Concept of Insurance

11.
2a. Historical Background
3Ancient times
4

Insurance in some form is as old as historical society. So-called

5bottomry contracts were known to merchants of Babylon as early as 4000

63000 bce. Bottomry was also practiced by the Hindus in 600 bce and was
7well understood in ancient Greece as early as the 4th century bce. Under a
8bottomry contract, loans were granted to merchants with the provision that if
9the shipment was lost at sea the loan did not have to be repaid. The interest
10on the loan covered the insurance risk. Ancient Roman law recognized the
11bottomry contract in which an article of agreement was drawn up and funds
12were deposited with a money changer. Marine insurance became highly
13developed in the 15th century.
14

In Rome there were also burial societies that paid funeral costs of their

15members out of monthly dues.

16

The insurance contract also developed early. It was known in ancient

17Greece and among other maritime nations in commercial contact with

18Greece.
19England
20

Fire insurance arose much later, obtaining impetus from the Great Fire

21of London in 1666. A number of insurance companies were started in

22England after 1711, during the so-called bubble era. Many of them were
23fraudulent, get-rich-quick schemes concerned mainly with selling their
24securities to the public. Nevertheless, two important and successful English
25insurance companies were formed during this periodthe London Assurance
26Corporation and the Royal Exchange Assurance Corporation. Their operation
27marked the beginning of modern property and liability insurance.
28

No discussion of the early development of insurance in Europe would

29be complete without reference to Lloyds of London, the international

30insurance market. It began in the 17th century as a coffeehouse patronized

31by merchants, bankers, and insurance underwriters, gradually becoming
32recognized as the most likely place to find underwriters for marine insurance.
33Edward Lloyd supplied his customers with shipping information gathered
34from the docks and other sources; this eventually grew into the publication
35Lloyds List, still in existence. Lloyds was reorganized in 1769 as a formal
36group of underwriters accepting marine risks. (The word underwriter is said
37to have derived from the practice of having each risk taker write his name
38under the total amount of risk that he was willing to accept at a specified
39premium.) With the growth of British sea power, Lloyds became the
40dominant insurer of marine risks, to which were later added fire and other
41property risks. Today Lloyds is a major reinsurer as well as primary insurer,
42but it does not itself transact insurance business; this is done by the member
43underwriters, who accept insurance on their own account and bear the full
44risk in competition with each other.
45Philippines
46

During the Pre-Hispanic Era, the concept of insurance as we know it

47today is non-existent. The Pre-Hispanic Filipinos, relying mostly on hunting

48and gathering for their subsistence, did not have the need for it as they are
49more concerned on how they will survive. Thus, every loss of a family or tribe
50member was borne alone by the person, family, or tribe where the deceased
51belonged to.
52

When the Spaniards came and colonized our country, insurance, in its

53present concept, was introduced in the Philippines. The Lloyds of London,

54introduced the concept of insurance to the Philippines by appointing
55Strachman, Murray & Co., Inc. as its representative in the country.
56

Along with the introduction of the insurance industry in the country

57came the need for laws to regulate it. During the Spanish colonization, the
58laws on insurance were found in Title VII of Book II and Section III of Title III of

59Book III of the Spanish Code of Commerce; and in Chapters II and IV of Tile
60XII of Book IV of the Spanish Civil Code of 1889.
61

The introduction of the concept of insurance protection brought about

62by the establishment of Strachman, Murray & Co., Inc. in the Philippines
63Islands stimulated the influx of foreign insurance companies in the country.
64In 1898, life insurance was introduced with the entry of Sun Life Assurance of
65Canada in the local insurance market.
66

Not long after, in 1906, the first domestic non-life insurance company,

67the Yek Tong Lin Insurance Company, was organized. Shortly after, the
68Insular Life Assurance Co., Ltd., the first domestic life insurance company in
69the country, was established in 1910.
70b. Sources of Insurance Law
71Republic Act No. 10607 (Amended Insurance Code)
72

This was signed on August 15, 2013, by President Benigno S. Aquino III.

73One of the amendments included in the said law is the progressive increase
74of capital requirements for life and non-life insurance companies every three
75years until 2012.
76

The revisions embodied in the Amended Insurance Code are intended

77to reinforce the provisions of the previous code so as to further strengthen

78the insurance industry and ensure the economic viability and financial
79stability of companies operating in the country, to the end that each and
80every Filipino is amply protected and secured.
81Republic Act No. 8291 (The Government Service Insurance System Act of
821997)
83

The Government Service Insurance System is a social insurance

84institution under a defined benefit scheme. It insures its members against

85the occurrence of certain contingencies in exchange for their monthly
86premium contributions. To secure the future of all employees of the Philippine
87government, it provides and administers a pension fund that has the

88following social security benefits: compulsory life insurance, optional life

89insurance, retirement benefits, and disability benefits for work-related
90accidents and death benefits.
91
92by

Likewise, the GSIS manages the General Insurance Fund as mandated

Republic

Act

696

or

the

Property

Insurance

Law.

