It would appear, on every principle of fairness and justice, that the more full and perfect the right of the policy-holder to participate in the election of trustees, the more stable and conservative will be the management. On the other hand, it is quite as apparent that the limitation of such right is attended with consequences the reverse of those just stated, and those consequences attained in proportion to the limitation of the right.
With the broad superstructure of a body of voting policy-holders, the selling out of the control of a company is impossible, because no one will be willing to pay for the possession which the next election may deprive him of. Of all the mean and contemptible methods of robbery as yet discovered, the selling out of a life insurance company is the meanest and most contemptible. Too cowardly to wreck it themselves and personally rob the widows and orphans, the trustees, who quietly receive a bonus for their stock and retire from the management, sell the opportunity of robbery to others. This they do too in the full knowledge of the purpose for which they are asked to retire. When the crash comes they may say they did not know the purpose of the purchasers, but they did know they were to receive for their stock two or three times its value, and that no man could afford to pay such a price to obtain control of the company except for the purpose of making money by irregular and questionable means. It will not do for men entrusted with positions of a fiduciary character to make the holding of such positions the lever for obtaining a large price for their stock, and then claim exemption from responsibility for the misdeeds of their successors. They were there in charge of a sacred trust, and they have sold and betrayed that trust—for what? Why, for the enhanced price which they got for their stock. This is the great evil of the close corporation system. It enables one or more men to own complete control of a company and to sell it to the highest bidder. Of course the highly respectable gentlemen who sell, and those also who buy, will be shocked at having imputed to them any crime or breach of trust. But how can such sums of money be lawfully made out of life insurance stock as to justify the price the records of the Committee on Insurance show have been paid for it? Life insurance is or ought to be a benevolent institution. Its management is or ought to be a trust, and every trustee who makes use of his position to make money for himself is false to his trust, and should never be appointed to another. Life insurance is not to be made the sport of speculators, and the only reliance of the unfortunate made the football of gambling operations. Most if not all of the troubles which have arisen in the business are to be traced to this attempt to make money out of it, honestly if possible, but to make money at all hazards. The way to end this for ever is to allow the policy-holders to vote, not for a minority of the trustees, but for all of them. Representation should be equal, or it is worthless. The representation which would leave the power to elect a majority still in the hands of the stock-holders is not equal or just. Money paid for premiums is as good as money paid for stock, and should have equal voice in the management. But when you have given the policy-holders votes, you should also see that the opportunity was afforded to them of voting. Most of the elections are held without any other notice than an advertisement in the corner of a crowded column of one or two newspapers. Every policy should have printed on it the date of the annual election, and all the information necessary to enable the holder to be present and vote, or to be represented by proxy. Under the present practice, few holders of policies know whether they have votes or not, and hardly any of them ever heard of the time of holding the election. If the present discussion of life insurance affairs does no other good than to awaken the policy-holders to a sense of their own responsibility for abuses of management, it will not have been in vain. It is safe to say that watchfulness on their part would have prevented the lavish expenditures, the unwise real estate investments, the enormous salaries, which the investigation of the Assembly committee has discovered. The same conservative power held over managers would be a constant check upon any tendency to depart from the safe and regular open pathway of honorable dealings. Under its influence there would be few if any cases of commissions in addition to salary of officers, less tendency to make loans to the trustees and their friends, and a general adhesion to business rules and traditions. But above and beyond all other reforms, the control of the company by the policy-holders would make it impossible for greedy and scoundrel officers to gather into their hands the entire control of the company, and then sell it out to a rival company for four or five times what the stock cost, and an annuity for life to the traitor who had betrayed his trust. This has been, is now, and will be, if not prevented, the fruitful mother of all the ills of life insurance. Just as soon as any clique get possession of the majority of the stock, there is danger. Nay, there is always danger; any clique may, at any time, get possession of the stock by paying enough for it. If one price will not bring it, another will, and the value to the wrecker depends upon the amount of assets. It is the assets which are to pay the profit of the transaction. The money of the policy-holders is what is sold, not the mere pittance which belongs to the stock-holders, and it is the money of the policy-holders which is stolen to pay the purchase money. Honorable gentlemen, prominent in social life, elders, deacons, and vestrymen who in the past few years have quietly pocketed two hundred for your stock and retired from the management of life insurance companies, how are you pleased with your own conduct? In the light of recent disclosures, does not the ill-gotten money burn in your pockets? Truly you would not wreck a company yourselves by transferring it to any man or number of men; but you accomplish the same purpose by retiring. A captain who will not himself surrender to the enemy, but who retires from the command of his fortification knowing that the subaltern who will succeed him intends to strike his flag, may deceive himself, but he does not long succeed in deceiving any one else.
The evidence taken before the referee in the Continental case fully describes and explains the methods of wrecking. A company is sold out or reinsured in another; that is, the stock has been bought up at two or three hundred per centum, the officers have been promised good places, or paid in cash for their silence. Immediately the operations of the wreckers begin. The agents of both companies go into the work with a single aim, and that aim is to obtain the surrender of the policies in the old company in exchange for new policies in the purchasing corporation. The old policies represent an actual liability; the company which has issued them is obliged to hold a certain sum against each of them. The aggregate of these sums makes up the "reserve" or reinsurance fund. As fast as the old policies are cancelled this reserve is released, and when all the policies are cancelled there is no liability at all. The new policies of course have no liability. This is in short the whole operation of wrecking. By such means a million or two of assets will be distributed, and in the process the policy-holders will receive a little—a very little—and the agents a good deal, and the officers composing the ring all that is left. The arts, the deceptions, the false representations made in the course of the proceeding to induce the policy-holder to give up his policy have been fully disclosed by the evidence in question. Of course it is suggested that the company is in a bad way, and that there is probably no other way of securing anything unless an opportunity now offered of changing is embraced.
Reinsurance was abandoned as a means of wrecking because it was found the policy-holders preferred to keep the old policy and the new guarantee together. So in the later transactions they are told that if they do not change, they will get nothing.
The lesson of all this to the policy-holder may be written in large letters and kept as a maxim:
DO NOT SURRENDER YOUR POLICY.
You will never make a mistake by keeping to this motto. And particularly the more should it be kept to when you are urged by agents to a contrary action. You never get one-third its value even in companies honestly managed; what you get in companies dishonestly managed no one can tell.
FALLEN AMONG THIEVES.