Are Insurers a New Favourite for Criminals Seeking to Disguise Their Illicit Gains?

11th January 2021
Araliya Sammé Araliya Sammé Head of Financial Crime

Araliya Sammé writes for the January issue of Modern Insurance Magazine about Covid-19’s impact on the insurance industry and how it has enhanced money laundering risks.

As the AML insurance ecosystem continues to evolve, it is critical that insurers understand and re-evaluate their approach to AML as criminal enterprises look to exploit opportunities across organisations.

The world of financial services has had a challenging year, to put it mildly. It has been shaken by tremendous political and economic volatility, caused by an ongoing global health crisis, the likes of which our generation has never encountered. In an October 2019 survey conducted by PwC, 62 percent of respondents from the global insurance community said their firms had been exposed to fraud and financial crime (up from 37 percent in 2016), emphasising concerns of many in the sector.

Banks typically receive considerably more regulatory and public scrutiny than insurers, and historically face higher fines and business restrictions. This attention over the past few decades has seemingly inspired an illusion of exclusive attractiveness towards banking for criminals, however, this is not entirely the case. Insurers still present considerable opportunities for criminals’ enterprises to legitimise their illicit gains.

It’s important to have a wide perspective on the varying dimensions of financial crime. It requires working and partnering with different financial services organisations so that the services and technologies are optimised to meet regulatory and technology needs. In addition, an understanding of how the entire AML insurance ecosystem is evolving is critical.

Criminal enterprises, just like any other, are looking to balance risks and exploit opportunities across their organisations. How can insurers today respond? By:

  • Getting to know their customers better, which is even more challenging in this virtual, Zoom call-based, socially distanced world.
  • Embracing the principles and best practices of Know Your Customer (KYC) regulation, even where there is not enforced instruction.
  • Going further than just the basics; collecting customer information, screening those customers against PEP and sanctions lists, and building a greater understanding of their risk exposure.

In addition to KYC information, transaction behaviour over prolonged periods of time must be tracked and understood to accurately anticipate future criminal activity. This is where AML transaction monitoring with Adaptive Behavioral Analytics comes in. In a recent life insurance use case with one of our customers (a tier 1 global financial institution), AML transaction monitoring enabled them to detect and prevent money laundering more effectively and efficiently, igniting their adoption of machine learning to monitor their life insurance portfolio globally. By fully profiling past customer and policy behaviours to understand what normal activity looks like, and prioritising alerts by creating a feedback loop based on investigation outcome, we identified all existing Suspicious Activity Reports (SARs). More importantly, predictive technology enabled us to identify new and unknown financial crime risk cases within the top 5% of prioritised alerts and find one-third of alerts a month earlier than the existing system.

In principle, the overarching strategies deployed by criminals to exploit insurance products will not significantly change. Early surrender, unusual purchase methods, inadequate investment concerns and other methods will still be practised. The challenges will be seen on a more micro level, with changes in the tools that criminals use and the frequency with which these red flags will be seen.

The good news is that all these challenges can be addressed, and risks can be mitigated well before they become harmful. To do that, leaders must take a step back and re-evaluate their approach to AML within their organisations. Innovation from criminal enterprises must be matched with innovation in the processes used to prevent this criminal activity. And while the impact of Covid-19 will fade over time, the influence it has had on consumer behaviour, and indeed criminal behaviour, will last far longer.

The risks of yesterday are not the risks of tomorrow, so to confidently stay ahead of such fast-paced changes, business leaders are looking at more adaptive, data-driven solutions.

Discover ARIC™ for Anti-Money Laundering