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LIFE INSURANCE]
671
INSURANCE


it would be after some have matured. The actual value of any one risk borne by a company is indeterminate. It may become a claim to-morrow, or not for a generation to come. In the former case the company must now hold funds to pay in full; in the latter, the future premiums will perhaps more than suffice, so that no present reserve is needed. An entire reserve for the whole body of risks is essential, and its amount is definite, upon the reasonable assumption that the general average remains undisturbed by individual changes. A distinct reserve for a single policy is inconceivable. To recognize it is to deny the first principle of insurance. The average amount by which the reserve of a company must be increased, because of the existence of policies of a given class, is to the actuary an important fact, and is commonly accepted as his best guide in the distribution of surplus. But a popular theory has seized upon the assignment of this average sum to each policy, in the technical shorthand of the actuary, and holds that it is in each case the special property of the owner of that policy. The practical consequences are serious when, as often, many of the insured cease to pay premiums, and each demands the amount of the supposed individual reserve. His right to claim it is countenanced by a. widespread public opinion, which has inspired statutes in Massachusetts and some other states, requiring companies to redeem all policies lapsing after the first two or three years of insurance at a price founded on the technical reserve. Yet, in by far the majority of instances, the lapse of policies is of itself a loss to the company. It is deprived of business secured at much expense before it has derived any of the advantage expected from the accession. It is compelled to pay numbers of its profitable contributors for ceasing to contribute. The burden falls in a. mutual company upon the insured who fulfil their contracts. Such laws favour those who withdraw after few payments at the cost of those who maintain their insurance to the end, or for many years. The American companies formerly yielded to the pressure of a mistaken public sentiment, and competed for favour by promising excessive values in case of surrender! Similar conditions exist in Switzerland, Austria, and other countries in which the business is minutely regulated by government bureaus. But in Great Britain the companies are largely free from such influences, while an open market exists for policies which have a commercial value, with results on the whole more satisfactory to all parties interested than any rule of compulsory purchase which could be enforced on the companies. A special form. of life insurance, which has wonderfully developed, is the family insurance of the labouring people by d, ,, ,, , L, , l the so-called industrial companies. Until recently this m, ,, am, e class of people had no satisfactory share in the benefits of insurance, although the friendly societies in Great Britain, and many forms of beneficial associations in the l

yet be determined. ~ That it relieves much want and does a great service in preventing pauperism is not disputed; but that it also undermines the independent spirit of the people, and that it imposes a burden upon the national industry, which not only hampers it in the world's competition, but reacts with special injury upon the class it aims to benefit, are criticisms not satisfactorily answered. No scheme of government insurance, certainly, is adapted to a people impatient of paternalism in its rulers and thoroughly habituated to voluntary association for all common interests. The solution of the great problem, how to apply the insurance principle to the most pressing needs for protection of the class supported by the wages of labour, is now sought in Great Britain and America mainly in the universal offer to them of industrial insurance. The Prudential Assurance Company of London was the pioneer in this Work, beginning it experimentally in 1848, but gradually adapting its methods to the new field, until a generation later they showed themselves so efficient that an extraordinary growth resulted, and has continued without interruption. This company and others upon a similar plan insure whole households together for burial expenses i11 case of death, and a small provision for dependants or for old age, . charging. as premiums small fractions of a day's wages, which must be collected weekly. The great difficulties encountered were the cost of small and frequent collections, and the high rate of mortality, which is from 40 to 90% more than that in the experience of the older companies. This high death rate is due not so much to the fact that life is shorter in the labouring class as to the lack of efficient medical selection, which would be too costly. The premiums, at best, must be made higher than in offices insuring for annual payments, but the demand for insurance extended as rapidly as the system could be explained, and the Prudential is said to have now in force some 12,000,000 policies, with an average premium of twopence a week, secured by an accumulated insurance fund of £17,000,000. It has superseded a host of petty assessment societies of various classes without scientific basis or business responsibility, which deluded and disappointed the poor. The British government in 1864 undertook to administer a plan for the insurance of working men, but in thirty years accomplished less than the Work of one private company in a year. In addition to the many insurance companies which transact industrial business in the United Kingdom, a large number of friendly societies have adopted similar plans.

The system of industrial insurance was introduced into the United States in 1876. Its growth, though much more rapid than in Great Britain, was at first slow compared with that of later Eears. The following table, condensed, from the Insurance Yearaok for 1900, is an interesting exhibit of the character as well as of the extentof this form of insurance among working men Z*-

United States, were attempts, often in part

Industrial Insurance in the United States.

successful, to provide for special wants, mainly *, ,, 7 for maintenance of the sick and for the costs l wo of In uranc Policies in Insurance in Prem. S L of burial. Most of them, however, lacked a Year. 'C ' S- C f0fC€31SY force 31511 dum Osies scientific basis and an efficient and permanent, ,Ps', wmtitn Defiembef' Decembeff received' paid organization, while thousands of them were,870 I $400,000 2,500 $248,342 $14,405 $1,058 grossly mismanaged. In Germany an elaborate 1330 3 34,212,131 228,357 19,590,780 1,155,360 430,631 scheme of compulsory insurance for labourers 1884 3 89,150,302 1,076,422 108,451,099 4,436,612 1,499,432 was established by a law of the empire in 1883, 1888 7 161,260,335 2,733,000 302,033,066 1 1,939,540 4,162,745 - - - 1892 II 27613931923 5,113,897 582,710,309 24,352,900 3,347,322 and extended in subsequent years, and similar,800 II 360,352,453 7 375 5g3 335,434,869 40,058,701 13,420,336 lCglSl€tt1OI1 has been €n3Ct€fl H1 s€V€1211 other 1899 16 519,789,085 IO, Q48,625 1,292,805,402 56,159,889 17,023,485 countries, most thoroughly in Switzerland and " " 'f"' " "7 ' j Austria. The ultimate value of this great social ex eriment cannot It is femafkable that the average W@€klV Premium in the United P

As a result of investigation into the affairs of various American insurance companies in 1905 by a committee appointed by the state legislature of New York, a new law regulating life insurance down to the minutest details was passed in IQ06 (ch. 326). The surrender value of a polic ' is to be the amount of insurance which the reserve, computed on the 4%% mortality table, standing to its credit, will purchase as a single premium. Other important features of the legislation are that no New York company may hold a contingency reserve be ond a fixed proportion of the net value of its policies; the limiting ofy types of policies permitted, the defining of the nature of investments permitted, and provisions for state supervision, valuation, and annual division of profits.

States appears to be about IO cents, or two and a half times as high as in Great Britain. The average policy is also' proportionally larger, and the progressive increase in its amount deserves notice. At the rate at which the practice of insurance is extending among working men, it would require but few years for it to become as universal in these countries as any paternal government has aimed to make it by compulsion.

There are various sources from which a surplus of funds may arise in an insurance company: (r) from the rate of interest actually earned being higher than that anticipated in the

calculations; (2) from the death-rate among the insured