The Insurance Commission (IC) met with representatives of global reinsurer Marsh UK and leading Filipino insurance company Prudential Guarantee and Assurance (PGA) to discuss the ongoing complaint against Marsh UK for regulatory violations.
Specifically, the practice of using Filipino “fronting insurers” in order to do business in the Philippines was reviewed.
For the insurance needs of a leading airline, Marsh appointed Pioneer Insurance as its “fronting insurer,” while they would assume all the insurance risks and liabilities.
Under Section 100 of the Amended Insurance Code, however, a reinsurance broker may only tender brokerage services to an insurer, and cannot tender insurance brokerage services nor insurance services directly to a client.
Moreover, the same section states that the original insured would have no cause of action to recover insurance-proceeds from the reinsurer.
Conversely, the reinsurer is not liable to the original insured, since they are not a cosigner of the policy issued.
Lawyer Jose Bernas, legal counsel of PGA, noted that apart from violating Section 100 of the insurance code, this constituted a clear case of doing business in the Philippines without a license.
“It isn’t our place to tell others how to do their business or to critique how they cover risks as a business decision. However, we believe that Marsh is operating illegally in the Philippines, and the IC should do something about in order to protect the industry and to assure that the insured will be protected,” Bernas emphasized.
“Since the insurer in this case is only a front, what happens if the reinsurance company refuses to pay a claim? Using a fronting insurer invites all sorts of risks, and that’s precisely why the IC has clear guidelines about the role each company plays,” he further added.
Under the guidance of IC hearing officer lawyer Brian Sibuyan, a mediation meeting was set between the two parties.
Bernas, however, pointed out that a mediation meeting was an unusual way of resolving
the issue.
“We always welcome dialogue with the IC in order to provide insights that will help policy formation,” he said. “It is somewhat confusing, though, that today’s meeting with Marsh was termed as a ‘mediation meeting.”
There is nothing to mediate between the two private parties (PGA and Marsh); we have no point of conflict.
What we have brought before the commission is a regulatory violation that is detrimental to the entire industry, and the Filipino business community as a whole,” he added.