Insurance and reinsurance in the Philippines are mainly regulated by laws enacted by the Philippine Congress. Decisions of the Supreme Court of the Philippines interpreting these laws have the force and effect of law. In addition to laws and Supreme Court decisions, the Philippine Insurance Commission (PIC), a regulatory body established by law to regulate the insurance industry, is empowered to issue rules and regulations that implement and aid the interpretation of the statutes governing or affecting insurance and reinsurance.
The Civil Code of the Philippines provides that “[t]he contract of insurance is governed by special laws. Matters not expressly provided for in such special laws shall be regulated by [the Civil] Code”. The principal legislation on insurance and reinsurance in the Philippines is the Insurance Code of the Philippines (Presidential Decree (PD) No 612, as amended by the Republic Act (RA) No 10607). Other special laws on insurance include the following:
Insurance and reinsurance are regulated by various laws and regulations. The Insurance Code, as amended (the Code) is the main legislation that governs the insurance business. It grants the Insurance Commissioner “the duty to see that all laws relating to insurance, insurance companies and other insurance matters, mutual benefit associations, and trusts for charitable uses are faithfully executed and to perform the duties imposed upon him by [the] Code,” including the “sole and exclusive authority to regulate […] variable contracts as defined by law and to provide for the licensing of persons selling such contracts, and to issue reasonable rules and regulations governing the same. The [Insurance] Commissioner [is empowered to] issue such rulings, instructions, circulars, orders and decisions as may be deemed necessary to secure the enforcement of the provisions of [the Insurance] Code,” and such issuances of the Insurance Commissioner are part of the regulatory scheme governing the insurance industry in the Philippines. Decisions by the Insurance Commissioner are appealable to the Secretary of Finance.
Other government agencies involved in the regulation of insurance and reinsurance in the Philippines include the Securities and Exchange Commission of the Philippines (SEC) and the Bangko Sentral ng Pilipinas (BSP, the Central Bank of the Philippines). The Anti-Money Laundering Council (AMLC) and the Philippine Competition Commission (PCC) also have regulations that are applicable to or affect the insurance industry.
Entities intending to engage in the business of insurance must submit to the jurisdiction of the SEC, the government agency tasked with regulating corporations, partnerships, and associations, and obtain the licence for the appropriate structure in order to be entitled to conduct insurance and reinsurance in the Philippines. The PIC exercises primary authority over insurance companies which are deemed special corporations under the Revised Corporation Code that governs corporations, partnerships, and associations.
The BSP is the central monetary authority of the Philippines, and supervises the operations and activities of banks and certain non-bank financial institutions. Certain issuances of the Monetary Board of the BSP affect the insurance industry because of the inclusion of bancassurance in the Insurance Code, for instance.
Insurance companies, pre-need companies, and all other persons supervised or regulated by the PIC are considered “covered persons” under the Anti-Money Laundering Act of 2001 and the Terrorism Financing Prevention and Suppression Act of 2012. The Anti-Money Laundering Council, of which the Insurance Commissioner is a member, is tasked with implementing these laws and may promulgate pertinent rules and regulations that will affect companies regulated by the PIC, including those engaged in insurance and reinsurance.
The PCC, created under the Philippine Competition Act (PCA), is tasked with the implementation of the PCA, including the review of proposed mergers and acquisitions, to the extent that the relevant transaction exceeds certain thresholds set out by law and regulations. This means that proposed mergers and acquisitions involving companies engaged in insurance and reinsurance may have to be submitted to the PCC for review and clearance.
The Insurance Code enumerates the entities that may pursue insurance business in the Philippines. These entities are corporations, partnerships, and associations. The term insurer or insurance company is deemed to include all partnerships, associations, co-operatives, or corporations including government-owned or controlled corporations or entities, engaged as principals in the insurance business, excepting mutual benefit associations. It also includes professional reinsurers.
As a condition for an insurance company to transact any insurance business in the Philippines, including reinsurance, the appropriate certificate of authority must first be obtained from the Insurance Commissioner. An insurance company must meet certain standards and requirements in order to be eligible for the issuance of a certificate of authority. One statutory requirement for a domestic insurance company organised as a stock corporation is that it must possess paid-up capital equal to at least PHP1 billion for life and non-life insurers and at least PHP2 billion for composite insurers (ie, authorised to engage in both life and non-life insurance business).
If organised as a mutual company, in lieu of such net worth, it must have available total members’ equity, in an amount determined by the PIC, above all liabilities for losses reported, expenses, taxes, legal reserve, and reinsurance of all outstanding risks, and a contributed surplus fund equal to the amounts required of stock corporations. The Insurance Commissioner may also require a minimum of PHP100 million in cash assets in addition to the paid-up capital stock. The PIC has also issued guidelines on the risk-based capital ratio and the risk-based capital requirement that must be complied with by all life and non-life insurance companies operating in the Philippines. An insurance company is not allowed to have any equity in an adjustment company, and vice versa.
An insurance company that is solely authorised to transact reinsurance business must possess a capitalisation of at least PHP3 billion paid in cash, of which at least 50% is paid-up and the remaining portion thereof is contributed surplus, which in no case shall be less than PHP400 million.
Domestic insurance corporations are subject to income tax on income from sources within and outside the Philippines. Foreign insurance corporations are subject to income tax only on income from Philippine sources. Domestic corporations are subject to ordinary corporate income tax (OCIT) of 25%, effective 1 July 2020 on their taxable income (ie, gross income less allowable deductions) or minimum corporate income tax (MCIT) of 2%, effective 1 July 2023 on their gross income, whichever is higher. Foreign corporations doing business in the Philippines (ie, resident foreign corporations) are subject to the same tax, although only on income from Philippine sources. However, domestic corporations with net taxable income not exceeding PHP5 million and with total assets not exceeding PHP100 million, excluding land on which the corporation’s office, plant and equipment are situated during the taxable year for which the tax is imposed, shall be taxed at 20%.
