INSURANCE for EVERYONE

More Competition Should Lower Rates

IN the life-insurance business, equality of rates has long been a carefully protected tradition. No matter what amount of insurance a man bought, he paid the same price per thousand as any other customer with the same age and health rating. But recently a wave of price-cutting has swept through the life-insurance business, a procedure as shocking to many insurance men as discount houses have been to most retailers. What has happened is that most big insurance companies have started giving quantity discounts on what they call "specials." New York Life Insurance Co. and Equitable Life Assurance Society, for example, cut rates some 15% on policies of $10,000 and up. Travelers Insurance Co., John Hancock Mutual Life Insurance Co.

and others are pushing their own specials to meet the competition. Says one Hartford insurance executive: "We are competing with General Motors and Westinghouse for the average man's dollar, and we admit the average man cannot afford the kind of insurance coverage that he needs." The trend has shaken the insurance business to its deep and respectable foundations. The Mutual Benefit Life Insurance Co. (No. 11 in the U.S.) has vigorously opposed the specials. In Life Insurance Courant, New York Underwriter Halsey D. Josephson complains: "The surrender . . . to the expedient of issuing specials . . . may very well be the beginning of the end of American life insurance as we have known it, [because it breaks] the tradition of equality for all." Special policies are not new (Metropolitan has had one since 1909). But until recently big companies hesitated to advertise discounts on big policies because they felt that small customers, or even the Federal Trade Commission, would accuse them of discrimination.

Most big companies have now found that the quantity discount and other special policies such as in group insurance bring in the business. Since New York Life began advertising special policies in March, total sales have climbed an astonishing 40%, will reach $1.4 billion in face value of policies written in 1954. Equitable reports that its total sales have increased "very substantially" because of lower prices and better talking points for salesmen.

At New England Mutual 30% of all life-insurance sales are now special policies. But while special policies cost less, they are harder to get. Most companies require stricter medical exams and one-year advance payment of premiums. One justification for lower rates is the lower cost of administration. The expense of handling an application and writing a policy, for example, is the same whether the policy is for $1,000 or $10,000. (One company has even started tacking on an extra handling charge for policies under $3,000.) Furthermore, says one Boston actuary: "Size alone is not the determining factor; mortality rates are higher among people who buy $1,000 and $2,000 policies than among those who buy big policies." Principal reason: those with a higher standard of living can afford to take better care of their health.

But since life expectancy in the U.S.

has increased from 56 years to 69 years since 1929, why are not all insurance rates dropping? One reason, say insurance men, is that any possible reduction in long-term life insurance rates has been wiped out by the rise in administrative expenses and the decline in insurance-company earnings (i.e., from 5.18% in 1923 to 3.23%) with the overall decline in U.S. interest rates.

Another important reason for the high cost of insurance is that each insurance company works out its own mortality table, builds in one safeguard after another to pile up a massive reserve to protect itself against "catastrophes" and meet legal requirements. The mutual companies (i.e., policyholders participate in profits), which sell 70% of U.S. life insurance, pay out surplus earnings as "dividends" to policyholders. But to the policyholder, an insurance "dividend" is actually no earning. Says Northwestern Mutual Vice President Robert E. Dineen: "In our business a dividend is actually the return of an overcharge, and to that extent the term 'dividend' is somewhat of a misnomer." Although U.S. insurance companies have policy reserves of $71 billion, they will pay out less than $5 billion for death benefits, annuities, dividends, etc. in 1954. One insurance executive believes that the major hindrance to changing rates is simply inertia. Said he: "There was a feeling in the business that things were going along pretty good as they were, that a change would give rise to a whole new series of problems and why rock the boat?" For the nation's 93 million policyholders (who have $339 billion in life insurance in force), rocking the boat with the special policies means a wave of healthy competition in the industry.

Spread of such competition and rate-cutting all around could give the average man insurance he can afford.

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