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The Pamphlet Collection of Sir Robert Stout: Volume 60

Life Insurance in New Zealand; read before the Actuarial Society of Edinburgh, on 5th March, 1885

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Life Insurance in New Zealand.

1885. Manchester: The Policy-Holder Journal Co., 8, York Street. London: Charles and Edwin Layton, Farringdon Street. Edinburgh: Macniven & Wallace, 132, Princes Street.

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Life Insurance in New Zealand.

Our President last year spoke of the desirableness of keeping the range of our subjects wide-embracing as much as possible of what is connected with insurance business or interesting to the insurance profession. It occurred to me then that some information regarding Government Life Insurance in New Zealand might be acceptable to the Society; and when I heard that our Vice-President of last year was to read a paper on Government Action in regard to Life Assurance, I thought he might take up the New Zealand Scheme. His wish was to do so, and with this view he got from me some printed matter on the subject, but eventually found that British legislation would engross so much of the time at his disposal as to prevent more than a mere allusion to it. Accordingly when I agreed, at the Secretary's request, a year ago, to read a note to-night, this was one of two or three subjects that suggested themselves as eligible.

We all know how interesting and instructive information regarding other offices frequently is, but professional etiquette rightly imposes a reserve, when the business and practices of rival Institutions are spoken of, whether these be in competition with us here, in Canada, or elsewhere. The entire absence of rivalry in Life Assurance between ourselves and our southernmost Colony, would have justified considerable latitude in speaking of its office. I thought it right, however, to mention to the officials of the Government Insurance Department my intention to make it the subject of a short paper, and I am glad to say they not only heartily acquiesced in this, but with the greatest courtesy afforded me fuller and more recent information on some points than I was previously possessed of.

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When in 1869 Sir Julius Vogel propounded his Scheme of Government Insurance, circumstances were such as to conduce to its favourable reception. There was no branch of any Life Office in the Colony, and the trouble and delay in getting a policy were in consequence very great. At that time British offices did not charge an extra for New Zealand, but they had previously done so, and in some cases had not taken it off old policies. There was only one Australian office—the Australian Mutual Provident Society,—though two others, the Mutual Life Association and the National Mutual Life Association of Australasia, were founded a few months before the New Zealand Government Department was finally established. The superior climate of the Islands was moreover a strong argument for a local office, which should not transact business in the less salubrious continent of Australia.

The New Zealand Government Insurance Department began business in March, 1870, and is therefore just 15 years old. In the second year, the amount assured was £456,000, since when the new business has been progressive; 1880 producing £725,000, and 1883 £1,040,000 in the Ordinary Branch, besides a large business in the recently established Industrial Branch. At the end of 1883 the funds were £846,000, and will now reach a million. The Government extended every facility to the Department at the start—they gave it offices without rent, and carried its letters and transmitted its telegrams free. It may be questioned how far this was just to the general body of tax-payers, and undoubtedly it would have been unfair to private offices if such had been in existence in the Colony. Very soon these concessions were withdrawn, and now the Department pays its way more like another office, though still in many respects possessing special privileges, some of which it may be well to specify.

The New Zealand Act of 1873 (summarized by Mr. Valentine in Vol. XX. of the Journal of the Institute of Actuaries) provides that every company then carrying on business, or which might thereafter be established, should make a deposit with the Public Trustee of £5,000, to be increased out of receipts up to £20,000. No part of this deposit can be withdrawn until the company has ceased to transact new business in the Colony, and page 5 thereafter only so much as will leave a remainder equal to the total sums assured (not merely to their value). Every policy not issued by the Government must be registered in the books of the Public Trustee, and a fee of 5s. paid; and every company must besides pay a license fee of £150 a year.

By arrangement with the Treasury premiums may be deducted from the salaries of Civil servants and from the wages of Railway and other Government employes, at the request of the assured—a convenience which these numerous classes largely avail themselves of.