Premiums form part of the gross income of the insurance company for the purposes of computing the taxable income subject to the OCIT or for the purposes of computing the MCIT. They are also subject to business taxes and documentary stamp taxes (DST), depending on whether the premium is for life insurance or non-life insurance.
Premiums received by life insurance companies are subject to a 2% business tax based on the total premium collected, with the following exceptions:
Fire, marine, or miscellaneous insurance agents, authorised under the Insurance Code to procure insurance policies on risks located in the Philippines for companies not authorised to transact business in the Philippines, must pay twice the aforementioned tax imposed. Where owners of property obtain insurance directly with foreign companies, those owners must report to the Insurance Commissioner and pay a tax of 5% on their premiums.
Premiums received by non-life insurance companies (except on crop insurance), including surety, fidelity, indemnity and bonding companies are subject to 12% value-added tax.
The Ease of Paying Taxes bill has been approved by the Bicameral Conference Committee and is likely to pass into law. Under the said bill, value-added tax on the sale of services will now be payable on gross sales instead of gross receipts. Gross sales mean the total amount of money representing the contract price that the purchaser pays or is obligated to pay in consideration of services already rendered. This may mean that value-added tax on non-life insurance products will be payable on both premiums paid and any other service fees that the insured is obligated to pay where the services have already been rendered.
Life insurance policies are subject to a one-time DST, ranging from PHP20 to PHP200, depending on the amount of insurance.
Property insurance policies are subject to a DST of PHP0.50 on each PHP4, or fraction thereof, of the amount of premium charged. Reinsurance contracts, or any other instruments by which acceptance of insurance risks under any reinsurance agreement is affected, are not subject to DST.
Fidelity bonds and other insurance policies are subject to DST of PHP0.50 on each PHP4, or fraction thereof, of the premium charged.
Cities and municipalities may also impose local business taxes on premiums received by insurance companies at rates not exceeding 0.75% and 0.50%, respectively.
Overseas-based insurers or reinsurers wishing to engage in insurance or reinsurance business in the Philippines must obtain a certificate of authority to transact insurance business in the Philippines from the Insurance Commissioner. For this purpose, insurers or reinsurers must establish either a subsidiary incorporated in the Philippines or a branch office with a licence to do business in the Philippines. A foreign insurer or reinsurer must also file with the Insurance Commissioner a written power of attorney designating a resident agent in the Philippines on whom any notice – provided by law or an insurance policy, and any other legal processes – may be served in all actions or legal proceedings involving the foreign insurer, and consenting that service upon that resident agent will be admitted and held valid as if served upon the foreign insurer at its home office.
Foreign insurers/reinsurers are also required to have unimpaired capital or assets and reserve of not less than PHP1 billion and must deposit, with the PIC, securities satisfactory to the Insurance Commissioner. A new branch office of a foreign insurance company may also be required to have an additional surplus fund in an amount determined by the PIC.
A fronting arrangement, whereby a locally licensed insurance company acts as an agent of an unlicensed foreign insurance company to sell the latter’s insurance products in the Philippines, is not allowed. However, it may be possible to structure a fronting activity as one where insurance products are sold in the Philippines by a locally licensed insurance company that reinsures the insurance risk from the products thus sold with a foreign unlicensed entity acting as reinsurer. In the Philippines, offshore reinsurance is regulated, and the Insurance Code requires that no insurance company doing business in the Philippines shall cede all or part of its risks situated in the Philippines by way of reinsurance directly to any foreign insurer not authorised to do business in the Philippines, unless that foreign insurer is represented in the Philippines by a resident agent duly registered with the PIC.
In order for a local insurer to have its insurance risks reinsured by a foreign reinsurer, there is a requirement that at least 10% of the outward reinsurance placed with unauthorised foreign reinsurers must first be offered for cession to the National Reinsurance Corporation of the Philippines (NRCP). If the NRCP decides that it cannot take on more risk for reinsurance, it must issue a declination letter in accordance with the requirements issued by the PIC, which must be submitted by the local insurer along with the other requirements for applications for reinsurance placements abroad.
The insurance industry is imbued with public interest, and thus, is highly regulated. With respect to mergers and acquisitions relating to a domestic insurer, no person, other than an authorised insurer, is allowed to acquire control of any domestic insurer. There are also requirements to provide written notice to the domestic insurance company of the applicant’s intention to acquire control, and the approval of the Insurance Commissioner must be obtained, following the submission of certain documentary requirements.
With respect to a merger or consolidation, two or more domestic insurance companies that intend to merge or consolidate into a single corporation, whether resulting in the survival of one of the constituent corporations or the formation of a new corporation, must provide written notice to the Insurance Commissioner at least 30 days prior to any board action to approve any plan of merger or consolidation. Such a plan must include certain provisions or documents required by the Insurance Commissioner, such as the proposed articles of merger or consolidation, or the by-laws of the surviving or acquiring company, among others. This plan of merger/consolidation and the articles of merger/consolidation are also subject to the approval of the Insurance Commissioner, whose endorsement is necessary before these may be filed with the SEC. All proposed mergers and consolidations must be completed within 12 months from the time the Insurance Commissioner was first notified of the intent to merge or consolidate, unless written requests to extend the deadline for completion are filed within the aforementioned period and approved by the Insurance Commissioner.
