Insurance Commission defines ‘unsafe practices’ under Insurance Code

MANILA, Philippines — The Insurance Commission (IC) has clarified the definition of “unsafe and unsound” business practices of the insurance industry as provided under the Insurance Code.

Insurance Commissioner Dennis Funa issued a circular defining “unsafe business acts or practices” of insurance firms, reinsurance companies, mutual benefit associations, intermediaries and adjustment companies.

Funa said the new regulation was issued after reviewing the unimplemented provision of the Insurance Code, which empowers the IC to penalize insurance companies, their directors, officers, and/or agents for conducting business in an unsafe or unsound manner.

“The broad definition under the existing law could easily be challenged if the Commission would not clarify the definitions of prohibited acts that constitute violations of the law. A regulation clearly defining the same was issued to put more teeth in the regulation of the insurance industry,” Funa said.

However, Funa clarified the circular only covers practices involving a company’s contractual relationship with the insuring public.

“It does not cover business practices likely to cause insolvency or substantial dissipation of assets or earnings of a covered entity or likely to weaken its financial condition,” he said.

Under the new issuance, unfair business practices were broadly classified into misrepresentation to the public, unfair discrimination, unfair claims management, misrepresentation in insurance applications or claims, failure to effectively control and supervise its agents, and failure to respond to regulatory inquiries.

Other practices that may be considered unsafe or unsound include misrepresentation relating to terms and conditions of an insurance policy, false representation or incomplete comparison of policies for the purpose of inducing a person to forfeit or surrender his said insurance, failure to disclose all applicable charges, and advertisement of an insurance product which has not been approved by the Commission in a misleading manner.

Also deemed to be unfair practices are the failure to promptly acknowledge receipt of claims, to adopt and implement reasonable standards for prompt investigation of an insurance claim, discrimination against a person solely because of his/her race, and failure to maintain reasonable standards of supervision and control over its insurance agents.