Chapter I (7)

[24] The following form extracts from the above articles of Mr. Mackenzie:--“Some time ago there was sent to this office a series of advertisements in favour of the Independent and West Middlesex Insurance Company, which were entered and paid for in the regular course of business. We are cautious about quack medical advertisements, none of them that we are aware has ever been admitted into our columns; but it never entered into our heads for one moment, that an insurance company professing to be incorporated by special acts of parliament, was in truth a quack company, got up for the premeditated purpose of imposing on the public in matters of fire and life. Hence the advertisements of this company glided through our columns from time to time to time.... But we were astonished lately to learn that this was a spurious insurance company hatched in London two years ago.” “Under these circumstances, our duty, we humbly conceive, is at once plain and decisive, and therefore we proceed to discharge it for the sake of the public, whose faithful and unflinching servants we at all times profess to be. In a word, we raise our voice and warn the public against this Independent West Middlesex Insurance Company. It is a false and fictitious company.” “In their polices of insurance they take care to provide that ‘the capital stock and funds of the said company shall alone be answerable to the demands thereupon under this policy.’ Why, what is the value of their capital stock and funds, if as we say the parties themselves forming the said company are utterly worthless, being in fact no better than a parcel of tricksters in London, disowned, or repudiated, or condemned by every respectable person to whom reference is made? There can scarcely, we think, be anything so base or so nefarious as taking premiums from unsuspecting people, and making them believe they are secured against the contingencies of life, or the risk of fire, and yet mocking them in their calamities when the bubble bursts.”

[25] The cholera first visited England about the beginning of August 1348. From the seaport towns on the coasts of Dorsetshire, Devonshire, and Somersetshire, it ran to Bristol, and the men of Gloucester established a quarantine between the two places. But this “familiar fury” mocked then as now at the quarantine, and walking in darkness appeared in Gloucestershire to the horror of its inhabitants. From thence it passed by way of Oxford to London, finally spreading all over England, “scattering everywhere such ruin and desolation that of all sorts hardly the tenth person was left alive.”

In the church and churchyard of Yarmouth, 7052 were buried in one year. Within six months, in the city of Norwich more than 57,000 died. In London, death was so outrageously cruel that every day saw twenty, sometimes forty, and sometimes sixty or more dead bodies flung into one pit. The churchyards became crowded. Fields and additional places of burial were set apart, and these soon failed to suffice; the number of the dead increasing so rapidly that “they were fain to make deep ditches and pits very broad, wherein they laid a range of carcasses and a range of earth upon them, and then another range of dead bodies,” and in this manner the people, except those of the better sort, were placed in their long home. The cattle died in hedges and ditches by thousands for want of men to attend them. All suits and pleadings in the King’s Bench and other places ceased. The sessions of parliament were stopped. England and France forgot for a time that they were “natural enemies.” County, city, and town witnessed solemn prayers and public processions for days together, and God was implored in highway and in byway to “sheath his angry sword and preserve the residue from the devouring pestilence.” When this pestilence which yet yearly threatens our coast had passed away, it was found that its prey had been chiefly old men, women, and children of the “common sort of people,” and that but few of the nobility of the land had been seized by it. Property was for a long period depreciated: that which was previously sold for forty shillings, only fetched a mark; and the Scots in scorn invented a new oath, swearing in contempt “by the foul deaths of the English.”

CHAP. XIV.

SELECT COMMITTEE OF 1841.--INSTANCES OF DECEPTION.--PUBLICATION
OF ACCOUNTS.--NEW COMPANIES--ASSERTIONS ABOUT THEM--THEIR
IMPORTANCE--SUGGESTIONS CONCERNING THEM.

A select committee was appointed in 1841 to consider the laws relating to joint stock companies. It concluded its labours in 1843. There was an evident want of amendment in these laws. For about fifteen years prior to 1840, the world had been at the mercy of any one who chose to publish an advertisement, call himself a company, and receive money for assurances and annuities. Vast sums had been obtained, therefore, by daring adventurers of the Montagu Tigg school, who launched with avidity into this branch of business. Besides the loss by the West Middlesex, nearly half a million sterling had passed from the pockets of the public to those of projectors; and the following instances will prove that government were not called upon to interfere without a sad necessity:--

A family of swindlers founded an office. One of them changed his name, called himself trustee, and acted as chief manager. Who would believe that this man, without character and without money, induced several members of parliament to become directors? because “they thought they were doing a kindness to the promoter;” allowing their names to be used as lures to a concern whose shareholders, when it broke up, were found to be “minors, married women, labourers, and small tradesmen.”

In a second office, an uncertificated bankrupt, its promoter, appointed himself resident manager. Insurances and annuities to a considerable extent were effected, and then the company, consisting of eleven shareholders and directors united, vanished, and, “like the baseless fabric of a vision, left not a wreck behind.”

In another which had been established many years, great names were at its head, and great business was done. But whether the terms were not high enough, or the management was bad, it proved a failure. An extraordinary career was that of the chief manager. Thinking, probably, to recover himself, he had speculated in newspapers; he had established a society in connection with natural history; he called the queen dowager his patron, and had been honoured by a visit from majesty. As some of these could scarcely be called sound investments for an annuity society, he was unfortunately compelled to leave off paying the unhappy annuitants.

