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INSURANCE CODE

The Insurance Code of the Philippines, amended by Republic Act No. 10607 in 2013, modernizes the insurance industry by enhancing consumer protection, regulatory frameworks, and aligning with global standards. Key provisions include definitions of insurance, obligations of insurers and insured, various types of insurance, and the claims process, while also establishing the Insurance Commission's role in regulation. The amendments have strengthened the industry, promoted consumer confidence, and encouraged the development of microinsurance for underserved populations.

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9 views

INSURANCE CODE

The Insurance Code of the Philippines, amended by Republic Act No. 10607 in 2013, modernizes the insurance industry by enhancing consumer protection, regulatory frameworks, and aligning with global standards. Key provisions include definitions of insurance, obligations of insurers and insured, various types of insurance, and the claims process, while also establishing the Insurance Commission's role in regulation. The amendments have strengthened the industry, promoted consumer confidence, and encouraged the development of microinsurance for underserved populations.

Uploaded by

DLOS ARMD
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© © All Rights Reserved
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I.

Background

The Insurance Code of the Philippines, originally established by Presidential Decree No.
612 in 1974, governs the conduct of insurance business in the country. To make the law
more responsive to current needs and in line with international best practices, the code
was significantly amended by Republic Act No. 10607 in 2013. This amendment
modernized the industry by improving the regulatory framework, ensuring more
consumer protection, and aligning Philippine insurance law with global standards.

II. Key Provisions of the Insurance Code


1. General Provisions and Definitions
Definition of Insurance: Insurance is a contract whereby one undertakes to indemnify
another against loss, damage, or liability arising from an unknown or contingent event. It
requires two parties—the insurer (who provides insurance) and the insured (who
obtains insurance)—with the insurer agreeing to compensate the insured or their
beneficiary.

Classes of Insurance: The law provides classifications of insurance, including life,


health, property, casualty, and marine insurance. Each class has distinct rules and
requirements for coverage and the payment of claims.

Insurable Interest: The insured must have an insurable interest in the subject of the
insurance. In property insurance, insurable interest should exist at the time of loss, while
in life insurance, it must exist at the time of the policy's effectivity.

2. Formation of the Insurance Contract


Requirements of a Valid Contract: Like any contract, an insurance contract must include
offer, acceptance, consideration (premium), legal capacity, and a lawful object.

Consent and Misrepresentation: Misrepresentation by either party may affect the validity
of the contract. If the insured conceals information or commits fraud, the insurer may
have grounds to void the contract.

Warranties: Warranties are stipulations in the insurance contract that must be strictly
complied with; otherwise, the insurer may be discharged from liability.

3. Obligations of the Insurer and the Insured


Duty of the Insurer: The insurer must act in good faith, assess claims fairly, and pay
claims promptly. They must provide accurate information about policy terms and
conditions and handle premiums and funds responsibly.

Duty of the Insured: The insured must disclose all material facts that may affect the risk
assessment and pay premiums as stipulated in the policy.

4. Types of Insurance
Life Insurance: Provides a death benefit to the beneficiaries upon the death of the
insured. This includes whole life, term life, endowment, and variable life insurance
policies.

Non-Life Insurance: Covers property and casualty insurance. This includes fire
insurance, marine insurance, motor vehicle insurance, personal accident insurance, and
health insurance.

Microinsurance: RA 10607 recognizes microinsurance as a specific type of insurance


designed to meet the needs of low-income individuals and communities, with simplified
terms, lower premiums, and quicker claims processing.

5. Claims and Settlement Process


Claims Procedure: The insured must notify the insurer promptly of any claim or loss.
The insurer is required to respond within the stipulated time, providing updates on the
claim status.

Claims Settlement: The insurer must settle valid claims promptly. The law allows for
prescriptive periods within which claims must be filed; otherwise, they may be forfeited.

6. Regulation of the Insurance Industry


Insurance Commission: The Insurance Commission (IC) is tasked with regulating and
supervising insurance companies, intermediaries, and agents. The IC ensures that
insurers have adequate capital and solvency, protects policyholders, and upholds
industry standards.

