Over the years, insurers have faced criticism for their lack of data integration and customer relationship management (CRM) capabilities. This deficiency took on an added dimension with the passage last October of the USA PATRIOT Act.The USA PATRIOT Act-an acronym for Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism-is an anti-money-laundering law designed to prevent terrorists from setting up operations in the United States.

Following the September 11 attacks, the U.S. Treasury Department vowed to "take steps to shut down the flow of funds into the coffers of the terrorists-to make it difficult for them to underwrite their training camps, purchase firearms and explosives, and to send money abroad to fund future attacks."

With specific provisions that impact financial services firms, the law requires insurance carriers to track transactions and annuities against a constantly changing list of undesirable individuals. Carriers, who must comply with the PATROIT Act or face criminal penalties, have had to deal with allegations that at least $1 billion annually is being laundered through insurance programs, such as annuities, according to a report by META Group.

Carriers vulnerable

Although carriers recently received a six-month extension so they could fully comply with the Act, insurers-especially life insurance companies-have begun making good-faith efforts by appointing compliance officers and developing policies and procedures.

Because many carriers are making the transition to become full-service financial services organizations-selling mutual funds, for example, along with traditional insurance and annuity products-life insurers are most vulnerable to money laundering.

But property/casualty insurers also can become unknowing partners in large money-laundering schemes and thereby violate the Act, META Group says. So far, many P&C carriers have not taken meaningful action to comply with the Act, according to the Stamford, Conn.-based research and consulting firm.

"We have seen no indications that property/casualty or health insurers yet understand that PATRIOT Act compliance will be a near-term requirement for them," says Judy Johnston, insurance analyst for META Group.

"Terrorist groups, drug cartels, and other illegal organizations can launder money just as easily by, for instance, taking out a large, single-payment policy on a supposedly high-risk company-and actually non-existent or 'dummy'-company, and then submitting a claim on that policy as they can via other financial instruments."

Beginning to comply

The best way carriers can start to comply with the Act is to develop a framework for flagging and then stanching "suspicious" financial activities, such as a policy beneficiary change.

But the tough part for carriers will be understanding how these efforts tie in to other customer-related initiatives. To date, insurance companies have been hard-pressed to create an enterprisewide view of their customers just to cross-sell and up-sell products to them-let alone to try to prevent terrorist activities.

"Suspect identification can be done via cross-referencing with various databases, such as law enforcement and government, to expose aliases and other irregularities with an accountholder," says David Straus, senior vice president of product marketing and management for Cupertino, Calif.-based Chordiant Software Inc., a CRM solution provider.

"But identifying usage patterns is the more difficult part. To identify money-laundering trends, carriers would have to implement advanced technology to capture and analyze a correlation of events-using multiple data sources to ultimately create a virtual picture of a customer," he says.

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