Sanctions Compliance in the Insurance Industry

An insurer manages sanctions risk by screening every party to a policy — the insured, the beneficiary, the broker, and the claimant — against OFAC’s lists, because issuing coverage or paying a claim that benefits a blocked person is itself a prohibited transaction. Insurance is a service, and providing it to a sanctioned party violates U.S. sanctions the same way selling goods would.

The Treasury Department’s Office of Foreign Assets Control (OFAC) administers U.S. sanctions, and most of its civil penalties are strict liability: an insurer can be penalized for a prohibited transaction even with no intent to break the rules. For carriers, reinsurers, brokers, and managing general agents, that turns sanctions screening into a core underwriting and claims function, not a back-office afterthought.

Where Sanctions Risk Lives in an Insurance Relationship

Sanctions exposure in insurance is not a single checkpoint. It runs through the entire lifecycle of a policy, because at several points money or value moves to or from a person who could be sanctioned.

The riskiest moment is often the claim payment, because that is when the insurer actually transfers value. Paying a claim to — or for the benefit of — a blocked person is a prohibited dealing in blocked property, regardless of how clean the policy looked at underwriting.

The 50% Rule Reaches Corporate Insureds

When the insured is a company rather than an individual, OFAC’s 50% Rule matters. An entity owned 50% or more, directly or indirectly and in the aggregate, by one or more blocked persons is itself blocked — even if it never appears on the Specially Designated Nationals (SDN) List. A corporate policyholder can therefore be off-limits because of who owns it, not because of its own name. Screening the named insured is not enough; the insurer needs to understand beneficial ownership for higher-risk accounts.

Build Screening Into Underwriting and Claims

A workable insurance sanctions program does the same things OFAC expects of any company, applied to the realities of writing and paying policies:

• Screen at every touchpoint, not just at binding — re-screen at renewal, when parties are added, and before any claim is paid.
• Use current lists. OFAC updates the SDN List frequently; screening against a stale list is the same as not screening.
• Resolve hits before money moves. A potential match pauses the transaction until it is cleared, escalated, or reported.
• Document the decision. Keep the screening result and the reasoning, whether the outcome was a clear, a block, or a rejection.

This structure mirrors OFAC’s Framework for OFAC Compliance Commitments (May 2019), which lists the five elements OFAC looks for in any program: management commitment, risk assessment, internal controls, testing and auditing, and training. A strong sanctions risk assessment tells an insurer which lines of business and geographies carry the most exposure, and disciplined denied-party screening is the control that operationalizes it.

When a Policy or Claim Hits a Sanctioned Party

If screening flags a blocked party, the insurer generally must block or reject the transaction rather than complete it, and OFAC imposes reporting obligations when property is blocked or a transaction is rejected. A blocked claim is not simply denied and forgotten — the funds are held in a blocked account and reported, and an unblocking license may be required before they can ever be released. Knowing the difference between blocking and rejecting, and reporting correctly, is itself a compliance obligation. For the broader mechanics of assessing and managing this exposure, see our guide on how to assess and manage sanctions compliance.

If a violation has already occurred, counsel will weigh a voluntary self-disclosure (VSD) to OFAC, which can cut the base civil penalty by up to 50% under OFAC’s enforcement guidelines; as of February 2026, VSDs are filed through an online portal. Retain the records behind these decisions for 10 years — OFAC extended its recordkeeping requirement from five to 10 years in March 2025.

Frequently Asked Questions

Does OFAC really apply to insurance? Yes. Providing insurance or paying a claim is a service and a dealing in property. If the beneficiary of that service is a blocked person, the transaction is prohibited, and the insurer can face strict-liability penalties.

Whom do we have to screen on a policy? Every party with an interest: the applicant and insured, the policy owner and its beneficial owners, beneficiaries, additional insureds, brokers and intermediaries, and — at claim time — the claimant, loss payees, and vendors being paid.

What do we do with a blocked claim? Generally you cannot simply pay or deny it. Blocked funds are held in a blocked, interest-bearing account and reported to OFAC, and releasing them may require a license. The specific treatment depends on the sanctions program, so confirm with counsel.

How long must we keep sanctions records? Ten years, following OFAC’s March 2025 recordkeeping extension — covering screening results, the basis for each decision, and any blocking or rejection reports.

Insurance sanctions risk is concentrated at the moments value changes hands, which is exactly where it is easiest to miss. Reidel Law Firm helps insurers, brokers, and reinsurers design OFAC screening and claims controls that hold up under scrutiny, delivered as a flat-fee compliance memo with direct attorney access. Get an export compliance memo →