In this module, you will be able to:

Describe insurance as an industry and the importance of the Insurance Commission as a regulating body
for licensing advisorsExplain the different concepts of Life Insurance Define basic insurance terms

Describe insurance as an industry and the importance of the Insurance Commission as a regulating body
for licensing advisors

Explain the different concepts of Life Insurance

Define basic insurance terms

THE INSURANCE COMMISSION
LESSON 4:

The Insurance Commission

Rendered the provisions of Presidential Decree No. 612 Promulgated in 1978Also known as Presidential
Decree No. 1460Special law to govern insurance

Rendered the provisions of Presidential Decree No. 612

Promulgated in 1978

Also known as Presidential Decree No. 1460

Special law to govern insurance

The Insurance Code of the Philippines

Since the industry is placed in a position of trust, this special law was promulgated to govern insurance.

The Insurance Code of 1978 (PD No. 1460) is a consolidation of all insurance laws of the Philippines. The
Insurance Code contains all the guidelines, responsibilities, and requirements in conducting Insurance
business in the Philippines.

The Insurance Commission (IC) is a regulatory government agency under the Department of Finance,
who executes all laws pertaining to insurance and regulates insurance companies, as well as stock and
mutual companies.

IC is headed by the Insurance Commissioner, and has adjudicatory powers to settle claims involving not
more than Ps. 100,000.

Regulatory government agency

Executes all laws pertaining to insurance

Regulates insurance companies

It also regulates different types of companies such as:

Stock – Stock companies are owned and controlled by people and organizations that purchase shares
and invest their money in the company’s stocks.
Mutual – A mutual company is a cooperative association which has no capital stock, therefore, no
stockholder. The policyholders own and exercise control. Moreover, policyholders have the right to vote
for directors or trustees.

Functions of the Insurance Commission

The law mandates the Insurance Commission to perform these functions:

Licenses
–Issues licenses to insurance companies to operate in the Philippines.

Policy Contracts
–Reviews legality of policy contracts and monitors premium rates.

Insurance Companies' Financial Condition

–Examines the financial condition of insurance companies and determines the capacity

of each company to live up to its obligations to its policyholders.

Public Assistance
–Renders assistance to the public on matters pertaining to insurance.

Insurance Commission's Role 

As the Insurance industry is built on trust between the company, the advisor, and the client, IC

ensures that:

 The Company is registered with the IC, meets its requirements, and has the
capability to deliver its promise. 
 The Advisor is qualified, screened, and trained by the Company, and licensed
with the IC to be professional in their fields.
 The Client is aware of the benefits and understand what he or she is purchasing
before making any decision.
To know more about the Insurance Commission, you may visit:

https://www.insurance.gov.ph/about/mandates-objectives-and-functions/ 
Map to the Insurance Commission Office 
Types of Risk

There are two types of risk involved in relation to Life Insurance:

Flip each card to know more.

Risk that involves no possibility of gain. There is either a loss or no
loss. The possibility of economic loss without possibility of gain is the
only kind of risk that can be insured. The primary purpose of insurance
is to compensate for financial loss, not to provide opportunity for
financial gain.
Risk that involves three possible outcomes: loss, gain, or change. For
example, when you decide to play games of chance, you may win or
lose money, or just break even. This type of risk can be insured.

CONTINUE
Principles of Life Insurance

To determine the risk level of a person’s life expectancy, life insurance companies use two
statistics laws:

 Law of Probability
 Law of Large Numbers
LAW OF PROBABILITYLAW OF LARGE NUMBERS
The Law of Probability shows the likelihood that a given event will occur in the future. This is
used in determining the number of people of dying and a living at a particular age within the
given period.

The law of probability aims to establish patterns for the occurrence of various types of events by
using mathematical or statistical methods.

Example for Law of Probability

Individuals in a population favoring a particular addiction may be identified with balls of a
particular color, those favoring a different addiction may be identified with a different color, and
so on. Law of probability provides the basis for learning about the contents of the urn from the
sample of balls drawn from the urn; an application is to learn about the addiction preferences of a
population on the basis of a sample drawn from that population.

LAW OF PROBABILITYLAW OF LARGE NUMBERS

Insurance companies also use the law of large numbers, which states that the more
frequent a particular event is observed the more likely that the observed results will
approximate the true probability of the event happening. 

Example for Law of Large Numbers

An example of this is a coin toss. We know that there is a 50% probability of yielding
heads and another 50% probability yielding tails. If you toss the coin just 3 times it is
likely that you may yield 2 heads and 1 tail or the other way around. But if you continue
to toss the coin 10, 100, 1000 times, you will notice that the more figures there are to
study the more the figures approach the true probability of the event.
 
This relates to life insurance as a risk sharing business, since life insurance companies
need to effectively determine mortality or the probability of the incidence of death
among a given group of people.