Money laundering prevention in the insurance industry - underestimated risk with need for action
More than almost any other, the insurance industry is caught between growing regulation and the need to develop agile business models. While banks and capital market players are at the center of AML discussions, the potential for money laundering and financial crime in the insurance sector is often underestimated. However, the reality is that insurance companies are exposed to significant risks, particularly through certain products and transactions, which require targeted measures to prevent money laundering[1].
The underestimated risk
Although insurance companies are traditionally considered to be low-risk, statistics and experience in recent years show a different picture: according to PwC, more than half of companies were affected by financial crime, with money laundering accounting for a significant proportion. International supervisory authorities such as the FATF and BaFin have repeatedly drawn attention to this problem.
Legal obligations and key risk drivers
According to Section 2 (1) No. 7 GwG, insurance companies are obliged to implement due diligence obligations to prevent money laundering if they offer life insurance, accident insurance with premium refunds, loans or capitalization products. These sectors in particular have significant potential for abuse, for example for "parking" money or as a vehicle for transactions with an increased risk of money laundering[1].
Affected products
- Life insurance: Frequent target for money laundering activities due to high surrender values and international flexibility.
- Accident insurance with return of premiums: Because of the possibility of redeeming premiums and releasing capital.
- Loan and investment transactions: There is a structural risk of becoming involved in money laundering schemes, particularly in real estate deals and company acquisitions.
Due diligence & KYC processes
Insurance companies are obliged to implement comprehensive KYC ("Know Your Customer") processes. These include:
- Identification and verification of all customer data (natural persons and legal entities)
- Identification of beneficial owners - particularly important for corporate clients or fiduciary structures
- Checking different beneficiaries and ensuring that their identity is clearly established at the latest at the time of payment
- Regular updating of customer data - at least every 15 years, or more frequently in high-risk cases
The responsibility for these checks always lies with the insurance company - even if brokers can provide support.
Special challenges for intermediaries and business partners
Cooperation with insurance brokers represents a further risk component: They too must be identified and checked for reliability and creditworthiness. Despite partially delegable duties, the final responsibility for proper customer data verification remains with the insurer[1].
Care with investments and loans
Comprehensive due diligence checks are essential in the context of investments and lending. These include
- The economic ownership structure up to the final beneficiaries
- Check for PEP status and sanctions lists
- Creditworthiness analysis, audit of annual financial statements and future forecasts
- Contractual risks and legality of real estate transactions
Repeated scandals, such as the example of Allianz Life Bermuda Limited being heavily fined after failing to comply with KYC requirements, show the practical consequences of inadequate processes: In the worst case scenario, there is the threat of high fines, loss of reputation and even closure of the company[1].
Need for organizational action
In order to minimize risks in the long term, CURENTIS AG recommends
- Establishment of an independent AML and due diligence department
- Introduction of high-performance AML check systems for reliable recording and monitoring of all relevant information
- Sensitization and continuous training of all employees involved in the KYC process
- Regular review and adaptation of existing processes to current regulatory requirements
Innovative edge with YourKYCplus
With YourKYCplus, CURENTIS offers an AI-supported software solution that supports insurance companies in the efficient and compliant implementation of all KYC and AML requirements. YourKYCplus automates the identification and verification of customer and business partner data, integrates up-to-date sanctions lists, monitors beneficial owners and ensures ongoing data updates. Users benefit not only from faster processes and a reduction in manual errors, but also from documented and audit-compliant fulfillment of their regulatory obligations.
Conclusion
The insurance industry cannot escape the importance of effective KYC and AML structures. It is precisely the complex and often international value flows that make insurance companies an attractive target for money launderers and fraudulent activities. A systematic, professional approach to money laundering prevention - tailored to the specific requirements of the insurance industry - is therefore not only a regulatory requirement, but also indispensable for sustainable corporate success.
