Suspicious Activity Reporting Expected to Double in 2021 over 2020 Levels
The November 1, 2021, edition of Insurance Compliance Insight has a very interesting article by Alan Prochoroff titled “Insurance Company SARs Have Exploded This Year.” He reports that insurance companies are on track to file 6,500 Suspicious Activities Reports (SARs) in 2021, more than twice as many as they did in 2020. By contrast, the numbers were remarkably consistent in 2018 (2,523), 2019 (2,697), and 2020 (2,556).
The information provided by FinCen and analyzed in the article suggests that while insurance companies are likely experiencing a dramatic increase in suspicious activities, possibly because of COVID and related economic and social conditions, there may also be some important trends in how those activities are being reported.
According to Prochoroff, the first statistics kept on SARs were from 2014. In that year, he reports a relatively small number of reasons the insurers filed SARs: structuring transactions below the Bank Secrecy Act recordkeeping thresholds: source of funds; account takeovers; identity theft; questionable automated clearing house transfers; and transactions without an apparent economic, business, or lawful purpose. SARs have been filed for those reasons in 2021 as well. But there has been a trend of additional triggers that seems to be part of the basis for the high numbers this year: forgeries; elder financial exploitation; excessive or unusual cash borrowing against a policy or an annuity; questionable or false documentation; embezzlement, theft, or disappearance of funds; suspicious use of noncash monetary instruments; suspicious use of multiple transaction locations; suspicious checks; and incidents against customers.
To us, that looks like fraudulent behavior, once considered discreet from traditional money laundering, but now much more customarily viewed as being an appropriate use of the SAR process. The trend suggests that insurance companies now recognize that filing a SAR for fraud-related behavior may provide helpful information for financial crime investigators to piece together financial crimes, whether it is specifically a money-laundering scheme or a more extensive financial crime ring. And there is also a wider recognition that this is an acceptable use of the SAR process.
This dramatic increase in reporting may also reflect, in part, the growth of an integrated and cross-functional approach to AML and fraud detection at insurance companies. In the past, AML compliance and fraud/SIU units worked separately with little cross-communication. We think it would be a positive development if part of the jump in SAR filings by insurance companies reflects that the gap between the departments responsible for monitoring and reporting fraudulent activity is narrowing. Creating strong fraud and AML compliance programs and support for these vital reporting processes helps protect insurance companies, their clients, and our entire financial system from the activities listed above.