ABSTRACT
We should expect Life Insurance Companies to be exceedingly profitable. It looks as if they had all the conditions which we lately pointed out that favour joint-stock enterprise. First, the business is simple. Nothing can be more distinct than the idea of life insurance; nothing more separable from other ideas. The data which now exist on the subject reduce the matter much nearer to mathematical certainty and mathematical simplicity than the data of another kind of business. By looking at a table you can see the average duration of life at any age; by experience, the cost of conducting an office is known; by experience too (though within more uncertain limits), the rate of interest to be obtained on investments is also known. The office knows what premium they ought to charge for insuring any particular life better probably than any other dealer knows what to charge in any other bargain. As far as simplicity makes joint-stock companies succeed, life insurance companies are likely to be the most prosperous of any. Again, no capital is after a little time wanted for the transaction of the business. The premiums charged ought soon to be enough to pay the losses incurred. No doubt for the first few years the losses may be greater than the premiums received; the premiums are calculated for average events, and of course a very unfavourable deviation from the average – an extreme case of ill-luck – may for a time disappoint such calculation. But in the end and after a time, which experience now shows not to be long, the premiums are not only enough for the losses but far more than enough. The insurance offices of England are among the greatest capitalists in England. They have the pick, so to say, of the best specimens of the best species of security – the most sure mortgages. Those on the largest landed estates, of which there is no sort of doubt, always come to them. It is often said that the lands of the aristocracy are pledged to secure poor widows subsistence. And the fact is literally so. An insurance office undertakes to pay a certain policy, on which after the death of her husband the widow subsists. The husband pays a certain yearly sum called a premium to the insurance office; those yearly sums, though each is very small, together make a great capital; that capital a cautious office puts out where it is most sure to be able to find it again – on the land of this 148country and on that part of it of which the title is most to be relied on, which has never been neglected or lost sight of, all the lives relating to which are known, which has been “advised upon” by the best conveyancers from generation to generation. With funds so ample an insurance company once well started needs no capital of its own in its business. All it does need, if it needs any, is a capital by way of guarantee giving confidence to the public that even though the directors make errors, even though bad lives are accepted, even though bad investments are taken, the policy holder will be safe. These two great elements in joint-stock enterprise are not more favourable to life insurance companies than the third; life insurance is of all trades the one in which credit most works, and where it most rules. In other cases some other attraction may compete with good credit. A man may keep his account with a bank which lends freely, or which pays high interest for money left, even though he is not very sure it is quite sound. The balance he keeps is probably small; large balances, except for short intervals, and as it were in transitu, are very rare. The failure of a man’s banker as / a rule is nowa-days but a very slight inconvenience. But the failure of an insurance office in which a man’s life has been long and largely secured is an irreparable calamity. It is the loss of the savings of years – generally made with privation, and which in late life cannot be made again. If a man of 65 finds that for 35 years he has been paying money to an insolvent office, he has lost all the money he ever paid the office and all he hoped to receive of it. He cannot begin anew on the same terms; perhaps he cannot begin anew at all. Very likely his life is now uninsurable; he may have some disease which may make a new office certain to refuse him. And in any case he will have to pay now that he first insures when old a premium immensely higher than that which he paid when he insured young; and he will have to pay the augmented premium when his health is failing and his power of earning is diminishing. The loss an insurer sustains by an insolvent insurance office is commonly a grave calamity. On that account most people may be expected to be very careful in choosing an insurance office in good repute, and in fact they are tolerably careful – good credit is the breath of life to an insurance office. It is the source of its business and the spring of its profits.
