United States. Temporary National Economic Committ.

Investigation of concentration of economic power; monograph no. 1[-43] (Volume no. 2) online

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policies of 259 individuals who did not live with their respective fam-
ilies. 3 In the study these 259 individuals "living away from their
families" have not been considered as members of the family. These
259 persons added to the 5,791 family members who were insured
makes a total of 6,050 insured individuals. In order to establish an
average number of policies and an average amount of insurance per
insured person living with their respective families for whom the data
are presumably complete, 4 the calculations were based upon the 5,791
such insured persons. These 5,791 insured persons had 9,782 policies

i A premium receipt book obtained from one of the families is reproduced In the appendix by permission
of the poli cyholder. An examination of it will help understand the confusion frequently found with respect
to policies, premiums, and dividends.

> The amount of insurance in force is defined as the amount that would have been paid by the issuing com-
pany to the beneficiary u nder the particular policy had death taken place on the date of enumeration. This
amount may be less or more than the amount stated in the policy, depending on the age of the insured, the
age of the policy and the mortuary or other divdend rates established by the issuing company. See ap-
pendix 5 for a description of the method used in determining the amount of death benefits.

* See also table 37, p. 153.

4 It is quite likely that the 259 other persons had insurance in addition to that represented by the policies
held and paid for by their families, but, of course, it was impossible to determine such information in this
survey.

13



14



CONCENTRATION OF ECONOMIC POWER



tor a total amount of $3,954,319 insurance in force. Therefore, the
averages are 1.69 policies and $683 insurance per insured person.





Data in connection with insured


persons








Number of
persons


Number of
policies


Policies
per person


Amount of
insurance


Insurance
per person




5,791
259


9,782
368


1.69
1.42


$3, 954, 319
115,066


$683




444








Total.


6,050


10,150


1.68


4,069,385


673







Classes of insurance. 5 Four main classes of life insurance are
recognized in this study: (a) Industrial, (6) ordinary, (c) group, and
(d) fraternal. Wide differences exist in the methods employed in
distributing these different classes of insurance, in the plans upon
which they are written, and in their costs to the policyholders. For
example, industrial insurance (to which particular attention was
directed in this study) and group insurance are customarily sold
without medical examination, whereas ordinary policies and fraternal
policies are usually issued only after a medical examination indicates
that the applicant is a satisfactory risk.

In the case of group insurance a group of persons, usually employees
of a single employer, are insured under a master policy which pro-
vides benefits for each employee who participates in the program.
This form of insurance is written on a yearly term basis, the master
policy being renewable by the employer each year. Ordinary and
industrial insurance, on the other hand, are issued on an individual
policy basis and are usually so arranged that the policy contract does
not need to be renewed annually.

The ordinary insurance policy is" customarily written in units for a
face amount of $1,000 or more and premiums are payable annually,
semiannually, or quarterly. The industrial ^policy, which is primarily
sold to persons in the lower-income brackets, is for smaller amounts
and weekly premiums are generally collected by house-to-house agents
who call at the homes of the policyholders. There is in addition an
intermediate class of insurance sold in units greater than $500 on which
premiums are collected monthly. Sometimes the issuing company
called this ordinary and- sometimes industrial. It was classified here
in conformity with the designation given by the issuing company in
each case.

Industrial insurance customarily includes as an integral part of the
contract the double-indemnity clause, a provision doubling the benefit
in case death occurs from accidental causes. It also includes a clause
waiving the payment of premiums in the case of total and permanent
disability to the insured. These provisions are also available in
ordinary insurance but usually only upon the payment of an extra
premium.

The selection of either industrial or ordinary policies by the insured
may be said to result more from the independent negotiation of the
individual and the agent than in the case of either group or fraternal

» See appendix 4, p. 84.



CONCENTRATION OF ECONOMIC POWER 15

policies. Both industrial and ordinary policies are sold in units of
different amounts, on a wide variety of plans and at different premium
rates so that the peculiar needs of the individual family may be met.
When group insurance is found in force, its presence cannot be
attributed to the free selection by the insured of that class of insurance.
Rather it exists because the employer of the insured exercised his initia-
tive to purchase insurance at "wholesale rates" for the benefit of his
employees. Inasmuch as employers often pay a part and sometimes
all of the premiums on group insurance there are strong reasons why
as much as possible of it is taken out by most of those to whom it is
available. It should be noted that the amount of group insurance of
any individual is usually the approximate amount of his annual wages.
Group insurance is written on the "term" plan only. Moreover, inas-
much as the group contract is between the employer and the life
insurance company, it is generally available to the insured only so long
as he remains in the service of his employer.

