§ MR. STEPHEN CAVE
Sir, in asking the House to read this Bill a second time, it will not be necessary for me to trespass very long on the time and patience of hon. Members while I endeavour to explain the principle of the Bill, as well as the necessity for such a measure at the present time. As my object 720 is to avoid even the appearance of drawing invidious comparisons between rival companies, I shall throughout abstain, if possible, from mentioning the names of existing offices, unless any of my statements should be called in question, in which case I shall of course be prepared to substantiate them; and with regard to impartiality, I may say that I have never had an interest either as shareholder or policyholder in any office, and that until I looked into the question officially the year before last I was almost entirely ignorant of their relative positions. Offices for the insurance, or more properly for the assurance of life—technically one assures life, and insures against fire, hail, or wreck—are constituted, as the House knows, for payment to the assured at some future time, or to his representatives after his death, of a sum of money in consideration of annual or other periodical payments. Such, I need hardly say, is the mode in which a professional man or any man with income, but no capital, makes a settlement on marriage. It is, in fact, in most cases, the only way in which he can marry prudently, and I wish the practice was more general than it is among the class of well-paid artizans. The other most ordinary operation of assurance offices is the converse of this. They engage to pay an annuity, generally during the lifetime of a purchaser, or of some one in whom he is interested, either at once or to commence at some future time in return for a sum of money paid down. There is also guarantee and other business, to which I need not now more particularly refer. Now, though life is proverbially uncertain, yet the average duration of the lives of a number of people may be calculated very closely. Just as in marine insurance, though no one can say that such or such a ship will return in safety from a voyage, yet it may be assumed that out of any hundred ships nearly all will so return. Well, then, the tables estimate the chances of life, or rather of lives, and, consequently, the liabilities of life assurance almost to a certainty, and the scales of charges of the various offices include margin, or "loading" as it is called, sufficient for ordinary expenses and reasonable profits. This margin varies considerably—some offices are said to charge less than is safe, while others charge so much for expenses and 721 profits that it has been suggested that there should be a model table put forth under the authority of Government. I think myself, however, that such matters are best left to competition. In America, indeed, competition has brought out the characteristic ingenuity of the people in this as in other cases. One office in the United States charges less to those of its customers who are disciples of homœopathy. Another inquires not only into the health of the applicant, but into the ages of his progenitors, charging less premium to a person coming of a long-lived race. In this country certain offices charge higher premiums for the earlier years, diminishing them proportionally afterwards. This brings about what is called self-selection—that is, none but the best lives insure in such an office, and the mortality is remarkably low. Perhaps the House is not aware, in reference to this branch of the subject, that it has been proved by statistics that the longest-lived classes are Peers, clergymen, and members of the Society of Friends. However this may be, it is clear that the balance of the premium beyond the amount set apart for expenses and bonus and profit to shareholders in proprietary companies, should be sufficient, with accumulations, to pay the policies to the assured, and that this should be considered sacred. It has been indeed suggested, that tampering with it should be a misdemeanour punishable by fine and imprisonment. Certainly the accounts should enable the public to judge whether or not it has been so tampered with. There are few kinds of business ordinarily more free from risk than life assurance when prudently conducted, and I believe I am not going too far in saying that even extraordinary mortality never ruined an office. The Indian mutiny, one of the severest trials in our day, though it inflicted heavy losses, did not cause the insolvency of any company. We should expect, therefore, great confidence in the stability of assurance companies warranted by their long duration. This is doubtless the case with regard to many—indeed, to the majority, to which the motto of one of them—Amicus certus in re incerta, may well apply. But what are the facts in reference to others? We learn from Black's Chart and White's Insurance Register that before the year 1824, when offices were under charters 722 and Acts of Parliament, thirty-nine were founded and only one ceased to exist; that from 1824 to 1843 inclusive, under deeds of settlement, 105 were established and thirty-eight ceased. From 1844 to 1868, under the registration system, 219 were founded and 170 ceased to exist. That is, of 366 offices founded only 113 are existing, being only six more than were in existence in the year 1844. Some of these did fire and marine business, but I believe 285 purely life offices were founded, of which 174 have ceased, leaving 111. It is rather curious to connect this rise and fall of offices with the influence of public opinion. For three years, from 1853 to 1855 inclusive, sixty-two were founded and thirty ceased. In 1856 public attention was roused by a Return to this House of balance-sheets under the Act of 1844, which displayed in thirty cases out of fifty-four, as analyzed by Christie, an expenditure in excess of premiums and interest received, and in six an expenditure, not only in excess of premiums and interest, but also of paid-up capital, without the smallest accumulation to meet ever-growing liabilities. The number founded was seven in that year, while the number of those which ceased was twenty. During the next five years, from 1857 to 1861 inclusive, three attempts at legislation were made, and fourteen offices only were founded, and no less than seventy-four ceased. But in 1863, possibly in consequence of facilities given by the Companies' Act of 1862, the numbers began to show the other way. Offices have since been multiplied, and yet there seems to be very little increase of stability; for we are told that at the present time no less than fifty-nine life companies are being wound up in Chancery, and that many of these had during their term of existence, like Aaron's rod, swallowed up several others, so that the number is in reality larger than it appears. The history of transfers is very curious. Transfer and amalgamation, I may explain, are modes resorted to by offices too weak to stand alone, and are perfectly legitimate proceedings if properly conducted, because they strengthen the position of offices by economy of management and by enlarging the area of risk. But in regard to these transfers a vicious practice has, we are told, grown up of making enormous and frequently secret payments 723 by way of commission for negotiation, which has become so lucrative a trade that offices are said to have been established for the express purpose of being sold, pegs in fact on which to hang these profitable transactions—a proceeding, according to my way of thinking, analogous to sending a ship to sea to be scuttled or run aground to defraud the underwriters. I do not, indeed, see much difference between individuals making it a business to negotiate equitable transfers and finance companies doing the same thing on a larger scale, but whatever secresy may be advisable during the progress of the negotiation there can be no reasons why the fullest publicity should not afterwards be given to the terms and commission paid, in order that some check may be given to extravagance, and it is no more than just that the policyholders should have some voice in the matter. Such negotiations too often set aside the rights of policy-holders, who, having made a contract with one company, are handed over without their consent to another—perhaps from a company with unlimited to one with limited liability; and in those instances in which new policies, as is often the case, are accepted by the transferred policyholders, or in which power of transfer is endorsed on the policies as given by the instrument constituting the company, or again, as was ruled last week, in which a bonus has been received from the new company, the liability of the transferring company is absolutely extinguished. Seven life offices have been transferred from company to company no loss than four times, several three times, forty and upwards twice, eighty and upwards once. There are also instances of companies wound up in Chancery, and the business transferred to other companies, which themselves afterwards underwent the same process. The Saxon, for instance, was wound up by order of the Court in November, 1857, and the business transferred to the Era, which was itself wound up in April, 1858. The Tontine was wound up in June, 1849, and the business transferred to the Marine, which was transferred in 1858 to the English and Irish Church, which, however, proved a broken reed, and, as if prophetically of what has since taken place, was transferred in 1861 to the British Nation. [Laughter, and "Hear, hear."] Yes; 724 but the British Nation does not appear to have benefited by the transaction, because the British Nation—I hope it may not prove another evil omen—has since been transferred to the European. In another instance insurers found themselves in five offices in nine years, four being without their consent. One company now in existence has absorbed no fewer than thirty-five others, and the Albert carried down in its fall twenty-four. It used to be urged, and was even made a reproach to me when I first moved in the matter, that notwithstanding all these changes there were no instances of the non-payment of policies when they became due—of the non-fulfilment, that is, of the contract; but this, though at best one of those facts which are proverbially