Establishment of Department
he Department was established at the instance of the late Sir Julius Vogel in the year 1869, at a time when the lamentable failures of two well-known British offices, the Albert and the European, had drawn public attention to the need for greater security in life assurance. The actual working of the office began in January, 1870, and it has therefore been over thirty-six years in existence.
Management and Methods.
The management of the Department is vested in an officer called "The Government Insurance Commissioner," who is appointed by the Governor on the recommendation
The Government Insurance Commissloner.
of the Ministry of the day. The Department is conducted almost exactly on the same principles as those generally adopted by private mutual life assurance offices. All the usual classes of policies are issued to those who can pass the customary medical examination, and the colony is vigorously canvassed by travelling agents, who obtain the vast
bulk of the new business, now amounting to about three-quarters of a million sterling per annum. The Department pays its own postage, like a private assurance society. By special arrangement, however, with the Postal and Stamp Departments of
the colony, the Government possesses a special stamp of its own, the dies for which are retained in the Stamp Office, the stamps being supplied to the Insurance Department in exchange for cash as required. Tbe expenses and taxes are borne by the policyholders, who share the whole of the profits, just now accruing at the rate of between £60,000 and £70,000 per annum. The Department does not attempt to augment these profits by harassing restrictions or illiberal conditions, its sole
aim being to treat every one with the utmost liberality consistent with justice to the main body of policyholders. An additional privilege not shared by policyholders in private offices is the guarantee
of the State that the contracts will be duly met at death or maturity.
page 4
The premiums originally adopted by the Department were extremely low, and were not framed to provide bonuses. Even with these small premiums, however, the
methods of management, assisted by the low mortality of New Zealand, produced surpluses from the beginning. It was, moreover, quickly realised that it would be necessary to provide substantial bonuses to policy holders in order to enable the Department to compete successfully with the private offices. The rates were therefore raised, and the premiums now charged are given at the end of this pamphlet; and, although higher than formerly, these rates are, on the whole, considerably lower than those charged by the private offices transacting business in the colony.
A special feature is the long-term endowment assurance payable at death or 80, which has now entirely taken the place of the ordinary whole-life policy. In this way
those reaching extreme old age in the future will be relieved of the payment of premiums and also receive their sum assured and bonuses, while the premiums themselves are generally less than are charged by other offices [or whole-life policies maturing at death only.
It is not the practice to charge an extra premium for women, nor for any occupations other than those connected, directly or indirectly, with the manufacture or sale
of intoxicating liquors. These are in most cases charged an extra premium of £1 per cent, on the sum assured, with a minimum of 10s. per cent.
Policies are not issued to full-blooded Maoris, Chines, negroes, or other coloured races, but half-castes (excepting Chinese) are accepted with an extra premium of 10s.
percent, the policies being made to mature not later than age 45.
Ministers of religion are allowed a deduction from their
premiums of 5 per cent, of the temporary assurance pure premiums.
When proposals are made on lives which, although not of such inferior quality as to merit total rejection, are considered not to reach the requisite standard
for at the ordinary rates of premium, they are accepted at increased rates. Great refinement is not attempted in the assessment of such lives, proposals being, as a rule, either accepted at par, with an extra premium of 10s. or 20s, per cent, of the sum assured, temporarily deferred, or declined altogether.
A proposer accepted at an increased premium may, instead of paying the extra, have a special condition embodied in the policy, providing for a de-
page 5
duction from the sum assured in the event of the policy becoming a claim within a certain period.
Death-claims are paid as soon as the necessary proofs have been received, and probate or letters of administration are dispensed with when the sum assured does
not exceed £200. Claims under policies maturing during life are paid as nearly as possible on the actual date of maturity.
Liberal Conditions.
The chief and unique condition is that every policy issued is guaranteed by the State, thus conferring
the most complete security possible, and one which private offices are not in a position to offer.
No extra premiums are charged for any occupation other than that of hotelkeeper, but in the event of war, as in the South
Occupation and Residence.
African War, new proposals received from privates proceeding to the front are specially dealt with. Nor is any extra premium charged for residence in other parts of the world, unless at the time of proposing it is intended to proceed to some unhealthy tropical region.
