After years of being considered relatively low risk for financial crime compared to the banking sector, insurers globally are increasingly being targeted by financial criminals and money launderers. As banks have strengthened their compliance processes and controls, criminals are looking elsewhere for a weak spot. Insurance products, particularly those that involve a lump sum payout or annuity payments, offer an attractive opportunity for money laundering. Life insurance products attract greater money laundering risks.

Insurers in The Philippines are likely to feel a steady tightening of regulatory requirements in the coming months. In June 2021, the country was placed on the Financial Action Task Force’s (FATF) Grey List of countries under increased monitoring for money laundering and terrorism financing risk for the third time since 2000. As a result, the country’s government agreed on an action plan to address issues raised by the FATF, including ‘an increase in the use of financial intelligence and an increase in money laundering investigations and prosecutions in line with risk’, and ‘an increase in identification, investigation and prosecution of terrorism financing cases’, and will report progress back to the FATF three times a year.

This action plan, along with the new Anti-Terrorism Act and revisions to the Anti-Money Laundering Act, means that financial institutions, insurers as well as non-financial businesses such as law firms, real estate agents and casinos that deal with significant money transfers will be under much greater scrutiny and face a higher risk of a fine or even prosecution should they breach anti-money laundering or counter terrorism financing (AML/CTF) regulations.

Financial, Regulatory and Reputational Risk

The insurance sector is attracting the attention of regulators around the world, including the Anti-Money Laundering Council, and incidences of insurance companies being fined for compliance breaches is on the rise. In August 2021, for example, Allianz Life Bermuda Ltd was fined $1.7m by its regulator for ‘significant’ breaches of Bermuda’s anti money laundering and international sanctions regulations, and its Insurance Act.

But fines are not the only consequence that insurers face if they fail to meet compliance requirements. Enforcement action by regulators has a severe knock-on effect, including reputational damage and audit and investigations that consume valuable time and resources. We have also seen an increase in de-risking activity among international banks in countries seen as at a high risk of financial crime in recent years – our research shows that global correspondent banking relationships declined by a quarter between 2009 and 2016 – which has implications for The Philippines’ population, businesses and economy.

Our own research shows that the cost of fraud across the APAC region is increasing and has risen to almost four times the amount of actual lost transaction values, due to the rise of fraudulent transactions. Higher rates of fraud mean a higher cost of fighting fraud; last year alone, the projected cost of financial crime compliance across all firms in the Philippines was US$690m (Phb35B).

Compliance in the Insurance Sector

Financial crime compliance is in many ways more challenging for insurers than it is for other financial institution due to the complexity of products and the numerous parties involved in a typical transaction, all of whom need to be screened for politically exposed persons (PEPs), high-risk entities, and adverse news. This is why the FATF and others recommend a risk-based approach, where insurers identify their vulnerabilities and deploy preventative measures in a targeted and efficient way.

Automation forms a vital part of this strategy. Automation of screening processes, backed up with comprehensive, regularly updated databases, greatly reduce the time and manual effort involved in customer and transaction checks. A robust risk-based framework combined with automated compliance mean that screening is more accurate and risks are prioritized according to the severity of exposure, bringing far greater efficiency to the process and leaving a clear audit trail in the event of a regulator query.

LexisNexis® Risk Solutions VP Sales, APAC David Haynes, delved into how efficiency enables effective compliance in a cost-effective manner. “You’re looking for a specific needle in a pile of needles, and to do it we need to have good tech. Automation is valuable because that means the manual tasks that take time to perform can be done by machines. The real value is not implementing tech to get rid of people. Rather, the tech allows companies to upskill their staff to do more value-added work.” We believe that a strong financial crime compliance approach follows the ‘three Es’ – effectiveness, efficiency and explainability (see box).

The three ‘E’s of an anti-money laundering/counter terrorist financing program

Effectiveness – the ability of the program to understand and detect risks, through a combination of people, processes and technology.

Efficiency – compliance with AML/CFT regulations is achieved in a cost-effective manner using an optimal amount of resources. Focusing on technology saves time and money – our data shows that mid and large sized financial institutions that spend more than the sector average on tech have a considerably lower cost of compliance (15% less per full time employee than firms who spend less on tech).

Explainability – transparency of AML/CFT measures is increasingly important to regulators. Institutions should be able to demonstrate a thorough understanding of their ML/TF prevention program and CDD processes.

Recognizing the value of automation, Philippines Life Insurance Association President, Mr. Rico Bautista said: “Automation of AML-related checks and screening processes should be an integral part of every insurer’s digital transformation initiative, as it not only creates efficiency gains in our operation but ensures a high-quality exercise of our critical anti-money laundering and terrorist financing prevention responsibility. Innovation in the industry will continue to flourish without having to sacrifice anything. Certain technology solutions may be put into place like automation and sanction lists. Compliance and innovation are not two opposing forces. It’s a matter of knowing the opportunities at hand and which technologies to use to seize those opportunities.”

The Benefits of Compliance

Compliance is often seen as a pure cost for insurers but the reality is that automated compliance measures bring many opportunities. Banks in the Philippines are already beginning to see the benefits of digital customer onboarding, which allow them to quickly and efficient reach new customers across the entire nation without the need for face-to-face interaction. The Overseas Filipino Bank, for example, says that deposit accounts opened through its digital onboarding system doubled between December 2020 and July 2021.

“Compliance requirements related to anti-money laundering and terrorist financing prevention measures may appear as costly and restrictive to insurance business generation,” said Philippine Insurance Commissioner Atty. Dennis Funa, “but in reality they serve as enablers for the booking of business which are cleared of potential moral issues relative to such criminal acts, thus establishing the legitimacy of the transaction and likely persistency of the business. The challenge to insurers is how to derive this value through a cost-efficient AML-CTF automated checking and screening infrastructure.”

The potential market for insurers in The Philippines is huge – considering the insurance penetration rate in the country  – and the digital services, combined with automated AML/CFT compliance, offer a rapid, accessible and safe way to increase the customer base.

LexisNexis® Risk Solutions is a global leader in combining advanced analytics and global identity intelligence technology with innovative financial crime technologies like machine learning, artificial intelligence (AI), and robotic process automation (RPA). These solutions enable precise risk perspectives during the customer lifecycle, allowing customers to make timely and correct decisions and address financial crime risk.

Insurance Solutions for Risk Management | LexisNexis® Risk Solutions

Source References:

Press Release – Bermuda Monetary Authority Fines Allianz Life Bermuda Limited – BMA:
PH true cost of financial crime compliance rises by 44% in 2020 – The Philippine Business and News (
Data | Official Website of the Insurance Commission