Annual Meeting of the International
Association
of Insurance Fraud Agencies (IAIFA) 2005
Keynote Address by Anselmo Teng,
Chairman of the Monetary Authority of
The
Honourable
Secretary for Economy and Finance, Mr. Francis Tam,
The Honourable Prosecutor of
the Public Prosecutions Office, Mr. Ho Chio Meng,
Distinguished Members of the
Host Committee,
Distinguished speakers,
delegates, ladies and gentlemen.
Good morning.
1) First
of all, on behalf of the Monetary Authority of Macao (AMCM), and also on behalf
of the Organising Committee of the IAIFA Annual meeting, I would like
to extend our warmest welcome to all our delegates at this meeting, our
heartfelt thanks to Mr. Francis Tam, Secretary for Economy and Finance for his support,
and to our distinguished speakers for sharing their experience and professional
knowledge about insurance fraud and related subjects with us during the next
three days.
2) I
believe that our overseas visitors would be interested to know the economic
situation of
Riding primarily on the strength of exports in
tourism services, the
When the economy thrives, more jobs are
created. Unemployment, which
used to be a leading economic problem in the SAR, has apparently eased
off. The unemployment rate
has dropped to 4.1%, from a high of 7.1% in the second quarter of 2000. Meanwhile, strong demand in the
market has eliminated downward pressure of prices. The five-year-long deflationary period
in
3) As an
export and service oriented economy, the strong trade account position was
translated into a sizable balance of payments surplus as evidenced by a
25-percent increase in the foreign exchange reserves under the management of
the Monetary Authority of Macao.
4) With
such a solid foundation, the economic outlook for
5) The
performance of the insurance market has also been in line with economic
development. As compared with our neighbouring territories, the insurance market of Macao SAR is relatively small. At
present, there are 26 insurance companies operating, of which 11 are life
insurers, the remaining general insurers.
In terms of origin, 9 of these companies were incorporated locally and
the remaining were branch offices of overseas insurance companies, representing
the interest of 8 countries and regions.
Total gross premium income registered a 19.4% growth to MOP1.89 billion
(USD236 million) in 2004. Non-life
insurance business achieved a remarkable growth, as compared to previous years,
of 15.1% with total premium of MOP450 million (USD56 million), while total
premium of the life sector reached MOP1.44 billion (USD180 million),
representing a growth of 20.8% over 2003.
6) Albeit
the small market over the years, AMCM, as the sole regulator of the
The Macao Insurance Ordinance, Decree-Law n.º 27/97/M. of 30th June,
regulates the business of insurance companies, while the Insurance Agents and
Brokers Ordinance, Decree-Law n.º 38/89/M, 5th June, as amended by Administrative
Regulation n.º 27/2001 and administrative Regulation n.º 14/2003, regulates the
insurance intermediary sector.
A Law n.° 4/2002 which relates to the compliance of
certain international law in general and more specifically with the United
Nations Security Council resolutions was enacted. It enables the Chief Executive of the
Macao SAR to adopt appropriate administrative measures to give effect to those
sanctions and requires the competent authorities of the Macao SAR to supervise
the implementation of such measures.
Within this framework AMCM has issued guidelines and notices to
financial and insurance institutions in order to increase their awareness of
the existing sanctions and of possible terrorist acts.
7) Regarding
law enforcement, the Judiciary Police is the criminal investigation agency
under the supervision and coordination of the Unitary Police and the Public
Prosecutions Office. In 2002, the
Judiciary Police set up a Fraud Investigation unit, which collaborates with
AMCM, banks and insurance companies to prevent and suppress fraud and related
crimes.
The law enforcement agency also co-operates with
other law enforcement authorities both regionally and internationally. Mechanisms have also been set up for the
prevention and repression of cross-border crimes.
8) In
9) Taking
this opportunity, I would like to share with you our experience relating to the
combat of automobile fraud which hit the local insurance sector hardly during
the 1997-98 period, and the measures taken by the insurance sector, the
regulator and the law enforcement agencies to fight against fraud. Mr. Félix Pontes already presented an
account of those cases in his welcoming speech, and I would like to provide
some more details.
The insurance sector was struck by more than 440
cases of dubious and bogus automobile claims during the above-mentioned period.
