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TRANSCRIPT
INSURANCE FRAUD
Atty. Dennis B. Funa Deputy Insurance Commissioner for Legal Services
Insurance Commission
1
THE INSURANCE COMMISSION
2
The Insurance Commission
• The Insurance Commission is a
government agency under the
Department of Finance with the
primary responsibility of
supervising and regulating the
operations of life and non-life
companies, mutual benefit
associations, and trusts for
charitable uses.
3
The Insurance Commission
• It is tasked with the issuance of
licenses to insurance agents,
general agents, resident
agents, underwriters, brokers,
adjusters and actuaries.
• It also possesses the authority to
suspend or revoke such
licenses.
4
The Insurance Commission
• More recently, the Insurance
Commission has also been
delegated as the regulatory
body responsible for
supervising and regulating pre-
need companies.
5
THE PHILIPPINE INSURANCE
INDUSTRY
6
The Philippine Insurance Industry
• Based on the Association of Southeast
Asian Nations (ASEAN) Secretariat
Database (2013), the Philippine insurance
industry ranked FOURTH - behind
Singapore, Malaysia and Thailand – in
terms of total assets or resources in the
ASEAN insurance markets of 10-member
economies.
7
The Philippine Insurance Industry
• 18.89 percent growth in total assets,
amounting to PHP 738.5 Billion, and by
the end of the year, it will be worth PP 1
Trillion in combined asset of both life
insurance and nonlife insurance.
• Total premium income generated at PHP
171.2 Billion, topping the highest premium
generated in 2012 of PHP 120 Billion.
8
The Philippine Insurance Industry
• 7.58 percent increase in total net worth, or
from PHP105 Billion in 2012 to PHP113.5
Billion in 2013
• 7.35 percent increase in total investments,
or from PHP455.9 Billion in 2012 to
PHP489.4 Billion for life insurance last
year.
9
The Philippine Insurance Industry
• The total benefits paid from 2013,
amounting to PHP49.8 Billion is 13.9
percent higher than the previous year,
which is PHP43.7 Billion
• 31.63 percent increase in terms of total net
income at PHP13.8 Billion in 2013
compared to PHP10.5 Billion in 2012
10
The Philippine Insurance Industry
• Between 2009 and 2013, the country’s
insurance penetration increased by
68.63percent, form 1.02 percent to 1.72
percent of the GDP.
• The country’s insurance density rose from
P845.4 to P2,034.2, which is equivalent to
an increase of 140.62 percent.
11
The Philippine Insurance Industry
• Fitch Ratings announced favorable
forecasts for the insurance industry,
expecting significant premium growth over
the next few years.
12
INSURANCE FRAUD
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Defining Insurance Fraud
• Insurance fraud is defined as an illegal act,
committed by either the buyer or the seller,
which attempts to exploit the insurance
contract.
• It can be identified further into two types,
classified according to which party (the
insurer or the insured) committed the
fraudulent act.
14
Types of Insurance Fraud
Buyer Insurance Fraud
a type of insurance fraud committed by the
insured party wherein the buyer bends the
process to obtain more coverage, or claim more
cash, than he or she is rightly entitled to.
15
Categories of Buyer Insurance Fraud
Hard Fraud – deliberate orchestration of
loss in order to receive payment for
damages.
(Examples: organized collisions, auto-theft, arson,
murder for proceeds, suicidal accidents and faking
one’s death)
16
Categories of Buyer Insurance Fraud
Soft Fraud (opportunistic fraud) –
exaggeration of loss by the policyholders of
otherwise legitimate claims.
(Examples: concealment and misrepresentation).
17
Types of Insurance Fraud
Seller Insurance Fraud
the seller of a policy hijacks the usual
process in a way that maximizes his or her
profit.
18
Seller Insurance Fraud
It can also be classified further into five
categories:
- premium theft or premium diversion
- inexistent or ghost insurance companies
- unauthorized insurance agents or brokers
- fee churning
- over and under coverage of insurance
policies.
