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Full text of "Investigation of concentration of economic power. Hearings before the Temporary National Economic Committee, Congress of the United States, Seventy-fifth Congress, third Session [-Seventy-sixth Congress, third Session] pursuant to Public Resolution no. 113 (Seventy-fifth Congress) authorizing and directing a select committee to make a full and complete study and investigation with respect to the concentration of economic power in, and financial control over, production of goods and services .."

Northeastern University 




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School of Law 
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INVESTIGATION OF CONCENTRATION 
OF ECONOMIC POWER 



HEARINGS 

BEFORE THE 

TEMPOEAfiY NATIONAL ECONOMIC COMMITTEE 
CONGEESS OF THE UNITED STATES 

SEVENTY-SIXTH CONGRESS 

FIRST SESSION 
PURSUANT TO 

Public Resolution No, 113 
(Seventy-fifth Congress) 

AUTHORIZING AND DIRECTING A SELECT COMMITTEE TO 
MAKE A FULL AND COMPLETE STUDY AND INVESTIGA- 
TION WITH RESPECT TO THE CONCENTRATION OF 
ECONOMIC POWER IN, AND FINANCIAL CONTROL 
OVER, PRODUCTION AND DISTRIBUTION 
OF GOODS AND SERVICES 



PART 10 - 10 A 
LIFE INSURANCE 



INTERCOMPANY AGREEMENTS 

TERMINATIONS 

SAVINGS BANK INSURANCE 

LEGISLATIVE ACTIVITIES 



June 6, 7, 12, 13, 14, 15, 16, 20, and 21, 1939 



Printed for the use of the Temporary Maiional Economic Committee 

^-Ol^THEASTERN UNIVERSITY SCHOOtof DWEIBWRR^ 



UNITED STATES 

GOVERNMENT PRINTING OFFICE 

WASHINGTON : 1940 



TEMPORARY NATIONAL ECONOMIC COMMITTEE 

(Created pursuant to Public Res. 113, 75tli Cong.) 

JOSEPH C. O'MAHONEY, Senator from Wyoming, Chairman 

HATTON W. SUMNERS, Representative from Texas, Vice Chairman 

WILLIAM E. BORAH, Senator from Idaho 

WILLIAM H. KING, Senator from Utah 

B. CARROLL REECE, Representative from Tennessee 

CLYDE WILLIAMS, Representative from Missouri 

THURMAN W. ARNOLD, Assistant Attorney General 

•WENDELL BBRGE, Special Assistant to the Attorney General 

Representing the Department of Justice 

JEROME N. FRANK, Chairman 

♦LEON HENDERSON, Commissioner 

Representing the Securities and Exchange Commission 

GARLAND S. FERGUSON, Commissioner 

*EWIN L. DAVIS, Commissioner, Representing the Federal Trade Commission 

ISADOR LUBIN, Commissioner of Labor Statistics 

♦A. FORD HINRICHS, Chief Economist, Bureau of Labor Statistics 

Representing the Department of Labor 

JOSEPH J. O'CONNELL, Jr., Special Assistant to the General Counsel 

♦CHRISTIAN JOY PEOPLES, Director of Procurement 

Representing the Department of the Treasury 

RICHARD C. PATTERSON, JR., Assistant Secretary 

Representing the Department of Commerce 

JAMES R. BRACKETT, Executive Secretary 

♦Alternates. 



i\ ^i 



REPRINTED 
BY 

WILLIAM S HEIN & CO , INC 

BUFFALO, N Y. 
1968 



CONTENTS 



Testimony of— '^ag* 

Bassford, H. R., actuary, Metropolitan Life Insurance Co., New York 

City - 4541-4567 

Beers, H. S., vice president, Aetna Life Insurance Co., Hartford, 

Conn .. -- — 4243-4258 

Bolt, Dr. William, medical director, New York Life Insurance Co., 

New York City ---^, 4633-4642 

Cammack, E. E., vice president and actuary, Aetna Life Insurance 

Co., Hartford, Conn. - 4182-4222 

Cathles, Lawrence M., president, North American Reassurance Co., 

New York City : . 4668-4684 

Clark, Gilbert A., actuary. Equitable Life Insurance Co., Washington, 

D. C -......-.-. 4313-4317 

Cooney, Robert L., inspector of agencies, New York Life Insurance 

Co., Atlanta, Ga 4396-4418 

Davenport, Dr. Donald H., special economic consultant, insurance 
section, Securities and Exchange Commission, Washington, 
D. C - ^.4282-4312,4684-4686 

Dewey, Judd, deputy coipmissioner of Savings Bank Life Insurance in 
the State of Massachusetts, Boston,iMass 4450-4500 

Flynn, Benedict D., vice president and actuary. Travelers Insurance 

Co., Hartford, Conn-__--._fe4154-4182, 4224-4240, 4258-4266, 4275-4278 

Hogg, Robert L., assistant general counsel, Association of Life Insur- 
ance Presidents, New York City 4375-4396, 4428-4443 

Holcombe, John Marshall, Jr., director, Life Insurance Sales Research 

Bureau, Hartford,! Conn 4317-4338 

Howell, Valentine, vice president and actuary, Prudential Insurance 

Co., of America,^ Newark,^ N.J . * 4266-4275, 4619-4626 

Hunter, Dr. Arthur, chief actuary and vice president New York Life 

Insurance Co., New York City 4505-4541, 4570-4576, 4583-4584 

Hutcheson, William Anderson, actuary. Mutual Life Insurance Com- 
pany, New York City 4626-4632 

Jones, Frank L., vice president. Equitable Life Assurance Society of 

the United States, New York City 4648-4668 

Laird, John M., vice president, Connecticut General Life Insurance 

Co., Hartford, Conn 4240-4243 

Marshall, Edward J Wayne, vice president and actuary. Provident 

Mutual Life Insurance Co., Philadelphia, Pa 4585-4596, 4603-4619 

Montgomery, William, president Acacia Mutual Life Insurance Co., 

Washington, D. C 4339-4343 

Murphy, Ray D., vice president and actuary. Equitable Life Assur- 
ance Society of the United States.iNew^York City i 4576-4588, 

4597-4603,4642-4648 

Plantz, C. B., assistant vice president. New York Savings Bank, New 

York City 4500-4504 

Reilly, Joseph A., insurance section, Securities and Exchange Com- 
mission, Washington, D. C , 4447 

Whitsitt, VincentiP., manager and general counsel. The Association 

of Life Insurance Presidents, New York City 4345-4373, 

4389,4394-4396,4418-4446 
Intercompany agreements 4153 

The Group Association 4154 

Nonparticipating rates 4224 

Annuities ■■ 4505 

Settlement options 4569 

Surrender values and surrender charges . 46U 

Medical information bureau 4633 

"Jumbo risks" 4642 

Replacement agreement : 4648 

Reinsurance 4^68 



IV CONTENTS 

Page 

Terminations of life insurance — ordinary and industrial 4281, 4287, 4684 

Theory of life insurance 4283 

Lobbying and legislative activities — Association, of Life Insurance Presi- 
dents 4345 

Savings bank life insurance — opposition of insurance interests 4419 

Savings bank life insurance — description 4449 

Schedule and summary of exhibits i 

Tuesday, June 6, 1939 4153 

Wednesday, June 7, 1939 4223 

Monday, June 12, 1939 -4281 

Tuesday, June 13, 1939 4345 

Wednesday, June 14, 1939 4375 

Thursday, June 15, 1939 4449 

Friday, June 16, 1939 4505 

Tuesday, June 20, 1939 4569 

Wednesday, June 21, 1939 4633 

Appendix 4687 

Supplemental data 4927 

Index I 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



641. Table: Group life insurance, United States companies (1919- 

37) 

642. Letter, dated Nov. 26, 1917, from E. B. Morris, actuary. 

Travelers Insurance Co., to J. D. Craig, assistant actuary, 
Metropolitan Life Insurance Co., stating lack of uniform- 
it}' among companies writing group insurance a drawback 

643. Memorandum; dated Apr. 12, 1919, from the actuary of the 

life department of the Travelers Insurance Co., to the 
president and vice president of Travelers Insurance Co., 
summarizing action taken at meeting of committee of 
actuaries in New York concerning group insurance 

644. Memorandum, dated May 9, 1932, from B. D. Flynn, secre- 

tary, Travelers Insurance Co., to BroSmith, vice presi- 
dent and general counsel. Travelers Insurance Co., asking 
whether companies writing group insurance are violating 
antitrust lav/s; and memorandum of BroSmith in reply, 
dated May 11, 1922 

645. Memorandum, dated Mar. 28, 1925, from B. D. Flynn, sec- 

retary of Travelers Insurance Co., to vice president and 
general counsel BroSmith, Travelers Insurance Co., con- 
cerning statement of representatives of Metropolitan Life 
Insurance Co. with regard to violation of certain laws by 
companies writing group insurance; and memorandum in 
reply, dated Mar. 30, 1925 .'- 

646. Excerpts from statutes of Arizona, Georgia, Kansas, Ne- 

braska, Oregon, South Carolina, Texas, and Washington, 
' defining trusts and specifying antitrust violations in con- 
nection with activities of life insurance companies 

647. JMemorandum, dated Mar. 26, 1924, from B. D. Flynn, sec- 

retary. Travelers Insurance Co., to President Butler, 
Travelers Insurance Co., referring to minutes of last inter- 
company group meeting 

648. Letter, dated Feb. 24, 1926, from Alfred Hurrell, vice presi- 

dent and general counsel. Prudential Insurance Co. of 
America, to William BroSmith, Esq., vice president and 
general counsel, Travelers Insurance Co., stating attitude 
on proposed constituticn for Group Life Association 

649. Letter, dated Mar. 12. 1926, from B. D. Flynn, secretary, 

Travi ^Ts Insurance Co., to H. S. Beers, associate actuary, 
Aetna Life Insurance Co., stating attitude of BroSmith 
concerning rules of Group Association 

650. Art. 2, see. lOl-A, New York Insurance Law, subsec. 3, estab- 

Iis?liing uniform initial rate to be charged by domestic life 
insurance CGmrjanies issuing group life insurance policies. 

651. Constitution of Group Association as amended February 1929 

652. Table: Officers el'-clcd an annual meeting of Group Associa- 

tion, March 1926 to November 1938 

653. Table: List of standing committees of Group Association 

654. Table: Members of Group Association, 1926-28 

655. Table: The Group Association, attendance at meetings 

656. Tabic: Group life insurance in the United States comparing 

number of companies and insurance in force of Group- 
Association with total number of companies and total 
amount of group insurance in force . 



Intro- 
duced 
at page 



Appears 
on page 



4156 



4163 



4165 



4168 



4170 



4171 



4175 



4177 



4177 



4179 
4180 

4185 
4185 
4185 
4186 



4687 



4687 



4688 



4689 



4690 



4692 



4701 



4702 



4703 



4703 
4703 

4705 
4706 
4707 
4708 



4186 4710 



VI 



SCHEDULK OF EXHIBITS 



Number and summary of oxhibits 



657. 



658. 
659. 

660. 
661. 



662. 



663. 



664. 



665. 



666. 



667. 



608. 



0G9. 



B70. 



071, 



Ruling!? of New York superintendent of insurance on group 
life insurance prepared to show relation between date 
of promulgation and dates rulings discussed or approved 
by association and/or recommended to superintendent 

Underwriting rules of the Group Life Association 

Table: -Total group annuity business in force end of year 
1935-38..-. 

Appears in Hearings, part VIII, appendix, p. 3487 

Table: Stockholders dividends; Aetna Life Insurance Co., 
^Connecticut General Life Insurance Co. and Travelers 
Insurance Co., 1929-38 

Table: Exhibit of changes in surplus, ordinary nonpartici- 

ipating business; Aetna Life Insurance Co., Connecticut 

General Life Insurance Co., and Travelers Insurance Co., 

1929-38 - 

Memorandum, dated June 22, 1932, from B. D. Glynn, vice 
president and actuary, Travelers Insurance Co., to Presi- 
dent Zachcr, Vice President Howard and Actuary Ham- 
mond, of Travelers Insurance Co., concerning new rates for 
life-insurance policies and possibilities of conference 
between Hartford nonparticipating companies 

Memorandum, dktcd June 25, 1932, from H. Pierson Ham- 
mond, actuary, Travelers Insurance Co., to President 
Zacher, Vice President Howard, and Vice President and 
Actuary Flynn, Travelers Insurance Co., concerning new 
rates on life insurance policies 

Letter, dated June 28, 1932, from B. D. Flynn, vice president 
and actuary, Travelers Insurance Co., to L. E. Zacher, 
president, Travelers Insurance Co., reporting tenative de- 

■ cisions reached concerning nonparticipating rates for life 
insurance policies among three Hartford companies 

Memorandum, dated Oct. 20, 1932, from B. D. Flynn, vice 
president and actuary, Travelers Insurance Co., to Actu- 
ary Hammond and Assistant Actuary Hoskins, of Tl^avelers 
Insurance Co., concerning modified life pohcy form sold 
by the Aenta Life Insurance Co 

Memorandum, dated Nov. 17. 1932, from M. B. Brainard, 
president, Aetna Life Insurance Co., to H. S. Beers, asso- 
ciate' actuary, Aetna Life Insurance Co., referring to con- 

. versation with Mr. Huntington and Mr. Zacher on Aetna's 
modified life policy form and memorandum dated Nov. 16, 
1932, of E. C. Henderson, actuary, to Mr. Huntington re 
continuation of present rates on Aenta's modified life 
policj' -- 

Memorandum, dated Dec. 6, 1932, from H. S. Beers, associate 
actuary, Aetna Life Insurance Co., to M. B. Brainard, 
Aetna Life Insurance Co., president, re modified life pre- 
mium rates referring to meeting with representatives of 
Connecticut General aad Travelers Life Insurance Cos 

Memorandum, dated Nov. 16, 1932 of H. Pierson Hammond, 
Travelers Insurance Co., concerning conversation with 
J. M. Laird, vice president and actuary, of Connecticut 
General oii subject to Aetna's modified life policy form. 

Memorandum, dated Dec. 28, 1933, from B. D. Flynn, v»ce 
president and actuary, Travelers Insurance Co., to Presi- 
dent Zacher, Travelers Insurance Co., concerning proposed 
new program of life rates a^.d va,lues 

Memorandum, dated Feb. 15, 1934, from B. D. Flynn, vice 
president and actuary. Travelers Insurance Co., to Presi- 
dent Zacher, Travelers Insurance Co., with further refer- 
ence to proposed new program of life rates and values and 
referring to meetingt; of oi^;^^als of three Hartford non- 
participating companies held at the offices of the Aetna 
Life Insurance Co ,- 



Intro- 
duced 
at page 



Appears 
on page 



4191 
4204 

4206 
4223 



4225 



4226 



4229 



4231 



4233 



4240 



4710 
4711 

4716 



4717 



4717 



4717 



4718 



4718 



4719 



4243 



4245 



4259 



4260 



4262 



4720 



4721 



4722 



4722 



472'3 



SCHEDULE OF EXHIBITS 



VII 



Number and summary of exhibits 



672. Memorandum, dated Feb. 15, 1934, from B. D. Flynn, vice 

prcsiilent and actuary. Travelers Insurance Co., to Presi- 
dent Zacher, 'JVavelers Insurance Co., with reference to 
proposed new program of life rates and values and recording 
further discussions between representatives of three Hart- 
ford companies 

673. Memorandum, dated Mar. 6, 1934, of James F. Little, vice 

president and actuary. Prudential Insurance Co. of 
America, concerning future interest rates and discussing 
proposal of nonparticipating companies to raise rates on 
life policies and possibility of additional conferences with 
other companies to synchronize changes in rates 

674. Memorandum, dated June 12, 1934, of Valentine Howell, 

associate actuary, Prudential Insurance Co. of America, 
concerning. ordinary premium rates and suggesting sched- 
ule of rate increases determined following conferences with 
actuaries of Metropolitan and Provident Mutual Life 
Insurance Cos 

675. Memorandum, dated Mar. 17, 1934, of B. D. Flynn, vice 

president and actuary, Travelers Insurance Co., to Presi- 
dent Zacher and Vice President Howard, Travelers In- 
surance Co., concerning conferences with Metropolitan, 
Prudential, and Provident Mutual Life Insurance Cos. 
representatives on proposed new^ program of life rates and 
values 

676. Memorandum, dated Aug. 1, 1936, of H. Pierson Hammond, 

Travelers Insurance Co., referring to conferences between 
representatives of the Aetna, Connecticut General, and 
Travelers Insurance Cqs. on subject of 1937 policy rate 
revisions 1 

677. Table: Comparative gross aggregate premium costs, cash 

values, net aggregate premium costs, over 10-year period, 
under nonparticipating policies of Aetna Life, Connecticut 
General and Travelers Insurance Cos 

678. Appears in Hearings, Part VI, appendix, p. 2748 

679. Table: Statement showing the volume of the ordinary busi- 

ness of Aetna Life, Connecticut General, and Travelers 
Insurance Cos 

680. Table: Life insurance; total in force, new business and 

terminations United States legal reserve life insurance 
companies, 1928-37. 

681. American Experience Table of Mortality 

682. Chart: Whole life policy ($1,000) age 35. Supported by 

statistical data on page 4734 in appendix 

683. Chart: Terminations of hfe insurance, 1922-37. Supported 

by statistical data entitled terminations — ordinary life 
insurance — amounts, 1922-37; and terminations — in- 
dustrial life insurance— amounts, 1922-37 on pp. 4735 
and 4736 in appendix 

684. Chart: Life insurance in force newly issued and terminated. 

Supported by statistical data on p. 4737 in appendix 

685. Chart: Industrial life insurance in force newly issued and 

terminated, number of policies. Supported by statistical 
data on p. 4738 in appendix 

686. Table: Industrial insurance — termination experience of 7 

companies, 1924-28, 1929-33, 1934-33 

687. Table: Net gains or losses from surrendered and lapsed 
Si policies — ordinary and industrial 

688. Table: Equitable Life Insurance Co., Washington, D. C— 

terminations, January through March 1939 — industrial 
insurance 

689. Tables: (1) Lapse rates for years 1925-28; (2) lapse rates for 

years 1929-38; (3) lapse trends for 20 "A" companies 




4262 



4275 



4275 



4275 



4277 



4278 
4279 



4281 



4282 
4283 

4286 



4293 
4300 

4304 
4308 
4312 

4317 
4322 



Appears 
on page 



4724 



4725 



4727 



4728 



4729 



4732 



4732 



4733 
4733 

4286-a 



4293-a 
4300 

4305 
4739 
4740 

4740 
4741 



VIII 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



690. Minutes of first meeting of the Association of Life Insurance 

Presidents of the United States (Dec. 21, 1906) 

691. Table: Initiation fees, dues, and contributions of members of 

the Association of Life Insurance Presidents 

692. Constitution of Association of Life Insurance Presidents 

693. Table: Litigation fees and expenses, 1934 through 1938, in- 

curred. Association of Life Insurance Presidents 

694. Table: Total fees, compensation and expenses in connection 

with the legislation and appearances before departments 
of Government by States, 1934 through 1938, of the Asso- 
ciation of Life Insurance Presidents ^ 

695. Letter dated July 12, 1937, from Vincent P. Whitsitt, mana- 

ger and general counsel, Association of Life Insurance 
Presidents, to Leroy A. Lincoln, president. Metropolitan 
Life Insurance Co., marked "confidential" concerning 
"1937 legislative high points" 

696. Form letter, dated July 5, 1935, from Vincent P. Whitsitt, 

manager and general counsel, Association of Life Insur- 
ance Presidents, concerning "1935 legislative high points' 

697. Form letter, dated Apr. 8, 1937, from Vincent P. Whitsitt, 

manager and general counsel. Association -of Life Insur- 
ance Presidents, to certain indicated member companies 
of Association of Life Insurance Presidents, re: California 
Senate bill 460, segregation of assets 

698. Memorandum, dated June 13, 1935, of R. L. Hogg, assistant 

general counsel, Association of Life Insurance Presidents, 
with reference to Florida legislative activity, 1935 

699. Letter, dated May 5, 1935, from Robert L. Hogg, assistant 

general counsel, Association of Life Insurance Presidents, 
to Frank P. Deering, president, Florida Association of Life 
Underwriters, regarding legislative activity in connection 
with proposed Florida legislation to increase premium taxes. 

700. Telegram (date illegible) from F. P. Deering, president, Flor- 

ida Association of Life Underwriters, to R. L. Hogg, Asso- 
ciation of Life Insurance Presidents, reporting agents im- 
mediately soliciting 10 letters each from policyholders for 
transmittal to members of Florida House of Representa- 
tives__j, 

701. Letter, dated May 8, 1935, from F. P. Deering, president, 

Florida Association of Life Underwriters, to Robert L. 
Hogg, assistant general counsel. Association of Life Insur- 
ance Presidents; -letter dated June 10, 1935, from F. P. 
Deering to R. L. Hogg; letter dated June 17, 1935, initialed 
F. P. D. to R. L. Hogg; and letter dated July 1, 1935, of 
C. F. Creswell, statistician. Association of Lifip Insurance 
Presidents, to Frank P. Deering, all with reference to 
payment of certain expenses incurred by Association of 
Life Insurance Presidents in connection with the Florida 
Association of Life Underwriters' activity in soliciting 
letters from policyholders for transmittal to members of 
Florida House of Representatives 

702. Bulletin, dated June 6, 1935, of Association of Life Insurance 

Presidents, reporting on legislative results in connection 
with the regular session of the Florida Legislature ad- 
journed June 2, 1935 

703. Letter, dated Feb. 25, 1938, from R. L. Coon^y and others to 

Robert L. Hogg, special counsel. Association of Life Insur- 
ance Presidents, stating method of operation of agents' 
comm'+'^ee handling legislative matters in Georgia and 
acknowledging letter, dated Feb. 27, 1937, from Robert 
L. Hogg, special counsel, to Robert L. Cooney, inspector of 
agencies, New York Life Insurance Co., Atlanta, Ga 



4346 

4349 
4349 

4355 



4357 

4360 
4361 

4368 
4377 

4385 
4386 



4744 

4746 
4748 

4750 



4752 

4754 
4755 

4756 
4757 

4761 
4762 



4387 



4390 



, 4400 



4762 



4764 



4767 



SCHEDULE OF EXHIBITS 



IX 



Number and summary of exhibits 



Intro's" 
duced 
at page 



Appears 
on page 



704. Letter, dated Mar. 22, 1933, from R. L. Cooney and S. M. 

Carson to Cuaries F. Creswell, statistician, Association of 
Life Insurance Presidents, reporting on legislative activi- 
ties in connection with the adjournment of Georgia 
Legislature 

705. Letter, dated Mar. 1, 1938, from R. L. Cooney, inspector of 

agencies. New York Life Insurance Co., to W. H. Pierson, 
vice president, New York Life Insurance Co., concerning 
legislative activities 

706. Letter, dated Nov. 21, 1938, from R. L. Cooney, inspector 

of agencies, New York Life Insurance Co., to Charles F. 
Creswell, statistician. Association of Life Insurance Presi- 
dents, concerning legislative activities and desirability of 
determining nature of talk that goes on before a bill is 
introduced 

707. Letter, dated Mar. 3, 1937, from R. L. Cooney, inspector of 

agencies. New York Life Insurance Co., to R. L. Hogg, 
assistant general counsel, Association of Life Insurance 
Presidents, concerning legislative activities in Georgia and 
stating Cooney is a "marked man" 

708. Letter, dated Feb. -26, from R. L. Cooney, inspector of 

agencies, New York Life Insurance Co., to Atlanta 
NYLICS urging agents of New York Life Insurance Co. 
to see their Representatives or Senators and urging against 
increase of premium taxation in Georgia 

709. Letter, dated July 5, 1934, from R. L. Cooney, inspector of 

agencies. New York Life Insurance Co., to W. H. Pierson, 
vice president, New York Life Insurance Co., concerning 
luncheon meeting with 20 policyholders at Rome, Ga 

710. Letter, dated Feb. 12, 1937, from H. L. Cooney, inspector of 

agencies, New York Life Insurance Co., to Robert L. 
Hogg, assistant general counsel, Association of Life 
Insurance Presidents, referring to fact that "we have 
stirred up activities over all the State" 

711. Letter, dated Mar. 5, 1934, from R. L. Cooney, to W. H. 

Pierson, second vice president, New York Life Insurance 
Co., with reference to the Lannie Thomson case 

712. I^etter, dated Feb. 8, 1933, from R. L. Cooney, inspector 

of agencies. New York Life Insurance Co., to Charles F. 
Creswell, statistician. Association of Life Insurance Presi- 
dents, discussing how senate bill No. 21 was killed, and 
enclosed telegram from First National Bank, Valdosta, Ga., 
to Hon. H. W. Nelson, senate chamber, Atlanta, Ga., 
dated Feb. 7, 1933. Also letter, dated Feb. 10, 1933, from 
Charles F. Creswell, statistician. Association of Life Insur- 
ance Presidents to Robert L. Cooney, acknowledging letter 
of Feb. 8, 1933 .:.°_ 

713. Letter, dated Dec. 1, 1934, signed Louis A. Irons, deputy 

insurance oommissianer, to Robert L. Cooney, New York 
Life Insurance Co., concerning p.ayment of occupation tax 
for chairman of insurance committee of the Georgia House 
of Representatives 

714. Letter, dated Feb. 12. 1937, signed Robert L. Cooney, 

mspector of agencies, New York Life Insurance Co., to 
Robert L. Hogg, assistant general counsel. Association of 
Life Insurance Presidents, concerning certain Georgia 
legislation and letter from R. L. Cooney, to Robert L. 
Hogg, dated Mar. 4, 1937, advising that legislation had 
been killed after "salty interview" 

715. Bulletin of Association of Life Insurance Presidents, dated 

Apr. 8, 1935, concerning legislative results in State of 
Georgia for session of legislature adjobrned Mar. 23, 1935- 



4402 
4403 

4404 

4406 

4406 
4407 

4410 
4411 



4768 
4770 

4771 

4772 

4772 
4773 

4773 

4774 



4414 
4410 

4416 
4418. 



4775 
4776 

4776 
4777 



X 



SCHEDULE OF EXHIBITS 



Number and summary of exhibits 



716. 
717. 

718. 
719. 
720. 



721. 



722. 
723. 



724. 
725. 



7.'>G. 



727. 



'28. 



729. 



Bulletin of Assocmtion of Life Insurance Presid^ts, dated 
Apr. 2, 1935, concerning legislative results in State of 
Georgia for session of legislature adjourned Mar. 25, 1937 

Bulletin of Association of Life Insurance Presidents, dated 
Feb. 19, 1938, concerning .legislative results in State of 
of Georgia for session of legislature adjourned Feb. 13, 
1938 

Letter, dated June 10, 1935, from Charles F. Creswell, 
statistician, Association of Life Insurance Presidents, to 
William H. Kingsley, vice president, Penn Mutual Life 
Insurance Co., concerning savings bank life insurance 
legislation 

Telegram, dated Feb. 24, 1937, from B. E. Shepherd, Asso- 
ciation of Life Insurance Presidents, to James C. Jones, 
of Jones, Hacker, Gladney and Grand, attorneys-at-Law, 
of St. Louis, Mo., concerning development of opposition 
to saving? bank life insurance legislation in Missouri 

Letter, dated Feb. 25, 1937, from James C. Jones, of Jones, 
Hacker, Gladney and Grand, attorneys-at-law, St. Louis, 
Mo., to Association of Life Insurance Presidents, and 
telegram, dated Feb. 26, 1937, from B. E. Shepherd, 
Association of Life Insurance Presidents, to James C. 
Jones; and letter, dated Feb. 25, 1937, from James C. 
Jones to Association of Life Insurance Presidents, all in 
regard to Missouri savings bank life insurance legislation. 

Letter, dated Mar. 17, 1937, from James C. Jones, of Jones, 
Hacker, Gladney and Grand, attorneys-at-law, St. Louis, 
Mo., to the Association of Life Insurance Presidents, re- 
ferring to discussion of savings banks life insurance legis- 
lation with 40 insurance agents and enclosed document 
prepared for use of agents in opposition to savings bank 
life insurance entitled "Arguments for Industrial Agents" 

Pamphlet entitled "The Savings Bank in Life Insurance" by 
Floyd BeGfoat, Boston 

Letter, dated Mar. 29, 1937, from Vincent P. Whitsitt, man- 
ager and general counsel, Association of Life Insurance 
Presidents, to Guy A. Smith, president, Wilkes-Barre As- 
sociation of Life Insurance Presidents, referring to savings 
bank life insurance legislation in Penusvlvania and letter 
from Guy A. Smith to Vincent P. Whitsitt, dated May 3, 
1937, indicating the character of legislative activity against 
such legislation 

Excerpt from Armstrong report entitled "Lobbying" 

letter, dated Mar. 22, 1935, from Clinton C. White, secre- 
tary, PuritPvn Life Insurance Co., of Pthode Island, to As- 
sociation of Life Insurance l'"csidonts, eojicerning savings 
bank life insurance legislation in Rhode Island 

letxer, dated Apr. 10, 1937, from Clinton C. White, secre- 
tary, Puritan Life Lisurance Co. of Rhode Island, to the 
Association of Life Insurance Presidents, with further ref- 
erence to savings bank life insurance legislation 

Letter, dated May 7, 1937, from Clinton C. White, secretary, 
Puritan Life Insurance Co. of Rhode Island, stating "I am 
particularly pleased that we were able to defeat the savings 
bank life insurance bill" . 

Report by M. Joseph Cummings, chief of Division of Bank- 
ing and Insurance of the State of Rhode Island on savings 
bank life insurance as represented by the Massachusetts 
system 

Memorandum, dated Apr. 20, 1938, of C. F. Creswell, statis- 
tician. Association of Life Insurance Presidents, concern- 
ing Rhode Island savings bank life insurance 



Intro- 
duced 
at page 



4418 



4418 



4421 



4422 



4423 



4425 
4426 



4427 
4428 



4430 

4431 

4431 

4433 
4433 



Appears 
ou page 



4781 



4783 



4785 



4785 



4786 



4787 
4790 



4801 
4802 



4804 

4805 

4806 

4800 
4810 



SCHEDULE OF EXHIBITS 



XI 



Number and summary of exhibits 



Intro- 
duced 

at page 



Appears 
on page 



730. Form letter, dated Feb. 28, 1935, from C. F. Creswell, statis- 

tician, Association of Life Insurance Presidents, requesting 
actuarial letters from companies in opposition to savings- 
bank life-insurance bill introduced in New Hampshire 

731. Memorandum prepared by Association of Life Insurance 

Presidents, entitled "Reasons Why New Hami^shire House 
Bill No. 125 to Permit Savings Banks to Engage in the 
Life Insurance Business Should Not Be Enacted" 

732. Letter, dated Apr. 28, 1937, of A. H. Yost, vice president. 

Phoenix Mutual Life Insurance Co., to Vincent P. Whit- 
sitt, manager, and general counsel. Association of life In- 
surance Presidents, referring to savings bank life insurance 
legislation pending in Connecticut General Assembly and 
letter, dated May 19, 1935, from A. H. Yost to Vincent P. 
Wliitsitt, indicating activity of life-insurance 'officials to 
defeat savings-bank life-insurance bill 

733. Form letter, dated Feb. 25, 1938, from committee on law and 

legislation of the Life Underwriters Association of the City 
of New York, Inc., to agents in New York State, entitled, 
"Your Future Is at Stake," and urging agents to protest 
savings-bank life-insurance measure 

734. Bulletin entitled "Flash" prepared by committee on law and 

legislation of the Life Underwriters Association, urging 
further opposition to savings-bank life-insurance legislation 
and enclosed 16 suggestions for form letters or telegrams. _ 

735. Typical patent license agreements, cross-license agreements, 

and other contracts between and among the principal con- 
cerns engaged in the manufacture of glass-making' ma- 
chinery and of the various types of glassware 

736. Table: Massachusetts savings ba.nks issuing life insurance 

listed in the order of their entrance into the system (and 
the general insurance guaranty fund), Oct. 31, 1938 

737. Table: Growth of savings bank life insurance in Massachu- 

setts 1908 to 1938 -" -^-v 

738. Table: Number and types of agencies for savings bank life 

insurance on June 13, 1939 

739. Table: Savings bank life insurance (as of Aug. 31, 1938), 

showing number of persons insured for the several stated 
amounts 

740. Table: Amount of new insurance written and insurance 

terminated in Massachusetts during the year 1938 (ordi- 
nary) 

741. Table: Relative proportions of amounts of insurance term- 

inated by lapse and surrender in Massachusetts savings 
banks and in Massachusetts insurance companies, 1911-38.. 

742. Tabl^: Mortalitv experience of Massachusetts savings bank 

life insurance compared with life insurance companies — 
ratios of actual to expected mortality losses for savings 
banks, all ordinary, and all industrial insurance, 1910 to 
1938 

743. Table: Net rate of income earned on investments by savings 

bank life insurance and by all insurance organizations, in- 
cluding savings bank life insurance, 1920 to 1938 

744. Table; Percent total expenses are of premium income in 

savings bank life insurance, ordinary insurance, and in- 
dustrial insurance 1920 to 1938 

745. Table: Comparing 10-year costs of savings bank life insur- 

ance issues of 1929 for $1,000 straight life insurance policy 
age 35, v^ith similar policies of certain indicated companies. 

746. Table: Comparing 10-year costs of savings bank life insur- 

ance issues of 1929 for $l,000"straight life insurance polk-y, 
age 35, with similar policies of certain indicated companies, 

based upon projection of 1938 dividends 

• On filn with the committee. 



4434 



4435 



4810 



4811 



4437 



4447 



4447 



4449 



4813 



4814 



4815 



0) 



4454 


4816 


4455 


4816 


4463 


4817 


4466 


4817 


4407 


4818 


4471 


4819 



4473 
4475 
4476 
4482 

4485 



4819 
4820 
4820 

4821 

4822 



XII 



SCHEDULE OF EXHIBITS 



Nuipber and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



747. Table: Comparison of ratios of surplus to reserves of Mas 

sachusetts savings bank life insurance and the life insur 

ance companies (capital included as surplus) 4488 

748. Table: Massachusetts savings bank life insurance compared 

with total amount of life insurance of all kinds in Mas- 
sachusetts (1908-38, Dec. 31) 4491 

749. Table: 30 years' experience in Massachusetts savings bank 

life insurance (statement to Oct. 31, 1938) and growth of 
Massachusetts savings bank life insurance 449 1 

750. Table: Containing analysis of savings bank life insurance 

policies issued by New York savings bank 4503 

751. Table: Premium income and consideration received, an 

nuity contracts -. 4506 

752. Table: Personal annuities — 10 largest United States com 

panies — increase ( + ) or loss ( — ) in surplus — after ap 
propriation for contingency or other special reserves (un 
assigned funds), for the years 1929 to 1938, inclusive 4508 

753. Table: Personal annuities — increase or loss in surplus— after 

appropriation for contingency or other special reserves — 

26 largest United States companies.- 4508 

754. Principal inter-company meetings re annuities 4514 

755. Letter, dated Apr. 22, 1933, from Arthur Hunter, vice presi- 

dent and chief actuary, New York Life Insurance Co., to 
E. E. Cammack, vice president and actuary, Aetna Life 
Insurance Co., concerning annuity rates and reporting on 
program of rate increases tenatively decided by 5 New 
York companies 4515 

756. Memorandum, dated May 19, 1933, signed B. D. Flynn, 

vice president and actuary. Travelers Insurance Co., to 
President Zacher and Vice President Howard, Travelers 
Insurance Co., recording tentative votes of actuaries of 
22 leading life insurance companies attending meeting at 
New York Life Insurance Co. on the subject of life-annuity 
rates and policy values 4526 

757. Memorandum, dated June 13, 1933, prepared by Arthur 

Hunter, vice president and chief actuary, New York Life 
Insurance Co., regarding new annuity rates and indicating 
companies which had determined to adopt new rate sched- 
ule _-- 4526 

758. Notice, dated June 14, 1933, to agents of New York Life 

Insurance Co., regarding new annuity rates signed Arthur 
Hunter, vice president and chief actuary, New York-Life 
Insurance Co 4527 

759. Letter, dated Mar. 12, 1934, signed Arthur Hunter, vice 

president and chief actuary, New York Life Insurance 
Co., to John M. Laird, vice president, Connecticut Gen- 
eral Life Insurance Co., inviting representatives of 14 life 
insurance companies to attend meeting for discussion of 
bases of annuities and other matters.. i 4528 

760. Appears in Hearings, Part V, appendix p. 2301 4530 

761. Memorandum, dated Mar. 31, 1934, of E. C. Henderson, 

Travelers Insurance Co., on surrender values and referring 
to discussion of annuitv rates and other matters at meet- 
ing held in Dr. Hunter's office. Mar. 23, 1934 Ji.. 4530 

762. Memorandum, dated Oct. 31, 1934, of B. D. Flynn. vice 

president and actuary, Travelers Insurance- Co., to Presi- 
dent Zacher, Vice President Howard, and Vice President 
Armstrong, Travelers Insurance Co., concerning meeting 
of actuaries of 26 representative life insurance companies 
at which agents' com.missions on life annuities and annuity 
rates were discussed . i 4532 



4822 

4823 

4823 
4825 
4825 

4826 



4827 
4848 



4830 



4831 



4833 



4834 



4834 



4835 



4n;::7 



SCHEDULE OF EXHIBITS 



XIII 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



763. Letter, dated Dec. 12, 1934, of John M. Laird, vice president, 

Connecticut General Life Insurance Co., to Arthur Hunter, 
vice president. New York Life Insurance Co., discussing 
agents' commissiuns on life annuities 

764. Letter, dated Dec. 31, 1934, from Arthur Hunter, vice presi- 

dent. New York Life Insurance Co., to John M. Laird, 
vice president, Connecticut General Life Insurance Co., 
stating he will get information on attitude of companies 
regarding commissions on single. premium annuities 

765. Letter, dated Dec. 15, 1934, from John R. Larus, vice presi- 

dent and actuary. Phoenix Mutual Life Insurance Co., 
John M. Laird, vice president, Connecticut General Life 
Insurance Co., requesting attitude of Connecticut General 
on subjects relating to annuity rates and agents' commis- 
sions. Also summary prepared from company responses 
to general inquiry on these subjects 

766. Memorandum from files of Connecticut General Life Insur- 

ance Co., summarizing attitude of companies on 13 ques- 
tions including annuity rate increases discussed at meeting 
at offices of Arthur Hunter, vice president and actuary, 
New York Life Insurance Co., Oct. 10, 1935 

767. Letter, dated Oct. 17, 1934, from Arthur Hunter, vice presi- 

dent and actuary, New York Life Insurance Co., calling 
meeting of company actuaries and enclosing agenda of 
topics for discussions which- includes annuity rates 

768. Memorandum, dated Oct. 25, 1935, of John M. Laird, vice 

president, Connecticut General Life Insurance Co., sum- 
marizing discussions of company actuaries at meeting held 
at offices of Arthur Hunter, vice president and chief actu- 
ary, New York Life Insurance Co., Oct. 24, 1935 

769. Memorandum, dated Nov. 21, 1935, of Arthur Hunter, vice 

president and chief actuary, New York Life Insurance Co., 
with regard to immediate annuity rates 

770. Memorandum, dated Nov. 25, 1935, of Arthur Hunter, vice 

president and chief actuary, New York Life Insurance Co., 
with regard to immediate annuity rates ----. 

771. Letter, dated Dec. 2, 1935, from Arthur Hunter, vice presi- 

dent and chief actuary. New York Life Insurance Co., to 
J. b. Craig, actuary. Metropolitan Life Insurance Co., 
advising certain companies have adopted new annuity rate 
basis 

772. Letter, dated June 9, 1936, from Arthur Hunter, vice presi- 

dent and chief actuary, New York Life Insurance Co., to, 
J. F. Little, vice president and actuary. Prudential Insur- 
ance Co., reporting on subjects discussed at meeting of 
company actuaries 

773. Memorandum, dated Apr. 13, 1934, from files of Metropoli- 

tan Life Insurance Co., discussing attitude of companies 
concerning new annuity rates as revealed at informal meet- 
ing held Apr. 12, 1934, in offices of Arthur Hunter 

774. Letter, dated Mar. 4, 1938, from H. R. Bassford, chairman 

of subcommittee, appointed at intercompany conferences, 
and summary of replies received to questionnaire in regard 
to" adoption of new annuity and settlement option rates... 

775. Memorandum, dated Apr. 22, 1938, of H. R. Bassford, actu- 

ary. Metropolitan Life Insurance Co., summarizing discus- 
sions of actuaries of 25 companies on subject of settlement 
options at meeting held Apr. 22, 1938 . 

776. Form letter, dated June 3, 1938, marked "confidential" 

fr^^ ^Arthur Hunter, vice president, J^ew York Life 
Insurance Co., advising names of companies which will 
adopt new annuity rates ■ 



4533 
4533 

4534 

4535 
4536 

4538 
4539 
4539 

4539 

4541 
4542 
4549 
4560 
4552 



4838 
4838 

4839 

4840 
4843 

4844 
4847 
4847 

4847 

4848 
4848 
4850 
4852 
4855 



XIV 



SCHEDULE OF EXHlBiTis 



Number and summary of exhibits 



777. Letter, dated Oct. 22, 1934, from E. E. Cammack, vice 

president and actuary, Aetna LifeHInsurance Co., to 
J. M. Laird, vice president, Connecticut General Life 
Insurance Co., concerning agent's commissions on single 
premium annuities and stating company expects to go 
along with majority 

778. Memorandum, dated May 13, 1938, from E. E. Cammack, 

vice president and actuary, Aetna Life Insurance Co., 
entitled "Meeting of Travelers, Connecticut General, and 
Aetna at the Aetna Life Insurance Co., 10 a. m., Friday, 
May 13" and having reference to discussions on im- 
mediate annuities and optional settlements 

779. Memorandum, dated Oct. 10, 1938, of John M. Laird, vice 

president, Connecticut General Life Insurance Co., re- 
ferring to discussions on retirement annuities at meeting 
of actuaries representing 30 companies 

780. Table: Exhibit of personal annuities (excluding group 

annuities) of 26 United States companies attending inter- 
company conference and of all United States companies. - 

781. Letter, dated Nov. 6, 1935, from Arthur Hunter, vice 

president and actuary, New York Life Insurance Co., 
to J. F. Little, vice president and actuary, Prudential 
Insuraince Co., referring to meeting of representatives of 
Metropolitan, Equitable, Mutual, and New York Life 
Insurance Cos.' representatives in regard to settlement 
options , 

782. Letter, dated Nov. 12, 1935, from vice president and actuary 

of Prudential Insurance Co., to Arthur Hunter, vice 
president of New York Life Insurance Co., discussing 
settlement options and stating company will be glad to 
go along with some reasonable rules 

783. Memorandum from files of Connecticut General Life Insur- 

ance Co., entitled "Memorandum of meeting held at 
offices of Dr. Arthur Hunter, vice president and actuary of 
the New York Life Insurance Co. on Nov. 14, 1935" re- 
ferring to discussions among company actuaries on subject 
of settlement options and indicating further meetings of 
company actuaries to be held — l! 

784. Letter, dated Apr. 30, 1937, from Louis H. Pink, superintend- 

ent of insurance for the State of New York, to Thomas I. 
Parkinson, president, Equitable Life Assurance Society of 
New York, regarding the appointment of a committee of" 
life companies and departmental representatives to con- 
sider settlement options 

785. Report of subcommittee appointed at intercompany con- 

ference of Feb. 16, 1937, entitled "Revision of practice on 
optional settlements," dated May 28, 1937 

786. List of company representatives at intercompany meeting 

held on June 3, 1937, in Arthur Hunter's ofiice 

787. Summary of recommendations by subcommittee headed by 

R. D. Murphy, vice president and actuary, Equitable Life 
Assurance Society^ concerning settlement options and 
proposed action indicated by various companies at the 
June 3 meeting, prepared by E. C. Henderson, actuary, 
Connecticut General Life Insurance Co., dated June 10, 
■ 1937 

788. Memorandum from files of Equitable Life Assurance Society 

of New York, entitled "Recommendations for revised prac- 
tice under new optional agreements on both new and 
outstanding business" 



Intro- 
duced 
at page 



4566 

4566 

4567 
4567 

4575 
4575 

4575 

4579 

4580 
4581 

4583 
4583 



Appears 
on page 



4856 

4856 

4857 
4857 

4858 
4858 

4858 

4860 

4861 
4865 

4866 
4867 



SCHEDULE OF EXHIBITS 



XV 



Number and summary of exhibits 



Intro- 
duced 
at page 



Appears 
on page 



790. 



791. 



792. 



789. Letter, dated Aug. 6, 1937, signed Arthur Hunter, vice 
president and actuary. New York Life Insurance Co., to 
John M. Laird, vice president and secretary, Connecticut 
General; letter dated Aug. 11, 1937, from J. M. Laird to 
Arthur Hunter; and letter dated Aug. 12, 1937, from 
Arthur Hunter to John M. Laird, concerning failure of some 
companies to adopt recommendations for settlement 
options and desirability of further discussions on subject- ^ 

Letter, dated Oct. 22, 1937, signed E. W. Marshall, vice 
president and actuary, Provident Mutual Life Insurance 
Co. of Philadelphia, to R. D. Mnrphy, vice president and 
actuary, Equitable Life Assura- Ce Society, referring to 
intercompany conference on option settlements and en- 
closed questionnaire entitled "Questionnaire Regarding Re- 
vision of Practice Under New Optional Agreements on Both 
New and Outstanding Business" 

Letter, dated Nov. 9, 1937, signed E. W. Marshall, vice presi- 
dent and actuary, Provident Mutual Life Insurance Co., 
to R. D. Murphy, Equitable Life Assurance Society, refer- 
ring to proposed intercompany meeting and indicating 
representatives should come to meeting authorized to state 
official attitude of their companies on settlement options 

Form letter of E. W. Mai-shall, vice president and actuary, 
Provident Mutual Life Insurance Co., dated Nov. 19, 
1937, and enclosed recommendations for revised practice 
under new optional-settlement agreements on both new 
and outstanding business as amended at intercompany 
conference on Nov. 15, 1937, together with schedule 
marked "Very confidential," indicating attitude of 27 com- 
panies toward questions raised at conference on Nov. 15, 
1937 

Memorandum, dated Nov. 16, 1937, from R. D. Murphy, 
vice president and actuary. Equitable Life Assurance So- 
ciety of New York to W. G. Schelker concerning inter- 
company meeting and understanding of signatory com- 
panies regarding competition with "No" companies 

Memorandum, dated May 25, 1938, from E. W. Marshall, 
vice president and actuary, Provident Mutual Life Insur- 
ance Co. of Philadelphia, to R. D. Murphy, vice president 
and actuary, Equitable Life Assurance Society, discussing 
attitude of various company groups concerning settlement 
option rules and making proposal directed toward bringing 

about an intercompany agreement on a uniform basis 

795. Preliminary report, dated June 7, 1938, from E. W. Marshall, 
vice president and actuary. Provident Mutual Life Insur- 
ance Co. of Philadelphia, concerning company reaction to 
optional-settlement program indicating widespread desire 
for uniform basis by companies 

Letter, dated June 23, 1938, from E. W. Marshall, vice presi- 
dent and actuary, Provident Mutual Life Insurance Co. of 
Philadelphia, to R. D. Murphy, vice president and actuary, 
Equitable Life Assurance Society and enclosed confidential 
summary of votes taken at "Little Entente" meeting re- 
garding guaranteed basis of optional settlements 

Letter, dated July 7, 1938, from E. W. Marshall, vice presi- 
dent and actuary. Provident Mutual Life Insurance Co. of 
Philadelphia, to R. D. Murphy, vice president and actuary, 
Equitable Life Assurance Society, an enclosed chart giving 
confidential plans of various companies regarding new 
optional basis 



793. 



794. 



796. 



797. 



4584 



4868 



4589 



4596 



4869 



4871 



4596 



4598 



4612 



4616 



4616 



4618 



4871 



4872 



4873 



4875 



4876 



4878 



XVI 



SCHEDULE OF EKHIBITS 



Number and summary of exhibits^ 



Intro- 
duced 
at page 



Appears 
on page 



798. Letter^ dated July 28, 1938, from E. W. Marshall, vice presi- 

dent and actuary, Provident Mutual Life Insurance Co. of 
Philadelphia, to R. D. Murphy, vice president and actuary. 
Equitable Life Assurance Society, setting forth certain 
changes in company attitude toward optional settlement 
program in direction of greater uniformity 

799. Table: Intercompany meetings resettlement options 

800. Memorandum from files of Aetna Life Insurance Co. setting 

forth attitude of companies attending intercompany meet- 
ing atx)fEces of New York Life Insurance Co. for purpose 
of considering settlement options, annuity rates and other 
matters 

801. Memorandum, dated Feb. 15, 1933, from Valentine Howell, 

second vice president and associate actuary. Prudential 
Insurance Co. of America, regarding surrender values 

802. Memorandum, dated Apr. 18, 1933, of Valentine Howell, 

second vice president and associate actuary. Prudential 
Insurance Co. to Colonel D'Olier, Prudential Life Insur- 
ance Co. of America, referring to attitude of various com- 
pany groups in reducing surrender values 

803. Memorandum, dated Apr. 17, 1933, of Valentine Howell, sec- 

ond vice president and associate actuary. Prudential In- 
suranQe Co. of America, regarding surrender values of sup- 
plementing memorandum of Feb. 15, 1933 (exhibit 801, 
supra) 

804. Memorandum, dated May 19, 1933, of Valentine Howell, 

second vice president and associate actuary. Prudential 
Insurance Co. of America, concerning annuity premiums 
and surrender charges and summarizing attitude of com- 
pany representatives attending intercompany meeting 
toward proposed changes in surrender values 

805. Memorandum frord files of Prudential Life Insurance Co. 

of America, entitled "Proposed program re premium rates, 

reserve basis and surrender charges" 

S06. Letter, dated June 22, 1924, signed Arthur Hunter, vice 
president and actuary, New York Life Insurance Co., 
to James F. Little, vice president and actuary. Prudential 
Insurance Co. of America, and enclosed memorandum 
suggesting proposed table of cash surrender values 

807. Memorandum from files of Mutual Life Insurance Co., en- 

titled "Surrender and loan values" and discussing attitude 
of company toward various suggested changes 

808. Memorandum, of W. A. Hutcheson, stamped May 9, 1934, 

concerning proposed changes regarding cash and loan 
values and indicating reasons for lowering surrender values 
and increasing surrender charges, from files of Mutual Life 
Insurance Co . 

809. Bylaws of Medical Information- B^eau 

810. Regular and associate members of Medical Information 

Bureau . 

811. Underwriting rules recommended by committee on under- 

writing large risks (corrected as of Apr. 1, 1936) 

812. Report of executiye committee of underwriting large risks 

for year ending Mar. 31, 1939, signed R. D. Murphy, 
chairman __- 

813. Letter on stationery of Metropolitan Life Insurance Co., 

signed J. D. Craig, chairman, committee underwriting 
large risks listing members of Recording Bureau, as of 
Aug. 18, 1932 

814. Letter, dated Oct. 29, 1931, from Frank L. Jones, chairman 

and member of replacement committee, to Walter E 
Webb, chairman, executive committee association of life 
agency officers and list of original signatory companies to 
replacement agreement 



4618 
4619 



4619 
4621 

4623 

4623 

.4624 
4625 

4626 
4628 

4633 
4635 

4635 

4644 

4644 
4645 

4651 



4880 
4881 



4882 
4883 

4884 

4885 

4886 
4887 

4889 
4890 

4894 
4896 

4897 

4901 

4902 
4903 

4904 



SCHEDULE OF EXlIILilfc; 



Number and summary of exhibits 



815. Plan for discouraging the replacement of life insurance in one 

company by new insurance in another company, (replace- 
ment agreement) 

816. Amendment to plan for discouraging the replacement of life 

insurance in one company by new insurance in another 
company 

817. List of signatory companies signing replacement agreement 

with names of persons in charge of intercompany corres- 
pondence (July 6, 1938) 

818. Letter, dated Oct. 6, 1931, from K. Seton Lindsay, vice presi- 

dent, New York Life Insurance Co., to Frank L. Jones, vice 
president. Equitable Life Assurance Society;" letter dated 
Oct. 13, 1931, from Frank L. Jones to L. Seton Lindsay; 
and letter dated Oct. 15, 1931 from L. Seton Lindsay to 
Frank L. Jones, regarding attitude of New York Life In- 
surance Co. toward signing of replacement agreement 

819. Memorandum entitled "Exceptions made by some of the 

signatory companies in the matter of replacement of life 
insurance" 

820. Table: 6-year record of intercompany replacements 

521. Table: Consolidated report of replacement figures for the 8 

months' period ended Oct. 31, 1938 

522. Letter, dated May 15, 1929, from Herbert M. Wollen, presi- 

dent, Ainerican Central Life Insurance Co., to Lawrence 
M. Chatels, president. North American Reinsurance Co., 
regarding conference of representatives of reinsurance com- 
panies mentioning possibility of more general meeting to 
establish code of behavior 

823. Letter, dated June 3, 1929, from Herbert M. Wollen, presi- 

dent American Central Life Insurance Co. to Emmett C. 
May, president, Peoria Insurance Co. regarding meeting of 
representatives of reinsurance companies and listing six- 
teen subjects needing consideration . 

