INDUSTRIAL INSURANCE. The system of industrial insurance in its present form has been evolved from the endeav ours on the part of small local burial societies to secure to persons in humble circumstances a sum sufficient to defray their funeral expenses. Many of these small societies are still in existence, but as it became apparent that there was a general demand for the services which they rendered, other organizations founded on a broader basis, and employing the medium of collectors, were established, and have developed to such a degree that the business now transacted by the larger collecting societies and industrial insurance companies has attained enormous proportions. The provision of funeral benefits remains the predominant function of the system. The advantages of life insurance as a means of making provision for dependents are, however, becoming more generally appreciated. The great majority of the contracts in force consist of whole-life policies, but the popularity of endow ment assurance, which is so conspicuous a feature of ordinary life insurance business, appears to be extending in some measure to industrial insurance.
The principal characteristics of the system are well known, and all, or at least some of them, are present in a greater or less degree in every form of industrial insurance policy. the sums assured are small in amount, the premiums are collected by agents at the homes of the assured, and are generally payable weekly or at other short intervals, and the weekly premium is the basic unit of the tables, the sum assured being the variable depending upon the age of the policyholder and the form of policy. It is interesting to note that the statutory definitions of industrial insurance have varied in different countries, and even from time to time in the same country according as emphasis is laid on one or other of these characteristics.
In Great Britain industrial assurance business is defined by the Industrial Assurance Act, 1923, as that of effecting assurances upon human life, premiums in respect of which are received by means of collectors, and are payable at intervals of less than two months. In the same Act a collector is described as a person who makes house-to-house visits for the purpose of receiving life assurance premiums.
The British System.—An account of the British system may serve to indicate the essential principles governing the conduct of industrial insurance business wherever it may be transacted.
In Great Britain industrial assurance business is regulated mainly by the Industrial Assurance Act, 1923, 13 and 14 Geo. 5, c. 8. The institutions authorized to transact the business of industrial assurance are divided into two classes, registered friendly societies, referred to in the Act as collecting societies, and assurance com panies, referred to in the Act as industrial assurance companies. The operations of registered friendly societies are governed by the Friendly Societies Acts, and those of assurance companies by the Assurance Companies Act, 1909, and the provisions of these Acts so far as they have not been superseded or repealed by the 1923 Act continue to apply to societies and companies transacting industrial assurance business. Under the Act the Chief Registrar of Friendly Societies is constituted the sole authority for the supervision of industrial assurance business, and in this capacity is to be known as, and styled, the Industrial Assurance Com missioner. The powers conferred upon the commissioner include not only those in relation to industrial assurance business hitherto vested in the Board of Trade and the Chief Registrar of Friendly Societies respectively, but also certain others of a far-reaching character. He may reject any account, return a balance sheet that does not comply with the requirements of the Act, and give such directions as he thinks necessary for the variation thereof. Disputes may be referred to him, and acting in a judicial capacity he may hear and determine such cases. He has power to investi gate offences, and in cases where he has reasonable cause to believe that an offence has been committed or is likely to be committed, he is authorized to hold an inspection into the affairs of the society or company. His decisions in the more important cases are published in the annual report which he is required to make each year of his proceedings under the Act, and which is to be laid before Parliament. By the 1923 Act every company and society transacting industrial insurance business is required to deposit and to keep deposited with the Paymaster General in respect of such business the sum of Ј2o,000.
Under the Life Assurance Act, 1774, a policy issued to one person on the life of another is invalid unless the person proposing the assurance has an insurable interest. By the 1923 Act and the Friendly Societies Act 1924, policies insuring money to be paid for the funeral expenses of a parent, child, grand parent, grandchild, brother or sister are not to be invalidated by the absence of insurable interest. The maximum sums payable on the death of a child are, however, fixed at Ј6 for children under three years of age, f I o for children up to six years of age, and f 15 for children up to ten years of age.
