DIVISION XVII

INSURANCE

LIFE INSURANCE

BY WENDELL M. STRONG

ASSOCIATE ACTUARY, MUTUAL LIFE INSURANCE CO., NEW YORK

The tremendous growth of the business may be realized in another way, namely, by a comparison of the size and business of the companies now with what they were six years ago early in the post-war period. The assets, the surplus, the amount of insurance in force, and the premium income have in that period all more than doubled.

General. The year 1925, like each | insurance, in force at the end of the of its predecessors for many years year 1925, will be approximately sev past (with a single exception), shows enty billion dollars and the assets a substantial gain in amount of life of the companies will be something insurance issued and of insurance in over eleven billion dollars. force. The remarkable thing about life insurance is that while other kinds of business have their good and bad years, the record of life insurance is each year better than the past, the only fluctuations in recent years (with the exception of the amount of insurance issued in the year 1921), being in the amount of gains. The insurance issued in the first eleven months of 1925 shows an increase of over 20 per cent. over that of the corresponding period in the year 1924, while 1924 showed an increase of more than 10 per cent. over 1923. The statistics which are available on the basis of the experience of fortyfive companies show, for the first eleven months of 1925, an increase over 1924 in ordinary insurance issued of 16.4 per cent., in industrial insurance issued of 22.9 per cent, and in group insurance issued of 65.5 per cent. The only adequate explanation of such continued and uninterrupted progress in life insurance would seem to be that it has more and more the confidence of the public and that there is a constantly increasing appreciation and understanding of its purposes and uses.

The magnitude of the business can, perhaps, be better appreciated if we consider that the amount of life insurance, including industrial and group insurance but excluding the government war risk and fraternal

Special Causes of Growth.-When we turn from the growth of the business as a whole to specific develop; ments which have aided it, we find among them two which should be especially mentioned. The first of these is the remarkable increase in the use of the various optional settlements provided for under modern policies by which the company either retains the proceeds and pays interest during the life of the beneficiary, or pays the proceeds in instalments (allowing interest in so doing) or pays an income for life to the beneficiary. These optional settlements have been contained in policies for many years but have been little used. Recently the appreciation of their value by the insuring public has developed rapidly, with the result that a much larger use is now made of the opportunities that they offer. This increased knowledge, both on the part of agents and of the insured themselves, of the value and adaptibility of these options has undoubtedly resulted in an

increased demand for insurance and tates have to pay in cash or its a more adequate conception of the equivalent a very large amount of amount of insurance required in in- tax. Usually the estate consists only dividual cases. in small part of ready cash, while

It is sometimes said that the origi- securities or property cannot readily nal insurance insures the insured, be turned into cash without sacrifice. while the special settlements insure A life insurance policy frequently the beneficiary. This is true to a seems the best way to provide the great extent since it is unquestion- cash to meet the demand that would ably often the case that where set-be made on the estate for this purtlement is made in a single sum the pose. While the same condition has beneficiary loses in a short time, existed for a number of years, we through lack of business knowledge find that here again the appreciation and discretion, the proceeds of the of the peculiar suitability of life ininsurance which the insured may have surance for making such provision struggled year after year during his has increased, and has had a marked lifetime to maintain. The optional effect on the amount of life insurance settlements meet this difficulty by written. furnishing an income in some form rather than a lump sum.

The increase of the business must, however, be ascribed in greater measA second notable factor in the ure to other and still more imporsteady increase of life insurance busi- tant causes, namely, the increase in ness is a result of the heavy inheri- both the population and wealth of tance and estate taxes, both State the country, and the increasing apand Federal, that now exist, and have preciation of what life insurance can existed for some years. Large es- do for dependents.

STATISTICS OF UNITED STATES LIFE INSURANCE COMPANIES

Includes amounts set apart for dividends to policy holders during following year.
Includes industrial and group business.

Disability and Double Indemnity to prepare a satisfactory table on the Benefits. A development in connec- basis of the companies' own experi tion with life insurance which began ence. Doubtless, however, valuable into assume importance more than ten formation will be obtained which will years ago was the addition to life be of use in the determination of suitpolicies of benefits payable in event able premium rates and reserves. of the total and permanent disability of the insured, such benefits consisting of either waiver of premium or waiver of premium and income to the insured during such disability. Another feature is what is known as "double indemnity" (i.e., payment of double the face of the policy in case of accidental death). In recent years these special provisions have been in-recent development in life insurance cluded in the policies of nearly all companies, and probably the greater part of life insurance now issued includes one or both of them.

The inclusion of disability benefits in a life insurance policy provides an income and also keeps the policy in force without cost in case of total and permanent disability. This is a more complete protective policy than the forms which provided for life insurance only, which were the only forms available a few years ago.

The experience with the double indemnity benefit, which is usually coupled in thought with the disability benefits although it is of an entirely different nature, has been more favorable, the experience of the companies showing that the premiums originally adopted are adequate.