824. Memorandum containing recommendations "to promote the 

best interests of the business" of rates and underwriting 
committee appointed by reinsurance companies 

825. Rules adopted by reinsurance conference -.- 

826. Table: 1937 lapse ratio compared with the relative sales 

rates during 1935 and 1936 . 

827. Table: The 40 United States life insurance companies of 

which the life insurance sales research bureau computed 

1937 lapse ratios 

922. Table 1: Nonparticipating insurance company rates of 
Aetna Life Insurance Co., Connecticut General Life Insur- 
ance Co., Travelers Life Insurance Co. — 1909-29 

Table 2: Percentage deviation of nonpartipipating life insur- 
ance rates of Connecticut General and Travelers from 
Aetna Life rates before the adoption of uniform rates effec- 
tive Apr. 1, 1933 - 

Table 3: Nonparticipating life insurance company rates 
of Aetna Life Insurance Co., Connecticut General Life 
Insurance Co. and Travelers Insurance Co. showing the 
rates (annual premium without disability and double in- 
demnity) in force before and after the adoption of uniform 
rates effective Apr. 1, 1933 — typical plans at typical ages-- 
Unnumbered. Date of incorporation, admitted assets, insurance 
in force, capitalization, number of shareholders 
of record and other information regarding Trav- 
elers Insurance Co., Aetna Life Insurance Co. 

and Connecticut General Life Insurance Co 

Unnumbered. Summary of statutory prerequisites for licensing 
of life insurance agents -' 



S [Appears 



at page 



:, on page 



4652 
4653 
4654 

4655 



4656 
4657 

4658 



4670 



4673 



4675 
4676 

4684 



4684 



4906 
4907 
4907 

4911 



4913 
4916 

4917 



4918 

4919 

4921 
41122 

4926 
4927 
4927 

4928 

49 

492^ 
4929 



124491 — 40— pt. 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



TUESDAY, JUNE 6, 1939 

United States Senate, 
Temporary National Economic CoMiMiTTEE, 

Waslmiffton, 1). C. 

The committee met at 10:40 a. m., pursuant to adjournment on 
Friday, May 26, 1939, .in the caucus room, Senate Office Building, 
Senator Joseph C. O'Mahoney presiding. 

Present: Senators O'Mahoney (chairman), Borah, and King; Kep- 
resentatives Reece and William's ; Messrs. Henderson, Frank, Arnold, 
Lubin, and Brackett. 

Present also: Senator Gerald P. Nye, of North Dakota; Senator 
Scott W. Lucas, of Illinois ; Harry J. Daniels, Chief of the Insin\ance 
Section, Department of Commerce"; Willis J. Ballinger, Federal Trade 
Connnission; and Gerhard A. Gesell, special counsel, Securities and 
Exchange Commission. 

The Chairman. The committee will please come to order. 

The committee has assembled this morning to hear further testimony 
presented in the insurance study by the Securities and Exchange Com- 
mission. Chairman Frank, of the Commission, member of this com- 
mittee, will make an opening statement. 

intercompany AGREEMENTS 

Mr. Fr:Vnk. I want to make this brief opening statement in order 
to acquaint the committee in a general way with the subject matter 
of the hearings which are about to commence. In President Roose- 
velt's message recommending that Congress initiate and carry out the 
program upon which this connnittee is now engaged, he urged that 
there should be a study of insurance companies.^ He also spoke of the 
necessity of strengthening and enforcing antitrust laws, placed con- 
siderable emphasis upon price fixing, and urged that all forms of 
price fixing, without regard to their degree or to whether or not they 
fell within the traditional antitrust field, be examined. 

Accordingly, the Securities and Exchange Comrnission is now pre- 
pared to present considerable evidence concerned with price fixing and 
other forms of anticompetitive arrangements affecting many depart- 
ments of the life-insurance business. In doing so, I wish to make it 
clear that our approach is objective. We have not reached any con- 
clusion as to the social or economic Tightness or wrongness of those 
activities. That is the province of the committee, not the Securities 
and Exchange Commission. The activities and arrangements to be 

> See "Exhibit No. 1," Hearings, Part I, appendix, p. 185 at p. 190. 

4153 



4154 CONCENTRATION OF ECONOMIC POWER 

described are, for the most part, of recent origin. Evidence will be 
presented as to whether or not they affect thg price which the policy- 
holder pays for his insurance. 

The Chairman. I am very glad, Mr. Frank, that you have made 
that statement, because I think it is helpful to continue to lay empha- 
sis upon the fact that this committee is merely trying to find out how 
things are working. We are not passing judgment upon any of the 
institutions or actiyities which are revealed before us. 

Mr. Gesell is to conduct the examination? 

Mr. Frank. That is correct. 

The Chairman. Mr. Gesell, are you ready to..proceed? 

Mr. Gesell. I am, Mr. Chairman. 

THE GROUP association 

Mr. Gesell. The first intercompany arrangement to be considered 
will be the Group Association, an organization among principal com- 
panies issuing various form of group insurance. I would like to call 
as my first witness Mr. B. D. Flynn, of the Travelers Insurance Co. 

The Chairman. Mr. Flynn, do you solemnly swear that the testi- 
mony you are about to give in these proceedings shall be the truth, 
the whole truth, and nothing but the truth, so help you God ? 

Mr. Flynn. I do. 

TESTIMONY OF BENEDICT D. FLYNN, VICE PRESIDENT AND 
ACTUARY, TRAVELERS INSURANCE CO., HARTFORD, CONN. 

Mr. Gesell. Will you state your full name, please, sir ? 
Mr. Flynn. Benedict D. Flynn. 

Mr. Gesell. Are you associated with the Travelers Life Insurance 
Co.? 
Mr. Flynn. Yes, sir. 
Mr. Gesell. In what capacity ? 
Mr. Flynn. Vice president and actuary. 
Mr. Gesell. How long have you been with the company, Mr. 

X' ij illl S 

Mr. Flynn. Forty years, approximately. 

Mr. Gesell. How long have you been actuary for the company ? 

Mr. Flynn. Vice president and actuary since 1930. 

Mr. Gesell. Are you familiar with the activities of Travelers In- 
surance Co. in the sale of group insurance — group life insurance ? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. Will you tell us a little about group insurance, what 
kind of insurance is it, how is it sold, and so forth ? 

Mr. Flynn, Group insurance is insurance issued to an employer 
to cover his employees for life insurance, accident, and sickness in- 
surance, or annuities as pensions. At least 75 percent of the eligible 
employees must be covered. 

The Chairman. How many? 

Mr. Flynn. Seventy-five percent of eligible employees; and be- 
cause of the fact that a large percentage of eiigibles come into the 
plan it is written without examination, medical examination ; that is, 
there is no medical test. It is written under a plan which precludes 
individual selection; that is, the amount of insurance is graded by 



CONCENTRATION OF ECONOMIC POWER 4155 

classification of some kind under conditions pertaining to 
employment. 

Mr. Gesell. You mean by that that employees within a certain 
salary or wage level will receive so much insurance; those in the 
next nighest will receive, perhaps, a little additional amount. 

Mr. Fltnn. That is it. That would be one way of classifying 
them. 

The Chairman. How many different ways of classifying are 
there? 

Mr. Flynn, Well, you can classify by occupational class, by salary 
class, by years of service, and also they have modified the amount 
by sex. 

The Chairman, I beg your pardon. 

Mr. Flynn. By sex; that is, the woman worker having a lower 
amount. 

Mr. Gesell. "Now, is group insurance rewritten every year? 

Mr. Flynn. No; the contracts are ordinarily 1-year, renewable- 
term contracts. 

Mr. Gesell. They are renewed at the option of the employer every 
year, are they not? 

Mr. Flynn. At the option of the employer. 

Mr. Gesell. Both the emploj^er and the employee are covered by 
the policies in ixiost cases, &,re they not? 

Mr. Flynn. The employees are always covered, but the employer, 
if it is a corporation — the officials of the corporation are eligible; 
but if an employer owns the establishment, he is not an employee 
technically and not covered. 

Mr. Gesell. How many people would you say are covered by group 
life insurance in the United States at the present time? Am I not 
correct it has been estimated to be around 9,000,000? 

Mr. Flynn. I think that is correct: about 9,000,000. ^ 
' Mr. Gesell. They are, by and large, the wage earning group, em- 
ployees in industrial concerns? 

Mr. Flynn. Yes; by and large, the majority are the wage-earning 
class. 

Mr. Gesell. Just roughly, about liow much does each employer pay 
per $1,000 of group life insurance under a group-life plan? Is it 
around 60 cents per thousand ? 

Mr. Flynn. Sixty cents, as a rule. 

Mr. Gesell. That is monthly or yearly ? 

Mr. Flynn. Monthly. 

Mr. Gesell. When was group life insurance first written, do you 
recall ? 

Mr. Flynn. I should say about 1914. 

Mr. Gesell. It has had a rather spectacular growth since that time, 
has it not? 

Mr. Flynn. Yes, it has. 

Mr. Gesell. Both with respect to the number of companies writing 
it and as to the amount of insurance in force. 

Mr. Flynn. Particularly as to the amount of insurance in force. 

Senator King. Did you state the maximum amount of any policy? 

Mr. Flynn. Per individual? 

Senator King. Yes. 



4156 CONCENTEATION OF ECONOMIC POWEU 

Mr. Fltnn. $20,000 in very, very large cases. The average maxi- 
mum per case is about five thousand. 

Mr. Gesell. As background at this point I should like to offer for 
the recoi'd a schedule which has been prepared by tlie staff of the 
Securities and Exchange C.'ommission from Spectator Insui-ance Year- 
book for the issues 1927 to 1938, entitled "Group Life Insurance — 
United States Companies." This schedule shows the number of com- 
panies reporting to Spectator writing group life insurance for each 
year from 1919 to 1937, the amount of group insurance written each 
year, and the amount of group insurance in force at the end of the 
year. I might say m 1919 it shows 28 companies writing group insur- 
ance, with the insurance in force at around $1,100,000,000; that at 
the end of 1937 there were some 98 companies writing group insurance, 
and there was twelve billion nine hundred fifty-seven of that insurance 
in force. 

The Chairman. Does this statement purport to be a summary of 
the principal group insurance activity in the United States? 

Mr. Gesell. It is a summary of the amount of insurance in force and 
the number of companies writing it, prepared from a recognized 
statistical soutce. 

The Chairman. The beginning date is 1919? 

Mr. Gesell. Yes. 

The Chairman. Do I understand that is substantially the year at 
which group insurance began to emerge as a significant activity? 

Mr. Gesell. Yes ; I think that is a fair statement. Mr. Flynn says 
it was first started around 1914, but there are really no available 
figures for those years. 

The Chairma^t. The statement may be admitted. 

(The statement referred to was marked "Exhibit No. 641" and is 
included in the appendix on p. 4687.) 

Senator King. That comprises all the insurance companies so far 
as. you are advised ? 

Mr. Flynn. I think so. I haven't seen it, but- 1 should say if it 
came from that source it probably does. 

Senator King. As far as you kiiow, this would be an accurate state- 
ment of the companies ? 

Mr. Fltnn. I would like to see it. I really haven't seen it. [Exam- 
ining "Exhibit No. 641."] I think that is undoubtedly correct. 

Mr. Gesell. One further question about group life insurance — 
what is the minimum size of the group covered ? 

Mr. Fltnn. The minimum number of individuals is 50. 

Mr. Gesell. And it can run up to almost any amount above that, 
can it? 

Mr. Flynn. Yes. That is the minimum number of employees. 

Mr. Gesell. Now, are you familiar with the fact that actuaries and 
officials representing the principal companies writing group insurance 
got together on an informal basis to discuss mutual problems sometime 
in the fall of 1917? 

Mr. Flynn. Yes. 

Mr. Gesell. Will you tell us how it was that these individuals got 
together, what com.panies they represented, and what it was that 
brought them together the first time? 

Mr. Flynn. Prior to 1917, some group insurance had been written 
by a few of the companies. The insurance commissioners — that is, the 



CONCENTRATION OF ECONOMIC POWER 4157 

National Convention of Insurance Commissioners — decided it was 
about time to determine upon a definition of just what group insur- 
ance was. I am referring to group life insurance. 

Senator Kino. You mean the commissioners of the various States? 

Mr. Fltnn. The commissioners of the various States. So they ap- 
pointed a committee consisting of three actuaries of three insurance 
departments and three actuaries of three companies. I was not a mem- 
ber of the committee, and I can't exactly recall which companies were 
represented. That committee was to draft a definition of group life 
insurance. They did that in 1917, and that definition was enacted 
into law in New York State. 

The Chairman. What was the method by which this meeting of 
State insurance commissioners was called? 

Mr. Fltnn. I imagine it was in the regular convention that the 
matter came up. They have conventions periodically. 

Mr, Gesell. That is, conventions of insurance commissioners? 

Mr. Flynn. Insurance conmiissioners, yes. 

The Chairman. That is an informal association of the commission- 
ers of insurance of the various States? 

Mr. Fltnn. Yes, sir. 

The Chairman. It has no legal life as such? I mean, it is not a 
public institution, is it? 

Mr. Fltnn. I don't think 'So; I think it is an informal association. 

Mr. Gesell. Am I correct in saying that after first getting together 
with tlie insurance commissioners the actuaries continued to meet 
witliout tlie insurance commissioners to consider problems of mutual 
interest ? 

Mr. Fltnn. Yes, sir. 

Mr. Gesell. How often did they meet? 

Mr. Fltnn. I would imagine they met about every 6 months. 

Mr. Gesell. Wliat companies were represented in those meetings, 
Mr. Flynn? 

Mr. Fltnn. The companies which were writing group insurance at 
that time. 

Mr. Gesell. Would you say all the companies or the principal 
companies ? 

Mr. Fltnn. The principal companies. In fact, I doubt if there were 
any companies writing group insurance other than five or six of the 
principal companies. 

Senator ICing. You mean at that time ? 

Mr. Fltnn. At that time. 

Senator I^ng. And their actuaries or officers met once every 6 
months to discuss problems? 

Mr. Fltnn. Yes. 

Senator Kjng. Did the actuaries of the various State insurance de- 
partments also participate? 

Mr. Fltnn. I can't recall exactly, but I have been told that at 
various times a representative of the iN'ew York Insurance Department 
would sit in at the meeting. 

Senator King. Would the results of these actuarial meetings be 
submitted to the various State insurance departments? 

Mr. Fltnn. Not formally ; no. 
_ Mr. Gesell. What kind of an organization did you h:;ve a I. that 
time? Did you keep minutes of what you fcilked about? 



4158 COiNCENTRATION OF ECONOMIC POWER 

Mr. Flynn. Yes ; we kept minutes, or rather memoranda were sent 
around. It was an informal gathering of actuaries interested in the 
problems of group insurance. 

Mr. Gksell. You had no official organization then of any sort? 

Mr. Fltnn. No official organization. 

JMr. Gesell. You had no official minutes? 

Mr. Flynn. No official minutes. 

Mr. Gesell. Did you have any officers, or any bylaws, or any 
constitution, or anything of that kind? 

Mr. Flyxn. Not at that time. We had a chairman and a secretary 
pro tempore. 

Mr. Gesell. They would be elected for purposes of each meeting. 

Mr. Flynn. I think so. 

Mr. Gesell. What was it that impelled the actuaries to get together 
at that time ? What did they want to discuss ? What were the problems 
in the industry? 

Mr. Flynn. The good practices and proper underwriting rules to 
direct this new line of insurance. It was something entirely new 
and rates and practices were really the subject of discussion all 
through those meetings. 

Mr. Gesell. Would you say that there was any uniformity of rates 
at this time? 

Mr. Flynn. In the early years I don't think there was much of 
an}' uniformity. 

Mr. Gesell. Was there any uniformity of underwriting practices 
at that time? 

Mr. Flynn. Yes ; I think they were gra lually crystallizing uni- 
lorm practices. 

Mr. Gesell. But when the actuaries first got together were those 
l>ructices uniform or were they not? 

Mr. Flynn. They were not I think when they first got together. 

Mr. Gesell. Were the companies making or losing money in their 
group departments? 

Mr. Flynn. I can't answer that. I don't know. 

Mr. Gesell. Would you say that competition was severe at that 
time ? 

Mr. Flynn. Perhaps ;/ou are thinking of the wrong period. I am 
thinking of the very eurly years, and I think competition was always 
severe. 

Mr. Gesell. Different companies had different plans which they 
were writing Avhich the other companies weren't, and each of them 
was going off ( n its own hook, so to speak? 

Mr. Fltnn. To a large extent that is so. 

Mr. GEh'EiL. Then, u you tell us whether there were invited into 
these conferences some of the smaller companies which were writing 
group life insurance? 

Mr. Flynn. Any company that started to write group insurance 
•vhich wanted to come in Avould be invited to these "meetings. 

Mr. Gesell. I read you a bit from a memorandum from yourself 
10 Mr. Butler under date of September 30, 1924, in which you say: 

There is the general feeline among all of the smaller companies, based upon 
that which has been said iu the Actuarial Society and other meetings, that all 
are invited to cooperate to obtain policy forms, underwriting rules, etc., if 
they will be good. 



CONCENTRATION OF ECONOMIC POWER 4159 

What did you mean by that ? 

Mr. Flynn. If they agreed to follow good practices. 

Mr. Gesell. You mean not if they would agree ^u follow the 
practices which the larger companies had established? 

Mr. Flynn. I don't want to evade. I would say that the larger 
companies' main object was to establish sound practices and, having 
had perhaps more experience than the smaller companies, they would 
like to lead along that line, and that was what I meant in saying "if 
they will be good." 

Mr. Arnold. Would it be fair to suggest that you didn't want 
obstreperous and dissenting opinions in these conferences? 

Mr. Flynn. I wouldn't think that was it. We didn't mind the 
dissenting opinions because there were many in those early days. I 
think we felt that they would need a little leading into good 
practices. 

Mr. Arnold. Then would it be fair to suggest that you did not 
want anyone who was incapable of accepting leadership? 

Mr. Flynn. Well, I don't think that is it, exactly. 

Mr. Arnold. You did want the leadership, didn't you? 

Mr. Flynn. I think we felt we knew perhaps a little more, having 
written more business and having had more experience. AVe had 
gone through a great many troubles and seen the number of improper 
offshoots of group insurance in its early days, and a nevv company 
starting up oftentimes had new ideas, and we thought we could really 
teach and lead them a little better. 

Mr. Arnold. Then would it be fair to suggest that you didn't want 
people who wouldn't follow the advantages of your superior experi- 
ence ? 

Mr. Flynn. I think that is it. 

Senator King. The testimony you have given to date— does it 
deal almost exclusively with a period in and about 1917 or immedi- 
ately thereafter? 

Mr. Flynn. I think that is dated, Senator, 1924, and it is after the 
191T period, after business had developed quite a bit. 

Mr. Gesell. Mr. Flynn, will you look at that file" and state 
whether it is not a fact that the circumstances which prompted that 
memorandum were the fact that a small company, the Western I^ion 
Co., which wa^s not a member of the association but which was writ- 
ing group insurance, had attempted to take a contract aAvay from 
one of the members of the association, or one of the members of the 
group ? 

Mr. Flynn. Yes ; that was in relation to a transfer, or attempt to 
transfer, a case carried by another company! 

Mr. Gesell. They had, in effect, succeeded in taking a piece of 
business away from one of the members of the group, had they not, 
and when you said they were invited to join if they would be good, 
did you not have in mind that they would cease to take business away 
from the members of the association ? 

Mr. Flynn. Yes"; that is correct. 

May I make a statement which I think will clear the point here? 
Group life insurance is like regular life insurance in that there is a 
high first-year commission and a very low renewal commission. It Is 
written on the supposition that, once written, it would be retained 
b}'^ the carrier in order that the lower expenses of continued handling 



4160 CONCENTRATION OF ECONOMIC POWER 

of the business would be enjoyed by the employer and the employee. 
To transfer a group case is just as much twisting as to transfer an 
ordinary life case. 

Mr. Gesell. Let me see about that. Is not twisting the taking 
away of a policy by misrepresentation or omission to state some 
material fact? 

Mr. Flynn. That is correct. 

Mr. Gesell. Is there anything in Ihat file in front of you which 
indicates the Western Union Co. had misrepresented the situation 
or had omitted to state any material fact, or had acted in an ulterior 
manner? They had just taken the business. 

Mr. Flynn. If I remember correctly there was some influence of 
some kind used in the transfer of the business. I don't think there 
was any dissatisfaction with the service or the handling of the case. 
It was a reciprocity matter, I believe, if I remember that correctly. 

Mr. Gesell. Isn't it a fact that your rules that you call "anti- 
twisting" rules are rules which prevent one company from taking 
business from another, regardless of whether or not they take it by 
misrepresentation or whether they take it fairly ? They prevent the 
taking of business under any circumstances, do they not? That is a 
lot more than twisting. 

Mr. Flynn. It discourages it in that no commission is paid, which 
doesn't offer any incentive for the transfer of the business. Business 
is transferred occasionally, but the companies I think appreciate what 
I said first, that if there is a continual transferring of business a new 
.first-year commission must be paid eventually, and the overhead will 
run somewhat similar to many of the casualty and fire lines. The 
overhead in group life insurance is very low, mainly because of low 
acquisition expense and low expense of handling. 

It is very efficiently handled. 

Mr. Gesell. Now we will come to a detailed discussion of the 
rules when we get to the formal association. I want to call your atten- 
tion, at this time, to another memorandum written by yourself to 
Mr. Brosmith under date of April 21, 1933, in which you refer to some 
of these rules and state : 

These rules have not dealt with the minor detailed features of the under- 
writing but with the important matters upon which the companies should be 
together in order to prevent ruinous competition. 

Do you recall that memorandum? 

Mr. Flynn. Yes, sir; I recall that. 

Mr. Gesell. Does that not help you to refresh your recollection 
that the purpose of some of these rules was not simply, purely the 
establishment 'of ethical standards of luiderwriting but was to pre- 
vent what you term "ruinous competition." 

Mr. Flynn. Yes ; I think that is correct. 

Mr. Gesell. What did you mean by "ruinous competition"? 

Mr. Flynn. Well, I think the major item of that kind would be 
this transfer danger or evil if it ever got under way, and for the 
reason that that would increase the cost of group insurance because 
the new first-year commission must be paid on each transfer and it 
would work out inefficiently. 

The Chairman. What is the evil in the transfer of insurance from 
one company. to another? 



CONCENTRATION OF ECONOMIC POWER 4161 

Mr. Fltnn. Senator, there isn't anything in it excepting the loss 
to the employer and the employee in higher cost. 

The Chairman. But if an employer is willing to assume that higher 
cost, wliat is the objection to it? 

Mr. Flynn. Well, oftentimes there is an accumulated good expe- 
rience which he established, a reputation with his company, the first 
carrier. He might have to build up his reputation, you might say, 
with the new carrier. 

The Chairman, Now, your employer A has entered into a group 
insurance contract with insurance company X and then insurance 
company Y for one reason or another induces A to switch that group 
insurance to Y from X. To do that it would be normally assumed 
that Y would have to convince A that the transfer was to the benefit 
of A. Assuming those to be the facts, what evil would there be in 
the transfer? 

Mr. Flynn. Well, really if those were the facts, if there were nothing 
lost, there would really be nothing of evil in the transfer. The point 
which I am trying to make is that we as companies deveiyping group 
insurance with the responsibility of trjdng to keep it on an efficient, 
economical basis, feel that if there is frequent transfer — there can be 
transfer, but if there are frequent transfers — there will be a demand 
for a new first-year commission from the agent effecting the transfer 
and generally the 

The Chairman (interposing). So your position is that it is desir- 
able from the point of view of group insurance as a whole that trans- 
fers be discouraged? 

Mr. Flynn. Yes, sir. 

The Chairman. You regard the transfers as ruinous competition ? 

Mr. Flynn. That is it. 

The Chairman. That altogether, without regard to whether or not 
the insured desires to make the transfer? 

Mr. Flynn. Yes. 

The Chairiman. Your feeling is that those who are handling group 
insurance ought to be in a position to raise obstacles to the free trans- 
fer by the insured of their policies? You nodded affirmatively? 

Mr. Flynn. Yes. 

Mr. Frank. May I ask, purely out of ignorance, would your rules 
be designed to prevent a transfer, even if in a particular case the cost 
to the employer was less? 

Mr. Flynn. Our rules are designed to have full information come 
out if there is a transfer desired, and for the new carrier, that is the 
new company, to be quite fair in handling it. If it is clearly to the 
advantage of the employer to transfer, that could be accomplished and 
the transfer would be made. 

Mr. Frank. Wha| I am getting at is, might" not the cost to the em- 
ployer^ regarding him as distinguished from the insurance company 
that lost the business, be to the advantage of the employe): in that he 
might in a particular case get a lower cost ? 

Mr. Flynn. That is right. 

Mr. Frank. Assuming that that were true, would your rules never- 
theless be designed to discourage the- transfer ? 

Mr. Flynn. They would in that no commission would be paid to 
the agent effecting the transfer.. 



4162 CONCENTRATION OF ECONOMIC POWER 

Mr. Frank. In that event the employer would, not suffer. 

Mr. Fi-YNN. No. 

Mr. Frank. It would be the company that would suffer. 

Mr. Flynn. That is it and the agent. 

Mr. Frank. Ought not the employer be allowed to get insurance at 
the least cost to him on the basis of competition if that is possible ? 

Mr. Flynn. That is correct, he should. 

Mr. Frank. Yet these rules — I don't know anything about them; 
I am just inquiring out of my own ignorance — are designed to prevent 
him from getting a lower cost even if he can do so, 

Mr. Flynn. They are not designed to prevent him. They are de- 
signed to have full information come out so he can make his own 
decision. 

Senator King. Do these transfers increase the cost of operation? 

Mr. Flynn. Yes, sir. 

Senator King. The cost of operation would necessarily cost the in- 
sured, the employee, a higher rate. 

Mr. Flynn. That is right. 

Senator King. You mentioned 60 cents a moment ago in a given 
case. Supposing there were frequent transfers from one company to 
another, thus increasing the cost, might the reaction be an increased 
cost to be paid by the employee for his insurance ? 

Mr, Flynn. That would be the net effect. 

Mr. Frank. You mean the net effect after a long series of transac- 
tions. 

Mr. Flynn. Yes. 

Mr. Frank. A^uin, without indicating my own views in any re- 
spect as to the desirability or undesirability as to preventing competi- 
tion, cannot the same argument be made in any industry that compe- 
tition which will briiig lower cost to the- consumer may ultimately in- 
crease the cost to all consumers, and isn't that argument frequently 
made where persons want to engage in any competitive practice? 

Mr. Flynn. I am really not familiar with that matter. 

Mr, Gesell. I think possibly if we proceed with this, the signifi- 
cance of some of these rules would be more apparent. 

The Chairman. Perhaps you would prefer to conduct your exami- 
nation without interruption by the committee. 

Mr. Gesell. I would, sir. 

The Chairman. We will try to observe that rule. 

Mr. Gesell. Will you tell me, Mr. Flynn, when it was after your 
organization in 1917 that you first started to consider bringing about 
uniform rates? 

Mr. Flynn. I would say within a year or two. 

Mr. Gesell. I show you a letter from Mr. Morris to Mr. Craig, of 
the Metropolitan, Mr. Morris being then actuary of the Travelers, and 
ask you If that letter does not indicate that in 1917, the very year 
that the organization got together, there was some discussion of the 
desirability of bringing about uniform rates ? 

Mr, Flynn. AVell, that apparently was written by Mr. Morris to 
Mr. Craig. 

Mr. Gesell. You recognize his signature, do you not? 

Mr. Flyva-, Yes, sir. 



CONCENTKATION OF ECONOMIC POWER 4163 

Mr. Geseul. So that this letter would indicate that as early as 
November 26, 1917, there was some consideration being given to the 
desirability of bringing about uniform rates for group life insurance. 

Mr. Fltnn. It appears so. 

Mr. Gesell. I should like to read a paragraph of this letter [read- 
ing from "Exhibit No. 642"] : 

I am working on a schedule, by occupation, of rate classification to see if it is 
not possible to bring about some uniformity among the companies in this matter. 
As I look at it, lack of uniformity is a decided draw-back to the business as a 
whole. For instance, on a certain class of risk where there is competition and 
the Travelers quotes a B rate, the Aetna a C, and the Metropolitan a D rate, the 
Travelers, all things being equal, gets, the business. If, on the other hand, th.e 
Aetna quotes the A rates, the Metropolitan the B, and the Travelers the C, the 
chances are that the Aetna gets the business, so that the tendency due to lack 
of uniformity is toward the company quoting the lowest rate. If the companies 
were able to average up on other risks, the situation might not be as serious, but 
when the tendency is always the same the result is, of course, the writing of 
group business below the average quotations. In other words, it isn't necessarily 
one company but all companies that suffer through a lack of uniformity. Of 
course, I refer to companies granting nonparticipating or practically noupar- 
ticipating rates. Whether we can get all such companies to consider such a 
scale is another matter, but it is worth trying. 

I would like to offer that letter for the record. 

The Chairman. Have you identified it? 

Mr. Gesell. The witness has identified it. 

The Chairman. The letter may be received. 

(The letter referred to was marked "Exhibit No. 642" and is in- 
cluded in the appendix on p. 4687.) 

Mr. Gesell. Will you tell me when it was that the members of this 
informal association first agreed upon a uniform rate base? 

Mr. Flynn. I can't tell from memory. 

Mr. Gesell. May I call your attention to another memorandum writ- 
ten by Mr. Morris from the files of your company to the president and 
to Vice President Way.^ "What is the date of that memorandum ? 

Mr. Flynn. April V2, 1919. 

Mr. Gesell. Mr. Morris is dead, is he not ? 

Mr. Flynn. Yes ; he is. 

Mr, Gesell. Will you examine that memorandum? Does that re- 
fresh your recollection ? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. Wlien was it the uniform rates were agreed upon ? 

Mr. Flynn. 1919. 

Mr. Gesell. Do you recall what companies agreed to them at that 
time? 

Mr. Flynn. Aetna, Travelers, Connecticut General, I think 

Mr. Gesell (interposing). Metropolitan and Prudential? 

Mr. Flynn. They agreed upon a slightly higher rate, approxi- 
mately 5 percent higher. 

Mr. Gesell. That was to take care of the difference, was it not, be- 
tween the three Hartford companies, which were writing on a non- 
participating basis, and the two New York companies, writing on a 
participating basis? 

Mr. Flynn. That is right. 

1 Subsequently introduced as "Exhibit No. 64a," infra, p. 4165. 



4164 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. The net result of the rates agreed upon was to elimmate 
competition entirely so far as rates were concerned among those prin- 
cipal companies, was it not ? 

Let me read a paragraph of this letter [reading from "Exhibit No. 
643"] : 

It would seem, therefore, that the action which has been sought by the Hart- 
ford companies involving an understanding as to rates and maximum commis- 
sions is now possible and that competition on the basis of rates and underwrit- 
ing, as well as commissions, wii' in the future be avoided by an agreement of 
the three Hartford companies, the Metropolitan and the Prudential. 

That is pretty specific, is it not? 

Mr, Flynn. I agree upon agreement as to rates, but not as to the 
purpose of it. 

Mr. Geslll. Well, regardless of the purpose of it, the result was to 
eliminate competition so far as rates and commissions were concerned, 
was it not ? 

Mr. Fi-TNN. Yes ; ruinous competition, really. 

Mr. Abnold. This eliminates all competition, doesn't it? 

Mr. Flynn. I imagine at that time there were other companies writ- 
ing group insurance. 

Mr. Arnold. But you three companies, in your anxiety to eliminate 
ruinous competition, made an agreement which eliminated all compe- 
tition. 

Mr. Flynn. Competition of those companies, bat if there were com- 
panies outside they would have different rates, perhaps. 

Mr. Gesell. This agreement involves the Tra/elers, the Aetna, the 
Connecticut General, the Metropolitan, and the Prudential, does it 
not? And does not the memorandum also state Ihat the Equitable is 
not to be considered from a competitive point of view, because their 
rates are higher than the rates of those other five companies ? 

Mr. Flynn. Yes ; it says that. 

Mr. GESELt,. Then we have the six largest companies writing group 
life insurance coming to an understanding with respect to both rates 
and commissions, which eliminates competition; is that not correct? 

Mr. Flynn. As to eliminating competition, I can't quite agree with 
that. 

Mr, Gesell. It eliminates it from the point of view of rates, from 
the point of view of underwriting, and from the point of view of 
commissions to agents. 

Mr. Flynn. Among the six companies. 

Mr. Gesell. At this time, 1919, what other company was in a posi- 
tion to compete with these six large companies ? 

Mr. Flynn. I can't recall offhand, but Canadian companies, if I 
remember correctly, were at that time writing business. 

Mr. Gesell. You mean there might be a little competition up in 
Ottawa, or up near Hudson Bay ? 

Mr. Flynn. No ; they were doing business in the United States — I 
believe the Sun Life and one or two other companies. 

The Chairman. So far as these particular companies are concerned, 
you did eliminate competition? 

Mr. Flynn. So far as rates and commissions were concerned. 

Mr. Gesell. Rates and commissions and underwriting. 

Mr. Flynn. And the underwriting rules also. 



CONCENTRATION OF ECONOMIC POWER 4165 

The Chairman. And in expressing the fact that an agreement had 
been reached among six companies to eliminate competition the memo- 
randum stated "The Equitable's rates being so much higher, they have 
not caused controversy. Would it be a proper inference that some of 
the other companies which were not in the agreement were also charg- 
ing higher rates, and therefore were not bothering you from a com- 
petitive standpoint ? 

Mr. Flynn. I can't recall. Senator. I doubt if that was so; but I 
should remark here, I think, to clarify this, that the Metropolitan, Pru- 
dential, and Equitable rates were participating rates. 

The Chairman. In order that the record may be clear, let me ask 
you to define briefly the difference between participating and non- 
participating companies. 

Mr. Fltnn. Participating contracts provide for the participation 
in profits under the contract of the policyholder; nonparticipating 
contracts are guaranteed maximum rates without a participation 
clause. In later years it developed that nonparticipating companies 
gave what we call "experience credits," and are doing that today. 

Mr. Gesell. Now, at this time, in simple language, if you have 
•I nonparticipating group life policy the policyholder doesn't get 
anything back. If he has a participating policy he may get some- 
thing back. There is a difTerence there, isn't there? 

Mr. Flynn. That isn't true today. 

Mr. Gesell. I am talking as of April 1919, when this memoran- 
dum was written. 

Let me read this memorandum to refresh you on that [reading 
from "Exhibit No. 643"] : 

The rates for standard groups suggested by the subcommittee appointed at 
an earlier meeting were considered acceptable as the minimum for the non- 
participating companies. The Metropolitan and the Prudential announced that 
they would use these rales increased approximately 5 percent for dividends. 

In other words, the Metropolitan and Prudential, which had par- 
ticipating rates, raised their rates 5 percent for the dividend of 5 
percent which they would eventually give back to the policyholder 
so that the rates were uniform. 

Mr. Flynn. The dividend would not necessarily be 5 percent. It 
simply gave a little more margin and leeway so that they could offer 
participation. 

Mr. Gesell. Your effort here was to even out any differences which 
might exist, because one set of companies were writing nonpartici- 
pating business and the other set of companies were writing par- 
ticipating business. Isn't that so? 

Mr. Flynn. I wouldn'< say it evened it out, because the dividends 
might run considerably more or considerably less than 5 percent. 
It was simply to give a working margin more than the nonparticipat- 
ing rate. 

Mr. Gesell. I should like to offer the memorandum which we have 
just been discussing for the record. 

The Chairman. The memorandum may be received. 

(The memorandum referred to was marked "Exhibit No. 643" and 
is included in the appendix on p. 4688.) 

Mr. Arnold. What consideration was given to the consideration 
of antitrust laws at the time this agreement was made? 



4166 CONCENTRATION OF ECONOMIC POWER 

Mr. Flynn. My answer must be more or less of an estimate. I 
don't think that much of any consideration was given to it at that 
time. I think it was in the minds of certain officials of certain com- 
panies, but I don't think it had been discussed a great deal. 

Mr. Gesell. Mr. Flynn, this memorandum which has just gone into 
the record is dated April 12. 1919. I wish to read you a memorandum 
dated May 9, 1922, which you wrote to Mr. Brosmith, vice president 
and general counsel of your company [reading from "Exhibit No 
644" 1] : 

The following question has been raised at various times : Are the companies 
writing group insurance violating any antitrust law or in any way acting in an 
illegal manner by permitting their representatives to gather periodically in 
order to pool their knowledge as a basis for a unanimous recommendation of a 
necessary underwriting rule, or by pooling their experience as a basis for 
rates? 

The recommendation of the informal committee of representatives can be 
adopted or rejected by each company, but as a general rule no recommendation 
is adopted by the committee unless the vote is unanimous. There is nothing 
binding upon any company to follow the underwriting rule, the recommended 
commission scales, or the rates which are recommended, but each company 
appreciates the advantages of cooperation to such an extent that it follows its 
own rules, which are generally based upon the recommendations of the 
committee. 

Will you kindly let me have your opinion as to the legality of this procedure? 

You recognize that memorandum as yours, do you not? 

Mr. Flynn. I do. 

Mr. Gesell. Does that refresh your recollection as to your worries 
about antitrust legislation at this time ? 

Mr. Flynn. At this time the question had been raised by some com- 
pany officials. In answering Mr. Arnold's question, the time was back 
in 1919. In '22 this question was much more alive. 

Mr. Gesell. Will you tell me what briught up tliis question and 
what prompted the writing of this memorandum that we have just 
read ? 

Mr. Flynn. One company questioned the propriety or the legality 
of companies getting together. 

Mr. Gesell. What company was that ? 

Mr. Flynn. Metropolitan Life. 

Mr. Gesell. All right ; will you tell us about what happened ? 

Mr. Flynn. I believe at that time there was some thought of a 
more formal organization, and the Metropolitan was fearful that it 
might not jibe with certain antitrust laws. 

Mr. Gesell. That was in 1922, was it not? 

Mr. Flynn. That was in 1922. 

Mr. Gesell. Your formal organization wasn't made until 1926, 
was it? 

Mr. Flynn. No. 

Mr. Gesell. Do I understand that away back in 1922 you were 
considering getting together on a more formal basis? 

Mr. Flynn. I think there was talk of it. I can't be sure. 

Mr. Gesell. What was done to dissolve the worries of the Metro- 
politan about this matter? 

Mr. Flynn. Mr. Brosmith made a reply to my memorandum. 
Mr. Brosmith was recognized, I think, as a very fine lawyer, par- 



1 Subsequently introduced, see infra, p. 4168. 



CONCENTRATION OF ECONOMIC POWER 41g7 

ticularlA^ in insurance ]a^Y. He had had the experience of other 
oro:aDizations in other lines of insurance. I think that had a large 
effect upon the decision of the Metropolitan. 

Mr. Arnold. Did he draw up this formal statement of your policy 
which was read as part of that letter? 

Mr. Geselx,. The second part of your letter. 

Mr. Fltnn. Do you refer, Mr. Arnold, to May 9, 1922? 

Mr. Arnold. Yes; May 9, 1922. 

Mr. Flynn. This does not refer really to a formal understandinij. 
In this second paragraph I am referring to the method of handling 
these informal meetings, and I say : 

The recommendation of the informal committee of representatives can- be 
adopted or rejected * * *. 

That was not a written rule. That was our practice. 
Mr. Arnold. It occurs to me from reading this that it is some- 
what cagily drawn for the purpose of getting a complete undcM' 
standing that competition will be iliminated and also for the pii- 
pose of making it appear that the law is not being violated. I; 
example, you start out by saying that no recommendation is adopts ' 
by the committee unless the vote is unanimous. Then you say <:hei ^ 
is nothing binding on the company to follow these rules, and the 
you say, "Well, we are going to follow them anyhow." It seems U> 
point both ways, and it seems to have a certain similarity to man} 
other attempts to^ stay within the antitrust laws and get all the 
advantages of combination. 

Is that an unfair characterization of that memorandum ? 

Mr. Flynn. I wouldn't say it was unfair except in the aninuis. 
Our effort wasn't to stay within the law and accomplish things, but 
to attempt to get together informally for the good of the business. 
We had, perhaps, in mind the fact that if we did one thing oi' 
another thing it might be questioned by certain of the informal mem- 
bers. This was drawn to Mr. Brosmith's attention by me, stating it 
in a rather careful way in order to show, really, the animus of the 
members in working things out. 

Mr. Arnold. The animus of the members was to get together, but 
at the same time not to appear to get together. Is that right? 

Mr. Flynn. I think that isn't quite right. 

Mr. Arnold. This certainly was drawn with the idea that there was 
a real danger of violating the antitrust laws, and it was d-"awn for 
the purpose of obtaining the benefits of combination for your com- 
pany and at the same time not appearing to violate the law. 

Mr. Flynn. I think that is right. 

Mr. Gesell. Mr. Flynn, will you look at the second page of that 
document and tell me whether or not that is not the reply which Mr. 
Brosmith wrote to j^ou? 

Mr. Flynn. Yes; that is the reply. 

Mr. Gesell. May I also show you another memorandum to Mr. 
Brosmith, under date of March 28, 1925, 3 years later, and ask you 
if you do not recognize that. 

Mr. Henderson. Mr. Gesell, did you introduce into the record 
Mr. Flynn's memorandum? 

124491 — 40— pt. 10 3 



4168 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I neglected to, Mr. Henderson. I wish to offer for 
the record at this time Mr. Flynn's memorandum to Mr. Brosmith, 
which has been identified, and Mr. Brosmith's reply. 

The Chairman. The memorandum may be received, together with 
the reply. 

(The documents referred to were marked "Exhibit No. 644" and 
are included in the appendix on p. 4689.) 

Mr. Gesell. That memorandum which you have in your^ hand 
would indicate that it was not until 1925 that the Metropolitan 
raised the objection with respect to the legality of this procedure. 
Is that not correct? 

Mr. Flynn. This would lead you to think so, but I think th^t opinion 
I got from Mr, Brosmith was because of discussions at that? time. 

Mr. Gesell. In other words, in 1922 the Metropolitan Life Insur- 
ance Co. was worried about this matter; and in 1925, 3 years later, 
they are still worried about it. 
- Mr. Flynn. They are still discussing the matter. 

Mr. Gesell. May I have the memorandum, please, a moment? 
Mr. Brosmith is dead, is he not? 

Mr. Flynn. Yes; he is. 

Mr. Gesell. You say to Mr. Brosmith as follows [reading from 
"Exliibit No. 645" ^] : 

Mr. J. D. Craig, of the Metropolitan, told me the other day that President 
Fiske, at a recent conference, told Kavanagh and Craig — 

Those are actuaries, are they not, of the Metropolitan? 
Mr. Flynn. Craig is. Kavanagh is the head of the sales organi- 
zation. 

Mr. Gesell (reading further) : . 

that he was still firmly of the opinion that representatives of the Metropolitan 
should not convene with other companies writing group insurance with the 
idea of adopting certain recommendations. Mr. Fiske — 

Mr. Fiske was the president of the Metropolitan ? 

Mr. Flynn. Yes. 

Mr. Gesell (reading further) : 

Mr. Fiske had recently told the Metropolitan they could attend such confer- 
ences, but he says now he thought they were group accident and sickness 
conferences, not group life. 

I asked Mr. Crang if this was simply an excuse for the Metropolitan to break 
over the traces, and he said "No" ; that Mr. Fiske was sincere in his opinion 
that by getting together with other company representatives, even in an informal 
way, the Metropolitan was violating certain laws — and that Mr. Fiske based 
this opinion mainly upon the advice of Mr. Lincoln. 

Mr. Lincoln is a lawyer, is he not? 

Mr. Flynn. Yes. 

Mr. Gesell. Now president of the company, is he not ? 

Mr. Flynn. Yes. 

Mr. Gesell (reading further from "Exhibit No. 645") : 

Craig said that Mr. Lincoln thinks that the informal get-together of the group 
companies is in violation of certain statutes. I tried to find out what statutes 
he referred to. Craig did not know, but did say that a year or so ago Lincoln 
drew to his attention a bill proposed in Arkansas, section 2, article 151, which 
prohibited such getting together of companies engaged in life-insurance business. 
Jim was not sure that such a bill "had passed. 



1 Subsequently introduced, see infra, p. 4170. 



CONCENTRATION OF ECONOMIC T^OWER 4169 

I suggested to Mr. Craig that you talk with Mr. Lincoln about the matter, 
and he thought it would be advisable, as Mr. Fiske would not change his mind 
until Mr. Lincoln changed his. I have spoken to Mr.- Butler — 

He was the president of your company, was he not ? 

Mr. Fltnn. Yes. 

Mr. Gesell (reading further): 

and he wanted me to suggest to you that you take the matter up with Mr. 
Lincoln to see what he had in mind. 

Although the Metropolitan are supposed to conform to all of the rules, even 
if they do not attend the conferences, it would be a much better working plan 
to have them on hand at the meetings; and it would also be much better to 
clear up the question of legality of our meetings, as some of the other companies 
may also become frightened if they feel that the Metropolitan really have some 
legal grounds upon which to stand. 

Do you recognize attached to that memorandum the reply which 
Mr. Brosmith gave you? Do you recognize that, Mr. Flynn? 

Mr. Flynn. It is not initiatled, but I have seen it. I recognize it. 

Mr. Gesell. I would like to read that to the committee, if I may. 
This is a memorandum dated March 30, 1925, from vice president and 
general counsel to Secretary Flynn— that is yourself, is it not? 

Mr. Flynn. Yes. 

Mr. Gesell (reading from "Exhibit No. 645") : 

Re antitrust laws, and Haley Fiske's position re Metropolitan. 
In many of the States the laws which prohibit trusts and combinations in re- 
straint of trade have been held to apply to insurance companies. In some of 
these States the words "insurance" or "insurance premiums" or "ii^i durance-pre- 
mium rates" are specifically mentioned. In other States the languj«e of these 
laws is not broad enough to affect the business of insurance. Again, in other 
States there are no laws against trusts or combinations in restraint of trade and 
the common-law rules prevail. 

Commencing back about 1910 or 1911, the legal committees of the several cas- 
ualty bureaus made studies of all of the antitrust laws and of decisions in all of 
the States bearing thereupon and prepared a schedule for the use of the casualty 
organizations, indicating in which States mandatory rates might be used and in 
which States only advisory rates- 
Do you have that distinction between advisory and mandatory rates 
in your organization ? 
Mr. Flynn. No. 
Mr. Gesell (readtng further) . 

also, indicating the pains and penalties for violations of the statutes where they 
applied, and the connnon-law penalty was simply that of an injunction prohibit-, 
ing the combination without any other penalty or damage. 

All of the casualty organizations are operating under the opinions given by our 
legal committees, and I venture to say that the fire-insurance companies are 
operating under opinions of like tenor given by the counsel to their organizations. 

We have never had; any trouble concerning rates or agreements or combinations 
in any State of the Union except Kansas, where, some years ago, an action was 
brought against a nvmaber of the casualty companies and thereafter dismissed. 
The fire companies have had trouble in some States which has been overcome 
in part by laws intended to regulate rates. 

To the extent that these laws apply to insurance companies, it would seem that 
they apply equally well to life insurance and accident insurance and to tho 
organizations of companies which care for the interests of life- and accident- 
insurance companies, so that a company oflicial who is fearful of the results 
should avoid membership on the part of his company or of its officers in the life 
presidents, American Life Convention, actuarial societies, and kindred organiza- 
tions, which all have more or less to do with the establishment of the right 
premium rates for insurance and the maintenance of right practices. 



4170 CONCENTRATION OF ECONOMIC POWER 

With regard to employers' liability and compensation insurance, the question 
of a violation of any of these laws is practically a dead letter in all of the States 
in which other laws require that the rates charged for such insurances shall be 
ratefe which shall have been approved as to adequacy and reasonableness by 
the insurance supervising oflBcial or an industrial board or commission. This 
is true as to certain States with regard to fire insurance as well. 

You should note this next paragraph, ^Mr. Flynn, because I want 
to ask you about it : 

To sum up, in many States there is no real risk at all. In some States there 
is a technical risk, but this is no greater than all of the companies are taking 
every day in the year with regard to some requirement or other. 

We expect to have the life counsel meet in Hartford the 13th and 14th of 
. May, and I shall probably have a chance to discuss this question with Lincoln 
during the sessions. 

I wish to offer these memoranda for the record. 

The Chairman. They may be received. 

(The memoranda referred to were marked "Exhibit No. 645" and 
are inchided in the appendix on p. 4690.) 

Mr. Gesell. The result of Mr. Brosmith's legal analysis of the com- 
plicated question was that if you continued, you_ possibly were 
technically violating some State antitrust laws, was it not? 

Mr. Flynn. Yes. 

Mr. Gesell. What was done about Metropolitan's objection ? Did 
they continue in the organization ? 

Mr, Flynn. I think they did. 

Mr. Gesell. Was the nature of your organization changed in any 
way, or did you not continue just the same way after this legal 
opinion ? 

Mr. Flynn. If I remember rightly, the Metropolitan gathered with 
the other company representatives after that, provided no matters 
bearing upon rates or rate making were handled. 

Mr. Gesell. The rest of your companies continued to consider rates 
and handle rate matters? 

Mr. Flynn. Keally outside the organization; it was sort of an 
actuarial gathering. 

Mr. Gesell. You mean that you moved your rate-making activities 
from your informal organization to another group? 

Mr. Flynn. Yes. 

Mr. Gesell. I see. In view of these references in the memoranda 
10 State antitrust laws, if the committee please, I think it might be 
well for me to offer for the record as background only the statutes of 
eight States, which appear to contain specific prohibitions of one 
type or another against life-insurance companies combining as to 
rates or entering into one form or another of anticompetitive 
agreement. 

The Chairman. Ic is not your desire to have those statutes printed 
in the record, is it? 

Mr. Gesell. I just would like to save the committee the rather ar- 
duous job of reading through and pulling out those statutes. I can 
summarize them for you. 

The Chairman. I think the summarization of the statutes would 
be all that is necessary. 

Mr. Gesell. The ones I refer to are Arizona, Georgia, Kansas, Ne- 
braska^ Oregon, South Carolina, Texas, and Washington. I might 



CONCENTRATION OF ECONOMIC POWER 4171 

make brief reference to one or two of these States, The Arizona stat- 
ute, for example, defines a trust as — 

a combination of capital, skill, or acts, by two or more persons * * to 

control the rates of insurance.' 

In Nebraska the definition of a trust includes — 

a combination of capital, skill, or acts by two or more persons to prevent com- 
petition in insurance, either life, fire, accident, or any other kind.* 

The Georgia statute states: 

No insurance company authorized to do business in this State, or the agent 
thereof, shall make, maintain, or enter into any contract, agreement, pool, or 
other arrangement with any other insurance company or companies, licensed to 
do business in this State, or the agent or agents thereof, for the purpose of, or 
that may have the tendency or effect of, preventing or lessening competition in 
the business of insurance transacted in this State.'' 

I might say the statutes of Oregon and Washington are patterned 
after this Georgia statute and are quite similar. 

The CHAIRMAN'' All of these statutes have specific prohibitions of 
certain types of combinations and agreements with respect to the fixing 
of insurance rates? 

Mr. Gesell. That is correct, and I have not included in this dis- 
cussion those statutes where it is clear that they do apply only to 
casualty or fire companies. 

The Chairman. Nor have you included those States which have 
antitrust acts without specific allusion to any particular type of busi- 
ness. 

Mr. Gesell. That is correct. There are, of course, as the chairman 
knows, many such statutes. 

Kather than reading the citations I will hand them to the reporter 
to copy the citations for the record. 

The Chairman. Very good. 

(The citations referred to were marked "Exhibit No. 646" and are 
included in the appendix on p. 4692.) 

