Chapter V: British Post Office Insurance

In 1864 Mr Gladstone, then chancellor of the exchequer, advocated the extension of life insurance amongst persons of small means, and, encouraged by the remarkable success of the Post Office Savings Bank, then recently established, proposed that the services of the postmaster-general should be enlisted in the promotion of insurance. The result was the passing of the Government Annuities Act 1864. This act authorized the commissioners for the reduction of the national debt, for the first time, to insure a life without granting an annuity upon it, and enabled the postmaster-general to act as the agent of the commissioners in the issue of life policies and the grant of annuities. The limits of insurance were fixed at L20 and L100, and of annuities at L4 and L50; and the purchase of deferred annuities or old-age pay, by monthly, or even more frequent instalments, was sanctioned. The work was eagerly accepted by Lord Stanley of Alderley, the postmaster-general of the day, and the machinery for putting the act in action was elaborated by Frank Ives Scudamore of the Post Office and Sir Alexander Spearman of the National Debt office. The business was commenced on the 17th of April 1865. By the end of the year 560 policies of insurance had been issued, and 94 immediate and 54 deferred annuities granted. In the first twelve months these figures had increased to 809 policies and 230 annuities. The opportunity thus given of insuring through the Post Office with government security was not, however, embraced with the warmth which had been anticipated. In 1882, when Mr Henry Fawcett, then in office, examined the subject, he found that the average number of policies of insurance granted annually during the seventeen years which had elapsed was under 400--less, in fact, than during the first twelve months of the system. The purchase of annuities had increased slightly, but the business was transacted chiefly in immediate annuities, and hardly indicated any progress in provision for old age by means of early savings. Mr Fawcett procured a Select Committee of the House of Commons on the subject. Before this committee Mr James Cardin, then assistant receiver and accountant-general of the Post Office, propounded a scheme for combining the annuity and insurance business of the Post Office with that of the savings bank. The Committee recommended the adoption of this scheme, together with some enlargement of range and some relaxation of conditions. The recommendations of the Committee were embodied in the Government Annuities Act 1882, which came into operation on the 3rd of June 1884, and which forms the basis of the present system.

Any person between 14 and 65 can now insure through the medium of the
Post Office Savings Bank for any amount from L5 to L100; and the life
of a young person between 8 and 14 can be insured for L5. Through the
same channel can be purchased annuities, immediate or deferred, from
L1 to L100, on the life of any person from 5 years old upwards.
Old-age policies, that is, policies securing payment of a specific sum
either at the expiration of a fixed period (varying from 10 to 40
years), or upon the attainment of a certain age, or sooner in case of
death, can also be obtained. Policies for a fixed period can only be
purchased by a single payment, but in all other cases the purchase can
be effected by payment either of a lump sum or of annual instalments.
Further, all purchases are effected through the Post Office Savings
Bank. As soon as a contract is completed, the purchaser is required to
pay the first instalment to his account in the bank, or, if he has no
account already, to open an account for the purpose. This and all
further instalments are then transferred by the postmaster-general, as
they become due, to the credit of the National Debt Commissioners; all
the purchaser has to do is to keep his banking account in funds; he
can pay his savings into the bank when and as he pleases. So, also,
when old-age pay, secured either by a deferred annuity or an endowment
policy, becomes due, it is paid to the account of the purchaser; and,
if it does not cause the sum standing to his credit to exceed the
statutory limits, it can remain there earning interest, and be drawn
out in such amounts as may be convenient from time to time. The
purchaser has also the advantage of the ubiquity of the Post Office
Savings Bank. He can make his deposits, and can draw out his old-age
pay when it becomes due, at any one of the 13,000 odd post offices
where savings bank business is transacted. He can even, if his savings
are made from day to day, use the penny stamp slips introduced by Mr
Fawcett, affixing a stamp whenever he has a penny to spare, and paying
in the slip when it is worth a shilling. In short, every advantage
open to the ordinary depositor in the Savings Bank is placed at the
service of the working man or woman who wishes to secure old-age pay,
or to have a small sum to aid those who may suffer pecuniarily from
his or her death. Even the reluctance of many persons to submit
themselves to medical examination is tenderly regarded. A policy for
any sum up to L25 may, if the information afforded is satisfactory,
be obtained without a doctor's certificate, on condition that, if
death happens during the first year, only the premium paid is
returned, and if during the second year, only half the sum insured is
paid. As regards old-age pay, a purchaser can, by adopting a slightly
higher scale of payment, secure the return of his purchase money if at
any time before the annuity falls in he repents of his bargain.
Further, employers of labour and friendly societies can, on behalf of
their workmen or members, make all the payments necessary to buy an
insurance or annuity, and recoup themselves out of wages or members'
contributions.

