Insurers, Agents Work To Meet Anti-Terror RulesSome insurance industry executives say they can easily meet theanti-terrorism requirements of the USA Patriot Act, but othersthink the requirements are onerous, particularly for agencies.

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

Mr. Mansolillo noted that the acts strict requirements formonitoring insurance transactions for potential money laundering orfraud have only recently kicked in.

“We dont yet have a barometer to measure ourselves against,” hesaid.

He reported that the Hartford sent representatives to talks lastyear between members of the industry and the U.S. Department of theTreasury. Those discussions convinced the agency that theproperty-casualty end of the business was not a likely candidatefor money laundering, Mr. Mansolillo pointed out.

Company systems also need to screen for names of designatedterrorists. A list of such individuals and groups is issued by thefederal Office of Foreign Assets Control (OFAC). Screening is arequirement that applies to all lines of insurance, includingproperty-casualty, Mr. Mansolillo noted.

For life insurance and annuity products as well as mutual funds,the Hartford has developed policies and procedures to ensure thatpotential money laundering and other suspicious activities areflagged and reported to the Treasury Department, he said.

As with all financial service organizations, the Hartfordalready has the needed computer systems and software for detectingsuspicious activity, due to existing IRS rules aimed at combatingracketeering and tax evasion, noted Mr. Mansolillo.

“We already have formal policies, fairly detailed businessprocedures, and know-your-customer type processes and screeningabilities,” he explained.

With the advent of the USA Patriot Act, the Hartford beefed uptraining and education of employees and agents to keep them awareof the red flags to look for in spotting illegalities in insurancetransactions, he added.

The company also established a project group to look at the Actsrequirements and implement the needed policies and procedures toguide them, he said.

“There [is] tons of technology from third-party vendors, prettymuch the same vendors who developed it for the banking industry15-to-20 years ago,” Mr. Mansolillo said.

Anti-money-laundering programs must be able to aggregatetransactions, he noted, so that an individual with more than oneaccount under the same name, or who is listed as beneficiary on anumber of policies, can be spotted.

The Hartford plans to use a mixture of software boughtoff-the-shelf and designed in-house, Mr. Mansolillo said.

“We may buy some technology for OFAC screening for some parts ofthe company,” he explained. “In other parts, it made more sense tobuild a system.”

Even though Treasurys final regulations on life insurance havenot yet been issued, Mr. Mansolillo is convinced the Hartfordsexisting 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 said.

James Tuite, associate general counsel for State Farm InsuranceCompanies, Bloomington, Ill., said his company was already familiarwith many of the Patriot Acts requirements because it owns a bankand hence comes under the similar requirements of the much olderBank Secrecy Act.

The company did make one change in procedures in response to theUSA Patriot Act, he reported. It established a company-widecompliance office. Previously, it had a compliance overseer for itsbank only, Mr. Tuite noted.

A great deal of State Farms compliance monitoring is concernedwith helping agents develop anti-money-laundering safeguards and toaudit their transactions for suspicious activity, he added.

Curt Penrod, a State Farm spokesperson, added that the companyhas automated many of its screening procedures. The company builtits program for monitoring insurance transactions on existingcomputer systems it had established to meet requirements of theBank Secrecy Act, he said.

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

“I dont believe theres a producer who wouldnt be proud to reportand help,” said Bob Nelson, vice president, Grace/Mayer InsuranceAgency, Omaha. “But how do you enforce it at the broker/dealer andwholesaler level?” he asked. “Thats where the rub is.”

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

“Were constantly upgrading computers anyway, so I dont see whyit would be necessary” to do so in response toanti-money-laundering rules, he explained.

Besides, to spot unlawful activities, few agents need acomputer, Mr. Nelson pointed out.

“In my practice, I know who my customers are,” he said. “Aseasoned professional knows who theyve been doing business with. Ifyou came to my office with a briefcase full of cash, we wouldnt dobusiness,” he said. “I dont want the liability and, most of all, Idont want to aid terrorist activity.”

As for screening names of insurance applicants against the OFAClist, Mr. Nelson thinks that should be the insurance companysjob.

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

One New Jersey-based agency consultant reported that many agentsare concerned that their responsibilities underanti-money-laundering rules are unclear.

“They are trying their best to meet the requirements of theact,” said the consultant, who asked that his name be withheld.

OFAC and money-laundering screening software, and trainingpeople to use it, has been costly for some agencies, the consultantinsisted.

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

He noted that many of these costs have been spread out over timeand are hard to track, but he believes they are heavy for someagencies.

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

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

Insurance agencies “are always concerned about cumbersomereporting requirements,” added Mr. Nelson of Grace/Mayer Insurance.“But the stakes are high, and we ought to do everything wecan.”

Trevor Thomas is an assistant editor for NUs Life &Health/Financial Services Edition.

Reproduced from National Underwriter Property &Casualty/Risk & Benefits Management Edition, June 2, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.