Building an Effective Financial Crime Risk Assessment Framework for Insurance Firms

As both regulatory complexity and geo-political uncertainty continue, the scope and scale of the challenge for insurance firms of successfully identifying and navigating the financial crime risks that they face has never been greater.

Despite the dramatic increase in sanctions and other financial crime risk exposure of all financial services businesses over the past three years, many firms in the insurance sector are still treating their risk exposure as the same as it was five years ago. They are relying on incomplete and outdated risk assessments, treating financial crime as part of wider compliance risk, with no detailed considerations, resulting in impractical and ill-conceived policies and over reliance on poorly designed and overly broad controls and a rudimentary use of data and MI to evidence effectiveness and enable oversight.

Andrew Roberts examines how to structure a risk assessment framework that aligns with regulatory expectations, incorporating enterprise-wide, business unit, customer, and transaction-level risk assessments. He also explores how firms can enhance their processes by making better use of technology and automation, reducing inefficiencies while improving risk coverage.

1. Key Components of a Financial Crime Risk Assessment

Weak control frameworks all start from the same point, the Financial Crime Risk Assessment Framework (“FCRA”). The approach to and execution of the FCRA Framework is the foundation of the control environment. The Financial Conduct Authority (“FCA”) could not have been clearer. It expects insurers, reinsurers, brokers, and managing general agents (“MGAs”) to maintain a clear and well-structured approach to financial crime risk assessments to ensure they identify, mitigate, and monitor risks effectively, with no exceptions.

The FCA Financial Crime Guide outlines the expectations for a risk-based approach, ensuring that financial crime controls are proportionate to the risks an organisation faces. For the insurance sector, this means understanding exposure across all risk typologies across all activities and operations, regardless of the distribution and servicing models used and across all customers and third-party interactions. This means understanding and assessing the sanctions risk, money laundering, fraud, bribery and corruption, and financial misconduct linked to underwriting, claims handling, premium financing, and third-party relationships.

Risk assessments must cover all financial crime threats relevant to an insurance firm’s operations and must also evidence that they have been considered. The risk assessment process must consider each of the main financial crime risk typologies and then develop a greater understanding through the detailed analysis of those risks that the organisation has an exposure to.

Sanctions Risk – Does the organisation have direct or indirect dealings with comprehensively sanctioned countries and the regions that surround them? Is the organisation exposed or likely to be exposed to sanctioned individuals, industries and types of activity? Is the organisation exposed to trade sanctions and export-controlled goods and services, directly or indirectly?
Money Laundering Risk – Could the firm be used as a vehicle for money laundering, including trade-based money laundering particularly through high-value goods and assets, premium financing, or early surrenders?
Terrorism Financing and Weapons Proliferation Risk – Could the firm be used to channel funds, technology or goods to support terrorist activities, proliferation of chemical, biological or nuclear weapons and associated technology.
Fraud Risk – How well does the firm identify and prevent policy fraud, claims fraud, and misrepresentation? What are the employee and third-party fraud risk exposures through business activities? Is the business within scope of the newly created Failure to Prevent Fraud corporate offence? How connected are underwriting and claims fraud functions with wider financial crime prevention teams?
Bribery & Corruption Risk – Is there potential for improper payments, particularly in commission arrangements, third-party introducers, and claims settlements? Do you provide cover to companies, activities and services in high-risk countries and regions, or high-risk industries?

Ensure you also consider potentially less prevalent risks, such as modern slavery, human rights sanctions, tax evasion or market abuse risks, even if there is a perception that they are low risk. Insurers directly and indirectly deal with the full spectrum of financial crime risks, including market sensitive information, tax efficient structuring of international programs, as well as modern slavery or human rights violations.

Using External and Internal Data Sources for Risk Assessments

Having considered the different potential typologies, it is then crucial to consider what information is available to demonstrate and evidence, or to help inform the conclusions that will be made about the scope and scale of the exposure.