In addition to these requirements and considerations, any such mergers or acquisitions may be subject to mandatory notification to the PCC, should the transaction and the parties exceed the then prevailing thresholds set by the law and the PCC regulations. Even if the insurer doing business in the Philippines is not a party to the merger or acquisition but the thresholds for compulsory notification are satisfied – which includes an examination of the assets in, and gross revenues from, the Philippines of the ultimate parent entities of the parties to such a merger or acquisition – a notification must still be submitted by the ultimate parent entities of the parties to the transaction to the PCC. Beginning 1 March 2023, all mergers and acquisitions (including joint ventures) where the size of the party (as this term is defined under the PCC regulations) exceeds PHP7 billion and where the size of transaction (as this term is defined under the PCC regulations) exceeds PHP2.9 billion, are notifiable, and parties to the transaction must wait for the PCC’s express or deemed approval before consummating the transaction.
Insurance and reinsurance products are distributed in the Philippines through direct sales by insurers through their employees, through insurance agents, and through insurance brokers. Bancassurance is also recognised in this jurisdiction.
Insurance agents and brokers are required to have the appropriate licences before soliciting or procuring applications for insurance, or providing related services, which are to be renewed every three years. No insurance company doing business in the Philippines, nor any agent thereof, shall pay any commission or other compensation to any person for services in obtaining insurance unless that person has the appropriate licence.
Insurance agents are persons who, for compensation, solicit or obtain insurance on behalf of any insurance company, or transmit, to a person other than himself or herself, applications for a policy or contract of insurance to or from that company, or act in the negotiating of such insurance. An applicant to be an insurance agent or a general agent is required to be a resident of the Philippines, must be trustworthy, and must pass the written examination for the kind of licence applied for (eg, life, non-life, accident and health, variable life). If the applicant is a partnership, association, or corporation, that applicant must be domiciled in the Philippines and authorised by its constitutive documents to transact the kind of insurance business applied for. The individual to be named in the licence applied for must possess the requirements previously mentioned.
No person shall be licensed to act as an insurance agent or a general agent of more than one life insurance company, and/or as general agent of more than one non-life insurance company, and as an insurance agent for more than seven other non-life insurance companies. No official or employee of an insurance brokerage or an adjustment company and no individual adjuster shall be licensed to act as an insurance agent or general agent. Such a licence may be suspended or revoked upon finding violations of the above-mentioned rules and on other applicable grounds. The PIC keeps a Negative List of insurance agents in relation thereto.
Insurance brokers are those who – for any compensation, commission, or other thing of value – act or aid in any manner in soliciting, negotiating, or procuring the making of any insurance contract or in placing risk or taking out insurance, on behalf of an insured other than himself or herself.
A reinsurance broker is one who – for compensation and not being a duly authorised agent, employee or officer of an insurer in which any reinsurance is effected – acts or aids in any manner in negotiating contracts of reinsurance or placing risks of effecting reinsurance for any insurance company authorised to do business in the Philippines.
Any new entrant intending to do business, either as an insurance broker or reinsurance broker, must have a minimum capitalisation or paid-up capital of PHP20 million and must maintain a net worth of PHP20 million.
If the new entrant intends to do business as both (ie, as an insurance broker and a reinsurance broker), it must have a minimum capitalisation or paid-up capital of PHP50 million and must maintain a net worth of at least PHP50 million.
Certain prohibitions are also applicable to insurance brokers. No person licensed as an insurance agent or general agent shall be licensed as an insurance broker, nor shall a person licensed as an insurance broker be licensed as an insurance agent or general agent. No official or employee of an insurance broker shall be licensed to act as insurance agent or general agent. No broker, nor any of its stockholders and officers, shall have a controlling interest in any insurance or reinsurance company, or insurance adjustment company or vice versa.
Bancassurance refers to the presentation and sale to bank customers by an insurance company of its insurance products within the premises of the head office of a bank duly licensed by the BSP or any of its branches, under whatever rules and regulations that the Insurance Commissioner and the BSP may promulgate. To engage in a bancassurance arrangement, a bank is not required to have equity ownership of the insurance company. However, the bank and the insurance company must belong to the same financial conglomerate, or a group of interrelated entities providing significant services in at least two different financial sectors (eg, banking, securities, and insurance) for the cross-selling of collective investment scheme (CIS) products (ie, mutual funds, unit investment trust funds, or variable unit-linked life insurance policies) to be allowed under BSP regulations. The bank must also have secured prior Monetary Board approval to engage in the aforementioned activities. Bancassurance agreements entered into between the bank and the insurance company must also be submitted to the Insurance Commissioner for approval, and must contain certain mandatory provisions, such as provisions stating that areas within the bank premises where bancassurance activities are conducted must be distinct and clearly marked from areas where bank products are being sold. Other requirements and regulations for the public’s interest must be complied with as the parties engage in bancassurance activities.
The Insurance Code states that each party to a contract of insurance must communicate to the other, in good faith, all facts within his or her knowledge that are material to the contract and as to which he or she makes no warranty, and which the other has no means of ascertaining. A fact is material depending on its probable and reasonable influence upon the party to whom the communication is due, in forming his or her estimate of the disadvantages of the proposed contract, or in making his or her inquiries.
This right to being informed of material facts may, however, be waived, either by the terms of insurance or through neglect in making inquiries as to those facts, where they are distinctly implied in other facts of which information is communicated. Thus, in the case of the insurer, it must proactively seek more information from the insured if the communication made by the insured implies that there are other material facts that are relevant to the insurer with respect to the negotiation of the contract.
Failure to comply with the duty to communicate may amount to concealment, which is the neglect to communicate that which a party knows and ought to communicate, and entitles the injured party to rescind a contract of insurance. It has been held that if the insured has knowledge of a fact material to the risk – and honesty, good faith and fair dealing require that he or she should communicate it – but intentionally withholds that knowledge, this is concealment and, regardless of actual intent to defraud, entitles the injured party to rescind the contract.