Fraternal associations, lodges and orders, such as the Knights of
Columbus, the Woodmen of the World, and the Odd Fellows, issue life
insurance very similar to the ordinary insurance but it is issued to
members only and premium payments are frequently included as part
of the membership dues. Insurance is also issued to members only
by such associations as the Boston Firemen's Mutual Benefit Associ-
ation. Whether originating as "fraternal" or "mutual benefit," all
insurance of this general type has been classified in this study as
fraternal insurance.

Savings bank life insurance, 6 although available in units as small as
$100, is not sold on the weekly premium plan. It has been classified
as ordinary insurance in this study but in many tables is shown
separately.

Classes of insurance — Policies. One measure of the importance
of the different classes of life insurance in the families surveyed is the
number of separate policy contracts. There were 10,150 policies in
force in the 1,666 insured families. (See table 7, p. 113.) They were
divided among the different classes of insurance as follows:

Industrial policies ' 8, 214

Ordinary 7 policies 1, 265

Group certificates 395

Fraternal policies 276

Total . 10, 150

In considering the roles played by the different classes of insurance,
it is interesting to note that average amounts of insurance in force
per policy vary as- follows:

Group $1, 151

Ordinary 8 1,110

Fraternal r _, 691

Industrial . 246

• See testimony of Hon. Judd Dewey, deputy commissioner of savings bank life insurance in Massachu-
setts, in the hearings before the Temporary, National Economic Committee, Part. 10, pp. 4449 et seq.

' This includes 129 policies issued by savings banks.

• If the 129 savings bank policies are treated separately, the average ordinary policy becomes $1,161. The
average savings bank policy represented $656 of insurance. (See table 8, p. 115.)



16



CONCENTRATION OF ECONOMIC POWER



Classes of insurance — Amounts in force. The relative importance
of the different classes of insurance may be judged by the amounts of
each in force appearing below.

Industrial $2, 020, 1 58

Ordinary • 1 , 404, 024

Group 454,597

Fraternal _' 190, 606



Total 4,069,385

These amounts are shown graphically in chart 4 on this page.
There is no question but that industrial insurance was the most
significant class of insurance found among the families surveyed,

Chart 4
CLASSES OF INSURANCE IN FORCE

AMOUNTS IN THOUSANDS Of DOLLARS



INDUSTRIAL



ORDINARY

(Excluding Savin
Sank Life Insur




GROUP



FRATERNAL



SAVINGS BANK
LIFE INSURANCE



500



1000



1500



2000



:m






Source; Tables 7 and 12-A



S-!«8 Freparua by S*c. I tick. Co*



since it accounted for almost as much insurance as all the other classes
combined. Compared with ordinary insurance, the next in import-
ance, industrial policies accounted for 44 percent more insurance than
is accounted for by the ordinary policies. The amount of industrial
insurance was over 4 times the amount of group insurance and 10
times the amount of fraternal insurance.

Glasses of insurance — Combinations. One important fact devel-
oped in the survey throws some light upon the source of the com-
plexity frequently found in family insurance programs. The different
classes of life insurance, referred to in the preceding section, were found
singly and in all manner of combinations in different families. This
situation is described in the figures that follow and is portrayed graph-
ically (chart 5) on the opposite page.

It will be noted that of the 1,666 insured families, 1,463 held indus-
trial insurance, and 701 held no other kinds of life insurance. 10

The amount of savings bank life insurance included in ordinary is $84,586.
10 In many of the subsequent analyses, this group of 701 families will be treated separately. Ct U "composed
of families that rely entirely upon industrial insurance for their financial, protection.



CONCENTRATION OF ECONOMIC POWER 17

Families

Industrial life insurance only 701

Industrial and ordinary only 370

Industrial and group and/or fraternal only 198

Industrial and ordinary, group and/or fraternal only 194

Subtotal.. . _ 1,463

Ordinary, only.... 104

Ordinary and group and/or fraternal only 1 36

Group and/or fraternal only, 63

Total . 1,666

Chart 5

DUPLICATION IN USE OF INDUSTRIAL, ORDINARY AND

OTHER CLASSES OF LIFE INSURANCE BY THE

I 666 I NSURED FAM I L I ES




«492 FAMILIES WITH OTHER INSURANCE'
(GROUP AND FRATERNAL)



Source: Table 6



DS-15C6 Prepared by Sec. i Sxch. Coma..