fallacious, had ceased even before the fall of the Albert to be a fact altogether, because in truth two arrangements had been sanctioned by the Court, the practical effect of which was that the value of the policies was materially reduced, though the policy-holders had performed their part of the contract. These arrangements are in this wise—the purchasing company values the policy, endorsing on it the present value as a debt on which interest has to be paid by the policy-holder over and above the annual premium, and to the credit of which are carried whatever dividends may be received from the insolvent company. According to a letter in the public papers last year from the secretary of the Law Union, such an arrangement, by which that office took over certain policies of the insolvent Mitre, was sanctioned by the Master of the Rolls, the policyholders losing, unless they could recover from the insolvent estate, the whole benefit of previous payments, and being subject, moreover, to a fresh, medical examination. It is not much to be wondered at that only 177 accepted those terms, and after this there was no longer any occasion, I imagine, to discuss the question whether the policyholders are or are not under the present law sufficiently secured. Much more than this, the mere transfer or amalgamation, still more the winding tip of a company, so alarms the policyholders that many of them either drop their policies or surrender them at a heavy loss, for they cannot draw out their money as from a bank. These policyholders are, as the House knows, 725 practically powerless. Unlike a body of shareholders, they are almost incapable of combination or united action. Except in mutual offices, they cannot even claim to see the accounts, or ask for a settlement, which is due, perhaps, only to their executors; and if they have positive proof of the prospective insolvency of an office, they cannot, according to a recent decision of the Court, obtain an order that it should be wound up. When, therefore, we remember how banks and other joint-stock companies have been injured by the operations of unprincipled speculators, we shall realize how sensitive are the "feeble folk" who depend upon the credit of an insurance office. It has been suggested that the proposed returns should comprise not only the rates of premium charged, but the table of surrender values, so that the policyholders might always know the value of their policy, and demand it. If the surrender values were fixed life policies might pass from hand to hand as securities for the amount. I have not included this among the particulars required, but it forms one of the interrogatories addressed to offices in the United States. In Massachusetts, when a policy is dropped, the surrender value is applied to keeping it up as far as this will go. In the words of the Insurance Commissioners' Report—"The law interposes to prevent the usual effects of forfeiture, and appropriates the money to the insurance of those who paid it." There are many instances of hardship on this ground. The case has been mentioned to me of a military officer who effected a policy of £000 at the age of twenty-eight. For six years and a half he paid the higher premium for India and for ten years the ordinary rate for Europe. At the end of sixteen years and a half, when he had paid £449 17s. in cash, he applied to know the surrender value. The policy participated in profits, and £44 6s. had been added. The surrender value offered for policy and bonuses was £96. A clergyman has written to me that for £539 12s. 10d. he has received £40 18s. 5d., with a claim on an insolvent office for £6719s. 2d. I have heard of policies of fifteen years standing for which only one-fifth, and even one-sixth, of the premiums had been offered. So that we are told that offices may exist for years on lapsed and surrendered policies, and new business 726 which they attract by promises of participation in profits far larger than can be fairly earned or prudently divided, by payment of managers, according to gross profits—a plan which, when applied to managers of estates, was long the road to ruin for West India proprietors, and by large commissions to canvassers, who are even more extravagant than some of whom we have heard in recent Parliamentary elections. Thus they build up the tower higher every year only to increase the calamity of the ultimate fall. So that it is said by those who are well-informed that the Anglo-Bengalee Disinterested Loan and Life Assurance Company in Martin Chuzzlewit is by no means an overdrawn picture. If a return were ordered from all offices of policies surrendered or discontinued during the past five years, of the premiums paid upon them, and the amount of those premiums restored to policyholders, a very instructive piece of information would be presented. These are startling facts when we bear in mind that the calculations are based on ascertained averages subject to the least conceivable risks, and when we are told that the contracts of these companies exceeded £400,000,000, for which, in fact, they are trustees to the most helpless portion of the public, I think a primâ facie case has been made out for considerable distrust and alarm with respect to some of them. We are told in fact that such distrust exists, and it is alleged that owing to this distrust nothing like the number of people avail themselves of this mode of providing for the future that would otherwise do so, not more, in fact, than 750,000 in the British Islands, and that there is nothing like the amount of new business here as compared with the United States, where the law is far more stringent than it will be here if this Bill passes. A travelling agent to an assurance company, in a very intelligent letter which I have received, speaks strongly of this I decay of public confidence—It is objected," he says, "that there is no security that those who insure will reap the benefit of their foresight and self-denial; that they have no ready means of knowing the real state of the office to which they are making large annual payments, and that when at length the blow falls they have no redress.These circumstances have attracted, as might be expected, attention in other countries, and it is no doubt to such that 727 the Insurance Commissioner of the State of Massachusetts alluded in a recent Report, when he spoke, in language scarcely exaggerated, ofThe bankruptcy of scores of English life assurance companies, and the cruel disappointment of thousands of confiding policyholders.And even if the case of policyholders were less strong, this would not be a conclusive argument against the Bill, because in the case of railway companies the House, in a Bill which it was my duty to present to its notice, has passed similar enactments for the protection of shareholders, enactments which are allowed on all sides to have had the effect of making the accounts of railway companies more intelligible. Now the strongest advocates of inaction in this matter have not pretended that the interests of shareholders have not in many cases been sacrificed. I may explain here that the Preamble in the original draft of the Bill, stating that it was for the better security of policyholders, has been omitted, not because it was, as some at the time stoutly affirmed, unfounded, but in compliance with the present usage in regard to Bills, though perhaps the words "and shareholders," ought to have been inserted, in order to make it more strictly in accordance with fact. I am one of those who have always been opposed to Government interference with private enterprize. I have frequently stated so much in this House. I have always thought that perfect freedom and perfect publicity ought to be the motto of a legislator in such matters. I have endeavoured to carry out that principle in this Bill. It provides that assurance companies shall make simple uniform statements every year, according to the model forms in the Schedules, which together with the actuarial report to be prepared at longer intervals, will enable people to compare the position of one office with that of another, and to judge of the solvency of any particular company. It also, as a natural corollary to these provisions, enables policyholders to apply to the Court, and the Court to grant a winding-up order, when it shall appear on the face of the returns that the company has insufficient assets to meet the prospective liabilities. In New York and Massachusetts the Court may call upon the company to show cause why it should not be wound up, on the requisition of the superintendent for a 728 similar cause. Analogous provisions are found in the Companies Act 1862. Every new company will be required to make a deposit of £20,000 before commencing business, a provision intended to check the formation of companies merely for the benefit of promoters. This is in accordance with the recommendation of the Committee of 1853, and the amount is the same as that fixed for offices in the United States and Canada. The French, by a law passed in 1868, have analogous regulations with respect to paid-up capital and reserve. Offices doing other business besides life assurance will be required to keep a special life fund, on which contracts entered into subsequently to the Act, in respect of other business, shall have no claim. In America the law is much more stringent. There a life company cannot carry on any other business. The consent of a proportion of the policyholders is made necessary to a transfer or amalgamation, and a full statement of the payments in respect of such transactions is required. With respect to the winding-up of a company, there are two provisions to which I would invite the attention of the House. The first enables the Court to stay proceedings, in order to give time for calling up the capital of a proprietary company; the second enables the Court to reduce the liabilities on all contracts so as to prevent the serious consequences of winding-up, and enables the company to recover a sound position, if there seems to be any probability of its being able to do so. The Bill has been much altered since it was first presented to the House. Many changes have been introduced in consequence of what has occurred in the past year. Others have been made to meet the wishes of the profession of actuaries, and a