Rules and Regulations on the Integration of the Issuance and Payment of CPTL Insurance with the LTO-IT Project's System and Database

July 5, 2007

DOTC DEPARTMENT ORDER NO. 28-07

 

WHEREAS, under Book IV, Title XV, Chapter 1, Section 2, of the Administrative Code of 1987 (the "Code"), the Department of Transportation and Communications (DOTC) is the government agency tasked to be the "primary policy, planning, programming, coordinating, implementing, regulating and administrative entity of the Executive Branch of the government in the promotion, development and regulation of dependable and coordinated networks of transportation and communications systems as well as in the fast, safe, efficient and reliable postal, transportation and communications services."

WHEREAS, the DOTC has the exclusive jurisdiction, under Section 3 of the same Code, to "establish and administer comprehensive and integrated programs for transportation and communications";

WHEREAS, the Land Transportation Office (LTO) is the line agency under the DOTC primarily tasked with the registration of all motor vehicles and the licensing of drivers thereof pursuant to Article III, Section 4 (d) (1), of Republic Act No. 4136, otherwise known as the "Land Transportation and Traffic Code," as amended;

WHEREAS, Section 5 of Batas Pambansa Bilang 74, amending Sections 5, 7 and 8 of RA No. 4136, mandates that all motor vehicles and trailers of any type used or operated on or upon any highway of the Philippines "shall be registered with the Bureau of Land Transportation (now 'LTO') for the current year, and that the dates of annual registration of motor vehicles shall be based on a registration scheme to be prepared by the Bureau of Land Transportation subject to the approval of the Minister (now 'Secretary') of Transportation and Communications."

WHEREAS, it is mandatory for every motor vehicle owner as defined in R.A. No. 4136, as amended, to secure a Compulsory Third Party Liability (CTPL) insurance policy under Section 374 of Presidential Decree (PD) No. 612, as amended, otherwise known as the "Insurance Code"; EcDTIH

WHEREAS, Sec. 376 of PD No. 612 mandates the LTO to ensure that all motor vehicles registered are duly covered by CTPL insurance policies;

WHEREAS, to modernize its core businesses, the LTO Information Technology (IT) Project has been undertaken by LTO and Stradcom Corporation (Stradcom) under the Build-Own-Operate (BOO) scheme of Republic Act No. 6957, as amended by Republic Act No. 7718, otherwise known as the "Build-Operate-Transfer Law", and in accordance with the BOO Agreement dated March 26, 1998, as amended by the Amendment Agreement dated June 11, 2001, executed by and between the Republic of the Philippines through the DOTC/LTO and Stradcom);

WHEREAS, under the LTO IT Project, Stradcom financed, developed and constructed an IT system that interconnects LTO offices nationwide, integrates its core business processes such as motor vehicle registration and driver's license issuance and enables online and real time processing of transactions;

WHEREAS, the LTO IT Project is now fully implemented in the Central Office, in all Regional Offices and District Offices of the LTO nationwide, and is being operated, maintained and managed by Stradcom. Further, Stradcom has established a data warehouse capable of storing millions of records for all LTO transactions;

WHEREAS, statistics demonstrate a great disparity between the actual volume of motor vehicles registered with the LTO and the volume of validly issued CTPL insurance policies;

WHEREAS, the proliferation of fake and/or fraudulently issued Certificates of Cover (COC) for CTPL insurance policies deprives the public of insurance protection, and affects legitimate insurance companies, as well as the government, in terms of lost revenues and uncollected tax revenues, respectively;

WHEREAS, there is an urgent public necessity and need to address this unabated profusion of fake and/or fraudulent COCs for CTPL insurance policies in order to ensure that only vehicles with valid and authentic CTPL insurance should be registered with the LTO with the end in view that only legitimate insurance companies and government are not deprived of revenues;

WHEREAS, to address this public necessity and need, there were three (3) proponents for the establishment of a new CTPL program/system, namely: the Government Service Insurance System (GSIS) model; the Philippine Insurers Reinsurers Association, Inc. (PIRA) model; and, the Road Accident Managed Services, Inc. (RAMSI) model. AIDcTE