These special cases arose from want of sufficient control. On inquiry it was discovered that the names of persons who had no existence had been used in some cases, and the names of persons of substance, without their permission, in others. That false statements of authority--that fraudulent prospectuses--that tempting rates of commission--banking accounts with the Bank of England--and, above all, advertisements appealing to the cupidity of the public,--had always proved successful.

Owing to the information elicited by the committee, it was deemed necessary to recommend that any future company should be provisionally registered, stating every particular of its purpose, its promoters, its directors, its subscribers; and that a complete registration should be accompanied by a copy of its prospectus, its deed of settlement, its amount of capital, its number of shares, the names and residences of the shareholders, the officers of the company, and a written acceptance of office. These recommendations were carried out by 7 & 8 Vict. c. 110.; but time has proved that the act has scarcely been successful, even in mitigating the evils it was meant to prevent. “Arguing from the experience of the present law,” says the “Morning Chronicle,” “during the past eight years, it does not appear that its effect has been in any way to restrain the formation of unsound insurance companies;” and in one respect it assisted them, as it gave the promoters the power of quoting a special act of parliament in their favour, thus adding a spurious stability to their character. In seven years from the working of the new act the number of projected companies averaged three and a half per month; the number actually opened, two every month, while about fourteen yearly were compelled to close their operations. It may be supposed that the old offices were somewhat surprised as project after project, each proclaiming its principle to be the very essence of life assurance, was registered. They made, however, a great show of business. Their annual reports were startling to the ears of staid, methodical gentlemen of the old school, who, seeing that their own policies had not increased with the population, thought, when new companies declared huge profits and boasted augmented policies, that the world was coming to an end. The assumptions of some of these new offices were audacious enough; one actuary asserting that a company might spend all their premiums and great part of their capital, and be perfectly solvent. The first year’s business of a society which started at this period produced 3300_l._; a large sum undoubtedly, but the first year’s expenses were 3000_l._ out of it. The business of the second year produced 2000_l._; but all the money paid by the policy holders was spent, with 15 per cent. of the capital in addition. Rumours like these--exaggerated perhaps by the terrors of those of the _ancien régime_--soon spread about, and there was a growing disposition in the public to regard new offices with suspicion. Of about forty which had been annually projected from 1844 to 1851, many had given up the ghost; and though the policies in some cases were transferred to other offices, yet in those which were not so fortunate there must have been great evil. For some years a cloud had been gathering; but when Mr. Labouchere moved that the accounts of the various offices should be printed, and when, in their naked attire and without the opportunity of re-arranging them, they were presented to the House, they seemed so at variance with the boasted success of many, that the public, aided by the old offices, grew frightened at the picture which Mr. Labouchere had conjured.

This, however, produced no very apparent results in checking the formation of others; but the letter of Mr. Christie[26] to the President of the Board of Trade, together with various leading articles in the morning papers, in which the Chronicle took the lead, aroused a spirit of mischief in those who thought themselves aggrieved. “The object I have in view,” says Mr. Christie, “is a thorough scrutiny and investigation into the affairs and responsibility of every life and annuity institution in the United Kingdom, with a view to such enactments as shall protect extensive public interests from the alarming prospective evils of fraud and of ignorance.”

There does not appear in this profession sufficient reason for the torrent of pamphlets which appeared, because all offices engaged in similar business to that of Mr. Christie should possess a similar desire. Such, however, was the fact, and when the morning papers unmasked their battery, the fun grew “fast and furious.” Nothing can be more desirable than that the balance-sheets of these companies should be clear and uniform; and it seems reasonable that all offices should so express their returns. But it should not be forgotten that these accounts were furnished without any idea of publication. Each institution sent its statement according to the notion of its actuary; and as actuaries, like doctors, disagree, not only was there no attempt to make one balance-sheet resemble another, but the very principle differed on which they founded their valuations. It was, therefore, not the fault of the actuary, but of the act itself, in not demanding uniformity, that they appeared in so many and such varied forms--that they at once produced suspicion, and that they have made the word “insolvent” commonly used with regard to these new institutions. But insolvency is a very awkward term, particularly when applied to a life assurance office. There is scarcely a banker in existence to whom the same term might not be applied on almost the same principle, for there is not one ready to pay all his balances on instant demand. But the banker knows his contingencies as life assurance offices know theirs; and to that extent only are both prepared to pay. Both are liable to runs on them; the latter during an epoch in the public health, the former during an era in the money market. Being, therefore, a question of contingency with the new mutual office, we must remember, in fairness, that it was the same with the old; and that, had they been compelled to publish their balance-sheets when they commenced, very unpleasant remarks might have been made as to contingencies.[27]

