By G.A. Litchfield.
It is the purpose of this article to fairly treat the subject under
consideration and to set forth such claims only as can be sustained to
the satisfaction of candid and unprejudiced minds. It will not be
assumed that the science of Assessment Insurance is perfected; on the
contrary, our most advanced thinkers upon the subject are those who see
most clearly its defects, and are laboring most assiduously to correct
them. Grave obstacles have been encountered in their endeavors to
perfect the system. Those who have written upon the subject in the
public press have been largely such as have given it but a cursory
study, or such as have been totally unfit to discuss it from an
impartial standpoint by reason of preconceived notions or prejudices in
favor of the level premium system of insurance, if, indeed, they have
not been retained for a consideration by that gigantic moneyed monopoly.
So largely has prejudice controlled in the consideration of the subject,
that those who have sought judicious and stringent legislation to
correct abuses, and to bring the business under equally careful and
official supervision as that given other forms of insurance, with a view
to making it _permanently_ subserve public interests, have been
more than once defeated in their laudable endeavors, because they
insisted that no legislation could meet the necessities of the case that
did not contemplate it as a _permanent_ institution. Great advances
have been made however in the last three or four years, and much that
was objectionable has been corrected. Wise legislation has been secured
in many States. At the last session of her legislature, Massachusetts
signalized an important step in advance, by enacting a law whose
provisions indicate an intelligent comprehension of the subject on the
part of her legislators, unsurpassed by those of any other State. It has
already begun to correct existing evils, as its advocates foresaw it
would do.
Several companies dishonestly and incompetently conducted have found it
impossible to longer prey upon a too confiding public.
The collapse of fraudulent concerns has furnished an occasion for the
enemies of the system to cry out against the system itself, but thinking
men are not deceived thereby. As was recently remarked by a
distinguished ex-insurance Commissioner of Massachusetts, "Assessment
Insurance has come to stay." There is not, as has been claimed by its
opponents, anything inherent in the system that fore-dooms it to early
and inevitable collapse.
Assessment insurance is natural insurance as against artificial.
In the early establishment of life insurance companies, everything was
assumption, there was little or no experience to guide in formulating
the principles upon which the business should be conducted. There was
partial information, it is true, upon certain general facts pertaining
to longevity or to mortality laws, under certain conditions, but nothing
that could give substantial data upon which to base mathematical
calculations for the establishment of a science. Under those conditions,
rates of premium were fixed for insurance at the different ages which
the experience of many years has shown to be very much higher than is
required to meet reasonable expenses, and losses occurring from policies
maturing by death.
A rate of mortality was assumed greater than experience has shown to
prevail among well selected lives. The important element of lapses was
not considered, an element so considerable in its practical bearing upon
the requirements of the company to meet its liabilities, that of one
million of assumed liabilities upon say one thousand lives, only about
$77.000 become actual liabilities by reason of policies maturing by
death of the insured.
Assessment insurance instructed by the experience of life companies,
adjusts its plans and methods upon the natural basis of fact, and not
the artificial one of supposition. It tabulates its rates according to
the combined experience of all American companies, requiring the insured
to pay a sum proportionate to the amount assured, and to his life
expectancy.
It places its risks upon carefully selected lives only, requiring a
competent medical examination of the applicant, having regard to his
previous health and habits, his occupation or profession, his family
history, and such other circumstances as should properly be considered
in calculating probable longevity.
We assert without fear, that we shall be successfully controverted, that
there is as great care and discrimination exercised in the placing of
risks by our representation assessment companies, as in any other form
of insurance. Time was when this claim could not have been supported by
facts, but that time is not now. Our conservative assessment
companies,--and there are many of them that can be fairly so styled,
ignore none of the scientific principles upon which life insurance
depends for its permanent success. They do believe however that their
methods of conducting the business will conserve the interests of a far
greater number, and relieve them of a large proportion of the burdens
imposed by the older and more cumbersome form.
Assessment companies call upon their policy-holders for such sums as are
required to meet actual losses, together with a small amount for
expenses and for an emergency fund. Mortuary assessments are called only
when there is an amount in hand on that account, insufficient to meet
the maximum sum for which a policy is issued. They may be called at
stated periods, or as the exigencies of the case shall require.
Objection is made to this method that it is unreliable, and cannot be
depended upon when the mortality is from any cause unusual or excessive.
It is not claimed by the best informed advocates of assessment
insurance, that direct assessments should be the sole reliance of the
company. Some other provision should be made which is referred to later
in this article, but the main dependence is upon assessments.