19
Categories of Seller Insurance Fraud
Premium Theft or Premium Diversion –
Insurance Representatives accept
premiums but do not remit or submit them
to the Insurance Companies. Sometimes,
the premiums collected are higher than the
premiums remitted to the Insurance
Company.
20
Categories of Seller Insurance Fraud
Inexistent Insurance Companies –
Policies are issued and premiums are
accepted from policyholders, but the
insurance company is not authorized/
licensed or does not exist.
21
Categories of Seller Insurance Fraud
Unauthorized Insurance Agents/ Brokers
- The Insurance Agents / Brokers
misrepresent themselves as authorized by
Insurance Companies. The Insurance
Companies, if not estopped, may validly
deny any liability arising from the issued
policies.
22
Categories of Seller Insurance Fraud
• Fee Churning
An insurance representative advises the
customer to cancel, renew and open new
policies in a way that is beneficial to him or
her instead of making sure it will be beneficial
to the client.
23
Categories of Seller Insurance Fraud
• Over or Under Coverage Insurance Policy
Insurance representatives may convince
customers to buy coverage that they don’t
need, or sell a lesser policy while representing
it as a complete policy, thereby making the
insured pay for either an over or under
coverage insurance policy.
24
Claims Settlement (For the year 2013)
Paid – Up
Capital Assets Net-
Worth Premiums Investment
s Benefits/
Losses
Payment
(Claims
Paid)
Net
Income
Life
Insurance
Industry
13.84 738.52 113.58 171.21 489.44 49.85 13.83
Non-Life
Insurance
Industry
23.49 153.28 59.57 27.06 61.42 13.8 0.82
* Data As of February 26, 2014 based on Submitted Reports from Insurance Companies
* All Amounts are in Billion Pesos
* Life Insurance: 25 Companies
* Non - Life Insurance: 69 Companies
* Composite (Life and Non-Life): 4 Companies
25
Claims Settlement (For the year 2013)
Paid – Up
Capital Assets Net-
Worth Premiums Investment
s Benefits/
Losses
Payment
(Claims
Paid)
Net
Income
Life
Insurance
Industry
13.84 738.52 113.58 171.21 489.44 49.85 13.83
Non-Life
Insurance
Industry
23.49 153.28 59.57 27.06 61.42 13.8 0.82
* Data As of February 26, 2014 based on Submitted Reports from Insurance Companies
* All Amounts are in Billion Pesos
* Life Insurance: 25 Companies
* Non - Life Insurance: 69 Companies
* Composite (Life and Non-Life): 4 Companies
26
Claims Settlement (For the year 2013)
Paid – Up
Capital Assets Net-
Worth Premiums Investment
s Benefits/
Losses
Payment
(Claims
Paid)
Net
Income
Life
Insurance
Industry
13.84 738.52 113.58 171.21 489.44 49.85 13.83
Non-Life
Insurance
Industry
23.49 153.28 59.57 27.06 61.42 13.8 0.82
* Data As of February 26, 2014 based on Submitted Reports from Insurance Companies
* All Amounts are in Billion Pesos
* Life Insurance: 25 Companies
* Non - Life Insurance: 69 Companies
* Composite (Life and Non-Life): 4 Companies
PHP 63.65 Billion
27
Premium Collection (For the year 2013)
Paid – Up
Capital Assets Net-
Worth Premiums Investment
s Benefits/
Losses
Payment
(Claims
Paid)
Net
Income
Life
Insurance
Industry
13.84 738.52 113.58 171.21 489.44 49.85 13.83
Non-Life
Insurance
Industry
23.49 153.28 59.57 27.06 61.42 13.8 0.82
* Data As of February 26, 2014 based on Submitted Reports from Insurance Companies
* All Amounts are in Billion Pesos
* Life Insurance: 25 Companies
* Non - Life Insurance: 69 Companies
* Composite (Life and Non-Life): 4 Companies
PHP 200 Billion
28
Effects of Insurance Fraud
ON THE INSURED
• Raises the cost of insurance policies since any loss from insurance
fraud is an excuse to remodel and tweak the costs of the policies paid
for by policyholders.