committee, representing the greater number of English and Scotch offices, appointed at a meeting called at the office of the London Assurance Corporation, one of the two oldest companies in the country. But I have, as in the case of the Railways Regulation Bill, to which I have alluded, been obliged to content myself with giving a respectful attention to multitudinous suggestions, otherwise the Bill could never have been completed. Provision however is made, as in the case of railway accounts, for a certain elasticity to suit the peculiar circumstances of 729 different offices. I must tender my acknowledgments to my hon. Friend the Secretary of the Board of Trade, with whom I have been in communication respecting this Bill, for giving me the benefit of some valuable suggestions, especially with reference to the legal clauses. I attach the greatest importance to uniformity of accounts. The Act of 1844, though not devoid of good results, was defective in two respects, it provided neither the form of the Returns, nor any means of enforcing compliance with its provisions. Many of the Returns made to Parliament under it were wholly unintelligible. Hence the necessity for Clause 17 in the Bill. Older offices also were excluded from its operation, though it might have been supposed that these would have been most willing to have their prudent management publicly recorded. It may be said, indeed, that these provisions may be evaded. Probably the same may be said of most laws, but there is a considerable difference between deception produced by fraud, and that resulting from the mystification which seems to be a virtue in the eyes of some framers of accounts. The first cannot be prevented, though it may be punished; the second will, I trust, be rendered more difficult by this measure. The two great commonwealths of New York and Massachusetts, embracing practically the whole business of the United States, carry supervision much further, though I may venture to say the principle, and even the details of this Bill have received the strong approval of some of the best authorities in America upon the subject. They insist upon very minute returns being sent to a public officer, who is directed to institute the most searching inquiries, and to report upon the condition of each office. In Canada and in Prussia, and lately in France, measures have been passed having the same object, though not equally stringent, and if the present unsatisfactory state of our law is allowed to continue, there is much reason for apprehending that English offices will be warned off from doing business in these countries. One was so warned off from Massachusetts long ago, and yet for ten years afterwards it held up its head in London. In the analogous case of savings banks and benefit societies the principle of Government regulation has been recognized, 730 and, perhaps, as was stated the other night by the Chancellor of the Exchequer, has gone too far, and not far enough, so that it has failed to protect investors, while by holding out the utterly worth-less guarantee of the certificate, it has left them in what is commonly termed a fool's paradise. The same may be said of the merely perfunctionary Government audit in the case of a well-known life assurance and guarantee society, which simply served the purpose of an advertisement to that company. But Government has done more than this—it has entered into competition with industrial assurance companies. This system has, indeed, not been so successful as might be wished, partly in consequence of the limit, but chiefly because no agents are employed to recommend it; it is worth no one's while to push it, to use a common word, and the postmasters are not always chosen for their efficiency, nor sufficiently remunerated to make them zealous in the work. But in respect of annuities and savings banks, vast numbers of small investors have shown their appreciation of the value of Government security, and a widely-spread feeling of distrust might lead to an extension of this competition. The question has been raised whether life assurance ought not to be considered a trust rather than a trade. In America the principle of State liability to the policyholder has been again and again discussed. In France it has been carried out within certain limits. Certainly the objections which exist to the management of sick clubs by Government or municipalities do not apply to their conduct of life business. I am not advocating this, but when we are told to shut our eyes to danger for fear of awakening apprehension, and to do nothing because we cannot command entire success, I cannot help pointing out this possible result of an unsatisfactory system. There are few more pitiable sights than an old age of indigence closing a life of toil, even when that indigence is caused by extravagance and improvidence, but how infinitely more miserable it is when a man, by his thrift and self-denial, has made provision for himself and his family by the only means in his power, means which have the sanction and encouragement of the laws of his country, that this provision should be snatched from him by malpractices against which 731 he is powerless to guard himself. I have heard lately of a pilot, who, during a long period of his life, paid for an annuity to himself after the age of sixty-five, and to his wife after his death. He paid till he was sixty-four, when the company failed, and the widow is now in an almshouse—Crimine ab uno. Disce omnes.What better excuse could be given for improvident habits than such a result? Almost every word I have now uttered might have been spoken last year, and the substance would have been presented to the House had not the celebration of Her Majesty's Birthday been unexpectedly fixed for the day on which my statement was to have been made. I mention this to show that this is no panic legislation, but springs from the deliberate conviction of experienced men whose attention has long been paid to the subject. But how much more may be said now. Since that day the fall of the Albert has taken place; a fall not difficult to be explained when we learn that the balance applicable to expenses was loaded with £274,000, paid for amalgamations, besides other sums, not so easily ascertainable, represented by bonds and paid-up policies to negotiators or their nominees, and this, perhaps, for transferring lives already overweighted with extravagant commissions. The Albert has fallen, but it has not fallen alone; it has dragged down with it the twenty-four offices it had absorbed. Let the House consider the expenditure this represents; twenty-five sets of promoters, twenty-five bills for preliminary expenses, twenty-five bodies of officials, twenty-four purchases of business, with all the payments to negotiators, solicitors, and counsel, besides compensation to officials and hush-money to objecting shareholders and policyholders. It is not too much to say that £10,000,000 have been handled, and that almost no assets remain; but that policyholders to the amount of £8,000,000 are ruined, and that annuitants to the amount of £18,000 a year suddenly deprived of subsistence. "Who can wonder if lives have been shortened by these lamentable reverses of fortune, if not only destitution but death has resulted from this cold-blooded system of wholesale robbery? Can it be doubted that many a man has suffered the extreme penalty of the law who was far less morally guilty 732 than some of these promoters, negotiators, and directors, who sit in high places, while their victims are pining in hopless, undeserved poverty.—You take my house when you do take the propThat doth sustain my house; you take my lifeWhen you do take the means whereby I live.It may be said that such a measure as this ought not to be in the hands of a private Member, but should be brought in on the responsibility of the Government. As a general rule I think so too, but this subject was pressed strongly on the late Government, who received many communications respecting it; and, as a Member of that Government I gave notice of a Motion which the want of time prevented my carrying further. I should gladly have left it in the hands of our successors, but the matter has been well considered, and I believe I am not going too far in saying that the Bill has been introduced with their concurrence. I have also been blamed for not having handed over the measure to the Government towards the end of last Session, when I was compelled by illness to forego the hope of carrying it through myself. But, while fully appreciating the kindness of my hon. Friend the Secretary of the Board of Trade in offering to assist me, I felt that at so late a period of the Session a debate was hopeless, and I thought a debate would be productive of almost as much advantage in opening the eyes of the country as the Bill itself. And this is much needed, for such is the ignorance of the public that it is a common saying among agents to assurance offices, that it is not the goodness of the office but the energy of the agent which secures the largest business. Moreover, there were several Amendments on the Paper which I feared would, if assented to, diminish the efficacy of the measure; and I knew too well from experience how often at a late hour one is obliged to yield to Amendments of which one disapproves in order to secure the passing of the Bill. And after all, no time has been lost. Had the Bill passed last Session it would not have prevented the calamities which occurred, and the experience thus dearly bought has prepared the public mind for a more complete measure; besides which, I may say that, some of the best offices have, in anticipation of legislation, given voluntarily for the first time much of the information desired; 733 and the House, by passing this measure will secure the permanence of this good beginning and extend the practice to those which are more backward. Sir, I have fulfilled my task to the best of my ability. I now leave the fate of this measure in the hands of the House, with full confidence that it will assist in removing what has been too long a disgrace to our national character as well as a heavy loss and grievous discouragement to the most industrious and provident portion of the community. The right hon. Gentleman concluded by moving the second reading of the Bill.
