Philippines: Claims Control Clauses in reinsurance contracts

The IC issued Circular Letter No. 2016-08 on 22 February 2016 advising that all authorised insurance companies in the Philippines are prohibited from incorporating or entering into any claims control clauses in reinsurance contracts. This Circular applies to all reinsurance agreements (treaty and facultative) entered into on or after 22 February 2016 – including new contracts and renewal agreements.

A claims control clause is designed to give the reinsurer partial or complete control over the settlement of claims arising from ceded business, reinsured accounts or risks. A typical claims control clause may include wording that creates a requirement to advise the reinsurer of a claim within a specified timeframe, or stipulates that the reinsurer reserves the right to appoint representatives to negotiate, adjust or settle claims, or asserts that no liability will be admitted without approval of the reinsurer.

The IC has determined that the use of a claims control clause is inconsistent with the provisions of Section 249 of the New Insurance Code, which prescribes specific timeframes within which a claim for loss or damage should be paid. Section 249 outlines timeframes in which the Insurance Commissioner shall make orders and conduct proceedings in the event of the insolvency of an insurance company doing business in the Philippines.

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