AML & OFAC Compliance – An Uphill Battle for Insurance


The insurance and reinsurance sector struggle with many of the same challenges as their financial institution brethren: disparate systems, manual processes, and the drive to lower false positives.

However, there are nuanced differences unique to the insurance sector that complicate anti-money laundering (AML) and OFAC compliance. These issues were front and center at the Forum on AML & OFAC Compliance for the Insurance Industry, held recently in New York.

As one of the sponsors of this premier insurance industry event, Accuity had a chance to engage with conference delegates, including chief compliance and AML officers representing insurance companies of different sizes and geographic reach to understand their key challenges.

Expanding Responsibilities

Increased regulatory scrutiny as evidenced by recent OFAC enforcement actions against insurance providers is a growing concern across the board. It is sending insurance and reinsurance companies a clear message that they need to strengthen compliance. Companies that are still doing AML checks manually – which is not uncommon – are now looking to automate this process.

Building out AML and financial crime screening programs is becoming a priority for insurance companies whose global reach is increasing as a result of organic growth and expansion through acquisition. In-house counsel and compliance teams are now responsible for new entities previously outside of their purview. As a result, they are looking for help in building an all-encompassing program to mitigate risk.

Growth intensifies the need to screen high-volume policies and claims payments at various stages of the policy lifecycle. The ability to easily build rules to lower false positives is important from both a cost and operational perspective, as is the flexibility to choose relevant global watch lists for screening.

However, effective watch list screening may prove elusive for companies that have disparate systems across various lines of insurance. Consolidating systems and implementing a financial crime screening solution that integrates with an insurance company’s claims system is a smart direction for companies that seek a holistic view of activity to identify risk.

The Sanctions Headache

Finding an effective screening solution for reconciling different and sometimes conflicting sanctions requirements is an enormous challenge, particularly in light of the constantly evolving sanctions restrictions on Russia, Iran, Cuba, Venezuela and North Korea.

It is a violation to issue a policy or a payment of claim with an OFAC target. Insuring a person on the Specially Designated Nationals and Blocked Persons (SDN) list may be punishable by civil and criminal penalties. Since OFAC lists change frequently and OFAC targets can be insureds and additional insureds, policyholders, payers of premium, beneficiaries, and third-party claimants, identifying all parties is incredibly challenging.

OFAC’s 50 Percent Rule is also garnering attention. It states that “the property and interests in property of entities directly or indirectly owned 50 percent or more in the aggregate by one or more blocked persons are considered blocked.” Since OFAC does not compile a list of SDN-owned entities, the onus falls on insurance companies to screen corporate hierarchies of their customers to determine the relationship between sanctioned actors.

Insurance companies need to make a risk-based determination to decide how often to screen insurance policies to ensure that a policyholder is not on the SDN list. Best practices dictate that screening should be done at least prior to policy issuance and before billing of premium or payment of benefit. However, since OFAC SDNs change constantly, continuous batch screening may be necessary to ensure that policyholders don’t appear on a list once the policy is issued.

Ongoing monitoring helps ensure that an insurance policy doesn’t unwittingly cover risks in a sanctioned country or that the company is insuring aircrafts, vessels and cargo shipped to sanctioned countries.

A Culture of Compliance

Another topic of concern at the conference was the strict liability penalties that could be imposed not only on companies, but also on individuals involved in underwriting, administration and claims. The broad reach of these penalties is driving insurance companies to develop a meaningful compliance program – which is not just AML manuals that remain unread.

A strong culture of compliance, including proper employee training, combined with an effective screening solution can go a long way to helping insurance companies identify risk reliably.

Accuity recently surveyed compliance professionals from insurance firms in the U.S. to better understand their approach to AML screening. Download our latest infographic to get a snapshot of the key findings.