On the chart above it will be seen that the 1,463 families with indus-
trial insurance are represented by the largest square. The middle-size
square represents the 704 families, which had ordinary insurance in
force, and the smallest square represents the 492 families with "other"



18 CONCENTRATION OF ECONOMIC POWER

kinds of insurance (i. e., group or fraternal). The 701 families with
only industrial insurance may be contrasted with the 104 families in
which ordinary insurance was the only insurance in force, and 63
families in which the only policies were group or fraternal. There
were 370 families holding the combination of industrial and ordinary;
198 families holding industrial and group or fraternal, and 194 families
holding a combination of all three classes.

Industrial insurance — Companies. The relative importance of the
companies underwriting the life insurance in force among the families
covered in the survey may be judged from the figures from table 8
summarized below. According to the number of policies in force it
is evident thac the responsibility for the industrial insurance in this
group rests on a very few companies. 11 All but 3 of the 8,214 industrial
policies in force had been sold by four companies.

Number of

industrial Percent

Company policies of total

Metropolitan 3,476 42.32

John Hancock 3,207 39.04

Prudential 1,049 12.77

Boston Mutual 479 5.83

Others 3 .04

Total 8,214 100.00

The Metropolitan dominates the picture with the largest number of
policies. The position of the Prudential in relation to the John
Hancock is out of line with its national or State positioc In the
country as a whole, John Hancock has only 22 percent as many indus-
trial policies in force as the Prudential. Even in Massachusetts John
Hancock has only 24 percent as many industrial policies as the Pru-
dential. Nevertheless, in the 35 blocks surveyed in Greater Boston
there were 3,207 John Hancock industrial policies in force and only
1,049 industrial policies of the Prudential.

Ordinary insurance — Companies. In Massachusetts the ordinary
life insurance business is carried on by 12 companies domiciled therein,
34 companies licensed to conduct business in the State but domiciled
in other States, and 26 mutual savings banks authorized to write life
insurance. In the families surveyed there were found to.be 1,265 ordi-
nary life-msurance policies in force. Of these, 991 had been issued
by the same four companies which dominated the sale of industrial
insurance. In addition, 129 policies had been issued by Massachu-
setts savings banks and 145 by all other life-insurance companies. 12 '
(See table 8, p. 115.)

Number of ordi- Percent

Company nary policies of total

Metropolitan 555 43.88

John Hancock 270 21.34

Savings Banks 129 10.20

Prudential 128 10.12

Boston Mutual .. 38 3.00

Others 145 .11.46

Total 1,265 100.00

" The case of families covered by two or more companies is discussed in Chapter V. See p. 51.
12 A list of the companies represented in the policies examined appears in Appendix 9, p. 104.



CONCENTRATION OF ECONOMIC POWER



19



Economic and insurance status of families. There is little question
that life insurance is regarded as a necessity by the great majority
of families covered in the survey. As shown in table 5 and on
chart 6, a large percentage of the families in the lowest income




classes, including those on relief, carry life-insurance policies. But,
as might be expected, smaller percentages of the families with the
extremely low incomes were insured. Among the nonrelief families
with "per family memb " incomes of less than $200 annually, 70 to
75 percent were insured.



20



CONCENTRATION OF ECONOMIC POWER



At the other extreme of the income scale were the families with
"per family member" incomes of $600 and over. Many of the families
included in this income group were single-person families. There
were, of course, very few relief families with the higher incomes.
The highest "per family member" incomes in these relief families
were found where a great deal of sickness existed and the families
had received an unusual amount of relief. Of the 21 relief families
shown in the chart as having "per family member" incomes of $600
and over, 11 were single-person families.

If the single-person families are omitted from the determinations,
in both relief and nonrelief families the tendency is for a greater pro-
portion of families to be insured as the income increases, as indicated
in the table below. The chief difference between the ^onrelief and
relief groups lies in the fact that the proportion of insured families in
the relief group is consistently lower than it is in the nonrelief group.