WHEREAS, the GSIS model proposed a program/system wherein the insurance and payment of CTPL insurance is integrated with the LTO Information Technology (IT) Project's Motor Vehicle Registration System (MRVS) and Revenue Collection System (RCS). An application for motor vehicle registration will obtain CTPL Insurance in the LTO District Office (DO) where he seeks to register his vehicle. Policy and premium amounts are automatically computed based on vehicle description per LTO IT Project's MVRS database and the LTO collects premium payments using the LTO IT Project's RCS. Taxes due on CTPL policies corresponding to the VAT, DST and local government taxes are deposited directly to the depository account of the Bureau of Internal Revenue (BIR). Further, in its proposal, GSIS manifested that it will reinsure 80% to private insurance companies;

WHEREAS, the PIRA model proposed a program/system that requires the vehicle registering public to pay CTPL insurance premiums to selected banks, which are credited to the account of the selected insurance companies. The banks will use a system by which it will upload motor vehicle information and payment details to a CTPL Processing Center (CPC) that will serve as a separate managing IT company where the uploaded information will be validated. The CPC will then send online the information uploaded to it by the banks to the LTO IT Project's MVRS for matching. An applicant for motor vehicle registration shall be required by the LTO DO to present the bank payment slip as proof of CTPL insurance coverage and, on the basis thereof, the LTO DO shall validate the data if the insurance premiums paid are correct vis-a-vis the type of insurance for the vehicle sought to be registered. As currently being practiced, insurance companies shall remit taxes due on the CTPL policies to the government.

WHEREAS, RAMSI model proposed to manufacture and distribute to authorized sellers pre-paid cards, which has variants depending on the insurance premium classification of motor vehicle. Each pre-paid card shall contain a Vehicle Insurance Number (VIN) to be activated by the seller or buyer online (via the Internet), or through Short Messaging Service (SMS). Once activated, the VIN is exclusively matched to a motor vehicle using an IT facility that is interconnected with the LTO IT Project's MVRS. Upon registration, the LTO has to check if the insurance variant purchased is consistent with the applicable motor vehicle to be registered. It is unclear as to how the taxes due on CTPL policies shall be remitted to the government.

WHEREAS, the Department of Justice (DOJ) affirmed in Opinion No. 19, series of 2006, dated March 3, 2006, that "the DOTC/LTO has the primary legal authority under the Administrative Code, the Land Transportation and Traffic Code, as well as the Insurance Code, to establish and devise a policy, plan, program, and to implement and regulate the System or programs it deems fit, to address and will ensure that all motor vehicles registered with the LTO are covered by authentic, legitimate, and valid CTPL insurance policies as an integrated process in the registration of all motor vehicles";

WHEREAS, upon request for clarificatory opinion by the Insurance Commission, the DOJ issued Opinion No. 27, series of 2006, dated 4 April 2006, wherein it stressed that the DOTC/LTO would not be usurping the powers vested by law in the Insurance Commissioner when it (DOTC/LTO) issues and implements a new CTPL program/system in the registration of all motor vehicles;

WHEREAS, as part of legal due diligence, this Office further queried on the authority and powers of GSIS to provide CTPL insurance. DOJ issued Opinion No. 46, series of 2006, dated July 10, 2006 wherein it stated that GSIS may enter into contracts providing CTPL insurance to any person or the public in general.

NOW THEREFORE, premises considered, the following rules and regulations are hereby prescribed and promulgated for the compliance, information and guidance of all concerned.

1.0 SCOPE

1.1 This Department Order promulgates the rules and regulations covering the integration of the issuance and payment of CTPL insurance with the LTO IT Project's systems and database. This program shall otherwise be known as the "INTEGRATED CTPL INSURANCE PROGRAM". DSAICa

1.2 These rules and regulations describe the objectives, criteria, structure, guidelines and procedures primarily designed to ensure the efficient and effective implementation of the INTEGRATED CTPL INSURANCE PROGRAM.