Senator King. In those States to which reference has been made by 
counsel, was there any requirement that before insurance was written 
in those States the rates must be filed and a license obtained from the 
insurance commissioner ? 

Mr. Fltnn. As regards life insurance? 

Senator King. Yes. 

Mr. Flynn. I really don't know. 

Senator King. Did your company write insurance in any State 
without submitting the rates or obtaining a license from the insurance 
commissioner of that State? 

Mr. Flynn. We always obtained the license from the insurance 
commissioner, but as a rule there is no law requiring the filing of 
manual life rates. 

Senator King. What representations are required in the States to 
which you have referred by the State law or by the insurance commis- 
sioner before the license is obtained? In other words, what are the 
prerequisites which must be satisfied by the applicant in order to obtain 
a license ? 



1 See "Exhibit No. 646," appendix, p. 4692. 
^ Ibid, at p. 4695. 
« Ibid, at p. 4692. 



4172 CONCENTRATION OF ECONOMIC POWER 

Mr. Flynn. Ordinarily a deposit, I mean a certain corporate stand- 
ing, not necessarily a deposit of security. 

Mr. Gesell. I would be glad to prepare a memorandum on that 
for you, Senator, for the record.^ 

Senator King. I would be glad to get that. 

My recollection is, and I had that in mind when I propounded 
the question, that in New York you had a statute which very care- 
fully outlines the piogram, the rates, and the steps to be taken in 
order to do business in that State. 

Mr. Flynn. That is correct. 

Senator King. And reports must be submitted of the financial stand- 
ing of the various companies, the number of policies which they have 
written, and the obligations which they have assumed, and the re- 
serves, and so forth, so you operate in New York under the directioit 
of the statute, substantially. Is that true of other States ? 

Mr. Flynn. That is true of all States. "We must file annual state- 
ment forms and any other schedule or form they want annually. 

Senator King. Do those forms require a statement as to your assets 
and liabilities? 

Mr. Flynn. Yes, sir. 

Senator King. Tlie policies which you have written ? 

Mr. Flynn. Yes, sir. 

Senator King. And the obligations which you have assumed under 
those policies ? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. Now, Mr. Flynn, we made passing reference some while 
ago to the fact that the companies agreed upon a uniform rate of life 
insurance in 1.919. That was the so-called T rate, was it not? 

Mr. Flynn. I can't say whether at that time the T rate was adopted^ 
or not. 

Mr. Gesell. , Will this refresh your memory ? 

Mr. Flynn. That is correct. 

Mr. Gesell. That T rate in effect was agreed to by all of the com- 
panies that belonged to this informal conference at this time, was 
it not? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. And those were the principal companies writing group 
life insurance? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. And that rate — here you want to w^atcli me, because 
I am getting into actuarial language — was a rate based upon the 
American Men's Ultimate Table, with provision for loading of $1.70 
plus 5 percent of gross for commissions and an additional 1% percent 
of gross for taxes. Is that not correct ? 

Mr. Flynn. You have really got me ; I think that is correct. 

Mr. Gesell. That makes me feel better, Mr. Flynn. 

That T rate fixed the price at which group insurance could be sold 
by all of those companies which were members of your conference? 

Mr. Flynn. I would like to check as to whether or not that par- 
ticipating rate of the Metropolitan and Prudential was still in exist- 
ence, which was approximately 5 percent more than the T rate. 

'*Mr. Gesell subsequently submitted a memorandum entitled "Summary of Statutory 
Prereqiilsites for Licensing of Life Insurance Agents" wliich appeaISs in the appendix on 
p. 4929. 



CONCENTRATION OF ECONOMIC POWER 4173 

Mr. Gesell. We can do that at the noon hour, and if you will let 
us know in tlie afternoon session it will be fine. 

At this time did you also enter into various underwriting agree- 
ments of one sort or another which would control the underwriting 
practices of the companies? 

Mr. Flynn. Yes. The rules of the informal association governed 
the major underwriting practices. 

Mr. Gesell. May I summarize them briefly? 

In addition to the rate agreement on the rate which we con- 
sidered, you had agreements concerning the commission scale, did 
you not? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. You also had certain agreements affecting various 
hazardous industries, so-called? 

Mr. Flynn. Extra premiums; yes. 

Mr. Gesell. -Those were additional rates that would be charged in 
industries where the mortality experience was high because of the 
nature of the occupation of the employees? 

Mr. Flynn. That's it. 

Mr. Gesell. You also had some agreements with respect to the 
maximum amount of insurance and the size of the group that would 
be written, did you not ? 

Mr. Flynn. Yes. 

Mr. Gesell. You also had provisions with respect to the transfer 
of business, which we have discussed ? 

Mr. Flynn. Yes. 

Mr. Gesell. Had you at that time gotten to a consideration of 
uniform policy forms and provisions, and done something to make 
those provisions uniform ? 

Mr. Flynn. Only so far as the policy provisions would be af- 
fected by those underwriting rules, 

Mr. Gesell. Wherever the underwriting rule related to a policy 
provision, some uniformity resulted, did it not? 

Mr. Flynn. Yes. 

Mr. Gesell. Will you tell me what led to the organization of the 
formal Group Association in 1926, why it was you changed the na- 
ture of your operations? What prompted the change, and what was 
the change ? 

Mr. Flynn. Toward the end of 1925 competition became very in- 
tense. 

Mr. Gesell. Tell me what you mean by that, please, Mr. Flynn. 

Mr. Flynn. Well, a large case would be in prospect and 4 or 5 
comp;inies would be trying to write it, and the various ways in 
which you would modify your proposition and give a little more for 
• the money or a little' different scheme for the employer were all 
worked out. Toward the end of 1925 schemes of experience rating 
were developed rather intensely; that is', at the end of the first year 
there would not be a guaranty, but another case had shown such 
and such an experience rating at the end of that period, therefore 
that would be mentioned. Toward the end of '25, or right at the 
end of the year, one company cut rates in large cases. 

Mr. Gesell. What company was that ? 

Mr. Flynn. That was Travelers. 

Mr. Gesell. That was your co^mpany? 



4174 CONCENTRATION OF ECONOMIC POWER 

Mr. Flynn. My company, because so many plans for modifying the 
net cost had been offered that we thought the best way was to simply 
cut the contract rate. The New York Insurance Department took 
cognizance of this development and called the companies together, 
and various hearings were held in December and January as a result. 
A law was enacted in the early part of 1926 establishing the legal 
minimum rate for group life insurance. 

Mr. Gesell. Well now, before we come to the enactment of tha' law, 
which we will consider in a moment, I want to develop a little more 
the facts and circumstances that led to its enactment. You say that 
one company, the Travelers, had cut rates. Was it true that you were 
having difficulty holding other companies in line on the various under- 
writing, provisions which you had set up ? 

Mr. Flynn. I think only mainly as regards the matter of estimated 
net cost. 

Mr. Gesell. Well now, you had a rule, did you not, which pre- 
vented the insurance company from agreeing to make available to 
the employer clerical assistance which was needed in the preparation 
of the cards and system to cover the group insurance? 

Mr. Flynn. Yes. 

Mr. Gesell. Was not that one of the matters which you were having 
difficulty holding people in line on? 

Mr. Flynn. I think it probably was. 

Mr. Gesell. May I read, to refresh your recollection, from a memo- 
randum from you to President Butler under date of March 26, 1924? 
I read onlv a portion of the memorandum [reading from "Exhibit 
No. 647"] :" 

During the 2 weeks preceding the meeting, we had lieard from the field of 
the offer of the Aetna in several cases to supply clerical assistance. 

All that is is just getting some people over to help with the clerical 
side of the business, isn't it ? 

Mr. Flynn. I think to stay there and continue to handle the clerical 
work in connection with the cards and registration. 

Mr. Gesell. Just helping out the man, giving better service to the 
man getting the group policy. 

Mr. Flynn. Not installation, but continuing the handling of the 
records. 

Mr. Gesell. During the time the policy is in force? 

Mr. Flynn. In force. 

Mr. Gesell (reading further from "Exhibit No. 647") : 

The offer was generally made in the form of a monthly allowance for clerical 
hire to handle the detail work. This violation of the spirit of the intercompany 
understanding by the Aetna was the first item on the agewda. After a hot dis- 
cussion of an hour or two, the Hrst two votes outlined in the minutes were 
adopted. In the course of the discussion a large number of cases where Mr. 
Cammack had strained the rules for his company's advantage were brought out. 
A couple of days after the meeting Mr. Cammack reported to me that the Aetna 
had withdrawn as of March 17 all outstanding quotations for clerical assistance. 

Then [reading further] : 

I am referring to the above matter as an important possible cause for trouble 
in the conference which was successfully cleared up and matters put in good 
.shape in short order. It illustrates the willingness of the companies to play 
together on the basis of an honest interpretation of the rules. The meeting was 
Tinfoj^'tunate in that the discussion became somewhat heated and personal and 
undoubtedly scandalized the John Hancock representatives who were present. 



CONCENTRATION OF ECONOMIC POWER 4175 

Clearly Mr. Cammack was being badly chastised and it; was apparent to all that 
upon the basis of his improper practices during the past 6 or 12 months he 
deserved the rough handling that he was getting. The measures which were 
necessary to whip the matter in shape left some of the weaker company members, 
such as the Connecticut Geneial and the Missouri State, at the point where they 
were hinting at getting out of the conference in order to enjoy cut-rate 
opportunities. 

Do you recall that memorandum? 

Mr. Flynn. Yes. 

Mr, Gesell. Well now, all Mr. Cammack had done was to offer a 
little better service to his particular group by giving them some 
clerical assistance during the time the policy was in force. 

Mr. Flynn. I should say it was a material advantage, in that he 
was offering to pay for a clerk to handle all records which other 
employers would have to pay for tliemselves. 

Mr. Gesell. You mean, it gave' his company a competitive advan- 
tage ? 

Mr. Flynn. That's it. 

Mr. Gesell. And even though it might be in the interest of the 
particular group which had the policy, you wanted him to eliminate 
it and you made him eliminate it? 

Mr. Flynn. I wouldn't say it was mainly a question of policy- 
holders interest. It was one of many other ways which gave a 
monetary advantage to a particular purchaser. 

Mr. Gesell. Why shouldn't Mr. Cammack do this if he wanted to 
do it ? IVhy shouldn't he send one of his fellows over to this group ? 

Mr. Flynn. Unless the companies established the practice of doing 
the work for the employers, I think it would be rather discriminatory 
to offer it to some. 

Mr. Gesell. You meai^ you were alarmed because maybe Mr. Cam- 
mack hadn't offered this to all his groups? 

Mr. Flynn. Unless all companies were doing it. 

Mr. Gesell, If he wanted to do it, even if he did it for one feUow 
it would help that fellow out, wouldn't it? 

Mr. Flynn. Well, it was a financial offer to a particular pur- 
chaser. 

Mr. Gesell. In other words, Mr. Cammack had been adopting a 
procedure which, in net effect, enabled him to have a slight com- 
petitive adv^antage, and the rest of you companies were trying to 
prevent him from continuing it, and did succeed, 

Mr. Flynn, Yes — not slight, I would say, as to the competitive 
advantage, 

Mr. Gesell, I offer the memorandum. 

The Chairman, The memorandum may be received, 

(The memorandum referred to was marked "Exhibit No, 647" and 
is included m the appendix on p, 4701. ) 

Mr, Gesej^l. Then am I correct in stating that this association was 
breaking down at many different points? Your company was cut- 
ting rates, some of the small companies were threatening to cut 
rates, Mr. Cammack was offering clerical assistance to some of his 
groups, and generally you were having a little difficulty in binding 
the companies together under your informal association. 

Mr, Flynn, That is correct. 

Mr. Gesell, Who suggested the organization of a formal associa- 
tion? 



4176 CONCENTRATION OF ECONOMIC POWER 

Mr. Flynn. I can't tell. 

Mr. Gesell. Wasn't it true tliat that suggestion came as a natural 
course, as a way of binding the companies closer together and mak- 
ing the rules more enforceable? , . 

Mr. Flynn. I thinlc that is true, and also to have more supervision, 
to have it more formal. 

Mr. Gesell. You mean more self -supervision ? 

Mr. Flynn. Yes; and also to bring in the New York Insurance 
Department to some extent. 

Mr. Gesell. You didn't bring him in,^id you? Isn't it a fact 
that your constitution, as originally drafted, contained a provision 
that he could come in, and you very carefully struck that out when 
you set up your final constitution, so he did have no participation? 

Mr. Flynn. I don't know about that. 

Mr. Gesell. Let me show you this document and direct your at- 
tention to paragraph (c) on pa^e 2, and ask if that doesn't refresh 
your recollection. It is a fact, isn't it, Mr. Flynn, that the super- 
intendent of insurance has no official connection with the association ? 

Mr. Flynn. That is correct. Apparently there is a paragraph 
there wdiich was stricken out later. 

Mr. Gesell. Were there any objections raised to the organization 
of this formal association ? 

Mr. Flynn. Not that I can remember. 

Mr. Gesell. May I show you this letter, a letter from Mr. Hurrell, 
vice president and general counsel of the Prudential, to Mr. Brosmith, 
and ask you if the initials on that letter do not indicate you had 
seen it and initialed it? 

Mr. Flynn. I noted that. 

Mr. Gesell. In order that there can be no misunderstanding, let 
me read you this letter, which is dated February 24, 1926. This was 
just before your formal organization got under way, was it not? 

Mr, Flynn. Yes, sir. 
: Mr. Gesell (reading from "Exhibit No. 648") : 

The proposed constitution for tlie Group Life Association has been turned over 
to me by Mr. Little. I need hardly say that I appreciate the care and skill 
that you have displayed in drafting this constitution, and I cannot- think of 
anything that has been overlooked-in its preparation. ' 

At the same time, I have been wondering whether a written constitution does 
not contain seeds of difficulty for the future. As we all know, the old informal 
group committee was, on the whole, unusually successful in avoiding improper 
methods of competition, particularly in avoiding the cutting of premium rates. 
The fact that first one and then another company chose to withdraw seems to 
have been the real cause of the subsequent difficulties. Where there is an asso- 
ciation with the rather rigid rules prescribed in the tentative constitution, it 
seems to me there would be strong temptation for any dissatisfied company (o 
withdraw as the only possible way in which it could secure independent action 
even on a quite minor point, whereas, as you know, under tlie more flexible 
system of the informal committee, certain differences ia practice did persist 
while the committee was still able to secure a general agreement to follow its 
recommendations. 

There does seem to be — 

and this paragraph.anterests me in view of your statement about the 
insurance commissioner — 

on the part of some of the insurance departments rather a decided tendency 
to look with disfavor on any positive agreement among the companies as to what 
shall and shall not be done in their dealings with the insuring public. To an 
insurance commissioner looking for matter for criticism, I am afraid the formal 



CONCENTRATION OF ECONOMIC POWER 4177 

constitution of the proposed Group Life Association would be found only too 
satisfactory as evidence that the companies were combining to prevent such 
freedom of competition as would result in the maximum service being offered 
for the premiums collected. 

I am frank to admit that perhaps I am unduly timid in this connection, but 
I do feel that we secured a very satisfactory measure of success with the old 
informal group committee, and having now apparently got rid of the problem 
of premium rates, my own feeling is strongly in favor of avoiding anything 
that would supply ammunition to an unfair critic. 

May I offer this letter? 

The Chairman. The letter may be received. 

(The letter referred to was marked "Exhibit No. 648" and is in- 
cluded in the appendix on p. 4702.) 

Mr. Gesell. Were there any otlter companies that were afraid the 
formation of a formal association would have some of the difficulties 
which Mr. Hurrell suggests in his letter? 

Mr. Fltnn. It may be that the Metropolitan still felt that there 
was some danger, but I don't recall whether that was so. 

Mr. GESEiiL. Do you recall, Mr. Flynn, that in setting up the con- 
stitution and the rules which were adopted thereunder, that some 
legal question Was raised as to the statement of the rules, and that 
the rules were slightly modified so as to avoid any indication that 
they would result in a combination in restraint of trade? 

Mr. Flynn. You mean a change in the wording of the constitu- 
tion, or something of that kind? 

Mr. Gesell. a. change in the rules that were adopted. 

Mr. Flynn. I do. 

Mr. Gesell. It is a fact, is it not, that under Mr. Brosmith's recom- 
mendations, rules which have previous!}' said no companies shall do 
this or no companies shall do that, were changed to read no company 
should do this or no companj' should do that? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. Did that satisfy the Metropolitan and Prudential that 
all legal questions were eliminated? 

Mr. Flynn. I can't recall. . 

Mr. Gesell. You recall this letter to Mr. Beers, that you wrote 
on ]\Iarch 12, do you not [reading for "Exhibit No. 649"] : 

Mr. Brosmith has redrafted the rules adopted by the Group Association at its 
meeting held March 5, 1926, as per copy attached. 

As I told you the other day, his feeling xms that the association should be 
careful in putting out its rules or its minutes of meetings to steer clear of any 
indication of combination in restraint of trade. 

My suggestion would be that you send out new set of rules in accordance 
with Mr. Brosmith's draft to be used in place of the earlier set. 

Mr. Fltnn. Yes, sir. 

Mr. Arnold. Am I correct in assuming that the phrase "to steer 
clear of any indication of combination in restraint of trade" means 
that you wanted the combination, but you wanted to steer clear of the 
indication of the combination? 

Mr. Flynn Yes; I thinK that is correct. 

Mr. Gesell. May I offer this letter for the record? 

The Chairman. The letter may be received. 

(The letter referred to was marked "Exhibit No. 649" and is in- 
cluded in the appendix on p. 4703.) 

Mr. Gesell. Now, Mr. Flynn, am I correct in saying that in order 
to obviate some of the difficulties which the Metropolitan and the 



4178 CONCENTRATION OF ECONOMIC POWER 

Prudential and some of these other companies had referred to, it was 
arranged that a law would be enacted under the laws of the State of 
New York which would enable the commissioner of insurance of the 
State of New York to establish the rates, minimum rates for group 
life insurance ? ^ 

Mr. Flynn. I dvon't think that was the reason, Mr. Gesell. I think 
that the superintendent of insurance was the motivating power in 
that, in establishing that minimum rate law. 

Mr. Gesell. After the law was enacted, the same "T" rate which 
had been the rate adopted by the informal association in 1922 was 
enacted as the basic minimum rate under the New York law, was 
it not? 

Mr. Fltnn. Yes. 

Mr. Gesell. And that rate is still the basic rate ? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. Under the New York law. 

Mr. Flynn. Yes, sir. 

Mr. Gesell. So that through the informal association from 1922 
to 1926, and subsequently through the promulgation of that rate 
through the insurance commission under the State law, tha:t "T" 
rate has been the basic rate. 

Mr. Flynn. Yes, sir. 

Mr. Gesell. The companies recommended to the insurance com- 
missioner unanimously, did they not, the adoption of this "T" rate 
at the time the. law went into effect in 1926 ? 

Mr. Flynn. Yes, sir. 

The Chairman. Would it be convenient for you to suspend now, 
Mr. Gesell? 

Mr. Gesell. It would. 

The Chairman. The committee will go into executive session for 
a few moments and will reassemble — what time do you want to re- 
assemble, 2 : 15 ? 

Mr. Gesell. 2 : 15 would be fine, sir. 

The Chairman. The committee will reassemble at 2 : 15 this after- 
noon and you will be on the stand. 

(Whereupon, at 12 : 10 noon, a recess was taken until 2 : 15 p. m. 
of the same day.) 

AFTERNOON SESSION 

(The hearing was resumed at 2:25 p. m., upon the expiration of 
the recess.) 

The Chairman. The committee will please come to order. Are 
you ready to proceed, Mr. Gesell ? 

Mr. Gesell. I am. 

Before the noon recess, we were discussing the provision of the 
New York insurance law, article 2, section 101-a, subparagraph (3), 
which gives to the insurance superintendent authority to fix min- 
imum rates for group life insurance, and in order that the record 
may be complete, I would like to offer a copy of this statute for 
the record. 

The Chairman. It may be admitted. 

1 See "Exhibit No. 650," appendix, p. 4703. 



CONCENTRATION OF ECONOMIC POWER 4179 

(The copy of the statute referred to was marked "Exhibit No. 
650" and is included in the appendix on p. 4703. ) 

Mr. -Gesell. Now Mr. Flynn, that statute covered minimum rates 
on group life insurance for companies which were subject to the 
jurisdiction of the New York superintendent of insurance, did it not? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. There were, however, companies which were mem- 
bers of the association which were not subject to the jurisdiction 
of the New York commissioner, were there not? 

Mr. Flynn. Yes ; that is right. 

Mr. Gesell. Was not an agreement reached with those companies 
whereby they would abide by the rates established by the insurance 
commissioners ? 

Mr. Flynn. Yes; they stated that they would abide by the New 
York department minimum rates. 

Mr. Gesell. Even though they were not subject to his jurisdiction? 

Mr. Flynn. Correct. 

Mr. Gesell. What companies were they? Am I correct in stat" 
ing that the Missouri State was one? 

Mr. Flynn. That was one. 

Mr. Gesell. The Canadian companies? 

Mr. Flynn. The Sun Life of Canada agreed. 

Mr. Gesell. And what other companies? 

Mr. Flynn. I can't recall just which companies were doing busi- 
ness at that time. 

Mr. Gesell. Well now, these companies which were not subject to 
the jurisdiction of the superintendent, did they enter into this agree- 
ment with you before you recommended a rate to the New York 
superintendent, or afterward? 

Mr. Flynn. I can't recall. 

Mr. Gesell. Was it about the same time, do you think? 

Mr. Flynn. About the same time. 

Mr. Gesell. A point with respect to that statute: Does it cover 
straight group life insurance, or does it cover also what are known 
as "extras," or rates for extra-hazardous industries? 

Mr. Flynn. The law covers the minimum rate, but the New York 
department has promulgated the extras by industries. 

Mr. Gesell. There was some doubt when the law was first passed, 
was there not, as to whether or not it covered these so-called extra- 
hazardous occupations? 

Mr. Flynn. I don't recall. 

Mr. Gesell. May I refresh your recollection by reading a portion 
of a memorandum which you wrote under date of February 4, 1926, 
in which you stated: 

Mr. Lincoln, of the Metropolitan, and Major Tuck, of the Equitable, stated 
that if the New York insurance department would make a ruling with regard 
to extra premiums which must be charged by the companies for extra-hazardous 
classifications, so that with standard rates covered by the law all rate matters 
would be taken out of the companies' hands, their companies would enter into 
a formal association to promulgate rules and govern practices of the companies. 
Mr. Craig, of the Metropolitan and Major Tuck, of the Equitable, were ap- 
pointed a committee to recommend to Superintendent Beha that both standard 
and extra rates be handled by him. 

There was some question, was there not, at that time? 
Mr. Flynn. Apparently there was. 



4180 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. As it has worked out, the New York department has 
established rates for extra-hazardous industries as well as the basic 
minimum group life rate. 

Mr. Flynn. Yes. 

Mr. Gesell. Do you recall the date that the Group Association 
was organized? 

Mr. Flynn. I don't. 

Mr. Gesell. Was it not March 5, 1926? 

Mr. Flynn. I would have to check up on that. I think that prob- 
ably would be right. 

Mr. Gesell. Do you recognize that as a copy of the Constitution? 

Mr. Flynn. It is a draft. It says "amended February 1939." 

Mr. Gesell. That is the present constitution as in effect, is it not? 

Mr. Flynn. I would say so. 

Mr. Gesell. And the constitution has been substantially the same 
since the date of the original organization of the association, has 
it not ? 

Mr. Flynn. Substantially the same. I think one or two amend- 
ments have been made. 

Mr. Gesell. Those amendments have mostly related to the estab- 
lishment of separate sections to handle other forms of group insur- 
ance other than group life insurance, have they not? 

Mr. Flynn. Yes, sir. 
■ Mr. Gesell. I would like to offer a copy of the constitution of the 
Group Association for the record. 

The Chairman. The copy may be admitted. 

(The document referred to was marked "Exhibit No. 651" and is 
included in the appendix on p. 4703.) 

Mr. Gesell. I have no further q^uestions for Mr. Flynn at this 
time. With the committee's pern»:ssion I would like to ask that Mr. 
Flynn be not excused because we want to call him again tomorrow 
on a different subject. 

The Chairman. Do any of the members of the committee desire to 
ask Mr. Flynn any questions ? 

Mr. Flynn. To clarify some- of the testimony of this morning, I 
would like to say that although the companies in the Group Associa- 
tion have uniform underwriting rules, tmiform commissions and, 
under the New York statute, have uniform rates, the rates are the 
initial rates. All carriers today are in effect issuing participating 
policies. Participating companies have participation clauses in their 
contracts; nonparticipating companies are allowed under the New 
York statute to make retroactive rate credits, which in effect are 
dividends. So in effect the group life rates are today and have been 
for a number of years participating rates, and the net cost varies 
considerably among the companies. The main basis of competition 
today is not only service, such as claim service, but also the records 
of net cost at which the various companies carry risks of similar size 
and classification. 

Mr. Arnold. It is very difficult for me to judge when presented by 
a number of insurance agents which is the cheaper company on the 
basis of dividends, isn't it ? 

Mr. Flynn. That is correct although if a group prospect is shown 
as an example the actual experience of a risk of about the same size 
and industrial classification the problem is simplified. 



CONCENTRATION OF ECONOMIC POWER 4181 

Mr. Abnold. But there is always a hope for the future in the talk 
of about how efficient the company is, though it is ictually the same. 

Mr. Fltnn. That is true. 

Mr. Arnold. So you don't really get the competition you get if 
the rates are diffc"?nt at the outset. 

Mr. Flynn. I don't see how you can have any more intense compe- 
tition than we have today. 

Mr. Arnold. I am talking about competition of prices. 

Mr. Flynn. Well, price is really the basis of the present-day com- 
petition, to a large extent. Service and reputation, et cetera, have, 
however, some effect. 

Mr. Arnold. Yes; it is a good deal like competition in cigarettes 
and gasoline. There is a great deal of meetings and enthusiasm and 
all that but a general understanding that prices will not be cut. 

Mr. Flynn. Well, the initial price will not be cut; as experience 
indicates there will be a material change in net cost. 

Mr. Gesell. Isn't it also true, although I didn't intend to get into 
the discussion until the next witness, that the Group Association has 
in force at the present time a rule, namely, rule 9-A, which definitely 
prohibits companies from making much competitive advantage our. 
of their relative operating experience by limiting very closely the type 
of sales approach that they can make to a client with respect to the 
amount of money he may expect to get back out of his policy. 

Mr. Flynn. That is correct. 

Mr. Gesell; We will come to a discussion of that rule. 

The Chairman. What degree of competition is there among the 
companies which are associated in this organization ? 

Mr. Flynn. In soliciting a new case, we tire not permitted to say 
that we will carry it with a certain overhead for expenses added to 
claim cost. 

The Chairman. You are not permitted by whom ? 

Mr. Flynn. By the association. We are not permitted to state that 
our experience rating plan or our dividend plan would work out to 
such and such a dividend if you had such and siich a loss ratio, but 
we are permitted — and this is the basis of competition — to take a risk 
of comparatively the same size and the same industrial classification 
and show what has been done in the way of dividends on that similar 
risk. 

The Chairman. But you have, according to this memorandum of 
April 12, 1919,^ effected an understanding as to rates and jnaximum 
commissions such that it is now possible to say that competition on 
the basis of rates and underwriting as well as commissions is avoided 
by the three Hartford companies, the Metropolitan,' and the 
Prudential. 

Mr. Flynn. That is correct so far as the initial rates and initial 
costs. 

The Chairman. Do you recall the answer which you gave when 
your attention was first directed to your memorandum of September 
30, 1924, addressed to President Butler, which concluded with the 
following sentence: 

There is the general feeling among all of the smaller companies based upon 
that which has beTn said in the Actuarial Society and other meetings that all 

* See "Exhibit No. 643," appendix, p. 4688. 



4]g2 C()NCENT]*.ATION OF ECONOMIC POWER 

are invited to cooperate to obtain policy forms, underwriting rules, and so forth, 
if they will be good. 

Your comment M-as that tlie phrase "if they will be good" was 
intended to imply that if they would follow sound practices.^ 

Mr. Fltnn. Yes, sir. 

The CiiAiKMAN. And that it was youi- purpose only to lead these 
other companies along in the proper way ? 

Mr. Flynn. That is it. It was a new line of insurance and we 
would like to help lead them. 

The Chairman. Does that answer require any modification in 
your opinion in the light of your other miemorandum of March 26, 
1924, to President Butler, in which you said, describing the meeting 
at which Mr. Cammack was present [reading from "Exhibit No. 
647"] : 

The meeting was unfortunate in that the discussion became somewhat heated 
and personal and undoubtedly scandalized the John Hancock representatives 
who were present. Clearly Mr. Cammack was being badly chastised and it 
was apparent to all that upon the basis of his improper practices during the 
past 6 or 12 months he deserved the rough handling that he was getting. 

Is that an example of how you led them along in the path in 
which they ought to go? 

Mr. Flynn. That is really an example. 

The Chairman. It is an example? 

Mr. Flynn. Yes, sir. 

The Chairman. I wonder if there are any other examples to 
which you migiit call the attention of the comuTittee which have 
not been revealed by Mr. Gesell. I think you might enliven the 
hearing if you would give us a few more such examples. 

Mr. Flynn. Well, I know there were a number of other cases be- 
cause the Group Association meetings have always been very frank 
and very much to the point with nothing held back. If I could 
remember, I know there are a number that could be told that would 
be very interesting. 

The Chairman. The point always was tO' lead them along in the 
path in which they should go, so as to adopt sound practices? 

Mr. Flynn. That is exactly it. 

The Chairsian. Very well. Are there any other questions? You 
may call your next witness. 

Mr. Gesell. The next witness is Mr. Cammack. 

The Chairman. Mr. Cammack, do you solemnly swear that the 
testimony you are about to give shall be the truth, the whole truth, 
and nothing but the truth, so help jqu God ? . ' 

Mr. Cammack. I do. 

TESTIMONY OF E. E. CAMMACK, VICE PRESIDENT AND ACTUARY, 
AETNA LIEE INSURANCE CO., HARTFORD, CONN. 

Mr. Gesell. Will you state your full name, please, sir? 

jNIr. Cammack. Edmund Ernest Cammack. 

Mr. Gesell. With what company are you associated? 

INIr. Cammack. The Aetna Life Insurance Co. of Hartford. 

Mr. Gesell. Are you actuary and vice president of tliat company? 



* See supra, p. 4158. 



CONCENTRATION OF ECONOMIC POWER 4183 

JSIr. Cammack. Yes, sir. 

Mr. Gesell. How long have 3^ou been with the company? 

Mr. Cammack. Since 1910. 

Mr. Gesell. You are familiar with the affairs of the Group Asso- 
ciation since its formal organization in 1926, are you not ? 

Mr. Cammack. Yes. 

Mr. Gesell. At the present time, and since .November 1937, you 
have been chairman of the Group Association, have you not? 

Mr. Cammack. Yes. 

Mr. Gesell. I would like you to tell us a little about the organization 
of this Group Association, how often it meets, what types of com- 
mittees it has, the type of matters it considers, the formal aspects of 
the Group Association's operations. 

Mr. Cammack. The Group Association meets four times a year and 
special meetings may be called. The obj'ect of the Group Association 
is to promote sound underwriting practices and to prevent abuses 
cropping up in the business. Perhaps the fundamental idea of the 
Group Association is to encourage economy of operatioii so that the 
insurance can be extended to the industrial classes at minimum cost. 
As such the Group Association does not govern rates. I think I may 
say that it does govern to a large extent the cost of operation. Now, 
there is no insurance business so economically and perhaps efficiently 
managed as the group business. The expenses of operation in tlie 
group life business are very low; from 7 to 10 percent only of the 
premiums are consumed in expenses of management and taxes. 

We believe that in the group business, which is intended to extend 
insurance coverage to the industrial classes at the lowest possible cost, 
costs should be divided between the employer and the employee. We 
believe that the employer should pay part of the cost, and it has been 
one of the objects of the Group Association to bring that about. 

Now, the Group Association as such does not govern rates. The 
rates for group life insurance are promulgated and prescribed by the 
superintendent of insurance in New York. 

Mr. Gesell. You are talking about group life insurance now? 

Mr. Cammack. I am talking about group life insurance for the 
moment, sir. 

When we say that the rates are governed by the New York Insur- 
ance Department I mean simply the initial deposit. The rate 
under the group life policy is not determined until the end of the first 
year, and it is different in each company, and it is the subject of the 
keenest competition. 

I am associated with a nonparticipating company, and we will write 
a group policy, if you will, on a thousand lives, and the initial rate 
prescribed by New York law, we will say, is 90 cents a month per 
$1,000 of insurance. We provide in our policy that at the end of the 
year we will adjust that rate downward if experience justifies it. We 
>eannot raise it. But if, for example, we can reduce the rate from 90 
cents to 70 cents for the second year, we make that second year cost 
retroactive to the first year, and we give the policyholder a 20-(ient 
refund, so that you see the rate is not determined in advance — the rlate 
is little more than a deposit. 

Mr. Gesell. Well, now, Mr. Cammack, my question to you was, Will 
you tell us about the formal organization of the association? I am 

124491— 40— pt. 10 4 



4184 CONCENTRATION OF ECONOMIC POWER 

very interested in this ijuestion of rebating, the whole question of cost 
of insurance, and whether or not the business is or is not competitive, 
but I would like to set up for the committee, first, if you don't mind, 
the formal organization of the committee, who the members are, how 
often it meets, what types of rules they are bound by, how they vote, 
what kind of decisions they have. Then we can get into these more 
technical and interesting matters. 

Mr. Cammack. Yes, sir. There are two officers of the association, 
the cliairman and the secretary. There is a chairman of the sub- 
section that handles group sickness matters, and another subsection 
that handles group pensions. 

Mr. Gesell. By group pensions you mean group annuities? 

Mr. Cammack. Grouj) annuities. 

Now tlie group association passes underwriting rules. No under- 
writing rule is adopted unless it is unanimously voted for, and after 
meeting, the companies have some 10 days in which to veto that rule. 

Mr. Gesell. Let me see if I get that straight. You have a vote at 
the regular meeting of your association. 

Mr. Cammack. Every member. 

Mr. Gesell. And suppose that all the members say, "We are in favor 
of this rule." There is still a 10-day period within which the repre- 
sentatives can veto. They may do that after they consult the manage- 
ment of their companies or after further consideration, or for what- 
ever reason it is. 

Mr. Cammack. That is so. 

Now a member is bound, in writing, to the rules that are so ad.opted, 
but if one of the companies feels that the ruling is not a good one, that 
member can serve notice that after 60 days it withdraws from that 
rule, and it is not bound by that rute any more. 

The Chairman. Did you say a member is bound in writing? 

Mr. Cammack. A member who joins the association agrees in writ- 
ing to keep the rules of the Group Association. 

Mr. Gesell. That is provided for in the constitution, is it notl^ 

Mr. Cammack. I think that is in the constitution. I am sure it is. 

We have various committees appointed. One of the objects of the 
Group Association is to compile the experience of its members. We 
want to know what the death rate is in every industry according to 
age, we want to know what the sickness rale is in various industries, 
we want to know what the mortality rate is under pension plans. 

Mr. Gesell. For that purpose you have various standing com- 
mittees that you appoint to look into such matters, do you not, such as 
the mortality committee, complaint committee, accident committee, 
committee on group hospitalization, group annuity experience com- 
mittee, committee to cooperate with the legal departments in dealing 
with legislative matters, and so forth ? 

Mr. Cammack. That is so. 

Mr. Gesell. And if you have some experience which you want to 
pool and collect from the companies it is delegated to the particular 
standing committee concerned with those aifairs and that committee 
comes back and reports to the full association as to its findings' and 
recommendations ? 



1 See "Exhibit No. 651," appendix, p. 4703. 



CONCENTRATION OF ECONOMIC POWER 4185 

Mr. Cammack. Yes, sir, 

Mr. Gesell. Well now, I show you a schedule entitled "Officers 
Elected at Annual Meeting of Group A: ociation," which shows the 
chairman, the secretary, and chairmen of the two principal subsec- 
tions since 1926^, and ask you if ^ -^t is a correct schedule prepared by 
you? 

Mr. Cammack. That is correct. 

Mr. Gesell. I also show you a schedule entitled "List of Standing 
Committees." Are those the principal conomittees and the names of 
the chairmen of each of those committees? 

Mr. Cammack. That is correct. 

Mr. Gesell. I notice that with respect to both of these documents 
the principal officers and the chairmanships of the principal standing 
committees has been in the past almost uniformly allocated to one of 
the larger companies. Has that been by chance, or what is the reason ? 

Mr. Cammack. Well, the reason is, I think, that five companies have 
such a large proportion of this business that I think it is imturally 
assumed they know more about it. Perhaps that is the reason. 

Mr. Gesell. I would like to offer these schedules for the record. 

The Chairman. They may be received. 

(The schedules referred to were marked "Exhibits Nos. 652 and 
653" and are included in the appendix on pp. 4705 and 4706. ) 

Mr. Gesell. Mr. Cammack, do you recognize those five bound vol- 
umes as the minutes of the Group Association ? 

Mr. Cammack. Well, I don't recognize them. 

Mr. Gesell. Will you look at them and see if they are not the rec- 
ords that you made available to the representatives of the committee 
some while back ? 

Mr. Cammack. Yes ; I am quite sure they are. 

Mr. Gesell. That is a complete set of the minutes, is it not? 

Mr. Cammack. I l>elieve so. 

Mr. Gesell. If the committee please, the staff of the Commission 
has prepared from the minute books, which are here at the hearing, a 
chart entitled "Members of the Group Association." This chart shows 
the names of all companies which have been members of the associa- 
tion, the year they joined, and the period of time for which they 
continued. The minutes themselves are so bulky that I believe this 
summary is all that is required for the record, and I offer it, of course, 
as usuaL subject to correction. 

The Chairman. May I ask if it has been verified by the wicness? 

Mr. Gesell. No, it has not; but it was taken fcom the records sub- 
mitted. 

The Chairman. This has been prepared by the staff from the minute 
books ? 

Mr. Gesell. From the minute book Mr. Cammack has lust identi- 
fied. 

The Chairman. It is accepted as you offer it, subject to correction. 

(The chart referred to was marked "Exhibit No. 654" and is in- 
cluded in the appendix on p. 4707.) 

The Chairman. Does this purport to show wnen the certain 
companies withdrew? 

Mr. Gesell. Yes; it does When, the line discontinues their with- 
drawal is reflected on that chart. 



4186 CONCENTRATION OF ECON'OMIC POWER 

The Chairman. Tlie beginning of the line indicates when a par- 
ticular company entered the association and the ending when it 
withdrew. 

Mr. Gesell. That is correct. 

We have also prepared from the minutes of the association, and I 
wish to offer this schedule, subject to the same qualification, a schedule 
showing the attendance of various companies at the meetings of the 
association held for the period from February 3, 1926, up until Feb- 
ruary 20, 1939. This has been again compiled from the minutes of the 
association. 

The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 655" and is 
included in the appendix on p. 4708.) 

Mr. Gesell. I want to discuss with you, Mr. Cammack, in some 
detail the formal operations of the association. Before I do that, 
have you any idea as to the percentage of group life insurance which 
is represented by the members of this association ? 

Mr. Cammack. No, sir; I couldn't tell you. Of course it is a very 
large proportion. 

Mr. Gesell. It probably runs over 90 percent, would you say ? It 
has run over 90 percent since 1926? 

Mr. Cammack. Of group life business, I think perhaps that figure 
is reasonable. 

Mr. Gesell. We have to offer "for the record at this time a schedule 
entitled "Group Life Insurance in the United States." This schedule 
has been prepared by the staff of the commission from the Spectator 
Insurance Book, the issues 1927 to 1938, inclusive. It shows yearly 
the number of United States and Canadian companies writing group 
life insurance and the amount of insurance in force at the end of each 
year. It also shows the number of those companies which are mem- 
bers of the Group Association, and the insurance in force written by 
association company members, and there is a computation to show 
what percentage of insurance in force is attributal to the Group 
Association companies. I might say in summ.ary that over the period 
1926-37 the Group Association companies had on the average of 93.5 
percent of the total group life insurance in force in the United 
States. Over the 12-year period, January 1, 1926, to December 31, 
1937, Group /association companies wrote on the average more than 
81 percent of the initial group life insurance issued under new 
contracts. 

I would like to offer this schedule for the record. 
The Chairman. The schedule may be received. 
(The schedule referred to was marked "Exhibit No. 656" and is 
included in the appendix on p. 4710.) 

Mr. Gesell. Paragraph 5, article II, of the constitution, Group 
Association, Mr. Cammack, reads,^ "But nothing in this constitution 
or in any rule adopted subordinate thereto shall be held to authorize 
the making or promulgation of premium rates," does it not? 
Mr. Cammack. Yes.^ 

Mr. Gesell. And I believe you said in discussing the association in 
your beginning remarks that the association has not had anj'^thing to 
do with the fixing of group life insurance rates. 



1 See "Exhibit No. 651,' atpendix, p. 4703, at p. 4704. 



CONCENTRATION OF ECONOMIC POWER 4187 

Mr, Cammack. I did not intend to make that statement. I said in 
itself the Group Asspciation did not make rates. Indirectly, of course, 
it has a bearing on initial rates. If I might explain that, I would be 
glad to do so. 

Mr. Gesell. Let me see if I understand it, and then if any explana- 
tion is necessary I wish you would give it. 

The Chairman. To what clause of the constitution did you refer? 

Mr. Gesell. Paragraph 5, article II. 

The superintendent of insurance has established under the. New 
York law as the minimum group life insurance rate, the T rate, which 
we were discussing when Mr. Flynn was on the stand.^ 

Mr. Cammack. Yes. 

Mr. Gesell. Now, that rate is the initial rate, as you call it, the 
selling rate, the rate at which group life insurance must be sold, the 
minimum rate. 

Mr. Cammack. I don't think that is the rate at which it is sold. I 
think that is more in the nature of a deposit, because under our poli- 
cies we do not determine the rate until the end of the year, and that is 
a competitive matter. Now, the rates, for instance, in my companies 
that are actually in effect are some 17 percent below the minimum 
rate prescribed by the New York law. 

Mr. Gesell. "WTien you go to an emploj^ei- and say, ''Here, I want 
to write a group policy," tlie rate you quote to him is this T rate, is it 
not, and then you say to him that actually your true rate cannot be 
<literminrd until 3'ou have had the advantage of reviewing the expe- 
rience of his company over the year which is to co)ne, and tlion cer- 
tain I'ebates and adjustinents are made, but thi? rate Avhich you put 
to him originally is the maximum late Avhich he must pay and the 
rate that is quoted to him, is it not? 

Mr. Cammack. That is the maximum rate which he must pay and 
the rate we quote to him subject to the provision in the policy tliat we 
will make a revision in that rate downward for the first year if expe- 
rience justifies it, and moreover we show him from experience that it 
is usual to make a revision in the rate. 

!Mr. Frank. But all companies in the group are quoting ine same 
initial rate. 

Mr. Cammack. They all quote the same initial rate. 

Mr. Gesell. If we have an extrahazardous industry which, I under- 
stand, would be an industry where the mortality experienced by rea- 
son of the occupation of the employees is expected to he in excess of 
American Mortality Table, special rates can be provided, can they 
not, by the promulgation tlu-ough the superintendent of extrahaz- 
ardous rates for certain types of occupations? 

jNIr. Cammack. Yes; for certain types we are compelled to quote a 
hif^her initial rate. 

Mr. Ozsrix. Now, has it not heon the pra'-iice for the Group Asso- 
ciation to make recomnicndations for extrahazardous rates to the 
snpeiinteiident of insurance from time to lime? 

INfj". Cammack. When we have compiler] the experience under our 
groupjife i>:.iicies, it has been the custom foj members of tl)c Group 
Association to review that experience; and if it apj: ^.rs to indicate 
n. 

• .'Jjlita p. 4172. "* ■ 



4188 CONCENTRATION OF ECONOMIC POWEB 

that cef tain industries need an extra premium we have submitted our 
recommendations to the superintendent of insurance. 

Mr. Gesell. Your association, after reaching unanimous agreement, 
makes the recommendation for the new rate in the particular industry 
to the superintendent? 

Mr. Cammack. No, sir; that is not so. On the question of rates we 
do not come to any unanimous agreement. A committee will be 
appointed, the fact is, to interpret the experience, and their findings 
are submitted to the superintendent of insurance, but the question is 
not put to the group afcociation for unanimous agreement. 

Mr. Gesell. You, mean your committee goes directly to the super- 
intendent of insurance? 

Mr. Cammack. That is so. 

Mr. Gesell. Now will you tell me whether there has been any time 
in your recollection that the superintendent of insurance has promul- 
gated a rate which was not one which was recommended to him by one 
of your committees? I was able to find one, Mr. Gammack, in connec- 
tion with the brewery industry, but that was the only one I could find. 

Mr. Cammack. Well, I think I can think of another. I believe it 
promulgated an extra rate for labor-union gi'oups. I don't think that 
was recommended by the association. 

Mr. Gesell. By and large, the rates which he has promulgated have 
been at the i-ecommendation of this committee ? 

Mr. Cammack. That is so. 

Mr. Gesell. Does that committee not make its recommendation in 
the name of the Group Association? 

Mr. Cammack. I would say not. I think the procedure is to sub- 
mit to the superintendent the experience that we have compiled, and 
we say we think that the experience here is 20 percent higher in this 
industry than the average, and we think there ought to be a 20-percent 
extra rate. I think that is the procedure. It really lies with the 
superintendent, but, of course, he must base his conclusions on the ex- 
perience of , the companies which we have been very careful to file 
with him every year. 

The Chairman. You file your experience and you make your sug- 
gestion and then what happens? 

Mr. Cammack. Well, then he usually follows our suggestions, by 
ruling. 

Mr. Hekdet?son, Let me get that. T\niat did you mean by "he must 
follow"? You don't mean by law. 

Mr. Cammack, Oli, no; he makes his own. But what I mean to 
say is that the superintendent cannot make rates except on experience. 

The Chairman. And he has no source of experience except that 
which vou give liim. 

Mr. Cammack. He has no other source of experience; and if we give 
him an experience which shows an extra premium is needed, if I said 
"must"' I mean it is just a reasonable thing. 

Mr. GESEiiL. I have a memorandum that went to members of the 
Group Association under April 7, 1933, which doesn't gibe with what 
you say, Mr. Cammack. Tlie second paragraph says, "It has been 
the practice of the association to make recommendations to tlie super- 
intendent of insurance for industrj' loadings and usually such recom- 
mendations nave been voted on at a r^ular association meeting a p.d (],;■. 



CONCENTRATION OF ECONOMIC POWER 4189- 

recommendations have invariably been followed by the superindent." 
That would indicate both that the superintendent follows your 
recommendations and that the association formally ajjproves the 
•recommendations of the particular- committe which has compiled the 
experience. 

Mr. Cammack. There is this difference, Mr. Gesell. Under our 
constitution, I stated that no rule could be adopted except with the 
unanimous consent of all the members. Now, any recommendation we 
may make to the superintendent in regard to rates is not a unanimous 
recommendation. It is just the sense of the association. 

Mr. Gesell. In other words, if the recommendation of a small 
committee comes before the association and one member is in dis- 
agreement he can be overruled with respect to placing the recommen- 
dation before the superintendent of insurance, whereas he couldn't be 
overruled if it was a matter of a rule. 

Mr. Cammack. That is true. 

The Chairman. You say such a recommendation is not a unani- 
mous decision? 

Mr. Cammack. No. 

The Chairman. Do you mean to imply that there is usually a 
debate ? 

Mr. Cammack. As a matter of fact, in piactice there is no debate. 
It is a small committee. It is the committee which compiles the 
experience, of which I happen to be the chairman. 

The Chairman. Is there any disagreement? 

Mr. Cammack. Very seldom. 

The Chairman. So that to all intents an4 purposes it is unanimous. 

Mr. Cammack. It is because in one industry, if we have a large 
experience in it and if the experience shows that we need a 20 percent 
extra rate, there is nothing very much to discuss, I mean everybody 
agrees with it. 

The Chairman. But you appear to draw a distinction between the 
unanimity with which a rule must be supported and a more informal 
action which supports a recommendation, and I am trying to der 
termine just what that difference is. .Now you tell me that there is 
no disagreement, ordinarilj-^, with respect to the recommendation 
regarding rates. 

Mr. Cammack. You are precisely right in regard to the lecom- 
mendation of an extra premium; if the majority of the members 
. think it should be made, we make it. 

The Chairman. So that tl.e recommendation goes up to the State 
insurance conmiissioner, to all intents and purposes, as the unanimous 
recommendation of the association. 

i\Ir. Cammack. Not as the unanimous one; no sir. In some cases 
the insurance superintendent has written to perhaps all the com- 
panies writing group insurance in New York and asked each com- 
pany for its opinion. 

The Chairman. Well, if there is no disagreement when the com- 
mittee acts, that is a unanimous rti -commendation. 

Mr. Cammack. Well, it will not bv. uii.tninioMS. p^^rhaps, m a com- 
mittee of five, three think one tiling, and one thinivs for one reason 
it shouldn't be. 



4190 CONCENTRATION OV" ECONOMIC POWER 

Mr. Gesell. May I ask hoAv you explain this letter. This is a 
copy of a letter from the miiuite books of the association dated 
February 11, from the State of New York Insurance Department, 
addressed to Mr. Craig of the Metropolitan, signed by Mr. Alfred 
Con^vay, superintendent, re proportion of premiums to be paid by 
employees under group life-insurance policies. He discusses the re- 
ceipt of a letter from the association quoting a rule which was 
adopted at the meeting of the association with respect to this matter 
and he says, "The above provision," which he sets forth in some 
detail, 'Syill take tho place of section 6, this department's letter," 
and so forth. "The above ruling Avill be promulgated with effective 
date of March 1, 1928, provided no company veto of the Group 
Association rule is recorded." In other words, the superintendent 
of insurance here is in eflPect ratifying the constitution of the associa- 
tion and making sure that you don't have a single veto before he 
a'lo}>ts a reconniiendation which has been made. 

Mr. Cammack. Excuse me, sir, I think this is not a question of a 
rate on a group life policy. The question here was: What is the 
maximinn amount that an eniplo3'ee should pay for one thousand of 
group life insurance a month? Now the rate for one thousand of 
group life "jnsuriuice a month \a\\ vary from 70 cents to say $1.10 or 
$1.20. Now Me have a rule tliat the employee may not contribute more 
than 60 cents a month and the employer must pay the balance. Now 
the Group Association does pass rules or can pass rules by its consti- 
tutioj] as to the maxinunn contribution that an employee may make 
toward his group insurance. This was not the rate to be charged. 

Mr. Gesfll. It had a direct effect on the rate, did it not? 

Mr. Cammack,. No ; it would have no effect. 

Mr. Frakk. May I ask a question, Mr. Cammack? I understood you 
to say, perhaps I v.as in error, that your committee would meet, and 
if a majority of them believed that the experience indicated a certain 
rate, then that would be the recommendation of the committee. Is 
that correct? 

Mr. Cammack. That is right. 

Mr. Frank. Then I would gather from that that the conclusion 
that the committee arrives at is not an irresistible inference compelled 
by the data, but that there is room for difference of opinion, but that 
the minority will acquiesce in the majority judgment. 

Mr. Cammack. Ob, there would be some difference of opinion; yes. 
There would be some difference of opinion. 

Mr. Fraxk. Then when the superintendent acts upon that recom- 
mendation he is not then performing, if he were to go through the 
reasoning process of rehing on your data and drawing a conclusion, 
he is not going through, a purely mechanical process of drawing an 
irresistible inference from the premises presented by the data? 

Mr. Cammack. That is so. 

Dr. LuBiN. Do you knovv- of any instances where the superintendent 
of insurance has liiinself investigated the experience of specific indus- 
tries to see whetlier the conclusions you came to were justified? 
> Mr. Cammack. No, sir; I don't think that he could, because thetre 
is not mu.v;> experience to be gathered except from the business of the 
members of the associstio^' tluit we compile and give to the superin- 
tendent. 



i 



CONCENTRATION OF ECONOMIC POWER 4191 

Dr. LuBiN, Do you give him a summary experience of all the com- 
panies who have been writing that sort of business, or do you give 
him the experience of each individual company? 

Mr. Cammack. No; the experience we compile is the experience of 
about six companies. I think the six largest ones, which would be 
the bulk of the business, and we compile it for each industry and 
show the mortality for each age, and we sent it to the superintendent. 

