The insurance sector provides a diverse range of products to customers via an equally diverse range of distribution channels.
The majority of insurance products do not deliver sufficient functionality and flexibility to be the first choice of product to launder money or fund terrorist activity through. However, the funds used to purchase them could be the proceeds of crime.
The Money Laundering and Terrorism Financing (ML/TF) risks associated with the insurance sector include:
- Payments or receipts from third parties;
- Cash payment of premiums;
- Premium overpayment;
- Frequent payments (outside of a normal regular premium policy);
- Significant flexibility as to how investments are managed to be liquidated quickly (via surrender or partial withdrawal) and without prohibitive financial loss;
- Products that are traded on a secondary market; and
- Products that can be used as collateral for a loan.
Insurance companies must ensure the organisation conducts a comprehensive ML/TF risk assessment to identify, assess, mitigate and manage ML/TF risk exposures as a critical first step in complying with AML/CFT laws.