Rerieii- of Rerieirs, IjllliG. 



Leading Articles. 



487 



A STATE INSURANCE MONOPOLY. 



Twelve Millions Added to the Revenue. 



In the Fina)uial Review of Reviews an article 

 appears on this subject which is sure to attract much 

 attention. The gist of it is that insurance is amaz- 

 ingly profitable ; that the reserve funds are exces- 

 sive ; that the cost of management could be im- 

 mensely reduced if the State took over the working 

 of fire and life assurance offices ; and that with the 

 lessened reserve funds and saving in cost of man- 

 agement an addition of some tw'elve millions could 

 be made to the revenue, enough to justify either a 

 substantial reduction of the Income Tax or to ex- 

 tinguish the National Debt. 



THE PBOFITABLENESS OF INSURANCE. 



To come to details. Nothing in the commercial 

 world approaches even remotely the security of a 

 well-established insurance office — such is the opinion 

 of a great actuarial authority. Some fifteen or more 

 e.vamples are then given of the dividends paid by 

 well-known British Fire and Life Assurance Com- 

 panies. The net result is that — according to the 

 last Government annual return for Life .Assurance 

 Companies — 



on a oiipital outlay of about fourteen miilions there was a 

 return of something over one million, or over seven per 

 cent. The figure is a very striking one, and it appears the 

 ntore significant when we remeTnber that all companies, 

 good, bad. and indifferent, which come within the provi- 

 sions of Section 10 of " The Life Assurance Companies Acts 

 1870." are included in the return. It is probable that no 

 other interest or industry in the country could show ool- 

 lect.ively such a handsome yield on its capital. 



HIGH EXPENSES OP MANAGEMENT. 



The remarkable thing, the writer says, is that this 

 high profit is shown, in spite of the extremelv costlv 

 system of working which competition, it seems, com- 

 pels the companies to adopt. Roughly speaking, 

 nearly a quarter of the total premium income of the 

 companies goes in managerial and office expenses 

 and commission. With fire offices this freedom i.s 

 still larger. 



NEEDLESSLY LARGE EESEUVE FUNDS. 



The writer admits that large reserves are an 

 e.ssential condition of sound insurance management. 

 But it is a question whether these " mammoth and 

 ever-growing funds " do not represent too high in- 

 surance rates, rather than cautious finance. The 

 companies work on a basis theoretically .sound, 

 but in practice fallacious. The mortality tables are 

 out of date. As a rule they go back to 1872, since 

 which year sanitary science has made such strides 

 that the death-rate has been materially reduced and 

 the average duration of life prolonged. The calcula- 

 tions of the companies, moreover, are not based on 

 the selected lives with which thev usuallv deal, but 

 on those of the general population, including, of 

 course, the notoriously short-lived. Consequentlv. 

 they are constantly paying enormouslv less in deatifi- 

 claims than they expected, or might have expected. 



Twenty years ago one of the largest companies 

 testified to its deaths one year being 26 per cent, 

 below the number expected. And this improve- 

 ment continues. Hence huge additions are con- 

 stantly being made to the funds. 



Again, the average duration of a policv in a 

 British company is only five years, and ' lapsed 

 policies outnumber those on which claims are paid 

 by two to one. Yet companies still calculate on the 

 assumption that every policy will mature. The 

 " epidemic ' argument is used to justifv these 

 hoards ; but the writer does not think is does jus- 

 tify them nowadays. The reserve funds "might be 

 reduced by one-half, and the companies would still 

 be well within the margin of safety.'' 



A PLEA FOR STATE INSURANCE. 



The writer then proceeds to argue from what the 

 Government has already regulated (gas, electricitv, 

 telephones, telegraphs, etc.) that it is not so revolu- 

 tionary a proposal that it should also regulate 

 insurance. In Germany it does so to a certain 

 extent already. Of course in New Zealand State 

 Life and Fire Assurance are well known, and the 

 former long-established. Considering how wasteful 

 and extravagant is the present system of insurance, 

 he thinks Government regulation quite justifiable. 

 Sweep away all the present costly offices and 

 " gilded palaces," " all the paraphernalia of modern 

 insurance," which is '■ an absolute excrescence of 

 civilisation," producing nothing, and substitute a 

 single, well-equipped office, and the public would 

 be as well, indeed probabK better served. More- 

 over, it would have absolute security. That a Go- 

 vernment concern would be much Jess costlv than 

 many private ones is not a point needing elabora- 

 tion. 'I'he writer admits that comparison with the 

 Post-office insurance business is not altogether ex- 

 act, yet' its expenses of management are about ^^ 

 per cent as against about 23 per cent, for the Life 

 Assurance Companies, and 28 per cent, for the 

 whole of the Insurance Companies combined. Even 

 supposing the State expenses of management were, 

 in practice, 7 per cent., what an immense saving — 

 ;!^i_^.ooo.ooo and over. 



HOW TO EFFECT THE TRANSFER. 

 The recent acquisition of the Metropolitan Water 

 Companies shows how smoothly private interests 

 can be bought out. A tribunal of arbitration would 

 have to settle the terms of the transfer of the com- 

 panies, and if, as in the case of the Water Com- 

 panies, a little under thirty years' purchase of the 

 net earnings is calculated for, we get the follow- 

 ing:— 



Purchase price of the Life Companies ...£30.741.710 

 Purchase price of the Fire Companies ... 20.000.000 



Bough probable est ima,te £50.000,000 



Mutual offices would, of course, require special 

 treatment, and it is a nice question as to how 

 accumulations could be dealt with under a State 