A representation is a statement, whether oral or written, made at the time of, or before, the issuance of a policy. If a representation made by a party is false in a material point, whether it is affirmative, which is a representation presumed to refer to the date on which the contract begins, or promissory, which is a representation as to the future, the injured party is entitled to rescind the contract from the time the representation becomes false.
It should be noted that, in life insurance, after a policy of life insurance made payable on the death of the insured has been in force during the lifetime of the insured for a period of two years from the date of its issue or of its last reinstatement, the insurer can no longer prove that the policy is void or is rescindable by reason of the fraudulent concealment or misrepresentation of the insured or his or her agent.
An insurance agent acts on behalf of the insurer, while an insurance broker acts for the insured. Both the insurance agent and the insurance broker have certain fiduciary duties. The premium, or any portion thereof which an insurance agent or insurance broker collects from an insured and which is to be paid to an insurance company, is held by the agent or broker in a fiduciary capacity and must not be misappropriated or converted to his or her own use. Any insurer that delivers to an insurance agent or insurance broker a policy or contract shall be deemed to have authorised that agent or broker to receive on its behalf payment of any premium that is due on that policy or contract of insurance. Failure to abide by and comply with these fiduciary obligations is grounds for the denial, suspension, or revocation of the licence of an insurance agent or insurance broker.
A policy of insurance, or the written instrument in which a contract of insurance is set forth, is required to be printed, or to be in an electronic form subject to the pertinent provisions of the Electronic Commerce Act of the Philippines and regulations issued by the Insurance Commissioner. Such a policy must be in a form approved by the Insurance Commissioner. In addition, the Insurance Code states that any contingent or unknown event, whether past or future, which may cause injury or loss to a person who has an insurable interest, or may create a liability against him or her, may be insured against, subject to certain exceptions and conditions provided under the Code. It can be gleaned from this provision that an insurable interest is a requirement in this jurisdiction. Every person is deemed to have insurable interest in the life and health:
An insurable interest in property may consist in:
The inclusion of the following terms in a policy of insurance is essential and required by the Code, in addition to any other provisions required by further regulations issued by the Insurance Commissioner:
Non-parties to an insurance contract may be beneficiaries, depending on the type of insurance product. The beneficiary has to be specified by the insured. The disclosure rules are the same, even if there are multiple insureds or potential beneficiaries under the contract.
The position is essentially the same with respect to reinsurance contracts, subject to any special regulations issued by the Insurance Commissioner specifically on reinsurance placement and treaties.
The authors have yet to work on alternative risk transfer (ART) transactions, such as insurance loss warranty contracts and insurance-linked securities, and are not aware as to whether any such transactions have been entered into by companies in the Philippines.
Currently, PIC regulations do not make it clear if ART transactions are to be classified as insurance (or reinsurance) transactions. Given this regulatory gap, the prudent practice is to present the contract or arrangement to the PIC. In any case, if the contract or arrangement has a risk-distribution feature, the PIC may consider it as an insurance (or reinsurance) transaction.
Furthermore, registration to the SEC may be required for insurance-linked securities. Generally, public offer and sale of securities (equity and debt instruments) in the Philippines to more than 19 persons within any 12-month period require the registration of those securities with the SEC.
As previously mentioned in 7.1 ART Transactions, the insurance regulations are not clear with respect to ART transactions.
Insurance contracts are usually interpreted using the plain and ordinary meaning of their text, much like any other contract. However, when doubt exists, courts have construed the doubtful provisions in favour of the insured and strictly against the insurer, as insurance contracts are drafted solely by the insurer. Extraneous evidence is generally not permitted in proving the proper interpretation of an insurance contract.
Warranties mentioned in the insurance policy are not required to be expressly described or denominated as such. However, warranties that are merely pasted or attached to the insurance policy are not binding on the insured unless the descriptive name or title of those warranties are written on the blank spaces provided for in the insurance policy. Similarly, any warranty issued after the original policy should be countersigned by the insured or owner, except if it is applied for by the insured or owner.
If a material warranty is breached, the innocent party is entitled to rescind the insurance policy. However, a breach of warranty without fraud releases the insurer from further liability from the time it occurs; if the breach happens before the inception of the policy, that breach prevents the policy from attaching to the risk sought to be insured against.
There are no known regulations expressly requiring conditions precedent to be described as such. However, the conditions for the insurer’s liability – such as covered and excluded risks, warranties, representations, and requirements for claims settlement – should be easily identifiable. Generally, a premium has to be paid before an insurance policy becomes valid and binding. An insurer who unjustifiably refuses to settle or pay claims is liable to pay damages consisting of attorney’s fees and expenses incurred by the insured, plus interest.
Disputes over coverage under any kind of insurance contract may be addressed by either going to court or by filing a complaint with the Insurance Commissioner. The Insurance Code gives the Insurance Commissioner concurrent jurisdiction with the civil courts for claims and complaints involving any loss, damage, or liability for which an insurer may be answerable under any kind of policy or contract of insurance, or for which a reinsurer may be sued under any contract of reinsurance that it may have entered into, where the amount of any such loss, damage, or liability – excluding interest, cost and attorney’s fees – being claimed or sued upon any kind of insurance, bond, reinsurance contract, or membership certificate does not exceed in any single claim PHP5 million. The filing of a complaint with the Insurance Commissioner precludes the civil courts from taking cognisance of a suit involving the same subject matter.
If the parties provide a limitation period for starting proceedings in respect of an insurance claim, the period shall not be for less than one year. In the absence of such a stipulation, the Civil Code of the Philippines, which sets a ten-year limitation for causes of action based on written contracts, will apply.
Jurisdiction over the subject matter is conferred by Philippine law and by the material allegations in the complaint, regardless of whether the plaintiff is entitled to recover all or only some of the claims or reliefs sought therein. It cannot be acquired through a waiver or enlarged by the omission of the parties or conferred by the acquiescence of the court.