§ MR. SHAW LEFEVRE
said, he had great pleasure in giving the assent of the Department with which he was connected to the second reading of the Bill, so ably advocated by his right hon. Friend opposite (Mr. Stephen Cave). The measure was one in which his right hon. Friend the President of the Board of Trade took a great interest last year, and it was with great regret he found that the right hon. Gentleman opposite was then unable from illness to proceed with it. But, although the cause of the delay was to be regretted, the delay itself had done no harm, and, on the whole, had perhaps not been without benefit. Legislation last Session could not have prevented the events which had occurred in the interval in the assurance world; while those events had thrown much valuable light on the subject, and also shown the necessity of the some-what stringent provisions in the present Bill. In consequence of those events he had felt it his duty to give considerable attention to the matter, and, as stated by his right hon. Friend opposite, had suggested, various amendments in his measure. On the general question of why it was advisable to deal exceptionally with the case of assurance companies it was hardly requisite for him, after the very lucid statement to which they had just listened, to enter into detail. When it was recollected that assurances were effected by the people of this country to the amount of nearly £400,000,000, and that those assurances were, to a great extent, the sole provision made for thousands of families after the death of the heads of those families, it was apparent that the matter was one of great importance. Again, there was something in the very contract of assurance which was peculiar. While in most 734 other trades and businesses the contracts made were either of very short date, or if of long date were backed by ample security, in the case of life assurance the contract was generally a life-long one; and he believed he was right in saying that in the interval the law at present gave the policy holder no locus standi in a court of equity against the shareholders of a life assurance company. He could not require a court of equity to call for accounts. Yet it was of enormous importance that the moment an assurance company got into difficulties—into a state in which its reserve was not sufficient to meet its prospective liabilities the concern should be wound up and the assets distributed among the various parties entitled to them. Now, what was the position of the policyholders in this respect? If an insurance company should insure for every year the same amount it would be thirty-five years before the out-goings would be equal to the in-comings, and during that period there ought to be accumulated a reserve fund. Supposing a company, through reckless management, bad investments, or bad selection of lives, had seriously reduced the fund which it ought to accumulate to meet its liabilities, the position of the policyholder was this—He had two alternatives before him: he might either surrender his policy when he became aware that the reserve was insufficient to meet his prospective claim—and if he surrendered it the company would most probably give him very bad terms; or he might continue to pay his premiums with a great uncertainty as to whether his executors would receive anything at his death. In fact, the longer he lived the less chance had his executors of receiving anything; because those who died early were paid at the expense of those who survived. Then, take the position of a shareholder in such a company. He might be aware that the concern was insolvent, and without sufficient reserve to meet its prospective liabilities; but it was not his interest to wind up the company, because, if that were done, there was a great probability that its unpaid capital would be called up. His interest rather was to stave off the evil day as long as possible. In the case of the Albert Company he believed that was one great reason why the evil day was postponed. With that view, 735 improvident amalgamation with other offices, lavish gifts to negotiators and agents, and general reckless management were frequently resorted to. Meanwhile those shareholders who were solvent sold their shares, and contrived to get out of the concern; and he need not remind the House that if they had been out of the concern for three years before the crash came they would be relieved of there liability, and that liability might have been transferred to men of straw. He had been told that embarrassed companies were not seldom relieved of their liability by the very fear which their position engendered among the policy-holders. The policyholder, when he became aware of the insolvent state of his company, had the two alternatives open to him already stated—he might either surrender his policy or continue to pay his premiums with the chance of never being paid. Of course, numbers of assurers in such circumstances surrendered or abandoned their policies. A case had been mentioned to him not long ago on good authority. A company found itself insolvent—that was, with an insufficient reserve to meet its liabilities; but it might go on for some time to come. A meeting of the shareholders was called to consider the question of winding-up; but one shareholder, more shrewd than the others, said—"Don't for heaven's sake, wind up; for if you do, we shall surely have to meet heavy calls. Let us try the effect of alarming the policy holders." They accordingly dismissed all the officers, leaving only a person in charge to receive the premiums, and they told the policyholders that as their polities fell due they would be paid, and that in the meantime they were ready to receive their premiums. That created such a panic among the policyholders that large numbers of them abandoned their policies, and the company was thus relieved from its engagements. The moral he drew from that was—first, that it was exceedingly important that the policy-holders should have the earliest information of the true condition of an in solvent company; and secondly, that on having that information, they should be put in the legal position in which they could protect themselves, so that the assets might be distributed equitably among the various parties entitled to them. The longer such a process was deferred the greater the danger and the 736 greater must be the ultimate crash. The provisions he had suggested to his right hon. Friend opposite, and which were inserted in the Bill, had in view—first, that as soon as it was apparent a company was insolvent, a policyholder should have the same locus standi as a shareholder in a court of equity to obtain its winding-up; secondly, that in estimating whether or not a company was insolvent, in order to make it perfectly clear, as decided by Vice Chancellor James in the case of the European Company, the Court should take into account and estimate the present value of all future liabilities on the policies of assurance; and thirdly, that in the case of a proprietary company having an uncalled capital sufficient to make up the actual invested assets equal to the amount of the estimated liabilities the Court should have power to suspend the proceedings until the uncalled capital could be called up; but if the amount realized by means of the calls, together with the invested assets, were still found to be unequal to the estimated liabilities, then the company should be wound up. Another provision was that if a company turned out to be insolvent, the Court might, if it thought fit, reduce the amounts of its contracts, on such terms and subject to such conditions as it deemed just, instead of making a winding-up order. Under that provision the costly process of liquidation, which frequently swallowed up the assets of an insolvent company, could be dispensed with. In cases like the Albert Company, where, he was told, the expense was enormous, the Court would be able to frame a scheme by which, under better management, a company might be carried on for the benefit of the policyholders and others interested. Another clause of the Bill was designed to prevent the reckless amalgamations of which they had heard so much. It provided that the policyholders should have full information of an intended amalgamation, and also that the assent of a certain proportion of them should be required, to make it legal. He wished to read to the House a letter bearing on that subject from a gentleman professionally engaged in the liquidation of the Albert Company. The writer said—The cases are most numerous within the last twenty years in which policyholders have been handed over from one company to another, 737 and where large amounts have been deducted from the assurance fund in the shape of bonuses and compensation to negotiators, officers, directors, and others, the result of which has been that the security of the policyholders has, in most cases, been diminished instead of increased; as solicitor to the liquidators of the Albert I have had this prominently brought before me, though many other cases have occurred in the course of my experience. In nine cases out of ten no means whatever were given to the policyholders to ascertain whether the assurance fund handed over to the purchasing company was in any respect sufficient or adequate for the liabilities transferred; while, as to the policyholders having a practical remedy, the cases show that it is only by proceedings in the Court of Chancery for the purpose of intercepting the contemplated amalgamation by injunction that any good can be done. I have myself been engaged in several of these, and can speak to the great practical difficulty of action in the matter. The case of the Argus, the United Kingdom, the British Mutual, the Family Endowment, and many others might be mentioned, and I shall, indeed, be glad to see some such Bill passed into law.The object of the clauses relating to that subject introduced into the Bill was to make it clear to the policyholders what the condition of the companies proposing to amalgamate with each other was, and also to insist on the consent of a certain proportion of the policyholders being obtained before the amalgamation could be effected. Had a Bill of this nature been passed some ten years ago such a case as that of the Albert Insurance Company could not have occurred. It could not be too widely known that the Government would not under this Bill back the solvency of any company, or guarantee the accuracy of their accounts. The Government approved the present Bill on the ground that it insured the greater publicity of the accounts of these companies, and gave better legal remedies as soon as the policyholders had ascertained the true position their company occupied. He was not responsible for the drafting of the clauses to which he had referred and it was possible that they might be capable of improvement in Committee. It might also be desirable to insert at some future time provisions to prevent what might be called the wrecking of these companies. In conclusion, he might state that he should be happy on the part of Her Majesty's Government to co-operate with his right hon. Friend in making the measure as perfect as possible, so as to prevent a recurrence of the scandalous cases that had recently occurred in connection with 738 insurance companies, which if properly conducted should be the best of all investments.