It might have been, and was by many, thought that the imposts on private life offices would have kept the business in the hands of the Government, but this has been far from the case. The Australian Mutual Provident Society and the Mutual Life Association of Australasia took up positions in the Colony shortly after the Government began business, arid in 1880 the National Mutual followed them. Unfortunately in the accounts rendered to the New Zealand Government by the Australian Societies, there is no division of the business, so as to show how much belongs to that Colony; but from information I have obtained it appears that the business transacted by these three offices together has for years been considerably over a million—or more than that of the Government. About two years ago the Colonial Mutual of Melbourne was induced to follow its neighbours, and has already branch offices in the four principal towns of New Zealand. The United States Equitable has now also opened a branch in the Colony.

With the advantages it possesses, and being under able management, it is not surprising that the Department is able to work its business at a moderate cost. Last year its ratio of expenses to premium income was 18 per cent., which compares favourably with that of the other Australian offices, and regard being had to the age and amount of new business, with the best of our British life companies. The expenses are published more in detail than is usual, and it is instructive to note in what respects they differ from what we are accustomed to. The renewal commission in 1883 was only £1,249, while the new commission was £9,138. The medical fees were £5,067. For explanation we must look page 6 at the method of procuring new business, the manner of paying for it, and the average amount of the policies. This last has been for some time falling with the increase of the business, and was last year only £203. The ordinary medical fees are a guinea, when the amount proposed for is £200 or more, and 10s. 6d. when less.

The agencies were for some years worked by a Superintendent, who, besides having a small salary, was allowed to make such arrangements as he chose with the agents and canvassers, so long as he got the business at an average cost of 1 per cent. As a rule, he allowed 15/-per cent, to his subordinates, the result being that his own total remuneration reached in one year, according to a special return presented to the House of Representatives, the handsome sum of £2,900. This unsatisfactory plan had to be terminated, and the canvassers now work under the direct supervision of the commissioner and the actuary. The procuration fee paid by private offices to their canvassers is at the rate of from 25s. to 30s., or 35s. per cent. It is their practice to allow a higher commission on policies of £1,000 and upwards—say 25s. per cent, for ordinary, and 30s. per cent, for large assurances, the saving in medical fees being sufficient to justify the difference.

In canvassing in country districts, it is usual for an agent to drive round in a buggy, accompanied by a doctor. The farms are visited, and when a proposal is signed, the examination is held at once, and the first premium deposited with the agent. In sanctioning such expeditions, the office is of course aware that it is incurring a risk of collusion between the agent and doctor, but with proper care, this is found to be inappreciably small.

If any of the professional canvassers in New Zealand were of a literary and artistic turn, they might with pen and pencil produce a most interesting account of their journeyings in quest of proposals. Notwithstanding the sparseness of the population, few districts are left altogether unvisited, the most unlikely places being sometimes reached. A remarkable instance of push on the part of an agent occurred in 1881, when one of the travelling representatives of the Government Department asked the Government to place their own steamer the "Hinemoa," at his disposal, to visit the Chatham Islands, a small dependency of New Zealand, page 7 with which the communication was infrequent and irregular. The matter was soon arranged, and a doctor was without difficulty got to join the yacht. On arrival, the first thing was, of course, to deliver the letters and stores, and give the news. The agent then delivered a lecture which was attended by nearly the whole population, and resulted in proposals from most of the eligible men and a few others. The outcome was quite satisfactory to the agent and the doctor, and to the Department.

In the same year, the disturbances by the Maoris, under Te Whiti, resulted in some small but serious scrimmages, and at the admirable force of armed constabulary would have been quite unequal, owing to its numerical weakness, to meet the thousands who were collecting in arms at Parihaka, it was thought necessary to call out the Colonial Volunteers, and send them north. This action proved of itself sufficient to bring the wily Prophet to his senses, for without fighting he allowed himself and some of his lieutenants to be captured by the Government troops. The Colonial Treasurer had, however, taken advantage of the opportunity to push his Insurance Office, not only by sending an agent with the force into camp, where numbers of the officers and men were found anxious to have their lives covered, in view of the expected engagements with the natives, but by offering, on behalf of the Treasury, to refund the Department for any sums it might have to pay for deaths in connection with the suppression of the rebels, and thus enabling it to forego the extra charge which all the other offices were making on new policies issued to those accompanying or about to accompany the expedition.