Dr. LuBiN; For each company individually ? 

Mr. Cammack. No; fdr the six companies combined. 

Dr. LuBiN. So that in the event the experience of one company 
would be more favorable than the experience of the other five, ho 
wouldn't know that, would he? 

Mr. Cammack. No; he wouldn't. 

Mr. Gesell. I have, bearing on this matter, a schedule which wo 
have prepared from the minutes of the association showing, with 
respect to a series of rules promulgated by the superintendent of 
insurance, the date that these proposed rules were discussed by the 
association, the date (where known) w^hen the)' were recommended 
to the superintendent, and the date they were promulgated by the 
superintendent. I would like to offer this for the record. 

The Chaikman. The schedule may be received. 

(The schedule referred to was marked ^'Exhibit No. 657" and is 
included in the appendix on p. 4710.) 

Mr. Gesell. Now, bearing on the question of whether the asso- 
ciation approves these recommendations or not, may I read you hit 
or miss one or two paragraphs from your minutes, Mr. Cammack? 
From the minutes of a special meeting held at the Waldorf-Astoria, 
May 20, 1936: 

The committee to consider what changes, if any, to be recommended to the 
New York superintendent of insurance in connection with the rulings regard- 
ing extra premiums for group life insurance made its report, which was 
discussed and accepted, subject to certain changes voted by the meeting. The 
chairman and the secretary were instructed to present this matter to the 
New York department with the recommendation that suitable action be taken. 

That would indicate clearly that it is an association matter when 
it is presented to the superintendent of insurance ? 

Mr. Cammack. That is true. The association submits it, but, as I 
said before, to adopt a recommendation for an extra rate does not 
need the unanimous approval of the members. 

Mr. Henderson. Are you going to develop anything from that? 

Mr, Gesell. I thought it spoke for itself. 

Mr, Henderson, I notice you have set up three columns. Tho 
last two are "Date recommended to superintendent (where known)" 
and "Date promulgated." ^ In the four instances where you have 
that information the longest- lapse of time between the time the 
superintendent received tlie recommei)dation and their promulgation, 
I gather, is something like 21 or 22 days. In one instance it was 4 
days, in another instance 8 days, and in another instance 15 days. 
Mr. Cammack, does promulgation usually follow as promptly as that 
after receipt by the superintendent of your recommendations ? 
_ Mr. Caaimack, I thinl: he has usually adopted our recommenda- 
tions promptly. 



* See "EThibit No. 657," appernlix, p. 4710. 



4192 CONCENTRATION OF ECONOMIC POWER 

Dr. LuBiN. Mr. Cammack, may I clarify this matter for my own 
mind? As I understand it, the companies, on the basis of their 
experience through this committee, come to the conclusion that a 
given rate would have to be loaded 20 percent. They submit a state- 
ment to the insurance commissioner which, in effect, is a rate that 
they think should be fixed. He thenliccepts that rate, so that in 
reality the companies become legally compelled to fix the rates that 
they themselves liave determined. Is that a correct conclusion of 
what you have said ? 

Mr. Cammack. Well, I don't think the companies determine the 
rates. The companies prepare the experience, they interpret the 
experience, and they submit their recommendations to the superin- 
tendent. I feel, sir, that if we submitted some recommendations to 
the superintendent without any data to show that those recommenda- 
tions were reasonable and fair, I don't think they would be approved. 

Mr. Henderson. But there has been, as I gather from what you 
were saying in discussing the chairman's question, a situation where 
there was not unanimity of opinion sometimes on these recommenda- 
tions, and that the majority generally prevailed. 

Mr. Cammack. Well, somebody mentioned the breweries just now. 
I remember that some of us, most of us,* thought that breweries 
could be written at regular rates, but one man who never took a drink 
said we ought to Jiave a $2 extra. 

Mr. Gesell. That was the one exception that proved the rule that 
I was able to get out of five volumes of minutes. Let's not talk about 
beer. What about the great bulk ? 

Mr. Cammack. The great bulk of the recommendations are adopted. 

Mr. Hendeeson. But they are the majority recommendations of the 
committee. 

The Chairman. And there is no substantial disagreement at any 
time. 

Mr. Cammack. That is so. 
, Dr. LuBiN. But in the event that company A felt that no loading 
was necessary and that it was willing, on the basis of its own ex- 
perience, to write insurance on the existing rate, the fact still remains 
that if the majoritj'^ of the committee should recommend to the Com- 
missioner that the rate should be loaded, that' company is legally 
bound to charge that high rate. 

Mr. Cammack. That would be so, if the superintendent promulgated 
that extra premium. ■ 

Dr. LuBiN. And he does generally ? 

Mr, Cammack, Yes. 

The Chairman. "Invariably" was the word that was used ? 

Mr. Cammack. Almost invariably. 

Mr. Arnold. That wouldn't be true outside of tKe State of New 
York, and therefore out of the State of New York the companies 
a;re not bound to charge the rate fixed by the New York Commission, 
yet they always do. 

Mr. Cammack. They are bound to follow the New York rate if they 
are licensed to do business in New York. 

Mr. Gesell. But Mr. Flynn stated that the conipanies which were 
not licensed to do busifibat n New York but which were writing 
group insurance and were members of the Group Association had 



CONCENTRATION OF ECONOMIC POWER 4193 

agreed to abide by the rates fixed by the Superintendent of Insur- 
ance of New York, even though he had no authority over them.'^ 

Mr. Cammack. They have been doing so ; yes. 

Mr. Arnold. And they are more or less compelled to do that by 
your constitution, are they not ? 

Mr. Cammack. No ; I don't think they would be violating any rule 
of the Group Association if they quoted lower rates. 

Mr. Geselx,. That would be what you call a gentleman's under- 
standing. 

Mr. Cammack. I think so. 

The Chabrman. The sum and substance of the situation is Mi is, is 
it not, that the superintendent of insurance in New York hko no 
means of determining experience except that which you supply him, 
and that you, and by you I mean of course the association, hold your 
meetings, you come to a determination of what the experience is, 
you do that by agreement — it may not be unanimous, it may not have 
been voted upon by all, but it is by unanimous consent, as we some- 
times say — and that experience table, with the recommendation, then 
goes to the superintendent of insurance, w^ho thereupon, within 
usually a very short period of time, ordinarily adopts that recom- 
mendation and makes it the legal rate in the State of New York, 
which is then followed throughout the country, is it not ? 

Mr. Cammack. Just one step further. It makes it the legal rate 
throughout the United States for anj^ company doing business in 
New York, because the law reads that if a company does not follow 
those rates throughout the country, it will not be licensed to do busi- 
ness in New York. 

The Chairman. So that in effect the rate is determined by this 
association, which has submitted its experience and its recommenda- 
tions to the superintendent. 

Mr. Cammack. Yes, sir; although I would like to say that I thmk 
the rate is really determined upon the experience that is compiled 
by the Group Association, and the object, c^^ course 

The Chairman (interposing) . I meant to say that, of course. You 
gather your experience, whatever it may be, and from whatever 
sources you get it, but it is the association that does that, not the 
superintendent of insurance. He has no means of doing it. It is 
your association tliat does it. Your association compiles the material, 
makes its recommendation as to the rate, and almost invariably the 
superintendent of insurance follows that recommendation. 

Mr, Cammack. That is right. 

Mr. Frank. And the superintendent, as I miderstand it, does not 
have the benefit of seeing the data of the individual companies, but 
simply this composite experience. 

Mr. Cammack. We send liim only the composite experience. Of 
course the experience of one company wouldn't be of very much 
value. • You have to have a large experience to determine a rate. 

Mr. Arnold. May I contrast t^o methods of handling this situa- 
tion? One would be for the Insurance Commissioner to send out to 
companies which ^vere not meeting in an association to determine 
fates for information regarding their experience, and having that 



1 Supra, p. 4187. 



4194 CONCENTRATION OF ECONOMIC POWER 

information before him, to exercise an independent judgment as to 
what rates should be charged. Now by that method he would get all 
of the information which he now gets from your association, 
wouldn't he ? 

Mr. Cammack. Yes. 

Mr. Arnold. And there would be no process by which part of that 
information would be withheld, and there would be no pressure on 
any individual company to agree with some other under that sys- 
tem, would there? 

Mr. Cammack. I don't think I quite follow the last. 

Mr. Arnold. I ■^^as assummg that there was a certain amount of 
pressure in this association to follow good .sound leadership, and at 
times when they didn't do that they were even chastised, and that 
type of pressure would be absent if the superintendent wrote to all 
of the companies who were not gathering together for the purpose 
o_f fixing rates to get this information. 

" Mr. Ca:\imack. Well, of course, we have such a large bulk of the 
experience compiled; if there was added to that experience the ex- 
perience of the small companies who did not contribute their ex- 
perience, it would really not make it any more valuable as a basis 
for rates, 

Mr. Arnold. It might create certain independent judgments which 
the superintendent could appraise, whereas under your present sys- 
tem all independent judgments are in the great majority of instances 
ironed out in conference. 

Mr. Cammack. I don't think so. We give the superintendent the 
actual experience, without any comments. We give him all the in- 
formation which an expert sliould have to make rates. He needs 
nothing more. AVe give him everything that we have. 

Mr. Gesell. Let me just challenge that statement very directly, 
Mr. Cammack. You, in your original T scaJe, have determined the 
loading on all kinds of policies, haven't you? 

Mr. Cammack. In nonhazardous industry. 

Mr. Gesell. When you carry into the hazardous industry you 
change the rate from the mortality point of view, but the loading 
remams constant. 

Mr. Cammack. The extra premium is to pay the extra death 
claims we expect, 

Mr. Gfskll. So that your loading on these policies has been de- 
termined by the original basic T rate? 

Mr. Cammack. The T rate contains the loading; yes. 

Mr. Gesell. Do I understand from you that there is no degree 
of ditfercnces as between the companies of your association with re- 
spect to the expense factor in running their business, that the load- 
ing should be ahvays the same for all of these companies if it had 
been reached inde})endentl3' of tlie insurance commissioner? 

Mr. Cammack. No, sir; the object, I think, of the superintendent 
of New York in promulgating a raie is to obtain a rate that will 
be adequate for the gi-eat bulk of risks tiiat are suV»mitted in the 
industry to Vvbicli they belong, but will not be excessive. We know 
that those rati^^s are higucr than v.c need on ihe. Ix-st class of risks, 
and we adju.->t those ra;c: at the end of thw ^-ear for the first year, 
so that the j^olicyholder is not overcharged. 



CONCKXTKATION OF EC^ONOMIC POWER 4195 

The Chaieman. May I ask you, Mr. Cammack, what, in your 
opinion, is the protection of the public interest in this system that 
3^ou have described ? 

Mr. Cammack. In my opinion, the results are the answer. The 
expense rate, including taxes, on group life insurance, runs from 
7 to, say, 12 percent in the leading companies. It is the lowest 
expense rate in any insurance business. 

The Chairman. That, of course, is not a definite answer. What 
you are saying is that this system has, in your opinion, operated 
beneficially. 

Mr. Cammack. May I tell you why I think it has brought about 
that low expense rate? 

The Chairman. Certainly. 

Mr. Cammack. It is because when we are competing for a new 
risk the purchaser does not consider that the rates are the same. 
He says to each company, "Now I want to know how much is this 
going to cost me. You must have enough money for your claims, 
and you must have something for overhead and taxes. Show we 
what you have done on other companies." 

Well, the answer in our company would be that we have operated 
on an expense rate of about 9 percent. The expense rate is lower 
on the large risks and higher on the small ones, and I should pick 
out half a dozen cases of about the same size as his in the same 
industry, with similar schedules of insurance, and say: "Sir, this 
is what we have been able to do. Compare it with the other com- 
panies," and if it doesn't compare well, we don't write it. 

The Chairman. That isn't exactly what I was driving at. We 
have demonstrated now, according to your testimonj^ that the rates 
are fixed by the superintendent of insurance upon a showing that 
is made to him by the association. So my question to you was: 
"What is the protection of the public interest in that system?" And 
your answer is, "The experience we have had," which doesn't reach 
the point, as I see it. Does it not depend, this rate which is fixed, 
wholly upon the accuracy of the representations which you make 
under this system ? 

Mr. Cammack. Well, I don't think there can be any doubt about 
the accuracy. 

The Chairman. That is aside from the question. Does the result 
not depend upon the accuracy of the representation that you make? 

Mr. Cammack. It depends upon the experience and the accuracy 
with which it is compiled. 

The Chairman. And there is no check of those representations by 
anybody on behalf of the public? 

Mr. Cammack. I think. Senator, it would be impossible to do 
anything except what we do ; if the insurance department itself com- 
piled the experience, it could do nothing but ask for the data that 
we prepare. 

The Chairman. Do you submit these data imder oath, let us say ? 

Mr. Cammack. No ; we do not. 

The Chairman. So that it all depends upon the good faith and 
accuracy of the association in submitting this material to the superin- 
tendent. Is that not so? 

Mr. Cammack. Well, Senator, it seems to me to be impossible that 
these results could be inaccurate, or deliberately inaccurate. 



4196 CONCENTRATION OF ECONOMIC POWER 

Tlie Chairman. Of course, as an actuary, that is naturally your 
opinion, and perhaps altogether justified, but that is aside from the 
question. 

Mr. Cammack. As an actuary, the mortality experience amongst 
insured lives has always been compiled by actuarial bodies, and this 
experience on group life insurance has been compiled by a committee, 
I think, of five actuaries. 

The Chairman. I can judge from your answers that you regard 
this experience submitted by the actuaries as almost a mathematical 
certainty that cannot vary one way or the other. But so far as the 
public is concerned, so far as the superintendent of Insurance is con- 
cerned, he is accepting the work of the actuaries of the association 
which sells the insurance. Is that not so ? 

Mr. Cammack. I think that is true. 

The Chairman. And there is no check in the public interest of that 
information. 

Mr. Cammack. Senator, these experiences have been published 
widely. They have been published in the transactions of the 
Actuarial Society, they have been discussed there. They are availa- 
ble to anybody. 

The Chairman. All right, then. Let us forget the mathematical 
exactitude of the experiences and turn our attention to the recom- 
mendations which your association makes on the basis of those experi- 
ences. Are they entitled to the same degree of mathematical respect ? 

Mr. Cammack. I think I could explain them very simply. 

The Chairman. Are they? Are they entitled to that same degree 
of respect? That can be answered "Yes" or "No." 

Mr. Cammack. Not with the same mathematical certainty; no. 

The Chairman. Certainly not. In other words, there is an ele- 
ment of judgment entering there. 

Mr. Frank. There must be an element of judgment, since you told 
us your committee was not always unanimous in its belief, but always 
unanimous in your recommendations. 

Mr. Cammack. cj have admitted there is room for an element of 
judgment there. 

The Chairman. But to get down to the question again: What 
protection is there of the public interest when the rates are almost 
invariably those which are recommended by the association of com- 
panies most interested in fixing the rates ? 

Mr. Cammack. Well, Senator, I would reply that the experience is 
published, and it is open to the public or any expert so they can them- 
selves examine it. 

The Chairman. Now you are going back to the experience. I have 
abandoned that in order to get this less certain judgment with respect 
to the recommendation which you say can be subject to some dis- 
agreement, though ordinarily there is no disagreement in the 
recommendation. 

Mr. Cammack. Well, may I illustrate it? We compile the experi- 
ence in what you might call nonhazardous industries where there is 
no particular accident hazard and no particular health hazard, and 
then we compare that with the mortality experience in, we will say, 
a steel mill; and if we have got a large experience and it shows that 
the mortality in the steel mill — mind you, I am talking about a large 
experience with perhaps 2,000 deaths in two or three hundred thou- 



CONCENTRATION OF ECONOMIC POWER 4197 

sand — and the mortality in the steel mill is 20 percent higher and has 
been 20 percent higher than in the nonhazardous, we recommend a 20- 
percent extra. 

The Chaieman. That is perfectly clear. I am assuming the en- 
tire accuracy of your experience, and I am assuming the complete 
good faith of your recommendations; and, having made those two 
assumptions, I say to you : Is it not a fact that the only protection of 
the public interest in this situation which you nave so clearly de- 
scribed is the accuracy and the good faith of this association of 
companies? 

Mr. Cammack. Well, they'd have no protection if the experience 
was not accurately and honestly compiled. 

The Chaieman. That is the only protection they have, isn't it? I 
don't know why you should be unwilling to answer. 

Mr. Cammack. I will answer that, but it seems to me the protection 
is enough. 

The Chaieman. Ah, but that is the only protection there is. 

(Mr. Cammack nodded his head in the affirmative.) 

Mr. Abnold. May I approach it from a slightly different angle? 
I presume you would say that the accountants for public utilities are 
on the whole just as honest and acting in just as good faith and are 
just as accurate as insurance actuaries. 

Mr. Cammack. I must admit I know nothing about public utilities, 
but I expect the accountants are honest people. 

Mr. Aenold. You wouldn't mind making that assumption for the 
moment ? 

(Mr. Cammack nodded his head in the affirmative.) . 

Mr. Arnold. Now, would you be satisfied with a public-utility rate 
which was determined entirely upon consultation with the account- 
ants of the public-utility companies and on which the public-utility 
commissioner exercised no independent judgment? 

Mr. Cammack. I don't think the cases are analogous. 

Mr. Arnold. Would you be satisfied with it? 

Mr. Cammack. No; no. 

Mr. Arnold. Therefore, it must be, if there is a difference, that 
there is some sacrosanct character to insurance actuaries which doesn't 
exist with public utilities. 

Mr. Cammack. No; the only part the actuary plays in this is to 
compile the mortality experience. All I want to say is that one 
industry has a 20-percent higher mortality than another and another 
has 30 percent; the coal-mining industry has a mortality of 50 per- 
cent higher than you get among bank clerks. Now, that we know. 

Mr. Gesell. W^ have these rates, also the loading factor — don't 
we ? — which stems back to that basic T rate which was put into effect 
as soon as the law went into existence, so that by promulgating that 
basic T rate, no matter how much the companies are in agreement on 
mortality experience, there is a complete disappearance of all those 
factors which would tend to show disparity between rates and the 
initial quotations of the rates to be insured. Isn't that correct ? 

Mr. Cammack. Gentlemen, may I say this to you ? I have been 
in this business since the first policy was written, I think'; and when 
we started writing group policies, we wrote nonparticipating policies 
at a fixed rate and we guaranteed that rate for 20 years. Now the 
plan did not operate, because if we quoted a rate too low, we were 



4198 CONCENTRATION OF ECONOMIC POWER 

on an unprofitable risk for 20 j^ears; and if we quoted a rate too 
high, we had to reduce it or it was rewritten in another company; 
so we changed our plan of operation and said it doesn't much matter 
what rate you charge. Charge a rate that is enough but not exces- 
sive. The cost to the policyholder is going to depend on economy 
of management and its experience. If we can manage our business 
economically, then we shall be fair to the policyholder and doing 
business on a safe basis, and that is the way we operate. 

ISIr. Arnold. And that is the way the public utilities operate, 
isn't it? 

Mr. Cammack. I don't know. 

Mr. Arnold. Yes; they operate so they will give the maximum 
service and be fair to their investors, which is somewhat similar to 
the policyholders. 

Now I am a little at a loss to understand why it is that you ^instinc- 
tively reject the idea of a combination among public utilities which 
fixes rates and instinctively say that a combination of insurance 
companies is on an entirely different basis and they should in the 
public interest be granted that power. 

Mr. Cammack. The reason is because I don't think we do fix rates. 
If any policyholder — I don't care — Schenley Distillers; they have 
4,000 employees, and they are in the market 

Mr. Arnold (interposing). --Let us not fix it. 

Mr. Cammack. All right. They are going to buy group insurance, 
and they are going to pay an annual premium in advance, if you 
will. It is $100,000, and it will be a hundred thousand in the Pru- 
dential, the Aetna, the Travelers, the Connecticut General, and at the 
end of the year they may get twenty-five thousand from one company 
and fifteen thousand from another and twenty from another, and 
they have all paid a different rate in all of the different companies, 
and the difference in rate is a difference in the economy of manage- 
ment. 

Mr. Arnold. I presume that is equally true with public utilities, if 
they are permitted to have a fair return on investment; and if the 
rates are too high, the public utilities will be delighted to return 
their overearnings to the consumers, and yet it would seem curious if 
we allowed the public utilities to have the sole judgment as to what 
the rate should be and how much money should be returned. Now, 
you admit that, don't you? You wouldn't want that situation in 
public utilities, would you ? 

Mr. Cammack. I don't know about public utilities. 

Mr. Arnold. No ; but would you want it ? 

Mr. Cammack. I am very ignorant on public utilities. It is not 
that I don't want to answer your question, but I just feel that I am 
not qualified. 

Mr. Frank. I think that you feel there is a difference in this fact, 
that you feel that the actuarial data that you have collected has an 
accuracy about it and that there be a corresponding fact in the 
utilities. Let us make that assumption. Let us assume that you have 
accurately reported infallible data. I want to come back to the fact 
that from that data inferences are drawn as to the appropriate rate, 
and as you have twice testified there are differences of opinion at. 
times in your group as to the inferences and that the inferences do 
not have that infallibility that the data itself does. 



CONCENTRATION OF ECONOMIC POWER 4199 

Now, nevertheless, the superintendent of insurance is not advised 
of those differences in the inferences but is given the composite judg- 
ment representing the majority view and apparently, on the facts 
as you have presented them, he relies upon that majority inference 
so that in effect we have these companies who are engaged in selling 
this insurance, giving the majority judgment, which is not infallible 
and not as accurate as the data jt'self, to the superintendent and the 
superintendent fixing the rates, based upon that inference Avithout 
scrutiny of the data or going through the reasoning process that 
you engaged in when you drew that inference. Is that correct? 

Mr. Cammack. I think that is true. 

JNIr. Gesell. Now, Mr. Cammack, we have been talking here en- 
tirely about group life insurance where the superintendent of .insur- 
ance has some authority to set a minimum rate. What about group 
annuities? What about group accident and health? What about 
group death and dismemberment? There your association fixes uni- 
from initial selling rates with no participation by the insurance 
company at all, does it not? 

Mr. Cammack. The association as such does not tix the rates, but 
we have informal discussions and somebody suggests that they are 
going to adopt a rate and all the other companies follow, so in a 
sense they do fix the rate, but I want to again call your attention 
that these are mere tentative rates and they are adjusted at the end 
of the year. We have followed — in order to do what has been pre- 
scribed by the New York law for fife insurance, we have regulated 
ourselves in a similar way for group disability and group pensions. 

Mr. Gesell. Before the New York Insurance Department stepped 
into this picture at all, you had the rate and that was put into effect 
nnder the law, was it not? You also had a group of rules that were 
in sffect before the insurance commissioner came into this picture 
at all, and you adopted those rules after the law was enacted and 
the formal association was created. 

Let us take a look at those rules, Mr. Cammack. First of all, 
you have a rule 9- A which says that [reading from "Exhibit No. 
658" ']: 

No overhead cost, dividend, or rate reduction should be estimated by size of 
risk, either directly or indirectly by statement of current cost of operation or 
otherwise. The only data submitted should be actual past experience on actual 
cases. 

There you have to some extent limited the degree to which the 
companies in competition for a risk can show comparable experi- 
ence or make promises with respect to what they will give back 
from this initial rate which they take in, do you not? 

Mr. Cammack. I don't think so. I think the best criterion of 
what you can do in the future is what you have done in the past, 
and not a mere estimate of what you think you may or hope you 
may be able to do, 

Mr. Gesell. You have another rule that fixes uniform commis- 
sions to salesmen. Why should they be uniform ? 

Mr. Cammack. Because it is for the protection of the public. 

Mr, Gesell. How? 



* Subsequently entertd, see iiiLia. p. 4204. 
124401— 40— pt. 10 5 



4200 CONCENTRATION OF ECONOMIC] POWER 

Mr. Cammack. The broker, of course, is interested in the commis-- 
sion that he is going to get for placing a risk. Now if the companies 
began to compete with one another and get business by paying 
higher commissions to the brokers, it would run up the expense rate 
and increase the cost, not only to the employer but to the employees. 

Mr. Gesell. Suppose I am selling group insurance and I can pay 
a commission to my salesmen, and keep within the rates which have 
been established already, higher than that promulgated by your as- 
sociation. Wouldn't that be to my advantage competitively speak- 
ing?. "Wouldn't I get more business? Andliow would it hurt the 
public if I did ? 

Mr. Cammack. I don't understand you. Those are the commis- 
sions, rates that the insurance companies pay to the broker who in- 
troduces the business. Now if you pay him any more, it is going to 
cost us that much more to operate. 

Mr. Arnold. Supposing you paid him less. 

Mr. Cammack. If we pay him less, why, so much the bettc^r. 

Mr. Arnold. This uniformity is only on top commissions? 

Mr. Cammack. That is the highest commissions. Some companies 
pay less. 

Mr. Gesell. Isn't it clear, however, that one of the reasons for 
establishing uniform commission rates is to prevent one company or 
another from having a competitive advantage by reason of the fact 
that the brokers will shop around and sell the insurance with the 
company which has the highest commission rate? 

mr. Cammack. That is the reason. 

Mr. Gesell. Isn't the result of the commission rule, then, such 
that it levels off competition and keeps all of the companies on the 
same plane as far as agents and brokers are concerned? 

Mr* Cammack. I don't think it has that effect at all. The only 
effect it Jias is to enable us to manage our business economically. If 
we were to pay, say, 2 percent commission — if that is our scale and 
we were told that tne Metropolitan would pay 3, we would be tempted 
to pay 4. 

Mr. Gesell. That isn't the way the actuarial science works, is it? 

Mr. Cammack. It is the way practical business works. 

Mr. Arnold. But I thought insurance was simply written on an 
actuarial basis and if you got beyond the actuarial basis, then you 
wouldn't accept it. You mean you are subject to temptations to go 
beyond the actuarial basis? 

Mr. Cammack. We certainly are. 

Mr. Arnold. And this is a method of preventing you from yield- 
ing to temptation to lose money. 

Mr. Cammack. In the New York law the maximum rates of com- 
missions for ordinary 'business are set by statute and that was to 
prevent the excessive commissions that were paid in former years. 
Now there has been no statute limiting acquisition costs on group 
life insurance, but the companies have themselves regulated them- 
selves in that respect and kept down their cost. 

Mr. Arnold. If you were subject to temptations to go contrary to 
your actuarial tables in the instance which you now speak of, might 
it not be that you might be subject to temptations within your own 
group in submitting tliese rates, if the temptation were there? 

Mr. Cammack. I don' quite follow you. 



CONCENTRATION OF ECONOMIC POWER 4201 

Mr. Arnold. You indicated that there was a great deal of pressure 
and a great deal of temptation not to follow actuarial tables in the 
event it was to your business advantage to disregard them. 

Mr. Cammack. You mean pay an excess commission? 

Mr. Arnold. Well, as an example of where actuarial figures did 
not control the situation. Now if you are subject to those tempta- 
tions, why isn't it equally true that if in one of these meetings similar 
temptations arise by which it is to your advantage not to follow 
closely the actuarial experience, you might fall in those instances also, 
mightn't you? 

Mr. Cammack. You mean we might compile a deliberately false 
experience ? Because my answer would be no. 

Mr. Arnold. No; in determining the rates which you would 
charge, the selfish interest of the company would be a large motivat- 
ing factor as it was possible in public utility rates prior to regu- 
lation. 

Mr. Cammack. No; I don't think so. I think the danger is on a 
large risk to quote too low a rate and not too high a rate because, of 
course, we are all eager to write these large risks and the danger is 
we would cut the rate too low. Now what we want is a reasonable 
rate which is perhaps a little redundant but not excessive and then 
adjust the cost at the end of the year. 

Mr. Arnold. Now I think we are getting in agreement because I 
had assumed all along that this whole device was a method to remove 
from the association any temptation to cut the rates. Now that is 
probably true isn't it ? 

Mr. Cammack. That is true — no, that is not the whole reason, but 
we do Want to avoid simply cutting rates. 

Mr. Arnold. You think that the insurance company is one of those 
instances which runs better by a rate fixing agreement than by a 
competitive arrangement? 

Mr. Cammack. I don't think we fix our rates. I think the rates 
are fixed at the end of the year. 

Mr. Gesell. Now we are dealing here with group insurance and 
you sell group insurance, don't you, Mr. Cammack? 

Mr. Cammack. Yes. 

Mr. Gesei.l. Now if you state in your rules what commission you 
are going to pay to your salesmen, if you say in your rules how 
much guarantee you are going to allow him to make with respect to 
rate, if you very much limit what he can say to the group as to what 
they may expect back, if you also set up your rules in such a way 
as 1,0 prevent him from taking business from other members in your 
association, and if you limit your selling procedure from all these 
various points, the net r&sult of it is to put selling competition on a 
very narrow basis, is it not? 

Mr. Cammack. I can't quite agree with this. You mention the 
fact that we arrange so that the group could not be transferred. 
I want to say that if an employer has his group insurance with 
one insurance carrier, it is the easiest thing in the world for him 
to transfer it to another. Any of the big companies will accept that 
business. He has simply got to go in and make application and 
they will be glad to get it. The only rule we have is we won't pay 
any commission because the acquisition cost in writing that busi- 



4202 CONCENTRATION OF ECONOMIC TOWER 

ness has been incurred once and we feel it should not be incurred 
twice. 

Mr. Gesell. Now, let me see about that. You charge your com- 
mission to your group just the same whether you pay it to your 
agent or not, don't you ? 

Mr, Cammack. We spread our commission. 

Mr. Gesell. So that in spite of the fact that this rule prevents 
the payment of commissions to agents on transferred business, you 
still charge the company which has transferred the same amount 
you would ask if you did pay the commission, so you don't lower 
the price at all, from that point of view. 

Mr. Cammack. But, Mr. Gesell, if we had the same custom in 
the group business as we had in compensation, and these group 
policies were transferred to one company one year and another com- 
pany the next year and another the third, instead of having an expense 
of 8 we would have an expense rate of 15 or 20. We don't want that 
to happen. 

Mr. Gesell. The result of it would be that those companies which 
kept on a sound underwriting basis would persevere and have more 
business and those companies which permitted large acquisition costs 
to grow up would lose out and have difficulties in their group busi- 
ness; would it not? 

Mr. Cammack. I don't know. 

Mr. Henderson. If I understand your answer, there is quite a 
range of difference in the actual cost, the expenses of doing business. 
You say it would run from 7 to 15 percent? 

Mr. Cammack. I was thinking of some of the companies. I sup- 
pose they have an expense rate as high as 15 percent, and I think 
probably the loAvest is abouc 7 percent. 

Mr. Hendersoi^. Yours is about 9 ? 

Mr. Cammack. i think it is about 9. 

Mr. Henderson. Well, Mr. Cammack, along the line suggested, 
perhaps the company that, was able to keep its expense rate some- 
where near 7 might get the business as against the high cost one with 
15 percent. You say that that would be disorganizing. 

Mr. Cammack. It would h& very disorganizing if we paid com- 
missions every time to the broker that he transferred. 

Mr. Henderson. I do not mean switching. I was talking about the 
disorganization in the business as a result of one company's having 
half the expense cost of another company and thereby getting the 
business. I am trying to get your point of view as to what would be 
disorganizing about that. 

Mr. Cammack. There is nothing disorganizing about that. 

Mr. Henderson. I understood your answer to Mr. Gesell was that 
it w^ould be very disorganizing. He suggested, did you not, Mr. 
Gesell, that it might be possible that the low expense company would 
get a larger part of the underwriting? 

Mr. Gesell. I suggested that if these rules and rate activities 
didn't result in selling of group insurance on the same level for 
all companies that those companies which kept sound underwriting 
practices, didn't permit their expenses to run up, would eventually 
survive, and those which went into unsound prac(:ices would be elim- 
inated. 



(CONCENTRATION OF ECONOMIC POWER 4203 

Mr. Henderson. Your answer to that 



Mr. Cammack. I misunderstood your question. I thought that 
3'ou said if we paid commissions on transferred business it might 
result very beneficially because those companies that paid com- 
missions would get a high expense rate and those that didn't would 
get a low expense rate and it would perhaps be a good thing to pay 
commissions on that. 

Mr. Gesell. One result of this transfer rule, Mr. Cammack, is to 
keep this business which has been accumulated by the big five or 
six companies in their hands and prevent it from being taken away 
from them by some independent company which is out writing in- 
surance at lower rates and is not governed by the restrictions of 
your association. 

Mr. Cammack. I really don't think so, Mr. Gesell. 

Mr. Gesell. You don't know, do you, that that isn't true? 

Mr. Cammack. I can't say positively it is not, but it is my im- 
pression that it is not so. 

Dr. LuBiN. Mr. Cammack, if I am a businessman and my ex- 
penses of operation are 7 percent as compared to the expense of 
operation oi my competitor, which, let us say, is 10 percent, do you 
feel that I should have tlie right, in order to increase my business, to 
pay my employees a little bit more than my competitor and in other 
words be satisfied with a smaller margin than I am getting now? 
Shouldn't I have that right? 

Mr. Cammack. Of course in life insurance and group insurance 
the commission that you pay to an agent is paid by the employer and 
the employees. It can come from no other source. 

Dr. LuBiN. The same is true of any merchant who does business. 
It is the consumer who has to pay. 

Mr. Cammack. And I can't imagine anything worse for the busi- 
ness and for the interest of the policyholder than competition in 
the payment of commission scales. 

Dr. LuBiN. But if I can still undersell my competitor, and pay a 
little higher commission scale and still sell my policies at a lower 
rate in the long run, why shouldn't I have that privilege? 

Mr. Cammack. Because I don't think that if you pay high com- 
missions you can undersell your competitors. 

Dr. LuBiN. It needn't necessarily be high, say a quarter of a 
percent more than my competitor. Why shouldn't I have that right? 
If it is going to increase my business and lower my overhead per 
unit and ultimately give the consumer or purchaser of the policy a 
lower premium, why shouldn't I have that right ? 

ISlr. Cammack. I admit you have the right to do it, but I don't 
think it is a good thing. As soon as one company pays a higher 
scale of commissions than another that increased scale of commis- 
sions is met by all competitoi*s. 

Mr. Gesell. I think we are getting toward the end of the day, 
Mr. Chairman, and if I could complete one phase of this examina- 
tion, I think it may shape up somewhat. 

The Chairman. I will cooperate with you in completing it. I 
will ask the committee to refj-ain from iiiterrupting your examina- 
tion until you have finished. 



4204 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Thank you very much. I am pretty nearly done. 
Do you recognize those papers that I hand you, a set of the present 
group life rules which have been promulgated by the association ? 

Mr. Cammack. Yes. 

Mr. Gesell. I wish to offer these rules for tlie record. 

The Chairman. The rules may be received. 

(The rules referred to were marked "Exhibit No. 658" and are 
included in the appendix on p. 4711.) 

Mr. Gesell. I want to find out just what the association does about 
fixing rates for group death and dismemberment insurance, Mr. 
Cammack. That i^ not controlled by the superintendent of insur- 
ance in any way, is it? 

Mr. Cammack. No. 

Mr. Gesell. The superintendent of insurance has no right to fix 
rates, minimum or maximum or otherwise, in group death and dis- 
memberment. 

Mr. Cammack. The procedure is just about the same as it is in 
group life insurance except that the recommendations which are made 
on the basis of compiled experience are adopted by the members of 
the Group Association. 

Mr. Gesell. In other words, you don't even have in group death 
and dismemberment the pretense of a superintendent of insurance 
having some type of review of what you are doing? 

Mr. Cammack. No; he doesn't. 

Mr. Gesell. You get together, you recommend rates, all the mem- 
bers in the association adopt those rates, and those are the rates that 
are used in selling death and dismemberment insurance. 

Mr. Cammack. We make those rates up on our experience. 

Mr. Gesell. Do you all agree that the loading should be the same ? 

Mr. Cammack. We have uniform rates. 

Mr. Gesell. Yes; that means you all agree that the loading 

Mr. Cammack (interposing). That would make the loading the 
same. 

Mr. Gesell. That isn't true, as a practical matter, is it? One com- 
pany is better managed than another, one company has different fac- 
tors involved in computing its expenses, and if each of the com- 
panies were to sell, using their own loading or experience, the rates 
would not be uniform, but would be different, would they not? 

Mr. Cammack. Well, my reply, Mr. Gesell, is again that tlie rates 
are adjusted at the end of the first year and the company that has 
got the lowest expense rate gives a bigger refund, 

Mr. Gesell. From the selling point of view, you have uniform 
rates in the sale of death and dismemberment insurance. 

Mr. Cammack. Initial rates. 

Mr. Gesell. Just how are those activities in fixing uniform rates 
for death and dismemberment insurance reflected in those minute 
books? Is it a formal association matter, or is it done more or less 
on the side by a small informal committee ? 

Mr. Cammack. They are not in the minute books. There will be 
a committee on death and dismemberment that will examine the 
experience and recommend the rates. Now the members are nd't 
bound by those rates. I suppose that we can best describe it as a 
gentlemen's agreement. If a member does not use those rates, the 
Group Association has no complaint in the matter. 



CONCENTRATION OF ECONOMIC POWER 4205 

Mr. Henderson. Do yon mean no complaint or no recourse? 

Mr. Cammack. No recourse. . 

Mr. Henderson. It has complaint, I would gather from the testi- 
mony of the previous witness, in which you were a little bit in- 
volved as a bad boy .^ Am I not correct in that? It is not complaint 
you are talking about. It has no legal recourse. It has recourses 
that are either extra-legal or non-legal. 

Mr. Cammack. No. 

Mr. Gesell. But as a practical matter all of the companies 'do 
follow these uniform rates, do they not? 

Mr. Cammack. That is right. 

Mr. Gesell. Has there been some effort to conceal the activities 
of fixing those uniform rates? Am I to gather that from the 
fact that there is no record of it in those minute books? 

Mr. Cammack. The constitution of the association provides that 
we cannot fix rates, so that it has been done informally through com- 
mittees that have recommended rates on the basis of the experience 
compiled. 

Mr. Gesell. You were afraid your rate-fixing activities would be 
unconstitutional, is that it, so you kept them on the side. 

Mr. Cammack. I wouldn't say that. I think some companies feel 
that it was joerhaps dangerous. 

Mr. Gesell. Dangerous fi'om what point of view? 

Mr. Cammack. For myself, I could never see there was anything 
illegal in promulgating rates. 

IVTr. Gesell. What did they think was dangerous abolit it? 

Mr. Cammack. I can't tell you, Mr. Gesell, because I was not one 
of them. 

Mr. Arnold. Was the specter of the antitrust laws raised? 

Mr. Cammack. I think so, that is right. 

Mr. Arnold. And that while you don't think it is" dangerous, still 
there is no object in sticking your neck out, and therefore it is a 
good thing to put these in an informal meeting. 

Mr. Cammack. Personally I didn't think we were violating any 
of the laws. 

Mr. Arnold. But the specter appeared at the feast. 

Mr. Cammack. That js right. 

The Chairman. Let me interrupt. Let's follow Mr. Gesell's rec- 
ommendation and permit him to conclude his questioning. 

Mr. Gesell. I am almost through, sir, I thank you. I wish to 
read from the minutes of the meeting of the committee of June 26, 
1926, held at the offices of the Connecticut General Life Insurance 
Co., attended by Aetna, Connecticut, and Metropolitan : 

All questions voted on by companies. Moved, seconded, and carried that 
the committee di'a.w up rules covering the proper subjects, excluding rates, 
and have a branch of the Group Association with a subchairman and a sub- 
secretary handle all matters pertaining to accident and health insurance, in- 
cluding death and dismemberment insurance, the subsection to have the right 
to elect members not writing group life insurance. Under the discussion it 
was brou^t out that Mr. Brosmith thought there might be a very remote legal 
objection to including rates in rules, but the fact that they have the same 
rates now and that they have a rate exi)erience bureau in compensation insur- 
ance made him feel it could b^ done properly. Mr. Bassford said the Metro- 



1 See supra, p. 4158. 



4206 CONOKNTRATION OF ECONOMIC POWER 

politau 'could not consider entering if rates were discussed, for some 
commissioner aslts a question every year about collaborating witli any other 
company on the subject of rates. It was felt that the subject of rates mighi 
by handled by a temporary committee which might suggest rates and then 
dissolve. 

Has that been the procedure, Mr. Cammack, to set up this small 
committee, have them recommend rates, and have them disappear 
from the scene and have no records of their recommendations at all 
contained in the minute books? 

Mr. Cammack. No, sir; we have had these standing committees. 
The standing committees have informally recommended rates, and 
they have been adopted. 

Mr. Gesell. Has that same procedure been adopted in the han- 
dling of group accident and health insurance ? 

Mr. Cammack. Yes. 

Mr. Gesell. Again the companies have adopted uniform rates 
after the recommendation has been made by the committee? 

Mr. Cammack. That is so. 

Mr. Gesell. And again the superintendent of insurance, or no 
official body, has anything to do, from a supervisory point of view, 
in approving the processes by which those uniform rates are reached. 

Mr. Cammack. Yes, sir. 

Mr. Gesell. Likewise, in the case of group annuities, do the 
companies writing group annuities get together, pool their experi- 
ence,' reach a program for uniform rates, and follow those uniform 
rates ? 

Mr, Cammack. Yes, sir; they have pooled their experience from 
time, to time. "Of course tlie principal factor in computing your 
group annuities is the interest rate you expect to be able to invest 
your premiums at. 

INIr. Gesell. But the basic rate in the sale of group annuities is 
a uniform rate, is it not? 

Mr. Cammack. I don't think it is entirely uniform and it has not 
always been uniform. I think it is uniform for all the American 
companies. 

Mr. Gesell. All thi American companies writing group annuity 
business are members of the Group Association, are they not? 

Mr. Cammack. I c^aldn't answer that question. 

Mr. Gesell. I would like to offer for the record a schedule entitled 
"Total Group Annuity Business iii Force, End of Year, 1934-38." 
This schedule has been prepared from Spectator's Insurance Year- 
book, Best' Life Reports, New York Reports, and the annual state- 
ments filed with the insurance departments, and shows for each year 
from '34 to '38 the number of contracts, the number of .certificates, 
and the annual income in dollars of each of the association companies 
not members of the association which have any group annuity busi- 
ness in force on their books. 

I may say that from this schedule it appears that from 1936 to 
1938 there is no record of any new group annuity business being 
issued by a nonassociation company. 

The Chairman. The schedule may be received. 
(The schedule referred to was marked "Exhibit No. 659" and is 
included in the appendix on p. 4716.) 



CONCKNTRATION OF F.CONOMIC POWFJl 4207 

Mr. Gesell. Am I correct in stating that for group accident and 
liealtli, group death and dismemberment, and group annuities, under- 
writing rules in general similar to the underwriting rules established 
in the writing of group life insurance have always been promulgated 
and are followed by the companies? 

Mr. Cammack. Yes. 

Mr. Gesell. And the same rules apply with respect to those rules, 
namely, that any dissenting company can veto? 

Mr. Cammack. Yes; they are governed by the constitution, 

]Mr. Gesell. Now just one further question, Mr. Cammack. Has 
there been an effort to achieve uniform policy forms for the com- 
panies writing group insurance through the medium of this asso- 
ciation? 

Mr. Cammack. I would say not. Of course, the provisions of the 
policy nnist be similar in many respects by reason of the fact that 
they have similar underwriting rules in some respects, but we have 
no uniform contract. 

Mr. Gesell. My question was prompted by a letter written by 
Mr. Beers, of the Aetna, in whicli he refers to the Texas Corporation, 
and he says : 

I see that the Travelers have given the above a copy of the contract. I am 
upset at this and am telling them so. I thiulc that both you and we have at 
all times been ready to cooperate to discuss luisettled matters promptly and that 
all the delay has been on the part of the Travelers. I feel that it is very 
unwise to submit to an employer a form of contract on which the insurance 
companies are not yet agreed. 

j\Ir. Cammack. Mr. Gesell, the Texas Corporation took out a group 
annuity policy on their employees. They decided they would like 
to have three insurance carriers, namely, the Travelers, the Aetna, 
and the Equitable, and one-third of the plan would be carried in each 
company. Each company woidd hold one-third of the reserves, and 
in a case like that, of course, the policyholder desires to have the same 
contract in each com^pany. There was no competition between the 
companies; it was awarded to them, each to have one-third of the 
l)usiness, and it is highly desirable, of course, and in the policy- 
liolder's interest, that they should have the same wording, the same 
, contract. 

Mr. Gesell. Naturally. And you say so far as the contracts where 
com.petition does exist are concerned, there is no uniformity in the 
policies except where that uniformity results by reason of the appli- 
cation of the various rules^of the association to the policy? 

Mr. Cammack. And by reason of the laws in the various States, 
.of course, that require certain standard provisions. 

'Mr. Gesell. By and large, they are pretty much the same. 

Mr. Cammack. They look very much alike. We have no standard 
forms agreed to by the association. 

Mr. Gesell. That completes my examination today, Mr. Senator. 

Mr. Arnold. Mr. Cammack, there is a good deal of competitive 
spirit in this industry which is being curbed by this association, 
isn't there? I am liot talking about whether it should be or should 
not be curbed, but that is a statement of fact, isn't it? 

Mr. Cammack. There is some. 

Mr. Aknold. And you think now that that is for the good of the 
industry ? 



4208 CONCENTRATION OF ECONOMIC POWER 

Mr. Cammack. I am convinced of it, 

Mr. Arnoij). At one time you didn't think so; isn't that so? 
I refresh your recollection by reading one of the exhibits [reading 
from "Exhibit No. 647"] : 

In the course of the diseussiou a large number of cases where Mr. Cammack 
had strained the rules for his company's advantage were brought out — 

and then I understand that you were brought back into line, so 
that at one time you were somewhat skeptical about this curbing 
of that sort of competition. 

Mr. Cammack. I don't remember that particular incident, but 
it would appear to me that under niy interpretation of the rules it 
was perfectly proper for us, and we were not breaking any rule if 
we gave our policyholder clerical assistance, and I appear to have 
done so. The rules were altered so as not to allow it, and I believe 
it was proper then. 

Mr. Arnold. And therefore now you think, after having been 
chastised at this meeting, that it is a good thing that that competi- 
tive spirit which you evidenced in 1924 has been curbed ? 

Mr. Cammack. "^I think it is probably a good thing. I don't think it 
costs the policyholder anything. If we spend less money in admin- 
istering his business we are enabled to reduce his rate by just so 
much; it makes no difference whether he spends it and we return 
it to him, or whether we spend it direct. 

Mr. Arnold. But at that particular meeting you took a rather 
heated position to the contrary, didn't you ? 

Mr. Cammack. I can't remember the meeting. I couldn't testify 
as to that. 

Mr. Arnold. The records appear to show that, and you wouldn't 
deny it, would you ? 

ISIr. CammactiI. I don't deny anything that Mr. Flynn writes. 

Mr. Hendekson. Mr. Cammack, you say it doesn't make any dif- 
ference as to the getting and the refunding. With these various uni- 
formities by which the area of competition is considerably narrowed 
and in which pretty generally the initial rate is just the same it 
certainly doesn't, because in that initial rate there is really an aver- 
age struck. That is wliat happeriS with the composite experience, 
isn't it, that there is an average struck? But in order to have that 
average, as we have said before, there are some companies that 
might have 7 percent of expense and some that might have 15. It 
would make a difference, then, wouldn't it, as to the taking and re- 
fimding if it were done on the basis of 7 percent or 15 percent? 
' Mr. Cammack. I think what makes the difference is the relative 
economy of management of the two companies. I don't think it is 
the initial rate the policyholder pays. 

Mr. Henderson. That is just my point. With competition de- 
cidedly narrowed the policyholders are not getting the benefit on ac- 
count of the uniformity of the initial rates, that is, when the business 
is placed. 

Mr. Cammack. It would seem to me that competition is just as 
keen as ever it was, even in the days when there were 

Mr. Henderson (interposing). Keen on something else than 
initial rates. 

Mr. Cammack. It is keen on net cost. 



CONCENTRATION OF ECONOMIC POWER 4209 

Mr. Henderson. You would have a little difficulty in convincing 
people that unless there is competition in rates there is real competi- 
tion, wouldn't you ? 

Mr. Cammack. I think there is competition in rates, because the 
rate is not determined until the end of the first year. 

Mr. Henderson. But business is sold at the beginning of the year, 

Mr. Cammack. The rate isn't determined until the end of the 
3^ear. It is sold at the beginning of the year, but it is sold on what 
the net rate is going to be. 

Mr. Henderson. It is a sort of delayed competition in a very nar- 
row and circumscribed field. 

Mr. Cammack. I think it is very active. 

Mr. Henderson. Of course, my experience in N. R. A. with some 
500 codes, indicated that any deviation or any price cutting was 
thought to be evidence of very severe competition, and that is evi- 
dently what is running through your mind, isn't it? 

Mr. Cammack. The competition is on the net rate that the policy- 
holder will have to pay at the end of the first and subsequent years. 

Mr. Arnold. You did think, however, that you were getting an 
advantage by your conduct in 1924, which was subsequently stopped, 
didn't you? 

Mr. Cammack. Yes, sir. 

Mr. Arnold. And that kind of competition is compel ition th:it 
hurts, as appears from the meeting, isn't it? 

Mr. Cammack. I don't know how important that was. 

Mr. Arnold. It hurt. It sliocked the representatives of John 
Hancock. 

Mr. Henderson. There was a difference there that took some busi- 
ness. Wasn't that it? Isn't that the thing that determines whether 
competition exists ? 

]\Tr. Cammack. I am sorry I can't testify about that. I don't 
know the case; I don't know whether we really wrote business under 
that plan, or whether it was just hearsay. 

Mr. Frank. The letter shows you did, and it says the measures 
which were necessary to whip the matter into shape, which included, 
according to the letter, your being badly chastised [reading from 
"Exhibit No. 647"] : ' 

left some of the weaker members, such as the Connecticut General and Mis- 
souri State, at the point where they were hinting at getting out of the confer- 
ence in order to enjoy cut-rate opportunities. 

So apparently it was assumed that your activities prior to this 
meeting enabled your company to enjoy some opportunities. 

Mr. Cammack. Mr. Frank, I would be glad — if I had known I 
was going to be questioned on that latter — to refresh my memory 
by a review of that correspondence. In my mind I don't recollect 
it at all. 

The Chairman. The witness may believe that Mr. Flynn was 
just writing a letter to his president. 

Mr. Frank. Mr. Cammack, I am puzzled about one thing. You 
say the competition comes in the net amount determined at the end 
of the year, but that, at the time a company is soliciting insurance 
the net amount is not yet known to the purchaser, and no matter what 
company he goes to, he will be met with the same initial rate, so that 



4210 (JONCENTKATION OF ECONOMIC POWER 

he can't know, in his own mind, at the time he buys, Avhether he will 
do better with one company than another. Is that correct? 

Mr. Cammack. That is true; he doesn't know. 

Mr. Frank. Then there can''t be m.uch competition at the time of 
purchase wMen he cannot ascertain until a year later whether he is 
getting- an advantage by going to one company rather than another. 

Mr. Cammack. I think there is keen competition, because your 
buyer demands illustrations from every company that is competing 
for the business of what that company has been able to do for other 
policyholders of like size in the same industry, and the company 
that can show the best record has the best chance of writing the 
business. 

Mr. Frank. Then why don't you let that differentiation between 
companies manifest itself at the beginning of the year in a differ- 
ence of rate based upon the experience, as is done in other com- 
petitive industries ? 

Mr, Cammack. I am afraid that you would have uniform rates 
then, because if one company reduced its rate 10 percent all the other 
companies would do likewise. 

Mr. Gesell. What about the actuaries? Wouldn't they stop' that? 
Isn't that what the actuary is meant to do? 

Mr. Cammack. No; I don't think so. I think the actuary is one 
to determine a rate that was adequate for most risks, that would be 
inadequate for some, that was not excessive, and that should be 
adjusted at the end of the fii-st year so that equity could be given to 
the policyholder. 

The Chairman. Are there any other questions? 

Dr. Lubin. I wanted to ask, Mr. Cammack, with regard to these 
rules and regulations for group life, formulated in June? 1938,^ who 
formulated these rules, a subcommittee of the association ? 

Mr. Cammack. My memory won't allow me to answer that ques- 
tion. 

Dr. Lubin. Are you i)ersonally acquainted with the drafting of 
these rules? 

Mr. Cammack. I was probably on the committee that drafted them. 
Of course, we had had this informal committee of actuaries, and 
doubtless these rules were based on the old rules of the old com- 
mittee, with some amendments. I am speaking from recollection 
only. 