While this subject was being agitated, some awkward cases arose to startle the mercantile world and depress the feeling of security so necessary to the perfect fruition of assurance. Several companies--founded by authority of the Joint-stock Registration Act--had arisen and fallen to the ground. One deed of settlement after another had been proved to be as worthless in effect as that of the West Middlesex. One series of promoters after another had published elaborate prospectuses, and failed to meet their liabilities. The directors of these had been from that class which supplied Quirk, Gammon, and Snap with their business, and the managers had arisen among those whose names had graced the bankrupt list, or been arraigned at the Old Bailey. The following will prove that the law, since 1845, any more than prior to it, has not been effective, and that it is as easy to establish fraudulent companies now as it was before the passing of the act. One director had been keeper of a gaming-house. Another, calling himself a knight, acted as travelling commission agent. A list of shareholders, which was published for the benefit of the public, proved that, though one was a holder of no less than 20,000 shares, the locality assigned to him was ignorant of his whereabouts. Two others had been bankrupt, another had been insolvent, others were clerks to the company, one declared his name had been forged, while another had been dead for many years. The institution had been enormously puffed, and the result was that many insurances were effected. But when it became known[28] that a proprietor of 2000 shares in the company was also a petitioner in the Insolvent Debtors’ Court, and that at the very time he was advertised as a proprietor of these shares he had hardly a coat to his back, the premiums became less. In this awkward position the claims for losses were met by credit notes at fifty-three days’ date, which of course were duly dishonoured, and, as a natural consequence, the company was heard of no more. The following will tend to satisfy the reader that no exaggeration has been used. “I have,” says Mr. Hartnoll, “from among the worst cases of assurance companies brought into existence under the facilities for forming such companies by the Registration Act, exhibited to you the history of one whose robberies amounted to 60,000_l._ I have dissected another of these companies, composed of a low set of vagabonds, whose signatures as shareholders were procured at a pot-house for pints of beer. I have given you the name of a third, whose secretary was brought, most wrongfully according to the verdict, to the bar of the Old Bailey, on a charge of conspiring to obtain money under false pretences; and of a fourth whose manager is a mendicant, and whose secretary is a fellow who ought to become one, in order to prevent his becoming something worse, I have from the middle class of these companies referred to one, winding up in Chancery, having ‘fictitious names of subscribers to the deed,’ and from the purer class of new companies, from no invidious selection, but almost by compulsion, under public challenge from parties officially connected with two offices. I have analysed the accounts of one, which, at the end of three years, had only 14,512_l._ left in every shape and form out of 45,081_l._ received in solid cash; and of another which, although with every shilling of its funds gone, and 1754_l._ 10_s._ 3_d._ in debt, continues to publish to its policy-holders and the world at large the very great fib that it has made a profit of 6015_l._ 9_s._ 2_d._”[29]

Of course the frauds alluded to above strengthened the hands of the old companies, and though really worth nothing as illustrations against the existing offices, were quoted with much delight. The chief thing they did prove was, that while the Registration Act did not prevent the formation of bubble societies, it aided such men as Mr. Hartnoll in discovering them before much mischief could be effected. All these circumstances, however, drew attention to the new companies, eliciting a variety of opinion on the subject.

The amount assured in all the life offices in the kingdom is variously calculated. But probably the information collected by Mr. Brown, who estimated it at 150,000,000_l._, is nearest the mark. On this sum, 5,000,000_l._,--being about one twelfth of the annual revenue of the country,--are payable yearly as premium. The vastness of this interest, its domestic character, its mercantile and its social bearings, are all important; and as life assurance is making rapid strides in public esteem, it is probable that where one man now insures for the sake of his family, two will do it in twenty years’ time; always provided no check be given to the principle, by the failures of offices, through extravagant expenses, or through want of business.

There is a general objection on the part of commercial men to see the Government interfere in mercantile affairs. But this is a question of degree: the principle is sound to a certain extent, though no farther. It is sound that the State should not interfere with the detail of management, but it is not therefore unsound that it should propose some general law by which publicity may be given to certain accounts--by which the public may be made aware of their liabilities, and a moral check established which must be beneficial to all.

The wise provisions of the Banking Act of Sir Robert Peel in 1844 are a proof that our Legislature does interfere in financial affairs, and life assurance is only an extended form of banking; the joint-stock banking company receiving deposits and paying them back, with interest, on demand; the joint-stock assurance company receiving deposits and paying them back, with interest, at death. If it were thought desirable for the Bank of England to publish a weekly statement of its financial position, it is equally desirable, in many respects, for a life assurance company,--the argument being, in both cases, the general good.

An examination of the accounts returned by the various offices gives us some startling facts. Twenty-five of these, the average term of whose operations has been three years and three-fifths, have expended in that time 375,328_l._ out of 462,032_l._, great part of which they have received for policies granted and annuities promised. Nine of them have spent all their premiums and 30 per cent. of their capital besides. Mr. Labouchere distinctly stated his opinion that many were insolvent; and “My impression,” says Mr. Christie, “nay, my entire conviction, as to others, notwithstanding the flaming accounts of their prosperity contained in reports and speeches at annual meetings, is, that they are rotten, and are in effect, though not in design, fraudulent.”