2.0 DEFINITION OF TERMS

The following definitions shall apply to the capitalized acronyms, words and phrases that are used in this Department Order:

2.1. BIR — Bureau of Internal Revenue.

2.2. BOO Agreement — refers to the LTO IT Project Build-Own-and-Operate Agreement dated March 26, 1998, executed by and between the DOTC/LTO and STRADCOM, as amended by the Amendment Agreement dated June 11, 2001.

2.3. Certificate of Cover or COC — the document which certificates that CTPL insurance has been duly issued and purchased.

2.4. CTPL — Compulsory Third Party Liability. DICcTa

2.5. Database — refers to the electronic collection of data gathered and generated by the LTO IT System such as, but not limited to, the information on motor vehicle registration and on licenses and permits issued.

 

2.6. Documentary Stamps Tax or DOST — refers to the excise tax due on insurance policies pursuant to Section 184 of Republic Act No. 8424, otherwise known as the "National Internal Revenue Code of 1997".

2.7. DOTC — Department of Transportation and Communications.

2.8. GSIS — Government Service Insurance Service.

2.9. IC — Insurance Commission.

2.10. Interconnectivity — shall mean the facility that allows the retrieval or exchange of data through, or otherwise access to, the IT Facilities by the Insurance Provider.

2.11. Integrated CTPL Insurance Program — the program to be implemented by the LTO concerning the integration of the issuance and payment of CTPL insurance with the LTO IT Project's systems and database.

2.12. Interconnectivity Fee — shall have the meaning attributed thereto in Section 5.3.1. hereof.

2.13. Interconnectivity Transaction — shall mean every single completed retrieval or exchange of a unit of data through an Interconnectivity to the IT Facilities for which an Interconnectivity Fee shall be collected. ICHDca

2.14. LTO — Land Transportation Office.

2.15. LTO IT Project — refers to the IT project undertaken by DOTC/LTO and STRADCOM under the Build-Own-and-Operate Scheme of Republic Act No. 6957, as amended by Republic Act No. 7718, otherwise known as the BOT Law, and pursuant to the BOO Agreement.

2.16. LTO IT System — refers to the software applications and hardware designed, developed, financed, operated and maintained by STRADCOM to automate the frontline services, as well as the back-end processes, of LTO.

2.17. Motor Vehicle Registration System or MVRS — refers to the software application of the LTO IT System used in processing motor vehicle registration and its related transactions.

2.18. PIRA — Philippine Insurers and Reinsurers Association, Inc.

2.19. Revenue Collection System or RCS — refers to the software application of the LTO IT System used in accepting fees payment and printing of official receipts and abstracts of collection.

2.20. RAMSI — Road Accident Managed Services, Inc.

2.21. Short Messaging Service or SMS — text messaging service to be used by the Insurance Provider for receiving notices of insurance claims.

2.22. Stradcom Corporation or STRADCOM — is the project proponent of the LTO IT Project, which was financed, designed, constructed, and is being operated and maintained pursuant to the BOO Agreement.

2.23. Value Added Tax or VAT — refers to the indirect business tax imposable on non-life insurance companies (except their crop insurances) under Section 108 (A) of National Internal Revenue Code of 1997.

3.0 OBJECTIVES FOR THE ESTABLISHMENT OF THE INTEGRATED CTPL INSURANCE PROGRAM

The objectives for the establishment of the INTEGRATED CTPL INSURANCE PROGRAM are as follows:

3.1. To promote greater efficiency in the collection and remittance of correct taxes to the national and local governments;

3.2. To ensure that registered vehicles comply with regulatory requirements by enabling the LTO to ascertain that only vehicles with valid and authentic CTPL insurance would be registered;

