TT logo

Laws regarding KYC compliance for insurance companies

Table of Contents

As per the current legal regulations, KYC compliance is essential for all insurance companies due to the massive amounts of data they deal with as well as insurance policies requiring the transfer of hefty funds. This also makes AML compliance necessary. Online KYC processes within the insurance domain mainly require companies to collect and validate data of all employees and clients.

Understanding KYC compliance within the insurance industry

Insurance has today become a critical part of an average person’s life. From employment and cars to family and life, insurance policies offer security like none other.

While for individuals, insurance may be a rite to mental peace, for insurance companies it can be a major task to manage not just all these different policies but also policies for so many clients. This poses a significant risk of fraud, scams, human errors, and misreporting. With so many client touch points and the potential of things that might go wrong, challenges can be never-ending for insurance companies. Besides potential errors, manual dealings and data management when onboarding thousands of clients can take weeks.

Digital KYC compliance and services offer simple solutions to keep the tedious tasks and potential risks at bay, helping companies set high standards and to build authority and trust in the market.

Insurance businesses also involve transfers of huge funds that make them a critical target for money laundering, making KYC standards also essential for fighting financial crimes.

Why is KYC compliance essential for insurance companies?

Besides the ease that KYC compliance brings, insurance companies need to stay in accordance with the regulations set in place for them.

Even the slightest of errors in reporting, management, or any other process can lead to conflicts with clients and/or the law, resulting in fines or bans.

International AML and KYC compliance– Laws and Regulations

Global KYC standards have a long extensive history that led to the development of KYC laws as we know them today. With the sensitivity that AML/KYC compliance for insurance demands, today there are many laws set in place for this industry.    

AMLD5 or the 5th anti-money laundering directive

AMLD5 or the European Union’s 5th anti-money laundering directive was introduced in 2018 after coming to face with huge financial scandals and the introduction of cryptocurrency. The AMLD5 comes after the AMLD4 and before the AMLD6; all these regulations aim to fight money laundering and terrorist financing within the EU states.

With AMLD5, the EU introduced “Mandatory Entities” which included all financial entities including insurance companies.

While the European Union allows individual countries to choose what laws they will comply with, the implied regulations are legally binding for all institutions working within those countries.

PSD2 or the Payment Services Directive 2

The PSD2 legislation is another legal requirement for financial institutions working within Europe. This law regulates payment processing and personal data security demanding institutions to conduct rigorous KYC documentation and processing under its SCA or Strong Customer Authentication.

The law also demands the regulation of multi-factor authentication for all financial transactions that any financial business might have to make.

IRDAI’s new laws for KYC compliance  

In latest news from India, the Insurance Regulatory and Development Authority of India (IRDAI) has made Know Your Customer compliance essential for all insurance policies that deal with health, automotives, travel, and housing. The laws were set into action from 1st January 2023. Previously, insurance companies in India were not required to perform KYC processes for health, motor, travel, or home insurance and the only time KYC compliance was mandated was when a client filed for insurance claims over INR 1 lakh.

KYC compliance in the United States of America – Laws and Regulations

The United States is a hot target for money laundering and other financial crimes within the insurance industry.  Even if you exclude health insurance, the industry deals with frauds costing up to USD 4 billion per year.   

Due to the nature of the products that insurance companies offer as well as in consideration of insurance crimes in the US, regulation of their insurance processes has become a complex process that requires constant attention and a dynamic approach.

In the United States, the foundations of KYC compliance laws are based on global KYC standards. However, with the advent of modern technology such as artificial intelligence and machine learning, as KYC services are evolving so are KYC compliance policies.

Insurance Information and Privacy Protection Model Act (#670)

The Insurance Information and Privacy Protection Model Act was introduced by the NAIC or National Association of Insurance Commissioners in 1992. The Act requires all insurance companies dealing with health, life, disability, property, or casualty to collect information about the clients and perform effective monitoring processes for them.

CCPA – California Consumer Privacy Act

The California Consumer Privacy Act of 2018 is bound within the state of California. The act gives consumers the control to sharing and having further shared their personal information. The CCPA applies to all businesses that deal with data of California customers. Giving customers the right of choosing to keep their data private is an important component of AML/KYC compliance.

Privacy of Consumer Financial and Health Information Rule (#672)

The Privacy of Consumer Financial and Health Information Rule is part of the Gramm-Leach-Bliley Act and was enacted in 1999. The rule outlines the responsibilities of financial institutions including insurance companies when it comes to disclosing personally identifiable information of customers. According to this regulation, institutions must always disclose their information-sharing practices, and must also give customers the choice to opt out of the company’s data-disclosing approaches.


Insurance companies are involved in transactions with large monetary values. This makes insurance companies high-risk entities when it comes to money laundering and other financial crimes. For the safety and security of insurance companies as well as the state, AML and KYC compliance has been regulated for these businesses. 

Different laws exist all over the world when it comes to dealing with KYC for insurance companies. As the EU improves its AML/KYC regulations through the AMLD5, India makes KYC compulsory in all aspects for insurance businesses. However, whether it’s India, Europe, or the United States, KYC laws inherently follow the same basic structure, and almost all countries of the world demand KYC from businesses in one way or another. 

Related Posts