The act of 1882 directed that the tables upon which annuities and
policies of insurance are granted should be revised from time to time;
and in February 1896 new tables reducing the rates of annual premiums,
and giving greater facilities for old-age insurance, were issued. The
rates are now but very slightly (less than 3%) higher than the average
rates of the larger insurance offices. But the expense of small
insurance business must necessarily be above the average, and it is
fairer to compare the Post Office rates with those of the office which
stands pre-eminent in the insurance of the working classes. Such a
comparison shows that up to the age of 40 a life insurance can be
effected with the Post Office at a cheaper rate than with the
Prudential Insurance Company; between 40 and 60 the advantage is
slightly on the side of the company.

In 1885, the first complete year after Mr Fawcett's improvement took
effect, 103 deferred annuities and 457 insurance policies were
granted; in 1905, 158 deferred annuities and 741 policies. The
increase of business, measured in percentages, is no doubt
appreciable, but the figures themselves are so small as to make such a
comparison trivial. If we compare the two periods, before and after Mr
Fawcett's reforms, we find that between the 17th of April 1865 and the
2nd of June 1884 (about nineteen years) 7064 policies of insurance,
amounting to L557,625, were issued, and between the latter date and
the end of 1905, 16,577 policies, amounting to L875,496. For the whole
period the figures are 23,641 policies for L1,433,121. During the same
time 3144 contracts for old-age pay, amounting in all to L64,378, were
made. When we contrast with this sum total the fact that in 1905 alone
1,435,329 new accounts were opened in the Post Office Savings Bank,
and more than L42,000,000 deposited in the bank in the course of the
year, it becomes apparent that, while the Savings Bank has reached the
mass of the population, insurance against old age and death through
the Post Office has not.

In 1894 Mr C. D. Lang, the Controller of the Post Office Savings Bank,
and Mr Cardin, giving evidence before the Commission on Old-Age
Pensions, ascribed the small insurance and annuity business of the
Post Office to the want of a personal canvass. They pointed out that
there had been some temporary increase in insurance, through an appeal
to the Post Office employes themselves, and they suggested that
something might be done if the masters of the elementary schools could
be induced to interest themselves in recommending to their scholars
and the parents of their scholars the advantages offered by the Post
Office. It was also pointed out that the friendly societies might, if
they were so disposed, act as intermediaries between their members and
the Post Office, and thereby, as it were, reinsure their risks with
the government; but it was added that all overtures of this nature to
the societies had failed, apparently from the fear--quite
groundless--of introducing government control of the societies'
affairs. There may, indeed, be another reason for the failure of the
deferred annuity system. The insurance of old-age pay is not popular
even amongst the members of friendly societies, or even in Germany,
where it has been given to the workmen largely at the expense of other
people. Insurance against death, sickness and accidents appeals to the
young working man; but old age is too far off to be an object of
solicitude, especially since the grant of old-age pensions by the
state has made the future secure from destitution at least. However,
if at any time opinion changes, the Post Office stands ready to make
foresight or philanthropy easy. Though no great results have been
achieved, a machinery has been established which works with perfect
smoothness, and which may some day be of service to the nation.