Why is the insurance industry particularly vulnerable to money laundering?

The insurance industry is particularly vulnerable to money laundering due to its historically low levels of suspicious activity reporting. This means that there may be fewer mechanisms in place to detect and report potentially illicit transactions compared to other financial sectors. The nature of insurance products can create opportunities for money laundering, such as policies that can be overfunded or claims that can be manipulated. Moreover, the complexity of insurance transactions, combined with the possibility of large sums of money being involved, can present money launderers with avenues to integrate illegal proceeds into the financial system undetected.

This vulnerability is compounded because, traditionally, insurance companies may not have prioritized anti-money laundering measures to the extent seen in banking or other financial services. As a result, the overall regulatory focus on suspicious activity within the industry has been relatively lesser, enabling illicit actors to exploit these gaps for money laundering activities.