Such statements as these being publicly made, there appears some ground for examining the question, and for quieting the minds of those who may have entered into engagements with the junior offices, so far as a fair and rational consideration will do so. It may be assumed that none of the offices now in existence have been opened with a fraudulent intent; but the necessity which exists of spending their money liberally, and almost lavishly, to procure business, is almost as pernicious. It is but just to say that an examination of the tables of the new offices does not show a low rate of premium; not lower, perhaps, than the increased value of life will allow, and certainly not lower than the old offices could well afford to charge.

One unfortunate tendency of the new companies is to give life assurance a speculative character, when nothing is less speculative in reality. Yet the extraneous temptations and collateral advantages promised by most are very mischievous. Men now sometimes insure their lives with a vague belief that in a few years they will have no more premium to pay; they quarrel with the fair divisions of old offices, and taunt their managers with the advantages to be derived from the new. As an example of the language that is sometimes indulged in, one modern office promises to set apart a portion of its future profits, whether such should amount to thousands or to tens of thousands, to hundreds of thousands or to millions, for the support and future provision of any person in decay who shall have once, for however brief a space of time, held a single share in such company. “To become a shareholder,” says the prospectus, “is as it were to effect at once and for ever a policy of assurance against want.” The reader is left to judge for himself of this singular specimen of assurance.

But, independently of the expenses which eat up the premiums, it may be feared that in an anxious search after business, the examining physician may not be so rigid in his report as those of the older established companies; the lives admitted by the directors, therefore, not being so good as they should be for the ultimate safety of the office. It has been added, in support of this, that in some of these companies the mortality has been 40 per cent. more than it should have been, had proper care been taken. But are we not very ignorant of the laws which govern disease? It is well known by physicians that the chances of life in individuals are constantly changing. Mr. Gompertz, the father of our actuaries, has expressed a belief that it would be difficult to pick out 10 per cent. of really uninsurable lives from the entire population. Those which are now doubtful, or even diseased, to-morrow become sound and insurable; while those accepted with gladness at the ordinary rates of to-day, become in almost the same proportion ailing and uninsurable afterwards. The chances of individual health, be it sound or unsound, are as uncertain as those of individual life, and no effort having hitherto been made, excepting by Mr. Neison, to discover the law which governs disease in its relation to life, it follows that any argument against the new companies based on the low character of the lives which they assure, may prove, however specious in theory, very unsound in practice. And the mode adopted by the old offices of conducting their business has certainly, up to the present time, been too much in their own favour. By well-grounded tables they establish the fact that out of 1000 lives, taken at random among the diseased as well as the healthy, a certain number will die each year, until all are extinct. But though on this they found their rates, they are much too shrewd to take their lives at random. They pick the strongest and healthiest, rejecting all else, and make them pay premiums founded on the contingency tables of mixed lives. This, therefore, is also somewhat in favour of the calculations of the new companies. But there is another important item to be regarded;--the value of money. The funds of all the offices from 1760 to 1815 were bought when Consols were low, and the price of the Three per Cents. ranged from 47-1/4 to 97. During the war there was an eager demand for money. Exchequer bills, mortgages on large landed estates, allotments of new loans, were all favourable modes of investment. Even since money has been plentiful, the large capital of the old offices has enabled them to gain a higher interest, because money lent in large sums for a lengthened period will always command a higher rate of interest than small sums for a short period. Thus one old office announces, in its balance-sheet, that it is receiving 4-1/2 per cent. on its investments; and probably other offices, with similar funds, are similarly fortunate.

The new offices may find a difficulty in this which they have not estimated, and which may materially interfere with their profits; although it is more than probable that even this objection is over-rated, because there are principles which govern the interest of money, quite as certain as those which govern life, and because the rate of discount of the Bank of England is no safe criterion to those who are out of the money market. Their anxiety to forward their interests will also induce them to exert themselves, and the activity which pervades business when discounts are low, may more than compensate for a diminished interest. There is, however, another feature which must always act somewhat in favour of the old offices, and that is, their liberality in peculiar cases. Rich and well-established companies do not always confine themselves to arithmetical calculations, and they often employ the rule of right in paying demands which no court of law could compel; partially, it may be, from proper feeling, but principally from an “enlightened selfishness.”

If it be thought that life assurance offices should, for the sake of the public and of themselves, be interfered with by Government, the next step is to discover the simplest and the least vexatious mode of dealing with them. And here at once arises the question whether some difference should not be made between the mutual and the proprietary company. Assuming that the mutual system possesses every essential element of safety, it is equally true that there are hazards in the path of any company depending merely on its premiums, which do not attend a company with a respectable proprietary. Hundreds were once ruined by a mutual fire-company; and had the cholera, in 1849, fallen on the class which does insure as much as on that which does not insure, none can say to what extent the new and untried companies would have suffered, or whether they could have paid the policies which became due. And there is another point which materially affects an office with a small business. In the first few years of its existence the estimated mortality will probably ensue. But let us imagine, for a moment, this mortality seizing those who are insured for large amounts, instead of those who are insured for small sums; might not the demands be too great for its capital, even with no excess of mortality, especially when it is remembered that the expenses of establishing the society would necessarily have decreased its resources? A company with a subscribed and paid-up capital may fairly pay largely for advertisements; but a mutual company, without any independent funds, has scarcely the right to use their premiums for any other purpose than to decrease the annual payments or add to the policies. As mutual offices, therefore, have no other security than their premiums, these would require to be looked after more circumspectly and closely than where a capital and a proprietary are answerable to the insured. The mode in which the funds are invested by mutual offices might be a fair subject for publication; nor would this be an invidious distinction, as an irresponsible office has less claim to an equal latitude of investment, and less right to keep their secrets than a responsible company.

