In Insurance Commission Circular Letter 2016-08 dated 22 February 2016 (Circular), the Insurance Commissioner declared that reinsurance treaties and/or facultative reinsurance agreements must not be subjected to a claims control clause.
A claims control clause in a policy gives reinsurers partial or complete control over all aspects of settlement of claims. These clauses typically (i) require the reinsured to advise the reinsurer of a claim within a specified time frame; (ii) give the reinsurer the right to appoint adjusters, assessors, or other experts to negotiate, adjust or settle the claim; or (iii) give the reinsurer the right to disclaim liability in case the reinsured settled and/or compromised the claim without its consent.
The prohibition against claims control clauses applies to all new or renewed reinsurance transactions, whether treaty or facultative. The circular upholds the Philippines' stance on such claims control clauses following observations that some insurance companies doing business in the Philippines have been incorporating the claims control clause in reinsurance treaties and/or facultative reinsurance agreements.
The circular is consistent with Section 249 of the Amended Insurance Code, which prescribes a time frame within which a claim for loss or damage should be paid. For non-life insurance policies, the proceeds shall be paid 30 days after the receipt by the insurer of the proof of loss and the ascertainment of the loss or damage is made either by agreement of the parties or by arbitration. If such ascertainment is not made within 60 days after the receipt of the proof of loss, the loss or damage shall be paid within 90 days from the receipt of the proof of loss. The refusal or failure to pay the loss or damage within the time prescribed will entitle the assured to collect interest on the proceeds of the policy for the duration of the delay at the rate of twice the ceiling prescribed by the Monetary Board, unless such failure or refusal to pay is based on the ground that the claim is fraudulent.
While the New Insurance Code was signed into law only in 2013, Section 249 thereof is not a novel provision. It is a verbatim replication of Section 243 of the Old Insurance Code, which had taken effect as early as 1974. Notwithstanding the prohibition on claims control clauses under the law, such prohibition has not strictly been enforced by the insurance regulator. In light of the issuance of the insurance commissioner, it is advisable for reinsurance companies to exclude such claims control clauses from reinsurance contracts in compliance with the insurance rules and regulations.