§ MR. BARNETT
said, that having had some practical acquaintance with the matters now proposed to be dealt with, he was happy to congratulate the right hon. Gentleman below him (Mr. Stephen Cave) upon having brought this Bill to its present stage at so early a period of the Session, and trusted that nothing would occur to prevent its being carried to a successful termination. The delay that had occurred in bringing the Bill before the House was not to be regretted, inasmuch as it had given the Government an opportunity of making up their minds as to the course they should adopt with regard to it, and to agree upon the valuable suggestions that had been made by the hon. Gentleman who had just spoken. The necessity for such a Bill had been fully made out, not only by those revelations which had come before the public during the last year, but by the statements of the details of various cases which had been made to the House by his right hon. Friend on that and other occasions, and he was fully assured that the matter was now quite ripe for legislation. The interests involved were enormous, and the persons represented by the millions of money at stake had mainly made their contributions out of hard-earned savings, which savings had been dedicated in a spirit of prudence and forethought for those who were to come after them. These contracts were, in some aspects, of a one-sided character, as had been described by the Vice President of the Board of Trade, and it was right that the public should have protection in reference to them. He entirely approved that important provision of the Bill which rendered it imperative upon persons starting an insurance office to deposit a certain sum of money previously to their commencing that business. It was a new, and he thought a very valuable, feature of the Bill. He had picked out from the list of insurance offices established since 1844 no less than thirty-three which had a subscribed capital of £2,000,000, not one farthing of which had been paid up, and it was therefore evident that the promoters of those offices had some other object in view than that of enabling persons to provide for the wants and 739 necessities of a future generation. With regard to the Albert life Assurance Office he might observe that he thought the panic its failure had given rise to had been greater than there had been occasion for. He might also observe that most of the old-established offices had been in the habit for years of publishing accounts which gave a very fair idea of their actual position. He thought that the Bill under consideration only asked for what was perfectly reasonable in the shape of accounts; but at the same time it must be borne in mind that these accounts would only be thoroughly understood by persons conversant with such matters, it being impossible for unskilled persons to know whether the existing assets of a company were sufficient to meet its future liabilities. The regulations with respect to winding up, which had been added to the Bill, were most valuable. There was, however, a strong feeling in the commercial world against winding up these companies in the Court of Chancery, in which enormous costs were incurred; and it was a question whether a better tribunal might not be obtained for that purpose, by having recourse to the machinery available in the Court of Bankruptcy. On the whole he thought the Bill would meet in a great measure the demands of the public, and would not interfere unnecessarily with the liberty of the insurance companies. Members of the Government might take credit to themselves for having introduced some years ago the system of insurances in connection with the Post Office Department, which had proved a great boon to a large number of people belonging to the humbler classes. That system had been instituted for the purpose of encouraging insurers, and was not regarded with any jealousy by the offices in London, who preferred larger transactions than those undertaken by the Government offices, and he trusted that as the advantages it offered in the case of small savings became more widely known, people would more generally avail themselves of them. The right hon. Gentleman had said very truly that in a well-constituted office the business, which was based upon sound principles, ought to carry with it all the elements of safety; and it ought to be known to the public that one of the especial elements of safety of such an office was that, while the premiums were calculated ac- 740 cording to the average duration of life throughout the kingdom, the office only granted policies upon picked lives. He did not know whether the Secretary of the Board of Trade was right in his facts with regard to the remedies possessed by the policyholders against the directors of the company in which they were insured, but he knew that two actions had lately been brought by those who held contracts of annuities against directors who had bonâ fide handed over the business of their respective companies to another company no less than eight or nine years before the actions were brought, and among other directors thus unfortunately placed was a noble Lord who not many years ago had held the position of Lord High Chancellor. He was glad he had had the opportunity of expressing his favourable opinion of the right hon. Gentleman's Bill, which he trusted would become law.
§ MR. W. SHAW
said, he was of opinion that the Bill had been considerably improved since it came before the House last year, but he thought it capable of still further improvement. It was all very well to insist upon the publication of the accounts of these companies, but such accounts were very seldom looked at, and were still more rarely understood. It was said that skilled persons would be able to comprehend them, but to such persons these elaborate returns and accounts were unnecessary, inasmuch as, under the present system, those conversant with the affairs of insurance companies were able to point out the unsound ones. Under those circumstances, he submitted that the publication of the accounts would have but little effect in preventing the calamities that had recently occurred with reference to certain insurance offices. He should deem it his duty when the Bill got into Committee to again bring forward the Amendments he had proposed last year. He was glad to find that there was to be a compulsory audit of all the accounts of the various companies; but he must observe that, as it had hitherto been the object of the auditors of these companies to make them stand as well as possible in the eyes of the public, nothing would be regarded as satisfactory except a compulsory audit conducted by auditors who were perfectly independent of the companies whose accounts they were appointed to 741 investigate. The Bill provided for a compulsory audit of the accounts of each company once in every five years, and he saw no reason why the duty of auditing such accounts should not be undertaken by the Board of Trade, who might also investigate the nature of the assets belonging to such companies, and ascertain their value;—a matter of the utmost importance to be known in estimating the position of a company, because there were companies who on paper showed a strong array of assets which, when examined into, turned out to be absolutely worthless. He would not go the whole length of the American system, but he would take a middle course, and give the Board of Trade the power of nominating an auditor once in every five years, He also thought that, where companies had gone on receiving premiums for years upon a policy, the burden of proving the existence of fraud should be thrown upon them in cases where they disputed the validity of the contract. He hoped that when these and similar reforms had been made in the law upon this subject the distrust in the public mind of insurance offices that now prevented the proper development of the system of insurance would be removed.
§ MR. G. B. GREGORY
said, he could not agree with the hon. Gentleman who spoke last, that the audit should be placed in the hands of the Board of Trade, for he could not help thinking that the effect would be to induce persons to rely too much on the report of a Government officer of the condition of the companies instead of inquiring for themselves how matters stood. The true principle of mercantile and all other transactions of life was, that people should do their own business. It was most material to give people every facility for ascertaining the truth, but the maxim "Vigilantibus, non dormientibus subveniunt leges," was the one that should be adopted in these cases. Your duty was to give parties every facility for investigation, but that investigation they should conduct for themselves. There was another point to which he was anxious to draw attention. There were two classes of insurance offices in existence—the mutual and the proprietary. In the latter offices it was usual for the directors to call annual meetings of the shareholders in the concern in order to explain to them the state of their affairs, but no such provision was made with respect to the policyholders. 742 He should therefore suggest that a provision should be inserted in the Bill requiring that the directors of an insurance company should call annual or semiannual meetings of the policyholders, in order to lay a statement of the accounts before them, so that they might have the amplest opportunity of knowing what was their position, and what were the liabilities of those with whom they had contracted. With reference to the subject of winding up these companies in the Court of Chancery, his impression was that it was within the discretion of that Court to make a winding-up order on the application of a policy-holder, notwithstanding the fact that his policy had not become a claim. Such a policyholder might, however, be choked off by tendering to him the value of his policy, and he quite agreed with the hon. Gentleman the Secretary of the Board of Trade upon the propriety of placing the policyholder on a more substantial footing in that respect. But in his opinion it would be better to adopt the principle of the Bankruptcy Act of last year with reference to these companies, by enabling their creditors to deal with their estates themselves, instead of entrusting the management of an insolvent company to the official liquidators of the Court of Chancery, as, owing to the mass of business in that Court and, perhaps, some defects in the Winding-up Acts, the Court was inclined to lean too much upon the official liquidator, to leave matters too much in his hands, by which all control of the creditors was lost and enormous expenses were incurred.
