The Insurance industry plays a large part in protecting people and companies from financial risk; however, it is also at risk itself. Insurance firms can be exposed to money laundering and fraud, especially when dealing with complex insurance products, high-value premiums, or unusual payment arrangements.  

By having effective AML (anti-money laundering) strategies in place, insurance firms can start to spot any suspicious activity, verify the identity of customers and have a clearer understanding of the financial crime risks that could be associated with policyholders.
For insurance businesses, having strong AML controls implemented is about more than meeting regulatory requirements; it’s about helping organisations to assess their customer risk, protect their reputation, maintain records that are clear and accurate and, above all, to prevent financial crime.

By understanding these best practices for anti-money laundering, insurance firms can help to boost the existing processes of companies, as well as creating more efficient and consistent approaches to insurance customer due diligence and the overall monitoring of ongoing risk management. 

Why AML compliance matters for insurance firms

Insurance products can be another means to misuse or to disguise the source of criminal funds. They can also be used to transfer value between individuals, but primarily, they can provide a legitimate-looking explanation for why financial transactions are occurring.

There are particular products that can be more beneficial for criminals to use; for example, life insurance policies with investment or surrender features may appear to criminals as the ideal opportunity for introducing illicit funds into the financial system.

Other attempts for insurance firms to keep a lookout for are unusual premium payments, sudden or unexplained changes to the beneficiaries of a policy, claims that appear suspicious, or transactions that involve third parties.

Regulatory requirements will differ depending on what the firm's activities are and on what insurance products are involved. When dealing with relevant long-term insurance activities, they can fall under the scope of the UK's Money Laundering Regulations, whereas general insurance businesses may face different requirements.

What will remain the same is that all firms across the insurance sector must consider applicable financial crime obligations. This includes sanctions legislation, the Proceeds of Crime Act 2002 and relevant Financial Conduct Authority (FCA) requirements.

In its June 2026 review of insurance financial crime controls, the FCA made sure to highlight where the opportunities were so that firms could improve their risk assessments, their customer due diligence, and any transaction monitoring.

Having strong, effective AML and financial crime controls in place can help insurers to reduce their exposure to criminal activity, as well as strengthening their oversight of compliance, all of which will maintain a greater confidence throughout customer relationships.

What are the key AML best practices for insurance firms?

To maintain a strong approach to insurance AML compliance, firms should ensure there is a mix of being able to verify customers, conduct thorough risk assessments, carry out financial crime screening, and oversee ongoing monitoring.

Instead of compliance being seen as a one-off process, insurance organisations should have procedures in place that reflect the various risks associated with their products, customers and distribution channels.

Some best practice AML for insurance companies include:

• Carrying out the appropriate customer and business risk assessments
• Verifying the identities of policyholders via KYC checks
• Identifying who corporate customers are, as well as any beneficial owners
• Checking customers against sanctions and PEP screening lists
• Ensuring that enhanced due diligence is applied to higher-risk relationships
• Reviewing any unusual premium payments and suspicious policy activity
• Maintaining ongoing customer risk monitoring
• Making sure all employees have been trained to spot financial crime red flags
• Keeping clear records of audits, due diligence and compliance decisions
  
  

The required level of due diligence and the extent of monitoring to be carried out should reflect any legal obligations the firm has, along with any business activities and exposure to financial crime risk.

Understanding money laundering risks in insurance

Prior to any additional AML controls being implemented, insurance firms should hold a strong understanding of how their products and services could potentially be used to facilitate financial crime.

This is down to the fact that different insurance products have differing levels of risk. An example of this is that life insurance and investment-linked policies tend to provide ideal opportunities for money laundering through premium payments, withdrawals, or early policy surrender.

Potentially, an individual could try to use illicit funds to pay a large insurance premium before then cancelling said policy and requesting repayment through a different account.

Other risks that may also be a factor are third-party payments, unusual changes to beneficiaries or transactions involving complex corporate structures.

Common signs of insurance money laundering red flags

There are a few potential red flags to look out for, which include:

• Much larger premium payments that appear inconsistent with a customer's known financial circumstances and with no explanation
• Premiums that are paid by unrelated third parties and don’t appear to have a clear explanation
• Early cancellation or surrender of policies and no apparent commercial reason
• Requests for refunds to be paid to different accounts than those used for the original payment
• Frequent or unexplained changes to policy beneficiaries
• Customers who are unwilling to provide the identity or source of their funds
• Complex ownership structures that cause difficulty in identifying who controls a corporate policyholder
  
  

The above indicators can give you a reason to look into a situation further; however, they do not automatically confirm that money laundering has taken place. However, what they do suggest is that additional due diligence may be necessary.

By being equipped to understand the potential risks, insurers can start to develop more effective procedures and learn when to apply controls at the right time.

