Gokongwei takes big risk by tapping ‘front insurer’ for Cebu Pacific – Bernas
Lawyer Jose Antonio Bernas is asking the Insurance Commission to look into Bilyonaryo Lance Gokongwei’s move to tap Marsh UK, through Pioneer Insurance, for the insurance coverage of its budget airline, Cebu Pacific.
Bernas questioned why Gokongwei had to indirectly tap a British insurer with no local license provide coverage for Cebu Pacific and its passengers.
Bernas noted tha Marsh itself admitted that Pioneer Insurance would only act as a “fronting insurer,” while the British firm assume all the insurance risks of the airline.
“They admitted to the IC that they met with Cebu Pacific to solicit their insurance business, and employ a special arrangement with a ‘fronting insurer’. Apart from a number of violations that stem from this, they are essentially doing business in the Philippines without a license,” said Bernas, counsel for Prudential Guarantee and Assurance owned by bilyonaryo Robert Coyiuto.
Under Section 100 of the Amended Insurance Code, a reinsurance broker may only tender brokerage services to an insurer, and cannot tender insurance brokerage services nor insurance services directly to a client. Moreover, the same section states that the original insured would have no cause of action to recover insurance proceeds from the reinsurer. Conversely, the reinsurer is not liable to the original insured, since they are not a cosigner of the policy issued.
“It isn’t our place to tell others how to do their business or to critique how they cover risks as a business decision. However we believe that Marsh is operating illegally in the Philippines and the IC should do something about in order to protect the industry and to assure that the insured will be protected,” Bernas said.
Bernas cited the risks taken by Gokongwei in tapping a non-licensed resinsurer.
“Since the insurer in this case is only a front, what happens if the reinsurance company refuses to pay a claim? Using a ‘fronting insurer’ invites all sorts of risks, and that’s precisely why the IC has clear guidelines about the role each company plays,” said Bernas.
The IC is looking into Marsh’s apparent use of “fronting insurers” in the country, and whether this effectively makes it possible to circumvent Philippine laws and conduct business in the country without a licens.