The potential of the life and general insurance sector is immense, with value multiplying significantly, quantum of premiums rising and new regulations coming in. Consequentially, the prevalence of financial crime within the life insurance sector has also increased. The Insurance Laws (Amendment) Bill 2015 increased the penalty for fraud significantly. Such initiatives are expected to propel a change within the industry in the right direction.
Our survey, ‘Strengthening the life insurance industry in India by mitigating financial crime risks’ attempts to assess the current financial crime environment within the life insurance sector. The survey has identified emerging areas of concerns within the financial crime space, moving beyond the most vulnerable area, which is “claims.”
Apart from period-end pressures, the survey highlights significant manual interventions, disjoint systems and data sets as key reasons for financial crime within organizations. About 30% of the respondents indicated low utilization of transaction monitoring or workflow systems as the key reason for money laundering.
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Financial crime sliding up the charts
- 56% of the life insurers stated upto 30% increase in fraud over the last two years
- 7% respondents confirmed upto 50% increase in fraud over the last two years
Rising risks leading to financial concerns
- 40% stated data leakage and cybercrime issues as the biggest risk
- 40% indicated unauthorized modifications to customer data or information
Increased investments in forensic analytics and hiring skilled resources is essential
- 71% said proactive data analytics is one of the primary enablers to detect irregularities
- 40% said teams lack experience in financial crime and monitoring of red flags when conducting process reviews
Forensic data analytics: a dependable enabler
Insurance companies have performed quantitative analysis using data analytics for different areas, to determine the reliability of existing systems and data points. However, the approach has been quite fragmented. The need right now is to provide extensive insights into the available data by having dashboards and visualization.
Augmenting review and monitoring skills
Instituting a fraud containment unit that is proficient could help lower the costs of fraud considerably, and consequentially improve bottom-line numbers. The commitment to mitigate fraud proactively depends on the internal teams’ capability and the professional skepticism adopted during the course of financial crime reviews.
Investing in hiring skilled resources
A dedicated fraud containment unit with the requisite skill set can assist in monitoring and mitigating financial crime risks within the organization. The main responsibility of the team would be to conduct periodic assessments of key business processes and thereby identify any lapses in the internal control system from a fraud risk perspective.
Addressing key industry issues
Development of an independent consolidated database of fraud and financial crime cases was also been raised by nearly 30% of the respondents as a key measure to curb financial crime.
The life insurance sector should adopt digitization, there by curbing premium payment in cash or cash equivalents and lowering money laundering risks. After demonetization, the single premium market grew by approximately 506%  (Y-o-Y) whereas the non-single market merely grew by around 22%  (Y-o-Y). There will be emphasis on enhanced due diligence for these policies and taking appropriate measures to ascertain the ultimate beneficiaries. With interest rates coming down, insurance becomes a lucrative investment choice with guaranteed returns. This also increases the risk of potential money laundering or routing of money through the life insurance channel.
Going forward, the industry needs to have robust processes and controls with respect to customer due diligence and transaction monitoring. It is evident that the insurance market in India has a long way to go before the potential of a robust financial crime governance mechanism is completely realized.