One element in the success which the old mutual offices have experienced is attributable to the high rates they charge. Thus, the premium of an old mutual company at the age of thirty is 2_l._ 13_s._ 6_d._; while that of an old proprietary company is 2_l._ 2_s._ There may be an ultimate equivalent to the mutual insurer, if he live, in either a reduced premium or an increased policy; but as the former is too frequently accepted instead of the latter, the family of the insured do not receive the same benefit at his death which they would have done, had he paid the same sum to a proprietary office, and kept up the premiums as he would have been compelled to do.

A life assurance office with a respectable proprietary and a paid-up capital, is by virtue of the English law of unlimited partnership as safe as any company can be, so far as the assured is concerned; and as the chief end and aim of government interference would be the safety of the policy-holder, it follows that new legislation on this subject should in fairness only affect new proprietary companies, to prove the reality of their capital, and so protect the public from such men as those who have lately been unkennelled. But though a marked difference may be claimed by the respectable proprietary companies, and though a distinction might perhaps in strict justice be drawn betwixt those with a subscribed capital and those which have only their first years’ premiums, less their expenses, to pay the claims against them, it would perhaps be politic on the part of government to include all; and it would be still more politic on the part of the old proprietary offices to state their readiness to concur in any plan which might be for the benefit of the body corporate, because any legislative measure, to be effective as well as protective, must be general. While it must be such as will be readily acquiesced in by the older offices, it must not be made unpleasant to the new: it must be at once general in its application and strict in its inquiries. If it appear inquisitive, it must not be inquisitorial; and, if possible, the common consent of all should be obtained. The actuaries, who are intelligent and accomplished gentlemen, must be propitiated, for they are in possession of a somewhat occult science, having justly the ear, the confidence, and the respect of their directors. And when it is borne in mind that these directors embrace, as a body, the first men in the city of London, that they possess a commercial, social, and, not seldom, a political consideration, it follows, that to conciliate them is as necessary to the well-being of any measure, as to conciliate the actuary is necessary to the co-operation of the directors. There is no profession in which subordinates are so respectfully regarded, for the actuary is master of a science in which the director is generally deficient; and knowledge, in this case, as in others, is essentially power.

If then it would be wise and prudent for government to interfere with all, and at the instance of all, the next consideration is how to produce the greatest amount of good with the least amount of evil: and one of the essential conditions is, the clearest information published in the briefest form to give a correct estimate of the position of an office. Tabular statements may prove whatever the actuary pleases, and may be made to mean anything and mystify anybody. One concise form, therefore, so clear that he who runs may read, a form which can deceive no one and which all can understand, will be necessary.

Many methods by which the safety of the public may be attained have been proposed; but the first to be dealt with are the publication of the accounts, the form in which they should appear, and the mode of determining their correctness.

1st. The publication of the accounts, to be effectual, should be general. Without this the cry of partiality would be raised, and must be fatal to the attempt. As well as general, they should also be uniform, so far as this is possible. They should consist of leading features stated in the simplest and least complex form, admitting, as far as practicable, of only one interpretation. They should be certified by the actuary, examined by the directors, and signed by the chairman, all of whom should be held responsible, under a heavy penalty, for their accuracy.

2d. These returns must give the exact money position of the office, the leading principle being an endeavour to show the funds in proportion to the risks; and as there is a difference in the mode of estimating future chances, the form adopted by each should be one and the same. As each office, also, has business special to itself, with its own peculiarities, its own interests, and its own mode of investment, any detailed statement might be dangerous, and form the groundwork for rivals to copy or to criticise. The points of chief note are the capital, the amount of liabilities, and the annual returns; and if the endeavour were made to show the funds in proportion to the risks, instead of endeavouring to procure a large show of business at any price, the object of ambition would be the accumulation of capital.

