from the Insurance Commission.
In that
The Business of Insurance
In some way banking sector and
insurance sector are quite similar aspects
in the sense that they are really highly
regulated because they do have important
role in the economy. Insurance
companies 1. moral responsibility to
provide a mechanism whereby people will
suffer their losses less. The purpose of
insurance is to compensate or indemnify
for that loss. In the process, when talk
about risk distributing, where we said the
whole business of insurance what
characterizes it from a guaranty or
suretyship agreement is its a risk-
distribution where you get a pool of
people together who are exposed to the
same risk or so agreeing to contribute to a
fund from which one can claim payment in
case of suffering. In the process the law
has seen it as important a role today so
that it made up its mind that it will interfere
into this area so that the industry is held
and the people have a reliable source of
indemnity in the case of their loss. So, it's
a very regulated industry. It’s not
something you can leave. Regulations
affect how they do business.
Insurance Companies
Note that there was a change in from the
old law it allowed individuals and that was
removed. Now only juridical entities can
become insurer. They become insurers in
the sense of being able to do the
insurance business and therefore get a
license or authority from the insurance
commission. Doing insurance business is
defined in Section 2. If you are habitually
engaged in it or something like it, then you
can be considered as being in the
insurance business and if you do that
without authorization that's not
permissible. GR. Insurance Corp cannot
transact insurance in the Philippines
unless they get a certificate of authority
first statement you can already see that it
is important to the state. In order to get
that cert. of authority from the insurance
commision GR. satisfy both financial and
moral standards. Financial standards are
the capitalization requirements. You have
to have substance because this business
calls for you to be able to answer people's
needs. You have to have the wherewithal
to be able to address those situations.
You must also fulfill integrity
requirements. Those particular standards
extends also to the officers and directors,
so if you know anyone who is a director in
an inurance company, you can be
assured that the state has considered him
a person of integrity. The law also
provides for. They want to make sure that
the industry is abov board. What are the
ways by which things could go wrong?
Example: I'm an insurance company and
I've agreed to pay open policies for fire
insurance, so when a house burns let's
adjust or calculate the amount of the loss.
If I were the one also the one how much
your loss is what's my interest? My
interest is to make sure the value that is
lowest possible.
The Code also provides for avoidance of
conflict of interest situation. You have a
provision that says insurance companies
cannot be insurance adjusters because
the insurance adjusters are the persons
who sets the amount of the loss. Related
to capitalization requirement, Insurance
Companies are also required to put up a
security deposit. You must be solvent. To
ensure solvency there are certain things
that the law also considers like you cannot
declare dividends unless minimum paid
up capital and requirements are met. The
idea is we won't allow you to just dissipate
your income check because you have
them.
Assets, they have to have a 1. certain
asset level and the 2. quality of those
asset, so can insurance companies lend
money? If any people pay premium of a
million peso each, as insurance company
I have 10 million pesos. It's supposed to
pay for somebody who suffers a damage.
What if none of the perils occur? Then the
insurance company has 10 Million. Next
year another 10 people comes to me and
I earn 10 million. That keeps growing and
in fact because it's a risk assumption.
There's a chance that it might not happen.
So, risks can happen and cannot happen.
It is the case that insurance companies
can accumulate a lot of assets and
therefore, they can invest or lend it.
The law also provides requirements so
you just dont get any kind of loan, any
kind of investments. They have to be
investments that are called admitted
assets. Meaning there are quality
requirements. The kind of assets that
they have it must be quality. In terms of,
assets and investments and lending.
While, they are allowed to do that, there
are a lot of technical provisions that they
have to be approved and to be of a
certain kind and sometimes they have to
be secured with collateral. All to make
sure that you are financially sound.
GR. Foreign insurance companies can
make an investment. In fact a lot of
companies and financial advisers they
know that insurance companies have a lot
of money. So when other corporations
need to raise capital and they can no
longer raise funds from banks because of
single borrower limit. They go to
insurance companies and borrow from
them. But, they have to undergo this
process of making sure that approval is
given by the Commission because
insurance companies are so regulated.
To ensure the ability of insurance
companies to pay, there is also a set of
reserve requirements. Reserve
requirement is you set aside or you
reserve. It's like with banks, you deposit
your money and whenever you need your
money you may withdraw it anytime. The
state wants to make sure that insurance
companies have money to pay the
insured. That's the whole idea of having
reserve requirements.
There's a portion which talks about limit of
a single risk. You cannot use your entire
portfolio to insure one. Remember this is
risk distributing in general for other but as
far as the insurance company is
concerned, if what it does is it agrees to
issue only one insurance policy, for one
risk, then if something happens they'll lose
all their assets. Example: The total net
worth of a bank was 1 million pesos. An
applicant for fire insurance comes to them
and the amount he is applying for is 1
million pesos. Insurance company says
okay. Fire causes total loss and the
insurance company needs to pay the
insured. in effect, it pays its total net
worth. So, the law says there is a limit to
the amount of the risk that you can take
for one particular risk in relation to your
net worth.
Reinsurance
Another insurance company covering
another insurance company with respect
to that particular loss or liability.
Generally, that provision tells you that
reinsurance companies themselves have
to have authority to conduct reinsurance
business in the Philippines. Sometimes,
there are foreign reinsurance companies
and there is a special approval
requirement also required in those
occasions as well. Insurance Companies
are supposed to provide reports by way of
annual statements and all that. The other
one that pertains to insurance companies
is that old section on policy courts (?).
Remember, insurance contract must be in
writing and approved by the insurance
commission applies to riders,
indorsments, other things that you attach.

