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These simple explanations, if rightly understood, will dispel a large amount of illusion as to the peculiar advantages of some puffing offices. One office cannot, in the very nature of its business, so greatly exceed another as to give much higher and equitably apportioned “bonuses” with safety and prosperity. They all deal in the same commodity-at the same cost price--and in the same public market. Differences of conduct, of zeal, prudence, and economy will, of course, create considerable differences in final results, but not so much amongst high and honourable offices as is commonly imagined. Investigation would soon show the unsoundness of certain advertised advantages in this or that office, but we have not space for more than a few sentences on this head.
In comparing any two Life offices, it may be found that one charges a higher premium at the first entrance than the other by (say) 10 or 15 per cent. Let the higher charging office be A, and the lower charging office B. Now A will have more of surplus to divide than B, because it has, every year, charged and received more money, and has put out that excess to interest. But the Assurer in B, though receiving a less addition to his policy of Assurance, has obtained the equivalent in his original saving by paying a lower premium every year. We have made numerous calculations, showing that such a present saving is equal to a deferred bonus, if such saving be put out to interest. Let the following tabular extract suffice :
COMPARISON OF PRESENT AND PROSPECTIVE ADVANTAGES
OF A AND B OFFICES, IN ASSURANCES OF £1,000.
Age of Premiums Premiums Annual Equivalent to a Sum assurable at once in B Assurer. in B. in A. Saving in B. present bonus of for the higher prem. of A.
It is manifest, in the above tabular comparison, that a person wishing to assure at (say) age 30 for £1,000 at death, has the choice of a present and continued annual saving of £4 6s. 8d., or a deferred advantage called a bonus, according to his preference of B or A. Both he cannot have. The only question is, which will he forego ? Nor can A be said to be a better office than B, merely because it gives larger additions to a policy. It charges more at first, and gives more at last. Thus the same charge which A makes at first will in B procure at first a larger assurance, that is, £1,209, instead of £1,000 in A. The above figures are founded upon the actual rates of two existing offices — B representing nearly the lowest charge of any office, and A the ordinary charge of most of the higher offices, though not the highest.
Much mystery prevails in connection with the mode of calculating and apportioning the shares of the profits, or surplus, to the several Assurers in a Company. This is, indeed, the most abstruse and really difficult part of the whole management of the funds of a Life offer. The Actuary who devotes himself to this department, is genendir well informed upon these his special topics, and most commonly does and advises much as he pleases in relation to them ; Directors and the Assured themselves—particularly the latter-neither understand, nor care to study, such purely technical and often complicated details. Here, then, there is much room for delusive representation, if it be designed ; and as even Actuaries themselves are scarcely agreed upon the best or the most equitable modes of valuation of s Company's affairs, and distribution of its surplusage, a wide difference of advertised results is observable. The uninitiated Assurer may be thoroughly perplexed upon these points, and find them so bopelessly intricate, that he will probably content himself with confidence in the officers of the Company. There, with nearly all Assurers, the whole matter begins and ends. The Directors, too, have their own affairs to trouble them, and conceive it enough to provide and pay highly a well-recommended Actuary. With this officer, then, ultimately, the whole management and responsibility rests. He may carry out his own views for a long series of years, to the serius detriment of the Assured ; or, on the other hand, he way (and happily it may be affirmed that he now generally does) act carefuls. conscientiously, and correctly. It is not, however, the best mathematicians who always make the best Actuaries. High conscientias ness, and a genius for practical finance, are of more consequence ta such an officer than high mathematics, which are seldom homoght into use in ordinary Assurance business. There are also eminen mathematicians who act privately as Consulting Actuaries to the various Companies, and who, in cases of difficulty, or at the periode of valuation of the Company's assets and liabilities, are frumenti referred to as being able to give an authoritative and valuable opir No Company, therefore, need go far wrong, even under somewust inferior but honest management, while a few pounds will secure the advice and direction of an acknowledged authority, well versed in the intricacies of Assurance and finance.
There are now in existence, in our own country, about one hundred and sixty Life-Assurance offices, which in the aggregate guarantee assured sums amounting to little less than two hundred miles sterling! Their aggregate annual income probably excels RTER millions sterling, and they probably expend half-a-million numraky in transacting their business. These are, indeed, wonderful reaks when we call to mind how recent has been the date of I TO and accurate Life-Assurance contracts, and how slow the prva of knowledge on the subject. The earliest Mutual Life Assa Corporation was not invested with the power of granting dan at rates of premium calculated according to age, until the oth a October, 1807; and it was only as recently as the sth of May, 1***
that it was empowered to grant Assurances for fixed sums. The anited income (from annual premiums) of the Life offices established from 1846 to 1857 was no less than £631,189; and a glance at the dates of the establishment of many of the most flourishing and favoured institutions of this kind, would show that they are the growth of very modern times.
A very natural inquiry would be, in connection with these considerations—what has been the recent progress of the principal LifeAssurance offices, and what the particulars of that progress ?
