Do you belong to the non-resident Indian (NRI) or high networth individuals (HNI) category? Have you recently paid an insurance premium above a lakh of rupees for a unit-linked policy? You could be a potential money launderer in the eyes of the Insurance Regulatory & Development Authority (IRDA).

Insurers may mark you as a high-risk client unless you have proved your source of funds or income. IRDA, which has recently released the guidelines for 'Know your clients' as a precaution to stall money laundering, has asked insurance companies to divide clients into two categories -- high risk and low-risk.

HNI, NRI, trusts, charities, NGOs and organisations receiving donations, companies having close family shareholding or beneficial ownership, firms with sleeping partners, politically exposed persons have all been categorised high-risk clients by the authority.

Insurers will also have to ensure that insurance purchased by high-risk clients is reasonable and not beyond their means of income. Additionally, these entities will have to disclose their source of funds, estimated net worth, along with proof of income to establish the need for such large insurance covers.

Selling insurance to customers with a known criminal background or to banned entities, as well as individuals known to have links with terrorists or terrorist organisations have been made a strict no-no by IRDA. The regulator is in the process of procuring a list of such persons and entities from the financial intelligence unit of the government.

"This list will also be forwarded to the insurers," IRDA-chairman CS Rao told ET. Products that the regulator feels are vulnerable to money laundering activities are unit linked products (ULIP) providing for withdrawals and unlimited top-up premiums; and single premium products-where money is invested in lump sum and surrendered at the earliest opportunity.

Even big-ticket free look cancellations will be looked at suspiciously. Insurers provide a 'Free-look' period to clients who can return the policy if they feel it does not suit them. IRDA has also asked insurers to carry out due-diligence at the claim payment stage and at times when additional top up remittances are inconsistent with the customer's known profile.

These rules has been made effective from April 1, '06, however, insurers will have to provide a list of all such high-risk instances that occurred after April '04 to the regulator.

(www.tmcnet.com)