At the time, the estimated costs to
insurance companies exceeded US$4.6 million. This amount was about half of the total
provisions for all automobile claims in 1997. Some of these cases related to staged
accidents committed by sophisticated rings, while others were inflated repair
bills submitted by garages. Our position as the regulator of the insurance
sector has always been very clear at the very beginning – we would not
tolerate fraud in whatever form.
On one hand, the AMCM liaised closely with the law enforcement agencies
to render necessary assistance. On the
other, we strongly encouraged insurers to report all suspicious cases to the
law enforcement agencies. Insurers
took the initiative to establish a database about the information of automobile
fraud cases so that it can be shared with other automobile insurers. The combined efforts of the law
enforcement agency, judiciary departments and the insurance sector were
fruitful and succeeded in bringing down the number of fraud cases drastically
by the beginning of 1999. I would
also like to mention that the motor co-insurance scheme was also established at
that time when insurers were reluctant to insure new automobiles or owners with
no proven insurance history record.
This scheme assisted hundreds of automobile owners to obtain the
statutory third party liability insurance cover.
10) Let us now take a
look on the situation of insurance fraud worldwide. Insurance fraud can be defined as the
intentional misrepresentation of material facts and circumstances with intent
to defraud on the insurance company.
Various statistics indicate that a significant percentage of claim paid
out by insurance companies in different countries are believed to be
fraudulent. The cost of insurance
fraud is well beyond the direct financial cost. It also has impact on business and
investment, and ultimately on economic growth.
11) People lose their
savings when money is spent on bogus insurance investment schemes. Health is endangered when the medical
plans that policyholders purchased are nonexistent. Premiums stay high because the high
claims costs caused by fraud are transferred to the policyholders. When we look further beyond the
losses to policyholders, victims of insurance fraud can also be the consumers
in terms of higher prices of goods at department stores and shops when the high
cost of insurance fraud is passed on to policyholders. Businesses and employees
are equally vulnerable to insurance fraud. Millions in income are lost by
business entrepreneurs every year because fraud increases the cost of medical
and health coverage, as well as business related insurance. Employees of insurance companies may
even lose their jobs if insurance companies go bankrupt due to the huge payouts
to fraudsters.
12) Besides, staged
accidents have always been a key method by which fraudsters extort money from insurance
companies. There is a trend that many staged accident rings are getting bigger, with
wider networks, and well managed.
In addition, we cannot fail to mention that fraud by
insurance intermediaries remains a widespread problem. Despite the internal controls, and
checks and balances implemented by insurance companies relating to the
collection of premium by agents, agents scam appeared in the form of embezzlement
of client’s premiums. Both the
insurers and policyholders are the victims of agents scam.
13) The fight against
insurance fraud is a continuous battle against criminals which require the
joint efforts of insurance companies, the government and the general
public. Insurance
companies have stepped up their fraud investigation work by creating fraud-busting
units, often staffed by former detectives and police officers. Insurers are putting more resources
in the training of employees and alert agents to detect fraud. Also, insurers are actively educating
consumers on how to spot and protect against fraud.
14) Governments in
many jurisdictions, on the other hand, have introduced tougher fraud laws, and
strengthened insurance fraud laws to crackdown scams. Apart from setting up more fraud
bureaus, regulators are scrutinizing insurance companies’ finances and market
practices more closely. Tougher penalties are imposed on fraud convictions especially relating
to white-collar criminals who loot insurance companies.
The implementation of the above together with the
establishment of information sharing mechanism which allows government and
insurers in some jurisdictions to share fraud information on a large scale have
proved to be very effective in the fight against fraud. This database has helped to uncover
hundreds of hidden schemes and build stronger cases for prosecution.
15) Measures taken by
the law enforcement agencies and regulators worldwide to improve fraud fighting
efforts are gradually taking effect, and we see more fraudsters convicted every
year, and billions of dollars have been recovered. According to a report made by an
association connected with health insurance in the USA, healthcare insurers
have saved policyholders more than $11 for every dollar spent to fight fraud, a
50% percent increase over 1995.
Moreover, the number of fraud prosecutions has tripled over the last
three years.