The provisions of the Act relating to valuations are of great importance. The valuation must be made by an actuary, and the basis is to be such as to place a proper value on the liabilities, regard being had to the mortality experience, to the average rate of interest from investments and to the expenses of manage ment including commission. There is in the Act no suggestion of anything in the nature of a standard basis of valuation or of a maximum scale of expenditure on management. A certificate is to be given by the same persons as sign the balance sheet that the assets are in the aggregate fully of the value stated therein. The commissioner has power to reject a valuation, and order it to be amended, and may direct further particulars and explana tions to be furnished in order to satisfy himself whether the valuation complies with the provisions of the Act. If a valuation discloses a deficiency the commissioner may, if he is satisfied that the society or company should cease to carry on business, take the necessary steps to have it wound up.
The large number of lapsed policies has been a frequent subject of complaint in regard to industrial insurance business. The Act, however, contains stringent provisions for safeguarding the rights of owners of policies. Before the for feiture of a policy can be incurred, a notice of the arrears owing must be served and 28 days allowed in which to pay. If the arrears are not paid, and the policy has been in force for a pre scribed period, the owner of the policy is on making application to the insuring office within one year from the date of the notice, entitled to a free paid-up policy or in certain circumstances to a surrender value. Rules are prescribed for ascertaining the value of a policy and for determining the amount of the free paid-up policy. The provisions regarding forfeiture are to be printed in every premium receipt book.
The Industrial Assurance Act, 1923, was the direct outcome of the recommendations of a departmental committee appointed in 1919 by the Board of Trade to enquire into the business carried on by industrial assurance companies and collecting societies. The committee in the following year presented a unanimous report criticizing the methods of some of the offices, and proposing amending legislation.
The great problem which all industrial insurance companies, no matter where they may be established, have to solve is the reduction of expenditure. The collection of premiums by agents is necessarily a costly process, and owing to the smallness of the sums involved, the expense ratio must in evitably be considerably higher than in the case of ordinary life assurance business. Most companies are able to conduct their ordinary business at a cost of about 12 to 15% of the premiums, but from the evidence furnished to the departmental committee it appeared that the average annual total expenditure of com panies and societies on industrial business for the six years 1912-17 represented about 44% of the premium income. In 1926 the expense ratio for all companies had fallen to 34% and for all societies to 41%. The former of these two ratios is weighted heavily by the experience of the largest company whose rate of expenditure has shown a progressive decline to 26%, a figure which is much lower than that of any other company. The substitution of a salary basis of remuneration for that of commission is becom ing more usual, and the introduction of the "Block system," under which a given area is exclusively allotted to a particular agent, promises to be productive of satisfactory results.
The tables issued by industrial assurance companies usually show for each age at entry the sum assured by weekly premiums of one penny or multiples thereof. The plan of taking the penny premium as the unit facilitates accounting as well as collection by agents. There is an increasing tendency, however, especially in the case of endowment assurances, to quote the sums assured by monthly premiums, and as in ordinary assurance business to show the premiums required to provide specified sums assured. The following are specimen rates taken from the prospectus of a large British office :—The sum assured at death by a premium of one penny per week is, for age next birthday at entry 10, Ј 15. o. o ; age 20, Ј I o I 8S. ; age 30, L 7 17 s. ; age 40, f 5 7s.; age 50, f 3 9s. ; age 6o, f 2 3s. A premium of 5s. paid every four weeks will secure at the expiration of 15 years or at death, if previous, for age at entry 1, Ј45 ; age 10, f 44 5s. ; age 20, Ј43 5s. ; age 30, 142 I os. ; age 40, Ј4o 15s. ; and age 50, Ios.
