Industrial Insurance in the United States.
| Year. | No. of Cos. | Insurance written. | Policies in force 31st December. | Insurance in force 31st December. | Premiums received. | Losses paid. |
| 1876 | 1 | $400,000 | 2,500 | $248,342 | $14,495 | $1,958 |
| 1880 | 3 | 34,212,131 | 228,357 | 19,590,780 | 1,155,360 | 430,631 |
| 1884 | 3 | 89,150,302 | 1,076,422 | 108,451,099 | 4,486,612 | 1,499,432 |
| 1888 | 7 | 161,260,335 | 2,788,000 | 302,033,066 | 11,939,540 | 4,162,745 |
| 1892 | 11 | 276,893,923 | 5,118,897 | 582,710,309 | 24,352,900 | 8,847,322 |
| 1896 | 11 | 360,852,458 | 7,375,688 | 886,484,869 | 40,058,701 | 13,420,336 |
| 1899 | 16 | 519,789,085 | 10,048,625 | 1,292,805,402 | 56,159,889 | 17,023,485 |
It is remarkable that the average weekly premium in the United States appears to be about 10 cents, or two and a half times as high as in Great Britain. The average policy is also proportionally larger, and the progressive increase in its amount deserves notice. At the rate at which the practice of insurance is extending among working men, it would require but few years for it to become as universal in these countries as any paternal government has aimed to make it by compulsion.
There are various sources from which a surplus of funds may arise in an insurance company: (1) from the rate of interest actually earned being higher than that anticipated in the calculations; (2) from the death-rate among the insured Division of surplus. being lower than that provided for by the mortality tables; (3) from the expenses and contingent outlay being less than the “loading” provided to meet them; and (4) from miscellaneous sources, such as profitable investments, the cancelment of policies, &c.
Supposing a valuation to have been made on sound data and by a proper method, and to have resulted in showing that the funds in hand exceed the liabilities, the surplus thus ascertained may be regarded as profit, and either its amount may be withdrawn from the assets of the office or the liabilities may be increased in a corresponding degree.
Various methods are employed by insurance companies in distributing their surplus funds among the insured. In some offices the share or “bonus” falling to each policyholder is paid to him in cash; in others it is applied Bonuses. in providing a reversionary sum which is added to the amount assured by the policy; in others it goes to reduce the annual contributions payable by the policyholder. A method of more recent introduction is to apply the earlier bonuses on a policy to limit the term for which premiums may be payable, thus relieving the policyholder of his annual payments after a certain period. Another method is to apply the bonuses towards making the sum insured payable in the lifetime of the policyholder. The plan of reversionary bonus additions is most common, and when it is followed the option is usually given of exchanging the bonuses for their value in cash or of having them applied in the reduction of premiums.
Not only are there different modes of applying surplus, but the basis on which it is divided among the insured also varies in different offices. In some the reversionary bonus is calculated as an equal percentage per annum of the sum insured, reckoning back either to the commencement of the policy in every case, or (more commonly) to the preceding division of profits. In others the rate is calculated, not only on the original sums insured, but also on previous bonus additions. In others the ratio of distribution is applied to the cash surplus, and the share allotted to each policy is dealt with in one or other of the ways above indicated. The following are some of the ratios employed by different offices in the allocation of profits: (1) in proportion to the amount of premiums paid (with or without accumulated interest) since the last preceding valuation; (2) in proportion to the accumulated “loading” of the premiums so paid; (3) in proportion to the reserve values of the policies; (4) in proportion to the difference between the accumulated premiums and the reserve value of the policy in each case.
Some offices have a special system of dealing with surplus, reserving it for those policyholders who survive the ordinary “expectation of life,” or whose premiums paid, with accumulated interest, amount to the sums insured by their policies. This system is usually connected with specially low rates of premium.
In the United States the so-called “contribution plan” has been accepted in theory by many companies, though carried out with many variations in detail by different actuaries. The principle is, that since each of the insured is charged in his premium a safe margin above all probable outlays, when the necessary amount under each head becomes determinate the several excesses should be returned to him. It is therefore sought to calculate what each member would have been charged for net premium and loading had the mortality, rate of interest, and expenses been precisely known beforehand, and to credit him with the balance of his payments. As a corollary of the theory of net valuations, which regards every life insured as an average life until its end, and assumes the rigid accuracy and equity of all the formulas employed to represent business facts, it is consistent and complete. But many minds find it more curious than practical, and prefer to seek equity in faithfulness to contract rights rather than in adjustments which they deem too refined, if not fanciful. The plan has met with little favour in England, where surplus is more commonly distributed on general business principles. Enormous bonuses were saved by the British offices out of the excessive premiums at first collected, and by the American companies during the epoch of high interest rates. But the use of more accurate tables, the decline in interest, and the increased expenses of later years, have vastly reduced the apparent profits. Former methods of distributing surplus, when ascertained, have largely given way in America to novel and more complex plans. The Tontine idea, historically familiar, was for many years imitated by some offices in their insurance contracts. All premiums above outlay, in a company or a class of policies, were accumulated, only stipulated amounts being paid on death claims meanwhile maturing, with no compensation to its members withdrawing, until the end of a fixed term, when the whole fund was apportioned to the survivors. Large returns were sometimes made, but many who could not maintain their policies were dissatisfied. “Semi-tontines” followed, partly meeting the difficulty by pooling only the surplus, and allowing some return in case of withdrawal. But these cruder forms of contract are now largely superseded by various “reserve-dividend,” “accumulation,” “bond,” and “investment” policies, with options at stated periods between cash withdrawals and continued insurance, the simple inducement to provide against death being more or less merged in that of making a profitable investment of capital.
In those branches of insurance where the contract is one of indemnity against loss, the risk remaining the same from year to year—and where the consent of both parties, insurer and insured, is required at each periodical renewal—no Surrender values. question of allowance in respect of past payments can arise when one party or the other determines to drop the contract. It is quite recognized that the premiums are simply an equivalent for the risk undertaken during the period to which they apply, with a certain margin for expenses and for profit to the insurer, and that therefore a favourable issue of the particular contract supplies no argument for a return of any part of the sums paid. In life insurance, however, we have shown that the premiums contain a third element, namely, the portion that is set aside and accumulated to meet the risk of the insurance when the premium payable is no longer sufficient of itself for that purpose.