AML Compliance Solutions – Helps Insurance Firms to Cope with Changing Regulations

Insurance firms face immense pressure 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 increased fraudulent insurance claims to 20% in 2022, indemnity firms are becoming another primary victim of money laundering. 

Insurance firms must bring more efficient AML compliance solutions to cope with the evolving regulatory landscape. The perception that companies selling policies are less prone to criminal threats increases fraud instances. The reality, however, says that insurance firms handle complex investments that require effective anti-money laundering security measures. This article further discusses fraud risks and how AML solutions help counter them. 

Regulatory Bodies are Clamping Down on the Insurance Sector 

Insurance firms might not deal with a continuous flow of transactions, but they involve high-value contracts and investments. This is 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 indemnity companies. For this, fake invoices, identity theft, and camouflaged scenarios significantly contribute to false insurance claims. 

Fraudsters also use 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 hide their dirty money and escape AML compliance. Keeping sophisticated criminal attempts in view, regulatory bodies are developing more stringent requirements for insurance firms. The following section outlines major anti-money laundering legal standards set forth by authorities. 

  • Regulations Within the United Kingdom (UK)

In the UK, insurance firms are dual-regulated by AML compliance monitoring legal bodies involving the 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 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 compliance requirements follow the European Union’s (EU) insurance directives. Furthermore, per the Proceeds of Crime Act standards, insurance firms must track suspicious customer behavior and report it to regulatory bodies. 

  • Financail Action Task Force (FATF)’s Guideliens 

In 2018, FATF set out Risk-Based Approaches (RBA) for insurance firms to counter money laundering and ensure AML compliance. These companies are the first vehicle of choice for financial criminals, so their risk of facilitating illicit funds increases. To combat fraud risks and, worst of all, terrorism funding, FATF made RBA a liability.

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 enforce 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, the number of indemnity companies falling victim to money launderers will surely increase.  

Considering the tremendous increase in financial crimes, regulatory bodies strictly scrutinize 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 areas where insurance firms find it challenging to differentiate between fraudulent or legitimate claims. Hence, these companies require efficient online AML compliance solutions to avoid criminal threats and provide customers with secure financial services.

Insurance Companies Require Automated AML Complaince Systems to Deter Criminal Threats

Insurance companies require efficient AML compliance 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 compliance 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 minimize penalties, perform efficient due diligence, and provide safer financial services.

In a Nutshell

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 meeting stringent requirements has become tricky. In all these instances, integrating AML compliance solutions is a reliable option for insurance firms.