Money laundering is an ever expanding problem for the American insurance industry. An increasing number of individuals are using insurance accounts to hide money from federal taxation agencies - and the industry needs to step up and tackle the situation head-on.
The first step to fighting financial crime within an organization is having effective ‘Know Your Customer’ (KYC) and ‘Anti-Money Laundering’ (AML) functions in place. Unfortunately, this is an area where “US insurance companies are lagging behind,” according to Edmund Tribue, NTT DATA Services’ Risk & Regulatory senior practice lead.
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“The effectiveness of your KYC or AML function lies in the organization’s foundation,” Tribue told Insurance Business. “The foundation is the data you have about your customers. What is the accuracy, reliability and sustainability of that data? Is the organization able to perform KYC risk ranking functions to include additional data from external data forces and validate or add-to any information the customer may have provided during onboarding?
“Companies need to think about their data alert and refresh their approach. They should collect new data every 12 months to determine whether a client’s risk level has changed based on things like association with a sanctioned country, or political affiliation.”
KYC and AML data analytics is no easy task for any company. The challenge for insurance companies is how to deal with a vast volume of high level alerts and how to prioritize alerts so that investigators can deal with the most high-risk cases first.
Identifying alerts with the highest probability of evolution is often a needle in a haystack situation, which requires efficient tools and expertise to deal with. The industry with access to the best tools to fight financial crime is the financial services sector. A lot of AML tools have been molded for the financial services industry and adapted for the insurance industry.
“Dealing with AML and KYC requires two simple things – tools and expertise,” said Tribue. “The insurance industry didn’t always see a need to create an effective AML/KYC function. In addition, the tools that were available were not initially designed for the insurance agency, more so for financial services and adapted for the insurance industry.
“One of the challenges is that the volume and frequency of transactions within the insurance industry is nowhere near the volume that occurs in financial services, so the amount of data is much smaller. You need to have been exposed to some illegal activity to have something to model efficient tools on.”
This doesn’t mean insurers and brokers can’t learn from lessons in the financial services sector. Rather, they can benefit from “cross pollination” of tools, cultures and ideas, according to Tribue.
“Money laundering is becoming more apparent and more prominently seen, which means there’s a big opportunity for lessons learned within the insurance industry” Tribue commented. “As skills, tools and capabilities are perfected in the financial services industry, they can be adopted by the insurance industry. The key element is having a culture from the top down that drives regulatory compliance.
“The top-down culture of regulatory compliance is certainly prevalent in the insurance industry, but an understanding of what roles are needed within the financial crimes space is not so widespread.”
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