In Great Britain, since 1919, almost all offices have issued revised tables giving more favourable terms than formerly. This has been made possible by the general decrease in the death-rate, and the increase in the rate of interest obtainable on investments. It may be anticipated that with the continuance of these in fluences, profits will enure, to a share of which policyholders will no doubt be admitted, even although industrial insurance policies usually do not carry the right of participation in profits. Several offices, both proprietary and mutual, have for some time had bonus schemes in operation, and surpluses have been distributed either in the form of additions to the sum assured or curtailment of the period for which premiums were originally payable. One large company for many years gave "mortuary" bonuses, that is, additions to the sum assured varying with the duration of the policies, in all cases becoming claims during the ensuing year or a further specified period, but to policies issued since Jan. 1, 1923, a vested bonus conditional only on the policy remaining in force for five years is allotted in respect of the premiums paid in each year. This is a reversionary bonus, payable at the same time as the original sum assured, thus introducing into industrial assur ance business a system of distribution of surplus previously con fined to ordinary business. In the last year for which information is available this company distributed to its industrial policyholders surplus amounting to not far short of f3 millions. Another large proprietary company has extended to existing policyholders the advantages of the new tables intended for future entrants, under which larger benefits are insured. These concessions to industrial policyholders are examples of the general disposition on the part of directors and proprietors to admit them to a share in the prosperity of the company. It must be pointed out, however, that the first task confronting a number of offices has been to strengthen their reserves to the standard required by the 1923 Act.
The publication of the first complete return of the results of valuations under the British 1923 Act affords an opportunity of surveying the position of British Industrial Assurance organiza tions. The date of valuation in the majority of the cases was Dec. 31, 1926. The following is a summary of the results:— From an analysis of the returns it can be affirmed that there has been a definite strengthening of the bases of valuation, that the proportion of expenses to the premium income is diminishing, and that a general improvement in the administration of the business in the interests of the policyholders is being effected The proportion of the surpluses to the sums assured appears to be greater for the societies than for the companies, but this is attributable to the fact that the companies' surpluses are in most cases the results of annual valuations, whilst those of the societies have
accumulated during the longer intervals which had in many instances elapsed since the previous valuations.
It will be observed that the number of policies brought under review was nearly 72 millions, about two policies per head of the total industrial population of the British Isles, assuring on the average about 114 each.
The total funds held by the companies and societies amounted to about f 200 millions, a notable result of the accumulation of a multitude of small sums contributed by a large proportion of the total population, who are thus given a direct interest in the financial stability of the nation.
Statistics of Growth.—The stages in the remarkable develop ment of industrial assurance business are indicated by the follow ing statistics.
In Great Britain, for industrial assurance companies and col lecting societies together, in 1877 the premium income amounted to about f 2 millions, in 1897 it was about Ј94 millions, in 1907 about f i 7 millions, in 1920 nearly L36 millions, in 182,000, and in 1926, the latest year for which figures are available, Ј45,435,000. At the end of these years the funds amounted to nearly Ј2 millions, L2q millions, 148 millions, Јio8 millions, f 184 millions and Ј201 millions respectively. In 1926, 8,116,000 policies were issued, a decrease of about a quarter of a million from the average of the previous five years which was attributable to the coal strike.
In Australia the number of policies in force at the end of 1925 was 1,311,000, or 220 policies per i,000 of population, and the sums assured were not far short of Ј50 millions.
These are impressive figures and indicate that industrial assur ance is performing a very valuable social service. It is claimed, and no doubt quite reasonably, by the advocates of the system, that such results could not be obtained without the personal contact of agent and policyholder.
