Insurers want more premium in cash

HYDERABAD/MUMBAI: The reporting norms for insurers to track individuals who are using unaccounted money to buy insurance policies are up for review. The move comes less than a year after the government made it mandatory for insurers to comply with the guidelines on anti-money laundering.

Money laundering is a practice of moving illegally-acquired cash through the financial system to make it legal. Authorities in India have shifted their focus to insurance since the life industry has been driven by investment products rather than protection policies in recent times. Insurers are now required to identify income sources and also report suspicious transactions to the Financial Intelligence Unit-India (FIU-IND), a nodal government agency that tracks money laundering attempts and then probes them further.

Top FIU-IND officials met up with both general and life insurers earlier this month to take stock of their compliance levels. The results revealed a mixed bag with some insurers yet to come on board. Insurers, on their part, say there are a few glitches in implementing these guidelines. State-owned insurers, for instance, want the Rs 50,000 limit for accepting cash payments raised as rural customers do not have access to banking facilities.

According to the chairman of the insurance regulator, IRDA, C S Rao, any change in the rules will need the finance ministry’s approval. From FIU-IND’s perspective, a higher limit for premium payments in cash would mean adding more cash transactions in the economy. “Our goal is to encourage all stakeholders in the financial sector to move towards a cheque economy as this would help curb money laundering,” said a senior official.

Insurers also have to report integrally-connected cash transactions exceeding Rs 10 lakh a month to FIU-IND. Officials say there have been instances where individuals buy multiple policies and pay premium in cash. In many cases, the integrally-connected cash transactions are a tad short of Rs 10 lakh a month and thus escape from being reported.

The guidelines now in vogue require insurers to report suspicious transactions, including those which could be ‘structuring deals’. These are deals which are artificially carved into several transactions to avoid reporting requirements.

Some insurers, particularly state-owned companies, say their existing IT systems are not equipped to identify if a proposer has simultaneously made applications in various offices across the country. All insurance companies are now putting in place a software to identify multiple policies by the same customer.

“It is important to know this not just from the asset liability management guidelines point of view, but also for a company’s own risk management” says Deepak Satwalekar, MD, HDFC Standard Life. An insurer should know whether the proposal he has on hand is a single proposal for Rs 10 lakh sum insured or whether it is a part of multiple proposals that add up to Rs 1 crore on the life of the same individual, he adds.

It is tough to keep an audit trail of such transactions unless insurers report these as suspicious transactions. Indeed, some of them have done that. The regulator had, in fact, told insurers to look at lower thresholds for cash transactions when it issued guidelines for anti-money laundering last year.

A section within the government reckons that there is a case for lowering the threshold for premium payments in cash. Mutual funds, for instance, do not accept cash from investors. “If mutual funds can do it, why not insurance companies,” argues an official.

According to S V Mony, secretary-general , Life Insurance Council, the insurance industry is not opposed to anti-money laundering guidelines per se. But too many administrative procedures may be a deterrent to the sector’s growth. The photograph of the policyholders, for instance, is a must under the know-your-customer norms, though an exception has been made for micro-insurance. Insurers are finding it tough to comply with this requirement as well.

Source: Economic Times