Under Article 8 of the AML-CFT Decision, insurance operators are required to understand the nature of the customer’s business and the nature and purpose of the operator’s relationship with the customer, including the expected uses to which the customer will put the operator’s products or services. This step requires the operator to collect information that allows it to create a profile of the customer, including the types and volumes of transactions the customer is expected to engage in, and to assess the risks associated with the relationship. In certain instances, the expected type and volume of transactions are implicit in the specific insurance product being provided, in which case this aspect of the customer’s profile can be derived directly from the product choice.

Obtaining a sufficient understanding of its customers and the nature and purpose of the customer relationship—together with the ongoing analysis of actual customer behavior and the behavior of relevant peer groups—allows the insurance operator to develop a baseline of normal or expected activity for the customer, against which unusual or potentially suspicious transactions can be identified. This element of CDD can also serve to inform the operator’s risk rating or other risk assessment of the customer for the purposes of performing risk-based ongoing monitoring (see section 3.3.1.4) and determining whether simplified or enhanced due diligence measures may be warranted (see sections 3.3.3 and 3.3.4, respectively).