§ MR. BOWRING
said, that although he regretted that, owing to illness, the right hon. Gentleman (Mr. S. Cave) had been unable to proceed with his Bill upon the subject of insurance companies last year, he was glad, on the other hand, to find that tins year he had been able, with his restored health, to introduce a measure upon the same subject of a more comprehensive character, doubtless owing to the scandal caused by the deplorable failure of the Albert Company last autumn. With reference to the seventh clause, providing for a quinquennial audit of the accounts of all companies by an actuary, he would draw attention to the fact that the Bill contained no definition of what was an actuary. In dealing with this point he need scarcely remind the House that on the occasion of the panic of 1866 many 743 companies whose duly audited accounts had presented a most flourishing appearance, and who had distributed large dividends, were at the time utterly insolvent, notwithstanding the auditors' certificates. He would suggest that, as a test of professional respectability, the actuaries employed under this clause should be required to be members of the Institute of Actuaries, which took care that none were connected with it whose character did not stand well. When the Bill got into Committee he should probably propose the Amendments of which he had given notice last year, and which went in the direction of securing greater publicity of accounts; the first being to the effect that all companies not registered under the Companies' Act should be bound to give to all shareholders and policyholders a list of the names and addresses of their shareholders upon payment of a small charge. The object of this Amendment, which was taken from the provisions of the Companies' Act, was to facilitate the communication of shareholders with each other. The other Amendment he proposed to introduce into the Bill was to the effect that in the case of all companies not within the Companies' Act printed copies of the deed of settlement should be kept for the benefit of those interested. He begged in conclusion to thank the right hon. Gentleman for introducing so valuable a Bill.
§ MR. THOMAS CAVE
said, that having had a most disastrous connection with an insurance company, he was anxious to say a few words upon the subject of the Bill. In the first place, the Bill was defective, in his opinion, inasmuch as it did not bind the company to repurchase a policy at its surrender value, and did not direct that the surrender value should be uniform. He held in his hand the prospectus of the Scottish Widows' Fund, which stated that in all cases where the policyholder was unable to continue the payment of his premiums the policies would be repurchased at an equitable rate. The right hon. Gentleman (Mr. S. Cave) had referred to the case of a gallant officer who, having paid several hundred pounds upon his policy, had only received a paltry £80 or £90 in return, but the prospectus to which he referred showed that the value of the policy, as years passed away, might amount to 744 from 33 per cent to 100 per cent of the whole premiums paid. He would suggest that the Bill should provide that no dividends should be declared until the surrender value of the whole of the policies had been invested in certain securities. A clause in the Bill very properly provided that no company should commence business unless they had previously deposited the sum of £20,000; but he might remind the House that in the case of railways the deposit which that House in its wisdom required to be made by the promoters was usually obtained by some colourable means, being generally in the nature of a loan from a bank, and really afforded no security for payment at all. He would therefore suggest that the deposit in the case of the promoters of insurance companies should be permanent instead of temporary, as a safeguard against practices of a similar kind to those to which he had referred being carried on. He now approached a still more serious defect in the Bill. The right hon. Gentleman demanded that the assets and the liabilities of insurance companies should be valued, but he had omitted to indicate at what rate they should be valued. It was easy for insurance companies, by undervaluing their liabilities and overrating their assets, to show themselves infinitely richer than they really were; and how was an agricultural labourer at John O'Groat's or an artizan to calculate the real value of those securities and the liabilities. Then there were the discrepancies that existed in the various tables of mortality. The Scottish Widows' Fund valued their liabilities according to the "Carlisle Tables," while the Commercial Union valued theirs according to the "Combined Experience Tables," and the result of this variation in the rate of valuation of their liabilities might be illustrated by the report of the actuary of the Commercial Union Assurance Company, which he held in his hand, and which boldly stated that the Scottish Widows' Fund had undervalued theirs by £179,000; also by the fact that two most respectable companies having discovered the erroneous principles upon which they had been conducting their business, had been unable to declare their usual bonus; and yet the "Carlisle Tables," now hold to be defective, were the ones upon which the calculations of the 745 insurance companies were generally based. Another defect in the Bill was that it allowed a certain proportion of the money of the insurance offices to be lent on loan on personal security. If the right hon. Gentleman had had his (Mr. T. Cave's) experience in insurance companies he would certainly never have admitted such a provision into his Bill. A banker who invested his capital in personal securities would soon be ruined, and a company who followed a similar course would soon be brought to nought. He would explain how this system of lending money on personal security had arisen. A number of companies mainly relied on obtaining business by lending money on personal security, on the condition that the borrower would take out a policy equal to or exceeding the amount borrowed. That was, in his opinion, a very unhealthy way of doing life insurance business, and it ought not to be encouraged. Another objectionable feature in the present system was the enormous percentage paid to the agents of these offices, who frequently received as much as from 60 to 70 per cent of the first year's premiums. These excessive commissions led to an amount of activity which was not for the advantage of the public. It was quite possible for a man to be over insured as well as under insured; and he knew a case where a person who had failed, and was unable to pay his creditors, possessed a large number of policies of insurance upon his life. He regarded the Bill as being generally defective, and as not dealing with the subject in a manly way. The Bill was extremely deficient in providing for an effective audit. He did not believe there was a perfect audit of any company with which he was acquainted in London. No audit could be perfectly satisfactory that was not performed by persons responsible to the Government, and not appointed nor paid by the companies themselves. He thought that the condemnation of amalgamations might be carried too far, because if the directors of ten companies found themselves too weak to contend singly with the older companies, they would do well honourably to amalgamate, and so form one strong company, and manage their business with greater economy and efficiency. In his (Mr. T. Cave's) own company the first thing the shareholders did was to meet together and see that no 746 permanent injury would ultimately be done to any policyholders. The right hon. Gentleman had provided in his Bill for the publication of the balance-sheet and for its delivery upon demand, but he (Mr. T. Cave) thought that it should be rendered compulsory upon the directors to send a copy of it by post to each of the shareholders and policy-holders. In his opinion the plan for taking an insolvent company into the Court of Chancery merely to cut down the liabilities would be a delusion. That would destroy its reputation and its chance of success. The only straightforward course to pursue under such circumstances would be winding up or-bankruptcy. He trusted that the Amendments he had suggested would be considered, and that the defects he had pointed out in the Bill would be remedied in Committee.
