Insurance in the Philippines: Forerunners and Law of Large Numbers

Forerunners of Insurance in the Philippines

• The "Bayanihan" system, where members of a community contribute their time and resources to help each other, is a forerunner of modern insurance in the Philippines.
• The "Paluwagan" system, where people contribute to a fund to be used when someone needs help, is another forerunner of modern insurance in the Philippines.
• The "Abuloy" system, where friends and relatives of a deceased member give cash donations to the grieving family for burial expenses, is also a forerunner of modern insurance in the Philippines.

Law of Large Numbers

• The Law of Large Numbers is also referred to as the "Law of Average" or the "Law of Probability".
• The law states that when the number of similar (homogenous) independent exposure units is increased, the relative accuracy of predictions about future outcomes (losses) is also increased.
• The Law of Large Numbers is the theoretical basis of the business of insurance, as it allows insurers to predict collective losses with a high degree of accuracy.

Insurance in the Philippines

• Insurance was first introduced in the Philippines in March 1829.
• The first insurance company to operate in the Philippines was Lloyd's of London, which appointed Stracham, Murray & Co., Inc. as its local representative.
• The first domestic non-life insurance company was established on June 8, 1906, and was known as the Philippines First Insurance Company (PFIC).
• The first domestic life insurance company, Insular Life Assurance Company, Ltd., was organized in 1910.
• The Sun Life Assurance Company of Canada was the first life insurance company to operate in the Philippines, starting in 1898.

Important Words and Phrases

• Insurance: a social device that combines the risks of individuals into a group, using funds contributed by members to pay for losses.
• Insurer: a company or person that promises to reimburse for losses.
• Risk: a possibility of a huge unexpected loss.
• Policy: a contract between the insured and the insurer, which provides financial protection and reimbursement of damages.
• Policyholder: an individual or organization that receives financial protection and reimbursement of damages from the insurer.