Proportion of families insured and economic status for families of 2 or more members





Nonrelief families


Relief families


Total families


Economic status, average annual
income per family member


Num
ber


In-
sured


Per-
cent
in-
sured


Num-
ber


In-
sured


Per-
cent
in-
sured


Num-
ber


In-
sured


Per-
cent
in-
sured




249
159
216
307
266
120
17


275
142
195
274
231
91
12


93.5
89.3
90.3
89.3
86.8
75.8
70.6


10

25
41
75
222
246
14


9
21
30
46
146
132
5


90.0
84.0
73.2
61.3
65.8
53.7
35.7


304
184
257
382
488
366
31


284
162
225
320
377
223
17


93.4


$500 to $599


88.0


$400 to $499


87.5


$300 to $399


83.8


$200 to $299 -.


77.3


$100 to $199


60.9


Under $100


54.8






Total


1,379


1,220


88.5


633


389


61.5


2,012


1,609


80.0







Economic status of families and classes of insurance held. Insured
families were classified according to their economic status. There
were 628 families in which the average annual per family member in-
come was under $300; 732 families in which it ranged from $300 to
$600; and 306 families in which the average annual per family member
income exceeded $600. The total amounts and percentages of each
class of insurance were determined for each group separately. The
results are shown in chart 7 on the opposite page, and in the
accompanying table.

It is apparent from the data that there is a definite relationship
between economic status and the class of insurance held which may
be expressed thus: the greater the average annual per family member
income, the greater will be the relative importance of ordinary, group
and fraternal insurance; and the greater the average annual per
family member income, the smaller will be the importance of industrial
insurance. In other words it is the families in the lowest economic
levels that rely to the greatest extent upon industrial insurance.



CONCENTRATION OF ECONOMIC POWER



21



Chart 7

relative importance of different classes of insurance
in families with different incomes per member



PERCENT OP ANOONT OP INSVRANCE IN FORCE
25 50 75



1666 FAMILIES-
TOTAL INSURED



A. 628 LOWEST INCOME
FAMILIES



B. 732 MEDIUM INCOME
FAMILIES



C. 306 HIGHEST INCOME
FAMILIES



Source: Toilt 10




A. - Vndtr $300 B. - $3oo-$S99 C - $600 and over

DS-lUll trtptm by Ik. I txcA. Conm.



Amounts and classes of insurance in force in families classified by economic status





Number
of fam-
ilies


Classes of insurance


Average annual income per family
member


Amounts




Industrial


Ordinary


Group


Fraternal


Total


Under $300 1


628
732
306


$833. 088
885, 342
301, 728


$256, 533
Cj7, 599
449, 892


$118,283
214, 930
121, 384


$31, 823
101, 750
57, 033


$1, 239, 727


$300 to $599 _-


1, 899, 621




930, 037






Total •


1,666


2,020,158


1, 404, 024


'454, 597


190,606


4, 069. 385










Percentages based on amounts


Under $300 -


67.20
46.61
32.44


20.69
36.72
48.37


9.54
11.31
13.05


2.57
5.36
6.14


100.0


$300 to $699




100.0






100.0








Total.




49.64


34.50


11.17


4.69


loo.o









Source: Table 10, p. 118.



22 CONCENTRATION OF ECONOMIC POWER

This condition can be partially explained by the nature of the differ-
ent classes of insurance. Industrial insurance is issued in small units
and is sold on a weekly premium plan for small unit payments. On
the other hand ordinary and fraternal insurance are available only in
larger amounts and do not offer the convenience of small weekly pay-
ments. Group insurance is usually available only to individuals who
are employed by certain large business enterprises. Individuals
employed by such companies are more likely to be in the skilled or
semiskilled occupations and to belong to the higher rather than the
lower income group of the families included in this survey.

Ages of policyholders and classes of insurance held. The various
classes of insurance were found to be quite differently distributed
according to the ages of their respective -policy holders. In both
group and fraternal insurance there are inherent factors which would
tend to limit the insurance to adults. Fraternal insurance, as has
been stated, occurs largely as an incident to membership in a social
organization. Group insurance is taken out by an employer on his
workers and consequently would be concentrated in the working ages.
As far as to principal industrial companies are concerned, the other
two classes of life insurance — ordinary and industrial — are generally
available to the same age groups hence the differences found in the
ages of ordinary and industrial policyholders must be explained on
other grounds.

