insured population, only £14,000,000 come back to them, and
£11,000,000 are absorbed in expenses and dividends. The
committee stated that they were satisfied that these expenses were too
heavy and could be reduced.
Evidence was given before the committee that convenience and economy in collection could be improved by the introduction of the block system, under which an agent is assigned an exclusive area for his operation. This system so far has only been in the experimental stage, but the committee suggested that it should be introduced and extended wherever practicable. It has been put into practice by the Prudential Assurance Co. and has already resulted in a saving of expenses, although the actual effect has been, to a large extent, obscured by the higher scale of wages and the generally increased costs of working brought about by the war.
Lapsing of policies was a matter which received attention from the committee. They pointed out that in the case of one company, the Refuge, whose experience in this matter was held to be in no way exceptional, there were issued in the ten years 1909 to 1918, 9,322,336 policies, while 6,426,313 policies lapsed. Further, it was found that in ten of the offices, including most of the largest, nearly 5,000,000 policies lapsed in 1913, and that nearly 4,000,000 of these had been effected as recently as 1912 or 1913. It was considered probable that the premiums paid on these latter policies amounted to fully £500,000, practically the whole of which would have been absorbed in new business charges, chiefly procuration fees and Commissions paid to the agents. Taking all the offices together, it was thought probable that lapses of policies in the year of issue, or in the year following, reached an annual total of 5,000,000. The committee reasoned that this vast figure could only mean that there was a section of the population which was repeatedly induced by the pressure of agents and canvassers to take out policies and discontinued payment immediately that pressure was removed, having lost nearly the whole of whatever premiums it had paid, since the benefit assured at the outset was a mere fraction of the full sum named in the policy. The committee came to the conclusion that, as long as heavy procuration fees were allowed, it would always pay the agents to devote themselves to the ceaseless pursuit of new business among this class of the community, regardless of the value of the policies to the assured or of their being kept up.
It should be noticed that the companies maintain that lapses occurred mostly in the first year or two of assurances before initial expenditure was made good, and that they are thus a source of loss rather than a profit to the companies. Their line of argument seems to be that they have to pay to the agent as fees all the premiums he collects for the first 10 to 20 weeks of the life of the policy, and that if the policy is then dropped the agent has had all the premiums, and there is nothing to help to pay the superintendency and head-office expenses in connexion with the issue of the policy. The offices further contended, in effect, that if the policy lasted a year, the agent had been paid his collecting commission as well as the procuration fee, and, in addition, that they had to pay head-office and branch-office expenses in respect of the issue of the policy, accounting, etc., while they had the risk of the policy becoming a claim, so that even at the end of the year there remained little or nothing out of the premiums paid on the policy. They thus arrived at the conclusion that, on the whole, they lost money by lapses. The committee pointed out, however, that this line of argument seemed to imply that all the expenses relative to new business arose out of the particular policies which the agent succeeded in getting. That is to say he was supposed to earn nothing, and the companies were supposed to incur no expense, in respect of the people whose interest he solicited in vain, the whole of his exertions being regarded as concentrated upon those with whom he succeeded. They doubted, whether such an argument was maintainable, and they added that, whoever got the benefit of the premiums paid, whether the companies or their agents, it was certain that the public lost heavily by lapses. The committee recommended that procuration fees should be abolished, and that minimum weekly wages should be substituted based on a fixed collection per week, with a commission on all sums collected above that amount.
The conduct of life assurance by the post-office was also examined. Under the British post-office system life assurance may be effected with Government security at any post-office transacting savings-bank business. Premiums may be paid weekly by means of stamps affixed to premium books handed in quarterly. The average charge for expenses is very low, and the committee held that the terms of assurance ought to be so much better as the result of this than those afforded by the companies that the post-office should be able to issue a large number of policies, in spite of the fact that it neither canvasses nor collects the premiums at the policyholder's door. The number of persons who effect assurances through the post-office is extremely small, and the system as administered by the post-office can, the committee pointed out, only be described as a failure. Apart from the fact that the post-office system was not competitive and provided for no canvass, the committee thought that the system was not operated with sufficient vigour or with due regard to what the public required. The committee found that, although the cost of administration was so small, the sums assured did not compare to marked advantage at any age with those offered by the companies. As one explanation, it was pointed out that the premiums under the post-office plan cease to be payable at 60 years of age, whereas, under the ordinary system, they continue for the whole duration of life or, in certain cases, to the age of 75. Possibly, the committee pointed out, the post-office system was the better one, as official witnesses suggested, but, the committee added, the question was whether the system should offer what the public required or what was thought to be more suitable to the public needs.
In the main, it would seem that the best hope for an improvement of the industrial assurance system lies in a reduction in working expenses. Of this leading managers of companies are doubtless fully aware. During the war period the factors were undoubtedly against them, owing to the rise in the cost of living. In 1910-20 there was a distinct development of industrial assurance on the basis of monthly premiums, and, no doubt, from the practice of this system a substantial reduction of working costs may be expected. The benefits of the system should be developed and the drawbacks overcome.
During the World War the industrial assurance companies in England felt the heavy strain of war mortality claims. They were also adversely affected by the Courts (Emergency Powers) Act, which provided, in effect, that the companies were required to keep in force all policies should the assured be unable, owing to the results of the war, to pay the premiums. There was good reason to believe that the Act was much abused. Practically all those who were not in the fighting forces secured the advantage of the high wages ruling at a time when unemployment practically did not exist. In 1921 the companies under the Act were still required to keep in force a large number of policies on which no premiums had been paid for several years. In addition to receiving no premiums on such policies, they had been called upon to pay claims in respect of many policies of which the holders had been able to benefit by the Act. It was assumed in the summer of 1921 that the Act would shortly be annulled. There seemed a prospect, consequently, that it would come to an end at a time when unemployment was common and there was general financial stringency, so that it would be almost impossible for many policyholders to pay the arrears due, with the result that many policies of long standing would lapse. It was held by some authorities that the Act had been detrimental to the interests not only of the companies but also of the policyholders. The committee recommended, as a way of meeting the difficulties when the Act came to an end, that the policies subject to it should be kept in force for six months after the Act ceased to operate, and that the companies should be required to notify every policyholder to whom the Act applied his right to secure the maintenance of the policy by paying up the arrears, the amount of which should be stated on the notice. Alternatively, that the companies should give the option to the policyholder of maintaining the policy in force for a reduced amount, or in the case of an endowment assurance for an extended period, subject to the cancellation of the arrears, on terms to be approved by the controlling authority.
Fire Insurance.—Fire insurance was much affected by the rise in value during the war period. The rise meant that sums previously insured were quite inadequate and additional insurances were effected. The rise was shown in the estimated cost of the principal fires in the United Kingdom. In 1916 these calculations, according to The Times, amounted to £3,300,000; in 1917 to rather over £4,000,000; in 1918 to £5,500,000; in 1919 to £9,462,000, and in 1920 to £9,374,000.
On the whole the British insurance companies emerged from the war period in a far stronger position than when they entered it. After the Armistice there was much activity in the formation of new companies, especially of offices to transact reinsurance. In the pre-war years a very large amount of reinsurance had been placed with German companies which had specialized in this form of business, transacting it at a low working cost. During the war naturally no further business was placed with such companies. The limitation of the reinsurance market led, therefore, to the formation of new offices and to the representation in England of companies registered abroad. So long as values remained on the highest pinnacle all the offices did well, but when trade began seriously to decline in the latter part of 1920 the new companies found that matters developed far less favourably for them. Towards the middle of 1921 absorption schemes were announced for a number of