When there is a conflict-of-law issue, after establishing that it has jurisdiction over the subject matter, a Philippine court is obliged to consider whether it is a convenient forum to the parties, based on the facts of the case. The rule of forum non conveniens states that a Philippine court may assume jurisdiction over the case if it chooses to do so, provided that:
As regards choice of law, the Philippine court will rely on the principles of lex loci celebrationis and lex contractus, and the state of the most significant relationship rule. Lex loci celebrationis means the law of the place of the ceremony or the law of the place where a contract is made. The doctrine of lex contractus or lex loci contractus means the law of the place where a contract is executed or to be performed. It controls the nature, construction, and validity of the contract and it may pertain to the law voluntarily agreed upon by the parties, or the law intended by them either expressly or implicitly. Under the state of the most significant relationship rule, to ascertain what state law to apply to a dispute, the court should determine which state has the most substantial connection to the occurrence and the parties. In a case involving a contract, the court should consider where the contract was made, negotiated, or to be performed, and the domicile, place of business, or place of incorporation of the parties. This rule takes into account several contacts and evaluates them according to their relative importance with respect to the particular issue to be resolved. All these principles are considered together in relation to the factual circumstances of the case to determine the choice of law.
A civil action is initiated by the filing of a complaint by the plaintiff before a court vested with jurisdiction over the subject matter of the case. The court will then issue a summons requiring the defendant to file an answer to the complaint. After the last pleading has been filed, the case will be set for pretrial. As part of pretrial, the case will be referred to mediation, wherein a mediator will help the parties attempt to reach an amicable settlement. If no settlement is reached, the case may undergo judicial dispute resolution proceedings, wherein a judge will help the parties attempt to reach an amicable settlement, only if the judge of the court to which the case was originally raffled is convinced that settlement is still possible. If there is still no settlement reached, the case will proceed to pretrial, wherein the parties will determine, among other things, the specific issues to be resolved in the case, the facts the parties are willing to stipulate on, and the exhibits and witnesses to be presented by the parties. During trial, the plaintiff will present their evidence first. After presenting the plaintiff’s last witness, the plaintiff will formally offer its documentary and object evidence to the court. After the court resolves the plaintiff’s formal offer of documentary and object evidence, the defendant will then present its evidence. After presenting the defendant’s last witness, the defendant will formally offer its documentary and object evidence to the court. The court will then render a decision, which must state the facts and the law on which it is based.
The aggrieved party may question the trial court’s decision by filing a motion for reconsideration within 15 days from receipt thereof. If the motion for reconsideration is denied, the aggrieved party may file a notice of appeal with the Court of Appeals within 15 days from receipt of the denial of the motion for reconsideration. After the Court of Appeals renders a decision, an aggrieved party is given 15 days from receipt thereof to file a motion for reconsideration. If the motion for reconsideration is denied, the aggrieved party may file a petition for review on certiorari to the Supreme Court, which is the court of last resort, within 15 days from receipt of the denial of the motion for reconsideration. After the Supreme Court renders a decision, the aggrieved party is given 15 days from receipt thereof to file a motion for reconsideration. Failure to file an appeal or to move for reconsideration on time will result in the decision becoming final and executory.
A judgment or final order of a tribunal in a foreign country that has jurisdiction to render the judgment or final order against a person is presumptive evidence of a right between the parties (and their successors in interest by a subsequent title). That judgment or final order may be repelled by evidence of want of jurisdiction, want of notice to the party, collusion, fraud, or clear mistake of law or fact.
In order to enforce a foreign judgment in the Philippines, the winning party must file a verified petition for recognition and enforcement of the foreign judgment before the Philippine courts. The proceedings in court will follow substantially the same procedure outlined in 9.3 Litigation Process, solely to determine whether or not there exist any of the grounds for repelling the foreign judgment.
Arbitration clauses in commercial insurance and reinsurance contracts can be enforced.
If a party receives an award in domestic arbitration, the award shall be included in the judgment of the arbitral tribunal and enforced like a court judgment. Any party to a domestic arbitration may petition the court that has jurisdiction over the place in which one of the parties is doing business, where any of the parties reside, or where arbitration proceedings were conducted, to confirm, correct, or vacate a domestic arbitral award. An arbitral award shall enjoy the presumption that it was made and released in due course of arbitration and is subject to confirmation by the court.
However, any party to a foreign arbitration may petition the court to recognise and enforce a foreign arbitral award at any time after the receipt of that foreign arbitral award. The recognition and enforcement of a foreign arbitral award shall be governed by the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, to which the Philippines is a party, and Rule 13 of the Special Rules of Court on Alternative Dispute Resolution. It is presumed that a foreign arbitral award was made and released in due course of arbitration and is subject to enforcement by the court. The court shall recognise and enforce a foreign arbitral award unless a ground to refuse recognition or enforcement is established. The decision of the court recognising and enforcing a foreign arbitral award is immediately executory.
When court proceedings are filed with respect to any kind of insurance contract, before the case proceeds to trial, the matter will first be referred to mediation, wherein a mediator will help the plaintiff and the defendant attempt to reach an amicable settlement. If no settlement is reached, the case may undergo judicial dispute resolution proceedings, wherein a judge will help the parties attempt to reach an amicable settlement, only if the judge of the court to which the case was originally raffled is convinced that settlement is still possible. Only after both modes of alternative dispute resolution are unsuccessful will the case proceed to trial.
Parties are also free to include an arbitration clause in their insurance contracts, such that any dispute under the insurance contract will have to be resolved through arbitration.
For micro-insurance contracts, the PIC has issued regulations to the effect that the various modes of alternative dispute resolution are a prerequisite to the filing of a civil action.