§ MR. M'LAREN
said, that as representing a constituency which was largely interested in life assurances, he had reason to believe that the Bill of the right hon. Gentleman gave general satisfaction in all its main points. The measure had been objected to by the hon. Member who had last addressed the House on several grounds, principally, it appeared to him, because he had misunderstood its objects. The hon. Member had objected to the measure on the ground that it permitted insurance offices to lend their money on personal security. But the Bill was intended not to authorize such loans, but to detect them if made, the nature of all the different descriptions of loans being directed to appear on the balance-sheet, a course of proceeding which would indirectly have the effect of putting a stop to such transactions altogether. Then, upon the question of the publication of the accounts, the hon. Member said that many of the assured could not comprehend them even if they were to read them. But at all events such a publication of the accounts would enable skilled I persons at once to show the weakness or the strength of an office; and the comparison of the accounts of one office with those of another would give ample information to men of ordinary sense which was the sounder of the two. It had been suggested that the Board of Trade should appoint the auditors, but he could not give his assent to such a proposition. There were insurance offi- 747 ces which had granted from 8,000 to 16,000 policies, and was it to be supposed that an auditor from the Board of Trade could take each of those policies individually, ascertain the age and liabilities of the person assured, and so arriving at materials, proceed to calculate the value of each policy. He should like to know when such an operation would be completed, unless the Board of Trade were to appoint a whole army of auditors, a matter entirely out of the question. It was unjust to expect the Government to do the business of people who ought to do it for themselves; and if Parliament threw ample light upon the accounts and upon the tables upon which the calculations of the offices were framed, as was proposed to be done by the Bill, they would have done all that they were entitled to do in the matter. The hon. Member who had just sat down had referred to the different, scales upon which the various companies valued their securities, and had stated that he had seen it alleged that the Scottish Widows' Fund had undervalued their liabilities by £179,000. In reply to that statement, he had to observe that the Scottish Widows' Fund, which was established in 1814, was the largest life assurance office in the world, it having an annual income of above £600,000, and that its accumulated capital amounted to above £5,000,000. Any actuary, therefore, who should have the boldness to come forward and assert that the business of that office was based upon erroneous calculations could never expect to receive the least credit, and would only show his own incompetence for his profession. It had been remarked that in valuing their future assets some companies adopted the scale of 3 per cent and others that of 3½ per cent per annum, and therefore it was argued that one or the other scale must necessarily be erroneous. Such a conclusion, however, did not necessarily follow, because, while some companies invested their capital mainly in Consols, and received a little over 3 per cent for their money, others invested their capital on land, first-class railway bonds, and other undoubted securities, and received 4 per cent upon the sums so invested. The latter companies would therefore be justified in calculating their assets at the rate of 3½ or even 4 per cent per annum, while the former, of course, would be bound to 748 adopt a lower rate as the basis of their calculations. The Bill, however, would render it compulsory upon companies to show the rate of accumulating interest upon which they valued their assets.
§ MR. ANDERSON
said, he had considerable doubt whether the object of the right hon. Gentleman would be attained by the provisions of the Bill. The accounts which it directed to be published were not such as any ordinary life insurer would be able to derive any information from. Now, it was for the protection of the weak and ignorant, and not for that of the wise and skilled man, that this Bill was supposed to be framed. It would be of no service to actuaries to order the accounts to be published, because those persons were already fully aware of the weak companies, and could point out many which were doing a large business on an unsound basis. He thought it was not likely that the winding-up clauses of the Bill would be taken advantage of, at least not by those they were meant to protect. The duty should lie upon a Government prosecutor of taking steps for winding up an unsound company, because the shareholder, in the event of discovering its unsoundness, would merely do his best to sell his shares, while the policyholder would seek to make the best terms for himself he could obtain; and the more unsound a company was the more likely would it be for such a compromise to be made and thus the unsoundness escape publicity. The Bill would facilitate the action of those who had made a business of company-wrecking. What would be the position of a company whose business was, perhaps, perfectly sound, against whom a petition for a winding-up order had been presented? It would immediately suffer from a falling off in public confidence, its shares would be depreciated or unmarketable, no new business would come in, and a large number of the existing policyholders would withdraw; and the result would be that while they were endeavouring by a long expensive legal process to show that their business was perfectly sound they would be almost, if not entirely, ruined. He preferred the remedy suggested by the hon. Member for Bandon (Mr. W. Shaw), that a public actuary should be appointed. It might, of course, be objected that this would imply a Government responsi- 749 bility. But the certificate need not be of such a character as to convey any responsibility; all he asked was that there should be a public actuary, who should give a certificate, as in the case of friendly societies, that the actuarial basis of the company was not unsound, but who should have nothing to do with the accounts. At the same time, there should be a proper audit of accounts, and the public actuary should refuse to give a certificate as to the soundness of the basis of the company unless he were first shown a certificate from a competent and independent auditor that the accounts were accurate.
§ THE CHANCELLOR OF THE EXCHEQUER
Sir, the Government are parties, in some degree, to the introduction of this Bill, and I am free to admit that it reflects great credit upon the diligence of the right hon. Gentleman the Member for Shoreham (Mr. S. Cave), and that he has done great service by the excellent speech he has made to-day. I wish to make a few criticisms, however, not in a hostile spirit, but mainly to show, what can be shown quite clearly, that even this Bill, carefully prepared as it is, and amended as it may be hereafter, will not really be an adequate remedy for the mischief we have to deal with. What is the real state of the case? The picture which the right hon. Gentleman has drawn as a possible one is, unfortunately, often too true, that an honest and industrious man has often pinched and saved during the whole of his life to make a provision for his family, and that then, not from any fault on his part, but simply from causes arising out of his education and position in life, he has found himself and them deprived of that provision, and reduced to abject poverty, instead of the ease and comfort upon which he had relied in his old age. That is now the result in too many cases. I want to see whether this Bill, when carried into effect, will really do anything to prevent that state of things. Not that I wish to argue against the Bill, but I want the House to consider whether the Bill affords a complete remedy, or whether a more complete remedy cannot be provided. What is the real nature of life insurance companies? They differ from all other kinds of business in this respect,—that whereas in all other kinds of business you begin with an outlay and get the profits after- 750 wards, in life assurance business the profit is obtained first and the outlay comes many years afterwards. They begin all smooth and fair, and go on year after year receiving large payments in respect to a remote contingency. They have little or nothing to pay, and the consequence is that, as a general rule, human nature is not equal to dealing rationally and fairly with such a state of affairs. The temptation to make away with the money seems too great. Reckless things are done, and when the time comes for fulfilling the contract the means of fulfilling it no longer exist. That is one peculiarity. Another is that the whole power of assurance companies to fulfil their obligations depends entirely upon the nature of their investments. There is no check upon this point in the Bill, and I do not see how any cheek can be applied to the investments which they choose to make. Another thing which may possibly not be in the nature of assurance companies, but which has certainly become almost inseparable from them, is that companies are got up and supplied with policyholders by a system of puffing, touting, and bribing which is almost unexampled in any other line of business. It is a most deplorable consideration, and yet it is really true, that when a man who is not himself competent to judge of the security of the office in which he invests goes to a person whom he regards as his confidential adviser and friend—as one who will tell him whether he ought to deal with that company—this confidential adviser to whom he so applies may be a person who is about to receive a large pecuniary consideration for advising him, quite apart from the merits of the case. These are some of the evils which I venture to point out in reference to the present state of insurance business; and I am sorry to say that with every wish to think well of this Bill, and admitting that it does contain valuable improvements, still no man can say that it will remedy any one of those evils. There is no clause of the Bill which is directed either to the question of investments or to this system of getting up companies by payments to those who bring business. What the Bill docs is this—I divide it into two parts. One relates to the insolvency of companies, and the other to the transfer of their business to other companies. These are most proper ob- 751 jects, and I clave say they are dealt with in a proper and judicious manner. But the rest of the Bill bears only a pale and shadowy resemblance to the stringent laws that have been passed in Massachusetts and New York. It is the law that prevails there, but with the sting taken out. For instance, the Bill enacts that the sum of £20,000 shall be deposited with the Accountant General before the company commences business, which is to be returned when the life assurance fund accumulated out of premiums amounts to £40,000; but in New York a deposit of $100,000 must be made, which is never refunded at all while the company is in existence. Under this Bill the companies will be obliged to make certain returns; but, in New