How can Insurance CIOs optimize AML?

By Insurance CIO Outlook | Thursday, September 26, 2019

Preventing money laundering and fraud in the insurance industry requires a multi-pronged approach and a big-time involvement of technology-based solutions.

FREMONT, CA: The insurance industry has grown and diversified over the last couple of decades, and technologies have given it the platform to innovate and prosper. However, sadly, the crime scenario has not seen any signs of improvement. PwC’s Global Economic Crime Survey Report for 2018 mentions that among all the insurance firms surveyed, 67 percent had faced financial crimes. The same report also says that the numbers were pegged at 37 percent and 35 percent in the years 2016 and 2014, respectively. It is clear from these statistics that the insurance industry today has higher chances of getting exposed to money laundering and frauds. This has resulted in rising concerns among insurance firms regarding their preparedness to predict and mitigate frauds.

The processes of devising effective strategies and capabilities against money laundering are those that address the issues of potential risks, existing solutions, and areas of improvement. The back-office and front-office in insurance companies are undergoing digital transformation, and thus, it falls upon the CIOs to play a leading role in creating optimized plans to minimize financial risks. Here are a few ways in which CIOs can ensure that their firms stay two steps ahead of criminals that pose financial risks and fight money laundering effectively. 

• Being Consistent with Best Practices 

Taking stock of the existing situation is the first step towards better AML plans in insurance firms. Every department and every operation must be assessed to identify loopholes in the systems which give criminals a chance to attempt fraud. Given that, most insurance firms today make use of several third-party solutions and are dependent on digital infrastructure, it is imperative that companies develop expertise that can monitor and manage the modern systems in a way that leaves no vulnerabilities unattended.  Setting down guidelines for employees is an essential part of effective AML. Managers should put it through to the workers that AML can be effective only when everybody is conscious and follows best practices through the right use of technology.  

• Ensuring Regulatory Compliance

The insurance sector has fewer regulations to comply with when compared to the banking sector. This can be good as well as a bad thing for the insurance industry. Regulatory norms often set the standards regarding practices that help organizations incorporate measures which facilitate safer operations. By ensuring that insurance firms are compliant towards continually evolving legislation and agreements, CIOs can guarantee better AML. Through the technology-backed solutions offered by emerging regulatory technology companies, CIOs can overcome inherent challenges and perform better risk management. 

• Expertise From External Sources

Although every company these days have their own IT departments, it is not always feasible to develop and deploy solutions. In such a scenario, the best option for CIOs is to look for a software product that can solve problems and help their companies overcome AML-related issues. By opting for service providers who offer AML solutions, developed exclusively for the insurance industry, firms improve their capabilities of fighting frauds. These solutions should ideally be configurable so as to allow the insurance companies to adopt them conveniently. Compatibility with legacy systems that most incumbent insurance firms possess is an important feature. Unless a solution can align itself to the range of services that an insurance company offers, it won't serve its purpose. The factor of scalability is also important and must be considered by CIOs.

• Comprehensive Solutions that can Integrate Well

Organizational structures vary from one company to another. Many companies these days, function across multiple channels and offer varying degrees of services. This simply means that there are no set rules for determining the best AML solution available in the market. The best approach CIOs can undertake is that of trials. Every company must understand its requirements before it invests in technology. An AML solution that can accumulate data across departments and sources available to an insurance firm and process it to provide insights is the best fit for that particular company. It must be able to provide comprehensive coverage to the firm on every medium. 

• Data Must Take Center-stage

Intelligence comes through data. It is common knowledge now that data, when used effectively, can make a big difference to all aspects of business, including that of risk management. AML solutions that offer features of analytics and reporting are advantageous for insurance firms. Such solutions are able to collect customer information, conduct verification, identify anomalies, and alert concerned employees upon detection of any strange occurrence. With real-time data handling and mapping capabilities, firms get to have the upper hand in arresting criminal behavior before it can lead to any laundering.

• Reporting through Risk Scores

Reporting is central to risk management. Even when technologies and software were not at the core of risk management in financial organizations, manual audits and reporting were fulfilling the requirements. Thus, it is clear that CIOs prioritize excellent reporting. AML solutions that come with automated reporting tools can benefit insurance firms in keeping their operations safeguarded. The reports should be easy to comprehend and provide all the necessary insights. Additionally, it is preferable that the solutions generate analyses and ratios that talk about false positives and risk scores. 

Provisioning regulated and compliant functioning along with adopting third-party AML software which has all the essential features that can help insurance companies avert money laundering and frauds significantly. Tech innovations and right practices can surely save companies as well as their customers from facing substantial financial losses.   

Weekly Brief

Read Also