Insurers who unreasonably deny or withhold the payment of claims shall be liable for damages, consisting of attorney’s fees and other expenses incurred as a result of the unreasonable denial or withholding of payment, and interest, in the amount of twice the ceiling prescribed by the Monetary Board, on the amount due under the claim of the insured. These damages and interests are in addition to the amount of the insurance claim.
Payment by the insurer to the insured operates as an equitable assignment of all the remedies that the insured may have against the third party who caused the damage. Accordingly, subrogation is not dependent upon, nor does it grow out of, any privity of contract or upon a written assignment of claim. It accrues simply upon the payment of the insurance claim by the insurer.
However, the right of subrogation is not absolute. For instance, both the insurer and the insured are bound by any contractual stipulations entered into by the insured prior to the subrogation. Moreover, the insurer can be subrogated only to the rights the insured may have against the wrongdoer. If, by its own acts, the insured releases the wrongdoer liable for the loss or damage, the insurer loses its claim against the latter. Finally, subrogation is also not an available remedy in life insurance and in cases where the insurer pays the insured for a loss or risk not covered by the policy or where the insurer paid in excess of the amount of the loss.
Several local insurers have mobile apps through which all insurance transactions can be performed. Some develop their own platforms or collaborate with fintech companies to provide various products which may be bundled with other services.
The PIC has issued several guidelines on electronic commerce of insurance products. In 2020, the PIC issued regulations providing guidelines for a regulatory sandbox framework to promote insurtech.
There is growing concern over climate change risks, such as stronger typhoons and more severe droughts. In 2021, the PIC issued guidelines to adopt a regulatory sandbox framework for agriculture insurance in order to encourage local insurers to encourage non-life insurers to issue agricultural insurance products.
Cyber-insurance, which is specifically designed to cover the risk of hacking or data leaks, is now offered in the Philippines and is typically bundled with other products. The PIC is promoting the use of insurtech and for insurers to issue agricultural insurance products.
ESG is also taking the spotlight in the insurance industry in the Philippines. In 2021, the PIC issued a regulation for the establishment of a Philippine catastrophe insurance facility which directs non-life insurers to participate in the Philippine Catastrophe Insurance Facility Technical Working Group (PCIF-TWG). It also issued circulars to update the schedule of minimum catastrophe insurance rates and rating structure for all insurance policies providing cover for catastrophe risks.
Several legislative and private sector initiatives in the Philippines have demonstrated that environmental, social, and governance (ESG) issues are being recognised even in the insurance industry. There are moves towards making sustainable insurance available and more accessible in the Philippines, especially to one of the more vulnerable industries – the agricultural sector – given the natural disasters the country faces each year. There is also pending legislation mandating insurance for man-made disasters in environmentally critical projects. The recent trends and developments on sustainable insurance to address environmental issues are further discussed below.
Emergence of Sustainable Insurance
Sustainable insurance is defined by the United Nations Environment Programme Finance Initiative (UNEP FI) as “a strategic approach where all activities in the insurance value chain, including interactions with stakeholders, are done in a responsible and forward-looking way by identifying, assessing, managing, and monitoring risks and opportunities associated with environmental, social, and governance issues.” Its purpose is “to reduce risk, develop innovative solutions, improve business performance, and contribute to environmental, social, and economic sustainability”.
During the 2012 UN Conference on Sustainable Development, the UNEP FI Principles of Sustainable Insurance (PSI) was launched to serve as a worldwide model to be emulated by the insurance industry to better understand, prevent and reduce ESG risks, and better manage opportunities to provide quality and reliable risk protection. It is said to be the biggest collaboration between the UN and the insurance industry.
While the PSI is neither intended nor designed to be legally binding on its signatory stakeholders, it serves as a voluntary and aspirational framework for sustainable insurance. An organisation voluntarily accedes to be a signatory by signifying its intent, participating in the annual public disclosure process, and paying its annual fees.
Based on UNEP FI’s website, as of 2023, there are six Philippine-based entities supporting the PSI. Locally, we have also seen efforts by both commercial players and legislative bodies to promote sustainable insurance, particularly in the field of agriculture.
In 2015, the Insurance Commission issued Circular Letter No 2015-53 (IC CL No 2015-53) which established the Agriculture Microinsurance Framework (“MicroAgri Framework”) to encourage private microinsurance providers to innovate and design products that address the needs of agricultural clients. It discussed two main agricultural insurance concepts:
Although there has not been significant progress in parametric-based microinsurance recently, there have been notable developments in this domain spurred by both public and private sector initiatives. In the House of Representatives (HoR), which is part of the two-chamber legislative branch of the government, a bill seeking to provide free weather index-based agricultural insurance is currently pending.
Proposed Legislation on Free Weather Index-Based Agricultural Insurance
House Bill No 1425
House Bill No 1425 (HB No 1425) aims to strengthen the resiliency of small farmers against climate change and extreme weather risks by establishing the regulatory framework and programme for a free weather index-based agricultural insurance.
The author of HB No 1425 acknowledges that, despite the Philippines being renowned for its agricultural expertise, the nation is currently grappling with environmental and agricultural challenges exacerbated by the adverse impacts of climate change. These challenges have significantly affected agricultural yields. The intricate relationship between temperature and rainfall, combined with the country’s Pacific location, makes the Philippines susceptible to a myriad of natural phenomena and disasters, heightening the vulnerability of its farmers to adverse weather conditions.
HB No 1425 aims to create a conducive environment by designing relevant and appropriate risk-sharing instruments to address the vulnerability to the effects of climate change, particularly among Filipino farmers and agricultural producers. It is aligned with the state policy of ensuring food security, intensifying food production, and increasing the climate resiliency of the country’s agricultural communities by providing safety nets to help these farmers and producers face the adverse impacts of disastrous weather events.