16) After the 911
event, law enforcement agencies and regulators are more vigilant to insurance
fraud connected with terrorism.
Some evidence suggested that terrorists swindled money from many
conduits, such as automobile, and healthcare scams. Money obtained from the scams entered
the insurance system in the form of premiums or other forms of payments. The
process of money laundering started here, and ended when money left the system
in the form of decent clean money.
It has become more and more difficult to trace the original source of
the money and this poses a real challenge to law enforcement agencies all
around the world.
Combating Insurance Fraud/Anti Money
Laundering/Combating the Financing of Terrorism
17) Along with globalisation
and the increasing cross border fund movement, financial frauds and their
related laundering activities vary in their forms in a sophisticated way.
Criminals tend to exploit the legal and geographic boundaries between different
jurisdictions as a protective shield to avoid the investigation by enforcement
agencies.
Against such backdrop, international and regional
co-operation against fraud crimes and their related laundering activities
become an important issue to cope with for agencies and authorities across the
world. That is the very goal of IAIFA to co-ordinate between worldwide
government bodies and industry operators to prevent and combat insurance fraud
crimes. The continued efforts of IAIFA, together with other functional bodies,
such as the Financial Action Task Force (“FATF”), provide a joint platform for
jurisdictions concerned to fight against transnational organized crimes and
money laundering in all of its forms.
18) In Macao, the AMCM
has been working closely with supervisors and agencies in other jurisdictions
to combat fraud crimes and money laundering. In addition to the participation
in the IAIFA, the AMCM also plays a positive role to support the Macao SAR as a
member of International and regional organizations (such as IAIS, OGIS, OGBS,
SEANZA and APG, etc.). In order to
assess our standards and thereby reinforce our efforts, an assessment of the
financial sector of the Macao SAR was carried out by the International Monetary
Fund (IMF) in December 2001 based on the Basel Core Principles on banking
supervision, and the International Association of Insurance Supervisors’ principles
of insurance supervision, the IMF also assessed the Macao SAR’s anti-money
laundering system for compliance with the criteria described in the Fund/Bank
Draft Methodology Document for assessment of financial supervisory principles
in the prevention of money laundering.
A follow up review and technical assistance were
conducted in 2004 by an IMF expert team.
According to these assessments, the performance of Macao was assured;
however, recommendations were given in several areas for further improvement.
19) In this
connection, the Government of the Macao SAR formed two special AML Working
Groups. The first one was formed in 2001 and AMCM has been assigned the role to co-ordinate the anti-money laundering
efforts of relevant government agencies, and the implementation of
international standards, and recommendations by the IMF. Another was formed in 2003 under the
co-ordination of the Department of Legal Affairs, to review the existing AML
legislation and draft a new law in compliance with international standards.
Conclusion
20) When I was working
in a U.S. multi-national corporation some years ago, I came cross with a set of
principles which has proved to be practical and effective in dealing with
management challenges: -
-
identify problems and opportunities;
-
devise solutions;
-
organize to implement the solutions;
-
measure progress;
-
monitor and evaluate.
I believe that this set of principles can be applied
to combating insurance fraud by market practitioners. Minimising the impact of fraud through
the following steps: -
-
identify and assess areas where there are risks;
-
come up with methods/solutions to minimize risks;
-
allocate resources and responsibility for risks;
-
identify points of control;
-
measure progress;
-
reinforce resources/discontinue/adjust.
The methods and solutions can take the form of
establishing in-house special investigation units; organizing public awareness
campaigns; co-operating with regulators and law enforcement, and networking
with the industry.
In the unlikely event of doing nothing or the effort
is not sufficient, profits can be eaten up, or one can become an easy target
and eventually end up in being driven out of the market.
21) As the sole
regulator of the Macao Financial Sector, the AMCM views countering frauds and
the relevant money laundering activities as one of its missions. In addition to our responsibilities and
focus as described above, we will continue to take a pro-active role to work
with the industry the regulators in other jurisdictions, and regional and international
organizations towards this end; and we believe that this Annual Meeting will
feature a successful mark on our way forward.
Finally, I would like to wish you all a fruitful
meeting and that you will have the opportunity to discover Macao’s modern,
historic and cultural attractions. Thank
you.