A strong risk assessment process is evidence driven. Firms should not rely only on internal perspectives but incorporate external sources of data to support and validate both scope decisions, areas of focus and risk rating conclusions, such as:

National and Supra-National Risk Assessments – These provide a macro-level view of financial crime threats that could impact insurance firms (e.g., UK National Risk Assessment, FATF Mutual Evaluation Reports).
Governmental, Quasi-Regulatory and Interest Group Guidance – These provide both high level and, in some cases, very detailed guidance on priorities and expectations, good and bad practice and often valuable insight into different risk considerations (e.g., FCA Financial Crime Guide, JMLSG Guidance, Basel Index, FATF Country Index and Country Evaluations, Transparency International Corruption Perception Index, Global Witness reports, Wolfsberg Group Guidance, World Bank Listing of Ineligible Firms and Individuals).
Dear CEO Letters – The FCA frequently highlights failings across financial services that can offer lessons to insurers, even if the focus of the communication is not insurance. Recent Dear CEO letters on AML control failures provide insights into common weaknesses in risk assessment processes.
Recent Enforcement Actions – While many regulatory actions focus on banks, insurers must study and learn from them. The Starling Bank (2024) and Metro Bank (2024) cases highlighted deficiencies in risk assessment processes, risk-based monitoring, transaction surveillance, and weak overall governance, which are all relevant to control frameworks within the insurance sector.y.

Internal Data: What Can a Firm Learn from Itself?

A strong financial crime risk assessment also draws on internal trends that indicate where controls may be failing or where risk profiles are changing. Firms should evaluate:

Internal policy breaches – How many compliance breaches occurred, and were they recurring issues in related areas?
Internal and external suspicious activity reports (SARs) – How many were submitted? Are they increasing or decreasing? Which categories or types of report are the most common and what insight can this give?
Regulatory and law enforcement requests – Has the firm seen an increase in specific types of police or regulatory requests for information?
Were there recurring themes from Audit and Compliance Assurance activities and were all remediation actions completed on time and on budget?
Whistleblowing reports – Do they indicate concerns about financial crime risk typologies or suggest weak controls or culture?
Employee disciplinary proceedings or dismissals for misconduct – What trends are emerging from internal HR cases and investigations?
Risk appetite breaches – Were financial crime risks identified that exceeded the firm’s stated risk tolerance?
Effectiveness of key controls – How many and which controls were marked ineffective in the last year? How many corrective action plans were delayed?

A firm with multiple control failures and delayed remediations, may result in increased regulatory scrutiny and may have broader cultural and governance issues that need addressing within the risk assessment framework.

Key questions to ask yourself:

Are we using both external and internal data to inform our risk assessment?
Have we analysed trends in internal compliance incidents, SARs, and regulatory inquiries?
Are we considering broader business culture issues, such as persistent control failures or weak governance?
Are controls structured in such a way to provide meaningful and measurable outputs and data points that can help inform risk management?

2. Structuring a Risk Assessment Framework

How should insurers structure their financial crime risk assessments?

Firms in the insurance sector take different approaches to structuring risk assessments. Considerations include:

Enterprise-wide risk assessments (EWRAs) – An overarching view of financial crime risks across the business, required by the FCA and used to inform compliance strategy.
Business unit risk assessments (BWRAs) – Assessing risk at the underwriting, claims, broking, or distribution level to capture the distinct risks within different functions. Consider whether commercial and retail sectors should be assessed separately, reinsurance and insurance, domestic and overseas divisions, or perhaps split according to entity. This should be thoroughly considered and the agreed approach documented with reasoning.
Customer risk assessments (CRAs) – Profiling policyholders, claimants, and beneficiaries based on factors such as business line, jurisdiction, recent transaction patterns, adverse media and industry sector.
Transaction risk assessments – Analysing how policies are purchased and how claims are paid and routed to identify financial crime red flags, particularly in international placements and complex structures.

Considering Business Strategy and Growth Plans

A risk assessment should not be static—it must evolve with business growth and strategic changes.

Is the firm expanding into new markets or business lines where financial crime risks differ?
Are compliance and financial crime risks included within any scenario planning undertaken by the firm to consider emerging risks or vulnerabilities to macro-economic or geo-political changes?
Are new products or distribution channels being introduced, such as embedded insurance, exposure to e-money and cryptocurrency, online only distribution, or outsourced claims handling?
Is the firm outsourcing major functions, increasing reliance on delegated authorities, increasing third-party risk exposure or changing reinsurance panels?

Regulators expect firms to anticipate new risks before they materialise, ensuring that risk assessments remain forward-looking.

