Insurers, Agents Scramble To Meet New Security Rules

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Some insurance industry executives say they can easily meet the anti-terrorism requirements of the USA Patriot Act, but others think the requirements are onerous, particularly for agencies.

“I think we are in fairly good shape,” says Scott Mansolillo, vice president and director of compliance for the Hartford Financial Services Group Inc.

Mansolillo notes that the acts strict requirements for monitoring insurance transactions for potential money laundering or fraud have only recently kicked in. “We dont yet have a barometer to measure ourselves against.”

He recalls that the Hartford sent representatives to talks last year between members of the industry and the U.S. Department of the Treasury. Those discussions convinced the agency that the property-casualty end of the business was not a likely candidate for money laundering, Mansolillo says.

Company systems also need to screen for names of designated terrorists. A list of such individuals and groups is issued by the federal Office of Foreign Assets Control (OFAC). Screening is a requirement that applies to all lines of insurance, Mansolillo notes.

For life insurance and annuity products as well as mutual funds, Hartford has developed policies and procedures to ensure that potential money laundering and other suspicious activities are flagged and reported to Treasury, he says.

As with all financial service organizations, Hartford already has the needed computer systems and software for detecting suspicious activity, due to existing IRS rules aimed at combating racketeering and tax evasion, notes Mansolillo.

“We already have formal policies, fairly detailed business procedures and know-your-customer-type processes and screening abilities,” he explains.

With the advent of the Patriot Act, he adds, Hartford beefed up training and education of employees and agents to keep them aware of the red flags to look for in spotting illegalities in insurance transactions.

The company also established a project group to look at the acts requirements and implement the needed policies and procedures to guide them, he says.

“There are tons of technology from third-party vendors, pretty much the same vendors who developed it for the banking industry 15 to 20 years ago,” he says.

Anti-money-laundering programs must be able to aggregate transactions, he notes, so that an individual with more than one account under the same name, or who is listed as beneficiary on a number of policies, can be spotted.

Hartford plans to use a mixture of software bought off-the-shelf and designed in-house, Mansolillo says.

“We may buy some technology for OFAC screening for some parts of the company,” he explains. “In other parts, it made more sense to build a system.”

Even though Treasurys final regulations on life insurance have not been issued yet, Mansolillo is convinced Hartfords existing system will be fully in compliance.

“I think weve probably been more cautious than we needed to be, and as compliance officer, that makes me feel good,” he says.

James Tuite, associate general counsel for State Farm Insurance Companies, Bloomington, Ill., says his company was already familiar with many of the Patriot Acts requirements because it owns a bank and hence comes under the similar requirements of the much older Bank Secrecy Act.

The company did make one change in procedures in response to the Patriot Act, he reports. It established a companywide compliance office. Previously, it had a compliance overseer for its bank only, Tuite notes.

A great deal of State Farms compliance monitoring is concerned with helping agents develop anti-money-laundering safeguards and to audit their transactions for suspicious activity, he adds.

Curt Penrod, a State Farm spokesman, says the company has automated many of its screening procedures. The company built its program for monitoring insurance transactions on existing computer systems it had established to meet requirements of the Bank Secrecy Act, he says.

Other experts expressed concern about the impact of new anti-terrorism requirements on producers.

“I dont believe theres a producer who wouldnt be proud to report and help,” says Bob Nelson, vice president, Grace/Mayer Insurance Agency, Omaha. “But how do your enforce it at the broker/dealer and wholesaler level?” he asks. “Thats where the rub is.”

Most agencies wont have to change their existing computer systems to help them detect money laundering or OFAC activity, Nelson believes.

“Were constantly upgrading computers anyway, so I dont see why it would be necessary” to do so in response to anti-money-laundering rules, he explains.

Besides, to spot unlawful activities, few agents need a computer, Nelson points out.

“In my practice, I know who my customers are,” he says. “A seasoned professional knows who theyve been doing business with. If you came to my office with a briefcase full of cash, we wouldnt do business,” he says. “I dont want the liability and, most of all, I dont want to aid terrorist activity.”

Insurance agencies “are always concerned about cumbersome reporting requirements,” says Nelson. “But the stakes are high, and we ought to do everything we can.”

As for screening names of insurance applicants against the OFAC list, Nelson thinks that should be the insurance companys job.

“Its more cost effective for them,” he says.

One New Jersey-based agency consultant says many agents are concerned that their responsibilities under anti-money-laundering rules are unclear. “They are trying their best to meet the requirements of the act,” says the consultant, who asked that his name be withheld.

OFAC and money-laundering screening software, and training people to use it, has been costly for some agencies, the consultant insists.

“A lot of [agencies] downsized, so they didnt have the [information technology experts] available” to deal with the tightened security requirements, he explains. “They had to go out and buy it.”

He notes that many of these costs have been spread out over time and are hard to track, but he believes they are heavy for some agencies.

Largely, however, agencies are already meeting the requirements, he adds.

“No one in their right mind would want to get on the wrong side of this issue,” he concludes.


Reproduced from National Underwriter Edition, March 31, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.