The bill defines weather index-based insurance (WIBI) as an innovative insurance product that aims to provide prompt insurance payouts against incidences of extreme weather conditions by using scientifically measurable weather parameters such as rainfall, temperature, frost, humidity, and/or other gauges as a substitute for actual loss using transparent indicators of the occurrence of an adverse effect. The reference unit areas (RUAs) will be based on a contiguous geographical area such as group of barangays, municipality, or city, as may be covered or monitored through a reference weather station.
An independent third-party weather information service provider will monitor, report, and validate data on weather reference indices (such as, but not limited to rainfall, wind speed, and temperature). There will be an established threshold, referred to by the bill as the “trigger”. The trigger will serve as a reference point on the agreed index parameter. Once the trigger is breached, the insurance payout is activated. On the other hand, the payout is based on a pre-determined schedule based on the area planted and growth phase of the crop.
Under the bill, any breach of the said trigger will be the sole basis for any insurance payout, without any further need to wait for any declaration of a state of calamity (if any) by the local government unit (LGU) exercising jurisdiction over the area affected. The main beneficiaries of this programme will be duly-registered Filipino farmers, agriculture producers, and farmers’ co-operatives. While this will be funded by the national government under the proposed bill, the LGU may provide local funds for better insurance features to be provided by the providers.
This programme will be implemented by city and municipal LGUs for the farmers and farm crops within their respective localities. HB No 1425 also provides for tax exemptions on VAT, documentary stamp tax (DST), and other relevant transaction taxes on all premium payments paid for index-based insurance contracts registered with the LGUs and co-ordinated with the forthcoming FIBAI programme Management Office (FIBAI-PMO). The FIBAI-PMO, set to be an adjunct office under the Office of the President, will act as the main programme administrator.
The bill, if passed into law, will also mandate the creation of a Climate Risk Mitigation Fund for Small Farmers to be managed by the FIBAI-PMO. HB No 1425 defines a small farmer as one whose total combined land holdings cover an area of not more than five hectares. All unutilised amounts allocated for the FIBAI programme for any given year will accrue to this climate risk mitigation fund and may be used to improve the WIBI in the country. The bill will also require all non-life insurance companies authorised to do business locally to subscribe to the insurance pool catering to the said market or to ensure that a minimum of five percent of their gross written premiums shall be in the agricultural sector.
Administrative sanctions and other penalties may be imposed on LGU officials and key officers who would be liable for non-implementation of the WIBI for their constituent farmers. HB No 1425 has been pending before the Committee on Agriculture since 1 August 2022. A comparable bill – Senate Bill No 390 – is also pending before the Senate.
Senate Bill No 390
Senate Bill No 390 (SB No 390) also aims to establish mandatory crop insurance coverage for small farmers, with a subsidy from the national government. SB No 390 provides for a similar WIBI framework for small farmers. The key differences in the Senate version of the bill are: (i) it does not provide for the creation of a Climate Risk Mitigation Fund for small farmers; and (ii) it does not provide for the creation of a FIBAI-PMO. The Department of Agriculture, Department of Agrarian Reform, and Philippine Crop Insurance Corporation, in co-ordination with the LGUs and the national government, will be tasked with implementing the programme.
Another notable difference in SB No 390 is that it makes a distinction between the percentage of the national government subsidy allocated to beneficiary-farmers – ie, a full subsidy for farmers owning or cultivating five hectares of farmland and below, while only half for farmers owning or cultivating more than five, but not more than eight hectares of farmland. The Senate version of the bill also does not provide for tax exemptions and penalty clauses. SB No 390 has been pending before the Senate Committee since 5 September 2022. In any case, there are currently three other bills pending before the Senate committees – Senate Bill Nos 1435, 2049, and 2131, which all seek to exempt microinsurance policies from VAT, DST, and tax on life insurance premiums.
If both versions of the respective bills in the HoRs and the Senate pass their third readings in their respective chambers, a bicameral committee is formed to reconcile the differences between these two versions. The bicameral committee, composed of selected members from the HoR and the Senate, will draft the final version of the bill, which will be approved once signed by the President before becoming law, or it may pass by default if there is no action within a specified timeframe.
While there is currently no pronouncement from the President to make this a priority legislation, there are indications of support for this initiative. During the current President’s stint as concurrent Secretary of Agriculture, a memorandum of agreement (MOA) was executed during the 6th International Rice Congress on 19 October 2023 between the International Rice Research Institute (IRRI), the Philippine Rice Research Institute of the Department of Agriculture (DA-PhilRice), and the Philippine Crop Insurance Corporation (PCIC).
The MOA supplements the earlier partnership between IRRI and DA-PhilRice which led to the development and operation of a satellite-based rice mapping and monitoring system that uses synthetic aperture radar satellite images and a smart detection system to plot out rice planting areas and dates, providing up-to-date forecasts and yields. This data will be instrumental in creating an Area-Based Yield (ARBY) index insurance for rice, which determines payouts based on the historical average yield of a specific geographic area, instead of individual farmer’s yields.
With the constant worsening threat of calamities brought about by climate change, the MOA aims to increase the resilience of small farmers and producers against these disasters by making use of innovative solutions in insurance, which increase operation efficiency compared to the traditional indemnity-based crop insurance, where it is necessary to conduct manual visits and audits per claim. The MOA is the beginning of the collaboration to create an ARBY index insurance for rice based on satellite data. In addition to these pending legislations, there are also initiatives from the private sector.
Weather Index Insurance Product from the Private Sector
An insurance technology player is working to launch a Weather Insurance Index (WII) product in the Philippines, which aims to insure farmers and their crops against risks resulting from natural disasters and climate change. The claims payout would be based on indices such as rainfall levels to avoid requiring subjective decision-making and manual assessments and verification, thereby increasing efficiency and transparency.