The suicide clause contained in the policies is more liberal than is usual in life-assurance contracts : although a policy may be declared void if suicide occur within
six months of its issue, the Commissioner is empowered to pay the claim if he is satisfied there was no suicidal intention when the contract was made. This liberal regulation has been found sufficient to protect the office, while it prevents injustice or hardship to third parties.
Substantial surrender values and loan values are allowed after two years, and, moreover, if the premium is not paid within the thirty days of grace an account is opened
crediting the policyholder with the surrender value and increases therein, and debiting him with the premiums as they fall due and interest thereon. As long as the amount to credit exceeds the amount owing the policy is in full force, and in the event of death or maturity the sum assured and bonuses, less the arrears with interest, are paid.
The following are some examples of the benefits conferred by this regulation, taken from the claims
Examples of Non-forfeiture.
which occurred last year :—
Policy No. 2059, issued in 1872. The assured borrowed from the Department on the security of this policy and then left the colony, The payment of premiums was
page 6
neglected from 1896 until the death of the assured in 1905, but the surrender value and the bonuses allotted from time to time were sufficient to meet the overdue premiums, and the claim was duly paid.
Policy No. 59664, issued in 1888. The premiums were paid up to 1900, when they became overdue, but the policy was kept in force by the surrender value until the death of the assured in 1905. At that date the position was as follows :—
|
£ |
s. |
d. |
Sum assured |
500 |
0 |
0 |
Bonuses |
111 |
11 |
0 |
|
611 |
11 |
0 |
Overdue premiums for five and a half years |
98 |
6 |
10 |
Balance payable to assured representatives |
£513 |
4 |
2 |
Policy No. 13640, issued in 1880. The assured left New Zealand in 1888, and neglected to pay any further premiums. The policy matured in 1905, and, notwithstanding that sixteen and a half years' premiums were owing, and some of the bonuses had been taken in cash, there was a small balance in the assured's favour, which was duly paid over. The fact that the policy had any value seems to have been forgotten, for the document could not be found, and the Department had to issue a copy for the purpose of obtaining the usual discharge.
Policy No. 51997, issued in 1885. The premiums were paid to 1890 only, but the policy was in full foree at maturity, fifteen years later.
In more than one case a policy has matured long after its existence was forgotten, and the Department has had to advertise in the public Pre as before the assured could be found.
With the exception of the suicide clause there are absolutely no restrictive indorsements on policies, the assured under
every policy having perfect freedom to travel where he pleases and engage in any occupation, with the satisfaction that, as long as the premiums are paid in cash or from the surrender value, the policy will be in no danger.
With a few exceptions all policies are protected by the laws of the celony from bankruptcy to the extent of £2,000 (exclusive of bonuses), or in the case of annuities
Protection against Bankruptcy.
to the extent of £104 per annum, but this does not avail to protect any policy from passing to a trustee in bankruptcy if it be proved to the satisfaction of a Judge of the Supreme Court that such policy was taken out by the bankrupt with intent to defraud his creditors.
page 7
An important change in the method of vesting of bonuses was made a few years ago, when it was arranged that bonuses should vest on the death of the assured, whenever
Bonuses vest immediately.
that might happen, not having to wait until the policy is two years' old—the bonuses being of no value whatever in the interval—as in other offices. The Government Insurance Department was, it is believed, the first office in the world to give this privilege, and one other Australasian office has recently followed the example.
The latest amendment of practice has reference to interim bonuses. These have hitherto been allowed only in the case
of policies emerging by claim between two triennial distributions of surplus. Arrangements have now been made to include interim bonuses in all calculations of surrender values, either in cases where policies are actually surrendered or borrowed upon, or for the purpose of giving the largest possible cover where the premiums are overdue. Even in the case of a yearly distribution of surplus, the policyholder who is unfortunately compelled to surrender forfeits on the average half a year's bonus, but under the Department's new system he receives the proper proportion of accrued bonus for every premium paid since the last valuation. In fact, it is not the policy of the office to try to make a profit out of the necessities of those policyholders who become "hardup." This method of interim bonuses is unique, and gives all the advantages to policyholders of a division of profits as often as a premium is paid, without the expense of a regular allotment.
The reports issued annually and trienially by the Department are designed to furnish policyholders and the world in general with full information about the working
The utmost Publicity afforded.
general of the office. The accounts and balance-sheets give the fullest details, and the opinion was recently expressed by an English critic that the form of Statement of Business published with every Annual Report is one well deserving of imitation by all offices that court public inspection.
