As we begin another year and analyze the trends that are taking shape (and, in some cases, accelerating), I envision a challenging year ahead. The tremendous turbulence we’re seeing in global financial markets is matched only by the geopolitical turmoil we’re seeing around the world. Since we represent some of North America’s major financial institutions and have a global presence, we have developed perspectives that allow us to fine-tune our insights on what we can expect in 2016.
When it comes to the global economy, the old saw was that if the U.S. sneezed, the rest of the world caught a cold. That’s no longer true. Today, China has become a real economic power that shapes the global economy. As China’s growth has slowed and our debt has grown, our economic health will continue to be closely tied to China. It’s too strong to say that U.S. fortunes are tied to China’s economic performance, but it’s certainly true that the correlation is growing stronger.
The Chinese market provides an excellent revenue stream for many financial companies and, at the same time, it creates difficult challenges in vetting and delivering products that reduce the incidence of fraud by enabling carriers to truly know the customer, strengthen underwriting processes, and verify claims with a higher level of scrutiny.
We also continue to see waves of legal and illegal immigration into the U.S., which will continue to impact the North American and European life insurance industry. In particular, the U.S. remains concerned about Mexican and Central American illegal immigration, but the patterns are evolving, and we see a larger influx of Chinese and Indian illegal immigration into the U.S. than from other regions of the world. Most Americans and North American-based companies have been slower to recognize the potential impact that this immigration can place on their ability to write good business.
First and foremost, we must remember that although China and India have become almost more capitalistic than the U.S., they still inherently embody Communist and totalitarian mentality. This is more prevalent for China. There is a real dichotomy in these rapidly emerging markets that are quick to pick up economic capitalism but slow to let go of orthodox Communist and native legal structures. That is, people have been programmed to operate through bribes and fabrication of information for their daily survival.
North American companies must have at least a basic understanding of these cultures when entering these new markets. From China, unfortunately, many new arrivals to the U.S. are arriving illegally through a network of Chinese criminals called Snakeheads. The Snakeheads operate primarily out of the Fujian province in Mainland China. Illegal immigration is a great source of revenue, since they charge between $50-80,000 per person for the trip from China to the U.S. A fake business visa may cost $40,000. A fake marriage to an American can cost approximately $60,000. The Snakeheads use many routes throughout Myanmar to South America and to Europe and ultimately to the U.S. and Canada. It is estimated the Snakeheads generate approximately US $4 billion annually in human trafficking.
Most migrants regard these fees as investments. Families and relatives pool their money together and sponsor their best male candidate to move abroad, expecting a big payoff or return on their investment. Once a method to get to overseas is worked out and the debt is paid off, the process is repeated for additional family members.
Many Chinese immigrants start in Fuzhou, which has the greatest source of illegal immigrants coming into North America and Europe. They also come from other coastal towns in Fujian Province where they are sent by freighter, by air (with false visas or forged documentation) or hidden in cargo containers. Most of the time, when they are caught by U.S. officials, they seek political asylum.
For the insurance industry, it’s important to recognize that Snakeheads are well-versed in life insurance and other financial products. For years, we at DIG have seen life insurance applicants who list their origin in the Fujian province. Most claim to work or own a Chinese restaurant. Although they have what appears to be a valid Social Security number, they are rather transient, working in restaurants and other businesses throughout the U.S. Fujian Province has a very high level of pollution and high incidence of cancer. Most people originating from this region are also very heavy smokers. We have developed strong evidence that the Snakeheads are involved in insuring many of these illegal immigrants who have questionable insurability, financials, and medical backgrounds. Many schemes are similar to traditional domestic transient schemes where people find elderly and ill people and pair them with fake identities.
Many of the questionable cases can be easily detected during underwriting – often simply by understanding the culture and the various names used by these applicants. Many applicants, for instance, apparently live in the Flushing, N.Y. area. Chinatown real estate has become expensive, and many have moved to the Queens and Flushing areas. Toronto and Vancouver also see high levels of illegal immigration. Once you receive a claim and perform a database search, you often find that the applicant has lived in various states, as they are sent to work in different restaurants or perform other menial jobs throughout North America.
Unquestionably, many Chinese are here in North America legally with long, hard-earned histories of being good and reliable citizens. This article is only to alert you to potential patterns to better know your customers and recognize potential risks. While the world becomes more turbulent and as our industry offers simplified products for a better customer experience, the potential for fraud is greater than ever. We must remain vigilant and recognize that this is not an ideal time to cut corners and costs. Instead, it’s the time to redouble our efforts to shore up vulnerabilities to prevent fraud and major losses.
In the coming months, we will alert you regarding trends we are experiencing in the Middle East where there are an increasing number of cases coming from sanctioned countries where false identities and documentation can easily be obtained. With today’s migratory trends, we believe this is only the tip of the iceberg and, in many instances, these schemes are being used for potential terrorist financing. We look forward to sharing with you our analyses and perspectives on this important topic.
Richard J. Marquez