ON THE INSURER
• Investors favor better-performing companies with a good reputation and
control on its agents over companies that treat their policyholders badly.
• Every instance of insurance fraud puts pressure on the business.
29
THE INSURANCE CODE
30
Fraud Committed by the Insured
Insurance Code as
amended Fraud Committed Effect
Section 29 Concealment – An Intentional and fraudulent
omission to communicate information Material
to Insurer
The Insurer is entitled to
rescind the contract of
Insurance
Section 64 Fraud or Material misrepresentation The Insurer may cancel the
insurance upon prior notice
Section 76 Breach of Warranty with fraud The Insurer may rescind/
cancel the insurance contract
Section 248 A fraudulent claim in life insurance policy to
obtain proceeds thereof. The Insurer may refuse to pay
the claim
Section 249 A fraudulent claim in non-life insurance policy The Insurer may refuse to pay
the claim.
Section 251 Presenting or causing to be presented any
fraudulent claim or Fraudulently preparing,
making or subscribing any writing with intent to
present or use the same, or allowing it to be
presented in support of any such claim.
The Insured may be held
criminally liable and penalized
by fine or imprisonment.
* Applicable to all of the above: Section 82 par (2) A person insured is not entitled to a return of premium if
the policy is annulled, rescinded or if a claim is denied by reason of fraud.
31
Fraud Committed by Insurance Companies, Agents,
Brokers, Adjusters, Mutual Benefit Associations
Insurance Code as
amended Fraud Committed Fraud Committed by Effect
Section 82 Fraud or misrepresentation of
the Insurer or of his agent The Insurer or his
agent The insured is entitled to
the return of premium
Suspension or revocation
of license
Section 314 Fraud in obtaining or attempting
to obtain a license
or
Fraudulent practices
Insurance Agent/
Insurance Broker Suspension or revocation
of license
Section 339 Fraudulent practices Insurance Adjuster Suspension or revocation
of license
Section 419 Fraudulent conduct of business Mutual Benefit
Associations Suspension or revocation
of license
Applicable in all of the above Fraud is Section 442 of the Insurance Code which provides that “Any person,
company or corporation who violates any provision of the Insurance Code shall be deemed guilty of a penal
offense, and upon conviction be punished by a fine not exceeding Two hundred thousand pesos
(P200,000.00) or imprisonment of six (6) months, or both, at the discretion of the court.”
32
INSURANCE FRAUD CASES IN THE
PHILIPPINES
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Cases of Insurance Fraud decided by the Supreme Court
Buyer Insurance Fraud (Hard Fraud)
Juan De Carlos vs. Court of Appeals and People, GR No. 103065, August 16, 1999
• Facts: Sy It San, a proprietor, obtained three (3) fire insurance policies from FGU
Insurance Corp. The policies were valued at P150,000.00, P800,000.00 and
P100,000.00. Employees of FGU Insurance and the insured Sy It San conspired with
one another to file a fraudulent claim by reporting a fire incident over the insured
properties.
• Held: All accused were found guilty for the crime of Estafa through falsification of
public documents.
34
Cases of Insurance Fraud decided by the Supreme Court
Buyer Insurance Fraud (Soft Fraud)
United Merchants Corp. vs. Country Bankers Insurance Corp., GR No. 198588, July
11, 2012.
• Facts: UMC Merchants Corp. procured fire insurance over its stock from
Country Bankers Insurance Corp. for the amount of 50 Million pesos. During
the effectivity of the policy, a fire gutted the warehouse. UMC made a false
and fraudulent declaration as to the amount of loss by enlarging the claim.
35
Cases of Insurance Fraud decided by the Supreme Court
Buyer Insurance Fraud (Soft Fraud)
United Merchants Corp. vs. Country Bankers Insurance Corp., GR No. 198588, July
11, 2012.
• Court denied any amount claimed by UMC due to the false and fraudulent
claim.
• It has long been settled that a false and material statement made with an
intent to deceive or defraud voids an insurance policy.