Investment of Funds.
The investments of the Department are controlled by a Board, consisting of the Colonial Treasurer of the colony, the Solicitor-General, the Surveyor-General, the
Government Advances to Settlers Office Superintendent, the Public Trustee, and the Government Insurance Commissioner, three of whom form a quorum. The investments are mainly confined to New Zealand
page 8
Government securities, Loans to local bodies (secured by special rate,) loans to policyholders on the security of their policies (limited to 90 per cent, of the surrender value), and loans on mortgage of real estate (not exceeding three-fifths of the valuation). No loan can be granted to a local body without the joint concurrence of the Board and the Governor. The Board must be unanimous before any loan on mortgage can be granted, and not more than £10,000 can be lent on any one realestate security, nor more than that sum to any one person or company.
The following is a summary of the Departments assets at the 31st December, 1905—
Class of Investment. |
At 31st December, 1905. |
Amount. |
Percentage of Total Assets. |
|
£ |
|
Mortgages on freehold properly |
2,132,039 |
54-3 per cent. |
Loans on policies |
679,493 |
17.3 per cent. |
Government securities |
667,965 |
17.0 per cent. |
Local bodies' debentures |
154,334 |
3.9 per cent. |
Landed and house property |
122,436 |
3.1 per cent. |
Miscellaneous assets |
103,119 |
2.7 per cent. |
Cash on current account |
67,614 |
1.7 per cent. |
Properties acquired by foreclosure |
804 |
0.0 per cent. |
Total |
3,297,804 |
100.0 per cent. |
The above assets are held in trust for the policyholders insured in the Department, and are specially "earmarked" to them by statute. The rate of interest
earned on the mean funds during 1905 was £4 10s. 4d. per cent., obtained by dividing the interest received by the mean of the funds at the beginning and end of the year.
Valuations and Bonuses.
Valuations are made yearly, but bonuses are allotted every three years. Although the Government Insurance Department has not made a special feature of its bonuses in order to obtain new business, it has nevertheless, since its establishment in 1870, distributed to policyholders a sum of £1,180,279 in cash. Which means an addition of £2,222,728 to the sums assured. The aim of the Department has been to safeguard in every way the interests of the assured, and it has therefore, after most stringent valuations, distributed by way of bonus as much as was available, but only after creating a strong reserve
page 9
fund to meet all possible contingencies. This prudent police
has been indorsed bv the Consulting Actuaries in Englaud, Messrs. Ralph P. Hardy and George King, who have repeatedly congratulated the management on the impregnable position of the office. For many years past the Department has pursued a policy of strengthening its reserves, and the valuations are now made upon a 3½-per-cent, interest basis. At the last valuation, 31st December, 1905, the sum of £178,994 in cash was distributed amongst the policyholders, representing additions to the sums assured of £302,910. As on the previous occasion, the bonus was distributed
as a percentage of the sum assured and previous bonuses in force, so that, as the
Review remarks, "Every policyholder has the satisfaction of being able to 'tot up' his own bonus, while the saving in expenses swells the profits for division."
Bonuses are allotted every three years, but, as interim bonuses are given for surrenders, loans, and claims by death or maturity, all the advantages of a more frequent distribution are secured to policyholders without the corresponding expense to the Department.
The policies valued at the last investigation, and the reserves held against them, will be seen in the following summary:—
Particulars of the Valuation at 31st December, 1905.
Number of Policies. |
Description. |
Sum assured and Bonuses. |
Percentage of Total Sum assured. |
Reserves. |
|
|
£ |
|
£ |
25,355 |
Endowment assurances |
5,481,104 |
48.0 |
1,618,910 |
14,100 |
Whole-life assurances |
4,736,850 |
41.5 |
1,722,567 |
3,950 |
Double-endowment assurances |
1,011,404 |
8.9 |
108,977 |
692 |
Children's endowments and investments |
88,112 |
0.8 |
24,551 |
688 |
Civil Service assurances (with deferred annuities) |
98,883* |
0.8 |
23,201 |
24 |
Miscellaneous policies |
6,714 |
0.0 |
10,057 |
44,809 |
|
11,423,067 |
100.0 |
3,508,203 |
328 |
Annuities, £l3,740 per annum |
|
|
118,432 |
45,137 |
|
|
|
£3,626,695 |
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Insurance of Civil Servants.
