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🔍 '''Customer due diligence''' refers to the set of processes that insurance companies, [[Definition:Insurance broker|brokers]], and other market participants use to verify the identity of their customers, assess the nature and purpose of the business relationship, and evaluate the risk that a customer may be involved in [[Definition:Money laundering|money laundering]], [[Definition:Terrorist financing|terrorist financing]], [[Definition:Sanctions|sanctions]] evasion, or other financial crimes. In the insurance context, CDD obligations arise under [[Definition:Anti-money laundering|anti-money laundering]] (AML) and counter-terrorist financing (CTF) regulations across virtually all major markets — including the EU's Anti-Money Laundering Directives, the U.S. Bank Secrecy Act as applied through state insurance regulations, and equivalent frameworks in the UK, Singapore, Hong Kong, Japan, and beyond. While CDD applies broadly across financial services, its application in insurance carries distinct characteristics because of the variety of product types, distribution channels, and customer relationships involved — from individual [[Definition:Life insurance|life insurance]] policyholders to complex commercial [[Definition:Reinsurance|reinsurance]] placements.

⚙️ Operationally, CDD in insurance involves several tiers of scrutiny calibrated to the level of risk a particular customer or transaction presents. At a baseline, insurers must collect and verify identifying information — such as name, date of birth, address, and beneficial ownership details for corporate customers — before establishing a business relationship or processing certain transactions like large single-[[Definition:Premium|premium]] life policies or [[Definition:Annuity|annuity]] purchases. Where the risk is higher — for instance, when dealing with [[Definition:Politically exposed person|politically exposed persons]] (PEPs), customers in high-risk jurisdictions, or unusually complex ownership structures — enhanced due diligence (EDD) is required, involving deeper investigation into the source of funds and wealth, more frequent monitoring, and senior management approval. Simplified due diligence may apply in lower-risk situations, such as small-value general insurance products with limited money laundering vulnerability. [[Definition:Insurtech|Insurtech]] solutions and [[Definition:Regulatory technology|regtech]] platforms have increasingly automated aspects of CDD — deploying identity verification APIs, [[Definition:Artificial intelligence|AI]]-powered screening against sanctions and PEP databases, and ongoing transaction monitoring — reducing friction in the customer onboarding journey while strengthening compliance. The Financial Action Task Force (FATF), whose recommendations set the global baseline, has specifically addressed the insurance sector's CDD obligations, recognizing that life insurance and investment-linked products pose higher inherent money laundering risk than most general insurance lines.

⚖️ Robust customer due diligence matters to insurers for reasons that go well beyond regulatory box-ticking. Failures in CDD can expose insurance companies to severe enforcement actions, financial penalties, and [[Definition:Reputational risk|reputational damage]] — as demonstrated by cases in multiple jurisdictions where insurers or intermediaries have faced sanctions for inadequate AML controls. In commercial and [[Definition:Specialty insurance|specialty]] lines, CDD intersects with [[Definition:Sanctions|sanctions]] compliance in operationally complex ways: a [[Definition:Lloyd's|Lloyd's]] syndicate insuring international marine cargo, for example, must screen not only the named insured but potentially vessel owners, charterers, and cargo interests against sanctions lists maintained by OFAC, the EU, the UN, and other bodies. Regulators globally are also raising expectations around ongoing monitoring — moving beyond point-of-sale checks to continuous surveillance of customer activity throughout the policy lifecycle. For insurance groups operating across borders, the challenge is compounded by differing national CDD requirements, data privacy laws such as [[Definition:General Data Protection Regulation|GDPR]], and the practical difficulty of maintaining consistent standards across diverse distribution networks that may include [[Definition:Coverholder|coverholders]], [[Definition:Tied agent|tied agents]], and digital platforms.

'''Related concepts:'''
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* [[Definition:Anti-money laundering]]
* [[Definition:Know your customer]]
* [[Definition:Politically exposed person]]
* [[Definition:Sanctions]]
* [[Definition:Regulatory technology]]
* [[Definition:Financial Action Task Force]]
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Definition:Customer due diligence - Revision history

PlumBot: Bot: Creating definition