Money-laundering laws to hit high-premium policies

MUMBAI: The number of high premium policies sold by insurance companies may decline sharply on account of anti-money laundering norms.

Last year, the number of high premium policies fell sharply after the insurance regulator barred businesses from taking out keyman policies with maturity benefits on behalf of employees. Insurance officials say already there is a trend visible where high net worth individuals are moving to property. “

Anti money-laundering laws have been tightened in banking and securities market, now it has come to insurance. The only place where huge investments can be made without disclosing the source of income is in real estate,” said an official with an insurance firm.

Besides, a condition that premium has to be paid out of the proposer’s own bank account, new norms require insurers to check the proposer’s income tax returns and/or the audited balance sheet of his business.

The norms also require insurance companies to ascertain the source of funds in addition to looking at the proposer’s earned income. Although the original objective is to ensure that no terrorist organisation is using the financial system to launder money, it has also closed the doors on insurance being used to channelise black money. “

There is a number of high net worth individuals with legitimate businesses, but with undeclared income. These individuals can no longer buy high value insurance,” said a senior official.

Companies say the industry receives a couple of thousands of proposals for one crore-plus policies. The key difference that anti-money laundering norms has brought is the change in focus from sum insured to premium. Earlier, most of the due-diligence done by insurance companies was by way of financial underwriting. Financial underwriting aims at determining whether the insured’s death would cause a financial loss equivalent to the sum insured. This is to ensure that life insurance does not turn into a macabre lottery.