If companies are honestly and capably conducted, and risks judiciously
selected, there is nothing in the experience of life companies to
indicate that mortality assessments on the _average_ will be
sufficiently burdensome to seriously threaten the permanence of the
institution. Where disaster has been visited upon assessment companies,
the cause has been easily traceable to incompetent or dishonest conduct
of the business, and utter disregard of the foundation principles of all
insurance. It has in no instance been fairly chargeable to defects in
the system. With the record before us of our best assessment companies,
faithfully and competently administered, paying their losses promptly,
at a cost to the insured for a term of years, of one third to one half
only, of that in level premium companies, what reason is there for the
insuring public withdrawing their patronage.
But we admit that it is not sound policy to depend upon assessments
alone, and this view is held by most if not all, who have studied the
subject in its various aspects. While for many years, and perhaps
indefinitely, a company might be successfully conducted, if under a
competent management, depending solely upon assessments, yet
contingencies arc liable to arise in which it will be evident that true
conservatism and wise forethought would have held in hand some funds for
use without imposing, at that particular time, the burden of an
assessment upon the policy holders.
The advocates of such conservatism have been met with the argument that
it is contrary to the principle of assessment insurance, and a
concession to the theory of the level premium plan. But the reply is
that the requirements of an assessment company in the form of an
emergency or reserve are in no sense comparable with those of a level
premium company, and the application of it is upon an entirely different
principle, and for an altogether different purpose.
An assessment company may need funds in hand to relieve its members of
an assessment when otherwise they might be overburdened, because the
death rate fluctuates in different years. Or again, in case of a
depleted membership from any cause, the assessment company would need
funds in hand to supply any deficiency in the proceeds of an assessment
below the face of the maturing obligation. For either purpose a
comparatively small sum is required, while the level premium company
must pile up tens of millions of overpayments to cover the requirements
of the principle on which it conducts its business. It is susceptible of
mathematical demonstration that one or two millions of dollars of
reserve is adequate to perpetuate any well conducted assessment company
for all time, however large or small it may be, while the spectacle is
presented to us of level premium life companies holding fifty to one
hundred millions of accumulations belonging to their policy holders,
from which no possible benefit, in most cases, will ever accrue to them.
We therefore emphasize the proposition that a system of insurance that
relieves the insurer of one half the pecuniary burden he is compelled to
bear under the level premium system, is one that is worthy of fair
treatment on the part of a discriminating public, and that the people
cannot afford to have impeded in its usefulness by ignorance, prejudice,
or moneyed monopolies. We repeat the claim for assessment insurance that
it is _natural_ as against _artificial_ insurance.
It is pure insurance as against insurance and banking combined.
It is within the comprehension of ordinary minds. It is adapted to the
wants of the people, because they can easily avail themselves of it, and
as easily discontinue it without material or considerable loss.
It is within the reach of a much greater proportion of the people on
account of its small comparative cost, and the ease with which payments
can be made in small amounts. More than sixteen hundred thousand of the
citizens of this country are now availing themselves of its advantages,
as against about six hundred thousand in level premium companies while
the former represent more than thirty-seven hundred millions of
insurance, as against about fifteen hundred millions represented by the
latter.
The disbursements of assessment companies to families of deceased
members reach the munificent sum of more than twenty-two millions of
dollars annually. The national organization of Mutual Benefit Assessment
Associations of America is exerting a most healthful influence in
elevating the standard of those companies that comprise its membership.
It embraces organizations from all of the principal States of the Union,
and its influence is strongly on the side of scientific and conservative
methods and practices.
To be eligible to membership, a company must have its rates of
assessment graded according to one, or the combined standard mortality
tables, take proper precautions in selection of risks, protect new
members at any time in its history against an excessive number of
assessments, either by increasing the rate of assessment with advancing
years or by accumulating a fund in lieu of advancing rates, will make a
full exhibit of its policy data annually to the Convention. This
standard upon its publication, compelled favorable recognition upon the
part of level premium journals.
Thus assessment insurance has gradually placed itself upon a higher and
more scientific basis, until it has commended itself to the most
intelligent and thoughtful, and in its wonderful growth outstripped its
older and less popular rival, until its obligations to the families of
the insured exceed those of level premium insurance to the amount of
about two thousand millions of dollars.
A Bureau of Insurance has been established under the auspices of the
National Organization whose object is to gather and compile statistics
relating to all phases of assessment insurance, such as the experience
of companies with agents and medical examiners, the comparative cost of
carrying various classes of risks and in short, everything in the
practical working of the business by the companies comprising its
membership, that may furnish data for a more scientific basis, and more
satisfactory results in the future.
Many assessment insurance companies are not what they ought to be, but
there are those worthy of confidence and patronage, whose managers are
making the business a careful study, and bringing to its administration,
honesty of purpose and large executive ability.
If the insuring public will learn to discriminate and place their risks
in the best assessment companies, remembering that insurance in any good
company must cost a reasonable amount, they need have no apprehension as
to the result.
* * * * *