It

provides

93comprehensive protection to government insurable interests.

94Republic Act No. 8282 (Social Security Act of 1997)
95

The Social Security System is a social insurance program for workers in

96the Philippines. It is a government agency that provides a sound and viable

97social security system which shall promote social justice and provide
98meaningful protection to members and their families against the hazards of
99disability, sickness, maternity, old age, death and other contingencies
100resulting in loss of income or financial burden.
101Civil Code
102

Art. 2011. The contract of insurance is governed by special laws.

103Matters not expressly provided for in such special laws shall be regulated by
104this Code.
105

Art. 2012. Any person who is forbidden from receiving any donation

106under Article 739 cannot be named beneficiary of a life insurance policy by

107the person who cannot make any donation to him, according to said article.
108

Art. 2021. The aleatory contract of life annuity binds the debtor to pay

109an annual pension or income during the life of one or more determinate
110persons in consideration of a capital consisting of money or other property,
111whose ownership is transferred to him at once with the burden of the
112income.
113

Art. 2022. The annuity may be constituted upon the life of the person

114who gives the capital, upon that of a third person, or upon the lives of
115various persons, all of whom must be living at the time the annuity is
116established.

117

It may also be constituted in favor of the person or persons upon

118whose life or lives the contract is entered into, or in favor of another or other
119persons.
120

Art. 2023. Life annuity shall be void if constituted upon the life of a

121person who was already dead at the time the contract was entered into, or
122who was at that time suffering from an illness which caused his death within
123twenty days following said date.
124

Art. 2024. The lack of payment of the income due does not authorize

125the recipient of the life annuity to demand the reimbursement of the capital
126or to retake possession of the property alienated, unless there is a stipulation
127to the contrary; he shall have only a right judicially to claim the payment of
128the income in arrears and to require a security for the future income, unless
129there is a stipulation to the contrary.
130

Art. 2025. The income corresponding to the year in which the person

131enjoying it dies shall be paid in proportion to the days during which he lived;
132if the income should be paid by installments in advance, the whole amount
133of the installment which began to run during his life shall be paid.
134

Art. 2026. He who constitutes an annuity by gratuitous title upon his

135property, may provide at the time the annuity is established that the same
136shall not be subject to execution or attachment on account of the obligations
137of the recipient of the annuity. If the annuity was constituted in fraud of
138creditors, the latter may ask for the execution or attachment of the property.
139

Art. 2027. No annuity shall be claimed without first proving the

140existence of the person upon whose life the annuity is constituted.

1412.
142Contingent or unknown event

What May Be Insured

143

Under the Insurance Code, any contingent or unknown event which

144may damnify a person having insurable interest may be insured against.

145

A contingent event is an event which may or may not happen; that

146which is unforeseen, undetermined, or dependent on something future; a

147contingency. Examples of a contingent event are: fire, flood, typhoon,
148lightning and other fortuitous events.
149

An unknown event is an event which is not identified or ascertained;

150not established or verified. Death may qualify as unknown event provided it

151has not been ascertained yet.
152Past or future events
153

Unknown events may be insured whether they are in the past or

154future, while a contingent event may be insured only if it is a future event. If

155the contingent event is a past event, it cannot be insured unless it is
156unknown.
157

To be so covered, the past event causing the loss must be unknown to

158both parties and they must expressly stipulate that a prior loss is insured by
159the policy. Such stipulation including a prior loss within the coverage of the
160policy is usually expressed by the use of the phrase lost or not lost. Lost or
161not lost is a clause used in ocean marine insurance which states that the
162insurer will pay even of the loss insured against has occurred prior to the
163effecting of the insurance. The company would, of course, not be liable if the
164policyholder knew that the loss had occurred when ordering the insurance. A
165ship could easily be lost or damaged and the owner might not know it until
166later, during which time the owner might want to insure it, which is possible
167with this clause.

1683.

Parties to the Contract

169There are at least two parties:

170
171

Insurer the party to an insurance arrangement who undertakes to

indemnify for losses.

172

Insured is the person, group, or property for which an insurance

173

policy is issued. It is also defined as the person whose interests are

174

protected by an insurance policy; a person who contracts for an

175

insurance policy that indemnifies him against loss of property or life or

176

health, etc.

177There may be a third party in an insurance contract the beneficiary, but

178only if the insured is not the beneficiary of the same at the same time.