Life insurers are seeking quick and painless solutions for compliance with the USA PATRIOT Act, which requires insurers to develop and implement anti-money laundering (AML) compliance programs intended to disrupt financial networks that support terrorist groups.How they plan to achieve it is the next hurdle: will life insurers decide that it's more prudent to develop a compliance program in-house or seek third-party support? A survey released in February by Gartner Inc., Stamford, Conn., focused on how enterprises choose their anti-money laundering software, whether they were pleased with their choices and whether they were able to remain within their budgets.
The survey found that most money laundering detection systems (MDLRs) were developed in-house; 75% of insurers custom-built their own compliance solutions rather than purchasing vendor products or using third-party services.
Price was the leading selection criteria for insurers, Gartner revealed. Gartner also found that "serious capability overlaps of off-the-shelf MLDRs" was a reason insurers opted to design in-house systems.
Fran Marinelli, vice president and chief marketing officer, Westwood, Mass.-based MIB Group-which provides security alert outsourced or in-house enterprise software services geared toward PATRIOT Act and OFAC compliance-declares that among the group's 500-plus members, "we have about 60 that have decided to develop an in-house compliance program, and that is largely due to economics."
Other insurers are examining third-party solutions. El Segundo, Calif.-based CSC Corp. offers life insurers PATRIOT Protector, a managed, application-hosted Web service that matches identities against the OFAC list. PATRIOT Protector provides identity verification using Search Software America's (SSA's) search and matching engine, an audit trail for proof of compliance, and features to streamline match resolution. It is designed to meet future counterterrorism requirements and provides a base for advanced fraud detection.
What's in store?
As insurers install strategies to comply with the Act, Gartner states that "insurers must be careful to adequately fund ongoing maintenance. Although its effect has been likened by the media to the year 2000, PATRIOT Act compliance is not a 'one-shot fix.'"
Gartner indicates that ongoing efforts will include:
* Training for compliance and investigatory staff, who must keep abreast of changes in anti-money laundering regulations, policies and criminal practices, and other staff who must be reminded that fighting money laundering is an ongoing effort requiring high levels of vigilance.
* Updating business rules for detecting suspicious or prohibited activity to reflect changing conditions and processes within the enterprise.
* Continuous cleansing of data files to ensure that clients are correctly "remembered" once they have been identified.
Going forward, PATRIOT Act compliance might also be expanded to become a requirement for property/casualty and health insurers, which presently are exempt from the Act's provisions.
Groups that represent property/casualty insurance are trying to hold off these requirements. They reason that property and casualty insurers collect premium from policyholders, but are not involved in setting up large accounts for investment purposes that could be easily used for money laundering.
"Title III of the PATRIOT Act is clearly directed at financial institutions, such as banks and security brokers, not property/casualty insurance companies," says Kathleen Jensen, insurance services counsel, National Association of Independent Insurers (NAII), based in Des Plaines, Ill. "Although sections of the Act could apply to life insurers, the nature and process of business for property/casualty insurers preclude us from inclusion and we asked the Treasury to consider exemption."
To date, most life insurers have been closed-lipped about the specific procedures they plan to take to comply with the PATRIOT Act.
But there's an indication that most life insurers agree that the Act is necessary: A recent survey conducted by Scottsdale. Ariz.-based eFunds Corp. found that nearly 70% of financial industry professionals believe the PATRIOT Act will achieve its goal of protecting the U.S. financial system from terrorist financing and money laundering.