Key questions to ask yourself:

Does our risk assessment process reflect business growth plans and any changes in strategy or operating model?
Are new distribution models, outsourcing, and market expansion risks factored into risk assessments?
Are risk assessments updated frequently enough to capture evolving risks?

3. The Role of Technology, AI & Automation in Risk Assessments

Financial crime risk assessments have traditionally been manual, static processes, often conducted using spreadsheets, paper-based checklists, or standalone opinion-based reports. As regulatory expectations around data, automation and technology have increased, firms are now expected to leverage technology to enhance risk identification, assessment and monitoring.

While regulators do not mandate specific technology solutions, they expect firms to use appropriate tools commensurate with the size, scale, and complexity of the organisation and the risks faced. A small firm with a simple risk profile might manage with structured spreadsheets and internal dashboards, while a large, multinational insurer or MGA with a significant number of high-risk lines of business or using delegated authorities extensively for high-risk lines would be expected to have more advanced, potentially automated solutions to maintain oversight of evolving risks.

Selecting the Right Platform for Risk Assessments

Firms must consider how they execute, store, and analyse their risk assessments. Common approaches include:

Basic Tools (Spreadsheets, Shared Documents, Static Reports)
- Best for: Smaller firms with simple risk profiles and limited data inputs.
- Advantages: Low cost, easy to use, minimal implementation effort.
- Challenges: Difficult to scale, version control risks, lacks automation or real-time data integration.
General Business Platforms (SharePoint, MS Forms, Database Software, questionnaire and data input applications)
- Best for: Firms seeking more structured data collection, version control, and centralised storage.
- Advantages: Allows for multiple users, better audit trail, some level of automation possible.
- Challenges: Requires configuration, still lacks deeper analytics and automation.
Bespoke Risk Management Systems (Commercial Risk Assessment Platforms)
- Best for: Large firms with complex risk exposure, high transaction volumes, or extensive third-party relationships.
- Advantages: Real-time updates, automation, integration with transaction monitoring and sanctions screening, enhanced auditability.
- Challenges: Higher setup and maintenance costs, require careful implementation and ongoing maintenance.

The FCA, JMLSG, and FATF do not prescribe a specific tool or system but expect firms to scale their approach appropriately. Firms with high financial crime exposure, international reach, or complex underwriting and claims processes should invest in scalable and automated solutions, while smaller firms may still meet regulatory expectations with structured but simpler technology.

Regulatory Expectations on Technology Use in Risk Assessments

Appropriateness to the Firm’s Risk Profile – The FCA expects firms to use tools that match their complexity. A market leading global insurer using basic spreadsheets to manage enterprise-wide risk assessments would likely face regulatory scrutiny.
Auditability & Documentation – Risk assessments should be well-documented, version-controlled, and traceable, with evidence of regular review and updates.
Integration with Financial Crime Frameworks – Risk assessments should not be standalone. There should be a clear link through to the structure and operational processes and controls in place. Consider how transaction monitoring, sanctions screening, and control testing to provide a full and on-going risk picture.

A further factor for consideration is how the financial crime risk assessment process and the platform(s) used are integrated into or alongside other compliance and risk frameworks and platforms, to balance efficiency and effectiveness, with resources and duplication and dilution risks. The existence and capabilities of these platforms will help to dictate the structure and approach to implementing a financial crime risk assessment process.

Using AI & Machine Learning for Continuous Risk Assessment

The shift from static, point-in-time risk assessments to dynamic, continuous monitoring is a key evolution in financial crime compliance. AI and machine learning provide firms with the ability to detect emerging risks, analyse vast data sets, and refine risk assessments in real time. The advent and development of artificial intelligence and machine learning does mean that it is easier than ever to cost effectively develop integrated and intelligent risk assessment platforms, that are affordable and can be scaled. As ever with any AI use case, it is important to be clear on what it will and won’t do, how it will achieve its goals, using what sources and how it will be overseen and governed.