Industrial and ordinary life insurance differ somewhat with respect
to the motives which actuate individuals in applying for life insurance.
Ordinary insurance, purchased by individuals in the higher income
"groups, is usually placed on the breadwinners to provide insurance
against the loss of the family's main source of income. Industrial
insurance, on the other hand, is purchased by families in the lower
income groups and is not concentrated on breadwinners. There is
little question that it is taken out for the primary purpose of providing
for the expense of the last sickness and the burial as it is typically
carried on practically all members of the family. These differences
in motive, induced largely by a difference in the economic status in the
families, help to explain the difference in the distribution of ages of
the policyholders in these two classes of insurance.

Present ages. The difference in the present ages of industrial and
ordinary policy holders is presented in chart 8 and the following table. 13
There is a marked concentration in the ages between 20 and 40 years
among the ordinary policy holders, whereas among the industrial policy-
holders the chief concentration is in the ages below 20 years. While less
than 1 percent of the ordinary policies in force were on children under 10
years old, over 20 percent of the industrial policies were on children
under 10, and one-quarter of all the industrial policies were on children
under 12 years. A further contrast is indicated by the fact that
whereas only a quarter of the ordinary policies were on persons under

18 In order to simplify the comparison between ordinary and industrial insurance, two kinds of policies
were eliminated from the ordinary policies. One was the "ordinary" policies for less than $1,000 on which
premiums were paid monthly. This is a hybrid class corresponding in pattern of distribution more to the
industrial than to the ordinary policy. The other kind of policy eliminated in this comparison was the
savings-bank life-insurance policy. This kind of insurance was established as a less expensive substitute
for industrial insurance. It is sold in small-size units similar to industrial insurance but the premiums are
not payable more frequently than once a month. The ordinary policies used in this analysis may, there-
fore, be considered as more typical of ordinary insurance than they would have been otherwise.



CONCENTRATION OF ECONOMIC POWER



23



Chart 8

INDUSTRIAL AND ORDINARY POLICIES CLASSIFIED
ACCORDING TO PRESENT AGE OF POLICYHOLDER



PERCENTAGES
OP POLICIES IN
EACH AGE GROUP

30



I M D USTRIAL POLICIES



20 30 40

AGE GROUPS



50 60

YEARS



PERCENT AGES
OP POLICIES IN
EACH AGE GROUP
30




ORDINARY POLICIES*




20 30 40

AGE GROUPS



* Based on ioao Ordinary Policies not including Savings Bank Life Insurance or "i'onthly" Ordinary
Insurance Policies for less than $iooo-
Source: Table la DS-luSa Frepared by Sec. i txch. Co**.



250783 — 40— No. 2-



24



CONCENTRATION OF ECONOMIC POWER



25, a full half of the industrial policies were among persons of such
ages. 14



Industrial and ordinary policies classified according to age


of policyholder




Present Age


Age at Issue


Age


Number


Percent


Number


Percent




Indus-
trial


Ordi-
nary '


Indus-
trial /


Ordi-
nary


Indus-
trial


Ordi-
nary '


Indus-
trial


Ordi-
nary




191
53ft.

317
795
J, 031
1,388
1, 757
1,699


' 9
42
114
180'
287
267.
113
8


2.3
6.5
9.9
9.7
12.6
16.9
21.4
20.7


0.9
4.1
11.2
17.7
28.1
26.1
11.1
.8










60 to 69 -


139

492

908

981

1,355

1,580

2,759


1
30
132
245
400
201
11


1.7
6.0
11.1
11.9
16.5
19.2
33.6


0.1


60 to 59


2.9


40 to 49 -


13.0


30 to 39


24.0


20 to 29


39.2


10 to 19


18.7


to 9


1.1






Total


8, 214


1,020


100.0


100.0


8,214


1,020


100.0


100.0







• Not including savings-bank life insurance or "monthly ordinary" policies for less than $1,000.
Tables 12, 12-A, 13, and 13-A, pp. 122-127.



Source:



Age at issue. The difference between these two classes of insur-
ance is even more striking in an analysis of the ages at which the
policies had been issued. 15 Sixty-three percent of the ordinary-
policies as compared with a little over 28 percent of the industrial
policies had been taken out by persons between 20 and 40. Only
one-fifth of the ordinary policies had been issued to persons less than
20 years of age, whereas over half of the industrial insurance policies
had been issued to this age group. While it is interesting to note


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