Amendment to Insurance Code approved

BusinessWorld
Finance
Posted on February 07, 2011 09:41:17 PM

INSURANCE CONSUMERS have to be careful on who they entrust their premium payments to, as they will be held responsible should their brokers fail to remit these payments to insurance companies.
The House banks and financial intermediaries committee yesterday approved a provision in House Bill No. 1502 seeking to amend the Insurance Code. The approved provision stated: “Payment of premiums to brokers is not considered payment of premiums to insurers.”

Brokers are financial intermediaries who find sellers of insurance products on behalf of their clients. They are different from insurance agents who represent specific insurance companies. Payments made to insurance agents are considered payments made to insurance companies.

The Insurance Code provides that “No policy or contract of insurance issued by an insurance company is valid and binding unless and until the premium thereof has been paid.”

The approved amendment, however, was contested by Surigao del Norte Rep. Guillermo A. Romarate, Jr. who pointed out this could expose the public to risk.

“They might expect protection, not knowing their payments to their brokers were not received by the insurer,” he said during the hearing yesterday.

But industry players did not want to be held liable for erring brokers either.

“We cannot extend coverage when we have not received a single centavo,” said Fortunato D. Peralta, Philippine Insurers and Reinsurers Association (PIRA) deputy general manager.

He explained that brokers were representatives of insurance clients, unlike agents who have contractual obligations to insurers.

“They are ‘shopping boys’ for the assured, based on industry parlance,” Mr. Peralta explained. “They are not representatives of the insurers.

That’s why they don’t even get commissions, like agents.”

PIRA board member Victoria B. Roman also revealed there was a scheme in the past wherein some brokers allegedly made money by pocketing their clients’ premium payments.

Industry practice usually allows brokers a credit extension or a grace period of 90 days after a policy is issued, before payments have to be made.

“Clients already have an insurance policy in those 90 days. But there are some brokers who would cancel the policy on the 89th day, and then move to another insurance company, and then start all over again,” Mario C. Valdez, PIRA general manager told BusinessWorld in a phone interview yesterday.

Mr. Valdez added that a client could be moved to different insurance companies and effectively earn coverage for an entire year, without premiums actually being paid to an insurer.

Mr. Romarate, however, insisted insurance companies were in the best position to control brokers.

“But if we had a measure of control over them through a contract, they wouldn’t be brokers anymore. They would be agents,” PIRA’s Mr. Peralta said.

So, to strike a balance between the interests of the insurers and the protection of consumers, the House banks and financial intermediaries committee resolved that the provision would instead read, “Payment of premiums to brokers, who are not agents of insurance companies, is not considered payment of premiums to insurers.”

Industry players suggested several measures to help the insuring public protect their premium payments.

“Deal with brokers you know and trust,” PIRA’s Mr. Valdez said. “Always ask for the original receipt of the insurance company, not just the acknowledgment receipt of the broker.”

Consumers often think paying premiums is a nuisance, he added. Once they make their payments, they no longer bother to get proof it has been remitted to insurance companies.

Philippine Life Insurance Association representative Jose L. Cuisia, Jr. also urged the Insurance Commission to regulate brokers, since they are the ones who give licenses to them.

Mr. Valdez was quick to clarify, though, that the scam of pocketing premiums was limited to a few brokers. -- Diane Claire J. Jiao