stated that, down to the end of 1918, the war probably cost the life offices, as a whole, about five years' bonuses. Naturally the experience of individual offices varied. Some offices had a larger proportion of lives of military age on their books, and they were therefore more heavily hit by war mortality than others. Then some companies had a larger proportion than others of their investments in Stock Exchange securities, and they were more severely hit by depreciation of Stock Exchange securities. Besides direct war claims, all life-assurance offices were severely affected by the influenza epidemic which swept over the world in 1918 and 1919 and took a very heavy toll of civilian lives.
A growing tendency on the part of insurance companies to issue policies free from all restrictions meant that in the case of the majority of the offices transacting ordinary business the direct war risk in respect of civilians who joined the fighting forces was automatically assumed by the companies. Some companies doing ordinary business and some transacting industrial life assurance had specifically excluded the war risk. Such offices agreed, however, to waive their rights to extra premiums and assumed the war risks. This for the Prudential Assurance Co., by far the largest British office, meant an enormous liability. In the case of professional soldiers assured before the war, policies were issued subject either to a small extra rate during the currency of the policy, or to extra rates of premium when the policyholders were sent on active service. At first an additional premium of £7 7s. % per annum was charged to cover the war risk, but the rate soon advanced to as much as 20% per annum. Such rates were, in the majority of cases, prohibitive, and probably comparatively little business was done on such terms. It is known that even at these rates the majority of the offices, at any rate, would rather have been without it. They could point to the fact that they had assumed vast liabilities in respect of those who had assured before the war as civilians and then had become fighting men. The fact that all men of military age were liable to service meant that, as regards new business, the life assurance offices could not hope to do more than mark time. Their own staffs were reduced to the absolute minimum. Distinguished actuaries found themselves doing routine clerical work, and, for the most part, the male staffs were replaced by women.
The period of the war was undoubtedly the most exacting through which British life assurance offices have ever passed. In addition to the depreciation of funds, heavy claims, and lack of new business, they were adversely affected by the rise in income-tax. The special position of life-assurance offices as regards interest from investments, which really represents their stock-in-trade, had led to some concession under the Finance Act of 1916. The concession was then made that they should be allowed a refund of taxation in respect of their expenses, so that the tax was paid on the difference between interest and expenses, which was naturally very considerable. This concession reduced the effective rate of tax by about one-sixth, or to about 5s. in the £ on the average on the total interest as at the end of 1920, as compared with the pre-war rate of 1s. 3d. In his paper before the Insurance Institute of London Mr. H. Brown pointed out that in 1914 the pre-war net rate of interest of just over 4% was maintained. In that year the rate of tax was practically unaltered. In the four remaining war years the average net rate realized was 3s. % per annum less than the pre-war rate and was a little below 4% net instead of being rather above that figure. The offices during the war period had the opportunity of investing new funds at comparatively high rates of interest, but this increased rate did not go far to compensate for the enormous depreciation which had to be written off the existing funds. In 1921 there was some recovery in the prices of high-class securities, and this fact gave encouragement to the view that the prospect of earning profits was then brighter than it had been for many years.
After the quiet period of the war the figures of new business in 1919 were the largest ever recorded. These, in turn, were exceeded by the results for 1920. The return of enormous numbers of men to civilian life and the greater appreciation of the value of life assurance were evidently responsible for this development. It was hardly to be expected that the figures for 1921 could be as good.
With life assurance under the heavy cloud of the war, little could be expected in the way of devising new schemes of assurance. One office, the Sun Life Assurance Society, continued to develop assurance without medical examination of the proposer. Until the beginning of 1921 such assurances were issued subject to certain restrictions, the terms in other respects, including the rate of premium, being identical with assurances effected in the ordinary way. These stipulations were that: (1) One-third only of the sum assured was secured if the death of the life assured occurred during the first three months from the commencement of the assurance; and two-thirds if the death occurred within the second three months. After that period the claim was payable in full. If death occurred from accident during the first six months the full sum assured was payable. (2) No assignment was permitted during the first two years from the date of the commencement of the assurance. Early in 1921 the Society announced the removal of these restrictions. It professed itself thoroughly satisfied with its experience in assurances effected without medical examination, and, in fact, strongly encouraged proposals made on such terms.
