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Why ignoring unregulated product lines could be your biggest blind spot
It’s a line often heard in compliance meetings:
“This product isn’t regulated for AML, so we don’t need to monitor it.”
And on paper, that may be true. Most jurisdictions only require life insurance products to meet strict AML standards. Non-life lines such as auto, property, and liability are typically exempt from formal regulation.
But here’s the truth: Regulatory scope doesn’t equal risk scope.
In this round of the “Compliance myth-buster series: Insurance edition”, we break down why compliance teams can’t afford to use regulatory definitions as a risk ceiling and how unmonitored product lines are becoming a favourite playground for financial criminals.
The myth #4: If AML regulations don’t apply, there’s no risk
The rationale sounds logical: AML obligations cost time, money, and resources. If a product line isn’t covered by regulations, why invest in controls?
This belief is particularly common in insurers with diverse product portfolios. They invest heavily in KYC/CDD and monitoring for life products but apply little or no oversight to short-term motor, travel, or casualty policies as they may rely on their anti-fraud program to monitor non-life and feel it’s enough, instead of adopting a safer approach of extending their AML program.
But regulation is not the same as risk exposure. And increasingly, criminals know where insurers aren’t looking.
The reality: unregulated doesn’t mean risk-free
Criminals aren’t bound by regulatory definitions. In fact, they actively seek out gaps in enforcement and oversight. General insurance products are ideal because:
- They often involve high volumes of fast-moving, low-value transactions, which are less scrutinized
- Refunds, overpayments, and short policy terms offer quick placement and extraction mechanisms
- Lack of CDD makes it easy to use fake or stolen identities
- Payouts appear legitimate, especially when tied to physical loss or accident
Regulators are taking notice. In some jurisdictions, such as India and Taiwan, AML oversight is now expanding to include certain non-life sectors.
Real-world risk: a silent gateway
Imagine this: a criminal purchases a commercial cargo insurance policy for a shipment of goods. The policy is cancelled after a short period, and a refund is issued to an offshore entity. No suspicious activity is flagged, because cargo insurance isn’t part of the regulated AML scope.
But the transaction has successfully moved illicit funds from one jurisdiction to another under the cover of a “legitimate” insurance transaction.
And because the product wasn’t monitored, it won’t appear in any risk report or compliance review.
How smart insurers are closing the gap
Insurers are shifting from regulation-driven monitoring to risk-driven compliance. Here’s how:
- Extending transaction monitoring to high-risk unregulated lines
- Applying AI to detect refund abuse, policy manipulation, and duplicate patterns
- Integrating policy-level data across business lines for consolidated risk views
- Proactively assessing risk across all products, not just those under regulatory focus
This not only strengthens their defense against financial crime, it also prepares them for future regulatory expansion.
Why this matters for your compliance strategy
Relying only on what’s legally mandated is a risky proposition:
- It creates blind spots across the enterprise
- It exposes the firm to reputational and financial risk
- It may fall short of future audit expectations as regulators begin to assess effectiveness, not just technical compliance
The message from global watchdogs is: If you know it’s risky, you’re expected to act – regulated or not.
The risk-based approach (RBA) is central to the effectively implement the FATF Recommendations to fight money laundering and terrorist financing. The RBA means that supervisors, financial institutions and intermediaries identify, assess and understand the money laundering and terrorist financing (ML/TF) risks to which they are exposed, so that they can focus their resources where the risks are highest.
What you can do now
- Include unregulated product lines in your enterprise risk assessment
- Develop red flag scenarios tailored to non-life products
- Use AI to uncover anomalies and network linkages not visible through static rules
- Educate leadership that unregulated doesn’t mean exempt from scrutiny
- Prepare documentation for how you assess and respond to risk, not just regulatory obligation
Bottom line: Ignoring what isn’t regulated is a risk in itself
Compliance leaders must shift the question from “Are we required to monitor this?” to
“What’s the risk if we don’t?”
As financial criminals diversify their tactics, unregulated insurance lines are quickly becoming a weak link in enterprise AML strategies. Proactive detection, supported by AI, can transform these blind spots into strategic strengths.
Coming up next in the “Compliance myth-buster series: Insurance edition”
➡️ “AML and fraud teams can operate in silos” – why disconnected teams lead to missed threats and higher costs.
Related resources:
Compliance myth-busters: Insurance edition: The myth #1: AML insurance—still low risk?
Compliance myth-busters: Insurance edition: The myth #3: Rules are enough for AML
Redefining Risk: The Insurance Industry’s New Reality
Webinar: Regulators, risk & reinsurers: AML’s New Frontier
Want to see how smart insurers are managing unregulated risk?
Download our white paper “Elevating compliance in insurance: A risk-driven, AI-powered approach to AML and sanctions screening” and discover how organizations are strengthening compliance across all product lines.
FAQs
Historically, regulators have viewed life and investment-related insurance products as higher risk because they involve cash value, investment components, and potential for layering or integration. Non-life products such as motor or property insurance were seen as lower risk, so they often fell outside formal AML obligations.
No. Even if certain product lines aren’t covered by specific AML laws, firms are still expected to act when they identify risk. FATF and other global watchdogs emphasize the risk-based approach meaning if a product or channel poses money laundering risk, it must be addressed, regulated or not.
Criminals exploit policy cancellations, refunds, and overpayments to move illicit funds under the radar. For example, short-term cargo or travel insurance can be used to quickly move money between jurisdictions with minimal scrutiny.
Insurers can extend monitoring and risk assessments across all product lines, use AI to detect suspicious refund or policy patterns, and integrate data from life and non-life systems. Proactive detection reduces blind spots and prepares the firm for potential regulatory expansion.
Yes, in some jurisdictions. India and Taiwan have extended AML requirements to include all classes of insurance, while global regulators are increasingly urging firms to apply the same risk-based principles across unregulated business lines.