York, there is an absolutely despotic power over the companies of investigating the accounts at all times, and winding them up at pleasure. The companies are under the absolute and perfect control of the officers appointed by the State. There is a clause in this Bill to separate the risks on life and tire insurance; but, in New York, a life assurance company is absolutely forbidden to have anything to do with fire insurance, or to transact more than one kind of business. It is said that these American offices have certainly succeeded in giving the greatest confidence in the system of life insurance which prevails in that country. It is, however, at present only of recent origin, and whether, when it comes to the test of age, it being now in the flowery days of youth, it will be found to justify that confidence, cannot now be foreseen. I cannot help thinking, however, that it is exceedingly probable that this immense amount of Government interference will produce an overweening confidence in its efficiency, that the people will have utterly neglected to protect themselves, and that they will lose as much by being protected too much as if the law had protected them too little. The right hon. Gentleman has wisely foreborne from introducing these clauses, because this country would not tolerate such provisions for a moment as those of the American law. He will excuse me for making this criticism—that these provisions for obtaining security in America have not been supplied in this Bill by any others. The whole foundation of the Bill consists in the number of returns which the companies are to make, 752 and these returns are to be made through the person appointed by them. Now, if you want to get at the bottom of things that is not, I think, a satisfactory arrangement. Giving to the right hon. Gentleman every credit for the manner in which the Schedules to the Bill are drawn out, I still think that even they may be defeated by the ingenuity of persons working together with the combined object of keeping the public in the dark. The fault, however, does not lie so much with the right hon. Gentleman as in the position and nature of things. The difficulty really amounts to this—the returns of the affairs of companies are wanted; but if you trust to the companies to make their own returns, you may be quite sure they will strain every nerve to keep back all that they wish you not to know. If, on the other hand, you trust to a Government audit or inspection, then you mix the Government up in the concern; and, although a man may be given only a limited function, yet the inevitable result will be that he will give the company a spurious, false, and unfair credit, as having the weight, and probably the guarantee of the Government behind. You cannot escape from this dilemma. The right hon. Gentleman had Scylla and Charybdis before him, and he has escaped them by getting into a complete calm. I do not think you can call upon the Government to make this audit, for reasons which have been stated by the hon. Member for Edinburgh (Mr. M'Laren), and the hon. Gentleman opposite (Mr. G. Gregory). I do not think it is the function of the Government, and I do not believe the Government would do it well. They would go to sleep over it; they would give to companies undue and unfair credit; and thus the Government would be parties to leading persons to trust many unworthy concerns. I venture to suggest with regard to such benefit as can be derived from the returns that the Bill does not contain any provision for publicity. The returns are only to be deposited with the Board of Trade, and the public, if they want to see them, are to make application to the Board of Trade, which would never be made as long as companies are believed to be going on well. I should have thought the right hon. Gentleman might have steered a middle course, and have obliged 753 all companies to publish them in some form or other in the London Gazette or in the newspapers, where they would be accessible to everybody. Although shareholders might not profit much by that plan, yet there would be an advantage in obtaining the criticisms of people who are perfectly able to scrutinize them, and who in the rivalry of the different companies would be sharp enough to point out each other's errors. Even with this it is manifest that for all the inherent temptations to the companies to make away with money—arising from the certainty with which it comes in and the postponement of the payment—for the looseness of investment and for touting and bribing, this Bill offers no remedy. I am unwilling to sit down without saying that I desire most earnestly that something may be done whereby we may take away what is a reproach to our laws—that there are no means by which, an Englishman—a man not highly educated, so as to be capable of judging of these problems—can assure his life in such a way as to be perfectly certain that on his death the benefit which he designs for those whom he may leave behind may come to them. There is at present no such thing as that in this country. We are, I suppose, all insured somewhere or other, but it is a mere probability. There are no means by which a man can avoid the most painful position in which it is possible to be placed—that of dying in doubt and anxiety whether his family will receive the provision which he has made for them. I have said that I am unwilling to invoke the aid of Government if it can be helped, but it has occurred to me as being worthy of consideration—and I have given a good deal of consideration to the subject—whether it might not be the duty of the Government to come forward themselves and offer to the public, on terms sufficiently high to prevent them from coming into serious competition with really good companies, and without offering any collateral advantages or bonus whatever, the absolute security which the Government have alone the power to give to insurers. I merely throw out this idea for after consideration. After looking at the Bill and considering the question in all its branches, T have come to the conclusion that it does not really meet the difficulties of the case as I have apprehended them, and, further, 754 I do not believe it is in the power of anybody to frame a Bill based on private association which would meet those difficulties. I recommend the matter to the consideration of those whom it may concern, and I shall be ready to do what I have stated if it should be thought by the House desirable that the Government should do what I have said. The Government have plenty on their hands, and the profits of such a business as I have indicated are very trifling; but if we, in consideration of a sum of money, grant annuities, of course the converse operation is open to us, and we may grant a sum of money on death in consideration of an annuity being paid to us during life. The Government do not wish to put themselves into this position, but if the House considered that neither this measure nor any other measure of human invention can really give the security required, they may ask themselves whether it may not be wise to enable the Government to give that amount of security upon terms sufficiently high to prevent them from entering into unfair or unreasonable competition with existing companies, and whether by so doing they will not be supplying a want of absolute certainty in life assurance which, so far as I know, cannot be supplied in any other way. I shall be glad to hear what hon. Gentlemen think of this proposal. I do not wish to force it upon them; but if it should be thought to be for the public benefit I am willing to do something in this matter.
§ MR. KINNAIRD
said, they must all have listened with great interest to the speech of the Chancellor of the Exchequer, but he was afraid it was not calculated to encourage the right hon. Gentleman (Air. S. Cave) to proceed with his Bill. He (Mr. Kinnaird) agreed that there were difficulties in the way, but he would ask whether, after recent events, it had not became a duty to legislate in this matter, so as to restore confidence in these associations. But whatever was done he hoped that there would be no Select Committee, as this, in his opinion, would be wholly unnecessary, because the provisions of the Bill had been considered by a committee of actuaries during the Recess, and had met with their approval. He was glad to hear the closing remarks of the Chancellor of the Exchequer. And he did not believe that the great solvent life assurance com- 755 panies would look with jealousy upon the proposal of the right hon. Gentleman, while many persons would be glad to have Government security in so important a matter.
§ MR. DODSON
said, that the speech of the Chancellor of the Exchequer had been the only one importing new matter beyond the scope of the Bill into the debate; and until the right hon. Gentleman rose there had been an almost unanimous approval of the Bill. He (Mr. Dodson) agreed that it was not desirable for the Government to undertake the audit of these companies, or to make itself responsible for the correctness of the accounts or the soundness of the companies, because their doing so would only inspire a false security. With regard to the suggestion of the Chancellor of the Exchequer, that the advantage would be greater if the accounts were published in the London Gazette or the newspapers, he was afraid, from the voluminous nature of the accounts, that it would entail considerable expense upon the companies; and his opinion was that; it would not confer any corresponding benefit on the public. The accounts; would, of course, be furnished to the shareholders, and would be laid before Parliament every year. Very few persons understood, or were willing to take the trouble to understand, the balance-sheet of a mercantile or a banking company; and still fewer was the number of those who understood or took the pains fully to comprehend the accounts of a life assurance company, inasmuch as the nature of these accounts rendered them more difficult to understand. Therefore, he apprehended, no advantage would be gained by the publication of them. But the object secured by the Bill was that the accounts would be furnished to all parties interested in them; they would be laid before Parliament, and any party, say a rival company, interested in criticizing and investigating them, would have the opportunity of making an analysis or abstract, and would take good care to do so. In this latter form and in that manner the returns would reach the apprehensions of the public at large. With regard to the suggestion thrown out by the light hon. Gentleman the Chancellor of the Exchequer, that the Government itself might, in a manner, enter into the business of life insurance, the House was not called 756 upon at that time to offer any opinion, nor could the right hon. Gentleman expect it should do so. The subject of the suggestion must remain for after-consideration; but whether the Government was prepared to propose any measure of that description, or whether the House would hereafter determine that any such proposal should be adopted if made on the part of the Government, was a question which need in no way affect the second reading of the Bill now before the House. He hoped the Bill would receive the assent of the House, and that it would soon pass into law.
§ Motion agreed to.
§ Bill read a second time, and committed for Wednesday next.