Implement a risk-based approach to AML compliance

Having a risk-based approach is fundamental to a truly effective AML compliance process for insurance companies.

Instead of applying the same checks to every customer, firms need to assess the potential financial crime risks associated with individual relationships, so that they can start to determine the appropriate level of due diligence to apply.

This will involve taking the type of insurance product into question, as well as considering the customer’s location, methods of payment, the source of their funds, and ownership structures.

If you’re dealing with a straightforward personal insurance policy, this may present different risks from those of a high-value investment-linked insurance product which involves international payments or complex corporate ownership.

To be clear on business procedure, policy documents should be well maintained and should explain how risks are identified, assessed, and escalated.

SmartSearch's AML risk assessment solution supports firms in standardising customer risk assessments through configurable workflows, thereby supporting a more consistent approach to compliance.

Strengthening customer identity verification and KYC checks for insurers

Having confidence in the verification of customer identities is an essential part of the prevention of fraud and AML compliance, especially during digital onboarding processes.

When no face-to-face consultations are taking place, it can be easier for criminals to attempt to use stolen identities, fake documents, or misleading personal information in order to obtain insurance products or to conceal financial activity.

Sufficient and effective Know Your Customer (KYC) checks aid businesses in establishing customer identities, flagging any inconsistencies, and reducing the risk of inadvertently onboarding fraudulent customers.

In the case of certain products or risk levels etc., the verification process may also be needed for beneficiaries, claimants, or other parties who are connected to the policy.

This is also the case when dealing with certain long-term insurance contracts, and all in accordance with applicable regulatory requirements.

SmartSearch's KYC solution helps insurance firms to verify customer identities through the processes of electronic verification, document authentication, and biometric checks.

The process of automating these checks can mean a reduction in manual administration while still supporting secure and efficient customer onboarding.

Verify corporate policyholders through KYB checks

It’s important for insurance firms that work with commercial customers to have a good understanding of the businesses they’re insuring, as well as the individuals behind them.

It can sometimes prove difficult to establish ownership when corporate structures are involved. This is especially the case when companies operate internationally or involve multiple shareholders.

Know Your Business (KYB) checks help firms to verify company information, to identify company directors and to understand ultimate beneficial ownership.

These checks are particularly valuable when corporate policyholders are being assessed, or when commercial partners and other business relationships may present financial crime risks.

A strong KYB process needs to be able to firmly establish whether a company is legitimate, and in addition to this, who it is that ultimately owns or controls it, and whether these individuals require any additional screening.

SmartSearch's KYB solution helps to do this by supporting company verification, the identification of beneficial owners, and wider business risk assessment.

This supports insurance firms in developing a clearer understanding of corporate relationships and identifying any potential risks before onboarding.

Conduct sanctions, PEP, and adverse media screening

Customer verification alone does not provide a complete picture of financial crime risk.

Insurance firms have other checks and due diligence they should consider before forming an opinion; these include whether policyholders, beneficiaries, corporate customers, or other relevant parties may be a concern if they appear during sanctions screening, on politically exposed person (PEP) databases, or on adverse media sources.

Sanctions screening can help to identify if there are financial restrictions in place for some individuals, whereas PEP and adverse media checks will highlight any information that may influence customer risk assessments.

All potential screening matches should be carefully reviewed to ensure it relates to the customer in question, before a decision of any necessary further action can be made.

It’s not the case that every match indicates criminal activity; however, it may be an indication that activities need to be restricted for those customers, assets frozen or a report made in accordance with the applicable sanctions rules.

SmartSearch's sanctions and PEP screening solution connects watchlist screening, adverse media checks and reviews into a connected compliance workflow.

This helps insurance businesses to confidently identify financial crime risks while reducing the amount of administrative work associated with manual screening.

Apply enhanced due diligence to higher-risk customers

Some insurance business relationships may be of a higher level of financial crime risk and, as a result, may require additional investigation.

Examples of this include unusually large premium payments, unexplained third-party transactions or complex ownership structures, all of which may justify closer examination.

Enhanced due diligence (EDD) is a process that enables businesses to investigate these circumstances in greater detail and then to establish if the business relationship can proceed.

Depending on what risks have been identified, this could involve anything from:

• Obtaining additional identity evidence
• Investigating the source of funds or wealth
• Understanding the purpose of the transactions
• Applying closer ongoing scrutiny
  
  

A risk-based approach is the best way to enable businesses to concentrate any of their additional resources on those relationships that present the greatest level of risk.

SmartSearch's enhanced due diligence solution supports higher-risk customer investigations, empowering compliance teams to gather the additional information they need to make informed decisions.

Maintain ongoing monitoring throughout the policy lifecycle

The checks for AML for insurance companies that are in place shouldn’t end as soon as onboarding is complete.

Business relationships in insurance can continue for many years, and during that time, a lot can change. A customer’s circumstances can alter, ownership structures can update, payment arrangements can change, and so can risk profiles.

