The benefits of automating AML and KYC checks for insurance


Automating AML and KYC compliance checks in the insurance industry would help drive operational efficiency and better customer experiences, according to PassFort, a Moody Analytics company.

PassFort highlighted that insurance firms are particularly at risk of fraud – especially those dealing with high-value life insurance policies – and they can also be a target for money laundering.

The company remarked, “Products such as single premium policies – which allow a large amount of money to be paid out in a single transaction – are open to exploitation. Fraudsters also take advantage of being able to top-up policy payments to offload illegal funds and transfer ownership of life insurance policies, as well as selling off policies to third parties. ‍

The Global Federation of Insurance Associations published a report last year suggesting the industry should restrict any measures aimed at fighting money laundering and terrorist financing to the life insurance business, describing it as the ‘only one with some, albeit low, exposure to ML/TF risks’.

The federation’s view was that ‘applying AML and CTF rules to general insurance would divert resources and attention away from other higher risk areas and place a significant compliance burden on insurers for low-or-no-risk harms’.

PassFort said, “Banks, credit unions, and insurance companies are nonetheless regulated by the Financial Conduct Authority (FCA) and the Bank of England’s Prudential Regulation Authority (PRA). Back in 2020, the UK updated its AML regulations requiring firms to include new high-risk factors when conducting customer due diligence. These high-risk factors included situations where a customer is the beneficiary of a life insurance policy.”

Regardless of the regulations – AML and CTF checks matter – and insurance fraud is climbing. According to PwC’s Global Economic Crime and Fraud Survey, 62% of global insurers were exposed to fraud or financial crime in 2018, compared with 37% and 35% in previous years. In the survey, the most common offence was consumer fraud, but other respondents who were canvassed reported exposure to a wide range of financial crime threats, including asset misappropriation, business misconduct, cybercrime, bribery and corruption, and money laundering.

PassFort said that insurance companies need to carry out strict KYC and AML checks to combat growing risks. Traditionally, insurance providers will require new customers to fill in paper forms and submit documentation for proof of identity and address. This documentation would then be analysed manually before a decision was made about onboarding the customer. These kinds of manual KYC tasks are time-consuming and prone to human error, not to mention being annoying for the customer.

The company said that automating KYC processes frees insurance firms, their financial crime, and compliance teams to focus on potential fraud cases, emerging risks, and adding value to customers.‍

PassFort concluded, “Despite the apparent regulatory gaps in the insurance industry, good KYC is essential and should invite best practice. Those in the insurance industry who aren’t automating AML checks, and keeping up regular monitoring are putting themselves at risk and are missing opportunities for operational efficiency and delivering better customer experiences.

“Digitization of compliance processes, integrated with automated access to leading data sources provides a streamlined way of managing risk and compliance throughout the customer lifecycle.”

Read the full post here.

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