relevant information to develop your risk profile. This is used to determine your eligibility for coverage and the premiums you would be paying.

2. What information do insurers check?

Insurers typically check your driving record, which is that of accidents, violations, and claims history. They may also check your credit history since research has shown that claims are filed about your credit score.

3. How does my driving history affect the premium I have to pay for car insurance?

Car insurance premiums that are proportionate to risk tend to be lower for those who maintain a spotless driving record (i.e., there are no accidents or violations). Conversely, every accident or traffic violation leads to higher insurance premiums, and your insurance company may not even insure you at all. Insurers consider a poor driving record to be an indicator of increased risk.

4. Why do the insurers check my credit score?

Insurers consider a claim to be least likely from an individual who has a better credit score; hence, a higher score would give you lower premiums, while a lower score could lead to higher rates.

5. Can I dispute information found during a background check?

Yes, you can dispute information during a background check if anything seems wrong with your driving record or credit report. Simply reach out to the proper authority or credit bureau and have them make corrections that could work in your favour when obtaining lower rates for comprehensive car insurance.

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

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