It is clear, however, that the agents do not restrict their activities to industrial business but use the opportunities afforded by their acquaintance with the circumstances of policyholders to advocate the advantages of the extended benefits to be obtained through the medium of ordinary life assurance. That these efforts are attended by considerable success is evidenced by the fact that both in Great Britain and in America the largest indus trial offices transact also the largest amount of ordinary business. The practice of using the organization of the industrial branch to extend the operations of the ordinary branch is no doubt profit able to the offices and their agents, but they are entitled to claim that it enables them to confer on their policyholders the benefits of assurance facilities at the relatively cheaper rates of the ordinary system. Amongst other examples of the pressure deliber ately exerted by offices in popularizing the less expensive types of policy may be mentioned the recent development of industrial assurance by monthly premiums. (P. G. B.) Industrial life insurance in the United States and Canada is, in general, similar to that transacted by the British insurance companies. The collecting societies, however, have no counterpart here. In the United States, supervision of industrial as well as other insurance is exercised not by the Federal Government, but by the several States. In Canada the business is regulated partly by the Dominion Government and partly by the provinces. There are few States that have specifically defined industrial insurance, although often references in the law indicate its nature. The following definition was adopted in New York State in 1927: "Industrial life insurance is hereby defined to be that form of life insurance, either (a) under which the premiums are payable weekly, or (b) under which the premiums are payable monthly or oftener, if the face amount of insurance provided in the policy is less than $i,000, and the words, `industrial policy' are printed upon the policy as a part of the descriptive matter." In Canada, the Dominion Insurance Act, as amended in 1927, provides, " `in dustrial insurance' means life insurance the premiums for which are payable at shorter intervals than quarterly and are normally collected at the home of the insured." Early History and Growth.—Prior to 1875 insurance for workingmen and their families was supplied largely by co-opera tive societies, which frequently failed after a comparatively short existence. There were also arrangements whereby social organi zations collected premiums weekly and paid them over to insur ance companies. During the year 1875, through the efforts of John F. Dryden, the Prudential Friendly Society was organ ized in Newark, N.J. and in 1877 the name was changed to the Prudential Insurance Company of America. This company adopted in large measure the methods of the Prudential of Lon don, and may properly be called the first industrial company in America. In 1879, the Metropolitan Life and the John Hancock of Boston, both of which were already transacting ordinary insur ance, commenced writing industrial insurance. These three com panies now have in force over 85% of the industrial life insurance in the United States.
The business was introduced in Canada in 1881, and is now car ried on there by three Canadian, two United States and an Aus tralian company.
Industrial insurance has grown steadily and rapidly in volume and in public favour. Policy conditions have been greatly liber alized, and restrictive provisions in the earlier policies gradually eliminated. Expense rates and lapse rates have been notably reduced, and mortality rates, especially at the younger ages, have greatly improved. Hence the companies have been able to largely increase the amount of benefit for a given premium. As an illus tration, in one company, under a policy issued in 1895 on a child aged two years next birthday, weekly premium ten cents, the maximum benefit, reached after 11 years, was $230, whereas under the present table, the benefit for the same weekly premium is $424, reached in nine years, and the premiums cease at age 75. The remarkable growth of this form of insurance will be seen from the following table (Spectator Year Book, 1927) showing the industrial insurance in force in United States companies:— The foregoing table includes the business of United States companies in Canada, amounting in 1926 to 3,217,885 policies and 5 2 2 insurance. It also includes not only policies of pure life insurance, but policies of combined life, health and accident insurance. Some of the small companies are not included in the tabulation.
At the end of 1927, there were probably more than ioo com panies transacting industrial life insurance in the United States, most of them issuing only life insurance policies, but some, espe cially in the South, issuing policies of combined life, health and accident insurance. It is estimated that these companies had in force in the United States at the end of 1927 about 76,000,000 policies of pure life insurance, representing perhaps 45 or 5o million lives, and $14,500,000,00o insurance, about 7% being on coloured persons. In addition, there were probably 3 or 4 million policies of combined life, health and accident insurance carrying 200 or 30o million dollars of life insurance, and weekly sickness benefit of many millions. In Canada, at the end of 1927, there were about 3,900,00o industrial life insurance policies in force, with insurance of $68o,000,000.
