Insurance firms are facing immense pressure in order to take necessary steps and revert money laundering from their systems. In the past few decades, financial institutions such as banks and third-party payment providers were considered the prime target of criminals. With an increase of fraudulent insurance claims to 20% in 2022, indemnity firms are becoming another major victim of money laundering.
Insurance firms need to bring in more efficient AML compliance solutions to cope with the evolving regulatory landscape. The perception that companies selling policies are less prone to criminal threats is increasing fraud instances. The reality, however, says that insurance firms handle complex investments that require effective AML security measures.
This article further discusses fraud risks and how anti-money laundering solutions help counter them.
Regulatory Bodies and their Evolving Stance Regarding Investments
Insurance firms might not deal with a continuous flow of transactions but they involve high-value contracts and investments. This serves as the main attraction for criminals looking forward to concealing their illicit funds. Insurance firms encounter a variety of fraud risks from investment scams and false claims, to bogus coverage instances. Criminal camouflage accidents, deaths, and other losses to get money from their respective indemnity companies. For this, fake invoices, identity theft, and camouflaged scenarios are their major contributors to false insurance claims.
Fraudsters also use their illicit funds to flow across insurance firms and cover them into clean money. They either make investments and donations or apply for high-value contracts. This way they not only hide their dirty money but also escape AML compliance. Keeping sophisticated criminal attempts in view, regulatory bodies are coming up with more stringent requirements for insurance firms.
The next section outlines major anti-money laundering legal standards set forth by authorities.
Regulations Within the United Kingdom (UK)
Within the UK, insurance firms are dual-regulated by both AML monitoring legal bodies involving Financial Conduct Authority (FCA) and Prudential Regulation Authority (PRA). The former describes the functioning and conduct perspective of indemnity companies while the latter outlines policies and standards liable to abide by. Insurance firms are regulated under the anti-money laundering framework of the Financial Services and Markets Act 2000 (FSMA)
Insurers are subject to regulations enforced within the PRA Rulebook and FCA Handbook. These legal AML verification requirements are in accordance with the European Union (EU)’s insurance directives. Furthermore, as per the standards set out by the Proceeds of Crime Act, insurance firms need to track suspicious customer behaviour and report it to regulatory bodies.
Financial Action Task Force (FATF)’s Guidelines
In 2018, FATF set out Risk-Based Approaches (RBA) for insurance firms to counter money laundering and ensure AML compliance. As these companies are the first vehicle of choice for financial criminals, their risk of facilitating illicit funds increases.
Insurance firms, intermediaries, and other concerned institutions must perform anti-money laundering checks before providing coverage. As digital onboarding is the new normal, outlining risk scores and carrying out due diligence is a must-have for insurance firms.
Insurance Companies Encounter a Spike in Financial Crime
Along with other financial institutions, insurance firms are also on the firing line of criminals to hide their dirty money. Due to this reason, they are facing increasing pressure on AML compliance as regulatory bodies are enforcing more strict requirements. Around two-thirds of the insurance firms were involved in financial crimes or facilitated the flow of illicit funds. As they lack efficient AML solutions, a number of indemnity companies falling victim to money launderers are sure to increase.
Considering the tremendous increase in financial crimes, regulatory bodies strictly scrutinise insurers. They are handing out more hefty fines, and indemnity companies can end up on sanctions. High-value purchases, medical payments, and loss coverage are some of the areas where insurance firms find it challenging to differentiate between fraudulent or legitimate claims. Hence, these companies require efficient AML solutions to avoid criminal threats and provide customers with secure financial services.
AML Systems – Helping Insurance Firms to Stay Put with Regulations
Insurance companies require efficient AML systems to deter fraud. Over the decade, there has been a significant increase in financial crimes. Therefore, insurance firms should screen every customer, investor, and personnel belonging to intermediaries. By integrating robust AML solutions, they can automate screening processes and ensure fraudsters are not accessing their services. With AI-powered anti-money laundering checks in place, insurance firms can minimise penalties, perform efficient due diligence, and provide safer financial services.
Key Takeaways
Insurance companies lack adequate AML screening which hinders accurate data collection and analysis. Criminals exploit this loophole to launder high sums of money. Simultaneously, the regulatory landscape is evolving, and keeping up with stringent requirements has become tricky. Integrating AML solutions is a reliable option for insurance firms in all these instances.