3d. The best way of procuring correct information is the next condition. Falsified returns are not impossible. If any office should be failing in its endeavours to keep its business together, having men at its head whose names are unknown save in a petty and obscure locality, a strong check is necessary; and it seems scarcely practicable to avoid the appointment of a competent person as an arbiter of their correctness. Unpopular as this might be at first, were the appointment placed in proper hands and judiciously carried out, it would be of immense benefit. It would indeed be scarcely necessary for the inspector to be a government officer. The established companies might fairly say, that they have done no wrong, and that a close espial by a government agent would be derogatory. But were an inspector of this kind chosen unitedly by the offices, and paid by the State, the companies having no voice in his dismissal, excepting under circumstances which ought to command it, there would be less objection. The necessity for such an officer would arise from the brevity of the accounts to be published. It would be his duty to see that the data from which they were formed was true; that the premiums received were as large as was stated; and that while the investments were as great, the liabilities were not greater than the report asserted. The power to examine and compare these returns with the books of the various companies is a delicate consideration; but as the offices might appoint the inspector themselves, it would, after all, be only an additional check by their own officer on their own affairs. The mode of investing need not be published, as the power of the inspector to demand an examination would be a sufficient check on immorally-disposed offices. Nor is such a case unprecedented, as by a clause in the Bank Charter Act of 1844, commissioners are empowered to search into and examine the books of those bankers who issue notes.[30]

If it be desirable, as it undoubtedly is, that assurance offices should be perfected for the sake of the public, it is doubly so that some check should be placed on annuity companies. It is from them that most mischief has ensued. In a life office the promoters may have to pay claims before they have received sufficient assets to meet them. But an annuity office, where capital is at once placed down for a future, but postponed benefit, may do irreparable mischief in less than a year. In this way the public, and that portion of the public, too, which is the most deserving of care, have suffered, and are likely to suffer. All the new offices grant annuities, and though it is difficult to say the exact amount, (their returns being so cleverly or so clumsily arrayed), yet it is probable that within the last five years more than 100,000_l._ has been received on the faith of annuities to be paid by them; and it will be no consolation to the annuitant to be told that though his annuity must cease, it is caused by unfortunate calculations and not by fraudulent design. The granting annuities does not necessarily, although it may naturally, enter into the business of a life office. For the first century assurance, and annuities were distinct, and it is somewhat doubtful whether it is quite wise to allow, at any rate it is dangerous to the public to deal in annuities granted by new offices which issue policies of assurance as well as bonds of annuities. The large sums paid down make a show in the assets of a new company, and the fact that hundreds of people for many years rest their entire support on the promises to pay of offices which have been declared by many to be bankrupt, and whose balance-sheets certainly evince an irregularity out of keeping with all propriety, is singularly important. It is a cruel government that will not interfere in an iniquitous system, and the accounts of the annuities, viz. the yearly amounts to be paid, the estimated number of years over which they will extend, and the special capital in hand to meet the demands, should be published separate and distinct from the assurance accounts, as the banking and issue departments of the Bank of England.

Another proposition has been made, to the effect that no company should be allowed without a large paid-up capital. “The public safety,” says the ‘Morning Chronicle,’ “requires that a sufficient capital should be provided;” and this the same article suggests should be 50,000_l._ “There are special reasons,” adds the writer, “particularly at this time, why new insurance offices should be required to provide a sufficient capital. Causes are in operation which may interfere largely with the rate of interest procurable on first class investments, and it is not to be overlooked that the increasing facilities of communication with distant regions, Australia for example, combined with the wide discretionary powers which it is the fashion for deeds of settlement to confer, may lead to remote and hazardous investments, full of promise when entertained, but liable to great and sudden accidents,--accidents such as insurance offices without any independent resources could never recover.”

In another portion of the very elaborate articles alluded to[31], it is added:--“The only real remedy is to take care that the parties who enter into the several speculations have something considerable to lose, self-interest will then render them infinitely more prudent and vigilant than all the inspections and certifications in the world. With the general requirement, however, of the payment of 50,000_l._ as capital, might very properly be combined certain improvements on the present law of a minor character.” “It would be proper also to enact that after a specified date all persons whose names are with their consent advertised as patrons, vice-patrons, trustees, or honorary directors, of any insurance company, shall be deemed to be shareholders therein.”

How far the suggestion of no office being allowed without a large capital, should be carried out, is a very serious consideration. A large paid-up capital does not appear an absolute necessity, although the faith engendered by it would probably repay the assured, because the larger the capital, the greater the confidence, and the greater the power of the subscribers to extend the business, as it does not follow that all the profits should go to the proprietors. The money invested would not be idle; it would be the business of the directors to place it in security at a good interest, and the interest would probably be greater than the subscribers could obtain elsewhere for their money.

All the old companies, which were once purely proprietary, divide a portion of their profits among the insured, and nothing can be fairer or better founded than an office which offers the advantage of a large paid-up capital, and divides four-fifths or nine-tenths of the profits among the insured. Still as the entire tendency of the public has been in favour of the mutual system for the last quarter of a century, as all authorities have proclaimed it to be the purest principle of Life Assurance, as innumerable instances of great success are to be found in its ranks, it follows that an attempt to revert to the pure, proprietary system would be worse than useless. But with all the advantages of the mutual system, it is probable that a small paid-up capital, with responsibility to the extent of the proprietor’s fortune, would be sufficient for safety: for there is one more point to be considered relating to the management of a mutual office, which is too often forgotten. In this the policy-holders have a vote; they know not when their lives may fall; they are eager to add to the value of their policies; and the directors feel a pressure from without which sometimes compels them to give a greater bonus than they ought. This is the prevailing tendency of the mutual principle, and argues somewhat against it. In a mixed company, on the contrary, it is the aim of the directors to maintain their investments intact; they know that what will destroy the company will destroy them as partners, and there is a moral power in operation in their case, as there is something very unlike a moral power in operation in the other.

