The Values of Precision by M. Norton Wise

Author:M. Norton Wise [Wise, M. Norton]
Language: eng
Format: epub
ISBN: 9780691016016
Barnesnoble:
Publisher: Princeton University Press
Published: 1997-04-06T00:00:00+00:00

A Select Committee Seeks Exact Rules

Charles Dickens chose life insurance as the exemplar of fraudulent enterprise in Martin Chuzzlewit. The Anglo-Bengalee Disinterested Loan and Life Assurance Company disguised its rapaciousness with a veneer of solidity and trust. That was in 1843. The novel drew on stories of shady insurance operations taken as evidence in 1841 and 1843 by the Select Committee on Joint Stock Companies. In ensuing years, speculative investment in life insurance reached new heights. Despite attempts to regulate insurance through the Joint Stock Companies’ Act of 1844, Parliament had almost no control over this activity. The Select Committee on Assurance Associations, which carried out its inquiries in 1853, was able to learn from Francis Whitmarsh, Registrar of Joint Stock Companies, how many companies had been provisionally or completely registered in the intervening years. It seemed that many, probably more than a hundred, had already failed, though the bureaucratic machinery was not adequate to offer any certainty. The word on the street was not encouraging. James Wilson had written on the problem for the Economist newspaper, and was as well informed as anyone about business practices in life insurance. As chairman of the select committee, he looked to actuarial precision to provide readily understandable information so that people would be able to learn for themselves which companies were solid.43 Nearly all testimony to the committee came from professional actuaries, most representing the older and more respectable companies rather than the new, possibly shady ones. These actuaries were polite but unmoveable. Precision is not attainable through actuarial methods. A sound company depends on judgment and discretion. Actuaries are gentlemen of character and discernment. Trust us.

Wilson set forth his analysis plainly in the form of leading questions. Life insurance is a long-term proposition, and the insured need some basis for confidence that the company will still be there when, at their death, a claim at last comes due. Premiums depend on age of admission to a company, but are set at a rate that is to remain fixed over the life of the insured. Death rates for those recently insured are relatively low, both because of their youth and because they are select lives. Hence a new company will accumulate a lot of capital in its early years. If it is responsible, it will set much of this aside in anticipation of an increasing rate of claims twenty or thirty years later. But many companies seemed not to be responsible. They paid their officers and directors high salaries. They expended vast sums on advertising to bring in new lives and new revenue. And many did not exude solidity. A certain Augustus Collingridge had in just a few years set up and closed down several companies. Among the companies investigated by William S. D. Pateman were several of doubtful reliability. The Victoria Life Office “consisted of one room, over a milliner’s shop, in New Oxford-street, containing only two chairs, a broken table, and a large number of prospectuses, printed on foreign note paper.

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