State insurance statutes regulate an insurer's ability to withhold claim payments, cancel policies, or decline to enter into policies. In some cases, insurers must commit an ostensible violation of state insurance regulations to comply with OFAC regulations. Do OFAC regulations preempt state insurance regulations in this context?
Yes. OFAC's regulations under the Trading with the Enemy Act (TWEA) and the International Emergency Economic Powers Act (IEEPA) are based on presidential declarations of national emergency and preempt state insurance regulations.
For more information on who must comply with OFAC sanctions, see FAQ 11.
Date Updated: November 13, 2024
What should an insurer do if an applicant for a policy, or the underlying insured activity, is subject to OFAC sanctions?
Insurance industry participants, including underwriters, brokers, and agents, are responsible for compliance with OFAC sanctions throughout the lifecycle of their involvement with an insurance policy or other product or service.
If a U.S. insurer receives an application for a policy from a person whose property and interests in property are blocked, such as a person on OFAC’s Specially Designated Nationals and Blocked Persons List (SDN List), OFAC sanctions prohibit the insurer from issuing the policy, unless authorized or exempt, because doing so would provide a service (i.e., coverage) to the blocked person. If the blocked person sends a deposit to the insurer along with the application, the deposit must be blocked and reported to OFAC within 10 business days, unless authorized or exempt. If an insurer receives an application from a party on one of OFAC's other sanctions lists, please review the relevant prohibitions carefully before taking any action. For information on specific prohibitions, authorizations, or exemptions under a particular OFAC sanctions program, please see the relevant OFAC implementing regulations and the Sanctions Programs and Country Information page on OFAC's website.
Date Updated: November 13, 2024
What should an insurer do if it discovers that a policyholder or a named beneficiary is added to OFAC's Specially Designated Nationals and Blocked Persons List (SDN List) or located in a jurisdiction subject to sanctions?
If an existing policyholder or a named beneficiary is blocked by OFAC and the provision of insurance services is not authorized or exempt, then the insurer is required to block the policy or relevant portion of the policy (e.g., the individual's policy under a group health insurance plan), report such blocking to OFAC within 10 business days from the date the policy becomes blocked, place any future premium payments into a blocked interest-bearing account at a U.S. financial institution, and, if applicable, seek an OFAC specific license to make any payments under the policy. For guidance on how to request and apply for a specific license, please see 31 CFR § 501.801 and the License Application page on OFAC's website.
In the case of sanctions that prohibit the provision of services to a particular jurisdiction, in most cases insurers should cease providing coverage to the relevant policyholder or named beneficiary located within the jurisdiction or with respect to the particular jurisdiction unless authorized by OFAC or otherwise exempt. (For more information on travel-related insurance coverage, see FAQ 104.)
The insurance company may contact OFAC with specific questions related to the policy.
Date Updated: November 13, 2024
If an insurance policy is held by the employer on behalf of its employees, is it permissible for an insurer to maintain the policy if it covers a blocked person on OFAC's Specially Designated Nationals and Blocked Persons List (SDN List), since the insurer is transacting only with the employer and not with the blocked person?
If an insurer has knowledge that a person covered under a group policy, for example a worker's compensation policy, is blocked pursuant to OFAC sanctions, the insurer’s coverage of that person pursuant to the worker's compensation policy is blocked. If a claim is made under the blocked portion of the policy, the claim cannot be paid without authorization from OFAC. Any premium payments made by or on behalf of the blocked person should be blocked and placed in a blocked interest-bearing account at a U.S. financial institution.
Alternatively, under some group policies, for example, a group travel policy issued to a company for their employees, an insurer may not know the names of those covered until a claim is filed. In this scenario, once a claim is filed by a blocked person, the insurer would then have reason to know of their requirement to block that individual’s coverage pursuant to the policy and any other property of that person, such as unearned premium payments. Accordingly, the insurer would be required to block that individual’s coverage and place any payments made by or on behalf of the blocked person in a blocked interest-bearing account at a U.S. financial institution.
If a person covered under a group policy is on one of OFAC's other sanctions lists or is located in a jurisdiction where OFAC has imposed broad sanctions prohibitions, a different set of restrictions may apply. If a claim is filed by an individual on one of OFAC's other sanctions lists, please see the relevant OFAC implementing regulations and the Sanctions Programs and Country Information page on OFAC's website for program-specific information or contact OFAC for additional guidance.
Date Updated: November 13, 2024
How frequently is an insurer expected to screen its databases for OFAC compliance?
OFAC may impose civil penalties for sanctions violations based on strict liability, meaning that a person subject to U.S. jurisdiction may be held civilly liable even if such person did not have knowledge that it was engaging in a transaction that was prohibited under sanctions laws and regulations administered by OFAC.