Plans.—Most industrial life insurance is based upon the col lection of a weekly premium of 5 cents or multiples thereof, with the amount of insurance varying according to the age at entry. Many companies also publish tables for even amounts, such as $10o and $250, with the weekly premium varying according to age. While premiums are usually payable weekly, the Metro politan Life Insurance Company has also been issuing monthly premium industrial policies, at reduced premiums, since the begin ning of 1927. The most popular industrial policies are whole life (frequently with premiums ceasing at the age of 7o or 75) and 20 year endowment. In most companies, insurance may be written at any time from birth up to age 6o, 65 or 7o at entry. The average benefit per policy is about $200, but the average amount per insured person is larger because many persons carry two or more policies. Policies are rarely written for more than $1,000 except by the principal Canadian company, which issues a special series of weekly premium industrial policies at reduced premium rates, for $I,000, $1,50o and $2,000. The benefits on policies issued on children usually start considerably below the maximum provided under the policy, and increase with duration until the maximum is reached. Several States, in fact, and the principal Canadian provinces, limit the insurance a parent may legally carry on the life of a child. From about 1895 to 1905, there was considerable agitation against the insurance of children, but this movement has gradually become of little importance.
Bases.—The mortality table in most common use for the cal culation of reserves is the Standard Industrial Table, based on the experience of the Metropolitan Life on standard industrial risks during the period 1896-1905. It has been recognized as a permissive standard by laws of New York State and Canada. The more recent tables of premiums and benefits, however, have been based, directly or indirectly, on later and much improved mortality rates. Mortality under industrial policies is naturally much higher than under ordinary policies because of the lower economic status of the average industrial policy holder. The interest rate generally assumed for calculation of premiums and reserves is 3 i %.
company usually divides its territory into "districts"—a district being a part or the whole of a city, perhaps with nearby cities and towns. It is in charge of a manager or superintendent, controlling a staff of agents, together with assist ant managers or assistant superintendents averaging about one for every eight or nine agents. The agent is usually compensated partly by collection salary or commission, based on the size of his "debit" (i.e. the business on which he collects), and partly by a commission for his "increase" in weekly premium, resulting from the excess of new business issued over business lapsed. Industrial agents, as a rule, write ordinary insurance as well, and are paid a commission thereon. There are not far from 70,00o industrial agents and probably ro,000 managers, superintendents and assis tants. By far the greater part of industrial insurance is written without medical examination, being inspected by the writing agent.
Industrial policies are usually incontest able after one or two years from the date of issue. There may or may not be a named beneficiary, but in either event, most policies contain a "facility of payment" clause permitting pay ment to any relative by blood or connection by marriage or other person incurring burial or othc r expenses on behalf of the insured. Restrictions as to travel or residence are rare, and in the large companies there is no limitation of benefits on account of suicide. There is usually a grace period of four weeks for payment of premiums—in monthly premium policies it is 31 days. Reinstate ment of lapsed policies within one year, upon satisfactory evidence of insurability, is usually provided by the policy, and actual prac tice is still more liberal; in two of the large companies, revival is permitted within 13 and 20 weeks respectively, irrespective of the condition of health. If premiums cannot be paid in cash, many companies will reinstate lapsed policies by charging the arrears against the policy as an interest bearing lien. Non-forfeiture values in the form of extended insurance or reduced paid-up insurance are usually provided after payment of premiums for three (some times five) years. Cash surrender values are usually granted after ten years ; in some companies five. There is seldom a provision for loan values. One large company provides that if premiums are paid for one year direct to the home office or a district office, thereby saving the expense of collection by an agent, a refund of ro% will be allowed the policy holder. The John Hancock Corn pany has always been a mutual company, and the Metropolitan and Prudential companies were mutualized in 1915. Dividend distribution is annual, and the dividends to industrial policy holders declared by these three companies in 1927 amounted to approximately $79,000,000. Dividends are declared mainly in the form of credits on premiums, paid-up additions to the face of the policy, and mortuary and maturity dividends, which are addi tions to death claims and matured endowments. Most of the small companies are stock companies, and pay no dividends to policy holders. The London Life of Canada, although a stock company, allows mortuary and maturity dividends. Disability benefits and double indemnity in case of accidental death, such as are common in ordinary insurance, are rarely found in industrial policies. Some companies, however, including the largest three, do provide a dis ability benefit payable in event of total loss of sight, or the loss of both hands or both feet, or one hand and one foot; in a few companies, also for the loss of a single hand or foot.