That there are enough and to spare of companies, none can doubt. That some are in a position from which their customers would justly shrink is probable; and that others would be found insolvent if strictly examined, is to be feared. But, with all this, they are indisputably beneficial to the cause they represent, as they are spreading its knowledge, and pressing its necessity, with the earnest spirit of men whose existence depends on the number of their proselytes.

FOOTNOTES:

[26] Letter to the Right Hon. Joseph W. Henley, M.P.--By Robert Christie.

[27] The Equitable even was regarded with a very suspicious eye by the Court of Chancery soon after its commencement, and the names of bankers and merchants as directors, great in their day and generation, did not prevent the proprietors of the Royal Exchange, the Amicable, and the London Assurance corporations from predicting its failure.

[28] The public is greatly indebted to Mr. Hartnoll, the avowed editor, and Mr. Pateman, the publisher of the Post Magazine, for their great exertions in the cause of Life Assurance.

[29] “Assurance Companies’ Accounts,” p. 43.

[30] “That the said Commissioners shall have full power to examine all books, at all seasonable times, of such bankers as issue notes, and to take copies or extracts from any such books or accounts.”--History of the Bank of England, its Times and Traditions.--By John Francis: 2 vols. 3rd edition. Longman, Brown, and Co.

[31] The Morning Chronicle.

CHAP. XV.

EXTENSION OF ASSURANCE.--SOCIETY FOR ASSURANCE AGAINST
PURGATORY.--COMMERCIAL CREDIT COMPANY.--GUARANTEE SOCIETY.--MEDICAL,
INVALID, AND GENERAL.--AGRICULTURAL COMPANY.--RENT
GUARANTEE.--RAILWAY PASSENGERS.--LAW PROPERTY, AND INDISPUTABLE
SOCIETIES.--DISPUTED POLICY.

It has been found that there are unchanging principles which regulate commercial losses; that the lives which are sacrificed by railway accident have similar conditions; that the storm which levels the wheat has its defined courses; that the murrain which devastates the cattle is as fixed in its movements as the disease which destroys humanity. To meet these casualties, societies have been started, founded on laws originating in the doctrine of probabilities, and regulated by tables to show the chance of their occurrence. Nor is there any reason against--nay, there is every reason to believe in--their success, provided only their promoters apply themselves with diligence to collect sufficient data whereby to rule their operations. Of one society only may a doubt be evinced and a smile raised at its presumption, and this is the

SOCIETY FOR ASSURANCE AGAINST PURGATORY!

for supposing the threepence per week paid by the credulous peasant be sufficient to satisfy the priest, yet there is every reason to doubt that the prayers and masses of such mercenary pastors will be sufficient to satisfy God. There is something half-grand and half-grotesque in this impudent provision against an indefinite future.

THE COMMERCIAL CREDIT MUTUAL ASSURANCE SOCIETY

is characteristic enough of a mercantile people. Prior to the foundation of such an institution, it is obvious that there must have been some important statistical information connected with commercial losses.

This was submitted to Mr. Finlaison; and his opinion being that the plan contained the strongest element of success, the society commenced business; and now any person supplying a number of traders with goods may secure himself from loss, 90 per cent. of which is paid to the assured party, the remaining 10 per cent. being placed as a reserve fund. There is also an annual charge for management, out of which the interest on the shareholders’ capital of 50,000_l._ is paid. There are many collateral advantages in connexion with the company, not the least of which is information concerning the trading community, so that a subscriber may ascertain the character and credit in the money-market of a new customer. All legal expenses are borne by the management commission fund; and there is something very amusing in the indifference with which any person insured in this society must attend a meeting of creditors; for while others look with bent brows and anxious faces, he may remain utterly careless about its proceedings. It is easy to suppose that this feeling may raise a spirit of recklessness in some; but the promoters have wisely interested this class, if such there be, by the deduction of the 10 per cent. on all losses, and by other wise arrangements which stimulate the careful and deter the careless. One half the surplus of the year’s premium will be applied to the reduction of the next payment of those whose losses have not equalled their annual premium; and as a similar society has been in operation in France for the last five years, which has met with signal success, there appears every reason to believe that this society will prosper. Within the first nine months, insurances have been effected of more than 3,000,000_l._ The theory of chances is as applicable to commercial transactions as it is to life. The close observer will not have failed to notice that the periodical epidemic--whatever form it may have assumed--has its representative in the commercial crisis. Every six or seven years, mercantile epidemics--analogous to the cholera, the influenza, or the typhus of an unhealthy season--which seem to defy all calculation and to level the lofty as well as the low, revolutionise our money system. So fixed have they become in their appearance and re-appearance, that they have ceased to be exceptional; and there is now plenty of information on which to base some estimate of the annual losses of special classes from bad debts.

GUARANTEE SOCIETY.

