Insurance premium funding is under threat from anti-money laundering legislation which encourages clients to pay premiums in one hit, according to new Pacific Premium Funding Chairman Grant Burley.

The Anti-Money Laundering and Counter-Terrorism Financing Act was introduced in December 2006. While it applies to many aspects of the financial services sector, it only affects general insurance in regard to premium funding.

Premium funding is identified as a potential target for money laundering due to the cancellation and refund process of high-value contracts.

But Mr Burley says a cumbersome approach to compliance by the Federal Government is likely to turn business away.

“The implication of anti-money laundering legislation in its current form is a decline in premium funding,” he told insuranceNEWS.com.au. “It can all become too hard and the client will simply decide to pay a premium in cash.”

Firms are now expected to have in place an anti-money laundering and counter-terrorism financing program, as well as customer verification procedures. Initial compliance reports were due on March 31.

Full compliance incorporating due diligence monitoring standards is expected by December 12, after which firms face civil penalties.

But Mr Burley is calling for “sensible” regulation amendments to cover only the refund process and not the whole contract and is leading a lobbying effort on the regulator, the Australian Transaction Reports and Analysis Centre (Austrac).

“If you take the view the added cost amounts to no more than $100 per transaction, that is still an industry impost of $50 million, whereas total industry profitability is only about $20 million,” he said.