While speaking of the Maoris, I may say that only a few of them have as yet insured their lives. Exact statistics are wanting, but their average longevity is thought to be inferior to that of Europeans. Chinese lives are not taken by any of the Australasian offices—not on account of their shorter duration, for the premiums could be adjusted to the risk—but because of the difficulty of identification. In an interesting paper read before the Insurance Institute of Victoria, on 10th September last, the author, Mr. Robertson, refers to this objection to insuring Celestials, and characterizes it as insurmountable; "for," he naively says, "in the case of a death how are you to tell whether the corpse is that of page 8 Foo Chung or Sing Kee?" It is possible, however, that if the number and wealth of the Colonial Chinese should greatly increase, some office may find a means of offering them insurance, while protecting itself against fraudulent claims.

The conditions of the Policies of the Government Department are now liberal to a degree quite unapproached in this country. All policies on which age has been admitted are from the date of issue absolutely indisputable and unchallengeable on any ground whatever, except fraud or suicide within the first year. Policy-holders may reside in any part of the world and engage in any occupation, without licence or payment of extra premium. The Greymouth coalminer or engineer and the Port Chalmers sailor are accepted at the same rate as the clergyman or squatter. The publican alone is charged an extra on admission. I may mention that an investigation, made by the Department some years ago, brought out the extra mortality among assured inn-keepers as requiring an extra premium of somewhat more than £1 per £100 assured—the excess being thus slightly greater than is shown by the experience of some of our British offices.

Any one treating of Colonial offices a year ago must have devoted considerable time to the Non-forfeiture System, universally adopted by them, under which the lapsing of a valuable policy is prevented by the automatic application of the Surrender Value (or so much of it as is required) to payment of any overdue premium; but as the subject has been so fully taken up by Mr. Sprague in his able and instructive paper published in the Journal for April last, and has been otherwise brought before many of you in Prospectuses of certain companies and in the Insurance Record, it is unnecessary for me to do so. Mr. Deuchar gives a statement of the rise and progress of the method in a letter to the Post Magazine published in its issue of 14th ult. The credit of originating the plan is shared by two Australian Actuaries, Mr. Black and Mr. Templeton, to the latter of whom belongs the greater honour of bringing it into general use. His office,—the National Mutual,—adopted it on beginning business in 1869, and with such success that one by one the neighbouring companies followed. It was not, however, until 1879 that the system was first imported into Great Britain by one of the page 9 most progressive, though then the youngest, of our Scottish offices. I have no doubt that it will come to be adopted by many of our companies, and that also in other ways the tendency will be towards following the practice of their younger but more vigorous and popularly-conducted cousins. Evidence of the greater energy (as well as of the different circumstances) of the Colonial offices is seen in the larger proportionate business done. According to a summary of the returns of Australasian Assurance for 1884, published in the Australasian Insurance Record for January, 1885, it appears that the new business was £8,331,217, of which £140,988 or 17 per cent, was transacted by proprietary offices, £7,150,314 by the Australian Mutual Societies, and £1,039,915 by the New Zealand Government Department.

The Government Department has a plan by which, in the Ordinary Branch, a policy-holder may, by giving an order once for all, on a savings or other bank, have the premiums thereafter collected without any trouble to himself, so long as there is a sufficient balance at his credit. This would provide against a policy lapsing from mere inadvertence, but, when the Nonforfeiture System is in force, its utility in this respect could only extend to such policies as have no free surrender value. It however proves advantageous otherwise—especially to such as sea-faring men, who are constantly moving about, and have much more frequently a bank account than a regular agent in the Colony. The Banks settle up monthly with the Department for such transactions. In the absence of a general arrangement, any individual policy-holder could no doubt get his banker to pay his premiums as they fall due, but, unless suggested by the Department's advertisements and agents, this would seldom occur to the men who chiefly profit by the system.

