Perspective

Why Insurance AML Needs a Sector Specific Approach

An insurance policy is not a bank account, and insurance activity does not follow one standard pattern. A useful AML approach starts with what a particular product is designed to do, then asks which people, payments and policy changes could alter its financial crime exposure.

Products create different patterns

A term life policy with fixed premiums and a defined benefit has a different financial profile from an investment linked contract that can be surrendered, assigned or changed. General insurance brings another pattern: premiums, renewals, refunds, claims and payments to claimants or repairers. Wholesale insurance can involve brokers, coverholders, multiple insurers and cross border premium flows. These differences affect which activity is expected, what data exists and where an insurer or intermediary can see it.

FATF’s 2018 life insurance guidance described the sector’s overall money laundering and terrorist financing risk as generally lower than some other financial products, while still identifying risks around funds used to buy policies and funds withdrawn from contracts. It also says assessment should reflect the nature, size and complexity of the business. The guidance predates the 2025 revision to FATF Recommendation 1, a limitation FATF itself flags, so it should be read alongside current standards and local rules.

Look at policy events, not just payments

For life products, context can change when a policy is surrendered early, an unusual withdrawal is requested, premiums change sharply, ownership is assigned, or a beneficiary is replaced shortly before a payout. None of these events proves wrongdoing. They are reasons to compare the request with the product terms, the customer’s circumstances and the explanation recorded when the policy was arranged. Beneficiaries and other parties to the contract can matter as much as the policyholder.

In general insurance, an unusual refund, a change in who pays a premium, or a claim payment directed to an unexpected party may merit review in context. A suspicious claim may be a fraud issue, an AML concern, both, or neither. Fraud indicators should not automatically be treated as evidence of money laundering. The relevant question is whether the activity and parties make sense for the policy and whether the firm has enough information to make and document a sound decision.

A November 2023 insurance paper by Trevor Barritt also highlights how insurance distribution, regional variation and policy data affect financial crime controls. Its examples are useful prompts for analysis, not a substitute for current legal requirements or a rule that every insurer needs the same monitoring system.

Build monitoring around visibility and responsibility

An insurer may hold policy and claims records while a broker, administrator or group function handles onboarding, payment processing or screening. Map who sees each event, what data is passed on, who investigates an exception and who makes or records the decision. If a third party performs a control, the insurer still needs oversight appropriate to the activity and its risk.

The FCA’s June 2026 review found different control strengths and gaps across retail, wholesale and life insurance. It noted that formal transaction monitoring was not common in the retail and wholesale firms it reviewed, reflecting their regulatory status and business patterns. The FCA said firms should consider and document the rationale for their approach, with any simpler or alternative controls proportionate to risk and supported by evidence. This is not a blanket exemption from applicable reporting, sanctions or financial crime obligations. The FCA also highlighted business unit and jurisdiction specific procedures, clear ownership, risk focused management information and coordinated testing.

A practical set of questions

A sector specific review can start with four questions: what is normal for this product and channel; which policy events materially change the expected pattern; what customer, beneficiary, broker and payment data is actually available; and which role can investigate, escalate and decide? The answers help determine whether screening, due diligence, transaction monitoring, fraud controls or a combination is suitable, and where gaps in information limit confidence.

Insurance groups operating across borders also need to distinguish local legal duties from group standards. FATF provides international standards, but national rules and the scope of obligations differ. A defensible approach explains the connection between the business model, assessed risk, chosen controls and evidence of their operation.

Common questions

Does every insurer need transaction monitoring?

The answer depends on the firm’s activities, applicable obligations, risks and available data. The FCA’s June 2026 review noted that formal monitoring was not common in the retail and wholesale firms it reviewed, but said firms should document their rationale and use proportionate, risk based controls.

Are unusual insurance claims automatically AML concerns?

No. An unusual claim can raise a fraud question, an AML concern, both or neither. Its meaning depends on the policy, parties, payment route, supporting information and applicable reporting duties.