In 1893 a combined assurance and annuity scheme for Civil servants was initiated. In return for monthly deductions
(amounting to about £5 annually for every £100 of salary the Insurance Department contracts to give a uniform initial insurance of £100 (increasing with the salary) until the age of sixty is attained, and after that age an annuity varying with the age at entry. Those who elect to pay a small extra premium can have the assurance continued beyond age 60 until death. These policies, placed in a separate table, are merged in the general business of the Department, and share in the periodical distributions of profits, At successive valuations the necessary reserves are made to fully cover the liability which has accrued upon each of the contracts, and consequently there is no danger of future trouble in connection with this scheme such as has overtaken so many pension schemes as the result of inefficient conception and inexpert administration.
The above scheme is compulsory on all new entrants into the Service under forty years of age, but a large proportion of the support given to the Insurance Department has resulted from voluntary action on the part of Government employees in all grades of the Service, of whom there are some six thousand insured in the Department for about a million and a half sterling. They contribute in premiums upwards of £44,000 a year out of a total premium income of just over £320,000.
The following statement shows approximately the branches of the Service from which this large premium income is derived:—
|
Yearly Premium. |
Railways |
15,300 |
Post and Telegraphs |
7,800 |
Education |
5,600 |
Police Force |
2,000 |
Other Departments (per Treasury) |
8,300 |
Voluntary assurance premiums |
39,000 |
Compulsory assurance premiums (Under Civil Service Insurance Act) |
5,800 |
Total |
£44,800 |
It will be seen that less than 13 per cent, of this large volume of business is of the nature of compulsory insurance, over 87 per cent, of the public servants assured in the Department having used their own judgment in selecting an office, and being perfectly at liberty to withdraw at any time they may think fit, taking with them the full surrender value of their policies.
page 11
Progress of the Department.
During the thirty-six years of the Department's existence ending the 31st December, 1905, premiums have been received
(in addition to £232,702 consideration for annuities) for upwards of six and a half millions sterling, considerably over four millions has been returned to policyholders or their representatives, and the existing funds of the Department amount to nearly four million pounds sterling, All this and other information may be obtained from the following Consolidated Revenue Account:—
At the end of 1905 there were 45,137 policies of all classes in force, assuring a total of £11,725,977 inclusive
Total Assurance in Force.
of bonus additions then allotted, and £49,305 immediate and deferred annuities per annum, the annual premiums thereon amounting to £319,220.
Total Life Assurance in New Zealand.
The total life assurance in force in New Zealand at the 31st December, 1905 (excluding industrial business), consisted of 114,553 policies, making an average of 130
The Colony's Life Assurance.
policies for every 1,000 living. The sum assured (excluding bonuses) represented by these policies was £28,087,349, an average of £245 for each policy, £32 for every European inhabitant of the colony, and £89 for every male European over fifteen years of age. On these policies the annual premium income was £908,349. There were also 36,502 industrial policies, assuring £877,871.
page 12
The distribution of assurance among the various companies is shown hereunder :—
Life Assurance in Force in New Zealand at End of 1905.
—— |
Number Policies. |
Sum assured |
Annuities. |
Annual Premiums. |
|
|
£ |
£ |
£ |
Seven Australian offices |
65,351 |
16,211,194 |
10,622 |
532,930 |
Two American office |
3,929 |
1,380,039 |
656 |
55,394 |
Two English offices |
136 |
27,800 |
|
1,027 |
Total eleven foreign offices |
69,416 |
17,619,033 |
11,278 |
589,351 |
One New Zealand office (the Government Insurance Department) |
45,137 |
10,468,316 |
49,305 |
318,998 |
Total ordinary assurance |
114,553 |
28,087,349 |
60,583 |
908,349 |
Industrial assurance |
36,502 |
877,871 |
|
46,096 |
Total assurance in force in New Zealand |
151,055 |
28,965,220 |
60,583 |
954,445 |
The foregoing table shows that a very large proportion of the whole business is held by the Government Life Insurance Department, which also transacts the largest amount of new business. It may safely be said that these figures, the results of thirty-six years strenuous effort, are in themselves creditable to the Department, and testify more eloquently than any words to the favour in which it is held by the people of New Zealand.