An example of this is that a policyholder may become subject to sanctions during that time, and they may now appear on sanctions lists that they weren’t on before. This is why lists and databases need to be monitored on an ongoing basis.

If effective, ongoing monitoring is carried out, businesses can identify relevant changes as soon as possible, to then determine whether further review is necessary.

What this will involve will differ depending on what insurance product is involved and the associated regulatory requirements. It may be that reviewing premium payments is necessary, perhaps making policy amendments, surrender requests may be needed, or it may involve claims activity and changes in customer risk.

SmartSearch's ongoing monitoring solution is there to help insurance firms identify changes in sanctions, PEP, and any other customer screening that takes place following the initial onboarding.

By combining ongoing customer screening with the appropriate internal transaction and policy activity reviews, firms can maintain a more complete understanding of emerging financial crime risks within their customer base.

Train employees to recognise suspicious activity

Technology now plays a large part in helping to identify potential financial crime risk, and is an important part of compliance when it comes to AML for insurance companies; however, it’s still essential for employees to have an understanding of the full process of identifying and responding to potential financial crime threats.

Teams involved in underwriting, customer onboarding, policy administration and claims handling could come across a range of warning signs, so training can be the first defence.

Take, for example, an underwriting team: they may notice unusual payment arrangements, while a claims handler may spot inconsistencies in beneficiary information or requests for payments to unrelated third parties. Regular training helps to arm teams with being able to understand the relevant risks, identify the suspicious activity and follow the company’s escalation procedures.

To help make this process possible, insurance firms should ensure they have clear processes in place for referring concerns to compliance teams and for determining whether a Suspicious Activity Report (SAR) is required.

Combining employee awareness with effective screening and risk assessment tools helps businesses detect risk more consistently.

Improve efficiency through automation and integration

Automation can help save you time; it can speed up time-consuming manual AML checks that can take insurance firms managing large volumes of policyholders, corporate clients, and ongoing customer relationships much longer to complete.

In addition to this, automation can help to simplify processes and keep everything in order. If identity verification, sanctions screening, and risk assessments are all handled through separate systems, this can cause duplicated work, inconsistent records, and onboarding delays.

Automation can help bring everything into a more connected workflow, so businesses should find solutions where integration with their existing insurance platforms, customer relationship management systems and compliance processes will be supported.

SmartSearch provides API integration capabilities that enable insurance firms to bring together their abilities to verify identities, conduct screening, and carry out risk assessment checks into their existing systems.

This means customer onboarding can be streamlined, teams will have more time to dedicate to higher-risk cases, and there will be an overall improvement in the visibility of compliance activities.

Maintain clear audit trails and compliance records

Accurate records are incredibly important for insurance businesses so that they can keep track of all relevant customer checks, risk assessments and compliance decisions.

For firms who are subject to AML requirements, having appropriate record-keeping allows them to demonstrate that customer due diligence has been completed, as well as all identified risks being thoroughly reviewed.

On top of meeting AML requirements, accurate reporting and documentation will also help to support any internal investigations carried out and any necessary regulatory enquiries.

To have an effective compliance process, records should be maintained for:

• Verifying customer identities and the supporting evidence
• Business ownership and beneficial ownership checks
• Results of sanctions and PEP screening
• Assessing customer risk and carrying out enhanced due diligence
• Any ongoing monitoring alerts received and the outcomes of investigations
• Compliance decisions and relevant approvals
  
  

Having all of these records safely stored in one place can help to reduce administrative work and make it easier to demonstrate a consistent approach when managing financial crime risk.

SmartSearch supports digital compliance records and audit trails, so insurers are able to access the results of any completed checks and to maintain greater visibility of their customer relationships.

Implementing AML best practices for insurance firms will always require a comprehensive approach to customer verification, financial crime screening, risk assessment and ongoing monitoring.

Of course, the regulatory obligations will differ across insurance products and activities, but it will always be the case that effective financial crime controls are essential when it comes to protecting businesses, customers and the wider financial system as a whole.

Having a clear understanding of the insurance-specific money laundering risks, maintaining clear records and applying proportionate due diligence, firms can ensure that they’ve strengthened their ability to identify any suspicious activity but also to be able to respond to those emerging threats.

SmartSearch empowers insurance businesses to streamline their AML and fraud prevention processes through the following:

• KYC and KYB verification
• Sanctions and PEP screening
• Enhanced due diligence
• Automated risk assessments
• Ongoing customer monitoring
  
  

Bringing the above capabilities into a connected workflow helps compliance teams to reduce the amount of manual administration work they have, to improve risk visibility and to support a much more efficient customer onboarding process.

Discover how SmartSearch supports insurance firms with tailored AML and compliance solutions, or explore our anti-money laundering technology that can strengthen your financial crime prevention processes.