Among the applicants for insurance there must always be many persons whose lives are not insurable at the ordinary rates, which are the minimum premiums for lives in every way good as regards physique, family history, and occupation. It is, nevertheless, a fact that hardly any proposer considers his prospect of longevity as less than that of his neighbours, who were accepted as first-class lives, while nearly all object to the payment throughout life of the additional premium that may be deemed necessary on account of page 10 some slight physical defect which they might outgrow; or perhaps because their family history presents some more or less unfavourable feature, that may possibly never affect themselves. To meet such objections the New Zealand Government adopted the Contingent Debt Plan, under which an assurant, whose life is considered below the average, has the option, instead of paying an increased premium, of having an equivalent deduction from his policy made only in the event of his not attaining the expectation of life.

One peculiar feature of the business in all the Colonies is the large proportion of Endowment Assurances, these being generally nearly as numerous as Ordinary Life Policies. The cause of this is the extent to which business is pushed by canvassers, and the result is in the direction which our most active inspectors here would expect. Those of us who have had experience in agency work know that when a specially pressing canvass is made among young men, who are under no moral obligation, and had no wish to assure, a large proportion of the proposals arising from such pushing is, as a rule, on the Death or 60, or a similar scale. The large proportion of premiums payable by half-yearly and quarterly instalments—nearly equalling the yearly in number—is another result of the keener pushing for business, life insurance in the Colonies having generally reached the upper stratum of the working class, to whom yearly payments are not convenient. For various reasons more of them take out ordinary policies than is the case here, though it is impossible to enlist the large labouring population beneath them except on the Industrial or Collecting System.

The Ordinary Prospectus of the Department is much more complete than what we are accustomed to. It contains fifty-six pages, comprising twenty-three tables, and a large amount of information. The Investment Table on page 49 gives the amount payable in any number of years which can be purchased for a sum of £10, &c., altogether irrespective of the age—the premiums being returnable on withdrawal (with interest at 4 per cent, added if the policy has been five years in force). It is often said that such transactions, or Childrens' Endowments with Returnable Premiums, from which the element of life is practically eliminated, are more of the kind suited for an Investment or page 11 Building Society, or for a Savings Bank; but so long as they can be effected to mutual profit and satisfaction, it is surely right for Life Offices to take advantage of their wide ramification of agencies to offer them.

It is difficult to compare the mortality of the Colonies with that of old countries. The large influx of young and generally select lives must to a great extent account for the wonderfully low death-rate in New Zealand, but, as the same influences are at work in the other Colonies, a very fair comparison may be made with them. Mr. Meikle in a presidential address to this Society in 1875 on the "Additional Premium required for residence in Foreign Climates," gives a summary of the New Zealand Mortality for ten years from 1864, showing an average of 12-7 per 1,000 Mr. Burridge at p. 314 Vol. XXIII. of the Journal of the Institute of Actuaries, brings out the rate for nine years from 1871 as slightly less—12.3; while that of the other Australasian Colonics for the same period ranged from 15.1 to 18 per 1,000. On this account the leading Australian offices value their New Zealand even more than their Australian business, and their recent resolution to place all tropical Australia within their free limits will probably make them doubly anxious to extend their connection in the more southerly Colonies. While the death-rate of the population overhead is so much lower in New Zealand than here, the experience of the Government Department so far indicates a close approximation in the mortality among assured lives—slightly on the side of superiority—to that of the British offices.

The Temperance Section has proved highly successful, one-fifth of the total new business for 1883 belonging thereto. Deductions from facts derived from so short an experience as that of the New Zealand Department must be made with the greatest reserve, but, so far as these go, they appear to justify the desire of abstainers to have their policies kept distinct, and to confirm their expectation that their profits will thus be increased. Attached to the renewal notice is a form of declaration that the policy holder has continued to abstain from intoxicating liquors, which is signed and returned to the office with the cheque for each premium. The Section is conducted on an equitable page 12 basis, any member who ceases to be an abstainer being retained in the Temperance Section, but put on a non-profit footing.