OFAC recommends insurers use a risk-based approach to sanctions compliance consistent with OFAC’s Framework for Compliance Commitments. Sanctions compliance programs, including screening frequency, will vary depending on the size and nature of an insurer’s business (including the particular risk factors of its products and customer base) and its relevant regulator. Routine screening of all issued policies, policyholders, beneficiaries, and other relevant counterparties improves an insurer’s ability to comply with applicable OFAC regulatory requirements.
In addition to screening all relevant policyholders, beneficiaries, and counterparties to an insurance policy upon issuance (as described in FAQ 62), insurers should also consider screening against OFAC sanctions at policy renewal, policy amendment (including, but not limited to, the addition of insured parties or beneficiaries to the policy), claim submission, claim payment, updates by OFAC to its sanctions or sanctions lists, and at any other time when an insurer may be exposed to sanctions risk. OFAC's sanctions programs and lists are updated frequently. Screening only at the point of policy issuance may expose insurers to sanctions risk, for example, providing financial benefit to subsequently blocked persons.
Date Updated: November 13, 2024
Is it sufficient if my company screens life insurance policies only prior to policy issuance?
That is up to your firm and your regulators. Conducting screening only before policy issuance is critical but would not likely achieve your desired level of compliance. After the policy issuance, the U.S. Government may designate an existing policyholder or a named beneficiary as a Specially Designated National or Blocked Person ("SDN"), or it may expand sanctions with respect to a particular country, or impose sanctions against a new country. If an existing policyholder or a named beneficiary became an SDN or otherwise subject to U.S. sanctions, the insurer may be required to "block" the policy, report such blocking to OFAC within 10 days of the SDN designation, place any future premiums into a blocked, interest-bearing account at a U.S. financial institution, and seek an OFAC license before making any payments under the policy. Other restrictions may apply if a policyholder or a named beneficiary is added to one of OFAC's other sanctions lists. Consequently, routinely screening all policies against OFAC’s sanctions lists, as frequently updated, would enable the insurer to comply with the applicable OFAC regulatory requirements. It also is important to screen the policyholder and beneficiary prior to paying a claim.
If a policyholder becomes a Specially Designated National (SDN) or blocked person after policy issuance, can the insurer notify the policyholder that the policy is now "blocked"?
Yes. The insurer may notify the policyholder that the policy is blocked without obtaining a specific license from OFAC.
Date Updated: November 13, 2024
When notifying a policyholder that their policy is "blocked" due to OFAC sanctions, may the insurer also instruct the policyholder not to send further premium payments or that the insurer will not accept additional premium payments under this account?
The insurer may instruct the policyholder that in accordance with applicable U.S. laws and regulations administered by OFAC, the insurer must place any subsequent premium payments into a blocked account.
For funds, such as unearned premium payments, that are blocked in addition to the policy, an insurer may notify the policyholder that it has blocked funds in accordance with OFAC's regulations. The insurer may identify to the policyholder the corresponding sanctions program pursuant to which the insured took action.
Any individual or entity whose funds or other property have been blocked due to OFAC-administered sanctions may apply for the release of the funds or other property via the License Application page on OFAC's website.
For additional questions about OFAC sanctions, you are encouraged to have the policyholder contact OFAC directly.
Date Updated: November 13, 2024
How can an insurer or reinsurer participate in worldwide insurance markets through global insurance policies if, by definition, coverage extends to potential risks in sanctioned countries?
The best and most reliable approach for issuing policies with global risk coverage without violating U.S. sanctions law is to include a clause ensuring there is no coverage for risks that violate U.S. sanctions law. The exact wording of such clauses may vary depending on the type of policy (e.g., open marine cargo policies versus personal accident policies), but the legal effect of the clause should prevent the extension of a prohibited service (e.g., insurance coverage or indemnification) to sanctioned persons or jurisdictions, or for prohibited activities. Insurers should also ensure such clauses do not create future economic benefit for a sanctioned person or jurisdiction by allowing for indemnification if or when relevant prohibitions no longer apply; there should be no coverage at the time of loss if, at that time, such coverage would have violated U.S. sanctions law.
In the event of a loss occurring, and there is a question of whether a counterparty to the loss (e.g., the insured) was in violation of U.S. sanctions, the insurer should contact OFAC directly.
Date Updated: November 13, 2024
What if market circumstances of the relevant commercial setting do not permit the use of a U.S. sanctions-specific exclusionary clause?
OFAC recognizes that U.S. insurers and reinsurers often compete in international markets where non-U.S. insurers are willing and able to issue global insurance policies without an exclusion that applies to U.S. sanctions, or where such clauses may be prohibited under local law. In cases where an exclusionary clause, as described in FAQ 102, is not commercially feasible, but the policy would involve the provision of coverage to a sanctioned person or jurisdiction, or prohibited activity, the insurer should apply to OFAC for a specific license prior to issuing the global insurance policy. In determining whether to issue a license, OFAC will review the facts and circumstances of each global insurance policy, including the market position of the applicant and the relevant risk frequency and risk severity, to assure that issuance of the policy will not undermine U.S. foreign policy goals. A separate license would typically be required for the insurer to pay claims that would be prohibited under U.S. sanctions arising under any authorized global insurance policy. For guidance on how to request and apply for a specific license, please see 31 CFR § 501.801 and the OFAC License Application page on OFAC's website.
