INSURANCE: Boom and Britches

Is the life-insurance business getting too big for its 100-year-old britches? Even some traditionalists, in a U.S. business noted for the especial depth of the moss on its back, are asking such questions.

The problem arises because the life insurance companies now have $36 billions in assets — the world’s second greatest pool of private capital (first: U.S.

commercial banks). About 30% of their total is concentrated in U.S. Government bonds. Furthermore, 75% of all new in vestments made this year are in “governments.”

State laws and sound old insurance practice restrict insurance companies to the gilt-edged, low-income investments.

But many economists and most New Dealers are sickened at the sight of such a vast pool of capital not engaged in the prime purpose of capital — risk-taking.

In this impasse, some insurance thinkers have been looking for a new, constructive answer. One idea that is causing conservatives to harrumph in the insurance board rooms: that an investment pool for new or expanding industries be formed, with insurance companies sup plying the “senior” capital. Effect: a kind of privately owned RFC. Likelihood: little; the insurance business as a whole is doing too well as it is to be receptive to radical new tinkerings.

$133 Billion. For the insurance business is fat. In the first eight months of 1943, U.S. life-insurance companies wrote $5,531,393,000 worth of new business, more than they had chalked up in any eight months since the 1937 boom. The 67,000,000 U.S. citizens with life policies now own approximately $133 billions worth— 30% more than the total in 1929, almost five times the national coverage just before World War I broke out. Both the character of the new business and the financial condition of the industry are better than they have been in years.

Down Industrials. More people are earning enough to pay premiums quarterly or semiannually. Industrial insurance (the 25¢-a-week, door-to-door variety popularly known as “burial insurance”) is going down, as other kinds rise. Through August of this year, new industrial insurance was off 7.7% from last year v. a 34.6% rise in ordinary and a 19.1% rise in group business. This trend is good for everybody: industrial insurance nets the companies no more, but is more expensive for the same coverage. Thus it has been a politically fruitful target of insurance haters for 40 years.

Down Surrenders. Surrender payments this year are at a new alltime low, off almost $150 millions from last year, while requests for loans on policies are also at rock bottom.

Up Earnings. War prosperity has increased the value and earning power of many insurance investments, notably railroad bonds. It has also helped the industry get out from under its crushing load of sour farm mortgages and foreclosed farms. During the depression, U.S. insurance companies had to take over 100,000 farms, worth (on the books) over $1 billion. By the end of the next crop season, most companies figure they will have disposed of all of them. Increased earnings from such sources arrested—at least temporarily—a 14-year downtrend in the net interest rate of U.S. insurance companies last year (3.4% v. 3.41% in 1941).

The Rich Future.Since Pearl Harbor, no industry has had the Government competition that insurance has had—nor been so genuinely pleased to have it. By last month the U.S. Government had sold 12,500,000 policies (to some 7,650,000 individuals) representing $90 billions of insurance. This was two-thirds as much as all private companies put together.

But the private companies love it; none wanted the extra risk of covering servicemen anyway. Main effect will be to accustom more men to carrying life insurance—and more of it. The average Government policyholder today is insured for $8-9,000 (maximum allowed: $10,000) v. a national average of just over $2,000. The Government thus far has sold policies to 95% of all servicemen. This should give the insurance salesmen of the next decade a great head start on a rich future.