Variable contract
Insurance companies. Their business is to
insure risks, but then i think, perhaps, they
are a major player in our financial sector.
So that they are actually allowed to
provide as financial product this variable
contract. They're part insurance and part
investment.
Example: I have some funds I might
place it in a bank or other mutual funds
that earns a certain percentage.
Insurance companies can also do that. In
other words, they will take your money,
invest it and put it in a financial product. In
that sense it's not any different from
banks. What makes it different though,
insurance companies are not supposed to
be doing that as a business. But, they
allow that nonetheless for so long as
those types of contracts include an
insurance component.
Meaning if you invest with me a million
pesos, 30 % of that will constitute
premium for life insurance and the
balance of the money you gave, we'll
invest that. So when that earns you don't
have to pay premium we'll take that from
the earnings. Bottomline: 2 types of
contracts in a variable contract: 1.
insurance, 2. investment.
The curious thing about variable
contracts, the law expressly states that
they are not deemed securities under
securities law. Hidden in the code, it says
it is not deemed securities under the
securities code.
Claims Settlement
The job of insurance companies is to pay
a claim. There provisions regarding claim
settlement, perios within which they
should pay any claims. First of all, they
are not supposed to engage in unfair
claims settlement. What are unfair claims
settlement? Essentially, practices of
insurance companies where they may
misrepresent any sort of activity which the
idea is to try to make it difficult or to delay
the payment of claims. Again you have an
enumeration in Section 2247 about what
constitutes unfair claims settlement. The
following provisions talks about the period
of time within which to pay. 248 and 249
deal with life and health insurance and the
periods to pay. In essence, with life
insurance it depends on the kind of life
insurance. If you fail to pay there is
interest that is imposed. You have similar
rules for non-life:Present within 30 days,
agree what the amount is, cannot agree
then there's a 60 day period...
Payment of Claims
Stronghold case
Hofi notes: What interest rate should
apply? Those used for forbearance of
money. Therefore, the proper rate that
applies is 6%.
Part of the Authority of the Commission is
that they have the right to inspect,
examine, power of visitation (visitation
rights), check the records and books of
insurance companies, and to revoke their
certificate of authority.
Conservators
Sometimes when an insurance company
has problem with money or they do not
have enough cash on hand. They could
be in a state of illiquidity. In which case it
is possible for the conservator to be
appointed to try to bring back, liquefy the
assets and so. That's essentially the role
of conservators. Conservators can even
change board decisions. They cannot
really touch on perfected contracts.
What if despite the conservatorship it
doesn't work out? Therefore, insurance
company like other companies can go to a
state of insolvency. Insolvency is a case
where your liability exceeds your assets.
In that particular instance there is a
procedure which involves the appointment
of a receiver. Who will take charge of that
company from that point on. FRIA law
does not apply to insurance companies
and banks. They are not considered
debtors by express commission of the
FRIA. What determines the procedure of
liquidation for them is still the insurance
code.
People Involved in the Insurance
Business
1. Agents/Brokers
Insurance Agents and Insurance brokers
have to be licensed by the Commission.
In essence what are they? They are really
agents of the insurance company. They
solicit business, or solicit insurance/policy.
They act as an agent.
1. Independent Adjuster - acts in
behalf of the insurer
2. Public Adjuster - applies to
somebody on behalf of the insured.
Again, insurance company cannot
be adjusters.
Forfeiture
The Insurance Commission:
 has Quasi-judicial powers
 Have the concurrent jurisdiction
when the insured has a claim not
exceeding P5M. Once there is a
case file in the IC then it is
appealable only to the CA
 It has the powers of supervision,
such as examining books and
records of the insurance company.
Luminabao v. IAC

Differentiating the two:

* Broker - S/he put two people together
and bahala na kayo do your business
* Agent - It represents the principal

2. Insurance Brokers

The way the code defines it you will note

that they seem to be more or less takes
the side of the insured.

3. There are Reinsurer brokers that

brings two reinsurance company

4. Resident Agent (for Foreign

Insurance Companies)

5. Adjusters –
They must be 60% Filipino; Its function is
to ascertain damages and determine
facts. There are 2 parties interested: (a)
Insurance company (that wants to lowers
the amount) and (b) the insured (that
always wants a high amount).