MUTUAL AND PROPRIETARY LIFE ASSURANCE.

Evening Star, Volume IX, Issue 2530, 27 March 1871, Page 2

MUTUAL AND PROPRIETARY LIFE ASSURANCE.

Extend from Chambers' Edinhuryh Journal. Life Assurance being a subject of great and growing interest to the public, we deem it not superfluous <o make a few remarks on the comparative men's of the two modes—the mutual and proprietary—which now contend for notice.

The Proprietary System is that of oldest standing. Life assurance was first (speaking generally) practis'd by joint-stock companies advancing money to sustain the risks of business, and lo king for a profit on the capital risked. And this plan was very suitable at the time, for with the defective moans of calculation which then existed, life assurance business was as much a matt t of speculation as would ho a transaction in bops or foreign wheat at the present day. But afterwards, whin tables of mortality were formed, and the decrement of human life came to be reduced to a simple mathematical problem, it was seen that life assurance might be conducted by mere societies of the persons assuring, whose payments should form the fund for discharging the emerging claims, and who should appropriate to themselves any surplus which might ari e after all snob claims were satisfied that is to say, receive back what in a company, would be distributed amongst the shareholders as profits. The plan of Mutual Assurance, as this last is called, has within the last thirty years made a considerable advance upon the older proprietary system; yet the givat bulk of the life assurance business of the country is still transacted in proprietary offices, the numbers of which are more than three to one of the mutual offices. After a careful examination of the two j)la»9, some benefit from practical ex-

perii-nce, we do not hesitate to declare our conviction that the mutual system is the only one which the public at large are concerned to support. The proprietary system, originating only by favor of the darkness in which the subject was at first buried, could only, it appeals to us. have since been supported by the efforts of interested perhaps to be considered by mercantile men, is a legitimate mode of making money; but, examined more rigidly, and by persona, like ourselves, perfectly disinterested, it seems by no means a blameless one. To illustrate this, let us see how a life assurance company generally proceeds. A set of speculators start it with a large apparition of capital, of which only a few thousand pounds need be paid up. By means of a handsome-looking office, incessant advertising. and active managers and agents, business is obtained. After a few years, this has generally increased considerably, and lar.ee dividen Is be jnto be made amongst the .shareholders. In one instance under our immediate not'ce, ten thousand pounds of paid-up enpi'-: 1 now stan Is, after seventeen years’ business, at the value of L 70,000 in the stock market, being LOOf) per cent, of premium. What is it that has so much increased its value ? Only those surplusages of payment by the public which, in a mutual office, -would a ! l come book to the assured.

Generally, it is to be remarked, proprietary offices, besides their usual scales of rates, where as in death’s own list, there is no return, have a scale where the payments are somewhat higher, and the assured arc to have periodical bonuses as in the mutual srstem; a c mcessiou much like the celebrated one which vice is said to pay to virtue. But here the benefit! si ik far below what are to be usua'ly obtained from a respectable mutual office; as they well may, seeing that the c mipauy looks for a p olit to itself, which is just so much abstracted from tne pockets of the assured without any equivalent. Were wo to draw out fables contrasting the sums which individuals will realise in a course of years under the mutual system, with those which the same payments will obtain un ler the proprietary or trading system, even where shares of “ profits ” are professedly divided among the assured, our readers would be startled at tbe difference of results. It would appear almost incomprehensible that tbe proprietary system should have contrived tq exist so long, when a rival plan, free from all selfish principle, and securing to the p iblic the utmost possible advantages, was daily contending with it for public favour. This, however, is no real mystery, when we consider the ign -rr ance of most j) n sons on the subject of life assurance, and what a powerful interest is concern'd in maintaining tbe repute of the proprietary system, and bringing business to its bureaux.

The leading pretext of the proprietary system is, that the subscribed capital affords a guarantee or security for the payment of claims which the mutual ‘-yslem lacks, and that the assured is thus compensated in safety for what he wants ju money. But the hollowness of this pleading is seen in a mo, ment, when wc consider that a combination of assurers, earii paying fully what science says is necessary to make, good their mutual engagements, is a transaction free of all risk, in the ordinary sense of the word, and only can fail in the event of a change in the 1 >w§ of nature, or such an alteration in the condition of the country (affecting the value of money) a? no kind of security could gain: stand.

Attemp's have been made to liken the, c ise of a life assmranc? company to a bank of deposiq and to make out from that analogy that a stock is necessary for the security of the assurers. But the cases are totally diverse. seeing that the a surance company has not, like a bank, to trade with its deposits, but only to lay the n i-ufc to the best advantage in permanent investments, and thus hold them till th \v fall in the due course of time to be i chimed

A bank ivb ch appropriated to itself half the ordinary rate o interest for deposits, on the prc'c.oi of i‘s having a few thousand pounds of stock to afford a security, would be in stri :t apology, bijt no other. In fact, the capita/ is a mere std/kiny-horse: there is no instance of its ever being called into reqni itinn. Were such an instance to occur, it would probably prove a more trifles in comparison with the extent of the obligations.

We may go farther, and say that this capital is not only unnecessary, in consequence of the unavoidable formation of large funds from the mere payments of the assured ; but, if on a large scale, it would be a positive disadvantage, as, if there is any real difficulty in the conducting of life sssurance business, it is in the disposal of the funds. Capital for life assurance can at the most only be needed at the first, while the accumulated premiums of the assured are of slender amount; but admitting that it is ever so needed, it almost immediately becomes superfluous, and should be therefore withdrawn. There, is an instance of an office commenced on the proprietary system, with ait arramjementfor the ijraflual huyiny up of the shareholders, which is now effected, so (hat the. office, after loyally years’existence, has made a transition to the mutual system. This is so far laudable : only there was no need jor the shareholders drawing profits for so long aa twenty years, or for their being allowed at last to get double the original price of their shares. Beyond a very short time, at the most, the capital of a life assurance company, as far as it is a reality at all, only serves - and this purpose it serves very well —to justify a small set of men in appropriating to themselves funds properly due to others.

As might lie expected, the means taken for obtaining business by the proprietary offices are not, in general, of a very scrupulous nature. They make extensive use of the system of commission—that is, large and tempt* ing allowances to solicitors and others to induce them to bring their friends or clients to these instead of any other offices. Some men have almost an income secured to them by the allowances they are entitled to in consequence of having taken a few customers to some of the more liberal class of offices, such allowances being neither more nor less than a bribe to induce a man of business (o betray the intcres's of those who confide in him. Such a use of funds, ho ever reprehensible it may he om moral grounds, is justified on pecuniary considerations to the shareholders, if it only leaves themselves a profit, seeing that they have no other object t) look to. Very different is the case of the mutual offices, where money so employed would be a subtraction from fun!- preperlv belonging to the whole circle of the assured.

In fine, the system of mutual assurance—pure and undefiled is that which the ptibl'c should, for its own sake, and partly for the sake of morality also, support. It is an iu-

stituticm contemplating a mixed good to mankind, and where no grosser interests than those of a few officials can possibly he con otrned. Conducted ou a large scale, and upon a proper footing, it involves no risk, and at the same time, from the system of divi ions of surplus, the char is must be held as reduced vo a perfect square with the ueces ities of the case, excepting only the expenses of management. Contrasted with I his, the proprietary system cannot for a moment he defended—a business pretending to incur risks, and drawing all the profits which can only he dne where risks arj real—a business which can only thrive in the proportion in which it puts on imposing appearances.