Date Updated: November 13, 2024
Can an insurer offer global travel insurance and worldwide travel assistance without violating U.S. sanctions?
Yes, provided that the provision of global travel insurance and travel assistance relate to travel that is exempt or authorized. The authority granted to the President by the International Emergency Economic Powers Act (IEEPA) does not include the authority to regulate or prohibit, directly or indirectly, transactions ordinarily incident to travel to or from any country. See 50 U.S.C. §1702 (b)(4). OFAC sanctions programs issued pursuant to IEEPA generally do not prohibit transactions ordinarily incident to travel to or from any country, including the issuance and provision of travel-related insurance coverage related to exempt travel.
Although the Trading with the Enemy Act (TWEA) does not exempt travel from the President’s authority, the TWEA-based Cuban Assets Control Regulations (CACR) authorize travel in limited circumstances. Travel related services, including travel insurance coverage, may only be provided in Cuba pursuant to a valid general or specific OFAC license. For example, if the traveler is a U.S. person traveling to Cuba pursuant to a valid OFAC authorization, a U.S. insurer may issue travel insurance to the traveler without obtaining a separate authorization.
Similarly, U.S. persons may issue or provide coverage for global health, life, or travel insurance policies for individuals ordinarily resident in a country outside of Cuba who travel to or within Cuba, pursuant to the general license at 31 C.F.R. § 515.580 of the CACR, as well as service such policies and pay claims arising from events that occurred while the individual was traveling in, or to or from, Cuba. (For more information, see FAQ 774.)
Additionally, insurers should check OFAC's List of Specially Designated Nationals and Blocked Persons List (SDN List) and other sanctions lists to ensure that no prohibited services are rendered to persons or entities on those lists.
Date Updated: November 13, 2024
Can a claim be paid under a policy issued to a blocked individual or entity if the payment is to an innocent third-party (for example, the injured party in an automobile accident)?
The insurance company should contact OFAC for additional guidance. OFAC will work with you on the specifics of the case. Although authorizing payments to blocked persons is rarely aligned with the U.S. foreign policy and national security objectives of OFAC sanctions, circumstances may weigh in favor of authorizing payments to innocent third parties. Ultimately, the insurance policy itself is a blocked contract, so all otherwise prohibited dealings related to the policy would require OFAC authorization.
If a non-sanctioned person files a claim with their insurance company for a loss caused by a blocked person, such as a designated terrorist organization, is the insurance company permitted to pay the claim?
OFAC is aware that insurers at times receive claims from non-sanctioned persons in non-comprehensively sanctioned jurisdictions for losses caused by individuals or entities on OFAC's List of Specially Designated Nationals and Blocked Persons (SDN List). For example, a U.S. insurance company may receive a claim request for death, injury, or property damage caused by a Specially Designated Global Terrorist. Under this scenario, the mere fact that a blocked person has caused the loss does not in and of itself create a blocked interest in the policy or any claim or payment under the policy, nor does it constitute a dealing involving the blocked person. Therefore, U.S. insurers may pay such claims to non-sanctioned recipients, provided the payment is not prohibited by other OFAC sanctions regulations (e.g., the recipient resides in a sanctioned jurisdiction and no other authorization applies). This guidance does not apply to scenarios in which a person is seeking reimbursement for payments that were made or will be made to a blocked person.
OFAC encourages insurers who receive claims for losses caused by a blocked person to conduct necessary due diligence to ensure there are no other potential sanctions risks associated with making or facilitating related claim payments (e.g., the involvement of a blocked financial institution).
OFAC is aware that some insurance policies may include subrogation rights, which provide a legal right for the insurer to pursue reimbursement from the liable third-party for payment of the claim. The mere existence of such rights in a situation involving a loss caused by a blocked person does not create an interest of the blocked person in the policy or claims made under the policy. However, claims paid as described above and all other obligations of the insurer on behalf of the insured (or their non-sanctioned beneficiaries) under a given policy must not be contingent on the successful pursuit of a subrogated claim by the insurer against a blocked person.
OFAC does not require U.S. persons to obtain a specific license to initiate legal proceedings against a blocked person. For example, a U.S. attorney, insurer, or other service provider initiating arbitral proceedings against a Specially Designated Global Terrorist does not require a specific license. In most OFAC programs, however, a license would generally be required to enter a settlement agreement with a blocked person, to accept payment from a blocked person, or to enforce an order or award transferring blocked property. Please see the relevant OFAC implementing regulations and the Sanctions Programs and Country Information page on OFAC's website for further program-specific information. For guidance on how to request and apply for a specific license, please see 31 CFR § 501.801 and the License Application page on OFAC's website.