3.3. To minimize manual intervention in motor vehicle registration;

3.4. To eliminate the opportunities for graft and corrupt practices vis-à-vis the procurement of CTPL insurance; AEDCHc

3.5. To ensure that the purchase of CTPL insurance is easily accessible to the public;

3.6. To ensure the protection of the vehicle registering public against over pricing/predatory pricing of CTPL insurance policies;

3.7. To ensure the welfare and protection of the public from fake or duplicate CTPL insurance policies; and

3.8. To ensure ready access to claims service.

4.0. APPLIED CRITERIA IN THE ESTABLISHMENT OF THE INTEGRATED CTPL INSURANCE PROGRAM

To assure the public that the foregoing objectives for the establishment of the INTEGRATED CTPL INSURANCE PROGRAM are fully satisfied, LTO IT System through STRADCOM is hereby directed to apply the following criteria:

4.1. Online and real-time interconnection with the LTO IT Project's Motor Vehicle Registration System (MVRS) and Revenue Collection System (RCS), and their corresponding database;

4.2. There shall be no human intervention in computing the CTPL insurance. Likewise, the system must not have an edit capability to edit the computation of CTPL insurance premiums. CcAIDa

4.3. The system shall be capable of computing taxes due on CTPL insurance policies such as Value Added Tax (VAT), Documentary Stamp Tax (DST), and business taxes imposed by local government units.

4.4. Period of validity of the CTPL shall be displayed in LTO official receipt (OR) to ensure that the registered vehicles are covered by authentic insurance policies.

4.5. The system shall be capable of generating reports related to the CTPL insurance transactions.

4.6. The system shall be capable of generating fixed length text file that will be uploaded to the Insurance Provider. The text file shall contain insurance data to be used in processing of claims.

5.0. IMPLEMENTATION OF THE INTEGRATED CTPL INSURANCE PROGRAM

5.1. The DOTC/LTO shall be the lead agency in the implementation of the INTEGRATED CTPL INSURANCE PROGRAM nationwide. It shall formulate and prescribe policy guidelines for the transparent, efficient and effective implementation of the INTEGRATED CTPL INSURANCE PROGRAM.

5.2. The INTEGRATED CTPL INSURANCE PROGRAM shall be implemented wherein the issuance and payment of CTPL insurance is integrated with the LTO IT Project's Motor Vehicle Registration System (MVRS) and Revenue Collection System (RCS).

5.3 STRADCOM, being the proponent for the LTO IT Project, shall be tasked with developing, implementing, operating and maintaining the online and real-time interconnection of the Insurance Provider with the LTO IT Project's MVRS, RCS, and their corresponding database (the "Interconnectivity"). STRADCOM shall also provide necessary technical support in the implementation of the INTEGRATED CTPL INSURANCE PROGRAM.

5.3.1. In consideration for the Interconnectivity, STRADCOM shall be entitled to collect and be paid an Interconnectivity Fee for each CTPL insurance issued for the entire duration or effectivity of its agreement with the DOTC/LTO and the Insurance Provider. The Interconnectivity Fee shall be mutually agreed upon by the Insurance Provider and STRADCOM. The sharing scheme for Interconnectivity Transactions shall be mutually agreed upon by DOTC/LTO and STRADCOM. SHDAEC

5.3.2. DOTC/LTO, the insurance provider, and STRADCOM shall jointly agree on the manner of remittance of all collections relative to the paid CTPL insurance policies.

5.3. In order to satisfy the objectives set forth in Section 3.0.; and, applying the criteria provided for in Section 4.0. hereof, the following guidelines and procedures shall be observed:

5.4.1. Issuance of CTPL Insurance Policy

1. CTPL insurance policies are automatically issued at the LTO District Offices using the LTO IT Project's MVRS during registration or renewal of registration. This eliminates work step for the transacting public which no longer have to purchase CTPL insurance policy separately.

2. A motor vehicle registrant will no longer be required to present a policy since purchase of CTPL insurance is simultaneously processed during motor vehicle registration.

3. The effectivity and validity of CTPL insurance must conform to the existing rules and regulations of the LTO and the Insurance Code.