This parametric insurance, or index-based insurance, is described as an innovative approach to insurance that insures a policyholder against the occurrence of a specific event by paying a set amount based on the magnitude of the event, as opposed to the magnitude of the losses. Before the start of the insurance period, a statistical index is developed to measure deviations from the normal level of parameters such as rainfall, temperature, and earthquake magnitude, allowing for claims settlement to be swift and objective.
Legislative Initiative to Amend the Charter of Philippine Crop Insurance Corporation to Expand its Coverage
There are also other bills that promote sustainability in the insurance sector. One remarkable bill, which expands insurance coverage to agricultural produces, has already been passed on its third reading by the HoR on 21 March 2023 and has already been received by the Senate.
House Bill No 7387 (HB No 7387) seeks to modify Presidential Decree No 1467 (PD No 1467), which created the Philippine Crop Insurance Corporation (PCIC). The bill proposes to expand the insurance coverage from crops only to all agricultural commodities. The bill also specifically provides that such insurance coverage may later include non-crop agricultural assets such as livestock, aquaculture and fishery, agroforestry, and forest plantations. It further provides that the PCIC shall also offer reinsurance services for entities willing to offer agricultural insurance.
On the other hand, Senate Bill No 766 (SB No 766), which also aims to amend PD No 1467, specifically mentioned expanding the insurance coverage from qualified farmers only to include fisherfolk. It also expands the coverage from crops to livestock, aquaculture, fishery products, agroforestry crops and forest plantations.
Senate Bill No 958 (SB No 958) also seeks to amend PD No 1467. The bill also includes livestock poultry in the insurance coverage. There is notable Senate backing for this legislative initiative, evidenced by the filing of three additional bills aiming to amend the same law to expand its coverage. These are Senate Bill Nos 115, 1666, and 2118. As of today, while HB No 7387 has already passed in the HoR, the five other Senate bills are still pending before the respective Senate Committees.
Full Crop Insurance Coverage to Qualified Beneficiaries of the Comprehensive Agrarian Reform Program
In addition to these legislative initiatives, House Bill No 3178 (HB No 3178) aims to grant full crop insurance coverage to eligible beneficiaries under the Comprehensive Agrarian Reform Program (CARP). This bill outlines compensable losses, encompassing a range of natural calamities such as typhoons, floods, droughts, earthquakes and volcanic eruptions, plant diseases, and pest infestations. It has already passed on its third reading by the HoR on 31 January 2023 and was transmitted and received by the Senate on 1 February 2023. This bill also has counterpart versions in the Senate, seeking the same assistance to CARP beneficiaries. Senate Bill Nos 2117, 2008, and 1766 are all still pending before the Senate Committee.
A discernible trend is emerging in the Philippines, reflecting the adaptation of the insurance industry to address community needs in relation to ESG issues. Beyond the significant private and public initiatives focused on agricultural insurance, there are also calls advocating for the mandatory inclusion of insurance for environmentally critical projects.
Legislative Proposals on Mandatory Insurance for Environmentally Critical Projects
Another pending bill before the HoR is House Bill No 165 (HB No 1937) which seeks to require mandatory environmental insurance coverage (MEIC) for all environmentally critical projects (ECPs), as defined by the said bill.
The authors of the bill stated that, despite the many instances of man-made environmental damage, there is still no policy to ensure sufficient financial coverage for communities affected by these man-made disasters. The bill defines an environmentally critical project as a project that has a high potential for significant environmental impact and is listed as such under a local law (Presidential Proclamation No 2146, series of 1981, and Presidential Proclamation No 803, series of 1996). Examples of such projects encompass non-ferrous metal industries, iron and steel mills, petroleum and petro-chemical industries including oil and gas, smelting plants, logging, forest occupancy, extraction of mangrove products, major power plants, and major reclamation projects. Pursuant to Presidential Decree No 1586, the President may also proclaim certain projects as environmentally critical.
HB No 1937 mandates all owners and operators of these ECPs to secure MEIC to compensate for the potentially adverse environmental consequences of their operations, which include damage to health and property, including costs for environmental rehabilitation, remediation, clean-ups, and other environmental impairments. According to the bill, ECPs shall include heavy industries, major manufacturing industries, major resource-extractive industries, major infrastructure projects, and other similar projects that could pose serious risks to people and the environment.
Under the bill, the MEIC shall be in the form of:
The bill proposes to make the MEIC a prerequisite to the construction or operational phase of a project. The main beneficiaries of the MEIC will be the affected communities, stakeholders, and LGUs within the projects’ primary impact areas. In addition, government departments, bureaus, and agencies tasked by law to undertake the rehabilitation, clean-up, and monitoring of sites affected by the project for which no responsible private or public entity is specified, are included as beneficiaries. All beneficiaries will be represented by the government, through the Department of Environment and Natural Resources.
The owner and operator of an ECP that fails to secure an MEIC will be subject to fines and/or imprisonment, at the discretion of the court. Government officials who approve the construction or operation of ECPs without the necessary MEIC shall be suspended. HB No 1937, which has been pending before the Committee on Ecology since 2 August 2022, is substantially similar to House Bill No 7621, which has been pending before the same committee since 20 March 2023. Three comparable bills are also currently pending before the Senate Committee, namely Senate Bill No 869, Senate Bill No 1189, and Senate Bill No 1562. All these Senate bills contain substantially the same provisions as the two house bills discussed earlier.
The developments outlined in this article indicate a clear trajectory in the Philippines towards embracing sustainable insurance, with a specific emphasis on addressing prevalent ESG issues. Despite it being just over a decade since the launch of the PSI by the UNEP FI, there is a recognition that it is never too late for the Philippines to adapt to the evolving needs of its people and industries, especially when the innovations promote and encourage sustainable practices.