. Dr. Lubin. Do you remember whether the earlier rules defined 
trade-unions in the same terms as they are defined in this bulletin, 
page 6 (a) ?2 

Mr. Cammack. I think the definition of trade-unions is a new 
definition. I don't think that was in the old rules. 

Dr. Lubin. Thank you. 

The Chairman. Congressman Williams, do you have any questions.^ 

Representative Williams. No. 

The Chairman, Mr. Cammack, when you referred to the existence 
of competition, do you mean competition among the associatioil com- 
panies or competition of th^ association companies with those which 
are not association companies ? 

1 See "Exhibit No. 658," appendix, p. 4711. 
- Ibid. 



CONCENTKATION OF ECONOMIC POWER 4211 

Mr. Cammagk. I refer particularly to competition among the mem- 
bers of the association, though of course we have competition with 
companies that are not members. 

The Chaieman. On what subjects, or in what fields, does this com- 
petition exist among the association companies? 

Mr. Cammack. The competition is in regard to net cost, and that 
is the first and most important point, as to what our refunds or your 
dividend is going to be. The next is the point of service. 

The CHAihMAN. How does competition exist with respect to net 
cost when it appears from the constitution of the association that 
the third objective of the association is [reading from "Exhibit No. 
651"] : 

to promote economy aud reduce expense in the matter of general administration 
by an interchange of views on practice among insurance companies which issue 
contracts of group insurance. 

Which I take to mean that one of the objectives of the association 
is to effect some degree of uniformity in all of these administrative 
matters ? 

Mr. Cammack. We have some uniformity, but of course 

The Chairman (interposing). Isn't that the purpose of your asso- 
ciation, to effect that uniformity? 

Mr. Cammack. We don't try to effect uniformity in net cost, Sena- 
tor. We try to effect uniformity in certain underwriting rules and 
practices. 

The Chairman. Does the fixing of the commission enter into net 
cost? 

Mr. Cammack. Very much so. It is one of the most important 
factors in net cost. 

The Chairman. Your association has promulgated a rule for effect- 
ing uniformity with respect to payment of commissions.^ 

Mr. Cammack. Yes, sir. 

The Chairman. And it has also promulgated a rule with respect 
to the clerical aid to employers.^ 

(The witness nodded his head in the affirmative.) 

The Chairman. All designed to effect uniformity of cost. 

Mr. Cammack. That is so. Nevertheless, in the overhead and gen- 
eral administration of the business some companies are more efficient 
and more economical than others. That will be always so. 

The Chairman. Well now, just in what respects have you failed 
to bring items within the scope of objective No. 3 of your consti- 
tution ? 3 [Heading :] 

The objects of this association shall be (1) to promote the welfare of holders 
of group policies, (2) to advance the interests of group insurance, (3) to promote 
economy and reduce expense in the matter of general administration by an 
interchange of views on practice among insurance companies which issue con- 
tracts of group insurance. 

Mr. Cammack. That is so, sir, and I think we have achieved pro- 
moting economy and reducing expense. 

The Chairman. Now, on what items of administrative cost have 
you failed to effect the objective of this association, which was to 
bring about a degree of uniformity? 

' Soo "Exhibit No. C,r>S," npuenriix. p. 4711 

2 Ibid. 

3 "I-^xliibit No. 651," iii)penclix, p. 470."., 



4212 CONCENTRATION OF ECONOMIC POWER 

Mr. Cammack. We haven't brought the expense laid down in all 
the companies to the lowest possible level, and some companies are 
more economically managed than others, and I think that will alwaj^s 
be so. I do think, as a whole, the association has been able to effect 
economies in the business. 

The Chairman. In other words, so far as possible the purpose of tlic 
association was to bring about uniformity in these items which go to 
make up the administrative cost ? 

Mr. Cammack. Yes, but there is no uniformity, of course, in the 
general overhead, the salaries in the home offices, and so forth. Some 
companies spend more than others. 

The Chairman. Then with respect to the overhead in the home office, 
the competitive differences appear. 

Mr. Cammack. That is generally so. 

The Chairman. Any other items ? 

Mr. Cammack. Well, there are sOme expenses in the field, too, over- 
head in the field. The companies have branch offices. 

The Chairman. To what do you attribute the fact which appears 
from the table presented by Mr. Gesell as compiled from the Spectator 
Insurance Year Book ^ that in 1926 when there were 81 companies 
writing group insurance and 9 of them were associated, those 9 com- 
panies had 95.2 percent of the insurance in force attributable to Group 
Association companies of the insurance in force; and in 1937 when 
there were 19 companies associated out of 105 all told, the associated 
companies had 94.3 percent of the total ; a percentage which is exhib- 
ited in each succeeding year from 1926 to 1937; the lowest apparently 
being 91.9 percent in 1930 and the highest 95.2 percent in 1926. My 
question was, To what do you attribute the fact that the associated 
companies which have effected this constitution and have operated 
under this constitution, have throughout the period controlled over 92 
percent of the entire group insurance in the country? 

Mr. Cammack. Well, of course, you must remember, Senator, that 
all the large companies writing group insurance had been members of 
the association; it would indicate that these companies who were not 
members of the association and who do not follow the rules don't ob- 
tain a great competitive advantage. In other words, our rules impose 
no hardship in getting business. 

The Chairman. Would it indicate the reverse, that the associated 
companies do obtain a great competitive advantage over those which 
are not in the association? 

Mr. Cammack. I don't see that they attain any competitive advan- 
tage. They are bound by rules where others are bound by no rules. 

Mr. Gesell. May I ask one question here, please ? 

The Chairman. Certainly. 

Mr. Gesell. Are the rules applicable when group insurance is sold 
by an association company in competition with a nonassociation 
company? 

Mr. Cammack. Yes, sir. 

Mr. Gesell. Do you still follow exactly the same rules with respect 
to quoting possibly future experience, for example? 

Mr. Cammack. Let me just — I d j Q't know. 



» Soe "Exhibit No. 656," appendix, p. 4710. 



CONCENTRATION OF ECONOMIC POWER 4213 

Mr. Gesell. Yes; I wish you would expltiin that fully. 

Mr. Cammack. I don't know what the practices of the companies 
are, but take the rules where we pay no commission on transferred 
cases. I believe the rules do not bind a member of the association to 
pay no commission on a case transferred from a nonmcmber company. 
I think some of the companies refuse to pay a connnission. I don't 
know what the practice is, Mr. Gesell. 

Mr. Gesell. Is it a general understanding that the association com- 
panies are not bound by these rules in competition with nonassociation 
companies ? 

Mr. Cammack. Oh, no, no. These rules — if we have competition 
from a nonassociation company, we are still bound by these rules. For 
example, the limit of insurance we might put on a life in a certain case 
is $5,000. The competitive company may offer 10 thousand. That 
would not be met; we are not allowed to do it under the rules. 

The Chairman. There are 22 rules in this list which has been pre- 
sented here.^ How uniformly have they been followed by the associ- 
ated companies ? 

Mr. Cammack. I should say they have been followed in a very sub- 
stantial way. 

The Chairman. Are there any substantial items of insurance pro- 
cedure, aside from this administration of the overhead and home office, 
upon which there is no agreement among associated companies ? 

Mr. Cammack. It is a little hard to answer that question. 

The /Chairman. Let me put it this way: Do these rules cover sub- 
stantially the field of group-insurance activity? 

Mr. Cammack. I think so. 

The Chairman. There is not much left out of the rules, in other 
words ? 

Mr. Cammack. No ; I think they are quite complete. 

The Chairman. So there is little opportunity for individual com- 
pany action, if the rules are followed ? 

Mr. Cammack. Oh, the companies use a good deal of judgment. Of 
course, sometimes the business we can write under our rules our com- 
pany doesn't care to write ; other companies think the business is good 
and will write it. 

The Chairman. You spoke a little while ago about the informal 
committees which have fixed the rates or determined the rates of pro- 
cedure of the legality of which you had no doubt, but of the legality 
of which others did have a doubt. Were those recommendations with 
respect to rates made by the actuaries? 

Mr. Cammack. Practically so. The members of the committees that 
considered thcrse matters are usually actuaries of the companies. There 
may be some exceptions, but that is generally so. 

The Chairman. Are the recommendations and judgments of the 
actuaries subject to review by executives who are not actuaries? 

Mr. Cammack. Yes. 

The Chairman. Do the executives sometimes change the decision of 
the actuaries with respect to matters of this kind? 

Mr. Cammack. In respect to matters of rates? 

The Chairman. Yes: and these other mattei'S. 



•See "I'^xbibit No. 638," a|ii»-iidix, p. 47J1. 



4214 CONCEXTIIATTON OF ECONOMIC POWER 

Mr. Cammack. Oh, yes ; the executives, of course, have the executive 
authority. The actuary may be the executive. 

The Chairman. The first objective of the association was to promote 
the welfare of holders of group policies.^ Do the holders of the poli- 
cies have any voice in their own protection? 

Mr. Cammack. The holder of the oroup policy, of course, is the 
employer. , 

The Chairman, That is right. Does he have any voice in the de- 
liberations of the association? 

Mr. Cammack. Oh, none. 

The Chairman. So that his protection all depends upon the judg- 
ment of the association? 

Mr. Cammack. Yes. 

The Chairman. What is good for him is what you decide to be good 
for him. 

Mr. Cammack. That is so. 

The Chairman. No. 2, to advance the interest in group insurance." 
Just what does that mean ? 

Mr. Cammack. Well, I think that means to promote it and develop it 
on sound underwriting lines. 

The Chairman. From the point of view of the company or of the 
general public? 

Mr. Cammack. Of all three. 

The Chairman. And again according to the judgment of the asso- 
ciation. 

Mr. Cammack. That is so. 

The Chairman. We have discussed No. 3 at length. No. 4, to rep- 
resent the members of the association in matters pertaining to or whicli 
may affect group insurance before the, insurance departments and other 
public and quasi public official bodies.^ I observe that the plural is 
used there with respect to departments and quasi public official 
bodies. Do I understand that to mean that one of the purposes of 
the association is to represent its members before State insurance com- 
missioners wherever the Group Association companies operate? 

Mr. Cammack. Yes. 

The Chairman. In other words, the business of the association is 
more than a matter of State importance but is a matter of national 
importance, and this organization of all the companies was formed 
for the purpose of properly representing them according to their 
point of view before the various commissions which have been set up by 
the respective States for the protection of the public interest. 

Mr. Cammack. That was one of the purposes of the association. 

The Chairman. Fifth, to collect and analyze the group experience 
of the members of the association — with the qualification — but nothing 
in this constitution or any rule adopted subordinate thereto shall be 
held to authorize the making or promulgation of premium rates.* 
That qualification, as I gather from your testimony, was made more or 
less of a dead letter by the creation of the temporary committee which 
informally fixes the rates. 

1 Spp "Exhibit No. 651," Mppendix, i). 470.'?. 

2 Ibid. 
» Ibid. 
* Ibid. 



CONCENTRATION OF ECONOMIC TOWER 4215 

Mr. Cammack. That is so except that the companies are not bound 
by the rates. I think I can describe it best by saying that it is a 
gentleman's understanding. 

The Chairman. A gentleman's agreement, but have you any knowl- 
edge of any instance in which a gentleman did not follow the agree- 
ment? 

Mr. Cammack. On these rates ? 

The Chairman. Or on any of the matters which were questionable. 

Mr. Cammack. I don't think I can think of any one, but, you see, 
we are all governed by the New York law. 

Mr. Frank. On certain matters? 

Mr. Cammack. On the life. 

The Chairman. Any other questions? 

Mr. Frank. Yes; I would like to go over one matter. I confess 
I have been very stupid in following you on one item. As I under- 
stood it, you said that if at the beginning of a policy, at the time of 
its purchase, if there were to be competition based upon the superior 
skill of one company as against another, its economy of management, 
the result would be undesirable from your point of view because it 
would bring rates down to the level of the lowest-cost company. That- 
is, the competition — if one company as against another offered a lower 
initial rate based upon its lower cost — would tend to bring them all 
down to that rate, and some of them icouldn't afford to do so. That is 
what I gathered from what you said. 

Mr. Frank. You say that was undesirable; neverthetess, you 
said there was keen competition based upon the fact of the econo- 
mies resulting from the lower net cost at the end of the year. Well, 
if that competition is effective because of the reduced net cost at the 
end of the year, so that one company with a lower cost as a result of 
that competition gets more business than anotherj why does that not 
then have the same result even though the competition becomes mani- 
fest only at the end of the year ? Why doesn't that produce a lowering 
of the rates down to the level of the most eflBcient, lowest-cost company ? 

Mr. Cammack. There is a danger of the company that is not the 
most economically managed cutting the rate to meet the low-rate 
company below what it can afford. Now, I think the important thing 
is, and I have said it before, to charge adequate rates, rates that are 
not excessive. Now, that will mean that they are a little redundant, 
and then deal equitably with your policyholders by makmg such 
refund on dividends at the end of the year that you are able to do. 

Mr. Frank. But if competition is effective by virtue of what occurs 
at the end of the year — anticipated as you indicated by the buyer at 
the beginning of the year, because of his examination of previous ex- 
perience — why doesn't that competition have the tendency to cause 
returns to the policyholder at the end of the year in excess of what 
the experience of the company justifies, so as to bring about just the 
Same consequences, which you consider evil, as would result from the 
initial rate? 

Mr, Cammack. I think when the policy is written and been in 
effect a year the danger of paying back too much to your policyholder 
is less than the danger of quoting a rate that is too low before you 
have written the risk. 

124491—40- 



4216 CONCENTRATION OF ECONOMIC TOWER 

Mr. Frank. Yes ; but if the competition results from the knowledge 
in advance of the initial period, knowledge on the part of the pur- 
chaser based upon his examination of the various companies as to 
what will happen to him at the end of the year, if that is true, then 
why doesn't that have the same effect on all of the companies, and why 
do they then not, by what they do yearly in the way of returns of part 
of the gross premiums, meet the competition, one of the other, just as 
exactly as if they initially made their rates different? As I under- 
stand it, you say the competition is just the same. Well, if it is just 
the same, why bother to go through the rigamarole by having uni- 
formity which ends up iit lack of uniformity at the end of the year, 
a lack of uniformity which you say is known to the buyer and induces 
him to purchase from one company instead of another ? 

Mr. Cammack. Of course, one of the difficulties there is you don^t 
know what its rates should be when you underwrite the risk. Now 
you can make a guess at it and your guess may be too high or too 
low. What you should do is to charge a rate that in all probability 
will be adequate and then reduce it on the basis of the experience 
under the risk. Now you can't reduce it before you have got any ex- 
perience under it because you don't know what the experience is 
going to be. 

Mr. Henderson. But the competition is a little bit different. 

Mr. Cammack. It is a little bit different and a little sounder, I 
think. 

Mr. Henderson. We get it. It doesn't seem to act in the way in 
which competition, in terms of the American conception of competi- 
tion, is expected to, however. It doesn't seem to influence the transfer 
of business. - 

Dr. LuBiN. Do you feel that aiiy businessman knows at the be- 
ginning of the year just how be is going to come out at the end? 

Mr. Cammack. I don't think so. 

Mr. Henderson. There is very little risk taken in this method. 
Isn't that it? 

Mr. Cammack. Very little risk to the insurance company? 

Mr. Henderson. Yes. 

Mr. Cammack. That is so. But in this business the policies are 
taken out, they are renewed year after year for 20 or 30 years. 

Mr. Henderson. You said you can't tell what it is going to be until 
the end of the year, until you have had the experience. You know 
•pretty well, don't you, that is, if your actuarial tables 

Mr. Cammack (interposing). Our actuarial tables won't tell how 
many deaths you are going to have. 

Mr. Henderson. I feel we dealt a little unfairly with that distinc- 
tion, actuarially and mathematically. But you do know pretty well, 
don't you ? Put it this way, Mr. Cammack. Your company knows 
pretty well as an over-all matter what il^ charges and costs and out- 
payments are goin^ to be, and if you decided to go into price com- 
petition with the initial rate, you could make it pretty lively for 
some of the higher cost companies, couldn't you ? I gather you think 
it would be unsound, but there would be a greater degree of competi- 
tion, would there not, and it would be competition more in terms of 
industrial competition. 



CONCENTRATION OF ECONOMIC POWER 4217 

Ml". Cammack. Of course there would be, but that competition 
would be met by all the other companies in the field, and the net 
cost to the policyholders wouldn't be any lower than it is today. 

Mr. Henderson. But it is assumed in industrial competition where 
the prices are not delayed for a year on the terms of any agreement 
that the necessity for taking a risk, the necessity for coming close 
to a margin, does add more to the reduction in cost, to the efficiency, 
and to lowered prices than this coverage that you have against these 
problematical risks. 

Mr. Cammack. I don't think you can draw any parallel between 
the cost of a group life policy and the cost of putting up a building, 
because the cost of putting up the building is fixed by contract. Now, 
our cost is not fixed until the end of the year. 

Mr. Henderson. Let's not take the cost of putting up a building; 
let's take something that is competitive in price. What you are say- 
ing is that there is a difference between the way you do business 
and the way a competitive price is arrived at in industry. Isn't 
that what you are saying? 

Mr. Cammack. Well, the fundamental difference is that we do 
not determine our price until the end of the year. I keep repeating 
that, but I must because that is the fundamental difference. 

Mr. Henderson. I keep repeating that that is not competition 
within the terms of understanding of the American people. 

Mr. Cammack. I think that the object of competition is to protect 
the public from exorbitant prices. 

Mr. Henderson. That is right, and the public expects that the 
competition will take place when a thing is bought. 

Mr. Cammack. I maintain that our plan of rating group insur- 
ance has resulted in exceedingly low expense rates and in exceedingly 
low net cost to the policyholder. 

Mr. Henderson. Your guess is that it is a lower cost than would 
result if there were competition at the initial rate line. 

Mr. Cammack. I think so. 

Mr. Henderson. But you have nothing on which to gage that. 
That is a personal opinion. 

Mr. Cammack. It is a personal opinion because no one can tell. 

Mr. Frank. So you have deviated from the normal mode of com- 
petition and you conjecture that it is better than the normal mode 
of competition, but you are unable to establish that. 

Mr. Cammack. Well, my memory will go back when we had no 
predetermined rates, and the companies would quote any rate. 

Mr. Henderson. That wasn't so long a period. 

Mr. Cammack. It was over a period of some years, and I tell you 
that this plan works much better, that the cost to the policyholder 
is lower. 

Mr. Frank. Mslj I ask whether there is anything in the law or 
rules of your association which prevents you from returning to the 
policyholder at the end of the year a larger sum than the amount 
of your savings ? Can the net cost be fixed arbitrarily ? 

Mr. Cammack. The law says that the refund must be based upon 
mortality experience, or some such wording. I don't think we can 
make an arbitrary refund on what is earned. 



4218 CONCENTRATION OF ECONOMIC POWER 

Mr. Frank. In part you said that the competitive factor, as 1 under- 
stand it, at the end of the year is the net cost, so that if two com- 
panies are writing identical insurance, the mortality table cannot be 
the controlling factor because that is assumed to be identical ; is that 
correct ? 

Mr. Cammack. Yes. 

Mr. Frank. Therefore the difference must be, as you have several 
times indicated, in the efficiency of your operations. Very well ; now 
the amount that is returned on the basis of the difference in efficien(;y 
between two companies — can that be arbitrarily determined by a 
company ? 

Mr.i Cammack. No. It is determined by formula. I have known 
group life cases written where, we will say, every employee is in- 
sured for $2,000, and he is insured for $1,000 in one company and 
$1,000 in another, and they pay the same initial rate, and when you 
come down to the end of the year they find they have paid a different 
rate because they get different refunds in the two companies. You 
can make an easy comparison there. 

Mr. Frank. If company A refunded X dollars and company B 
refunded X plus Y dollars, who determines whether company B shall 
add Y to the amount of the refund ? 

Mr. Cammack. The dividend formula or the rate-reduction form- 
ula of these companies is .determined upon a formula. 

Mr. Henderson. Who determines the formula? 

Mr. Cammack. Well, that is probably put in the hands of the 
actuary. i 

Mr. Frank. Of the particular company. 

Mr. Cammack. Yes. 

Ml. Frank. That is not uniformly agreed upon? 

Mr. Cammack. Oh, no. 

Mr. Frank. If competition results from the amount of the refund 
and if each company can refund what it pleases without regard to 
law or any agreement among the members of the association, and if 
the amount of the refund determines whether a person will purchase 
insurance from company A or company B, then is there not, accord- 
ing to you, just as much jlikelihood of injury to the public, to the 
insurance company, and to the insured from making those refunds too 
great? Isn't the possible injury just the same as would result from 
making the initial price too low? 

Mr. Cammack. No, sir. 'Look at the operations of your group de- 
partment at the end of the year and you find out how much money 
you make. You are not going to refund more than you made. You 
have to put some in a contingent reserve and the balance you refund. 
and your actuary determines upon the formula to equitably divide 
that amongst the policyholders. 

Mr. Frank. But that is determined by the company itself. 

Mr. Cammack. Yes, sir; 

Mr. Frank. You said before if you had competition in the initial 
rate there would be danger, that if one company being a lower cost 
company, reduced its rate to correspond to what it anticipated would 
be its lower cost, another company would come down to that fevej 
even though it cduld not afford to do so. 

Mr. Cammack tsaid there would be temptation. 



CONCENTRATION OF ECONOMIC POWER 4219 

Mr. Frank. Why doesn't the same temptation exist at the end of 
the year on the part of the higher cost company to refund more than 
its actuaries would tell it it should ref uid ? 

Mr. Cammack. Because at the end of the year I don't think there 
is any company would make in total refunds more than its total 
earnings in the department. 

Mr. Frank. Even though it thought it could get more customiei's 
by doing so ? 

Mr. Cammack. Oh, yes ; I don't think it would. 

Mr. Frank. Why would they do so at the beginning of the year? 

Mr. Cammack. There is the hope that^you are going to have a good 
experience. At the end of the year you know. 

Mr. Frank. Yes; but if they knew at the beginning of the year, 
from their past experience, that their cost was 15 percent and the 
other company's was 7. percent, would it be likely that they would 
think that in l.year much difference woul,d result? 

Mr. Cammack. Well, it is not only the, cost of operating the busi- 
ness, it is the mortality experience; you don't know what death rate 
you are going to have. 

Mr. Frank. But the difference in refund is not based on the mor- 
tality experience, as I understand it. 

Mr. Cammack. No; the mortality experience 

Mr. Frank (interposing). Therefore we can throw that out in 
both instances, initially and at the end of the year. That is a red 
herring as far as this discussion is concerned, isn't it, really? \ 

Mr. Gesell. By the way, who gets these refunds, the employer or 
the employee? 

Mr. Cammack. The employer gets th^m to reduce his costs. 

Mi". Gesell. So that your initial rate does affect what these 9,000,- 
000 working people have- to pay for their group insurance. 

Mr. Cammack. Of course, if the refund is greater than what the 
employers pay, then tlie balance of it ;,^oeS to the employee. 

Mr. Gesell. But he has first call. 

]\Ir. Cammack. He has first call. \ 

The Chairman. Mr. Cammack. the whole discussion this after- 
noon, all the questions which have been put to you, seem to have been 
based upon the assumptiDn that a competitive system is better than- 
a system based upon agreement among competitors. Do you think 
that assumption is a correct one? 

Mr. Cammack. It is very hard for me to answer that question, 
Senator, because I still believe that we have got the .competitive 
system. 

The Chairman. Of course, the purpose of the association was to 
eliminate at least certain fields of competition. 

Mr. Cammack. To eliminate certain possible abuses in the business. 

The Chairman. Well, of course, we, can use a euphonious phrase 
or use one Avhidi might be "rough," tb use the word that appeared 
in the memorandum whicli detailed the experiences.^ The question, 
however, is whether or not the association has not been formed for 
the express pu.rpose of eliminating actual competition in certain lines, 
as, for example, in underwriting, and in the rates of commission, two 
items which were specifically mentioned. 



^ See "Exhibit No. 647," appendix, p. 4701. 



4220 CONCENTRATION Or^ ECONOMIC POWER 

Mr, Cammack. It has; thut is right. 

The Chairman. Now competition has been eliminated in those two 
items. 

Mr. Caimmack. Absolutely. 

The Chairman. And yon think that is a desirable thing to do? 

Mr. Cammack. I think it very sound. 
_ The Chairman. So then I ask you, in your opinion, is the competi- 
tive system superior to a system of organized agreement among com- 
petitors as to what rates and policies shall be? 

Mr. Cammack. I believe in organized agreement up to an extent, 
but not to the elimination of competition. I will not agree that 
competition should be eliminated. 

The Chairman. Now, then, what you are saying, in other words, 
is that you believe in organized activity to eliminate competition up 
to a certain extent, but not to eliminate all competition. 

Mr. Cammack. In certain respects, I would say yes. 

The Chairman. What elements of competition do you say from 
your experience as an actuary and an expert in insurance may prop- 
erly be eliminated from your insurance field? 

Mr. Cammack. I think that is illustrated in our underwriting 
rules.'^ 

The Chairman. Before you answer, let me say "this: I recognize the 
fact that witnesses who come before this committee and who are 
interrogated witli i-espect to their actions and the action of their 
companies in relulion to the antitrust laws are naturally fearful of 
what inferences may be drawn from their replies. Now from my 
point of vicAV I am not concerned about that at all, and what I nm 
I tying to find out is the facts of our economic situation upon which 
to base a sound judgment witli respect to competition and combina- 
tion. It may be, for example, tliat the whole system of antitrust law 
ought to be rewritten. There have been many recommendations to 
that effect. Therefore, I ask you for your opinion as to the exact 
extent to which competition may properly be eliminated, and to whal 
extent those who carry on a business may be permitted to write their 
own rules, which is what you are doing in this case. 

Mr. Cammack. I can't give you a full answer to that. Senator. I 
believe that elimination in competition in some matters is for the 
benefit of the public. I think elimination of competition in the coua- 
mission rate that you would pay to a broker is entirely beneficial. I 
think it desirable to have limitations as regards your underwritiisg, 
as to 

The Chairman (interposing). What specifically do you regard it 
to be good ]}ractice, a desirable practice, to eliminate competition as 
to underwriting? 

Mr. Cammack. As to underwriting, I can only take one or two 
illustrations. Group insurance was designed for the protection of 
the industrial worker and a regular schedule of insurance, insurance 
on 1 year's salary. All right; you get into competition on a case and 
you iiave got a conple of hundred lives and the president wants 
$10,000 of insurance. We say no, under our rules the president in 
that case can't have' more than $2,500; we don't want to disturb the 
experience on that case by having one death. There are not a large 

1 "Exhibit No. GGS.'' iippeiidix. p. 4711. 



CONCENTRATION OF ECONOMIC POWER 4221 

enough number of lives to insure anyone for $10,000. There is a 
rule restricting underwriting that is absolutely sound. 

Mr. Henderson. That is based on the actuarial tables, is it not? 

Mr. Cammack. I think it is an actuary's problem to know how 
large a risk we can take in a group of a given number of lives. 

The Chairman. Let us have your opinion with respect to the elim- 
ination of competition in fixing the initial rate. 

Mr. Cammack. I have tried to answer that question. I think that 
it would be a mistake to allow any company to quote any rate .on any 
risk. The temptation to cut rates, as you know, has been very dan- 
gerous. On the other hand, you should prevent the companies from 
charging rates that are excessive. 

The Chairman. Now, who should prevent the companies from 
charging rates that are excessive? 

Mr. Cammack. Well, perhaps I could put it another way. If it 
is found that companies under their plan are charging excessive rates, 
then a correction should be made. 

The Chairman. By whom? 

Mr. Cammack. By the States, I presume. 

The Chairman. Ihen you do believe that the States, in the public 
interest, should exercise some regulatory power over these rates? 

Mr. Cammack. I wouldn't say that, because I can only illustrate 
by taking the New York State situation. They have exercised that 
power on group-life insurance. 

The Chairman. Has the State of New York actually exercised it? 
Your testimony this afternoon is that your association holds its meet- 
ings and compiles its experience, its actuarial experience, and then 
makes its recommendations, and then hies its recommendations with 
the State commissioner of insurance, and m a comparatively short 
time the recommendations are acted upon and a rate is promulgated, 
to use your phrase, almost invariably the same rate as that recom- 
mended. 

Mr. Cammack. Yes. 

The Chairman. So that you have been fixing these rates yourselves, 
and your organization has been fixing the rates. These tables show- 
that there were how many companies out of 105 — 19 companies out 
of 105 — in 1937 who were in the association. Now, it was the 19 
companies that made the recommendation upon which the State of 
New York acted in fixing the rate, so that the situation which you 
have described to us is that an organization of 19 corporations is 
meeting together in an association which they set up themselves, 
reviewing the facts in the light of their own" judgment, reaching a 
decision without the supervision of any public authority or without 
the participation of any public authority, and then having their rec- 
ommendation, so reached, reflected in an officially promulgated rate 
by the State authority. 

Mr. Cammack. I would say that the superintendent of New York 
certainly did supervise those rates. It is true that he did adopt our 
recommendations, but he has adopted them on the basis of the experi- 
ence that we submit to him. 

The Chairman. But you testified to us tliat he couldn't get any 
Qther experience except the experience wliich you submitted to him. 

Mr. Cammack. There is no other experience. 



4222 CONCENTIIATKJN OF ECONOMIC POWER 

The "Chairman. Certainly, so that it comes down actually to the 
fact that you yourself fix tlie rate which was promulgated by the State 
authority, so I am asking you, Is that a desirable system or is it not ? 

Mr. Cammack. I think it is -a very satisfactory system. 

The Chairman. Well, then, assuming that you have been acting 
with the utmost accuracy and the utmost good faith, it amounts to a 
declaration that so far as group insurance is concerned, therefore, the 
experts of 19 companies should be permitted to establish the rule 
which the 105 must needs follow. 

Mr. Cammack. It seems to me the superintendent of New York 
State can change those rates. 

The Chairman. Ah, but he doesn't, you testified, because he has no 
opportunity to do so, and he has no macliinery by which lie conducts 
tlie investigation. 

Mr. Cammack. He has the investigation at his disposal. It is filed 
with him. 

The Chairman. Then let us assume tliat he has. Do you think it 
would be desirable, tlien, for the State authority to employ a force of 
actuaries of liis own to investigate these matters and to announce the 
rates ? 

Mr. Cammack. I don't think it v»ould be any better than our present 
system. 

The Chairman. Tliat is wliat I Avas getting at. So what you are 
telling this committee is that the experts of the group insurance com- 
panies are fully equipped to do a good job, and that they do a good 
job, and that that is the best system obtainable at the time. 

Mr. Cammack. I think they have done a very good job. 

The Chairman. Are there any other questions ? 

Dr. LuRiN. One more question. Mr. Cammack, do you remember 
tlie date of the formation of your association ? 

Mr. Cammack. I think it was in 1926 ; I don't recall. 

Dr. LuBiN. Off-hand, do you remember at what time of the year'* 

Mr. Cammack. No ; I don't. 

Dr. LuBiN. Do you remember the date on which tlie New York 
insurance law was amended, and article II, section 101a, w^as inserted? 

Mr. Cammack. No. 

Dr. LuBiN. Was it before or after the formation of the association? 

Mr. Cammack. I don't remember. 

The Chairman. If there are no further questions, Mr. Cammack, 
we are very much indebted to you for your appearance this afternoon. 

Mr. Gesell. May I state that Mr. Cammack will be wanted to- 
morrow, as well as Mr. Flynn ? 

The Chairman. Who will he your first witness? 

Mr. Gesell. Mr. Flynn. 

The Chairman.- The committee will stand in recess until 10 : 30 
tomorrow morning. 

(Whereupon, at 5 p. m., a recess was taken until Wednesday, June 7, 
1939, at 10: 30 a.m.) 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWEE 



WEDNESDAY, JUNE 7, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington^ D. G. 

The committee met at 10:50 o'clock a. m., piireiiant.to adjourn- 
ment on Tuesday, June 6, 1939, in the Caucus Eoom, Senate Office 
Building, Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman); Representative Reece; 
Messrs. Henderson, Frank, Arnold, Lubin, Berge, and Brackett. 

Present also : Senator Pat McCarran, of Nevada ; Representative 
James M. Barnes of Illinois; Commissioner Edward C. Eicher, 
Securities and Exchange Commission; Ernest S. Meyers, Department 
of Justice; Harry J. Daniels, Department of Commerce; and Ger- 
hard A. Gesell, special counsel, Securities and Exchange Commission. 

The Chairman. The committee will please come to order. 

During the hearing on May 11, when the consumer study was in 
progress,^ I suggested to Mr. Donald Montgomery, who was pre- 
senting that study, that some statement should be prepared for the 
record on the manner in which various sta'ndardization acts which 
are being administered by the Department of Agriculture are being 
enforced, and what the experience has been under them. In re- 
sponse to that suggestion, I now have a letter, under date of May 
29, from Mr. Montgomery, together with a memorandum on the 
effect of these various acts, together with certain bulletins which 
have been issued by the Department of Agriculture from time to 
time. 

I present the letter and the memorandum for printing in the record, 
and the ])amphlets to be filed with the records of the committee. 

(The letter and memorandum referred to were marked "Exliibit 
No. 660" and appear in Hearings, Part 8, appendix, p. 8487. The 
pamphlets are on file with the committee.) 

The Chairman. Mr. Gesell, are you ready to proceed? 

Mr. Gesell. I am, Mr. Chairman. The first witness this morn- 
ing will be Mr. Flynn. I might say that yesterda}- we considered 
group insurance of various forms. This morning we will consider 
ordinary life insurance and present testimony with respect to agree- 
ments reached by certain companies controlling the rates of ordinary 
life insurance. 



' See nenriugs. Tart VIII, p. lir'.fiC.. 

4223 



4224 CONCENTRATION OF ECONOMIC POWER 

TESTIMONY OF B. D. FLYNN, VICE PRESIDENT AND ACTUARY, 
TRAVELERS INSURANCE CO., HARTFORD, CONN.— Resumed 

NON-PARTICIPATING RATES 

Mr. Gkselt-. Mr. Flynn, yon stated yesterday, did you not, that yon 
were an officer and actnary for the Travelers Insnranct; Co. of 
Hartford? 

Mr. Flynn. Yes, sir. 

Mr. Geseix. That company at the present time is writinff nonpar- 
ticipatinff life insurance, is it not? 

Mr. Fi,TNN. Yes. 

Mr. rTE<=:ELL. It is a stock company? 

Mr. Flynn. Yes; a stock company. 

Ml". Gesell. Am I correct in sayinjo: that the two other principal 
companies writing nonparticipating life insurance are also located at 
Hartford, Conn.? 

Mr. Flynn. Yes. 

Mr. Gesell. Those are the Aetiia Life Insurance Co. and the Con- 
necticut General; is that correct? 

Mr. Flynn. Correct. 

Mr. Gesell. Have yon any idea as to the total amount of nonpar- 
ticipating insurance in force which is attribntable to those three 
companies as opposed to the total attribntable to all companies? 

Mr. Flynn. Just a minute. The ratio of nonparticipating insur- 
ance in force of the Hartford stock companies and the total business 
of all companies was "6.1 percent and 6 percent, respectively, in 1936 
and at the' end of 1937. 

Mr. Gesell. I don't quite understand what yon said. Do I under- 
stand yon to say that the three companies, the Aetna, the Connecticnt 
General, and the Travelers, have only 6 percent of the nonpartici- 
pating insurance in force? ^ 

Mr. Flynn. That is correct. 

Mr. Gesell. In the United States? 

Mr. Flynn. Not of the nonparticipating ; of the total insurance. 

Mr. Gesell. Now I was asking you what percentage of the non- 
participating business is attributable to those three companies. 

Mr. Flynn. You mean in force? 

Mr. Gesell. Yes. 

Mr. Flynn. Or issued? 

Mr. Gesell. In force. 

Mr. Flynn. About 32 percent. 

Mr. Gesell. Our staff has prepared figures from Spectators' Year- 
book, Mr. Flynn, which would indicate that the figure was in the 
neighborhood of 46.6 percent as of December 31, 1937. There were 
some 232 com]ianies reporting to the Spectators' Yearbook as of that 
date and 46.62 percent of the ordinary nonparticipating insurance in 
force was written by the three Hartford companies. 

Mr. Flynn. Does that exclude the group life business? 

Mr. Gesell. No; that is ordinary, nonparticipating business ex- 
cluding the group life. 



1 In this connection see also statement showing the volnme of the ordinary business of 
the three Hartford companies, subsequently introduced as "Exhibit No. 679," and included 
in appendix, p. 4732. 



CONCENTRATION OF E(]ONOMIC POWER 4225 

Mr, Flynn. Excludes the group life? 

Mr. Gesell. Yes. 

Mr. Flynn. These figures are taken from the Unique Manual Di- 
gest for the end of 1937 

The Chairman. 1937? 

Mr. Flynn. Yes. 

Mr. Gesell. Have you those figures so that you can read them 
for the record and I will also offer this schedule? We will have 
both figures before us. 

Tiie Chairjian. Perhaps I may suggest that you take the figures 
offered by Mr. Flynn and then perhaps later during the day you 
can acconnnodate the two. 

Mr. Gesell. Certainly, It is in the neighborhood of thirty-what 
percent ? 

Mr. Flynn. Thirty-two percent. Thirty-one and seven-tenths at 
the end of 1937. 

Mr. Geseix. All three of those companies are stock companies, 
are they not? 

Mr. Flynn. Yes. 

The Chairman. What are the names of the companies ? 

Mr. Gesell. The Aetna, the Travelers, and the Connecticut Gen- 
eral. 

Mr. Flynn. Yes. 

Mr, Gesell. Now I would like to offer for the record at this time 
a schedule showing the dividends paid by the Aetna, the Connect- 
icut General, and the Travelers for each year from 1929 to 1938. 
This schedule shows the stockholders of these companies have re- 
ceived in dividends during the period from 1929 to 1938 a total of 
$51,075,000 in stockholders' dividends. The figures have been pre- 
pared by our staff from the annual reports of the companies. 

The Chairman. The schedule may be received. 

(The scliedule referred to was marked "Exhibit No. 661" and is in- 
chided in the appendix on p. 4717. f' 

Mr. Gesell. Those dividends are dividends paid by the companies 
without regard from what department the dividends have been 
earned. They are the total stockholders' dividends paid. 

Mr. Flynn. Mr. Chairman, I think I should put in the record that 
we have a very large casualty department, fpom which most of the 
dividends 'have beer, paid in recent years. That really has nothing 
(o do with the life business and life profits. 

The Chairman. You mean of the total of $51,075,000 in dividends 
which have been paid to the stockholders of these three companies as 
shown by this schedule, a substantial portion vv'as due. to the profits 
on casualty insurance? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. In order tliat tlie^e figures wJuch T have just offered 
for the- record may be supplemented and- explained, I have also for the 
record an exhibit entitled "Exhibit of Changes in Surplus Ordinary 
Non-Participating Business."^ This exhibit has been prepared for 
the years 1929 to 1938, inclusive, for each of the three companies .sep- 
arately, and shows the amount of money which tJiey made or lost 

* SubscquenUy entftied as "Exhibit No. 6G9," infra, p. 4259. 



422G COXCEXTKATION OF ECONOMIC TOWER 

each year in the conduct of their nonparticipatmg business. I would 
like to offer it for the record. 

The Chairman. Would you be good enough to show that to the wit- 
ness and see what his opinion may be of it? 

Mr. Gesfxl. That schedule has been prepared from the gain and 
loss exhibits of the companies. 

The Chairman. This statement would appear, Mr. Gesell, to indi- 
cate losses in certain years by some of the companies. 

Mr. Gesell. For tlie nonparticipating business; yes. 

Mr. Flynn. Mr. Chairman, I can't understand the Travelers' 
figures here, in 1936 a gain of seven millions. Is that right? 

The Chairman. Would you look at your copy, Mr. Gesell ? 

Mr. Gesell. Those figures are to my knowledge, as far as I know, 
accurate and have been prepared from the gain-and-loss exhibits of 
the company. They are offered, as all exhibits are, subject to any 
corrections which there may be. I have a witness whom I can put on 
the stand now to say that their figures have been compiled from the 
gain-and-loss exhibits, if the committee wishes. 

The Chairman. It would seem to the chairman it Avould be a com- 
paratively simple matter, although one requiring some detail, to deter- 
mine what the exact facts are, and I have no doubt that the witness or 
some of his associates can collaborate with one of your staff to get the 
correct statement. Don't you think that would be helpful? 

Mr. Gesell. Certainly. 

Mr. Cole. Mr. Examiner, I have quite a little doubt whether these 
relate to the life business of our company, whether they are not the 
entire business of the' company, and if so, they have very little bear- 
ing on the life business. So, I think it might be safer, to check them 
before they go in.^ 

The Chairman, I think it would be well to develop the facts, what- 
ever they may be, with respect to the total figures and the sources from 
which the profits or losses are incurred. 

Mr. Gesell. These figures are to our best efforts and knowledge 
correct. Now if there are any errors in them, Mr. Chairman, if 
pointed out to us specifically I think the exhibits can be changed ac- 
cordingly. They are prepared from the annual reports of the com- 
pany. 

The Chairman. These are offered now by the S. E C. as schedules 
which have been prepared from the annual report? 

Mr. Gesell. That is correct. 

The Chairman. They are offered subject to correction. 

Mr. Cole. May we have an opportunity to offer correct figures? ^ 

The Chairman. Certainly. Tlie committee would very much desire 

that you point out any errors that there may be in them, but I assume 

that there is no dispute of the fact that^he three companies did pay 

. dividends on all of their business throughout this period represented to 

their stockholders. 

(The schedule referred to was marked "Exhibit No. 662 and is in- 
cluded in the appendix, on p. 4717.) 

Mr. Flynn. The Travelers did not pay dividends throughout the 
period from its life department. 



1 Mr. B. D. Flynn subsequenUy admitted that the fij^ures in "Exhibit No. 6G2" are 
corroot, sec; infra, p. 4258. 



(CONCENTRATION OF ECONOMIC POWER 4227 

The Chairman, What I said was on all business dividends were 
paid. 

Mr, Flymn, Yes, sir. 

The Chairman, Profits may not have accrued to a particular de- 
partment, but apparently from these reports, each of these three com- 
panies made sufficient profit in the years covered to pay dividends to 
the stockholders, 

Mr. Flynn. Yes, sir. 

The Chairman, Have you developed any facts M-ith respect to the 
number of stockholders of each of these corporations ? 

Mr. Gesell, I have not got to that, sir. I will be glad to ask some 
questions on that. 

The Chairman, Would you do that? I would like to have the 
record show where each of these companies was incorporated, the num- 
ber of stockholders, and such related information,^ 

Mr, Gesell, Do you have that information, Mr, Flynn, available for 
your company ? 

Mr. Flynn. I haven't that. 

Mr, Gesell, We will be glad to prepare it and submit it for the 
record. 

The Chairman. Very well. 

Mr. Gesell. Mr. Flynn, will you tell us what a nonparticipating 
contract is? 

Mr, Flynn, A nonparticipating contract is ordinarily a long-term 
contract with a fixed premium rate guaranteed throughout the term 
of the policy. There is no offer of dividends or dividend participation 
on the part of the policyholder. 

Mr. Gesell. The essential difference between participating and non- 
participating insurance is that in nonparticipating insurance the 
profits, if any, which result, go to the stockholders of the company and 
not back to the policyholders, whereas in participating insurance any 
profits that result go back to the policyholders. Is that correct ? 

Mr. Flynn. That is correct. Profits and losses go to the stock- 
holders. 

Mr, Gesell, And your companies sell nonparticipating insurance, 
do they not ? 

Mr. Flynn, Yes, sir, 

Mr, Gesell. There is no money paid back to the policyholders if 
there are any profits ? 

Mr. Flynn. Eight. 

Mr, Gesell, And if there are any losses, the policyholder does not 
suffer those ? 

Mr. Flynn. Right. 

Mr. Gesell. Am I correct in saying that generally speaking, non- 
participating rates, gross rates, are lower than participating gross 
rates ? 

Mr. Flynn, Yes, sir ; that is correct. 

Mr, Gesell. Will you tell us in a general way what the various 
factors involved in computing a nonparticipating rate are? Am I 
correct in saying that there are three basic factors, the computation of 
the expected mortality experience, the interest rate which the com- 
pany will guarantee on the contract, and the loading or amount which 

^ For nl)ove information see supplemental data, appendix, p. 4929. 



4228 CONCENTRATION OF ECONOMIC POWER 

is added to the net preminm to cover expenses which are expected will 
be incurred in connection with the handling of the policy? 

Mr. Flynn. That is correct. 

Mr. Gesell. You have three basic things, then, which you deter- 
mine in computing a nonparticipating rate — mortality, interest, and 
loading or expense. 

Mr. Flynn. Right. 

Mr. Gesell. The responsibility of fixing rates for any particular 
company rests upon the actuary ? 

Mr. Flynn. Yes, sir. 

Mr. Gesell. He must, by his calculations, attempt to anticipate what 
interest will be earned, w^liat mortality rate will be expected, and what 
expenses or loadings will be incurred? 

Mr. Flynn. Correct. 

Mr. Gesell. That is entirely a matter which relates to the opera- 
tions of his own company insofar as the expense factor is concerned, 
is it not? , 

Mr. Flynn. Yes; he will base his rates, so far as possible, on his 
own idea of the future expenses. 

Mr. Gesell. Likewise, in guaranteeing an interest rate, he would 
look closely to his own company's investment position, what the com- 
pany could expect as a company to earn ? 

Mr. Flynn. He wT)uld do that, but in addition he w^ould look at 
the general situation and get all the advice and counsel he could. 

Mr. Gesell. Yes ; and in the case of mortality, there he would want 
to pool the experience of his company with the experience of a great 
number of other companies to get the broadest possible distribution 
of death rates, shall we say ? 

Mr. Flynn. Well, he wouldn't pool his experience, but he would 
study his own experience in relation to other current experiences. 

Mr. Gesell. Then you might say that in establishing the nonpar- 
ticipating rate, the matter which would be of most general interest to 
a group of actuaries faced with a similar problem would be the mor- 
tality problem, and the problem which would be most subjective, the 
one involving more closely the operation of his own company only, 
would be the loading and expense factor. 

Mr. Flynn. I would say the loading and expense factor would in- 
volve more nearly the indications of his own company. 

Mr. Gesei.l. Prior to April 1933, am I correct in saying that the 
three Hartford companies did not have uniform rates? ^ 

Mr. Flynn. Correct. 

Mr. Gesell. Am I also correct in saying that prior to April 1933 
the three Hartford companies did not have uniform cash values on 
their policies ? 
• Mr. Flynn. That is correct. 

Mr. Gesell. By cash values we mean (he amount which the policy- 
holder may get back if he turns in his policy before it runs to the 
expected maturity. 

Mr. Flynn. liight. 

Mr. Gesell. That is sometimes known as surrender value, is it not? 



1 In this connection see tables on nonparticipating Ufe-insurance rates for the three 
Hartford coinpauies before ahd after the adoption of uniform rates, subsequently sub- 
mitted to the committee by the companies, and entered in the record during hearings held 
July i;^, m.".!), as "Exhibit No. 922."' Printed in appendix, infra, p. 4927. 



('ONCi;NTRA'!^rON OF ECONOMK^ POWER 4229 

Mr, Fltnn. Yes. 

Mr. Gesell. So that before April 1933 there was no uniformity, 
either in rates on one side or on surrender values on the other? 

Mr. Fltnn. Rj<Tht. 

Mr. Gesell. Am I correct in saying that tlie last time the Travelers 
Insurance Co. had changed its rates was January 15, 1920? 

Mr. Fltnn. I can't answer that. 

Mr. Gesell. It was in the neighborhood of '29, was it not, Mr. 
Flynn — the last time they had made an over-all revision of their 
ordinary life-insurance rates? 

Mr. Fltnn. I can tell you in a moment. It was January 15, 1929. 

Mr. Gesell. And have you then? information which would indicate 
when the Aetna and Connecticut General had last changed their rates? 

Mr. Fltnn. No, sir; I haven't that. 

Mr. Gesell. Reading from Best's Illustration, the 1933 edition, it 
would indicate that Aetna had last changed its rates January 1, 1926, 
and the Connecticut General had last changed its rates April 1928. 
Is that approximately correct? 

Mr. Fltnn. I really don't know. 

The Chairman. How about the source? Is that a reliable source 
book? 

Mr. Fltnn. That is a reliable source; yes. 

Mr. Gesell. I want to call your attention to a memorandum written 
by you, addressed to President Zacher, of your company, under date 
of June 22, 1932. The memorandum is captioned, "Re: New Life 
Rates." You refer to the fact that Vice President Cammack had tele- 
phoned you about some matter in connection with group insurance, 
and then your memorandum proceeds [reading from "Exhibit No. 
663"] : 

Cammack stated tliat they would like to go ahead with the idea of increasing 
rates, but, of course, would be embarrassed if the Travelers did not do likewise. 
I told him that I did not see why the three local nonparticipating companies 
could not get together on a joint program, for if he was agreeable, we were willing, 
and from what Actuary Henderson said the other day the Connecticut General 
are thinking along the same line. 

Do you recall that memorandum ? 

Mr. Fltnn. Yes ; I recall that. 

Mr. Gesell. I would like to offer the memorandum for the record. 

The Chairman. The memorandum may be received. 

(The memorandum referred to was marked "Exhibit No. 663" and 
is included in tlte appendix on p. 4717.) 

Mr. Gesell. Now what did you mean when you said Mr. Cammack 
would like to increase the rates of the Aetna but would be embarrassed 
if the Travelers didn't do likewise? 

Mr. Fltnn. I would imagine that he had in mind the fact that at 
that time investment conditions had changed materially and were 
changing. Prospects of interest rates were changing, and I think in 
the minds of all actuaries at that time was the thought that we would 
have to take care of that in rates. 

Mr. Gesell. Very well, but why would he be embarrassed to go 
ahead and take care of it himself for his own company?. 

Mr. Fltnn. I think under the conditions he felt it would be well 
for us to pool our experience, pool our knowledge, and pool all informa- 
tion bearing upon the working of rates. 



4230 CONCIONTRATION OF ECONOMK^ POWER 

Mr. Gesell. Your companies had operated side by side there in 
Hartford, Conn., without having had uniform rates for years and 
years and years, hadn't they ? 

Mr. Fltnn. Yes. 

Mr. Gesell. Then suddenly, in 1932, he tells you that he would like 
to raise his rates, but would be embarrassed if you didn't do likewise. 
You could have exchanged information without coming to a uniform 
agreement on this thing, couldn't you ? 

Mr. Flynn. Not very well. I think we would all work independ- 
ently unless we were going to get together and study the problem. 

Mr. Gesell. Now may I proceed and call to your attention another 
memorandum which is dated June 25, 1932, addressed to you from 
Mr. H. Pierson Hammond. He is one of the actuaries in your division, 
is he not ? 

Mr. Fltnn. Yes, sir. 

Mr. Gesell. The subject is agaiil new life rates. He says [reading 
from "Exhibit No. 664] : 

Nonparticipating companies, American Life Convention, appear to want to 
increase rates but are waiting to see what the three companies in Hartford 
will do. 

In discussing the situation with Mr. Laird, he said that the Connecticut Gen- 
eral was waiting to see what the Travelers and Aetna would do. I suggested 
that he might, on his return, take the matter up with the Travelers and that I 
felt sure that the company would cooperate. He said he would try to do so 
immediately upon his return. 

I thought it advisable to suggest that Mr. Laird take this matter up Inasmuch 
as he had told me that President Huntington was away for 2 months. 

Now, putting this memorandum and the other memorandum to- 
gether, w© have about this situation, don't we, that all the nonpartici- 
pating companies in the American Life Convention, the small non- 
participating companies scattered throughout the Middle West, were 
looking to see what you three Hartford companies would do, and 
that Connecticut General was waiting to see what Aetna and Trav- 
elers would do, and Aetna, next to the largest, was waiting to see what 
your company, the largest, would do? That was the situation, 
wasn't it? 

Mr. Flynn. I think that is probably so,' and the reason for that 
was, as I remember, that the times were very unusual. June 1932 
everybody was thinking along the same line. I think if they ever 
felt they should get together to pool their information, to pool their 
knowledge, to get the very soundest and most secure rates for the 
policyholders, that was the time. 

Mr. Gesell. Your company was sitting at the top of this heap, 
wasn't it? 

Mr. Flynn. As far as size is concerned. 

Mr. Gesell. You were in a position to control the prices of non- 
participating insurance throughout the United States. 

Mr. Flynn. I wouldn't say that. I don't think our size gave us 
any right or privilege in that matter. 

