Page:Encyclopædia Britannica, Ninth Edition, v. 13.djvu/186

INSURANCE [LIFE. appeared or having adopted the plan of sharing profits with the policyholders. Into the relative merits of the two classes of offices it is not our purpose to enter. The mutual offices take their stand on the advantage to the assured of sharing the whole profits among themselves, while the mixed offices point to certain features of their system which tend to neutralize the apparent disadvantage of the shareholders taking a portion, of the surplus. We believe it will be found that the fact of an office belonging to one class or the other does not of itself afford a presumption either for or against its being an advantageous office to assure in. The comparative ad vantages of different companies must be sought out by a closer scrutiny than a mere reference to this distinction in the nature of their constitution. Most assurances are effected on the plan of participating in profits. In both mutual and mixed offices, however, there is generally a class of policyholders who do not share in the profits, but who, requiring only a guarantee of a fixed sum on the happening of the contingency men tioned in their policies, effect their assurances at a re duced rate of premium calculated to cover fully the risk and expenses of business. Selection Selection of Lines. It is well known that assurance com- of lives, panies exercise a selection among the lives proposed for assurance, admitting some on the ordinary terms and sur charging or rejecting others whose prospects of longevity appear to be below the average. The necessity for this has been sometimes called in question. Why, it has been asked, should the offices inquire so scrupulously into the state of health of those who offer themselves, if the mor tality tables on which the premiums are based exhibit the death-rate among a number of persons in all the degrees of health and sickness 1 The answer is that without such selection on their part the offices could not reckon on the lives assured being as a body equal to those represented in the tables. It must be remembered that the inducement to become assured is not so great to the healthy and vigorous as it is to the weak and delicate, and if the offices were to open their doors to all comers, or were even to relax their vigilance in scrutinizing the applications made to them, they would inevitably admit an undue proportion of the latter class, and thus expose themselves to greater hazards than those provided for in their tables. Moreover, since the assured have a direct interest in the surplus remaining of their premiums, after providing the cost of the assurances, the admission of all lives on equal terms would be an in justice to those possessing a full measure of health. They would practically be called upon to contribute more than their own cases required, in order to provide a fund suf ficient to pay the sums assured on lives having inferior prospects of longevity. Means of The means of selection employed by assurance offices are selection. a ] so wc n known. Each applicant is required to furnish information as to his own health and habits of life, and some particulars as to his family history, and he under goes an examination by a medical man named by the office. In former days this examination was not always required, nor does it appear that the same attention was paid as now to the question of hereditary tendencies to disease ; and yet, judging from the experience of the older offices, the precautions observed in those days seem to have been not without considerable effect. Unquestion ably, however, the improvements which growing experience and the advance of medical science have brought to bear upon the means of selection have had an important influ ence in increasing its efficacy, although possibly they may have done little more than to defend the offices against a greater risk of the introduction of questionable lives. It is now well understood that hereditary tendencies have a marked effect in determining the chances of longevity of individuals ; the degree of importance to be attached to particular deviations from health is better known than formerly ; while the increased prevalence of assurance has led to a better appreciation among medical men of the duties required of them in the examination of proposers. In some of the medical schools special attention is now ^directed to the subject. Several excellent works on medi cal selection have appeared, one of the most recent in England being that of Dr Sieveking of London. It may readily be supposed that selection has an import- Its ant influence in determining the rates of mortality among ett assured lives. The extent and nature of this influence have formed a very fruitful and interesting subject of inquiry. So early as 1776 an investigation of the affairs of the Equitable Society revealed that the death-rate among the members had been much lower than that anticipated in the tables on which the premiums were based. Similar results appeared at the subsequent investigations of W. Morgan and A. Morgan, who were successively actuaries of the society ; and in many other collections of the statistics of individual offices those by Galloway of the Amicable (1841), Jellicoe of the Eagle (1854), Spens of the Scottish Amicable (1862), for example the mortality among as sured lives has been exhibited in comparison with the death- rates shown by the mortality tables in common use. Com parisons of this kind may be drawn from the tables on a preceding page. These do not, however, afford the means of observing what is a very marked peculiarity of the mortality experience of assurance companies, namely, the varying death-rates at different periods in the duration of assurances. Mr Spens devoted considerable attention to this subject, but it had been previously investigated in connexion with the statistics of the seventeen offices to 1843 already referred to. These statistics were analysed with this object by Mr E. J. Farren, who pointed out the extremely light mortality experienced during the first year of each assurance. A more exhaustive analysis is given by Mr Higham, in a paper " On the Value of Selection as exercised by the Policyholder," contributed to the Assurance Magazine 1 (vol. i. p. 179). Mr Higham traces the lives from their first year of assurance down to the time of their passing from observation, by death or otherwise, and shows that the mortality, light at first in consequence of the initial selection exercised by the offices, gradually increases until it becomes greater than that prevailing among the general population. This latter result he attributes to the selection Coi which the assured exercise against the companies by drop- sel ping policies on healthy lives and retaining those on lives which have become bad or doubtful. A still more com plete investigation of the subject of selection has been made by Mr Sprague (Assiir. Mag., xiv. 328), who shows that the deterioration noticed by Mr Higham attains its maximum some time before the lives pass from observation, and is ultimately reversed after the full effect produced by the withdrawal of good lives has exhausted itself. Mr Sprague s statistics are taken from the Twenty Offices Experience to 1863. In the collection of that experience the effects of the two kinds of selection that have now been referred to selection by the assurance offices and selection against the offices were kept in view as a subject to be investigated; and in the preface to the tables published in 1 The Assurance Magazine or, as it is now called, tlie Journal of the Institute of Actuaries continues to be, as it has been for many years, the principal medium of publication for what is new and im portant in actuarial science. Under the auspices of the Institute of Actuaries, a text-book is in preparation which, when completed, will no doubt bring within a convenient compass much that is now scattered throughout the Journal and other works. In the meantime the student will find it indispensable to make himself acquainted with many of the valuable papers contained in the Assurance Magazine.