Licensing of Insurers and Intermediaries: Insurance companies, agents, brokers, and


other intermediaries must secure a license from the IC to operate. The code sets
requirements for financial solvency, capitalization, and operational standards.

7. Capital and Reserve Requirements


Increased Capitalization: RA 10607 raised the minimum capital requirements for
insurance companies to ensure financial stability and protect policyholders. Life and
non-life insurance companies are required to maintain a minimum net worth, which must
increase incrementally to ensure alignment with global standards.

Reserves and Solvency Margins: Insurance companies must maintain adequate


reserves and comply with prescribed solvency margins. These measures ensure they
can meet policyholder obligations.

8. Investment of Funds
Insurance companies are required to invest in secure and profitable assets to protect
the policyholders' interests. The IC monitors these investments to ensure they remain
safe and liquid.
9. Policyholder Protection and Consumer Rights
Incontestability: Life insurance policies become incontestable after a certain period
(usually two years), meaning the insurer cannot deny claims based on
misrepresentation after this time has passed, except for non-payment of premiums.

Grace Period and Non-Forfeiture Options: A grace period is granted for premium
payments, allowing the policy to remain in force even if payments are late. Non-
forfeiture options, such as surrender values or policy loans, are offered in whole life and
endowment insurance policies.

Free-Look Period: The amendment introduced a free-look period for policyholders,


usually 15 days from receiving the policy, allowing them to cancel without penalty if they
decide against it.

10. Taxation on Insurance Products


Tax on Premiums: Premiums for non-life insurance are generally subject to premium
tax, though some exemptions may apply based on the nature of the policy (e.g.,
government insurance).

Value-Added Tax (VAT): Insurance companies are generally subject to VAT on their
operations, though certain types of insurance may be exempt.

11. Penalties for Non-Compliance


Administrative Penalties: The Insurance Commission has the authority to impose fines,
suspend or revoke licenses, and take other disciplinary measures against insurers or
intermediaries that fail to comply with the code’s provisions.

Criminal Liability: Certain violations, such as fraud or misrepresentation, can lead to


criminal liability, including imprisonment.

III. Notable Amendments under Republic Act No. 10607


Higher Capital Requirements: This raises the bar for market entrants and strengthens
the industry by ensuring financial robustness among existing players.

Consumer Protection: Enhanced measures such as the free-look period,


microinsurance support, and clearer standards for claims processing protect consumers
more effectively.

Microinsurance Development: RA 10607 encourages microinsurance, recognizing its


importance in addressing the needs of the underserved population, especially in rural
areas.

Improved Regulatory Framework: The IC's expanded powers and responsibilities


ensure a modernized regulatory environment, with more streamlined operations,
transparency requirements, and greater focus on solvency and stability.

IV. Important Jurisprudence and Case Law Interpretations


The Supreme Court of the Philippines has provided interpretative guidance on several
provisions of the Insurance Code, particularly on matters like:

Insurable Interest: Clarifying its necessity and scope in both property and life insurance.
Incontestability and Fraud: Enforcing the incontestability clause while upholding insurer
rights against fraudulent claims.
Public Policy: Cases concerning insurance against public policy, such as gambling-
related losses, are consistently held to be unenforceable.

V. Implications and Impact on the Philippine Insurance Industry


The amendment of the Insurance Code through RA 10607 has modernized the
insurance sector in the Philippines, creating a more secure environment for
policyholders and strengthening the industry's regulatory framework. This law has
spurred growth in the industry by enhancing consumer confidence, fostering innovation
(especially in microinsurance), and attracting foreign investment due to higher capital
standards.

VI. Conclusion
Presidential Decree No. 612, as amended by Republic Act No. 10607, serves as the
backbone of Philippine insurance law. It has been crafted to balance industry growth
with consumer protection. The law requires strict compliance, enhances transparency,
and strengthens the IC's regulatory authority, making it a robust framework for the
Philippine insurance industry. This legislation is key to promoting financial security and
stability for individuals and businesses alike, providing a crucial safety net across
various sectors in the Philippines.

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