Non-Medical Insurance.-A very

(at least on this continent) has been the issuance of policies of limited amount without medical examination. This practice was first adopted by certain Canadian companies in the beginning of 1921, and their experience has been so satisfactory that now practically all Canadian companies have adopted it. These companies issue new insurance of $2,000, $3,000, and in the case of one or two companies $5,000, without medical examination, usually also allowing addiIn the absence of more reliable tional policies at annual intervals, data, premiums for disability bene- sometimes for the same amount and fits have generally been based on sometimes for less amounts only. A tables made up from the earlier ex- careful selection is made and the apperience of fraternal orders. The ex-plicant is required to answer a careperience of the insurance companies with these benefits, so far as it is now available, would indicate that the premiums charged for disability benefits should be increased, and this question has been, and is, one of the most important which must be considered very carefully by the companies in the near future.

During 1925 an investigation was undertaken under the auspices of the Actuarial Society of America into the question of the feasibility of constructing a new standard disability table to replace the present standard. At the date of writing, the results of the investigation have not been announced. It may be said, how ever, that owing to the rapid developments which have taken place in the various companies' practice relating to disability benefits, and to the short period for which homogeneous data is available it is doubtful whether it will be possible at the present time

fully drawn and thorough questionnaire, covering all matters which might affect his insurability. A number of American companies have now undertaken the issue of life policies without medical examination and in one company the limit is as high as $10,000. The chief advantages to the companies are reduction in expense and facility in the transaction of business, particularly in rural districts where a long journey either by the applicant or the examiner might be necessary to make the examination.

The experience of the Canadian companies has thus far been uniformly good, the indications being that the saving in expense is greater than any loss through accepting a few cases which would have been weeded out by medical examination.

Mortality. With increasing longevity of the population at large, the difference between "expected" and "actual" mortality tends to increase.

In recent years the mortality experience among insured lives has been very favorable. Indications are that, when the full results for 1925 are known, it will prove to have been the best year ever known to life insurance in this respect, with a lower percentage of "actual" to "expected" mortality than in any other year.

"American Men" Mortality Table. -Since its construction more than sixty years ago the American Experience Table has been in many ways a standard mortality table in use in this country for premium rates, and is now the standard for reserves in most of the states having statutes on this subject. Mortality rates have been gradually decreasing for many years, particularly at the younger ages, and the general experience has now become very much better than the rates shown by the American Experience Table. In consequence of this, and at the request of the State Insurance Commissioners, a new table known as the "American Men" Table was constructed some years ago under the supervision of the Actuarial Society of America and the American Institute of Actuaries. This table is based on the experience of the principal companies from 1900 to 1915. . It shows a lower mortality at most ages than the American Experience Table, and much lower at the younger insurance ages. Shortly after the

Notwithstanding the lower mortality rates a change would make very little difference in total reserves; in fact, use of the new table would increase reserves slightly rather than decrease them. On the other hand, the lower rates of mortality would make a very considerable difference in premium rates. In the case of companies issuing participating policies this is not of much importance since any overcharge or inequality of gross premium rates is adjusted in dividends. For companies issuing non-participating insurance the situation is different. If their premium rates are too high there is no readjustment afterwards. Some of these companies, particularly among the smaller ones, would prefer to keep the present standard since the artificially high rates are a help to them. Others, and among these the largest, would prefer to charge lower premiums at the younger ages than the American Experience net table but are unable to do so because the statutes of several States require a deficiency reserve to be added to the regular reserve when the premium charged is less than the net premium by the American Experience Table. Adoption of the new table would thus solve the problem for such companies and permit them to issue insurance at lower rates at the younger ages.

Payroll Deduction Insurance.-A completion of the new table the in- form of life insurance which is in fluenza epidemics of 1918 and 1919 process of development and which occurred with resulting high mor- seems to be extending quite rapidly tality among insured lives. In some is one which is known by various cases the mortality for 1918 was actu-names, such, for instance, as "Payally higher than that "expected" by roll Deduction" or "Salary Allotthe American Experience Table. In ment" insurance. The essential feaconsequence of this and for other rea-ture is that at the request of the sons, the American Men Table was insured premiums are withheld from not adopted in any state as a reserve his salary by his employer and paid standard to take the place of the by the employer monthly to the comAmerican Experience Table. There pany. This has the advantages to the has been considerable discussion as insured that premium payments are to the adoption of the new table for automatically taken care of, and that life insurance purposes and in 1925 the cost is spread evenly over his inthis question has been taken up again | come, instead of coming due in comby the insurance authorities. A comparatively large amounts quarterly, mittee of actuaries of the state in- semi-annually, or annually. surance departments has been ap- Miscellaneous Services. A new pointed to cooperate with committees field entered into by one large comof company actuaries to make recom- pany is the taking over a pension mendations in this matter. plan for corporations in very much

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