17th October.
Tx facts that have been brought to light regarding certain life insurance companies -in New York are now the common property of all who care to give a glance at the newspapers, but the important matter the exact bearing of the revealed facts upon tie financial position and stability of the companies concerned is not so readily understood. It is in fact this very difficulty that has helped to give the opportunity for what has taken place, for any real and precise knowledge of the life insurance business is necessarily possessed only by the very limited class of those who-have had an actuarial training, which demands as a preliminary a very considerable degree of mathematical aptitude and knowledge, The ordinary man of business professional man moves in the dark when he attempts to understand life insurance matters. A wore blind faith has ex necessitate rei too often to be put in life insurance officials by the outside community and the insured than is usual or desirable in regard to other businesses. Those who have had vast sums of money under their control have sometimes found it impossible to restrain themselves from rash and extravagant expenditure, much of which has had. no apparent justification either in the nieans employed or the end sought, But have the insured public suffered when this has occurred? The answer undoubtedly must be that they have, A life insurance fund, though it may amount to hundreds of millions of gold dollars, is nevertheless not a perennial fount, but every dollar taken from it reduces pro tonto the benefits to accrue to the insured, and every dollar taken from it, without legal or moral right, is a deprivation of the legal or moral rights of the insured, 'Are then the insured in danger of losing the benefits for which' they have contracted? The probable, the almost certain answer to this question fortunately is that they are not in danger. The ordinary form of "bonus," "tontine," or "with profits" policy provides for certain stipulated benefits of defined amount, and in addition for other benefits which are not guaranteed, but only estimated. These are the bonuses, profits, dividends or whatever they may be called by the particular company in the particular policy of insurance. It is usu" for life insurance companies to dangle the prospects of bonuses before the public as an inducement to insure, and the public have risen to the glittering bait so greedily that the insurance agent finds his business largely determined by the prospects which his company can offer in the way of bonuses. The result has been that many life insurance companies charge premiums that are known to be much higher than is necessary in order to be able, when the time for paying bonuses comes, to return to the insured larger amounts in that shape than would be possible otherwise, and the professional actuary is well acquainted with mathematical formulas which have been devised for computing the charges to be made. The ingenuous public are in the happy position of paying premia that are too large in order, years later, to get back the surplus. But in any case, apart from any deliberate action of this kind, the premium charged to the public is made higher than is necessary. The net or hypothetical premium is calculated mathematically on the basis of two things: (1) a certain rave of mortality of the insured persons, (2) a certain rate of interest on invested funds. Both are problems of the future, and itis never possible to foretell with precision what the fature is to bring forth, The resuls is that in practice rates of mortality and of interest are assumed that are in all human probability respectively higher and lower than the actual experience will come to be. These facts make the hypothetical premium higher than it should be, but considerations of complete safety justify this. But the company has to make an addition to the hypothetical premium' to arrive at the office premium, or premium actually paid by the insured for salaries, office expenses, advertising, commissions to agents, medical ex. aminer's fees, and so forth, and these charges do not admit of exact preliminary computation.' There is no fixed rule or method for determining how much is to be added io the hypothetical premium to make the office premium, but certain of the companies whose affairs are now before the world add on forty-four per cent of the hypothetical premium to itself to make the office premium in the case of a whole life policy, and for policies other than whole. life policies add twenty-two per cent of itself to the hypothetical premium for the particular kind of policy taken, and in addition twenty-two per cent of the hypothetical premium on a whole life policy' at the same age and of the same amount, This addition. is much more than is necessary to cover any justifiable office, agency and other expenses. The result is that the>insured pay into the company premia much exceeding in amount what is necessary on the average to meet their, claims when they fall due and all the charges incidental to their policies during their currency, The balance constitutes the sum which should be appropriated to pay bonuses, and so large may this sum be that serious encroachments may be made on the funds of the company without tapping the' portion actually necessary to meet the contractual liabilities. 'Though bonuses' are not guaranteed, the company is in the position of a trustee, and is' bound to administer its entire resources for the benefit of the insured, and it is maladministration if any portion is used or is frittered away unjustifiably. It should either be kept and jealously guarded to strengthen the general funds of the company for the benefit of the insured or it should be returned to them in bonuses. Lhe issued public do not know what bonuses they should get, could not calculate them if they would, and of this fact we see t atad-vantage appears to have been taken, but there is little or no likelihood that the drain has been so great as to niake it probable that the c panies concerned will go to the wall. That would necessitate the waste of more than merely millions of dollars from the'vast sums in their hands:
It is perhaps not to the credit of the law relating to life insurance and to the insurance departments of the several Statesin the United States that such occurrences should be possible. The American insurance law, which is of the same kind, though differing in detail in various States, looked at superficially would seem to secure a rigid governmental control. But in fact there are an infinity of loopholes, and the existence of the nominal State control has thrown rv~ponsibility off the shoulders of insurance company officials. 'The English law under the Life Insurance Companies' Acts, 1870-1872, is far better planned, There is no State control, but the insurance companies, though subject to no limitations, must make full annual sworn returns to the Board of Trade showing what in fact they have done, and these returns are published so that they are open. to Home of the English companies have eneral inspection and criticism,
Text read from the printed page and cleaned; old type leaves the occasional error.