Why and how car insurance companies conduct background checks

Posted on: Sep 8, 2021 | | Written by:

Why and how car insurance companies conduct background checks

Published on September 3, 2021. EST READ TIME: 3 minutes

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Car insurance companies provide a valuable service to car owners by covering them financially in case of an accident, theft, fire or natural calamity. And in India, having at least third-party car insurance is mandatory if you want to drive without attracting legal hassles. Now, as the service provided by car insurance companies can be classified as a kind of financial service, they are vulnerable to cheats and fraudsters. Which means, insurance providers need to think ahead and know everything relevant about you or any other applicant, before they can offer you insurance. Plus, it is always better for insurance companies to know who they are serving in order to improve their overall service. As a result, insurance companies tend to do background checks on their customers when needed.

Why is it necessary for insurance companies to do background checks?

Here are some common reasons:

First, insurance companies need to do background checks to confirm the identity of the policyholder. This allows them to ensure that the policy they are issuing is indeed going to a legitimate person who is required to hold a car insurance policy.
Second, background checks are necessary to ensure fraud protection. There are cases where people with unscrupulous plans can reach out to insurance companies with fake claims over third party car insurance.
Third, insurance companiesneed to conduct background checks to ensure that the policyholder is not a victim of identity theft. There have been cases where fake policies have been issued to unsuspecting car owners who were duped out of both their money and their personal information.
Fourth, insurance companies do background checks to ensure they can adjust premium prices for people according to their driving behaviours. Charging the same premium to a person who files claims on a regular basis and someone who files claims only occasionally is not a good business model.Andbackground checks reduce such instances.
Fifth, insurance companies are bound to follow the domestic and international anti money-laundering and Know Your Customer regulations, and as a result, are required to run certain background checks on policyholders to prevent crimes like money laundering etc.

Things that insurance companies tend to run background checks on

Insurance companies that provide comprehensive, own damage cover or third-party car insurancerun background checks on different parameters. Here is a list:

Personal information:

This is done by insurance companies to confirm the identity of people who are filing claims or applying to get a new car insurance plan. The checks are basically run to meet the applicable KYC norms that the insurance companies are required to follow like any other financial services provider. These also help in marking out cases for identity theft and prevent cases of potential fraud.
Credit Reports:

The credit report of a person is a good indicator of their financial health as well as responsible financial behaviour. There are multiple credit rating agencies that provide credit score services,which are in turn used by many financial institutions.
Criminal records:

Insurance companies check these to ensure that there is no history of fraud on the part of the person making the car insurance claim. Like any other financial services firm, insurance companies are frequently attackedby fraudsters. By running criminal background checks, insurance companies can make sure that they are not risking fraud or issuing policies to individuals who are legally restricted from getting them.
Driving records:

Driving records of a person who applies for car insurance is the very basis on which insurance companies offer their services.So, it is extremely important for them to run background checks on your driving records.
Vehicle information:

Running background checks for vehicle information is natural too, since it is the vehicle that is being insured in the first place.

To conclude, keep in mind that insurance companies realise the importance of your privacy and are required to use the background information they collect only for insurance related purposes. These companies have strict privacy policiesto ensure the utmost safety of your personal information. So, there is no need to worry about background checks as long as you have a clean slate.

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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