Massachusetts Idea

The chief accomplishment of Louis Dembitz Brandeis before his appointment to the U. S. Supreme Court was to get the Massachusetts Legislature to pass a law allowing savings banks to issue life insurance. That was in 1907. Despite the tight-lipped opposition of all the old-line insurance companies, the plan was a thoroughpaced success. There are now 24 Massachusetts savings banks with life insurance departments, 117 more that act as agents. Massachusetts citizens can insure their lives for anything between $100 and $24,000. At the end of 1937 some 160,000 Massachusetts citizens or onetime Massachusetts citizens had policies totaling $140,000,000. The savings banks do 5% of Massachusetts' total life insurance business.

Justice Brandeis, who still gives advice now and then to shaggy, crusading Deputy Commissioner Judd Dewey, would list the following reasons for the notable success of his idea: 1) Primary tenet of the Brandeis economic faith is that efficiency decreases with size. Savings banks are small, decentralized. And of course their life insurance departments are controlled by the same State reserve laws that control all insurance companies. 2 ) Terms in most cases are more beneficial to the policyholders. Most old-line policies cannot be turned in for cash till after the third year and then there is a surrender charge. Savings bank policies can be turned in after six months; there is no surrender charge. 3) Savings bank policies are 25% to 50% cheaper than old-line policies comparable to those the savings banks sell. Of every $1 paid in old-line premiums, 11-c- is paid to an agent; one out of every 190 adults in Massachusetts is an insurance agent. Savings banks employ no agents, pay no commissions. Top salary is Commissioner Dewey's $4,200. And because their policyholders must come to them and so, the presumption is, are more convinced of the value of insurance, their losses from policies given up before they mature are comparatively small. In 1933 the lapse ratio of the savings banks was 2.62%. Same year, according to Commissioner Dewey, the lapse ratio of some old-line insurance companies was as high as 48.12% on ordinary policies, 82.88% on policies for less than $1,000 (called by insurance men industrial policies).

Until last week no other State had copied Massachusetts. That, however, was not so surprising as that no big old-line insurance company protested with much enthusiasm when New York's Governor Herbert H. Lehman began last January to persuade his Legislature to allow New York's savings banks to issue life insurance. When the Massachusetts law was passed the companies were still slightly groggy from the 1906 investigation by the Charles Evans Hughes Committee and they said little. But whenever the subject came up in other States they said plenty. In New York, however, opposition came chiefly from the New York State Association of Life Underwriters, meaning the association of the agents.

The New York law as passed last week provides that no bank can issue more than $1,000 insurance to one person and no life can be insured in the savings banks for more than $3,000. So insurance will be confined largely to the small industrial policies which the companies consider profitable but a perennial nuisance. Industrial insurance has attracted criticism out of all proportion to its size. In fact, an investigation of the insurance business is pending in Albany. Insurance companies will probably not be sorry to lose some of their industrial insurance business. Meanwhile, only a handful of the 134 New York savings banks last week indicated their willingness to take it off their hands.

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