Why insurers need to nip fraud in the bud

Insurers in Canada should refocus their fraud efforts, given insurance fraud is increasingly becoming a predicate offence to money laundering, a speaker suggested last week at KPMG’s 2024 Insurance Conference.

“I can tell you, based on the discussions I’ve had with the Department of Finance, there’s a large, large focus on this fraud as a predicate offence to money laundering,” said John Shoemaker, chief anti-money laundering officer and head of global financial crime oversight at Sun Life. “Many insurers now, just like the banks before us and other reporting entities, are filing money laundering suspicious transaction reports for incidents of fraud.”

Compounding the problem is that Canada’s enforcement and prosecution of money laundering crimes are not up to snuff. As an example, Shoemaker pointed to findings from the Financial Action Task Force, an international standard-setting body that evaluates countries’ money laundering and financial crime regimes.

“If you think about Canada’s last mutual evaluation in 2016, it said something to the effect of, ‘our enforcement and prosecution of money laundering is really substandard,’” Shoemaker said during the session, Unmasking fraud and financial crime risks. “And even when we do prosecute…the sentence is not dissuasive.”

Right now there’s a “strong push” from Canada’s Department of Finance, regulators like FINTRAC (Financial Transactions and Reports Analysis Centre of Canada) and the Office of the Superintendent of Financial Institutions (OSFI) to beef up the country’s money laundering regime, Shoemaker reported.

But what else can be done to tackle the issue?

“It goes back to the need for more sharing between law enforcement and the regulatory bodies, the insurance companies, the financial institutions, the money service businesses — all of the industries that are mandated by FINTRAC to provide the STRs [suspicious transaction reports],” said David Coffey, a detective with the Toronto Police Service’s financial crimes unit.

“That sharing of information starts with the STRs,” he said. “That’s how we talk to each other.”

This collaboration would also help industry players identify similar cases of insurance fraud quicker, Shoemaker added. “If we say, ‘fraud happened here and sent the money to a bank account in California,’ and we report that immediately, what says that there aren’t many other financial institutions reporting that same bank account in California as a fraud bank account?”

Having all lines of defence working together is crucial. Shoemaker also suggested a “more mature program [that] pushes some of these activities to the first line [of defence], so that transaction monitoring happens for both fraud and [anti-money laundering], hopefully within the same systems with the same case management type of platform.”

Globally, “fraud has exploded” and organized crime has recognized it as way to make money, added Coffey. “Sadly, the penalties and the legislation and the regulations haven’t risen to the point where we’re effectively fighting fraud.”

Feature image by iStock.com/zest4living

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.