The provisions of the Government Insurance Act 1874 about Settlement Policies, are very much like those of our Married Women's Property Act, except that £2,000 is fixed as the limit to which protection from Creditors is afforded, and that the policy must be payable at death only, with payments spread over at least seven years. It surely cannot have been intended that our Acts should give the same exemption from creditors to the shortest Endowment Assurances (for any sum) which, maturing it might be in a year or two, are only to a fractional extent life assurances,—as to ordinary policies.

The principal clauses in the Act of last year are those empowering the Department to lend on mortgages and appointing a Committee of Direction to manage the office, in place of the Colonial Treasurer, who, however, will ex officio be Chairman. Of the other ten members, the policy-holders elect three, the Government nominate the same number, and four sit ex officio—the Solicitor-General, the Auditor-General, the Secretary to the Treasury, and the Public Trustee. The permission to the Department to lend on mortgage will be highly beneficial to the policy-holders. The rate of interest realized in last quinquennium was exactly 5 per cent. In 1883 it was 5 1/3 per cent., the increase being very much due to £225,000, or more than one-fourth of the funds, having been deposited, under special arrangement, with the Bank of New Zealand at 5½ per cent. There is every reason to expect that the office will, under the new regulations, be able to place its funds on the best security at an average of 6 per cent. Its great Sydney rival obtains this, while some of its smaller neighbours make considerably more, as will be seen from the following statement of the rates of interest realized on their mean funds by the Australian offices during the year 1883-4:
Australian Mutual Provident Society 6.04
Mutual Life Association of Australasia 6.21
South Australian Mutual Life Assurance Society 6.63
Mutual Assurance Society of Victoria 6.79
Australian Widows' Fund 7.15
Australian Temperance & General Mutual Life Assurance Society 7.77
City Mutual Life Assurance Society 8.12
National Mutual Life Association (including profit on investments) 6.32
Colonial Mutual Life Association (including profit on investments) 8.52
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Our British offices are now wakening up to the splendid openings for money in New Zealand and the other Colonies. Several have recently begun to lend there—under guarantees and directly, and others will doubtless follow. It is a pity that the enactments and circumstances in New Zealand and some of the other Colonies are all but prohibitive of their doing life business there,—otherwise Branch Establishments might have been organized and profitably conducted, for the double purpose of getting business and investing funds.

Originally there was no provision for dealing with any surplus that might arise, but an act was very soon passed authorising the Governor in Council to sanction the division of profits among the policy-holders of the Department. Ten per cent, of the surplus arising from policies issued after the end of last year is to be reserved as a Guarantee Fund. Such provisions as this are always found to have little effect in practice. Offices in this country which are obliged by their constitution to reserve a half, a third, or a fourth of their surplus would otherwise have been valuing their liabilities either at a lower rate of interest or by a more stringent table. The responsibility must really rest with the Directors and Actuary, and it is unwise to ask the public to regard, as in itself a special security, a Fund, which has no significance, unless viewed in connection with the rate of interest and the principles on which the valuations are based.

The Industrial Branch has not yet been long enough in existence to have collected facts bearing on the mortality among its policy-holders, but on general grounds it is expected that its experience will be more favourable than that among the working class here. This branch was first established in 1874, but, after having been at work a very short time, was closed to new business. As wages were high, and the policies issued in the branch averaged £107, the Government thought there would be no difficulty in getting quarterly payments from labouring men, if the great comparative disadvantages of weekly premiums were placed before them. Accordingly, in 1876, after consulting the Actuaries of the Department, the Colonial Treasurer decided to give up the collecting system, and at the same time took every means to urge working men page 14 to assure for sums of £50 and upwards on a quarterly premium scale. But the result did not meet expectation, for the labouring class, though quite willing to pay one or two shillings to the collector on his weekly rounds, could not be got in any numbers to take sums of 5s. or 10s. a quarter to the nearest post office.