Two or three offices, notably some with their headquarters in Canada, have been developing assurances providing for the cessation of premiums during incapacity, and for disability weekly payments during such periods. Assurances of this kind would seem to be only in their early stages. The ordinary accident and sickness policy is an annual contract, and a life assurance combining disability benefits would seem to have a good deal in its favour.
A rebate of income tax in respect of life-assurance premiums of half the standard rate, or 3s. in the pound, in 1921, was a very considerable encouragement to the effecting of life assurances in the United Kingdom. This meant that £100 of life assurance could be secured for £85. Rebate at this flat rate was obtainable in respect of all policies effected after June 22 1916. In the case of policies effected before that date the rebate was on a sliding scale, being at the rate of half the standard rate of tax where the total income did not exceed £1,000; three-quarters of the standard rate of tax where the total income exceeded £1,000 but not £2,000; and the whole of the standard rate of tax where the total income exceeded £2,000. The rebate was subject to the provision that the total amount of the premiums to be allowed to any individual taxpayer should not exceed one-sixth of the income, and the amount of the premium in respect of which any allowance was made should not exceed £7% of the capital sum payable at death, exclusive of any addition by way of bonus.
Industrial Assurance.—Criticism of the industrial life-assurance system in Great Britain led to the appointment in May 1919 of a departmental committee by the Board of Trade to inquire into the business carried on by industrial assurance companies and collecting societies. Over this committee Lord Parmoor presided. The report of the committee (Cmd. 614) was issued as a Parliamentary paper in July 1920.
The magnitude of the interests concerned was shown by the facts that the total amount of premiums received in respect of policies in the industrial branch of the companies and societies in 1918 exceeded £25,000,000, that the number of policies in existence at the end of that year was about £51,000,000 and that the total number of whole-time and spare-time agents and collectors employed was estimated to be about 70,000. The possible clientèle was estimated by the committee at about 35,000,000 persons. From the fact that there were 51,000,000 policies in existence at the end of 1918 and that some millions of these were on the lives of children under ten years of age, in whose cases it is unusual for more than one policy to exist, it was evident that a great number of adults were assured under two or more policies.
Criticism can undoubtedly be levelled against the industrial assurance system on the ground of the high level of working costs. On this matter the committee had much to say. They pointed out that the remuneration of the agents is based upon the amount collected, and is frequently a direct percentage of that sum, varying from 25% in the case of the collecting societies to from 15 to 20% in the case of the companies. In addition to this allowance for collecting his renewal premiums, the agent is directly remunerated for the new business he secures. There are various ways of calculating this allowance, but, the committee pointed out, it is always on a generous basis. In some cases the agent takes the whole of the premiums collected during an agreed period following the issue of the policies, i.e. the first 12, 14, or 16 weeks. In other instances lapses are set off against new business, and the new business emoluments of the agent are calculated, wholly or partly, on his increase. Thus the Prudential pays ten times the weekly premium on each new policy provided that it is kept in force for 13 weeks, and 18 times the net increase in the weekly debit. The terms of remuneration vary widely in details, but it would appear that, on the general average, the agents of the companies retain about 25% of all the premiums they collect, while those of the large collecting societies may receive as much as 31 per cent. The committee found that about 44% of the total premium income on industrial policies was absorbed by expenses and commission, and also, where companies were concerned, by dividends to shareholders. Thus on every shilling paid in premiums 5¼d. goes in expenses of one sort or another, and only 6¾d. comes back to the assured in benefits. Otherwise stated, of £25,000,000 a year paid in premiums by the
