PRINCIPLES AND PRACTICE OF LIFE ASSURANCE. IT is nearly seven
years since we touched upon the history and importance of life-assurance, and entered rather fully into the principles which should govern its practice. Daring the intermediate period, various pe- riodicals and publications have contributed to popularize the subject, or at least to address the general reader. Some have chiefly dwelt upon the history, some have simplified the mathematics, but all have more or less urged the importance of life-assurance to the wellbeing of families whose income is dependent upon the life of their head. This subject is indeed so vital, not only to the comfort but to the respectability of children, especially of female children, and its propriety so clear, that argument or illustration seems superfluous. It is not so much know- ledge that is wanted, one would fancy, as will and firmness,—will, to interrupt the daily routine of life by the steps (trifling as they are) ne- cessary to effect the insurance ; and firmness to save the money for the annual premium, by economizing, if necessary, in some indulgence ; for the percentage is so moderate on young and middle-aged lives, that few persons in a condition to render insurance a duty, but could spare enough annually to effect some insurance.
Except in a few of the more technical publications, which have done good service by reducing the higher mathematics into arithmetical rules, so as to enable common knowledge to calculate the value of a life by the assistance of tables, the latter publications on the subject have been rather commonplace. Their staple has consisted of the history of insu- rance and insurance-offices in this country, derived from one common source—the obvious arguments in favour of this mode of providing for a family, urged without vigour of style or novelty of illustration, and an exhibition more or leas elaborate of the different insurance-offices. This is not, indeed, a practical objection against them ; for it takes a long time for scientific and literary truths to penetrate the mass, and commonplace people must be hit by commonplaces : but what is good for use may be too common for criticism, and since 1841 we have passed the books on life-assurance with an occasional note as they appeared.
In the earlier part of Mr. Sturrock's Principles and Practice of Life Assurance there is not much of novelty ; but when the author dismisses the history and uses, he enters upon topics of more importance. We formerly observed upon the subject of the bonuses, (which many offices make a matter of such glorification) that great profits only prove great overcharges in the first instance, though some overcharge is neces- sary for security, and that a comparison of the scales is necessary for correct appretiation. This subject of bonuses is handled by Mr. Star- rock at some length ; but by far the most important feature in his essay is the high rate of premiums charged by the majority of the offices. The cheapest of those he refers to often demand much above the risk, calculated on the Carlisle table, assuming the improvement of the capital to be at only 3 per cent, which the Public Funds have always yielded. This topic is handled in a variety of ways, both argumenta- tively and statistically ; the question being pursued through several tables, in which the actual premiums taken, with their corresponding mathematical values, are given according to the existing data. Of these tables we quote the most important, which shows the whole subject at one view. The Northampton and Carlisle tables are too well known to need explanation. The "combined experience of seventeen London offices" was formed by their actuaries on data drawn from their own archives ; and as it exhibits the value of those select lives in which the assurers deal, would seem to be the most authoritative, though none of the offices either in London or elsewhere have adopted it. The English table at 4 per cent is deduced from the census and the reports of the Registrar-General; that of Finlaison from the experience of the National Debt Office. We have added to the "English table" a column from Mr. Farr's essay, showing the value if the premiums are improved at 3 per cent; though it must be borne in mind that these lives are average, not select. It is worth remarking, that while the English table is lower in the younger lives, it is higher in the older; showing that "a good life," in actuary phrase, lives the longest, notwithstanding the proverb about the creaking door hanging the longest.
"It is perfectly obvious from an examinat'on of these tables, that the rates charged by the Northampton table are far beyond what is necessary; and hence the reason of bonuses on policies. The English offices generally employ the Northampton table in connexion with 3 per cent interest, without any addi- tion. The Scottish Mutual offices (with the exception of the Scottish Provident Institution) use the premiums deduced from the same table, calculating interest at 4" per cent, with an addition of n per cent to the rates. The greatest defect of the Northampton table is, that the premiums are not proper/y adjusted accord- ing to the different ages. "The rates deduced from the Carlisle, Govermnent, and English tables of mortality, and from the experience of the seventeen London offices, indicate the premiums which should be sufficient Unless it can be shown that incorrect re- ports of the proceedings have been given, and that the observations to ascertain the rate of mortality have been made on erroneous principles, the premiums stated in these tables should enable every one to judge whether any society charges pre- miums near to or beyond the true risk. It will then be for the interest of the person about to assure, to judge which association he will join—whether the society charging the higher premiums, that the excess voluntarily paid by him may be added to his policy if he live for a series of years—or the society charging the more moderate premiums, and where the amount of each policy, or future benefit to the assured, is at once very nearly adjusted, and not left to be corrected afterwards by bonuses, which are the offspring of an imperfect know- ledge of life-assurance."
This extract, with the data in the table which accompanies it, contains the pith of the matter for an intended life-insurer. He here sees the average run of premiums, cheap and dear, with their excess beyond the mathematical value. This, in the cheapest office presented, (for we think there are some dower than Mr. Stnrrock exhibits,) is so much above what is required even at 3 per cent, for the " mean " of the sexes, that no risk appears to be run, if the character of the offices and of their directors is respectable. At the same time, Mr. Sturrock, as is generally the case with earnest men arguing against an abuse, seems inclined to push his principle quite as far as it can be safely carried. In these mathematical cal- culations nothing is allowed for the expenses of management and agency; which in new offices must be considerable in proportion to their business. It must be remembered, too, that the calculator at his desk defies time and contingencies; his premiums are steadily improved (upon paper) at what- ever percentage he fixes upon : but in practice, directors, however ski!- hi, must lose some time in procuring investments ; there is in all trans- actions, however carefully conducted, some possible risk of loss ; and a balance must be kept lying idle. In addition to these causes of practical expense, there is in new offices the possibility of early deaths ; and there is that feeling in the human mind which above all things dislikes chance in matter of assurance, and would rather pay more than introduce risk into a subject of this kind. That the premiums might advantageously be reduced in the majority of offices, is clear; for although a portion of the overplus may be returned in some form of "bonus," yet this bonus Can never be accurately calculated to meet each case. Reduction, how- ever, has its limits; and a very close approach to mathematical value, in the premiums of any office, should rather act as a beacon than a bait,—a principle that, in doubtful cases, decides in favour of those offices which allow the insurer to participate in the profits.
Previous page