Mr. Geseix. In effect they were all waiting to see what your com- 
pany would do, weren't they ? 

Mr. Flynn. That may have said so there. I really can't give an 
opinion on that. 

Mr. Gesell. Is there anything in these memoranda which discusses 
pooling of information, discusses troubled times, discusses the need 
for getting together? 



CONCENTRATION OF ECONOMIC POWER 4231 

It IS just a pure and simple question of price leadership from start 
to finish, isn't it? 

Mr. Flynn. I wouldn't say that at all. It was not a matter of 
getting together to fix prices. It was a matter of strenuous times, 
strained times. Every actuary was anxious to get the very best result 
he could, and to pool all information, pool all investment-depart- 
ment knowledge, investment oflScers' knowledge, and in every way 
try to work for security. 

Mr. Gesell. You have just told me a minute ago, though, Mr, 
Flynn, that as lar as the loading factor in your. premiums was con- 
cerned, that was a matter for you to determine individually, upon 
the basis of your own company's expNerience. What difference did 
it make to you whether some little middle western company in the 
American Life Convention had a higher or a lower expense rate 
in connection with the operation of this nonparticipating business? 

Mr. Flynn. We weren't making rates for them. We were working 
out rates among ourselves, and w^hen we began to study the matter, 
we discovered our expenses didn't differ very much. 

Mr. Gesell. I would like to offer te memorandum for the record. 

(The memorandum referred to was marked "Exhibit No. 664" and 
is included in the appendix on p. 4718.) 

Mr. Arnold. Would it be fair to say that in these troubled times 
companies with higher expenses than yours might be facing diffi- 
culties? 

]Mr. Flynn. I wouldn't think that they would be facing difficulties. 

Mr. Arnold. What do you mean by these troubled times that 
worried you so much? 

Mr. Flynn. Well, the investment situation, primarily. 

Mr. Arnold. You thought a raise in rates would help out the 
investment situation? 

Mr. Flynn. To change the interest factor in the rates, should help. 

Mr. Arnold. Any raise would help out any companies which 
might be in difficulty. 

Mi\ Flynn. Not for the purpose of helping them out of difficulties. 

Mr. Arnold. But itr would have that effect, wouldn't it ? 

Mr. Flynn. It would help, but you see these life rates wc were 
talking about were to run in the future, 5, 10, 40, or 50 years. You 
have to figure out today what rate you are going to earn over an 
average term. It was really the rate of interest that most everybody 
was looking at. 

Mr. Arnold. You didn't expect troubled times for 40 years, di«l 
you ? 

Mr.' Flynn. I am really not competent to make reply to that. 

Mr. Arnold. Did you at the time? You spoke of troubled times. 
You weren't really thinking of the next 40 years, were you? 

Mr. Flynn. Well 10, 20, 30, or 40. 

Mr. Arnold. You thought there would be troubled times for 40 
years, and in effect you were holding an umbrella over the less effi- 
cient companies by these price-fixing agreements, weren't you ? 

Mr. Flynn. We, at the time we were discussing this matter, 
weren't contemplating other companies following our rates. We were 
working it out for the three. 

Mr. Arnold. Then you were, in effect, ci)nteiTii>lating holding an- 
umbrella over the less efficient of the three companise? 

124491— 40— pt. 10 7 



4232 CONCENTRATION OF ECONOMIC POWER 

Mr. Flynn. You mean the three companies? 

Mr. Arnold. When you raised the rates or agreed to raise your 
rates. 

Mr. Flynn. The only reply I can make, Mr. Arnold, is what 
I said before. We were trying to get together to pool information 
and knowledge to have as sound a rate as possible during these long 
terms. 

Mr. Arnold. I have only one more question for the record which I 
simply want to put in. We discussed it yesterday, and I simply want 
to put it m at this point. Was the question of the violation of the 
antitrust laws, which assumed some proportion with respect to group 
insurance, raised with respect to this insurance? 

Mr. Flynn. Not so far as I know. 

Mr. Arnold. You didn't consider them at all ? 

Mr. Flynn. No. 

Mr. Gesell. As a result of these memoranda, the Aetna, the Trav- 
elers, and the Connecticut General, the three largest nonparticipating 
companies, got together and agreed to a program of uniform rates 
for ordinary insurance, did they not? 

Mr. Flynn. Right. 

Mr. Gesell. Now, that program for unifoi-m rates was a program 
tor uniform rates, whether you call it pooling or whether you call it 
rate fixing, or no matter what you call it, Mr. Flynn. Yoli agreed to 
all the factors in ordinary life insurance nonparticipating rates. 

Mr. Flynn. After full discussion and examination of the experi- 
ence and the figures of each of the three companies, and after consider- 
able debate, we reached a conclusion which was agreeable to all three. 

Mr. Gesell. Now, I would like to read you a letter which you wrote 
under date of June 28, 1932, to Mr. Zacher, who was president of the 
Travelers Co. The letter states [reading from Exhibit No. 6651 : 

A meeting was hold in my oflSce this afternoon on the general subject of 
prospective increase in nonparticipating life rates. Those present were Vice 
President Cammacls of the Aetna, Vice President Laird and Actuary Henderson 
of the Connecticut General, Actuary Hammond, Assistant Actuary Hoskins, and 
myself. After considerable friendly and cooperative discussion the follovping 
points were tentatively decided upon. 

1. The three local nonparticipating companies would increase rates effective 
upon the same date. 

2. January 1, 1933, appealed to all three companies as a good date for 
making increased rates effective. It was apparent from Mr. Cammack'.s general 
statements — which he made to me over the phone Saturday morning and again 
on the train from New York yesterday — that he had not as yet had an oppor- 
tunity to talk with Mr. Brainard In regard to the effective dates of rates * * *. 

3. It was tentatively thought desirable to have identical rates for all three 
companies for principal forms. 

4. The Aetna and Travelers felt that 4 percent was a proper interest assump- 
tion as a basis for new rates. The Connecticut General thought that this was 
ns low as we could go (they had previously mentioned 4i>4 percent and were 
agreeable to go along with the idea of 4 percent at least in the preliminary 
work of matching ideas on rates.) My own opinion is that the Connecticut 
General will cooperate with the other companies upon a 4-percent interest basis. 

That would indicate that the Connecticut General wasn't in accord 
with your company and the Aetna with respect to the interest factor 
when you first got together. 

Mr. Flynn. At that time ; yes. 



CONCENTRATION OF ECONOMIC POWER 4233 

Mr. Geseix. No. 5 would indicate that you agreed on the mortality 
basis. No. 6, the nicniorandura states [reading further from "Exhibit 
No. 665"] : 

Expense loadings were discussed tentatively with the result that a reasonable 
loading for expenses and profit by age can be safely counted upon. 

That a reasonable loading for expenses and profit by age can be 
safely counted upon — 

Was that a pooling of experience ? 

Mr. Flynn. Well, this decision, or this tentative getting together, 
w as based upon the study by each company of its own expenses. 

Mr. Geselx,. And profits. 

Mr. Flynn. Well, not necessarily profits. 

Mr. Gesell. It says "loading for expenses and profit." 

Mr. Flynn. Well, that would not be a matter of experience.; (hat 
u ould be a matter of determination. 

Mr. Gesell. That would be a matter of comnTon design rather 
than of common experience. 

Mr. Flym^. It would be common purpose or design for profit and 
contingency. 

Mr. Gesell. So that in reaching a decision as to the loading, tenta- 
tive though it was, at this time you were in effect reaching a decision 
also as to the amount of profit that you felt desirable. 

Mr. Flynn. We were discussing that. 

Mr. Gesell. You also discussed at this time surrender values. The 
luemorandum says under paragraph 7 [reading further from "Exhibit 
No. 665"] : 

The Connecticut General, which has had rather liberal surrender values, is 
agreeable to a material change, particularly in those at the end of the third, 
fourth and other e'arly policy years. The Aetna at present have values which 
are not quite so liberal as ours and would prefer not to increase surrender 
values materially. There was the further point thot the Aetna use the same 
values for both participating and nonparticipating business and did not feel 
that they could lower participating values because of participating competition. 
Our own position was that we would like to have as high surrender charges as 
possible particularly in the early years. 

Then your memorandum goes on to state that : 

The general conclusion from today's meeting would be that material progress 
has been made and we can with fair assurance assume that the local non- 
participating companies will act together in an increase in life rates at the en<l 
of this year. 

May I offer this memorandum for the record ? 

The Chairman. It may be received. 

(The memorandum referred to was marked "Exhibit No. 655" and 
is included in the appendix on p. 4718. ) 

Mr. GeseXiL. Now, Mr. Flynn, at this time when you had your first 
meeting and got together on this thing there were substantial dif- 
ferences in opinion expressed were there not? 

Mr. Flynn. Well, I wouldn't say substantial. I think the experi- 
ence rates and their ideas of probable interest rates did not differ 
very much. 

Mr. Gesell. Kegardless of the matter of degree, you were in dif- 
ference as to intereF,t in rates; you were in difference as to the ques- 
tion of surrender value. There was some slight difference on the 
question of mortality. 



4234 CONCENTRATION OF ECONOMIC POWER 

Mr. Fltnn. Yes. 

Representative Barnes. Mr. Chairman, may I interrupt right 
there? Wliat percentage does the mortality play in the fixing of 
rates? You base it upon loading, interest charges, and mortality. 
Now, what percent of your total rate is made up of your mortality ? 

Mr. Flynn. That is very difficult to answer because the mortality 
by age throughout the life of the contract is discounted at a particular 
rate of interest. You mean if the premium were $30, how much of 
that could be reasonably figured as the mortality cost? 

Representatives Barnes. Correct. 

Mr. Flynn. May I ask my assistant for an estimate on that? 

The Chairman. Surely. 

Mr. Flynn. The best answer that I can give is that the net pre- 
mium which involves the mortality cost, discounted for interest, would 
1)6 about twenty- four or twenty-five dollars out of a $30 premium. 

Representative Barnes. In other words, the big major part of your 
rate structure is the mortality table. 

Mr. Flynn. Yes, sir. 

Representative Barnes. Your mortality table as I understand is 
based on one or two or more general mortality tables in existence, 
subject to the own experience of each individual company as to the 
risks they insure themselves, depending upon the agents and upon the 
medical examination ; is that correct ? 

Mr. Flynn. Yes ; that is correct. 

Representative Barnes. In pooling your information and interest 
at the time this agreement was reached, was there much variance 
between the various companies as to the mortality experience of the 
various companies? 

Mr. Flynn. Not very much variance, if I remember correctly. 

Representative Barnes. Their experience was approximately the 
same, or was there any difference at all, do you know? 

Mr. Flynn. I don't recall any material difference. There may have 
been differences by form, a particular form, but in general I think 
all companies operated in about the same sections of the country, 
underwriting about the same way. 

Representative Barnes. But the class of business being insured 
would materially affect the mortality rate and therefore materially 
affect the rate structure to be charged to the individual. 

Mr. Flynn. Right. 

Representative Barnes. And if one company was more strict on 
their risks than the others, it would be a material saving to that 
company. 

Mr. Flynn. It would mean some saving ; yes. 

The Chairman. How do you explain, then, the apparently wide 
variance in the opinion of the actuaries of these three companies as 
set forth in paragraph 5 of your memorandum of June 28, 1932 ? ^ 

Mr. Flynn. I think the answer to that, Senator, is that the Con- 
necticut General had a somewhat lower mortality on its direct busi- 
ness than either of the other two companies had at that time. 

The Chairman. May I ask when the American Men Table of Mor- 
tality was computed ? 



1 See "Exhibit No. 665," appendix, p. 4718, at p. 4719. 



CONCENTUATION OF ECONORIIC POWER 4235 

Mr. Flynn, I don't know ; I think it was 1925 or 1926. 

The Chaieman. Is that table now the basis of the actuarial com- 
putations of all the companies? 

Mr. Flynn. No, sir. There are various bases used by the com- 
panies. That is the present basis for nonparticipating rates, how- 
ever. 

The Chairman. Is this the table wdiich was prepared in 1926? 

Mr. Flynn. Yes. 

The Chairman. And it is uniformly used by some of the com- 
panies, the nonparticipating companies? 

Mr. Flynn. Yes, sir. 

The Chairman. It is a different table from that which is used 
by the participating companies? 

Mr. Flynn. I really can't tell. 

Mr. Henderson. Tlie actuarial table is the same, but the percentage 
applied is different. This is the same table, isn't it? 

Mr. Flynn. This is not the American Experience Table, which 
is the old table referred to- so often. This is the American Men 
I'able, wliich was a later compilation on more recent experience. 

Mr. Frank. But used by many companies, both participating and 
nonparticipating. 

Mr. Flynn. I beg your pardon. What was the question? 

Mr. Frank. I say that table is used both by participating and non- 
participating companies for many purposes, is it not? 

Mr. Flynn. I can't tell. 

Representative Barnes. Your experience was based on that table 
was it not ? 

Mr. Flynn. Our experience was related to that table, but we also, 
related it to a table of our own experience which we have compiled 
along through the years. 

The Chairman. Here we have apparently three different tables; 
We have the Table of Experience, we have the American Men Table, 
and we have the table mentioned in the New York statute, which was 
put in the record yesterday,^ the American Men Ultimate Table. That 
is a different table from either of the other two, is it not '^ 

Mr. Flynn. That is the ultimate experience; that is, experience 
after a -certain selected period of duration of the policy, while the 
medical selection is w^orking off. The ultimate experience, the Ameri- 
can Men Ultimate Table, covers the experience after that selection iis 
l)resumed to have worked off. 

The Chairman. What I am getting at is this — that to you as an 
insurance actuary these three phrases mean different things: The 
American Experience Table, the American Men Table, llie American 
Men Ultimate Table. 

]\Ir. Flynn. Excepting the second. I would make thai ilie Ameri- 
can Men Select Table, and then tliere is the American Men Ultin^ate 
Table. 

The Chairman. Which of these tables is actually used as the basis 
of your company in fixing rates ? 

Mr. Flynn. In this particular calculation it was the American Men 
Select Table. 



1 See "Exhibit No. G46," appendix, p. 4G92. 



4236 CONCENTRATION OF ECONOMIC POWER 

The Chairman. And then that selection Avas further refined by this 
agreement, I take it. 

JMr. Flynn. Yes. 

The Chairman. Because the paragraph to which I refer reads 
[reading from "Exhibit No. 665"] : 

The Aetna's idea of a mortality basis was 90 percent of the American Men 
Table up to age 75, increasing 2 percent for each age up to age 80 for all 
forms other than term, which they would place upon a 100-percent mortality 
basis for all ages. The Connecticut Generars idea was to start at about 75 
percent of the American Men Table at age 20 — 

A very striking variation apparently — 

increasing to 100 percent at age 50 and going somewhat higher for the older 
ages. Our own idea follows more closely that of the Aetna. This basis should 
give a reasonable mortality margin for safety. 

Sahere in this agreement we have three different views of hoAv the 
mortality selection table, the American Men Select Table, should be 
varied m order to determine the rates. 

Mr. Flynn. That is correct. 

The Chairman. Would a layman be justified in the assumption 
that these so-called tables of experience and tables of mortality really 
play but little part in fixing the rate ? 

Mr. Flynn. I don't think that would be correct, Senator. They 
play an important part. 

The Chairman. But if there can be such a variation in judgiuent 
between the actuaries of the Aetna, who say that they will tak? '/() 
percent of the table up to the age 75, and the actuaries of the C<)i)- 
necticut General, who say they will take 75 percent of the table 
beginning at the age 20, it must be clear that there is no standard. 

Mr. Flynn. That is the judgment of tlie actuary of a particular 
company as to the experience he thinks will be experienced by his 
company in the future 

The Chairman. So now again I am asking you, as a layman, what 
confidence can I place in the standard fixed by the so-called experi- 
ence tables when I find you, the secretary of the Travelers Insurance 
Co., drafting a memoraiidum like this, which shows such a tremen- 
dous variation among the three leading companies of Hartford? 

Mr. Flynn. Well, these were at the beginning of negotiations. We 
were all basing estimates upon the same table. 

Mr. Gesell. Isn't it a fact, Mr. Flynn, that in reaching an agree- 
ment upon the basis of mortality experience that you use in coni- 
puting your r?.t8S, you have in ef tct rSaCiieu an agreement whicli 
directly affects the amount of profit that each of the companies will 
make, since it is from the mortality savings that you non})articipat- 
ing companies make such a large percentage of your profits? 

Mr. Flynn. Are you basing your question on gain and loss exhibit 
figures ? 

Mr. Gesell. Your company has made money, hasn't it ? 

Mr. Flynn . Yes ; but I thought you were thinking of those exag- 
gerated profit figures which appear in the gain and loss exhibits. 

Mr. Gesell. Your company has made money, ha.s it not, and docs 
not that money which is made come from, to a large extent, savings 
in mortality? 

Mr. Flynn. To a large ertent; yes. 



CONCENTRATION OF ECONOMIC POWER 4237 

Mr. Gesell. In coming to an agreement in your mortality experi- 
ence, you have come to an agreement which directly affects the 
amount of profits which you will receive. 

Mr. Hendekson. Mr. Geseli. may I suggest that Mr.^ Flynn has 
been in consultation with his assistant and Mr. Cole, and maybe the 
questions are being precipitated too fast. If he has some memos, and 
the like, he may wish to consult with them. 

Mr. Cole. I "am simply worried, Mr. Henderson, about this state- 
ment about profits, because I don't think there are any accurate figxires 
here yet as to the profits from the life business in the last few years, 
and I don't want any misleading assumptions; that is all. 

Mv. Henderson. Neither do we, Mr. Cole; that is the reason sug- 
gested that we don't ask the question so that an answer might be 
given that would be different. I suggest that when the witness does 
want opportunity to speak to his associates he ask for it. If he 
will ask us, we will let him consult. 

The Chairman. Do you care to have the question of Mr. Gesell 
repeated ? 

iNfr. Flynn. That last question. 

The Chairman. Yes. 

Mr. Flynn. I Avould like it, Senator. 

The Chairman. The reporter will read it to you. 

(The reporter read Mr. Gesell 's last question.) 

Mr. Gesell. Let me put it this way. Is it not a fact' one of the 
.sources of profit in the sale of the nonparticipating insurance is sav- 
ings from mortality? 

Mr. Flynn. Yes. 

Mr. Gesell. When you three nonparticipating companies reached 
an agreement on the mortality you would use, you were reaching an 
agreement which had relation to not only anticipated mortality but 
also a relation to anticipated profits. 

Mr. Flynn. I wouldn't put it "anticipated profit"; I would think 
that we had in mind a possible margin in the mortality factor. 

Mr. Gesell. Let's just see. Do you make an}' appreciable amount 
of money or expect to make any appreciable amount of money, by 
guaranteeing an interest rate lower than that which you are going to 
earn ? 

Mr. Flynn. It is very difficult to answer thaU Mr. Gesell. We 
can't tell where the ]irofii may come. We can't tell if a ]Drofit will 
come. As Mr. Cole has said, if the life department profits could be 
segregated, I think you would find we were not making much of any 
profit in the life insurance business. 

Mr. Gesell. As far as the figures are concerned, we have asked for 
the forms, and we will have them over here and decide on the ac- 
curacy of them. Now let's keep the discussion on the theoretical base 
of v.-here rates are computed and where sources of profit arc expected 
to come from. All three of you companies have stockholders, and 
you are in the business of selling insurance to make profits for your 
stockholders, are you not? 

Mr. Flynn. Right. 

jMr. Gesell. Now, in fixing the nonparticipating rates and attempt- 
ing, as you must if you are to be the trustee for your stock! lolders, to 
anticipate some reasonable njargin of profit for them in the business, 



4238 CONCENTRATION OF ECONOINIIC POWER 

is it not true that you expect that profit, if it is to come, to come 
largely from savings from mortality? 

Mr. Flynn. I can't say that, Mr. Gesell. 

Mr. GiiSELL. Isn't that where your profits in the past have come 
from, Ml-. Flynn? , 

Mr. Fi,TNN. I wouldn't say it was where they have come from. I 
think ov(ir certain years there have been possible savings of expenses 
against loading and savings in interest. 

Mr. Gesell. Those two have been very, very slight as compared 
to the amount of money you have saved through mortality, have they 
not? 

, Mr. Flynn. I really cannot answer that. 

The Chairman. Where do you expect your profits to come from? 

Mr. Flynn. We have no particular source of profit — from all three 
we would hope. 

Mr. Arnold. Don't you segregate them? 

Mr. Flynn. Keally, we haven't, that I know of. 

Mr. Henderson. Wasn't the Connecticut General's idea based upon 
their saving on the mortality table? 

Mr. Flynn. It was based upon their experience, apparently. 

Mr. Henderson. But that experience 

Mr. Flynn (interposing). Would indicate a profit. 

Mr. Henderson. A saving; yes. Don't you have the same experi- 
ence? Don't you record that? 

Mr. Flynn. I don't think our experience during that period was 
as good as the Connecticut General's. 

Mr. Henderson. That wasn't my question. My question was: 
Don't you keep a record of that experience? 

Mr. Flynn. Yes, sir. 

Mr. Henderson. How did you arrive at 90? 

Mr, Flynn. From a study of mortality experience. 

Representative Barnes. In other words, your rates are based, from 
an actuarial point of view, on 100-percent mortality. Your loading 
or administrative charge, say, 4 percent charge, would bring you out 
even at the termination of the policy, assuming no surrender and 
assuming all the way through — in other words, if you earn more than 
4-percent interest that would be profit. If you do not have 100- 
percent mortality, you will save a difference of mortality; if there 
are surrenders in the early years in your policy, say, up to 8 years, 
you are going to make a profit on all those surrenders or lapsing 
of all those policies, and those savings in that will mean savings and 
the profits your company will make ; is that correct ? 

Mr. Flynn. That is correct, except I should explain about the 
profits on surrenders. That is really a misnomer. Wlien a policy is 
i -sued you put up a legal reserve and borrow from surplus to put it 
ip. When the policy is surrendered, you release that reserve back 
,0 surplus. It is called profits in certain exhibits, but we look upon 
it as a release of the surplus borrowed. 

. Representative Barnes. But it gives the company access to that 
money where thay couldn't use it otherwise. 

Mr. Flynn. Correct. It releases that money. 

Representative Barnes. Do you know the mortality experience 
based on American Men Select Table in 1932 of your company? 



CONCENTRATION OF ECONOMIC POWER 4239 

Mr. Flynn. I don't. 

Kepresentative Barnes. Or any of the years of that time ? 

Mr. Flynn. I don't. 

Mr. Gesell. It was appreciably less in each case, "wasn't it, Mr. 
Flynn? V 

Mr. Flynn. Than the American Men Select; yes, sir. 

Mr. Gesell. If I may, I would like to proceed. 

The Chairman. I think we have taken you away from your exami- 
nation. 

Mr. Gesell. Can you tell us the nature of the discussions and agree- 
ments which were reached among the three companies with respect to 
surrender values and charges at this time? 

Mr. Flynn. I don't recall what those deductions were. 

Mr. Gesell. May I ask you to examine this document? 

Mr. Flynn. Will you tell me where this comes from? There is no 
identifying mark on it. 

Mr. Gesell. I am simply asking you to refresh your memory with 
respect to ^igreements reached. It didn't come from the files of your 
company. 

Mr. Flynn. I really can't recollect whether this was a final conclu- 
sion or tlie tenijDorary or tentative conclusion during discussion. 

Mr. Gesell. Let me get at it this way, Mr. Flynn : Your companies 
now have uniform agreements for surrender charges, do they not, and 
surrender values ? 

Mr. Flynn. Yes. 

Mr. Gesell. When did those agreements go into effect — was it not in 
connection with the uniform rate increase of 1933? 

Mr. Flynn. Yes. 

Mr. Gesell. Now, what is the uniform basis that all of your com- 
panies are operating on at the present time? 

Mr. Flynn. I haven't the detail. I will have it prepared. 

Mr. Gesell. Will you just consult with your associates and tell us 
wliat charges you have agreed to ? It is a very simple program, Mr. 
Flynn. 

Mr. Flynn. Mv. Gesell, you mean the basis for making the decision ? 

Mr. Gesell. You testified your three companies have a uniform 
agreement which has been in effect since the uniform rate increase in 
1933. All I want to know is what that uniform basis is, 

Mr. Flynn. The basis of surrender charges has been changed since 
1933. 

Mr. Gesell. Can you tell me what it is now ? 

Mr. Flynn. Under our present plan the surrender value is based on 
chai'ges of one-third of the reserve in the secQud year, with a minimum 
of $12.50 and a maximum of $25 in later years, no surrender charge 
in the twentieth and later years. 

Mr. Gesell. Now, you had an agreement substantially similar to 
Ihat which was reached at the time of the rate increase in 1933, did vou 
not? 

Mr. Flynn. Yes. 

Mr. Gesell. Mr. Flynn, do you recall that just prior to the time 
these first uniform rates went into effect in 1933, there were some objec- 
tions raised as to the methods being followed by the Aetna in handling 
its modified life policy? 



4240 rONCENTIlATION OF ECONOMIC POWER 

Mr. Flynn. I don't remember distinctly. I know there was some 
discussion at tliat time. 

Mr. Gesell. May I call your attention to a memorandum which you 
wrote under date of October 20, 1932, re Aetna's Modified Life Form 
[reading from "Exhibit No. 666"] : 

Mr. Cainmack phoned tbis morning to state that they were endeavoring to 
increase their niodilied life rate but discovered that if they followed the basis of 
their new life rates they would have nonparticipating rates at certain ages 
higher than those of the Prudential's modified life. Little is increasing his mod- 
ified three rates at ages between 50 and 60 but not changing his modified five rates. 
Canvmack is proposing to continue his present modified life rates. The contract 
is not as liberal as that of the Prudential in that 40-percent commission is paid 
at first and 40 percent only on the increase of premium at the end of the 5-year 
period whereas he understands the Prudential pays the commission on the whole 
premium at the end of the preliminary period. 

As 1 understood it over tlio phone, Camniack checked his present modified life 
with the rates which would be required under the new program and found that 
at age 40 there was no difference; at age 45 the old rates were GO cents inade- 
<iuate ; at age So $1.23 inadequate ; and at age 65 .$2 too much. 

Cammack stated that he called in order to i emove any question of bad faith 
in the matter — although he presumed that we would not be parLicuhu'ly interested. 

Does that refresh your recollection with respect to that matter? 

Mr. Flynjs. Yes, sir. 

Mr. Gesell Is it not a fact that when the presidents of the three 
insurance companies met to approve this uniform rate increase the 
question of this modified life policy of the Aetna's came up? 

Mr. Flynn. I don't know. 

Mr. Gesell. May I ask, then, if the connnittee please, that Mr. 
Flynn step down from the stand for a moment and I wdll call Mr. 
Laird. 

Wliile Mr. Laird is coming to the stand, may I offer this memo- 
randum for the record? 

The Chairman. The memorandum may be received. 

(The memorandum referred to was marked ''Exhil)it No. Ci(K)'- and 
is included in the appendix on p. 4719.) 

The Chairman. Mr. Laird, do you solenmly swear the testimony 
you are about to give in this proceeding shall be the trutli, tlie whole 
truth, and nothing but the truth, so help you God? 

Mr. Laird. I do. 

TESTIMONY OF JOHN M. LAIRD, VICE PRESIDENT, CONNECTICUT 
GENERAL LIFE INSURANCE CO., HARTFORD, CONN. 

Mr. Gesell. Mr. Laird, you are connected with the Connecticut 
General, are you not? 

Mr. Laird. Yes. 

Mr. Gesell. In what capacity? 

Mr. Laird. Vice president and secretary. 

Mr. Gesell. Were you familiar with the discussions which took 
place among the three companies in 1926, with respect to arriving at a 
uniform rate program? 

Mr, Laird. In a general way, yes. 

Mr. Gesell. You have heard the testimony of Mr. Flynn just be- 
fore he left the stand. Do you recall the conversations that took place 
in you]- company and with the other companies concerning tiif Aetna's 
modified life ))olicy? 



CONCENTRATION OF ECONOMIC POWER 4241 

Mr. Laird. I remember a question was raised, yes. 

Mr. Gesell. Do you recognize the second and third sheets of this 
document as a memorandum ^ which was written concerning it by Mr. 
Henderson of your company and which you turned over to Mr. 
Huntington ? 

Mr. Laird. Yes ; that is a memo by our actuary. 

Mr. Oesell. Did you ( ake that memorandum with you to a meeting 
of the presidents, or have any discussion with Mr. Huntington, the 
presidBnt of your company? 

Mr. Laird. I think I talked with Mr. Huntington, but I don't know 
that the presidents even met. 

Mr. Gesell. Tiie memorandum states as follows [reading from 
"Exhibit No. 667"] : 

The coutiuiiation of the present r.ites by Aetna on this policy form will be a 
very serious matter from a competitive standpoint. Because I have been assum- 
ing that we were going to have almost 100 percent cooperation between the 
three companies, I was very much surprised when I heard of their decision. 

Then there is a. discussion of the Aetna's modified life form, and a 
comparison of that form with the term forms used b}'' j'our company 
and the Travelers. 

Do you recall what discussions you had with President Huntington 
of your company concerning this matter? 

Mr. Laird. Naturally, not in detail, but, as I remember the situa- 
tion, the Aetna's modified life form was a kind of combination of life 
and term. 

I think the Aetna worked the rates for it as if it were entirely life, 
whereas we thought it sliould bear a different rate because of what 
v.e considered a term element in it. 

Mr. Gesell. Well, in effect, though your company and the Travelers 
did not write this modified life form, your term forms were so near 
to the modified life form that the Aetna's failure to apply the new 
program to its modified life form gave it a competitive advantage. 

Mr, Laird. Well, the two situations were sufliciently close that the 
agents Avould make comparisons and it could be shown that the Aetna 
was offering lower-priced insurance. 

Mr. Arnold, You wanted to remove that competitive advantage. 

Mr. Laird. Well, the three companies had agreed on what we 
thought was the minimimi safe rate to charge for new insurance to 
be issued thereafter, and there were naturally zones w^here we didn't 
have a complete meeting of the mind. This was one of them. 

Mr. Arnold. The agreement constituted the acceptance of the high- 
est possible basis out of three diverse views, didn't it? 

Mr. Laird. No, not necessarily. In fact, it would seldom vrork out 
that way. In practice, as I remember it, each of the three companies 
worked out tentative gross premiums according to its best judgment 
of the future. Then we got together and compared notes and, if there 
was a variation, we tried to decide according to our best judgment 
what was the best rate that we should guarantee, having in mind 
that we must make the contract safe so that we would be able to fulfill 
our obligations and, on the other hand, having in mind that fully over 
90 percent of the business is written by participating companies which 
at that time were (quoting dividends based on their past experience. 



Subs^oiimnlly imro'Uicod as i>;iif of "Kxliibit No. ,GW," see :uH'i"n(lix, p. 4720. 



4242 CONCENTRATION OF ECONOMIC POWER 

whereas we were projecting into the future; so that we just couldn't 
raise the rates very much or we wouldn't sell any business. 

Mr. Arnold, But you also had in mind profits. 

Mr. Laird. We hoped there would be profits although, as events have 
turned out, we didn't pitch the rates high enough. 

Mr. Gesell. May I refresh your recollection a little further on this 
thing. You said you didn't recall whether the presidents got to- 
gether and just what kind of discussions were had. I have in my hand 
a memorandum written by Mr. Hammond of the Travelers Life 
Insurance Co., dated 1 : 50 p. m., November 16, 1932.^ 

He reports as follows [reading from "Exhibit No. 669"] : 

Mr. Laird, vice president and actuary of the Connecticut General, has just 
called me on the tolephone. I understand from Mr. Laird that there is to ho a 
meeting of the presidents of the Aetna Life, tlu; Travelers, and Connecticut \^en- 
eral at 2 : 30 o'clocli today in tlie Connecticut General building. 

It is rather specific on the meeting. 

Mr. Laird stated that Mr. Cammack has not had anything to say relative to 
any change in the rates of their modified life contract. The Connecticut General 
has just discovered that the Aetna Life proposes to make no change in such 
rates, and as he understands it the Aetna Life takes the position that if they 
raise their rates for this form they will be unable to compete with the corre- 
sponding policy of the Prudential, namely, the modified five. 

Mr. Laird feels that the loading on the Aetna Life form should be somewhere 
between the ordinary-life and 5-year term, although possibly the ordinary-life 
loading would be satisfactory. 

Mr. Laird told me that he was taking this matter up with President Hunting- 
ton and expressing the opinion that unless the Aetna Life will change its rates 
upon the modified-life contract it practically nullifies the entire program. I 
assume that the conchisions reached by Mr. Laird are probably based upon the 
fact that the Aetna Life writes a great deal of business on this form in place of 
ordinary life. 

Now, you felt pretty strongly then about tliis matter, did you not, at 
the time it came up? 

Mr. Laird. Well, of course, that isn't my memo; that is another 
man's interpretation, and that may exaggerate the way I felt. 

Mr. Gesell. Will you tell us how you did feel, so we will have it 
for tlie record ? 

Mr. Laird. What is the date of that memo ? 

Mr. Gesell. One-fifty p. m., November 16, 1932. 

Mr. Laird. Well, of course, it is several years ago, and it is a matter 
of feeling. It was the first attempt of the tliroe companies to- work 
together, and we did feel that, some change had to be made in the 
Aetna's situation, or we couldn't claim that we had a uniform program. 

Mr. Gesell. If you didn't have that imiform program, the Aetna- 
would have had a competitive advantage, would it not? 

Mr. Laird. Temporarily. 

Mr. Frank. It was the purpose, then, of the effort to get an agree- 
ment on this item to deprive Aetna of that competitive advantage. 

Mr. Laird. Well, the purpose was to put guaranteed rates on a safe 
basis as we then saw it. 

Mr. Frank. Leaving out the word safe, you may be right; I express 
no opinion as to whether it was desirable or undesirable. It may be 
that this Avas a perfectly desirable, socially useful arrangement; but 
we are trying to get the facts, and not going into the question of its 

' Siihseqnently cnlmTd a.s "E.vliihil No. (!60," .src ni>i'cnriix, p. 4722. 



CONCENTRATION OF ECONOMIC POWER 4243 

desirability at this time, but the purpose was to avoid any competitive 
arrangements. 

Mr. Laird. Do 3^ou mind repeating that? 

Mr. Frank. I say your purpose was to eliminate competitive ar- 
rangements and to arrive at an anticompetitive agreement. 

Mr. Laird. The purpose was to have uniform rates on th6 contracts 
which all three companies issued, and to have comparable rates on any 
odd forms that any one of us might happen to have. 

Mr. Frank. And the purpose, therefore, was to stop competition 
within that field ? 

Mr. Laird. Within the three companies, who, of course, did a very 
small fraction of the total insurance business in the country. 

Mr. Gesell. Is it not a fact, Mr. Laird, that following the dissen- 
sion which arose with respect to this modified life policy of the Aetna 
additional meetings were held among the actuaries which resulted in 
the Aetna agreeing to. change the rates which it was going to quote 
on its modified life, so as to bring them in line with the uniform pro- 
gram which had been proposed ? 

Mr. Laird, My impression is that they adopted a different set of 
rates. I think there was still a little question in our minds as to 
whether it was according to our interpretation of the general formula, 
but at any rate it was close enough so that we didn't object further. 

Mr. Gesell. You agreed to it. 

Thank you, that is all. 

I would like to call for a moment, before Mr. Flynn returns, Mr. 
Beers. 

The Chairman. Do you solemnly swear the testimony you are about 
to give in this proceeding shall be the truth, the whole truth, and 
not hing but the truth, so help you God ? 

Mr. Beers. I do. 

TESTIMONY OF H. S. BEERS, VICE PRESIDENT, AETNA LIFE 
INSURANCE CO., HARTFORD, CONN. 

Mr. Gj^sell. You are associated with the Aetna Life Insurance Co., 
Mr. Beers? 

Mr. Beers. Yes, sir. 

Mr. Gesell. In what capacity? 

Mr. Beers. Vice president. 

Mr. Gesell. I show you a memorandum addressed to you dated 
November 17, 1932, initialed by the president of your company, and 
ask you if you recognize that. 

Mr. Beers. Yes, sir. 

Mr. Gesell. This memorandum states [reading from "Exhibit No. 
667"] : 

In conversation yesterday with Mr. Huntington and Mr. Zacher with reference 
to the new rates, Mr. Huntington told me that his actuarial department have 
jugt discovered that the Aetna did not propose to raise its present modifled-llfe 
rates. He gave me a memorandum handed him by Mr. Laird. Will you read this 
and then discuss the matter with me? 

May I offer the memorandum and the attached? 
The Chairman. The memorandum may be received. 
(The memorandum referred to was marked "Exhibit No. 667" and 
is included in the appendix on p. 4720. ) 



4244 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Now, after that matter was brought to your atten- 
tion, were there not discussions held between the actuaries and rep- 
resentatives of your company " '^^e other two companies with a 
view to reaching a uniform a^ "enn at which would no longer put 
the Aetna's modified life form out (;f line with the program which 
had generally been agreed to? 

Mr. Beees. That is a long question. We held several meetings 
and discussed what would be the answer to the question that had 
arisen. There was a difference of opinion and we thought that our 
premium rate was all right; they thought it should be higher. We 
reached a compromise. 

Mr. Gesell. You raised yours somewhat, as a result? 

Mr. Beers. Yes. 

Mr. Gesell. Why was that done, if you thought the original rate 
v>^as all right, Mr. Beers? 

Mr. Beers, They thought it wasn't. When you are entering an 
agreement with other persons you must reach an agreement. You 
cannot insist on your own v»^ay with respect to one point. 

Mr. Gesell. Then, to put it another way, is it safe to say that 
you departed from what you considered sound actuarial standards 
in the interests oi reaching uniformity ? 

Mr. Beers. I should prefer that you don't bring in "sound actu- 
arial standards" at this point. We were selling insurance at rates 
which we knew we could not afford and we wanted to get our rates 
up as much as we thought we could get them up with the competi- 
tion that then existed. 

We did not, of course, get the rates up to a profitable point, but 
we accomplished something. 

Mr. Gesell. You said you thought your original rate as proposed 
was all right. What did you mean, "all right" ? 

Mr. Beers. That it was in accordance with the preliminary prin- 
ciples which we had laid down in our current discussions. 

Mr. Gesell. In other words, I should have said preliminary sound 
actuarial standards? 

Mr. Befjjs. Excuse me, no, sir — fair to the other companies. 

Mr. Arnold. And by "fair to the other companies" you meant 
what was stated in this memorandum to Mr. Huntington- [reading 
from "Exhibit No. 667"] : 

When we compare a modified policy and an ordinary life policy issued at 
age 50, the Aetna's competitive advantage is even more marked. 

By "fair to the other companies" you meant the elimination of 
disagreeable competition. 

Mr. Beers. I believe, sir, I referred to the rate we were proposing 
to keej) as being fair to the other companies. That is, we did not 
feel, with the Connecticut General, that it put them at an insuper- 
able competitive disadvantage. 

Mr. Arnold. But in the word "fair" you mean that you want a 
rate which will not put* any company at a competitive disadvantage. 
That is really what you mean by the word "fair." 

Mr. Beers. As between these three companies I think that is right, 
although I used the word "fair," I believe, as meaning fair to the 
other companies by the terms of. the agreement we were trying to 
reach. 



nONCEXTKATION OF ECONOMIC POWER 4245 

Mr. Arnold. You were all more comfortable in your minds when 
competition was eliminated. 

Mr. Beers. Yes, sir. 

Mr. Geseix. Do you recognize this memorandum dated December 
G, 1932, from you to President Brainard of your company, as setting 
forth the final agreement which was reached with respect to this 
modified life policy? 

Mr. Beers. I presume so, but I would rather read it. 

Yes; yes; that is my memorandum, all right. 

Mr. Gesell. And tliat is the final agreement which was reached 
on that policy? 

Mr. Beers. I could not swear to that without checking rate books. 
I presume it is. 

Mr. Arnold. And there was no insurance commissioner supervis- 
ing these particular rates, as tliere was in group life? 

Mr. Beers. None. 

Mr. Gesell. The memorandum in the first paragraph states [read- 
ing from "Exhibit No. 668"] : 

Mr. Keffer and I have attended three meetings with Mr. Laird of the Con- 
necticut General, Mr. Flynn of the Travelers, and their assistants, and this 
morning we reached an understanding vpith tliem with regard to the proper 
rates to be charged for modified life policies. 

I would like to offer this for the record. 

The Chairman. That memorandum may be received. 

(The memorandum referred to was marked "Exhibit No. 668" and 
is included in the appendix on p. 4721.) 

Mr. Gesell. That is all, thank you. 

The Chairman. In response to a question propounded by Mr. 
Arnold, you referred to certain rates which, if I remember your 
phrase correctly, you were proposing to keep. Do you remember 
that phrase? 

Mr. Beers. Yes, sir; I used that phrase. 

The Chairman. What did you mean by saying you were propos- 
ing to keep these rates? 

Mr. Beers. I meant that we were proposing to use the same rates 
in our new rate book as we then had in our existing rate book. If that 
IS possibly inaccurate, I could check it by looking at the memorandum. 

The Chairman. I don't think there is anything inaccurate about it. 
I was merely trying to discover if those were the rates which the 
other companies were complaining about. 

You were proposing to keep certain rates, and the other companies 
wanted you to raise those rates? 

Mr. Beers. That is right. 

The Chairman. And the question for discussion at these conferences 
was whether or not you should raise your rates ? 

Mr. Beers. That is right. 

The Chairman. Your memorandum of December 6, 1932, says [read- 
ing from "Exhibit No. 668"] : 

Mr. Keffer and I have attended three meetings with Mr. Laird, of the 
Connecticut General. * * * 

And so forth. It took three meetings, therefore, for you to be 
convinced that you should raise the rates? 



4246 CONCENTRATION OF ECONOMIC POWER 

Mr. Beers. Yes ; and to convince them that the amount by which we 
proposed to raise them was enough. 

The Chairman. The amount by which who proposed to raise them ? 

Mr. Beers. We. 

The Chairman. Did you propose to raise them? 

Mr. Beers. In response to their complaint we endeavored to reach 
a compromise solution. 

The Chairman. Did you raise them as far as they wanted you to 
raise them ? 

Mr. Beers. I believe not, sir. 

The Chairman. So that when these three conferences were con- 
cluded you were still of the opinion that the proposed schedule of 
rates offered by the other companies was too high ? 

Mr. Beers. Oh, well, you know, when you reach a compromise, 
sometimes you get convinced yourself. I can't say how far we were 
convinced ourselves and how far we merely gave in. We didn't go 
all the way to their original suggestion. 

The Chairman. So, therefore, you were still of the opinion that 
their original proposal was too high, or otherwise you would have 
gone all the way. Isn't that a justifiable conclusion. 

Mr. Beers. Possibly. 

The Chairman. Possibly ? Isn't it "yes" ? 

Mr. Beers. Perhaps they asked for more than they thought they 
could get. 

Mr. Arnold. Do you think that these companies, in fixing these rates 
around the table, by means of these rate-fixing conferences, are accus- 
tomed to ask for more than they think they ought to get as a trading- 
basis? 

Mr. Beers. This particular contract was issued by us, but not by 
the other two companies ; consequently we were not discussing a com- 
mon rate ; we were discussing a special rate which should be consistent 
with the common rates we had already decided upon. 

Mr. Arnold, I was referring to your remark that you thought 
perhaps these companies went into the conference asking for higher 
rates than they thought they would get. 

Mr. Beers. I beg your pardon. I should have said first, directly, 
with respect to this one policy form, but that was because — and then 
what I said, that it was a special kind. 

The Chairman. Now it appears from your testimony that at the 
beginning you were contending for low rates and the other two com- 
panies were contending for much higher rates ; that you held various 
conferences, intracompany conferences and intercompany conferences 
(three of the latter), at the conclusion of which you went part of the 
way toward raising the rates. That is the story, isn't it? 

Mr. Beers. I think, sir, you should have said, "with respect to 
this policy form which you alone issued," and then the answer is "yes." 

The Chairman. Do you think that the rates were raised far enough 
now? 

Mr. Beers. No, indeed ; if by "now" you mean at the conclusion 
of this. 

The Chairman. At this moment what is your conclusion as to what 
should have been done? 

Mr. Beers. Arc vou referring; to 1932 or 1939? 



COXCKNTRATION OF ECONOMIC POWER 4247 

The Chairman. This memorandum is dated December 6, 1932.^ 

JNIr. Beers. My present opinion with resj^ect to our 1932 decision is 
that of course we bhmdered. We did not raise the rates enough. 

The Chairman. And your original position was altogether wrong? 

Mr. Beers. I am sorry to say it was, but it was competitively 
desirable, if competition is desirable. 

The Chairman. Which was competitively desirable? 

Mr. Beers. The decision we reached. 

The Chairman. The decision to eliminate competition was com- 
petitively desirable? 

Mr. Beers. No, sir ; the decision to charge the rate we charged was 
competitively desirable. 

The Chairman. Of course that decision to charge the rate you did 
charge was reached by way of agreement ahiong three companies 
wliich were supposedly competing. 

Mr. Beers. In the rate book that we were talking about there was 
not going to be that kind of competition among themselves. Of 
course we were competing with the other 90 percent of the industry. 

The Chairman. That is to say, among the three the competition 
was to be eliminated, but not among the other 90 percent. 

Now, if you recall Mr. Hammond's memorandum of November 16, 
1932,^ in which he made a report of a conference with Mr. Laird, it 
contained the sentence [reading from "Exhibit No. 669"] : 

Mr. Laird told me that he was taking this matter up with President Hunt- 
ington and expressing the opinion that unless the Aetna Life will change its rates 
upon the modified life contract it practically nullifies the entire program. 

Was that representation made to you, that your failure to agree 
would nullify the entire program ? 

Mr, Beers. Failure to agree would be a failure to agree, and that, 
of course, would nullify the agreement. 

The Chairman. And you felt it very desirable that there should be 
an agreement? 

Mr. Beers. Yes, sir. 

The Chairinian. And therefore you agreed to aljandon your position 
;ind to raise the rates in accSi'dance with the modified suggestions of tlie 
otJier two companies. 

Mr. Beers. We compromised ; yes, sir. 

Mr. Gesell. Am I correct in saying, Mr. Beers, tliat what you 
wanted to do was to get companies of your type, those otlier two com- 
panies of your type, together on a united front so that you would stop 
competing among each other and go after the participating companies ? 

Mr. Beers. We had been competing in the past, because every now 
and then we would come to the conclusion that we could write the busi- 
ness a little cheaper than we had, and we wanted to cut the rate first 
to get a competitive advantage. When it came to raising rates for the 
sake of safety and not to increase profits but to cut our losses, we very 
much hated to be the first company, and we were all waiting for each 
of the other two, so the only thing to do was to get together and go 
part of the way that we should have gone. 

Mr. Frank. May I refer back to an expression you used a few mo- 
ments ago? First 1 want to indicate that one of the purposes of this 

1 "Exhibit No. 668," appendix, p. 4721. 

■■' Subsequently introduced as •'lOxhiliit No. OOlt," infra, p. 42."9. 
124491 — 40— pt. 10 8 



4248 CONCENTRATION OF ECONOMIC POWER 

committee is to explore whether, and to what extent, it is desirable in 
particular areas of industry to have competition eliminated or modi- 
fied, and you used the expression, "if competition is desirable." May 
I ask, Have you any attitude as to whether the life insurance business 
should be noncompetitive or monopolistic to some or other extent ? 

Mr. Beers. I think it should be competitive almost entirely, except 
in those fields where competition will not lead to better terms for the 
public but will lead to the destruction of the industry. 

Mr. Arnold. That means you shouldn't have any competition in 
rates ? 

Mr. Beers. That does not mean you should have no competition in 
rates: I'm sorry. 

Mr. Arnold. That means, then, you should have price-fixing agree- 
ments as to rates, similar to the thing you have been testifying about. 

Mr. Beers. The price-fixing arrangements would be proper only in 
the most limited circumstances. 

Mr. Arnold. The limited circumstances being when the companies 
could get together and compromise and negotiate concerning the com- 
petitive advantage of another. Is that the limited circumstances? 

Mr. Beers. I cannot, sir, lay down a general principle. I do believe 
that the agreement we reached at the time of the memos we are discuss- 
ing was a right and proper one, and we acted for the good of the busi- 
ness and of the public. 

Mr. Arnold. Did the idea of the existence of an antitrust law ever 
occur to anyone during this conference ? 

Mr. Beers. I presume it occurred to everyone during this confer- 
ence, sir. 

Mr. Arnold. And you accepted the possibility of violation of the 
law as a necessary risk of doing business ? 

Mr. Beers. I think we would put it this way. I am not a lawyer. 
Judging from what lawyers told me, and so on, I came to the con- 
clusion that we were not violating the law. 

Mr. Arnold. Had you read the warning correspondence which the 
Metropolitan Life wrote in connection with rate fixing in group 
insurance ? 

Mr. Beers. I have read correspondence and also engaged in discus- 
sions from time to time. 

Mr. Arnold. And you discarded the statements of those counsel as 
not. being worth consideration? 

Mr. Beers. No, sir. 

Mr. Arnold. But weighing them you came to the conclusion that the 
antitrust laws did permit the fixing of rates in a group, informal or 
formal ? 

Mr. Beers. The weight of the legal advice I received seemed to 
justify that, sir. 

Mr. Arnold. Suppose that public utilities fixed their rates by agree- 
ments between each other, and without supervision or regulation by 
any public body. Would you be willing to hazard a guess as to 
whether that would be good practice ? 

Mr. Beers. That is another business. It is easy for me to hazard a 
guess that the people in the other business might be selfish. The peo- 
ple in my business I don't think are. 

Mr. Arnold. Never selfish? 



CONCENTRATION OF ECONOMIC POWER 4249 

Mr. Beers. Seldom. 

Mr. Arnold. Seldom very selfish. You do consider profits, how- 
ever. 

Mr. Beers. We consider them in a rather academic way nowadays. 
We hope a little later to be able to consider them in a practical way. 
We think we should make a little profit. 

Mr. Arnold. Your basis, then, for making a distinction between 
public utilities and insurance companies with respect' to the private 
monopolistic power to fix rates is that insurance companies are com- 
posed of people of so much higher moral and mental caliber that we 
are safe with them and unsafe with public utilities ? 

Mr. Beers. "I don't need to apologize for a somewhat frivolous refer- 
ence to the comparison between the men in the industry. No; of 
course, not. 

Mr. Arnold. May I say that the question was frankly argumenta- 
tive and intended to bring out the point. You need not answer it. 

Mr. Beers. I will see if I can do it. I did want to make the point 
seriously that, of course, I don't know the public-utility business. 
The second point I would like to make is that as I understand the 
meaning of the words "public utility" most publiQ utilities have of 
necessity a monopoly. Each company has a monopoly, almost, usually 
a real monopoly, of the services that it is performing for the group 
for whom it is performing them. In the insurance business there is 
no monopoly that I know about on the part of any one company. 

Mr. Frank. May I ask, then, leavmg the field of industries in 
which, by law, there is a monopoly to some extent, would you mind 
comparing your business, let us say, with one which is generally con- 
sidered to be desirably competitive — let us say the shoe-manufactur- 
ing business. I gather from what you say that you think the life- 
insurance business differs, let us say, from the shoe-manufacturing 
business, and that to some extent, at any rate, there should be recog- 
nized as economically desirable, and therefore legal, noncompetition, 
anticompetitive devices, or what are popularly called, monopolistic 
practices. 

Mr. Beers. No; I don't think I can say that. I suppose that cer- 
tain anticompetitive practices in the shoe business are desirable, just 
as I think certain anticompetitive practices in life insurance are desir- 
able. Don't I pay the same for my sneakers, whichever store I buy 
them in ? I am not sure of this. 

Mr, Arnold. Are you giving me a lead for an antitrust prosecu- 
tion of the shoe business? 

Mr. Beers. I thpught so, because I think they cost $1.65, and I 
don't think they vary much. 

The Chairman. You haven't read the arguments about Czecho- 
slovakian sneakers and those made at home? 

Mr. Beers. These have a trade name on them. 

The Chairman. May I say, Mr, Beers, that I think there is basis 
for the opinion you have very recently expressed of the high char- 
acter of the executives of the insurance business. I think the testi- 
mony which has been given here today and yesterday indicates a dis- 
position upon the part of the witnesses to be quite generally frank. 

Mr. Beers. We are used to being investigated. We have 48 inves- 
tigators already, sir. 



4250 CONCENTRATION OF ECONOIMIC POWER 

The Chairman. Of course I don't like that word. We are just 
studying you, we are not investigating. 

