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The Pamphlet Collection of Sir Robert Stout: Volume 54

Life Insurance is a Trade

Life Insurance is a Trade,

and that it must be conducted on business principles. It is true there are some points in which the transactions of a life office resemble those of a trust. In a trust the funds have to be carefully invested by the trustees in terms of their trust deed, or in accordance with rules laid down by the law courts; and in the same way the funds of a life office have to be carefully invested by the directors in the manner prescribed by the deed of partnership; and in both cases scrupulously accurate accounts page 4 must be kept of all the monetary transactions. Here, however, I think the similarity ceases. There is nothing in a trust at all analogous to the business carried on by every life insurance office. No trustees are permitted to enter into speculative transactions such as those that constitute the main business of life offices, namely, the guaranteeing of the payment of a fixed sum on the happening of an event depending on human life, which event may happen at some altogether uncertain time or not at all. Such transactions as even the purchase of reversions, which are habitually and very properly and advantageously entered into by modern life offices, would be quite unsuitable to trusts, which, from the nature of the case, require to have a steady income, and could not be carried on if the income were an uncertain or fluctuating profit dependent on the earlier or later death of the lives on which the reversions depend. The various processes essential to the granting of new policies, the keeping of an office in which proposals for insurance may be received from the public and inquiries answered, the medical examination of candidates for insurance, and all the other steps taken in connection with the issue of new policies, seem to me quite foreign to the idea of a trust. Still more alien from this idea is the payment of commission to agents or other persons introducing insurance, and when we contemplate the modern insurance company, of which we have now many examples, which has a head office located in a handsome and expensive building and officered by a highly-paid staff; also branch offices in all the important provincial towns, each with its resident secretary and clerks, and has, perhaps, in addition, several agency inspectors, whose object is to train up an army of agents to solicit insurances from the public—it is obvious we have an organisation which is wholly at variance with all ideas of a trust. The more correct view appears to be that a life insurance company is a trading partnership, of which the directors are the managing partners. In the case of a proprietary company the partners are the shareholders; but in the case of a mutual office, either the whole of the members or the participating members are the partners; and the rights of the partners and the powers of the directors are, or ought to be, strictly defined by the terms of the deed constituting the partnership. If now the manager of an insurance office takes up and acts on the idea that life insurance is a trust, it seems to me that this is likely to interfere—perhaps most seriously—with the success of his office. He will not be disposed to take the steps which experience shows to be necessary for the development of the business, and instead of sending out his emissaries in all directions to convince the public of their great need of life insurance, he will be content to sit in his arm-chair and attend to the few enlightened persons who come to him to effect insurances on their lives without the usual solicitation.