How AI & Machine Learning Can Enhance Risk Assessments

Automated Risk Scoring
- AI can continuously update risk scores for specific or groups of customers, policies, transactions, and third parties based on behavioural patterns, jurisdictional risks, and new data inputs, as well as a range of other relevant factors.
- Example: If a specific policyholder starts making high-risk claims or overall claims connected to high-risk sanctions regions increase, their risk profile updates automatically rather than waiting for the next periodic review.
Data Integration for Real-Time Updates
- AI systems can pull external regulatory changes, law enforcement reports, national risk assessments, and geopolitical developments into the risk model.
- Example: If the OFSI or OFAC updates a sanctions list, or if a country is placed on the FATF Grey List, the risk assessment updates automatically for impacted jurisdictions, products, or business lines.
Identifying Trends & Emerging Risks
- Machine learning can analyse patterns in suspicious activity reports (SARs), sanctions referrals and alerts, fraud cases, internal policy breaches, and regulatory inquiries to highlight where risks are increasing.
- Example: A sharp rise in claims or payments to heavily sanctioned regions or linked to regularly sanctioned industries and activities in a specific jurisdiction could indicate increased sanctions or potentially fraud risks, that may warrant triggering deeper reviews into the transactions and trends.
Enhancing Transaction & Claims Monitoring
- AI-powered tools can help identify anomalies versus expected shipping routes and port callings, fraudulent shipping registry use or false flagging activity to disguise sanctioned vessel use within underwriting or claims data, match experiences from information provided at underwriting to claims, spot patterns that might indicate potential money laundering, fraud rings, or sanctions evasion attempts.
- Example: If an insurer starts seeing irregular port calls, transponder black-outs and unexpected shipping routes or changes in vessel names and flags, an increase in claims payments linked to certain banks and countries known to route payments to sanctioned countries or sanctioned trading activities, claims using the same circumstances and characteristics, AI can flag the transactions or patterns for review.

Building a Continuous Risk Assessment Process

Firms can build a more adaptive and proactive risk assessment process by:

Integrating Internal & External Data Sources
- Link transaction monitoring systems, claims fraud detection, underwriting risk models, and sanctions screening into the risk assessment framework.
- Pull in external intelligence and sources—regulatory updates, law enforcement warnings, and financial crime typology reports.
Automating Risk Assessment Updates
- Move from manual, periodic updates to a combined approach with additional event-driven triggers.
- Example: If newly formed business lines hit certain growth targets, an outsourcing program is completed, or the firm receives a regulatory request for information about a category of high-risk customers, the risk assessment should update automatically to reflect this.
Enhancing Board & Senior Management Reporting
- Provide live dashboards showing risk exposure changes, control effectiveness trends, and areas requiring remediation.
- Example: If referral rates for certain fraud typologies or relating to certain high-risk jurisdictions, leadership should be alerted through MI and reporting, rather than waiting for an annual review.

Key questions to ask yourself:

Are we using technology effectively and in a way that is proportionate to our risk exposure and regulatory obligations?
How well does our risk assessment integrate with the financial crime control environment and is there clear connectivity between risks and controls?
Are we using AI and automation to enhance our approach and the overall efficiency of the process?
Do we have mechanisms to quickly incorporate regulatory changes, external intelligence, and internal trends into our risk framework?
How does senior management receive risk assessment insights—is it a static report, or is near or actual real-time data used for decision-making?.

4. Final Considerations – Is Your Risk Assessment Fit for Purpose?

A financial crime risk assessment should be a living document and process, regularly updated and capable of responding dynamically to regulatory developments, emerging threats, and business change.

Firms must:

Align risk assessments with the operating model—whether a global reinsurer or a niche specialty MGA, risk assessment processes must reflect the scale, complexity, and risk exposure of the business.
Use internal and external data—SARs, fraud reports, regulatory updates, and market intelligence must be factored into ongoing risk assessments.
Invest in appropriate technology—regulators expect firms to use tools that match their size and complexity, with AI-driven risk assessments increasingly becoming a best practice.
Ensure findings are used to drive action—risk assessments must inform enhanced due diligence, compliance assurance and audits, claims reviews, third-party oversight, and board-level risk reporting.

Firms that fail to maintain proportionate, dynamic, and data-driven risk assessments will face greater regulatory scrutiny and financial crime exposure. If your firm needs to strengthen its risk assessment framework, improve automation, or better integrate financial crime controls, Fairway Financial Crime can help.

Andrew Roberts is Managing Director and Founder of Fairway Financial Crime, a specialist financial crime compliance consultancy. He has over 15 years of experience designing, building and maintaining financial crime risk management frameworks within the insurance sector and wider financial services.