In 1882 the question of re establishing the branch came before Parliament. The reports of the Actuary to the Colonial Registry of Friendly Societies showed year after year that a majority of these were in an unsound condition—as, you are aware, is the case in this country. The position and duty of the Government were, however, very different there from what they are here; for the local legislature had by its own action thitherto prevented the establishment in the Colony of any life company, and there appeared no likelihood of a well-organised office being started which would furnish insurance to the labouring classes. That they would appreciate a well-conducted institution of the kind was manifest from the marvellous success which the Prudential Company had achieved at home among the same section of the population.

Some members of Parliament maintained that, having appointed an actuary and public valuers to tell the societies whether they were in a sound condition or not, the Government had discharged their duty; but the majority held that, after having rightly shaken public confidence in most of the friendly societies, and as there were large districts not reached by any sound one, it was incumbent on them to provide some substitute for the former, which would not only offer absolute security, but, like them, would bring its benefits to the working man's door. If ever there were ground for a Government competing with private societies, it appeared to be then. While disclaiming, therefore, any wish to run sound Friendly Societies out of the field, the Government resolved to open an Industrial Branch, based on the principles which had proved so entirely successful in the case of the great English Industrial Company, and though only two years have elapsed, the future prosperity of the scheme is already beyond question. The Friendly Societies will still have to themselves the field of Sickness Assurance—one which can be properly worked page 15 only by small mutual societies, or independent lodges, in which the members know each other personally, and each acts as a check on malingering.

As I have mentioned no other, many of you may have supposed that the Department is the only New Zealand office—and this was the case until last November, when a Life Society was organized in connection with the Equitable Insurance Association of New Zealand, a Fire and Marine Insurance Company. I am told the Life office is to be purely mutual, but it will co-operate with the older Company by using and sharing the cost of its branches and inspecting establishment.

The success of Government Insurance in New Zealand led the late Premier, Major Atkinson, to take up a scheme for Compulsory National Life Insurance on somewhat similar lines to those proposed by the Rev. Mr. Blackley in England, but with greater benefits and far higher contributions. The House and the Colony were much interested in the speech of the Premier, introducing the scheme to their notice,—but there does not appear to be much prospect of its adoption at present. If a trial is to be made anywhere, New Zealand is probably the country in which the difficulties would be least. Its isolation, the high wages ruling, the smallness of the population, and its rapid rate of increase, conduce to render it a favourable sphere for the experiment—(the first three facilitating the introduction and working, and the last affording assurance that the people involved will shortly be numerous enough to make the result of the experiment valuable)—which would be altogether out of the question in this country. In one respect only is Germany more suitable, namely in being ruled more autocratically—for it is obvious that only a very strong Government could introduce a measure so revolutionary in a social aspect.

Our British Government Insurance Scheme has been attended with so little success that we are too apt to despise and disregard it, and thus to afford it opportunities of making quiet efforts forward every now and then. Any further attempts at competition, in the way of increasing the limit of policies or otherwise, should be resisted. The payment of an adequate commission would undoubtedly bring a considerable business to the Post Office, and page 16 would be a distinct interference with private interests. It is true that it could not, while its funds are invested in Consols, offer the same advantages as a private company, but Government encroachments are, as a rule, gradual, and if an ambitious Post-master-General desired to push the business, he might ask that he should, like the New Zealand Government Department, have power to lend on mortgages and other securities. The only possible fear of anything like this being sanctioned by Parliament lies in the easiness and unsuspiciousness of our national character—attention being sometimes not drawn to pernicious proposals until too late.

But, though I think we should carefully examine the provisions of any Bill relating to Post Office insurances, I am far from being an alarmist in the matter. If the Post Office were to enter into real competition with Life Offices, the latter would undoubtedly suffer to some extent, but the former could never secure the bulk of the business. Many men of great sagacity and business experience are prone to over-estimate the power of a Government in this respect. Thus Dr. Smith, President of the Australian Mutual Provident Society, at one of its annual meetings shortly after the establishment of the New Zealand Department, spoke of the Colony as closed to them, "for," he added, "a Government Scheme which has the revenues of the country to fall back upon for security must extinguish all others." To show how this prediction has been falisfied, it is unnecessary to do more than adduce the fact that his own Society now transact a business in New Zealand half as great as that of the Government Department.

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