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The Pamphlet Collection of Sir Robert Stout: Volume 54

America and Tontine Policies

America and Tontine Policies.

America, which has already furnished us with an instance of a policy in which the indemnity idea has been carried to an extreme, furnishes us also with examples of the investment idea being carried to an extreme, namely, in the Tontine policies of which we have heard so much during recent years. I am inclined to think that this subject has called forth some unnecessary warmth of feeling.

The Tontine principle, as a matter of fact, enters largely into the ordinary arrangements of most British life offices; for example, when it is provided by the regulations of an office that a policy-holder shall not be entitled to a surrender value until he has paid three years' premiums, and shall not be entitled to the benefit of a bonus until his policy has been five years in force. It would, I think, be inconsistent for offices which have regulations of this kind to make objections to the Tontine principle. When that principle is carried so far that Tontine policyholders shall receive neither bonus nor surrender value until after their policies have attained a certain age, say fifteen or twenty years, it seems to me that this is simply carrying to an extreme the investment element of life assurance. The persons who take out policies of this kind are those who have a firm belief in their own ability to continue paying the premiums for the stipulated term, and they enter into a contract of the kind because they hope to secure a certain provision for their family if they should die within the term, and a good investment for themselves if they should survive it. Looking at the matter commercially, it seems to me that companies which make the grant of Tontine policies a special feature, need not be regarded as dangerous competitors by offices transacting ordinary life insurance; for I think it probable that persons are led to effect Tontine policies who would be unlikely to effect policies of the ordinary kind. In a word, I am inclined to think that the result of the competition of the American offices in this country has been to increase the total amount of life insurances effected, that they have, to a great extent, created the business which they transact, so that, for the most part, the insurances which they issue would not have been effected with other companies, and that their effect in withdrawing custom from the British offices has been comparatively small. I believe that competition is a good thing for all parties; that the more life offices there are working in the field the larger will be the total amount of life insurance policies effected, more especially if the offices do not all proceed upon the same plans, but have some material differences in their principles and practice. Hence I page 9 am not only content to see the American offices at work among us with every prospect of remaining here permanently, but I should welcome some of the large Australian offices if they saw their way to open agencies in this country for the transaction of ordinary life insurance business.

The intercourse between Great Britain and its colonies is every year growing more frequent and intimate. In one respect the British offices may be said to be encroaching on the territory of the Australian offices, for they are learning how to invest their money in the colonies, and this business seems likely to attain large dimensions if it is not driven away by unwise legislation on the part of the colonies. I find from White's Insurance Register for 1885 that the mortgages on property out of the United Kingdom, most of these being probably on colonial securities, increased from £1,225,000 in 1881 to £1,578,000 in 1884, and quite recently it has been announced that one of our largest offices is sending out an experienced official to Australia to represent them here in the matter of investments, presumably with instructions to invest some of their millions upon good Australian securities. The foregoing remarks indicate various ways in which ideas as to our business, based on an erroneous theory, may mislead us in practice, and they may serve to suggest that we should be slow to accept and act upon the conclusions of theory unless they are confirmed by what may be called either educated common sense or the teachings of experience. In order to guide ourselves aright we must, I think, remember that although our business is built on a scientific basis, yet the institutions we advise, and in whose welfare we are interested,