No precise data exist, nor can such be obtained from the offices universally, to show the amount of business actually transacted. Returns of this kind, as might be expected, can be most readily obtained from the prosperous offices, many of which make public the new business they have secured since their preceding meeting, or investigation into the state of their affairs. We can, however, present the following abstract of Assurances effected during three recent years, in fourteen of the principal London Companies :
It appears from the above Table, that the increase in the number of policies effected in 1850 was 6:1 per cent. on the year 1849, and, in 1851, 5.8 per cent. on the year 1850; while the increase in the amount of sums newly assured was about 12:68 per cent on the previous year, 1850. A slight diminution took place in 1851 as compared with 1849, for which nothing in the financial state of the year will account. The result of the two years combined was an increase of about 12:26 per cent. in the number of policies in 1851 as compared with 1849, and 11.25 per cent. in the sums newly assured in the same period.
Proceeding downwards in time to the next period of three years, the subjoined statement gives a summary of the business of thirtysix Companies, and the particulars for each of the three years to which it relates. The Companies included are both old and new, some of the largest and most opulent, and also some which have been recently extending their business to the classes of the community whose policies can only average a small sum. In all of them the returns of new business for the three years are complete, and in all likelihood they represent a fair average of the whole. Although the policies include a few annuities, yet they are for small amounts only:
It will be seen, by reference to the Table preceding the above, that the total business of Life Assurance may be supposed to have in. creased much more rapidly in the three years 1852-53-54, than in the three years 1849-50-51. In 1850, the increase was 6:1 per cent. on the business of the year 1849; in 1851, it was 5.8 per cent. on the year 1850. The largest increase, however, was 17.3 per cent. on 1852; which will account for the increase in 1854 being only 38 per cent. on 1853. Thus, in the two years 1850-51, it increased 11-25 per cent. on 1849; and in the two years 1853-54, nearly 21.8 per cent. on 1852. Presuming that the new business thus so largels increased be sound and of average value, the above statements must be most gratifying to all who are interested in the social progress of the community.
A subject of hot controversy, within the last few years, has been the expenses to which offices are put by the prevailing competition for Life-Assurance business. Admitting that there are about one hundred and sixty existing offices, and that the annual expenses of each are, on the average, £3,000 per annum (and certainly very few offices conduct their business for less, while many spend much more), then their aggregate annual expenditure is £480,000 per annum, or, in round numbers, £500,000. Hence the question has been eagerly discussed, whether this sum could not be reduced. It assuredly could, if there were no need for advertisements, or agents (who are paid high commissions), or Directors (who have high fees), or Actuaries of eminence (who have high salaries). But the offices will say they have more need than ever of such auxiliaries, and that, while the keen competition of younger and more active rivals diminishes the business of the older ones, it rather increases their expenses. In truth, it is a matter of serious doubt whether some of the numerous existing offices can stand their ground against the unremitting endeavours of their competitors to outbid and outdo them in the race for the public favour.
From these remarks we may be thought to be unfavourable to the wholesome stimulus of competition in these important institutions. It may be objected that, as the effect of competition in commerce
in general is to secure for the public a better article at a lower price, and even to create a market where none previously existed, as well as to promote the use of commodities on an extended scale, so, similar advantages--mutatis mutandis-must follow from the establishment of new Life-Assurance Companies ; that the old and exclusive Companies will be compelled to be more liberal ; and that vigilance and devotion to the interests of the office will be largely increased. To a limited extent, some of these pleas may be applicable ; bat certain essential differences between the business of Assurance offices and that of other mercantile concerns must be observed. In the extended use of the necessaries of life, and in the increased consumption of manufactured articles, the cost of produce and production, or manufacture, may be diminished by the profits creating capital, which will return into the respective businesses ; thus more skilled labour will be brought into action, and then will follow a subdivision of labour in the several processes of production. Nothing analogous to this can take place in Life offices, unless it be found in the employment of the highest medical science in advising upon the acceptance of the proposed lives. Such advantage, however, is simply a closer approximation to the true mortality of select lives amongst a class which is superior to the average, and to whom the Premiums charged in the Tables do not really apply, as they were founded upon the average of society at large.
Certainly, in so far as this truest law of mortality is ascertained, there may be ground for some reduction of the premiums. Let us, therefore, consider to what such reduction would lead. Nearly all Companies, arguing from the ascertained experience supposed, would be induced or compelled to reduce their premiums, and the necessary vigilance in selection would be relaxed to a greater or less degree; that is, the experience of the company which had the best lives would be accepted as the rule for many, if not all others. Thus it is clear that, under such a procedure, the benefit of selection would disappear; for all cannot have the best lives, and, in proportion as the lives of the general population were insured, so there would be a continually increasing approximation to the average mortality of the nation--the advantage of the few would be given to the many, and cease to be an advantage.
Every office thrives in proportion to the selection of its lives. The more cautious the admission, the more continuous the season of prosperity. What is technically termed “the benefit of selection," is simply the benefit of early and continual caution in rejecting unsound lives. Relax your strictness, and you relax the sinews of your strength. The Scylla and the Charybdis of Life offices are—scarcity of good business, and abundance of bad business. To one or the other they are constantly tending, in these days of striving and beating about for lives to assure. No one knows the keenness of the competition until they are engaged in it. We have counted more than two thousand Directors of British Life and Fire Insurance offices. Every one of the two thousand is a secret friend to his