36
Cases of Insurance Fraud decided by the Supreme Court
Seller Insurance Fraud (Unauthorized Insurance Agents/ Underwriters)
Insular Life vs. Feliciano, GR No. L-47593, December 29, 1943
• When underwriter answers the application himself making false statements in representing that
the insured was healthy when in fact he was suffering from T.B. and the insured died after a short
while, there was concealment. The underwriter is not an agent of the insurer since he only
solicited the business, and his knowledge is not that of the insurer. The insurance company can
refuse payment.
37
Cases of Insurance Fraud lodged in Insurance Commission
Seller Insurance Fraud (Unauthorized Insurance Agents/ Underwriters)
Two cases are pending with the Insurance Commission, wherein Insurance
Agents are separately accused of fraud in issuing surety bonds on behalf of a
legitimate Insurance Companies. The Insurance Company alleged that it never
authorized nor issued the surety bonds. The Fake Surety Bonds were used in NLRC,
DTI and HLURB.
Seller Insurance Fraud (Premium Theft and Misrepresentations)
A case is pending with the Insurance Commission where an Insurance Agent
was accused of collecting a premium of 620 pesos but only remitting 100 pesos to
the Insurance Company. There were also complaints that said Insurance Agent
misrepresented the Insurance Coverage stating that the total premiums paid shall be
returned to the Insured/ Assured.
38
PREVENTIVE MEASURES AGAINST
INSURANCE FRAUD
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Choosing the right insurance company
Appropriate Authority/License issued by the
Insurance Commission
The Financial Capacity of the Insurance Companies
Sufficient Capital and Investment Capacity
Certification issued by the Insurance Commission on
pending claims/ complaints against Insurance
Companies.
40
Red Flags in Investigating Erring Insurance
Companies.
• Capitalization Requirement/ Impairment –
An insurance company doing business in the Philippines shall at all times maintain
the minimum paid-up capital, and net worth requirements as prescribed by the
Commissioner. (Sec 200 Insurance Code)
New Life and Non-Life Insurance
Companies Minimum is One (1) Billion Pesos at present
Paid-Up Capital Existing Life and Non-Life Insurance
Companies June 30, 2013 – Minimum of 250 Million
Pesos Net Worth
Dec. 31, 2016 – Additional of 300 Million
Pesos Net Worth
Dec. 31, 2019 – Additional of 350 Million
Pesos Net Worth
Dec. 31, 2022 – Additional of 400 Million
Pesos Net Worth
Net worth consists of Paid-Up Capital,
Retained Earnings, Unimpaired
Surplus, and Revaluation of Assets.
Reinsurance Companies Minimum Capitalization of 3 Billion Pesos
41
Red Flags in Investigating Erring Insurance
Companies.
Investment
All Insurance Companies may only invest in real and personal
properties, securities, equities, bonds and instrument of
indebtedness as provided in the Insurance Code and as may be
determined by the Insurance Commissioner.
42
Red Flags in Investigating Erring Insurance
Companies.
Margin Solvency
Solvency requirements shall be based on internationally
accepted solvency frameworks and adopted only after due
consultation with the insurance industry associations. The
Margin of Solvency is the excess of the value of admitted assets
over the amount of its liabilities, unearned premium and
reinsurance reserves.
43
Red Flags in Investigating Erring Insurance
Companies.
Number of Pending Claims/ Complaints
against the Insurance Companies, Agents,
Brokers or Adjusters
Other relevant information received from
whistle blowers/ informants
44
INSURANCE FRAUD
Atty. Dennis B. Funa Deputy Insurance Commissioner for Legal Services
Insurance Commission
45
References
• The Insurance Commission
• The Insurance Code (R.A. 10607)
• The Lawphil Project: Philippine Laws and Jurisprudence
Databank by the Arellano Law Foundation.
• The Federal Bureau of Investigation Website
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INSURANCE FRAUD
Atty. Dennis B. Funa Deputy Insurance Commissioner for Legal Services
Insurance Commission
47