5.4.2. Premium Computation

To safeguard against risk of buying wrong policy or overpaying premiums, computation of the cost of CTPL insurance premium shall be automatically computed by the LTO IT Project's MVRS based on the following:

1. Motor vehicle description such as, but not limited to, gross vehicle weight, classification, and type; and,

2. Insurance Commission approved motor rates, terms and conditions. aSEHDA

5.4.3. Payment of Insurance Premium

1. The LTO cashier collects the insurance premium together with the registration fees using the LTO IT Project's RCS during registration or renewal of registration.

2. Proof of insurance coverage shall be indicated in the LTO Official Receipt (OR) of Registration. This ensures that registered vehicles are covered by valid and authentic insurance policies and thus assure protection of the public from fake or duplicate CTPL insurance policies.

3. LTO OR shall also indicate the period of validity of the insurance.

5.4.4. Tax Computation and Collection

1. The computation of applicable national and local government taxes on CTPL insurance policies must be consistent with the existing laws, rules and regulations.

2. Taxes due on CTPL insurance policies corresponding to the Value Added Tax (VAT) and Documentary Stamp Tax (DST), as well as business taxes imposable by local government units under the Local Government Code on insurance premiums, shall be automatically computed by the LTO IT Project's MVRS.

3. In addition to the insurance premium and the registration fees, the LTO cashier collects taxes due on CTPL insurance policies/premiums using the LTO IT Project's RCS. CTDAaE

5.4.5. Premium and Taxes Remittance

1. Taxes due on CTPL insurance policies corresponding to the VAT and DST shall be deposited directly to the depository account of the Bureau of Internal Revenue (BIR) which shall be considered upon fact of deposit as paid. This ensures proper collection and remittance of correct taxes to the national government.

2. Local Government taxes imposed by local government units under the Local Government Code on insurance premiums shall be deposited directly to the depository account of the Insurance Provider, who will be responsible for its remittance to the appropriate authority.

5.4.6. Claims Process and Assistance

1. To ensure ready access to claims service, the Insurance Provider shall provide and make available 24/7 a facility to receive notices of claim either by call or through Short Messaging Service (SMS) and to assign an accredited adjuster closest to the location of the claimant. Claims may also be filed and settled at all branches of the Insurance Provider and its nationwide offices at standard documentation and claims procedure.

2. The Insurance Provider shall be responsible in disseminating to the public all of the proper steps or procedures in applying for CTPL insurance claims.

6.0 EXECUTION OF INTERCONNECTIVITY AGREEMENTS

The terms and conditions for the Interconnectivity shall be embodied in the following:

6.1. A Memorandum of Agreement between the Insurance Provider, DOTC/LTO and STRADCOM;

6.2. A corresponding Bilateral Agreement between the DOTC/LTO and STRADCOM;

6.0. TRANSITION PERIOD CHDTIS

There shall be a transition period not exceeding Ninety (90) days from publication prior to the full implementation of the INTEGRATED CTPL INSURANCE PROGRAM. Within this period, all Interconnectivity Agreements mentioned in Section 6.0 hereof, shall be executed and submitted to this Office and further, the Interconnectivity shall undergo rigorous testing to ensure that all the enhancements made on the LTO IT Project's MVRS and RCS, as well as the facility developed by STRADCOM, comply with the set of requirements for the Interconnectivity. After the expiration of the transition period or the acceptance by the LTO and/or the Insurance Provider of the Interconnectivity, whichever comes first, the INTEGRATED CTPL INSURANCE PROGRAM shall be made operational and available to the public.

7.0. EFFECTIVITY

This Department Order shall take effect fifteen (15) days after its publication in the Official Gazette or in two (2) newspapers of general circulation in the Philippines and filing of three (3) certified copies hereof with the UP Law Center pursuant to Presidential Memorandum Circular No. 11 dated October 9, 1992. IDcHCS

APPROVED:

(SGD.) LEANDRO R. MENDOZASecretary

Published in The Philippine Star on July 6, 2007.