Financial crime on the rise in India’s life insurance sector: EY report
Rising transactions with third parties, data privacy concerns and gaps in operational processes have augmented financial crime risks in the life insurance sector, stated EY Fraud Investigation & Dispute Services’ report, Strengthening the life insurance industry in India by mitigating financial risks.
According to the report, 56% of the life insurers stated upto 30% increase in fraud over the last two years; 7% confirmed upto 50% increase. The report noted that many life insurers were still in the process of complying with implementation of IRDAI-mandated ‘Fraud Monitoring Framework’. 1 in 3 life insurers said their organizations did not have fully established whistle-blowing mechanisms, enhanced third party due diligence processes and robust fraud-response procedures.
Arpinder Singh, Partner and Head – India and Emerging Markets, Fraud Investigation & Dispute Services, EY said, “The Indian life insurance industry is growing tremendously as a result of strong domestic demand, led by a young population with high disposable incomes. To secure and maintain this momentum, life insurers will have to invest in latest technology enablers, enhance data privacy and implement stricter corporate governance mechanisms to battle financial crime risks.”
Rohan Sachdev, Global Insurance Emerging Markets Leader, Partner and Leader – Financial Services Advisory said, “The sector has witnessed unprecedented developments in the past few years, amidst changing regulatory reforms and the evolving economic landscape. With rising financial crime, life insurers in India will be expected to create a robust anti-fraud ecosystem that will proactively mitigate risks emanating through the life insurance channel.”
Vikram Babbar, Partner & Financial Services Lead, Fraud Investigation & Dispute Services, EY says, “Life insurers would need to enhance financial crime compliance frameworks, undertake measures on improving the team skill-sets, build a central repository and look at technology driven monitoring capabilities to prevent and detect financial crime.”
EY Fraud Investigation & Dispute Services conducted a survey with over 100 professionals, representing a majority of the public and private life insurance companies in India. Key highlights of the report include:
Financial crime monitoring capabilities need overhaul
- More than half of the respondents stated that overall transaction monitoring capabilities in their company are in the early stages of development
- 30% indicated absence of or limited transaction monitoring capabilities as the core reason for financial crime
Rising risks leading to financial concerns
- 40% of the respondents stated data leakage and cybercrime issues as the biggest risk
- 40% indicated unauthorized modifications to customer data or information
- 28% stated fake documentation during inception and claims continues to be an area of concern
Growing vulnerabilities for life insurers in India
- Third-party pay outs and underwriting emerge as key concern areas
- Gaps in operations including dis-joint systems, tracking and monitoring of critical data sets and ineffective job rotation within high risk functions
- Limited exposure or utilization of data analytics or analytical capabilities
- Gaps within customer due diligence including methodologies to validate income sources vis-à-vis occupation
Increased investments in forensic analytics and hiring skilled resources is essential
- 71% said proactive data analytics is one of the primary enablers to detect irregularities
- 50% opined that additional guidance or measures from regulators are imperative to address financial crime
- 40% said teams lack experience in financial crime and monitoring of red flags when conducting process reviews