Mr. Beers. I beg your pardon. If I may change the word, will 
you say "ask questions" instead of "investigated"? 

The Chairman. But you have been exceptionally frank in answer- 
ing questions which have been propounded from all sides, it seems 
to me, and I think that is very helpful in getting to a basis of under- 
standing of the problem. 

I was impressed with the statement which, as I recall, you made 
in response to one of the questions propounded by one of the mem- 
bers of the committee, that in your opinion the insurance business 
should be competitive except when, in the interests of the insured, 
competition should be eliminated. Is that a correct statement of 
your opinion? 

Mr. Beeks. That is almost what I said, and I think that is a reason- 
able statement of my opinion ; yes, sir. 

The Chairman. In Avhat fields, is it your opinion, as an expert 
speaking out of your experience in the insurance business, should 
competition be eliminated in the interest of the insured and the 
public ? 

Mr. Beers. In general, it is very difficult to state anything so im- 
portant as that in general terms, particularly without considerable 
study and thought. I said before, I think, that in certain phases 
anticompetitive arrangements might be desirable when they do not 
increase the cost to the public, or where they decrease the cost to the 
public, where they do not mean less favorable contracts but prefer- 
ably more favorable contracts to the public, and where the arrange- 
ments are necessary to prevent competition which might destroy the 
industry or tend to destroy the industry; in other words, where the 
competition would hurt us without benefiting our customers. 

The Chairman. That is a very clear statement. Who is to deter- 
mine what those fields are? 

Mr. Beers. Naturally we would rather determine them ourselves 
if we can do that safely to the general public. 

The Chairman. We had a good deal of testimony yesterday in the 
group insurance field showing that there v;as an association of some 
19 companies, one of them yours, I think, which reached an agree- 
ment to eliminate competition with respect to rates, underwriting, 
and commissions. Do you remember? 

Mr. Beers. Yes, sir. 

The Chairman. You think it is a desirable thing to eliminate com- 
petition in those fields and to do it by the action of the competing 
companies themselves? 

Mr. Beers. In those particular phases, taking the exception to your 
statement about competition and rates which has been taken before, 
I must answer yes. 

The Chairman. Do you think that there should be any participa- 
tion in the determination of the fields in which competition should be 
eliminated in the interests of the public by any Government agency? 

Mr. Beers. As a theoretical question, that, of course would be 
answered by most people in the affirmative for this particular field, 



CONCENTRATION OF ECONOMIC POWER 4251 

and I answer it in the negative and the reason I answer it in the 
negative may be, of course, that it is my own field ; but I think that 
the results have so far been beneficial to the public, to the purchasers 
of group policies and the competition in the group business is so keen 
that I don't believe any unduly restrictive agreement could stand. 

The Chairman. Did you hear the testimony of Mr. Flynn with 
respect to the variations in the American Men Table? 

Mr. Beers. Tliis morning? 

The Chairman. Yes. 

Mr. Beers. Yes, sir. 

The Chairman. You recall I read to him paragraph 5 of the 
memorandum which he prepared which reads as follows [reading 
from "Exhibit No. 665"] : 

Aetna's idea of a mortality basis was 90 percent of the American men table 
up to the age of 75, increasing 2 percent for each age up to the age of 80 for 
all forms other than term which they would base upon a 100 percent mortality 
basis for all ages. The Connecticut General's idea was to start at about 75 
percent of the American men tatjle at the age of 20, increasing to 100 percent 
at age 50 and going somewhat higher for the older ages. Our own idea 
follows more closely that of the Aetna. This basis should give a reasonable 
mortality margin for safety. 

Mr. Beers. Yes. 

The Chairman. You agree, do you, that there was this wide var- 
iation among the three companies with respect to the -use of the 
mortality tables? 

Mr. Beers. There is this variation, a wide one at some ages of issue, 
a very narroAV one at other ages of issue. I cannot really show you 
and you cannot see how wide and how narrow the variation is with- 
orrt looking at the resulting premium price. If you were interested 
in that, I could prepare the actuarial study on the subject. 

The Chairman. No; I am interested in whether there was a varia- 
tion. 

Mr. Beers. There was, but I think your word "wide" is not correct. 

The Chairman. I sec. There may not be as a great a variation as 
tliis might indicate. 

Mr. Beers. If you saw the table of premium rates, I don't think 
it would indicate that. 

The Chairman. What I am getting at, Mr. Beers, is this. Tlie 
(estiinony of I\Ir. Cammack yesterday was to the effect that the ac- 
tuaries of these various companies, meeting together through their 
committees, made a composite table of experience and then made the 
recommendations as to rate and then submitted those recommenda- 
ti(ms to the State commissioner of insurance who almost invariably 
followed them. Tliat was an example of what we might call self- 
regulation by the associated group and the elimination of competi- 
tion in the field of rate making to the degree that it was effective, 
Avas it not ? 

Mr. Beers. No, sir. 

The Chairman. It was not? 

Mr. Beers. No, sir ; I think perhaps I can clear that point up for 
you in about 1 minute. Tlie companies send their statement of num- 
ber of emi)loyees insured and number of deaths to one company — 
it happens to be the Aetna — whicli adds together the number of 
employees and the number of deaths in each industry classification, 



4252 CONCENTRATION OF ECONOMIC POWER 

each a^e, et cetera, and prepares a mortality report which shows 
the ratio of the actual rates of mortality to the rates of mortality 
which should have been — which the mortality table shows. That is 
published, printed, and sent to a great many different organizations, 
including the Insurance Department of New York. That is the basic 
data, the only basic data available to the different insurance com- 
panies, in studying the substantive rates. The committee then in- 
terprets that and sends the result of the interpretation, after approval 
of the association, to the Superintendent of Insurance in New York, 
as stated yesterday, who has a staff of actuaries. . He studies the 
basic data and the recoiiimendations of the association insofar as he 
wishes and feels proper. We know that the actuary of the depart- 
ment always sees it, and then has, so far, always approved our 
recommendations. 

Mr. Henderson. May I 

Mr. Beers (interposing). Excuse me, sir. The fact that the super- 
intendent has the power and the ability and the authority to scruti- 
nize and change the recommendation if he wishes is, in my opinion, 
sufficient to force us to claim that the superintendent is fixing the 
rates. 

Mr. Henderson. I wanted to ask whether what is available to the 
superintendent's actuaries is a five-company consolidated experience, 
isn't that correct ? 

Mr. Beers. Correct. 

Mr. Henderson. He does not have the basic data at his command? 

Mr. Beers. He has not asked for it. 

Mr. Henderson. I am asking for an exact statement as to the 
basic data. 

Mr. Bejers. He has all the basic data at his disposal because he — 
not investigates; what is the word — examines each of the companies. 

The Chairman. I am glad you avoided the word "investigates." 
'[Laughter.] 

Mr. Beers. He examines each of the companies every 3 years, if 
they are located in New York State; if they are Connecticut com- 
panies, the Connecticut department does it. And at that time they 
go .through all our operations. They can check any data which we 
have prepared that way and they can insist on the preparation of 
other data; so in effect he has available to him more data than our 
committee does because our committee would not feel it proper to 
look at the individual data of our competitors. 

Mr. Gesell. Now that isn't followed at all when you are fixing 
these nonparticipating rates. You aon't submit any data to him of 
one sort or another. 

Mr. Beers. Yes; quite right. 

The Chairman. Let me finish this question. What I was leading 
up to, Mr. Beers, was a comparison between the method employed in 
fixing the two rates. The testimony of Mr. Cammack, which I think 
is substantially approved by your statement now, to the effect that 
the good faith and accuracy of the actuaries in presenting this com- 
posite experience is the basis upon which the insurance commissioner 
arts. 

Mr. Beers. No. 

Tlie Chairman. Your qualification of it is merely that the insur- 
ance commissioner has all of this material available to him and if 



CONCENTRATION OF ECONOMIC POWER 4253 

lie wanted to change, he could ; and, therefore, since he doesn't change, 
your report must be accurate and in good faith. 

Mr. Beers. Well, isn't it something like this? Perhaps I have to 
report, being in some business or other, that I took in $2,000 gross 
income last year and here are my books to prove it and they say, 
*'0h, we won't look at your books. We will take your word for it." 
But the fact I have said here are my books to prove it makes it some- 
what different than if I say, "I made $2,000 last year and that is my 
statement and that is all you have to go on." Isn't there that dif- 
ference ? 

The Chairman. I see your point exactly. Let me get this con- 
cluding question in and then I will abandon the field. Now I am 
referring to paragraph 5 of Mr. Flynn's memorandum,^ dealing with 
the mortality table which shows a variation, not as wide a variation 
as it seems to my lay mind in your opinion, but a variation. 

Mr. Beers. A substantial one. 

The Chairman. My thought w^as that if the actuaries of these 
three companies can disagree to the extent indicated by Mr. Flynn's 
memorandum w^ith respect to the mortality table, what assurance 
have we that there is not an equal inaccuracy in the sort of infor- 
mation that your association has presented to the State insurance 
commissioner, because in neither instance do you have anybody par- 
ticipating in the preparation of this data on behalf of the public or of 
the insured. 

Mr. Beers. The similar inaccuracy tcivhich you refer and w^hich 
exists — probably you asked your question in a way you didn't intend — 
the similar inaccuracy might be this. In our interpretation of the 
meaning of the past mortality results, which interpretation leads to 
our reconunendation, there will be differences of opinion from time 
to time, and what you would call the similar inaccuracies to the dif- 
ferences of opinion in this paragraph to which you refer. With re- 
spect to the basic data which is merely, you might say, the ratio of the 
number of deaths to the number of employees insured, there can be no 
inaccuracy because that is mere arithmetic. 

The Chairman. But now, coming back to the fundamental ques- 
tion, to what extent in your opinion should there be participation by 
some agency acting in the public interest in eliminating competition 
in these Jaelds of competition, in which, in your opinion, competition 
should be eliminated? 

Mr. Beers. I do not feel that that participation has been proved 
necessary by results, and I am inclined to think that it is unnecessary. 
" J'he Chairman. So that w'e can safely trust to the good faith and 
scientific accuracy of the insurance executives in determining these 
rates and in determining in what fields competition shall be permitted 
to survive and in what fields it ought to be eliminated. 

Mr. Beers. My theory may be w^rong; I'd say yes, as long as we are 
good. 

The Chairman. Well, now, who is going to determine how long 
you are going to be good ? 

Mr. Beers. I hope that employers who are buying new group poli- 
cies, individuals who are buying ordinary policies, and from time to 
time legislative bodies will take a look at us and see it. 



1 "Exhibit No. C65," appendix, p. 4718, at p. 4710. 



4254 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Your phrase bring^s to my mind the first memo- 
randum presented yesterday by Mr. Flynn, in which he referred to 
certain methods used to make you be good. 

Mr. Beers. As I remember, that sounded to me as if we would get 
along very well as long as these companies acted outside the meeting 
as they talked in meeting. 

The Chairman. Now, that reminds me of the phrase that appeared 
in that memoranduni ; that memorandum, by the way, was dated 
September 30, 1924.^ There seemed no possibility of getting the West- 
ern Union, wliich was an insui-ance company, to release the business 
ir.tilis case, "and the only point in writing was to let them know that 
we ,iinderstood their attitude and to put some fear in them so that 
they would not molest other Travelers' renewals in that territory." 

Is that the way to make them be ^ood, by putting the fear into them ? 

Mr. Beers. I don't know. I don't remember that. Incidentally, I 
don't like the sound of the memorandum. It probably sounds a good 
deal different this year than it would have 15 years ago; and one 
memo, while it probably 

The Chairman (interposing). Well, of course, you can't judge the 
weather by a swallow. That is true, but I think there is more than 
one in this instance. 

Mr. Gesell. I have no further questions. 

Mr. Frank. May I ask a question as to the agreements tliat you 
were discussing originally in your testimony this morning? There is 
no supervision by any State superintendent? 

Mr. Beers. No; there has been no supervision with respect to any 
of those agreements. 

Mr. Frank. Now, at the time those agreements were made was there 
some publication of the fact that such agreements had been made 
and of the basis upon which they had been arrived at ? 

Mr. Beers. Are you referring to this agreement? Do you mean 
the agreement we made to adopt certain rates and surrender values? 
You used the plural. 

Mr. Frank. I'm sorry ; I should have used the singular. 

Mr. Beers. It was, you might say, obvious from the facts that were 
made public that we were adopting the same rates on surrender value 
at the same time- At least, I think it was the same time, the same 
date. 

Mr. Gesell. Yes. 

Mr. Bkkrs. And consequently that was as good a fact as if there 
was publication ; but whether we published it, I don't know. 

Mr. Frank. Was the public informed; were the insurance buyers 
informed of the basis upon whicli you raised, that agreement? 

Mr. Beers. Tlie statement that that was made on such and such a 
loading wouldn't interest the public. 

Mr. Frank. TJiat ^^^n't what I was referring to. I w^ns referring to 
the matters contained in these memoranda as to whether you were 
to ajj^iee on which life tables to use, and how you were to adiiist them, 
and Avhether the leading one was to be sufficient to make possible 
certain profits, and so on. That data miaht be very interesting tt) 
insurance buyers, v,t)nldfi't you think? 

' ;S>iDr!i T1. 4l;>9. 



CONCKNTHATION OF ECONOMIC POWER 4255 

Mr. Beers. I think, sir, we are talking about the same thing really, 
because if you are going to tell what this premium rate is, you must 
state the mortality table, which may be a particular mortality table 
or a percentage variation of another one. You must state the loading 
formula, which is quite complicated. You must state the rate of in- 
terest and any other things that vary the actuarial computation. By 
the time you get through you haA^e a very complicated statement. 

Mr. Frank. What was that? 

Mr. Beers. By the time you get through you have a very compli- 
cated statement, and the buyer of insurance wants to knoAv how much 
it is at liis age ; that is all. 

IMr. Frank. I appreciate that often the formulas which technicians 
use are unintelligible to the laity, but they are capable of being made 
intelligible, aren't they? 

Mr. Beers. I think there was a publication. Didn't we publish in 
one of the actuarial journals something about this? 

Mr. Gesell. I have been able to find a speech by Mr. Cammack, 
before some actuarial society, in which he said that the companies had 
adopted the same mortality basis and the same interest basis in com- 
puting their rates. I have not been able to find any publication which 
snid that the three companies had sat down together and reached an 
understanding on all factors affecting the rates for all ages, and that 
the rates announced April 1930 were the result of a uniform decision 
among the three companies. 

Mr. Beers. We would probably avoid tiiat language out of deference 
to those of us who were worrying most about these antitrust cases. 

Mr. Henderson. Mr. Beers, you said that all this actuarial computa- 
tion involved formulas which would be uninteresting to the public. 
It wouldn't be, however, to a buyer of insurance. Take myself, who 
bought some insurance about that time. It would be of advantage to 
know that there had been an agreement 'reached about the rates by 
these companies, would it not? 

Ml'. Beers. I doubt it, sir. 

Mr. Henderson. Let me then assure, you it would be to me as a 
buyer. 

Mr. Beei!s. You are different. 

Mr. Henderson. I don't think I am much diffei-ent from anyone 
wlio wants to know whether he is buying in competition oi* buying 
in a fixed market. I think pretty generally the Amei'ican public does 
like to know, if possible, in what kind of a market it is buying. 

jSIr. Beers. You were buying in a very competitive market, sir. 

M)\ Henderson. I am not so sure after the testimony of these last 2 
days: that is tlie i-oason I am asking. Was the ])ublic generally ap- 
l)rized of this agreement; just the simple fnct that an understanding 
had been arrived at after all these years about this uniformity? Out- 
side of this little statement to a learned society that Mr, Cammf»ek 
made, was there any general notice put upon the public? 

Mr. Beers. Yes; I believe so. I think by the scrutiny of the news- 
papers and insurance journals, notices of this change in rates were 
made amply clear to everybody. I don't believe we made the first 
pa^e of the daily news. - 

Mr. Hendekson. I don't think it got down to me, either. 

Mr. Gesell. On this point, if I may interrupt a moment, the Life 
Insa ■;)ri(v Edifion of the National Underwriter for the issue of Febru- 



4256 CONCENTRATION OF ECONOMIC POWER 

ary 24, 1933, readinp^ from a small box at the bottom of page 15, had 
an announcement reading something as follows, and I think this is 
more or less tlie frankest statement that we have been able to find of a 
public nature on this matter: 

The Aotna Life has announced that it will make a slight increase in non- 
participating rates, effective April 1. When the Travelers, near the end of last 
year, announced an average increase of 4 percent at older ages, it was rumored 
tliat Aetna would take similar action early this year unless investment appre- 
ciation make this unnecessary. The Travelers, as it happened, after making the 
announcement, did not actually put the increase in force, but is expected to do 
so also about April 1. In the case of the Aetna, it is said there will be little 
change in rates below age 30 or above age 55. Between ages 31 and 55, the 
advance will range from 3 to 8 percent, probably averaging around 4 percent. 
There also will be a change in women's life-income plan. The rate is to be 
increased materially, .and also maturity values. At present these are the same 
as for men. The Connecticut General will increase nonparticipating rates an 
average of 5 percent April 1. 

Mr. Henderson. There is nothing in that, Mr. Gesell, which suggests 
to me that it was by arrangement. On tho contrary, what I would 
gather from that is the same thing I would gather from announce- 
ments on merchandise which is bought in competition, tliat tlie leader 
hi the business had made certain arrangements, that somebody else 
followed him, that changes had been made and in competition uni- 
formity had come about because of the necessity of meeting the price. 
There is nothing in that that you have just read which suggests the 
^inblic was put on notice. Certainly the policyholders were not put 
on notice. 

Mr. Geskll. I have been unable to find anything of the sort. 

Mr. Beers. I would not like to accept that as being the most open 
statement of the thing without a little study of the press clippings 
myself, if they are available at this late date. 

What I started to say a minute ago was that if you bought in- 
surance at that time you were probably told by your agent that lie 
w;i8 giving a policy in a company with the lowest net cost, and hf 
would be glad to compare the net cost with all the other compan!(>s 
you might be interested in, because, of course, you ought to have tlial 
thing interpreted to you by an expert, and if you asked him about 
nonparticipating insurance he would have known that the three Hart- 
ford companies had the same rate and would have told you. Do you 
remember whether you bought participating or nonparticipating 
insurance? 

Mr. Penderson. Leaving aside what I bought — — 

The Chairman (interposing). I think the witness ought to insist 
on an answer. 

Mr. Henderson. The insurance agents who talked to me didn't talk 
at all as you have just been talking. 

Mr. Beers. They should have known better. 

The Chairman. This colloquy between Commissioner Henderson 
and the witness prompts me to ask, w^here do the actuaries buy their 
insurance, or could they buy insurance? 

Mr. Beers. I just bought a little nonparticipating insurance from 
my own company, sir. 

The Chairman. How about the rate. Do you pay the same rate 
everybody else pays? 

Mr. Beers. Yes, sir. 



C^ONCENTRATION OF ECONOMIC POWER 4257 

The Chairman. How about the commission? Did yon pay the 



commission 



Mr. Beers. No, sir. What did yon say? I do not ^jet the com- 
mission. If I were an employee I think t could get it, but being an 
officer, I can't. 

The Chairman. Does an^-body get a commission on it? 

Mr. Beers. I am making an agent do a little work for me and he 
will get the commission — work on the purchase of insurance, excuse me. 

Mr. Arnold. One remark you made interested me. You spoke of 
the feeling of deference to those w^ho were engaged in the prosecution 
of antitrust laws. 

Mr. Beers. I beg your pardon, sir, I said deference to those of our 
group who had some problems on the antitrust laws. I wouhhrt use 
that word 

Mr. Arnold (interposing). You thought it wise, in view of that 
split of opinion, then, in your group as to whelher the antitrust laws 
applied, to conceal this machinery. 

Mr. Beers. To avoid publicizing, absolutely. That is, our lawyers 
did not feel absolutely sure that they knew the answer; they thought 
the courts might have to decide something. 

Mr. Arnold.- And you also felt it wise, I take it, not to call the 
attention of those who were enforcing the antitrust laws to the nature 
of this price-fixing arrangement. 

Mr. Beers. I wouldn't know how to do that, sir. 

Mr. Arnold. By letter or by phone or by wire or by oraT confei-- 
ences, are the methods I could think of. , 

Mr. Beers. Do they give hypothetical decisions ? 

Mr, Arnold. It is quite frequent that this matter is opefled and 
called to the attention of people engaged in enforcing tlie antitrust 
laws. That is the frequent procedure. 

Mr. Beers. As I said, I am not a lawyer ; I couldn't answer that. 

Mr. Arnold. But yen thought it wise, on the whole, in view of the 
situation in your own group who were not sure about the antitrust 
laws, and in view of the situation of various prosecuting officers, not 
to make this public. Is that a fair statement ? 

Mr. Beers. It is a little stronger than I would have made, sir — not 
much. 

Mr. Arnoij). Another question. You say thatthe private power to 
fix prices in the various areas which you think should be noncompeti- 
tive in insurance has resulted in lower rates to insurance holders. You 
don't think it has. 

Mr. Beers. I don't think I said that, sir. 

Mr. Arnolb. I thought you intimated it was justified because in the 
long run it would result in lower rates. 

Mr. Beers'. No ; we have had no real price fixing in this field, in the 
field of insurance that we have been discussing the last 2 days. 

Mr. Arnold. Without arguing the point whether this price fixing 
that you have testified to is real price fixing or not, you think that that 
price fixiiig has resulted in the long run in better rates to the insured ? 

Mr. Beers. That is not a conclusion which you can draw from the 
nonparticipating rate history. The price fixing in nonparticipating 
rates is 5 or 6 years old, has accomplished three increases in rate, none 
of which kept up with the increasing cost of rates and decreasing cost 



4258 CONCMONTRATION OK IX'ONOMK; I'OWER 

of insurance. In group insurance there is no real price fixing at all, 
so you have no liesitation in group insurance in saying it has led to 
lower cost to the public. 

Mr. Akmold. And you don't think that the price fixing in life insur- 
ance has led to lower cost 'i 

Mr. Beeks. Ordinary life insurance, oh, I don't know, we have per- 
haps had less sulHcient rates or more sufficient rates, I can't say. 

Mr. Aknold. In any event, it- has led to higher immediate costs, 
liasn't it? 

Mr. Beeks. No, sir; I don't think so. 

Mr. Aknoij). There have been certain instances to which you have 
testified with respect to one policy at least where it led to higher costs. 

Mr. Beeks. That was only one instance in one agreement. 

Mr. Aknold. But in that instance it did. 

Mr. Beers. No, sir; that was an indivisible agreement. 

Mr. Arnold. But you were induced to raise your rate; you so testi- 
fied, didn't you? 

Mr. Beehs. Yes; but it is not an example, I think. 

Mr. Arnold. It is an example. 

]\Ir, Beeks. No, sir. 

j\Ir. Gesell, May I say, Mr. Cliairman and Mr. Arnold, we have 
considered here only the first agreement among these tln-ee companies, 
and this afternoon we will proceed to consider at least two other 
agreements that have happened since 1933. Possibly that background 
would be of some advantage to the committee. 

Tlie Chairman. The subject has been a matter of sucli great interest 
that we have stayed here almost an hour overtime. We appreciate 
very much your patience, Mr. Beers, in responding to our questions. 

The committee will stand in recess until 2: 30 this afternoon. Who 
will be your first witness? 

Mr. Gesell. I want Mr. Flynn to come back on the stand at that 
time. 

(Whereupon, at 12:55 p. m., a recess was taken until 2:30 ]). m. of 
the same day.) 

afternoon session 

(The hearing Avas resumed at 2 : 40 p. m., upon the expiration of the 
recess. Representative Reece in the chair.) 

Acting Chairman Reece. Tlie committee will come to order, please. 
Are you ready to proceed, JNIr. Gesell ? 

Mr. Gesell. Yes;IanL 

Mr. Reece. Will you call the first witness, please? 

Mr. Gesell. Mr. Flynn, will you return to the stand, please, sir? 

TESTIMONY OF B. D. FLYNN, VICE PRESIDENT AND ACTUARY, 
TRAVELERS INSURANCE CO., HARTFORD, CONN.— Resumed 

Mr, Gesell. Mr. Flynn, at tlie opening of the testimony this morn- 
ing we had some discussion with respect to an exhibit entitled "Ex- 
hibit of changes in surplus, ordinary nonparticipating business." ^ 
Since the recess, have you had an opportunity to examine tliat scliedule, 
and are you now in a position to state that insofar as the figures with 
respect to Travelers Insuraiice Co. are concerned, they are correct? 

1 "Exhibit Xo. 'J<J2,' oee stipio., ^. ■! ^:jU,..i41ii>fciltlix, p. 4717. 



CONCKNTUATrON OF ECONOMIC POWKR 4259 

Mr. Flynn. They are correct. 

Mr. Gesell. They are the figures shown in the annual statements 
filed by the insurance companies with the insurance commissioners of 
various States on the gain-and-loss exhibit for the nonparticipating 
business ? 

Mr. Flynn. Yes. 

Mr. Gesell. Then I can state for the benefit of the committee 
that we have reexamined these figures as to the other two companies 
and again assert tliat they are correct, so I believe we have no differ- 
ences on this schedule now, do we, Mr. Flynn? 

Mr. Flynn. No. 

Mr. Gesell. Wliile Mr. Beers was on the stand I read him a mem- 
orandum daled November IG, 1932, from Mr. Hammond. I ask you 
if yon recognize Mr. Hammond's initials on that memorandunL 

Mr. Flynn. Yes; I do. 

Mr. Geseix,. I wish to offer the memorandum, which has already 
been read, for the record. 

Acting Chairman Reece. It may be admitted. 

(The memorandum referred to was marked "Exhibit No. G69'' and 
is included in the appendix on p. 4722.) 

Mr. Gesell. The three companies, Mr. Flynn, raised their rates on 
April 1, 1933, did they not? 

Mr. Flynn. Yes. 

Mr. Gesell. Those rates were uniform? 

Mr. Flynn. Yes. 

Mr. Gesfxl. Now when did you next get together and raise rates? 

Mr. Flynn. Tlie next rate change was January 1, 1935. 

Mr. Gesell. You discussed that rate change as early as 1933, did 
you not? 

Mr. Flynn. I believe that is correct. 

Mr. Gesell. First of all, I will ask you if you recognize this as 
a memorandum that you prepared. 

Mr. Flynn. Yes. 

Mr. Gesell. This is a memorandum from you to Mr. Zacher, under 
date of December 28, 1933, entitled "Re: Proposed new program of 
life rates and values" [reading fi-om "Exhibit No. G70"] : 

A meeting on the above subject of oflScials of the three local stock life 
companies was held on Wednesday morning, December 27, at the Aetna. 

Mr. Cammack proposed that the Travelers, Connecticut General, and Aetna 
increase present life rates for all forms, excepting term, by changing the inter- 
est basis from 4 to 3% percent. This would mean an increase upon the 
average (for forms other than term) of approximately 21^ percent or 75 
cents per thousand. The increase would be somewhat less for ordinary life 
than the average and somewhat more for the higher premium forms. 

Skipping some, your memorandum states : 

You will recall that when life rates were under discussion last year, although 
rates and values agreed upon were generally satisfactory to us, nevertheless, we 
would have been glad to have even higher rates and lower values but could not 
get the Aetna to concur at that time. 

Mr. Laird said that the Connecticut General was not convinced that this move 
would be a wise one at the present time and that they would like to wait at least 
until the end of February before making a decision. 

Then skipping still further in the memorandum, I want to call your 
particular attention to this sentence [reading further] : 

It was pointed out that recent mutual dividend reductions relieved the com- 
. petitive situation somewhat and that the trend toward smaller policies means 



4260 CONCENTRATION OF ECONOMIC POWER 

that competition will be less of a consideration in the next few years, thus 
indicating that the traffic might stand a rate increase. 

What do you mean by that particular sentence in your memorandum, 
Mr. Flynn, that "The traffic might stand a rate increase"? 

Mr. Flynn. In life-insurance sales the competition of the net cost of 
the participating companies and nonparticipating rates is very in- 
tense, very important. If the participating companies were going to 
reduce dividends at that time or soon afterward, the nonparticipating 
companies could increase their rates if they felt they should be in- 
creased, whereas if they didn't make a modification of the dividends, 
we might not be able to effect the increase at that time because of 
competitive reasons. 

Mr. Gesell. In other words, you would continue to sell policies on 
a basis which you didn't think was actuarially sound in order to com- 
pete with the participating companies. 

Mr. Flynn. We might have to delay our increase in rates and for- 
sake some mild profits, or something of that kind. 

Mr. Gesell. So when you say that you believe the competitive situ- 
ation would permit a raise, that the traffic would stand -the rate in- 
crease, you meant that you thought you could raise the rates which 
would assure you of greater profits and which would insure the policy- 
holders greater protection, without hurting your competitive position. 

Mr. Flynn. That is it. 

Mr. Gesell. Now, the last paragraph in the memorandum states 
[reading further from "Exhibit No. 670"] : 

The general question of changing the present life program was left with the 
understanding that the Travelers and Connecticut General would study over the 
matter further, discuss it among their company officials, and report at a later 
meeting. 

May I offer this memorandum for the record ? 

Acting Chairman Reece. It may be admitted. 

( The memorandum referred to was marked "Exhibit No. 670" and is 
included in the appendix on p. 4722.) 

Mr. Gesell. Do you recall a later meeting which was held with 
respect, to this matter? 

Mr. Flynn. I don't recall it offhand. 

Mr. Gesell. May I show you this memorandum and ask you if you 
recognize it as one which you prepared? 

Mr. Flynn. Yes; I do. 

Mr. Gesell. This memorandum is again from you to President 
Zaclier, dated February 15, 1934, entitled "Re: Proposed new j)ro- 
gram of life rates and values." ^ It states [reading from "Exhibit 
No. 671"] : 

Another meeting on the above subject of officials of the three local stock life 
companies was held Wednesday morning, February 14, at the Aetna. 

Then skipping a paragraph, it states: 

Mr. Laird stated that it was the feeling of the Connecticut General at this 
time that they would not go along with a program of increased rates and de- 
cre' sed values. In any event, if they change their mind later, they would not 
put the new program into effect before January 1, 1935. They felt that finan- 
cial and business conditions had improved materially In the past 2 months ; that 
the farm situation was improving, and good bonds could be purchased to net 
4 percent or more. 



» Subsequently introduced as "Exhibit No. 671" ; see appendix, p. 4723. 



CONCENTRATION OF ECONOMIC POWER 4261 

Laird felt that participating competition was si ill severe, citing that of New 
England Mutual, Provident Mutual, Metropolitan, etc.; he thought that condi- 
tions had improved suflSciently to permit nonparticipating agents to work out 
the more advantageous competitive position that they would have against the 
majority of participating companies during the next year or two. 

The result of that conference was, then, that you were still not in 
agreement on a new program for rate increase, is that correct ? 

Mr. Fltnn. That is correct. 

Mr. Gesell. Your company and the Aetna were willing to increase 
rates. 

Mr. Flynn. Yes. 

Mr. Gesell. The Connecticut General was not willing to go along 
with you. 

Mr. Fltnn. Correct; at that time. 

Mr. Gesell. Why didn't you just raise rates? 

Mr. Fltnn. Because we wanted to act in harmony, the three of us. 

Mr. Gesell. Why? 

Mr. Fltnn. Because to gain that advantage of joint knowledge and 
not have a break-up of the original arrangement. 

Mr. Gesell. What do you mean, advantage of joint knowledge? 
You had the knowledge; you could go ahead and raise the rates after 
you had the knowledge, even though you didn't all agree. 

Mr. Fltnn. We didn't have a consensus of opinion that we had 
before. 

Mr. Gesell. You mean now you only had a 66% percent vote in 
favor of increasing rates and therefore you weren't going to do it. 

Mr. Fltnn. We weren't going to do it at that time. We preferred 
to delay it. 

Mr. Gesell, Your company thought it should raise rates, didn't it? 

Mr. Flynn. Well, we would like to. We didn't make it impera- 
tive. That really is less than a year after the preceding change, 
which is rather frequent change. 

Mr. Gesell. This memorandum indicates clearly that your com- 
pany and the Aetna agreed there should be a rate increase. 

Mr. Fltnn. We thought the investment situation would take care 
of it and it did not. The investment situation was improving, but 
we preferred to have the consensus of opinion of the three companies. 

Mr. Gesell. You say the consensus of opinion of the three. What 
you really mean is that you were afraid if you didn't have the con- 
sensus of the opinion, the Connecticut General would be able to take 
away business from you because it was selling at a lower rate. Is that 
what you mean? 

Mr. Fltnn. Not exactly. If we had agreed on the change of rates 
at that time, the Aetna and the Travelers, it would probably have 
bt -^n 6 months before we could get the new manual out. 

Mr. Gesell. At any event, if you could have agreed, you would 
have put the program into effect. Why didn't you do it? 

Mr. Fltnn. Because we thought it was better judgment to wait. 
It wasn't an urgent matter. It was a matter of opinion. We pre- 
ferred to wait. 

Mr. Gesell. Until you could get uniformity and complete unanim- 
ity of agreement. 

Mr. Fltnn. That is it. 

Mr. Gesell. I wish to offer this memorandum for the record. 



4262 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman Reece. It may be admitted. 

(The memorandum referred to was marked "Exhibit No. 671" and 
is incruded in the appendix on p. 4723.) 

Mr. Gesell. Now the big thing that worried the Connecticut Gen- 
eral in this situation was, was it not, that certain policies of the 
Provident and of the Metropolitan and of the Prudential were being 
sold at a gross premium which was so low that the nonparticipating 
policies of the Connecticut General could not compete with them if 
this new rate increase went into effect. Is that not so ? 

Mr. Flynn. I am not certain of the date. 

Mr. Gesell. May I call that memorandum to your attention? 

Mr. Flynn. That is the proposed scale of rates that we were dis- 
cussing at that time. 

Mr. Gesell. Was it not a fact that the Connecticut General did not 
want to go along with those rates because it was fearful of the com- 
petition which it would receive from the Metropolitan, the Pruden- 
tial, and the Provident Mutual? 

Mr. Flynn. Right. 

Mr. Gesell. This memorandum refers to another meeting of the 
tAvo stock companies held February 27, 1934, and states [reading from 
"Exhibit No. 672"] : 

Although the Connecticut General were not prepared at this time to offer any 
further encouragement as to finally going along with the Aetna-Travelers' pro- 
gram, they were agreeable to go ahead with us in the preparation of rates, 
leaving their decision with regard to preparation of values until after tl\^ 
senior actuaries meeting, March 2. After further discussion of the new program 
as affecting various forms, it was decided to call a conference with .those par- 
ticipating companies whose gross rates in our opinion should he increased, par- 
ticularly at the older ages. 

A meeting has been called of the Metropolitan, Prudential, and Provident 
Mutual, with the three local companies in New York for March 2. In conversa- 
tion with Mr. Craig of the Metropolitan over the phone, it was apparent that 
the New York companies are ready to report rather definitely in regard to what 
can be expected in the way of decreased surrender values. It was also ap- 
parent from conversation with others that these companies are in a mood to 
consider modification of gross rates, particularly at the older ages. 

Now what did you mean, in this memorandum, Mr. Flynn, when 
you said that it was decided to call a conference with those participat- 
ing companies whose gross rates, "in our opinion should be increased" ? 
Do I gather that you even tell your competitors when they should 
increase their rates? 

Mr. Flynn. We don't tell them, we try to persuade them. 

Mr. Gesell. In the interest of increased competition? 

Mr. Flynn. No; in the interest of good actuarial Avork. 

Mr. Gesell. In other words, here you are actually going to the 
extent, you nonparticipating companies, of approaching your prin- 
cipal participating company competitors in an effort to get them to 
increase their rates, were you not? 

Mr. Flynn. Correct. 

Mr. Geseli^. I wish to offer this memorandum for the record. It 
is dated February 27, 1934. 

Acting Chairman Reege. It may be admitted. 

(The memorandum referred to was marked "Exhibit No. 672" and 
is included in the appendix on p. 4724.) 

Mr. Gesell. Such a conference was held, was it not? 



CONCENTRATION OF ECONOMIC POWER 4263 

Mr. Flynn. Yes. 

Mr. Gesell. Do you recognize this memorandum wliich I show you 
as a memorandum of that conference ? 

Mr. Flynn. Yes ; that is correct. 

Mr. Gesell. Who called that meeting? 

Mr. Flynn. I can't recall. 

Mr. Gesell. Did the nonparticipating companies call it or did the 
participating companies call it? 

Mr. Flynn. I can't say. I didn't read that memorandum. 

Mr. Gesell. Let me read the memorandum to you and see if it 
refreshes your recollection. It is again a memorandum from you 
to Mr. Zacher, dated March 7, 1934, and it is entitled "Re: Proposed 
New Program of Life Rates and Values — Conference with Metro- 
politan, Prudential, and Provident Mutual" ^ [reading from "Exhibit 
No. 675"] : 

Officials of the three local nonparticipating companies met with officials of 
the Metropolitan, Prudential, and Provident Mutual in New York, March 2. 
Each of the three companies last named has a special contract with initial 
gross rates lower than our proposed nonparticipating premiums. The Pru- 
dential's "Modified 3" and the Provident's "Protector" (Modified 2) carry ma- 
terially lower gross rates at all ages than our proposed nonpar premiums and 
the Metropolitan's "Special Ordinary Life" at age 45 and above.' (The Phoenix 
Mutual has a low premium form but no one seemed to be fearful of that 
company's competition.) 

Are you following me so far, Mr. Flynn ? It goes on to state : 

All factors bearing upon the cost of life insurance were thoroughly discussed, 
particularly the probable future rate of interest. Somewhat to our surprise, we 
learned that the Prudential are seriously considering an increase in rates and 
reduction in values. Mr. Little, of the Prudential, stated they would probably 
change their rates by substituting 3 for Sy^ percent in the formula. He was 
going to arrange his rates so that the company could get by on a rate of 
interest as low aa 2y2 percent — if dividends were omitted. Mr. Craig, of the 
Metropolitan, had been considering changes, but his statements vpere much less 
definite. He expected to talk with Mr. Ecker this week and in the course of 10 
days would have more definite information to report. The Metropolitan, how- 
ever, will undoubtedly decide to increase its rates and decrease its surrender 
values soon. Both the Prudential and Metropolitan thought that they could not 
prepare their manuals so that the change could be effective before January 
1, 1935. 

Mr. Linton, of the Provident Mutual, was away but sent Yice President 
Marshall, who stated that while he could not •commit his company his personal 
feeling was that their rates would be increased, including a complete revision 
and increase in the "protector" policy premiums. 

Then you go on to discuss the opinions of some of the other niiin 
jiresent, and state toward the end of the memorandum [reading fur- 
ther from "Exhibit No. 675"] : 

Mr. Craig stated ttat the Mutual Life and New York Life were willing to 
follow the Prudential. Metropolitan, and others in a reduction in surrender 
values, but that the Equitable was standing out for very slight changes. Mr. 
Little stated that Mr. Duffield would endeavor to see Mr. Parkinson some time 
this week and try to get the Equitable to be more cooperative. It was felt that 
if the Equitable did not come along, the New York Life would also decline to 
make a change. 

It is probable that in the course of two weeks, we shall hear more definitely 
from the Metropolitan — and possibly from the Provident. 

1 Subsequently entered as "Exhibit No. 675," infra, p. 4728. 
124491 — ^10— pt. 10 9 



4264 CONCENTRATION OF ECONOMIC POWER 

Is that the way yon meet with your competitors to iron out the 
differences between you with respect to rates? 

Mr. Fltnn. I think, Mr. Gesell, that is more nearly a meeting of 
actuaries, professional men interested in their work, and it has that 
guise really rather than competing companies. 

Mr. Gesell. You mean this is sort of like the Harvard- Yale foot- 
ball teams going out to a dance together after a big game ? 

Mr. Flynn. I would think so. Actuaries meet quite often to dis- 
cuss professional problems. 

Mr, Gesell. Really you were not only actuaries, you were officials 
of your companies, you were meeting and discussing mutual prob- 
lems and reaching decisions, were you not ? 

Mr. Flynn. I don't know that we reached decisions; we tried to 
persuade one another and argue matters out. 

Mr. Henderson. Mr. Flynn, Mr. Craig expected to talk with Mr. 
Ecker and somebody expected to talk with Mr. Duffield, and Mr. 
Linton sent Vice President Marshall, who could not commit his com- 
pany, but his personal feeling was that their rates would be increased. 
Now, Ecker, Duffield, and Lmton are not the actuaries of their com- 
panies but the chief executives, are they not? 

Mr. Flynn. That is right. 

Mr. Henderson. So there was something more than a professional 
actuarial meeting. 

Mr. Flynn. It was something more than that. It was — to crystal- 
lize the opinions of the advisory staff — was the main thing. 

Mr. Henderson. And they were in pretty close conjunction with the 
executive officers who had been thinking about this problem also. 

Mr. Flynn. I think the executive officers had considerable weight. 

Mr. Gesell. And what you were anxious to accomplish was, was 
it not, a desire on your part to get an agreement from these three 
low-gross-rate participating companies to raise rates which would 
enable you to get the Connecticut General to come into line with the 
Aetna -Travelers program for nonparticipating rate increase? 

Mr. Flynn. I think that is pretty nearly true. I will repeat what 
I said this morning, that all actuaries at that time, along in 1934, were 
fearful of the future rate of interest, and very anxious to get onto a 
more conservative basis, and I think it was that urge as much as 
anything else rather than simply to raise rates and to get companies 
in line, which compelled us all to get together. 

Mr. Gesell. As an actual matter what happened was, was it not, 
that your coiv'-^nj, the Travelers, the Connecticut General, the 
Aetna, the Metropolitan, the Prudential, the Provident Mutual, the 
six companies present at this conference, all announced the rate in- 
crease simultaneously on January 1, 1935 ? 

Mr. Flynn. I really can't say about the three participating com- 
panies, but the three nonparticipating did. 

Mr. Arnold. You don't seriously contend, do you, that this wasn't 
a somewhat informal method of fixing rates ? 

Mr. Flynn. No; I won't say that it was not an informal effort to 
persuade the actuaries of the companies to look at it in the same way. 

Mr. Henderson. This line of the actuary as a professional and 
technical man and the line of the actuary as an operating officer of 
the company come together at times, don't they ? 



CONCENTRATION OF ECONOAJIC POWER 4265 

Mr. Flynn, Periodically they meet; they are all members of the 
actuarial society. 

Mr. Henderson. My point is that where he has a status, as it has 
sometimes been called, of a digit hound, or is strictly concerned with 
figures, and where he comes into action as an executive in determining 
policy, sometimes those two functions which a single man like yourself 
performs run together and the line gets a little confused. You can't 
distinguish which is the policymaking director and which is the 
actuary. 

Mr. Flynn. That is quite correct. 

Mr. Gesell. I would like to call your attention, Mr. Flynn, to the 
National Underwriter, Life-Insurance Edition, of December 21, 1934. 
I think you will notice on that page the announcement of the rate 
increases of all three of the companies that you did not recall — the 
Provident, the Metropolitan, and the Prudential. Does that not re- 
fresh your recollection as to the rate increases thg,t simultaneously 
were those of the nonparticipating companies ? 

Mr. Flynn. The Prudential, Metropolitan, January 1, apparently, 
and the Provident Mutual, March 1. 

Mr. Gesell. And what is the date the three Hartford companies 
increased ? 

Mr. Flynn. January 1, 1935. 

Mr. Chairman, I would like to make this point : That the three par- 
ticipating companies were raising their gross rates, not their net rates ; 
■the nonparticipating companies were raising their net guaranteed 
rates; but the participating companies were only raising their gross, 
initial rate, you might call it. 

Mr. Gesell. But we have already considered here, have we not, 
Mr. Flynn, the fact that the Connecticut General was concerned by 
reason of the fact that its nonparticipating rates were higher in some 
cases than the gross participating rates of the participating companies ? 
As a result, they would obviously not be able to sell any insurance if 
they tried to sell a nonparticipating policy which had a higher gross 
rate than the gross participating policies of these large participat- 
ing companies. 

Mr. Flynn. That is correct, Mr. Gesell ; but I think they were afraid 
of the proposed nonparticipating rate rather than the current non- 
participating rate. 

Mr. Gesell. Yes; the proposed rate would have that result, unless 
you could get these participating companies to jack up their rates, too. 

Mr. Flynn. Yes. 

Mr. Henderson. You don't mean they wouldn't be able to sell any. 
You mean that their competitive position would be jeopardized. 

Mr. Gesell. Well, it would be a very serious position. 

Mr. Henderson. A serious jeopardy, but it doesn't mean their busi- 
ness would be completely terminated. 

Mr. Gesell. No; they would have a difficult competitive situation, 
would they not ? 

Mr. Flynn. Yes; a difficult competitive position with those com- 
panies. 

Mr. Henderson. I want to keep my position that insurance is not 
always sold on the basis of cost. I psk you to protect that once in a 
while. 



4206 CONCENTRATION OF ECONOIMIC TOWER 

Mr. Gesell. These are all gross rates. 

Mr. Flyim, may I ask you to step down from the stand ? I want to 
call Mr. Howell for a montent, if the committee agrees. 

Actmg Chairman Reece. Do you solemnly swear that the testimony 
you are about to giye in this proceeding will be the ruth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Howell. I do. 

TESTIMONY OF VALENTINE HOWELL, VICE PRESIDENT AND 
ACTUARY, PRUDENTIAL INSURANCE CO. OF AMERICA, NEWARK, 
N. J. 

Mr. Gesell. What is your full name, please, sir? 

Mr. Howell. Valentine Howell. 

Mr. Gesell. You are associated with the Prudential Insurance Co., 
are you not? 

Mr. Howell. Yes; I am vice president and actuary of Prudential. 

Mr. Gesell. You have heard the testimony of the last witness, have 
you not? 

Mr. Howell. I have. 

Mr. Gesell. Are you familiar with the facts and circumstances sur- 
rounding the rate increases announced by your company, the Provi- 
dent, and the Metropolitan in the first of 1935? 

Mr. Howell. In a general way I am. 

Mr. Gesell. Will you tell us what your recollection in respect to 
that is, please? 

Mr. Howell. About in the fall 6f 1933 the Prudential actuaries came 
to the conclusion that our gross premiumrates w^ere too low for safety. 
We at that time had rates computed on the 3i/^-percent basis. We 
made some computations in the fall of the year on a 3i/4-percent basis 
and were interrupted by the year end. In the following March 
Mr. Little attended this conference of which Mr. Flynn spoke. 

Mr. Gesell. Mr. Little was your superior; was he not? 

Mr. Howtell. Yes ; he was at that time vice president and actuary of 
the company and I was associate actuary. 

Mr. Gesell. He is now deceased ? 

Mr. Howell. Yes; that is correct — and he made a summary or a 
memorandum summarizing the proceedings at that meeting. 

Mr. Gesell. Do you recognize this memorandum as the memoran- 
dum which he prepared at that time and that is his signature ? ^ 

Mr. Howell. I do. 

Mr. Gesell. Following that conference and subsequent conferences 
which the three companies held, there was an agreement for raising 
of ordinary premium rates, was there not? 

Mr. HowTLL. We had determined upon an increase of ordinary 
premium rates and such an agreement was an aid to the fact. 

Mr. Gesell. What was the net result of those increases so far as your 
tliree participating companies were concerned? Were they more or 
less in line with each other and on a uniform basis ? 

Mr. Howell. They were more or less in line with each other. They 
were not on a uniform basis. I am not quite sure what you mean by 
that term. 



' Sul)sequently entererl as "Kxhiblt No. C7.'?,'* see api>oiH]ix, p. 472" 



CONCENTTtATION OF ECONOMIC I'OWER 42G7 

Mr. Gesell. I had in mind a luemoraiKliim wliicli appears to have 
been written by 3'ou under date of June 12, 1934/ tlie hist paragraph 
in. which you state, after referring to the meeting [reading from "Ex- 
hibit No. 674"J : 

The rales described above are believed to be reasonably consistent with those 
tentatively decided upon by the Metropolitau and Provident Mutual. 

Mr. Howell. Yes; that is a correct statement. 

Mr. Geskll. In other words, the rates of the three companies fol- 
lowing this rate increase were more or less in line with each other 
were they not? 

Ml". Howell. Yes. 

Mr. Henderson. That was arri\'ed at by general agreement, was it 
not ? 

Mr. Howell. I don't recall that we made any modification of our 
rates, of our ideas, after the meeting. Of course, I was not present 
at this meeting and the n.ieeting occurred 5 or more years ago. 

Mr. Henderson. My point was there was a general agreement be- 
tween those companies. Will you read the language again? 

Mr. Gesell. This is your memorandum? 

Mr. Howell. Yes; that is my memorandum. 

Mr. Gesell. Tliat memorandum states [reading from ''Exhibit No. 
674"] : 

The rates described above are believed to be reasonably consistent with those 
tentatively decided upon by the Metropolitau and Provident Mutual. 

Mr, Howell. Yes; and we were interested in seeing that other 
companies in their rate increases were reasonably consistent with 
our own for competitive reasons. 

Mr. Gesell. Your final decision grew out of perhaps two or three 
conferences which were lield from the time of this first six-company 
conference of March 2, 1934, until the rates were finally announced in 
1935. 

Mr. Howell. Tliat is possible, Mr. Gesell. 

Mr. Gesell. Were there any other factors which prompted your 
three companies in raising the rates at this time? 

Mr. Howell. I think the reasons that lay behind our increases in 
rates so far as the Prudential is conperned are very ably set forth in 
this memorandum to which you have referred. I suggest you read 
it if you care to. 

Mr. Gesell. With respect to that memorandum which discusses 
at considerable length expected interest rates and some other techni- 
cal matters, I w^as particularly interested in this portion of the 
memorandum. It states [reading from "Exhibit No. 673"] : 

Up to the time of the depression the three large nonparticipating companies 
domiciled in Hartford had enjoyed very large annual earnings and seemed to 
be well provided against contingencies. The severe losses of the depression have 
sharply reduced the surpluses of these companies, and the fall which has 
already taken place in the interest rate has reduced the normal annual margin 
very substantially. In the opinion of the two larger companies which raised 
their rates at certain ages about a year ago, the necessity for a further 
increase in premiums has become quite acute. They are, however, very much 
hampered in the matter of premium rates by the fact that the premiums of 
the three participating companies referred to are so low tiiat a moderate in- 
crease in the nonparticipating rates would bring them very close to the par- 

> Entered later as "E.xhibit No. G74," see appendix, p. 4727. 



4268 CONCENTRATION OF ECONOMIC POWER 

ticipatiug rates of the companies mentioned, and at some ages even abtve these 
rates. From the point of view of this and the other participating ctmpanies 
concerned, therefore, we are in the position, by reason of our ijresent premium 
rates, of holding down the rates of the nonparticipatiug companies. If insutli- 
cient rates should eventually result in the wrecking of these great uonpartici- 
pating companies, a very severe blow would be given to the life-insurance busi- 
ness, so that, for our own protection, it is desirable that our gross rates should 
not be so low as to make it difficult for the nonparticipatiug companies to 
increase their premiums to rates which shall be adequate and still appear less 
to a reasonable extent than the rates of any responsible participating company. 

Do I understand from that memorandum that there was any con- 
cern among the three participating companies that the tliree non- 
participating companies were in serious financial difficulties? 

Mr. Howell. I don't know that I have much to add to the wording 
of the memorandum, Mr. Gesell. It seems to speak for itself. 

Mr. Gesell. Quite the contrary, it is true that companies were de- 
claring dividends, were they not, and according to the schedule we 
have in the record, during the year 1934, all three of the companies 
had made money in the operation of their nonparticipatiug depart- 
ments. 

Mr. Howell. I think, Mr. Gesell, in looking at current earnings only 
you are overlooking a very serious additional factor, and that is the 
fut'jre. In other words, at that time, or during the current year in 
1933, there was a vast reservoir of investments on the nonparticipating 
company books at interest rates that were available some years ago 
when those investments had been made, and which were no longer 
available. Mr. Little was looking forward, if you will recall this 
in the memorandum, where he speaks of what to him seems to be a 
decided probability of very low interest rates extending over a very 
long period. Now, it might well be that in 1933, the cash position, so 
to speak, would be a proper basis, and yet these rates were being guar- 
anteed for long periods in the future, and I think he was decidedly 
worried about that phase of the situation. 

Mr. Gesell. You mean over a great number of years, maybe as 
many as 30 or 40, the companies might under certain circumstances 
which wei:f^n't certain to occur, get into some degree of financial 
difficulty. 