When this company was first started, in 1840, for the insurance of loss against the dishonesty of clerks, there was a great objection raised. It was thought one of those vague and speculative undertakings of which England has seen so many, and one which would necessarily fail, because the master would hesitate to take an assistant who could only give the security of a commercial company. “The moral security is wanting!” was the exclamation of all. It was vain to answer, that this objection pointed both ways, as the relative would often give the desired bond, which a mercantile institution would refuse. Still the parrot reply was heard, and the solemn shake of the head was followed by “The moral security--where’s the moral security?” and was deemed sufficient to crush all argument derived from mere statistics.

Time passed, and it was discovered that because a banker’s clerk gave the security of a company, he did not become a rogue, but he did become independent. It was found, too, that the master could make his claim good on the company with far more promptitude than he could on a relative. It was nothing to say to a board of directors, “I will have justice and my bond;” but it was something to say to a broken-hearted parent, “Your son has ruined you as well as himself--discharge your obligation!” It is well known that bankers and merchants have often foregone their due rather than thus reimburse their losses: and it has been found that, notwithstanding the fact of the “moral security” being wanting, the societies which guarantee the master from loss by the servant have been very successful, are very serviceable, and are on the increase.

THE MEDICAL, INVALID, AND GENERAL.

Almost the only objection which could be brought with justice against the offices prior to 1841, was the habitual practice of refusing delicate and doubtful lives. Having, in the early part of their career, taken all who came without inquiry, they rushed into the opposite extreme, and refused all who were not undeniably strong. There were indeed a few offices which professed to insure invalids; but they had no statistical information; and they rarely, if ever, accepted a life unless it was obviously a good one. In 1833, Mr. Gilbart wrote, “We may hereafter have tables that shall show the expectation of life, not only in regard to people in health, but also to those afflicted with every kind of disease;” and in 1841 Mr. Neison established the above office, the success of which has confirmed the opinion entertained of his great ability.

AGRICULTURAL INSURANCE COMPANY.

In the year of the South Sea bubble, a wit of the day epigrammatised the proposal to insure horses and cattle, little thinking it would ever be carried out. Yet that some such institution was necessary may be gathered from the number of local clubs of this character established all over the country. These will probably merge in some agricultural insurance company like the above; and did this institution not take human life into its business, it might be more successful. The laws relating to life and to farming stock are very different, and a company devoted to the latter would be wiser than one which blends the assurance of agricultural property against disease, accident, fire, lightning, and the hailstorm, with ordinary life assurance.

THE RENT GUARANTEE SOCIETY.

This is another instance of the extension of insurance to a purpose which at one time would have been pronounced Utopian; and which, addressing itself exclusively to landed proprietors, promises to collect their income without trouble and without loss. When a tenant knows that his rent will be rigorously demanded, he feels that he must provide the money or pay the penalty. There are no qualms of conscience in companies; and though a man might try to play upon the easy good nature of his landlord, such tricks would be vain against them. Determined habits of thrift are thus engendered, property becomes more valuable, the landlord receives his rents regularly, and business proceeds like a machine. It may be said that the kindly feeling between landlord and tenant disappears beneath the iron sway of a public company; but however this may be regretted, it is only an inevitable consequence of the changes of capital and the consequent transfer of estates.

RAILWAY PASSENGERS ASSURANCE COMPANY.

We owe to Mr. Glyn, when chairman of the London and Birmingham Railway, the first light on the subject of railway accidents. He proved that they were far less by the iron road than by the coaching system, and that the loss of life, in proportion to the number which travelled, was incomparably less. When the yearly railway reports were published, it was at once seen that a society like the above would have a fair chance of success. Some of the railway companies have refused their aid, thinking it would cause a decrease in railway travelling. Others, again, have assisted, on the broader principle that such an institution was sound. This company has been severely tried; but it has been productive of an incalculable amount of good, and the character of the directors gives a perfect solidity to the concern. In many cases it has been very effective in mitigating the distress which sudden death so often entails on survivors.

ACCIDENTAL DEATH INSURANCE COMPANY.

There are hundreds of thousands who cannot afford to be run over; to whom a lingering illness would be misery; and whose death would scatter or starve their families. A serious or severe accident would probably deprive a clerk of his situation, and a small tradesman of his business, leaving them with no home but the hospital, and no hope but the grave. The statistics of general accidents are difficult to arrive at, but a small annual premium would be an ample safeguard against such a casualty. There is one point in which both this and the Railway Assurance Company are wanting, and yet it would be scarcely possible to amend the error. There is in neither of them any inquiry as to the health of the party assuring. Now it is obvious that the very life of a confirmed invalid would be shaken out of him where a strong and hale man would receive no injury.

LAW PROPERTY ASSURANCE AND TRUST SOCIETY.

Of a somewhat similar character to the Rent Guarantee is the above; and this is another admirable idea if it can be carried out. Defective titles, being assured, are rendered absolute and perfect by it. The actual repayment of loans and mortgages is guaranteed, while copyholds, lifeholds, and leaseholds are made equal to freeholds for all purposes of sale or mortgage.

THE INDISPUTABLE LIFE COMPANY.