Mr. Howell. Yes. 

Mr. Gesell. Why should that be a factor, Mr. Howell, in a deter- 
mination made by three participating companies with respect to what 
rates they should charge? That is the nonparticipating companies' 
problem, is it not ? 

Mr. Howell. Don't you think the memorandum itself sets forth why 
that is a factor? If there had been a*iiy large and important failures 
in the life-insurance business, whether participating or nonparticipat- 
ing companies, we ail would have felt the resulting resentment in 
public opinion. I think that is a very serious factor. We had no 
desire to have trouble. 

Mr. Gesell. Isn't that the excuse that is quite customarily made 
whenever people get together to fix rates — that if they don't have some 
bottom to their rates there is going to be somebody who is going to 
get hurt and the whole business is going to be hurt ? 

Mr. HowTELL. I don't know whether that is customarily made, but 
r am certain that Mr. Little was very sincere in taking this position, 
and I, for one, agree with him. , 



(JONCJENTRATION OF ECONOMIC POWER 4269 

Mr. Arnold. I can assure you that is the excuse tliat is always made. 
I don't doubt his sincerity," and the effect of the thing, I take it, is 
that you wanted to hold an umbrella over the less eflGicient companies 
in the business, even although that involved raising your rates more 
than was necessary, and even though that involved an additional 
expense to the people who were taking out insurance. 

Mr. Howell. May I interrupt to say we did not raise our own rates, 
in our opinion, one cent more than was necessary. This factor Mr. 
liittle speaks of, and the memorandum so states, was a minor factor. 
We had previously started our calculation looking toward rate in- 
crease. I think, if you have not read Mr. Little's memorandum in its 
entirety,^ you perhaps get a wrong impression of the conclusions he 
was drawing from it. 1 know that your time is short, but I suggest 
Mr. Gesell read it all. It would be very helpful. 

Mr. Arnold. May I state I do not doubt, as in all price-fixing agree- 
ments, the parties believed that from the point of view of maintaining 
all the units on an even keel the raise was necessary. 

Mr. Howell. In the first place, it wasn't an agreement, sir ; but once 
again we were not primarily motivated by this question of what was 
happening to the nonparticipating company ; we were primarily moti- 
vated by what was ^oing to happen to ourselves. We knew that 
interest rates were going to be low ; we didn't know they would be as 
low as they tui'ned out to be later. We thought our rates were too 
low to give us a necessary safety margin. We knew further, as a 
participating company, that, had the rates been increased too much, 
we would simply have increased policy dividends. We knew we were 
doing the insured public no injustice and we needed the additional 
safety factor. 

Mr. Arnold. The thing I am directing my question to relates not to 
your own belief that the increase was necessary, but to your belief 
that a certain informal or formal concerted action was necessary. 
Now, the effect of agi-eements like this of course is to eliminate the 
daring competitor, isn't it? 

Mr. Howell. But I can't follow you that there was an agreement. 
As far as that was concerned, we needed to increase our rates. Other 
companies, presumably, needed to increase theirs, but we couldn't 
choose a different date to do something else to stay away from the 
appearance 

Mr, Arnold (interposing). Let me delete the word "agreement" and 
say getting together. There was a getting together. 

Mr. Howell. There was certainly a getting together. 

Mr. Arnold. And a getting together which tended to eliminate the 
competitive factors in the industry. 

Ml*. Howell. I differ from that. I see no compulsion we could have 
exercised on any of those companies to make any difference in what 
they did. We wanted them to come along, and they independently, 
apparently, wanted to come along, but we had no means of making 
them do anything they didn't want to do. 

Mr. Arnold. The getting together, I do not suggest, was made under 
compulsion, but it is a getting together and it does have that effect 
upon competitive factors. 

' See "Eibibit No. 67ri," api)endix, p. 4725. 



4270 CONCENTRATION OF ECONOMIC POWER 

Now, may I ask you, just for the purpose of the record, whether you 
considered in getting together for this purpose such things as anti- 
trust laws, or was that not considered at all ? 

Mr, Howell. In our case it wasn't considered at all, because we felt 
there was absolutely no question on our part. We needed the rate 
increase. 

Mr. Arnold. First, you needed the rate increase. 

Mr. Howell. That should not be forgotten. 

Mr. Arnold. And, second, you needed the getting together. 

Mr. Howell. To a much more minor extent. 

Mr. Arnold. Because the getting together avoided the competitive 
disadvantages which might otherwise have followed from the rate 
increase. 

Mr. Howell. Well, you see, in the case of a participating company, 
particularl}'^, it is true that we would rather have our competitors raise 
rates when we do, but in the participating field the rate charges are not 
of primary importance. A number of large, prosperous participating 
companies now charge substantially higher rates than we charged after 
this increase. There are various groups of participating premium 
rates, do you see? I am quite prepared to admit that a change, an 
increase in premium rates in itself, may have had some effect on 
competition, but as long as you keep in mind that the rate was par- 
ticipating you can see that was a minor influence. 

Mr. Gesell. There must have been some desire for uniformity or 
you wouldn't have met. 

Mr. Howell. That is certainly true, and it is an influence, but a 
minor one. 

Mr. Arnold. It justifies a paragraph which indicates a fear in your 
mind that if there was a getting together it might have disastrous 
effects on the Hartford companies. 

Mr. Howell. Yes; I think that expresses our views very well, 
and still does. 

Mr. Arnold. So I wonder if you can say in view of the rather 
strong language of that paragraph that that really was a minor 
consideration. 

Mr. Howell. I think I still would say it was a minor factor. 

Mr. Henderson. The memorandum says [reading from "Exhibit 
No. 673"] : 

An additional and quite important factor lias entered into it. 

Mr. HowELii. But it was additional. 

Mr. Henderson. But you are now subjecting it to the test that 
it js a minor matter; as against a quite important factor it is now a 
minor matter. Mr. Morris says it is a quite important factor. 

Mr. Howell. Mr. Little said. 

Mr. Henderson, i mean Mr. Little. 

Mr. Howell. I quite agree it was important but relatively I am 
trying to say it was minor. 

Mr. Henderson. But not a minor mat ter. 

Mr. Howell. No; of course it wasn't. I don't wish to leave the 
im.plication that tliis was something that occurred to us and \vas 
dismissed. It was important yes. 

Mr Henderson. It was important. 



CONCENTRATION OF ECONOMIC POWER 4271 

Mr. Howell. But relatively it was far more important for us to 
have sufficient rates, do you see? 

Mr. Henderson. It is certainly always important to a competitor 
to have sufficient rates. 

Do you mind if I finish the sentence? 

Mr. Howell. Not at all. 

Mr. Henderson. It is always quite important to any competitor to 
have sufficient rates, isn't it? 

Mr. Howell. Why, of course. 

Mr. Henderson. It is much more important to a competitor to 
have rates sufficient for him to cover his costs and lo make a profit 
than it is to hold an umbrella over the rest of the industry, so that 
they can win also. I am willini; to accept that distinction. 

Mr. HowEiJj. I think I started to say, aiul I think it is important 
enough to volunteer it, that we would have raised our rates in any 
event, without respect to what action the other people took. As a 
matter of fact, 4 years later, last December, we raised our rates 
again. We were interested in getting other people to go along with 
us but they didn't go, and we nevertheless made the increase in 
rates. I am trying to give you the idea of the relative importance to 
us of the increase. 

Mr. Gesell. One thing that prompts the question of the committee, 
I am silre, is the fact that in the early days of these hearings this ques- 
tion came up in the testimony of both JSIr. Ecker and Mr. Buckner. 
You will recall Mr. Ecker stated on February 7, 1939, on page 46 of 
tlie transcript:^ 

Competition compels the stock companies to come pretty close to meeting the 
cost of insurance issued by the mutual companies. 

and Mr. Buckner, chairman of the board of the New York Life, later 
stated, on February 15, page 146 in the record : - 

The mutual life-insurance companies are the factor that keep down the costs 
on stock companies as well as the mutual companies. In other words, they are 
the bulwark. Stock companies have to meet the issue or go out of business. 

It seems to me here we have just the opposite fact clearly established 
on the record, that the mutual companies, the participating companies, 
were raising their rates, and one of the factors involved Avas the very 
factor of preventing any harm coming to the nonparticipating com- 
panies. 

Mr. I^owell. I think you will find upon analysis or a rereading of 
that testimony that Mr. Ecker was referring to the net cost of the 
participating companies, which is a diii'erent thing entirely from the 
rates, obviously. In other words, we have a modified-3 policy with a 
low initial rate, but with a provision, for an increase in rate after 3 
years, which is, and should be, offset by dividends. 

But if our dividends, our earnings, are sufficient, it may be we will 
more than offset it by dividends, and it is the net cost that counts in 
the long run. 

Mr. Gesell. You just heard Mr. Flynn testify that the Connecticut 
General wouldn't go along unless the participating companies raised 
their rates, and the result of the raise of the rates to the participating 

^ See HearinKS, Part IV, p. 1246. 
" Ibid., p. 1423. 



4272 CONClONTKATKrN <>l'^ KCON'O.MK^ POWl'Ml 

companies was to enable Uie iHinpaiLicipatiiig canipaiiies to piil an 
entirely new rate program into elt'ect at a higher rate. 

Mr. Howell. But the point I am making is, Mr. Gesell, that it was 
incidental with us, and I think you will find wnth other companies. 

Mr. Arnold. You would admit that where companies do get together 
in this fashion almost inev-itably the tendency is to adopt tlie policy of 
"get along together" and raising of rates. 

Mr. Howell. I wouldn't be prepared to admit that^ unless the indi- 
vidual companies felt the increase was necessary. 

Mr. Arnold. Do you know of a meeting to lower rates ? 

Mr. Howell. I don't think there has been any occasion to lower 
rates within the past 10 years, since 1929. Before that I was not of an 
age where I would know much about it. 

Mr. Arnold. I was merely suggesting that experience generally in 
industries where the members do get together on formal or informal 
price fixing results always in meetings to raise rates, and within the 
last 10 years not in meetings to lower rates. 

Mr. Howell. I submit to you that when it is a question of lowering 
rates, it isn't necessary to get together. 

Mr. Arnold. That is exactly what I was saying. The tendency of 
getting together is always to raise them. 

Mr. Henderson. I want to return to something which I feel is very 
important. I think Mr. Howell is trying to make a distinction here 
which is an important one, and certainly important to this committee. 
He is trying to make this distinction, that the live-and-let-live policy is 
one part referred to in this memorandum and is of lesser or minor 
importance than the necessitj^ vi hich the Prudential had for covering 
its costs. 

Now, this conmiittee, as I see it, is tremendously interested in the 
relation between costs and prices. In the resolution which created 
the connnittee,^ and in the message of the President which gave rise 
to the creation of this committee,^ there was a tremendous emphasis 
on the matter of prices and their relation to costs, the setting aside of 
competitive arrangements, and the entering into aoreements on uni- 
form prices. I know of no subject that the committee staff has ad- 
dressed itself to with more time and attention than the relation 
between costs and prices. 

We haven't adduced that information in public hearing, up to tlie 
present time, but the technical staffs of several departments are at 
work. For example, we have an extensive study in the Procurement 
Division of the Treasury, in which we have covered for the first time 
a very large sample of the prices at which the Govenmient buys, 
what is the nature of the identity of price, how important it bulks, 
and in which industries it bulks. At the same time, the Department 
of Labor and the Bureau of Labor Statistics, which is the residual 
place where prices are tabulated, have had going for upward of 9 
months now a study of prices, and prices in relation to costs. 

The Federal Trade Commission has given considerable attention 
to cost studies. We have drawn on the Tariff Commission, also, so 
we are interested in prices and in costs and are taking up a number 
of individual industries. 



1 Public Res. No. 11."^, see "Exhibit No. 2," Iloarins^s, l':irt I, ap])f>n(li-v. i>. 102. 
■See 'Inhibit No. I,"' Heortiins, I'art I, appcndi.x. p. 185. 



CONCENTRATION OF ECONOMIC POWER 4273 

I don't want to fjet into any feeling, Mr. Howell, on your part, 
that we are not interested in this very necessary effort on your part to 
make your rates cover your costs in order that your companies mi<Tht 
live. I do hope that in your testimony you will undertake to have 
regard for the fact that it would be pretty difficult, except over a 
long period, as you have suggested, for any company to be destroyed 
by a failure to cover costs by a small amount, because the mortalily 
])art of any insurance charge, as was developed this morning, is an 
extraordinarily large part of it, so that there is that minimization 
of risk. 

On the other hand, although the committee is essentially and 
l)asically interested in costs and prices, we have continuously this 
(luestiou of the areas in which the ordinary concepts of the American 
public, upon which our traditional laws are based, have assumed no 
setting aside of competition and no consideration of a live-and-let- 
live policy, and we are decidedly interested in this relatively new 
phenomenon as it begins to appear in recent years in your own in- 
dustry. 

I just wanted to make that distinction here. 

Mr. Howell. If you will let me make just one comment in that 
connection, I think it would be useful to bear in mind that a life- 
insurance contract is a continuing contract. I imagine most of the 
other commodities whose prices you have studied deal with transac- 
tions over and done with. Unfortunately in a life-insurance contract 
we have to estimate, and let me say that rate-fixing is not an exact 
science. You probably realize by this time it can't be. 

Mr. Henderson. We are beginning, despite some of the testimony. 
<o recognize that. 

Mr. Ho^vELL. And, therefore, we are in a very unfortunate position 
if we fix a rate that must roll on into the years and find that that 
rate isn't adequate. That does strike me as being an important factor 
for your consideration. 

Mr. Henderson. We are interested in that because, as you say, a 
price that is fixed usually has to do with one contract and then it is 
terminated. But, on the other hand, just as you emphasize the 
continuing nature of your service, the amount of money which is 
expended from the ordinary family income for insurance bulks very, 
very larg-e, and so everything which has to do with rate-fixing, or 
price-fixmg, affects a large part of the expenditures, and therefore 
becomes increasingly important. 

Mr. Ho^\^LL. I quite agree. 

Mr. Arnold. Would you take the position, assuming that uniform 
rates must be fixed by companies (make that assumption for the 
moment), that it should be done without the participation of some 
public regulatory body? 

Mr. Howell. It has always seemed to me that we have fairly 
active regulatory bodies in the State insurance departments. I 
don't know; it was long before my time, but my impression is that 
the Hughes' investigation, for example, was very largely concerned 
with the results of undisciplined competition. I may be wrong on 
that. I would like to be set right. 

Mr. Arnold. I was making the assumption, for the moment, that 
undisciplined competition sh^ould be eliminated, which I take it is 
your own assumption. 



4274 (CONCENTRATION OF ECONOMIC POWER 

Mr. Howell. I would certainly say that competition should not be 
eliminated in toto in the life-insurance business. 

Mr. Arnold. But in respect to rates I was assuming that you be- 
lieved that either formally or informally there should be concerted 
action. 

I take that to be your belief. 

Mr. Howell. Yes; I think so. 

Mr. Arnold. In the light of that belief, may I ask you whether 
you think that such concerted action ought not to be supervised 
by some rate-making body ? 

Mr. Howell. Well, I think that the important — now let me con- 
fine myself for the moment to participating life insurance. 

Mr. "Arnold. All right, participating life. 

Mr. Howell. The initial rate charge is important, but the cost 
to the policyholder obviously is the amount he pays less the dividends 
returned to him year after year, so the initial rate is not — whether 
that is fixed or whether as "at present it varies from one company 
to another — I don't think it is of primary importance. The net cost 
results inevitably in competition and differs with each company — 
has to differ. 

Mr. Arnold. To have this power to fix the rate in private hands 
without public supervision is the way you would have it? 

Mr. Howell. Yes. 

Mr. Arnold. May I ask another stock question which I have asked 
many other witnesses. You wouldn't apply that to any other busi- 
ness than inurauce? You Mouldn't apply that to public utilities, 
would you? 

Mr. HowEix. You are asking me something about which I know 
very little. I wouldu't say wliether there was 

Mr. Arnold (interposing). If you had to vote on abolishing the 
Interstate Commerce Conimission, you wouldn't vote to abolish it? 

Mr. Howell. No; that is right. 

Mr. Arnold. Therefore, you must have a feeling that somehow you 
are different than railroad executives. 

Mr. Howell. Well, I have a feeling that we are already supervised 
very extensively, and I frankly fail to see the necessity for any 
further supervision. 

Mr. Gesell. May I ask just in that connection one question, and 
then I am through, Mr. Howell. Do you know of any case where, 
when the companies have gotten together on a uniform rate program, 
they have invited the insurance commissioners of all the States in 
which they sell insurance to come and m6et with them in a meeting, 
including those States which have rather vigorous antitrust laws 
against life-insurance activities and activities of that character, ex- 
plained to those people just exactly what they' are doing and when 
they are getting together and what decisions are prompting them to 
reach this uniform program? Have yon ever heard of that 
happening? 

Mr. HowEi-L. No, I haven't. 

Mr. Gesell. So when you saj" that the State superintendents of 
insurance regulate you, you are talking about regulation in fields 
other than the field of rate-fixing, aren't you ? 

Mr. HowEiJi. My impression is that the superintendents have — at 
least the State actuaries have — quite ample knowledge of our rates. 
Am I correct? May I ask my co'.nsel? 



CONCKNTKATION OF ECONOMIC TOWEll 4275 

Mr. GESELii. Yes. 

Mr. HowEix. Am I correct in a number of States we file our rates? 
1 am quite certain that we did in the State of Washington, for exam- 
ple. We file them as a matter of information. 

Mr. Henderson. But you don't file evidence of concerted action. 

Mr. Howell.- Not because we are concealing it, particularly. 

Mr. Henderson. You differ in that from a previous witness, don't 
you? 

Mr. Howell. Well, of course, once again I get back to the belief 
that we don't have concerted action except incidentally, because I 
can't go past the thought that we needed this increase in rates, and 
we had to have it. And when we needed another increase in rates 
last December we made it, anyhow. 

Mr. Henderson. But you don't want to go past the bald fact, how- 
ever, that there was a concerted action. 

Mr. Howell. You mean that there was on this occasion? 

Mr. Henderson. Yes. 

Mr. Howell. No; that existed. 

Mr. Gesell. I should like to offer for the record the memorandum 
of Mr. Little, dated March 6, 1934, from which we have been reading. 

Acting Chairman Eeece. It may be admitted. 

Mr. Gesell. Also Mr. Howell's memorandiun of June 12, 1934. I 
have no further questions from Mr. Howell. 

(The memoranda referred to were marked "Exhibits Nos. 673 and 
G74" and are included in the appendix on pp. 4725 and 4727.) 

(Mr. Howell was excused from the stand.) 

Mr. Gesell. When Mr. Flynn was on the stand last, I neglected to 
offer for the record his memorandum of March 7, 1934, to Mr. Zacher. 
I wish to offer it at this time. 

Acting Chairman Eeece. It may be admitted. 

(The memorandum referred to -was marked "Exhibit No. 675" and 
is included in the appendix on p. 4728.) 

Mr. Gesell. Mr. Flynn, will you resume the stand, please? 

TESTIMONY OF B. D. FLYNN. VICE PRESIDENT AND ACTUARY, 
TRAVELERS INSURANCE CO., HARTFORD, CONN.— Resumed 

Mr. Gesell. So far we have covered two rate agreements among 
the nonparticipating companies, have we Tiot, tlic One m o6 and the 
one in '35? 

Mr. Flynn. Yes. 

Mr. Gesell. When was the next one ? 

Mr. Flynn. I believe it was effective March 1, 1937. 

Mr. Gesell. Prior to the next agreement, is it not a fact that addi- 
tional agreements were reached with respect to surrender charges and 
surrender value? Maj^ I show you these two memoranda to refresh 
your recollection? 

Mr. Flynn. These are in regaid to llie retirement-income contract. 

Mr. Gesell. Will you tell us whsd agreements were reached and 
what the nature of them was? 

Mr. Flynn. The first agreement was that full-surrender charge 
of $25 be continued beyond the twentieth policy year up to within 1 
year of maturity, during which year the surrender charge be twelve 
and one-half dollars per thousand dollars of insurance. 



4276 CONCENTRATION OF ECONOMIC POWER 

The second one states that at a prior conference of the three local 
companies it was agreed that the full-surrender charge was to be 
continued on retirement-income contracts beyond the twentieth year 
up to 1 year of maturity, during which year the surrender charge 
be $12.50" per $1,000 of insurance. 

Mr. Gesell. In effect, those agreements were just a continuation 
then of your company's policy of reaching uniform agreements with 
the other two nonparticipating Hartford companies on matters of 
surrender charges and value? 

Mr. Flynn. On a particular policy; yes. 

Mr. Gesell. Now those surrender-charge agreements have a direct 
bearing upon competition, do they not? If your companies have 
identical rates, yet a policyholder in one company may be getting 
back more money than a policyholder in another company, then that 
company which gives the most liberal benefits has a competitive 
advantage, has it not ? 

Mr, Flynn. There is an element of competition, 

Mr. Gesell. So that in reaching an agreement on surrender values 
and charges, you were in effect standardizing the amount of money 
which a policyholder could get back if he turned in his policy before 
maturity. 

Mr. Flynn. Correct. 

Mr. Gesell. Having reached the agreements, in other words, to offer 
a uniform price to the policyholder when you sold him the insurance, 
you also were reaching agreements that caught the policyholder going 
out, so to speak, in order that he would only get back the same thing 
from any of your three companies. 

Mr. Flynn. We also agreed on surrender values, in other words. 

Mr. Gesell. That was the net result of it. 

Mr. Flynn. That was the net result. 

Mr. Gesell. May I call your attention to a memorandum dated 
August 1, 1936, contained in the 1936 Life Actuarial Notes of- your 
company, a memorandum written by Mr. Hammond whom, I believe, 
you stated was a member of your actuarial staff. 

Mr. Flynn. Yes, sir. 

Mr. Geseli>. Does that memorandum set forth the nature of the 
rate agreement which was reached and became effective March 1, 1937? 

Mr. Flynn. I can't tell from a cursory glance at this whether this 
is the final basis agreed upon or one of the tentative statements. 

Mr. Gesell. Let me ask you this: Your three companies are still 
operating under the 1937 agreement? 

Mr. Flynn. Yes. 

Mr. Gesell. You know the basis of your company's operation at 
the present time, do you not, Mr. Flynn, and you can tell us whether 
this coincides with the present basis or not. 

Mr. Flynn. I can say this, if it would be sufficient : It appears to be 
generally the basis. 

Mr. Gesell. There may have been one or two slight variations, but 
this is the general program. 

Mr. Flynn. Yes. The effective date I notice is April 1 rather 
than March 1. 

Mr. Gesell. I believe you were originally correct in stating that 
the agreement went into effect in March. 

Mr. Flynn. Yes. 



dONClONTUATION OF lOCONOMIC r(>\VKR 4277 

Mr. Gesell. Ill substance, the ugreeiueiit reacluHl in 1937 covered 
again all forms of ordinary nonparticipating insurance, did it not ^ 

Mr. Flynn. Witli the exception of a few special forms. 

Mr. Gesell. And it covered the three factors in the rates which 
we discussed at the first of your testimony this morning, the mortality, 
loading, and interest. 

Mr. Flynn. Yes, sir. 

Mr. Gesell. I wish to offer tlie memorandum for the record. 

Acting Chairman Reece. It may be received. 

(The memorandum referred to was marked "Exhibit No. 676" and 
is included in the appendix on p. 4729.) 

Mr. Gesell. I want to ask you one further question, Mr. Flynn. As 
the three Hartford companies reached their decision to raise rates 
on a uniform basis, and after that decision was announced and became 
known in the industry, did you find that by and large other smaller 
nonparticipating companies followed the lead of your three com- 
panies ? By that I don't mean they necessarily adopted the same rate, 
but when a rate increase was announced by the Hartford group that 
throughout the industry there seemed to be some announcement of a 
general increase? 

Mr. Flynn. I think that is correct. Perhaps not throughout the 
industry but certain companies wrote in and certain companies then 
decided to adopt the same rates, generally as of a later date, 

Mr. Gesell. Can you tell us what companies decided to adopt the 
same rates? Am I perhaps correct in saying Columbian National, 
Pacific Mutual, the Atlantic Life, and some of those? 

Mr. Flynn. That sounds right. 

Mr. Gesell. Can you name any more ? 

Mr. Flynn. Is this the recent one ? 

Mr. Gesell. Yes. 

Mr. Flynn. I think the Missouri State, too. 

Mr. Gesell. So the result of the agreement reached by your com- 
panies was to bring about a considerable uniformity in rates through- 
out the nonparticipating field and certainly to bring about a rate 
increase throughout the nonparticipating field. 

Mr. Flynn. It would have that tendency — I wouldn't say through- 
out, I Avouldn't know just how materially insurance companies were 
affected, but it did influence a number of companies. 

Mr. Gesell. Now, if the committee please, in order that there may 
be something in the record which will give some indication of the 
effect of these rate changes as they have taken place, we have pre- 
pared a schedule which is offered subject to the provision that it be 
checked, which will show the premiums required on an ordinary life 
policy from each of these three companies for age 35, the amount to 
be required to maintain $1,000 of that insurance in force from age 35 
for a period of 10 years, and we have shown the cash values which 
each policyholder in the three companies might receive if he cashed 
in his policy at the end of that 10 years. This schedule, as I said, 
offered subject to check, does give some indication of the amount 
involved in the rate increases which we have been discussing. I would 
like to offer the schedule for the record. It has been prepared from 
the Little Gem Life Chart, and Best's Illustrations. 

Acting Chairman Reece. It may be entered. 



4278 CONCKNTRATION OF ECONOMIC POWER 

(The scliodiile referred to was marked "Exhibit No. G7-7" and is in- 
chided in the appendix on p. 4732.) 

Mr. Gesell. I am not clear whether the record contains the exhibit 
entitled "Exhibit of Changes in Surplus Ordinary Nonparticipating 
Business." ^ Has that been received? 

Miss Lee. Yes. 

Mr. Gesell. I haAe no further questions for this witness. 

Acting Chairman Reece. Do the committee members desire to ask 
any further questions? 

Mr. Gesell. Thar concludes tjie testimony which we have to date. 

Mr. Henderson. Mr. Chairman, I think it would be in order to 
commend Mr. Fl^/nn on the completeness and the frankness with, 
which he has responded to an extraordinary number of questions. 

Acting Chairman Reece. The committee appreciates the appearance 
of the witness and thanks him for his cooperation and the informa- 
tion he has given. 

Would you care to state, Mr. Gesell, what your program is to be 
next week? As I understand, it is the intention of the committee 
when it recesses toda}^, to recess until Monday. 

Mr. Gesell. That is my understanding. 

Actinf Chairman Reece, And what is to be the procedure at that 
time ? 

Mr. Gesell. There has been no final decision as to what will be pre- 
sented. I want to discuss that with the committee, but the witnesses 
v/ill be advised amply in advance so their plans may be made 
accordingly. 

Mr, B. M. Anderson (counsel, Connecticut General). I w^ould like 
to ask, on behalf of the Connecticut General 

Acting Chairman' Reece (interposing). Have you discussed with 
any member of the committee or representative of the committee the 
matter which you wish to take up with the committee ? 

Mr. Anderson. Yes ; I have. I have discussed it with Mr. Arnold. 

Mr, Arnold. I beg to differ with 3'ou — a slight conversation. There 
was no formal taking up. 

Acting Chairman Reece. I have no information whatever of what 
you have in mind to request, but under the procedure of the com- 
mittee I would suggest that you contact the chairman or the executive 
secretary and then the matter will be given consideration and if 
tliought advisable it may be entered. 

Mr. Anderson. Thank you. What I w anted to do was to correct a 
statement which had been made and which Mr. Gesell said had been 
set 

Acting Chairman Reece (interposing). If there has been an error 
made 

Mr. Anderson. It is unintentional, I know. 

Acting Chairman Reece, The committee and Mr. Gesell also, I am 
sure, would be very anxious to correct it. Was it a matter that 
occurred today ? 

Mr. Anderson. It occurred today and it relates to 

Acting Chairman Reece (interposing). Mr, Anderson 



1 Previously entered as "Exhibit No. 662," see appendix, p. 4717. 



CONCENTRATION OF ECONOMIC POWER 4279 

Mr. Gesell. I have no objection. It is a question of one of the 
figures of one of the schedules. This gentleman is attorney for the 
Connecticut General. 

Mr. Anderson. You have heard our witness today and it relates 

Acting Chairman Eeece (interposing). This is not the procedure 
of the committee. I suggest that the informal discussion be off the 
record. 

(Mr. Anderson and Mr. Gesell conferred.) 

Mr. Gesell. If it please the committee, we are in distinct disagree- 
inent as to whether or not I am right or wrong. We have checked 
a series of figures which this gentleman challenges. I do not believe 
that any correction is possible until we have had a chance to confer 
Avith his representatives. He has talked simply by telephone to 
Hartford concerning the figures and I am quite sure it is simply a 
misunderstanding that has occurred between hini and his home 
office. 

Mr. Henderson. Then the matter can be submitted formally to the 
executive secretary or the chairman according to our ordinary pro- 
cedure, and it can be inserted in the record after it has passed the 
executive committee. 

Acting Chairman Reece. If there is no objection to that procedure, 
which is in accordance with the policy of the committee, it will be 
done. 

The committee requested information from the Calvert Distillers 
Corporation when the previous hearing was being held.^ The in- 
formation is submitted in response to a question by Commissioner 
Davis and with the permission of the committee it will be received 
and will appear properly in the record. 

(The schedule referred to was marked "Exhibit No. 678" and 
appears in the appendix to Hearings, Part VI, p. 2748.) 

Acting Chairman Reece. The committee will stand in recess until 
Monday at 10:30. 

(Whereupon, at 3 : 55 p. m., an adjournment was taken until Mon- 
day, June 12, 1939, at 10 : 30 a. m.) 



1 See Hearings, Part VI, p. 2562. 



124491 — 40— pt. 10 10 



INVESTIGATION OF CONCENTRATION OF ECONOMIC POWER 



MONDAY, JUNE 12, 1939 

United States Senate, 
1'emporary National Economic Committee, 

Washington, D. C. 

Tlie committee met at 10 : 35 a. m., pursuant to adjournment on 
Wednesday, June 7, 1939, in the caucus room. Senate Office Buildinjr, 
Representative Reece presiding. 

Present: Representative Reece, acting chairman; Senator King; 
Messrs. Henderson, Frank, O'Connell, and Brackett. 

Present also : Harry J. Daniels, Department of Commerce ; Joseph 
Borkin, Department of Justice; and Gerhard A. Gesell, special 
counsel, S. E. C. 

Acting Chairman Reece. The committee will please come to order. 
Are you ready to proceed, Mr. Gesell ? 

Mr. Gesell. Yes; I am. 

Acting Chairman Reece. Call your first witness. 

Mr. Geseil. Before calling the first witness I have one exhibit 
for the record which relates to the testimony last Wednesday. At 
that time, when Mr. Flynn was on the stand, we had some discus- 
sion as to the nonparticipating insurance in force in the three Hart- 
ford companies.^ At that time the figures presented included group 
insurance. At my suggestion the figures have been prepared ex- 
cluding group, and I would like to offer this schedule for the record, 
which has been reviewed by counsel for the Connecticut General and 
approved by him. 

Acting Chairman Reece. It will be admitted. 

(The exhibit referred to was marked "Exhibit No. 679" and is 
included in the appendix on p. 4732.) 

terminations of life insurance — ordinary and industrial 

Mr. Gesell. Last week the Commission presented to the committee 
evidence with respect to various intercompany agreements for the 
establishment of uniform rates and underwriting practices. Fur- 
ther material of a similar nature will be presented during this week 
of hearings and subsequently. This morning, however, we will shift 
for a moment to an entirely different topic and will present through 
charts and statistical summaries on the one hand, and the representa- 
tives of the insurance business on the other, information which will 
demonstrate the character, amount, and relative importance of vari- 

* See supra, p. 4224. 

4281' 



4282 CONCENTKATION Ol' ECONOMIC TOWER 

ous modes of teriniiiatioiis for life insurance policies, botli ordinary 
and industrial. 

The first witness will be Dr. Davenport, who has already testified 
before this committee on several occasions.^ He will present statis- 
tical material compiled under his direction from reco<jjnized public 
sources by the staff of the Insurance Section of the Commission. He 
has already been sworn. 

TESTIMONY OF DE. DONALD H. DAVENPORT, SPECIAL ECONOMIC 
CONSULTANT TO THE INSURANCE STUDY, SECURITIES AND 
EXCHANGE COMMISSION, WASHINGTON, D. C— Resumed 

Dr. Davenport. The importance of life insurance is most oencrally 
measured by reference to the total amount of insurance in force. 
This table, which is entitled "Life Insurance, Total In Force, New 
Business, and Terminations, United States Legal Reserve Life In- 
surance Companies, 1928-37," contains the basic data about which 
we shall talk this morning. 

Mr. Geseix. Has this schedule to which you refer been prepared 
under your direction? 

Dr. Davenport. It has. 

Mr. Gesell. From Spectator Insurance Year Books. Is that the 
source ? 

Dr. Davenport. That is the source. 

Mr. Gesell. I wish to offer the schedule for the record. 

Acting Chairman Reece. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 680" and is 
included in the appendix on p. 4733.) 

Mr. Gesell. Will you tell us, Dr. Davenport, the nature of the 
information contained on that schedule? 

Dr. Davenport. If you will examine the schedule, you will find that 
in the first column we have listed the total amount of insurance in 
force at the beginning of the year 1928 and for each year through 
1937. The next to the last column lists the total amount of insurance 
in force reported at the end of each of these respective years. On 
the first of January 1928, the face amount of all kinds of insurance in 
force was about $87,000,000,000. As of the first of January 1938, 
10 years later, the face amount of all kinds of insurance in force was 
almost $110,000,000,000. That figure appears in the lower right hand 
corner of the chart. Thus in this 10-year period the amount of 
insurance in force had increased $23,000,000,000. To achieve this 
increase in the insurance in force, the insurance companies had to 
sell seven times this amount of new insurance. This seven to one 
relationship between the new business written and the gain in the 
amount of insurance in force is a reflection of the large proportion 
of terminations of insurance each year. 

The terminations are listed in the third column. For example, in 
the first year, 1928. $10,000,000,000 of insurance passed off the books 
of the companies. The figures that represent the terminations in suc- 
ceeding years are listed in order, and the total for the 10-year period 
amounted to $133,000,000,000. 



1 Hearings, Part IV, pp. 11G5-1197, 1400-1407; and Hearings, Part IX, pp. 3720-3774. 



CONCENTRATION OB^ ECONOMIC POWER 4283 

Acting Chairman Reece. Pardon me. Mr. Gesell, will the witness 
show the percentage of those terminations which came by reason of 
death? 

Mr. Gesell. That will be the subject considered in subsequent tables 
and charts.^ 

Dr. DAVENroRT. Thus the amount of insurance that terminated in 
these 10 years was 83 percent as large as the amount, of new business 
written in the same period. In other words, for every thousand dol- 
lars of new life insurance written from 1928 to 1937, inclusive, $830 
was merely to replace insurance that had terminated and passed off 
the books of the companies. Stated another way, in these 10 years 
$1,200 of insurance terminated for every thousand dollars of insurance 
that was in force at the end of the period. These facts serve to focus 
attention on the termination of life insurance, its importance to the 
policyholders and its importance to the companies. 

Contrary to popular notion, death accounts for a very small prri^* 
portion of the total amount of terminations. Before we attempt ail- 
explanation of the methods by which insurance contracts terminate," 
there are certain basic conceptions and certain terms that must be 
explained and defined in order that we may all have a common under- 
standing of the significance of this problem. 

THEORY OF LJFE INSURANCE 

Dr. Davenport. The basic theory of life insurance in its simplest 
aspect presupposes the existence of a large group of persons banded 
together in order to assure each one of the group that he will leave an 
estate of a certain size w^henever he sliall die. For illustrative pur- 
poses, it is customary to assume a group of 100,000 persons of the same 
age. Let us suppose that each of a group of 100,000 persons is exactly 
35 years old and tliat each person washes to be assured that his 
estate will have $1,000 if he should die. For this purpose the group 
may elect a few of their number to manage the enterprise. Let us 
call these managers the company. The company examines a table 
of mortality such as the one that is reproduced here, 

Mr. Gesell. That is the American Experience Table of Mortality ? 
- Dr. Davenport. It is, Mr. Gesell. 

IVIr. Gesell. I wish to offer that table for the record. 

Acting Chairman Reece. It may be admitted. 

(The table referred to was marked "Exhibit No. 681" and is 
inchided in the appendix on p. 4733.) 

Dr, Davenport. In-order to determine the amount each member 
of the group mast pay the company examines this table of mortality 
to ascertain the number of the group which will probably die before 
the end of the next year. From the mortality table we learn the 
number of members of this group who are likely to die. According 
to this table, this number is found to be 8.95 persons per thousand, 
at age 35. If you will pass your finger down in the left hand 
colunm under the caption "age" to 35, opposite that in the third 
column, you will find under the caption "death rate per 1,000" 8.95. 
Therefore the company will expect 895 of their 1,000 members 

Mr. Gesell (interposing). Their 100,000 members, 

1 See "Exhibits Nos. 683-683," pp. 4293-a, 4300, 4738. 



4284 CONCENTRATION OF ECONOMIC POWP]U 

Dr. Davenport, Thank you; tlicir 100,000 members to die by Hie 
end of their thirty-fifth year. In order to pay a thousand dollars 
to the estate of each of these, the company mnst collect a total of 
$895,000 from the group of 100,000. This means a payment or 
premium of $8.95 from each member of the group. This amount is 
called the annual cost of insurance for 1-year term'. 

At the beginning of the second year there will remain 90,105 
persons of the original group who were 35 years old when the com- 
pany began doing business. If these 99,105 wish to continue their 
^insurance for the second year, each one must pay another premium 
to the company. An examination of the mortality table shows that 
the, mortality rate is slightly higher between the ages of 3C and 37 
than between the ages of 35 and 36. The mortality table indicates 
that out of the 99,105 there are 901 who will probably die before 
the end of the second year. $901,000 is then the amount needed 
this year in order to pay $1,000 to the estate of each of the 901 
persons expected to die. A contribution of $8.97 from each will be 
required. 

We note that this represents an increase of 2 cents per person in the 
premium of the second year over that of the premium of the first 
3^ear. This same process can be continued during each succeeding year 
until all the members of the group have died. However, it can readily 
. be seen ttiat the premiimis would have to increase every year because 
of" the rising rate of mortality as the group gets older. By the time 
the individuals have reached the age of 69, for instance, when approxi- 
mately half of the group that started would be dead, the net annual 
premium on $1,000 insurance would have to be about $57. From this 
age on the premiums increase so rapidly as to become almost pro- 
hibitive. In order to obviate the difficulty presented by this continu- 
ally increasing cost of annual 1-year term insurance, there was de- 
vised what is known as the level premium life insurance. This calls 
for an annual premium vvhich remains the same throughout the lifetime 
of the insured. 

Mr. Gesell. Have you charted on a chart entitled "Wliole Life 
Policy, $1,000 at age 35" ^ the annual cost of insurance on that risk 
and the net level premium charged each year? 

Mr. Davenport. That is charted on the chart that is before you. 

Mr. Gesell. Will you explain that chart, please ? 

Mr, Davenport. Reference to this chart and the table upon which 
it is based will assist in understanding the significance of the level 
premium plan. The illustration is worked out for a whole life policy 
.for $1,000 taken out at age 35. At this age the net level premium each 
year is $21.08. This net level premium is based on the American 
Experience Table of Mortality and assumes that the company will be 
able to earn from its investment of reserves interest at the rate of 3 
percent. 

Tlie level premium is computed in such a way that the earnings on 
the reserves augmented by the annual premiums will provide the 
company with sufficient funds to meet all claims. To maintain a 
thousand dollars of life insurance in force throughout his lifetime, a 
person who takes out this insurance at age 35 must pay a net level 
premium of $21.08 each year. In the early years of his life, this net 



1 Subsequently entered as "Exhibit No. 682,'" see infra, p. 42S6-a. 



(10NCENTKATI0N OF ECONOMIC Pf>WER 4285 

level premium is in excess of what it would cost to buy 1-year term 
insurance. This excess charge constitutes the policyholder's savings 
and is accumulated for him at compound interest by the company in 
the reserves. Wlien the insured has attained an age where the mor- 
tality rates are so high that the annual cost of insurance is greater 
than this level premium, the company begins to draw on the interest 
earned on these reserve funds. As a net 1-year term premium of about 
$8.84 would be enough to pay all claims in the first year, using the 
same table and the same interest assumption, the balance would go 
into the reserve. The interest earned would bring the reserve to 
$12.88 by the end of the first year. 

Tlie American Experience Table of Mortality assumes that no life 
extends beyond age 96 and that all claims will have been incurred by 
that time. At age 96 the reserve on each policy will equal the face of 
the policy. A whole life policy may be considered as an endowment 
payable at age 96. 

Reference to the table upon which this chart is based ^ will indi- 
cate how the savings element in the net level premium accumulates 
in the reserves against the individual policy. Ten years after the 
policy is taken out, the reserve will amomit to $146.01. 

When the policy has been in force 20 years the reserve will amount 
to $327.58. By the time the policyholder is 96 years old the reserve 
will have reached the face value of the policy, $1,000. The company 
holds the reserve for the benefit of the policyholder, subject to certain 
restrictions; the policyholder may obtain the reserve in cash by sur- 
rendering his policy. On the other hand, he may borrow almost alL 
of his reserve from the company, at interest. There are two elements, 
therefore, insurance and savings, that make up the amount that is 
paid upon the death of the insured. These parts vary in importance 
depending upon the number of years that elapse before death occurs. 
In the early years the insurance element, the amount of risk, is pre- 
dominant. In the later years the reserve, or the policyholder's ac- 
cumulations of savings, overshadow the insurance. 

To illustrate how these two elements vary over the life of an in- 
sured is the purpose of the second diagram on the chart, that portion 
of the chart appearing in the right-hand segment. It will be seen 
that in any year the two elements add up to $1,000, the face of the 
policy. 

The rej^erve, which has been described, is really an accumulation of 
savings by the policyholder. Any member of the insured persons 
could, of course, accomplish the same result by buying 1-year term 
insurance for the amount at risk each year and placing the differ- 
ence between that amount and the net level premium in a savings 
bank. It would have to be assumed, of course, that the savings bank 
would pay the same interest rate, 3 percent, that the company em- 
ploys in accumulating reserve. At about age 67, when the rising 
mortality rate makes the tabular cost of insurance at risk exceed the 
net level premium, he could then draw upon the interest earned on 
his savings in the savings bank to make up the difference. 

It is, of course, more convenient for the policyholder to be able to 
pay his premium and his savings to the same company, and he is 
also more likely to carry out the plan if he does so. 



* See "Exhibit Mo. 882," infra, p. 4286-a. 



4286 CONCENTRATION OF ECONOMIC TOWER 

Mr. Geselx,, Now, may I offer for the record at this time the chart 
which Dr. Davenport has just discussed, entitled "AVhole Life Policy, 
$1,000, age 35," and the schedule supporting the chart? 

Acting Chairman Reece. The document may be admitted. 

(The chart referred to was marked "Exhibit No. 682" and appears 
on p. 4286-a. The statistical dat;i on which this chart is based are 
included in the appendix on p. 473*4.) 

Mr. Gesell, Before going on, Dr. Davenport, I want to be sure 
that I understood what you were saying. In the left-hand portion 
of the chart entitled "Charges" the portion marked "Excess of pre- 
miums paid by policyholders over cost of insurance at risk," directing 
3^our attention to. that portion of the chart, am I correct in saying that 
tit age 3,5, during the fii-st years of the policy, a person purchasing it 
on a net level-premium plan pays into tlie company more money than 
is required to meet the amount which he would contribute simply for 
the purpose of insuring himself, in other words, covering the risk 
involved. 

Dr. Davenport. That is essentially correct. Throughout the life- 
time of the policyholder he pays $21.08. The annual cost of the 
amount of insurance at risk varies as is shown by this line that goes 
up from the lower left to the upper right. 

Mr. Geselx,. For how long is it that he pays in more ihnn is ntn-es- 
sary to meet the annual cost of insurance for the amount of risk? 

Dr. Davenport. The- line crosses at about age 68, I should say; 
up until he is 68 years old the net level premium exceeds the ammal 
cost of insurance for the amount for which the insurance company is 
insuring him. 

Mr. Gesell. Do I understand that that reserve which is built up 
by these excess payments earns interest which in later years is used 
to reduce the amount of the premium which he would have had to 
pay had he been paying it on the pure basis of the cost of insurance 
at risk each time ? 

Dr. Davenport. From age 35 the excess premium charges that are 
made to the policyholder until he I'eaches the age of about 68 is accu- 
mulated by the company at compound interest, as is indicated by the 
blue section (the lower section) of the second part of this chart. At 
the end of the first year the reserve against this policy amounts to 
$12.88 and each year until 69 additional amounts are added to that 
"reserve and they continue to earn interest at 3 percent, so that by 
the time the policyholder has theoretically reached the age of 96 the 
accumulation of those amounts in the reserve will total $1,000. There 
comes a time when the cost of the insurance at risk exceeds $21.08, the 
net level premium charged each year. That is at age 68. After age 69 
the company in effect takes some of the interest earnings on the reserve 
to add to the $21.08 a year which the policyholder continues to pay 
as his net level premium, to make up what it would actually cost to 
insure the policyholder for the amount at risk in each one of those 
years. 

Mr. Frank. Is the portion on the right of that chart equal to the 
portion on the left ? 



CONCENTRATION OF ECONOMIC ['OWER 



4286-a 



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rX)NCl-:NTI{A'J^ION Ol' ECONOMIC POWER 4287 

Dr. Davenport. No ; there is no reason whj^ it should be. We have 
assumed that it starts at age 35 and it does in this case. We might 
have taken an example at age 25 in which case the segment of blue 
would be much larger, you see. 

Mr. Gesell. You mean the segment entitled "Excess of l*reniiums 
Paid by Policyholders Over Cost of Insurance at Kisk"? 
' Dr. Davenport. Yes; that is right. There is no necessary equality 
between those two segments. 

Mr. Gesell. Now, what is your next chart, Dr. Davenport'? 

Dr. Davenport. I should noAv like to turn to the consideration of 
terminations. 

Mr. Gesell. You are referring riow, are you not, to the chart entitled 
''Terminations of Life Insurance, 1922-37, Amounts."^ 

Dr. Davenport. "Terminations of Life insurance, 1922-37, amounts. 
Ordinary. Industrial." 

It is important to understand the various ways in which life-insur- 
ance policies are terminated. The most important contingency against 
which life insurance is /written is, of course, that of the death of the 
policyholder. When the insured dies, the policy terminates by death. 
and is so designated. The company is obliged to pay the face of the 
policy to the beneficiary. Some few^ policies carry what is known as 
an installment disability benefit. Under this, if the insured suffers 
total and permanent disability, the policy terminates by what is known 
as disability. The premium payments by the policyholder then cease, 
and benefits are paid to the nisured b}' the company. In addition to 
the above modes of termination, there are two other ways which also 
represent the successful termination of insurance contracts; for ex- 
ample, endovAment contracts written to mature in a stated period of 
years terminate by what is known as maturity when that period ex- 
pires. Also, term insurance, which has no savings elements, is written 
for stipulated periods; upon the completion of the period specified 
term insurance terminates by what is known as expiry. From the 
policyholder's point of view^, terminations by death, by disability, by 
maturity, represent satisfactory completions of the insurance contract, 
and it rna}' be said that to the extent that expiry represents the ter- 
minations of policies originally written for a term of years, expiry 
also represents a satisfactory mode of termination. 

It is a generally recognized fact that the great bulk of life insur- 
ance termmates in a manner that cannot be regarded either by the 
companies or by the policyholders as entirely satisfactory. A great 
deal of insurance terminates within a short time after it is sold, by 
reason of the failure of the insured to keep u]) the payments of his 
premiums. Wheii such failure to maintain premium payments occurs 
before the policyholder is entitled to a refund of any portit.n of the 
leserve against his policy, the insurance is said to have terminated 
by lupse. Let me repeat that because it is ver}^ important: When 
such failure to maintain premium payments (K-curs before the policy- 
holder is entitled to a refund of any portion of the reserve against 
his policy, the insurance is said to have terminated by lapse. 

Mr. Gesell. Referring a moment. Dr. Davenport, to the chart en- 
titled "Whole Life Policy," "^ which you discussed a moment ago, 

iSubseguenUy introduceil as "l]xhil)it No. 08.''.," see intra, p. 4293-a. 
-^ "Exhibit No. 682," supra, \>. 4286-a. 



4288 rDNCENTKATTON OF EPONOiMTC TOWER 

llio. reserve to Avhich you refer is the portion marked "Excess of pre- 
iiiiunii< paid by policyholders over cost of insurance at risk," is it not? 

Dr. Damsni-oht No. Mr. Gesell ; it is the blue portion of this dia- 
gram. It is the lower right-hand portion of the second part, which 
represents the accunudation of the reserve at age 35; at the end of 
the first year the reserve amounts to $12.88, and each successive year 
that reserve accumulates by reason of additions that are represented 
here by the blue, and by the accumulation of interest at 3 percent on 
wliat has previously been put in that reserve. 

Mr. Gesell. The"^ reserve results from the excess payments which 
ai-e referred to in the part of the chart I mentioned, and the actual 
reserve itself is represented by the lower portion of the right-hand 
section of the chart? 

Dr. Davenport. That is correct, Mr. Gesell. 

Mr. Gesell. And you say that when a policy terminates under such 
conditions that the policyliolder receives no portion of that reserve 
l)a(k at the time of termination, that policy is said to have lapsed. 

Dr. Davenport. It is called a lapse under those circumstances. 

Mr. Frank. Does that mean that he has made contributions which 
ire in effect savings by him, together with interest accumulations 
thereon, and that in the circumstances you describe he receives back 
no portion of those savings? • 

Dr. Davenport. When a policy is said to terminate by lapse he gets 
no portion of that reserve back. That is correct. 

Mr. Frank. In effect that is the savings portion of his insurance!' 

Dr. Davenport. Yes, sir. 

Mr. Frank. And under the circumstances you have described, he 
has made what were assumed to be savings, but whicli he does nor 



receive 



Dr. Davenport. That is right. 

Senator King. It is part of the contract that if he shall not con- 
tinue his payments he will lose the benefits of tliat. 

Dr. Davenpoijt. It lapses. It is stipulated very definitely in the 
contract he takes that if he C(Mitinues until he dies, or until the 
policy terminates at age 96, he f^ets all of it back. 

Mr. Frank. You are describmg at this time the consequences of 
contractual provisions in the insurance policy? 

Dr. Davenport. That is right. 

Senator King. Those policies have been the subject of scrutiny, have 
they not, by the various States il^ their formulation of legislation? 

Dr. Davenport. It is my uriderstanding that every new polic}^ that is 
issued nnist first receive the approval of the State insurance commis- 
sion. 

Senator King. And the States in wliicli policies are v/ritten have 
insurance laws, I presume, and an insurance connnission? 

Dr. Davenport. They have, Senator King. 

Senator King. To supervise the law and protect the policyholder 
as well as the comi)anies? 

Mr. Frank. As I understand it, you are not now in this testimonj' 
in any way indicating that these consequences to which you refer are 
the result of any violation of contract or of a State law. 

Dr. Da\enport. None whatever. It is clearly specified in the terms 
of the contract and the laws of the State. This is in essence what 



COXrEXTIfATIOX OF KCONOMTr POWER 4289 

happens. Tlie jiislilicalioii for it will re(iuire considerable explana- 
tion. We are stating the facts as reported. 

Senator King. You aie not contending that the rate'^ are too high 
or too low? 

Dr. DA\^NroKT. We are discussing merely this morning the modes 
of termination of policies. 

Senator King. Yes. 

Dr. Davenport. I had just finished describing what we call lapse. 
In further explanation of that, in this case the policyholder has paid 
the full net le\'el premium for the insurance protection afforded him 
over the period that he was covered. Reference to the table and 
chart describing this whole life policy, $1,000, age 35, indicates that 
under such conditions the cost of protection the insured actually 
enjoyed was at least twice as great as it would have been if he had 
taken out term insurance for the sam.e period. 

After the policy has been in force for a period specified in the 
policy, usually from 3 to 5 years, the policy holder is entitled, under 
the terms of the policy, to receive a cash value if he discontinues pay- 
ment of premiums. This cash value is known as the cash-surrender 
value, and policies that terminate in this manner are said to terminate 
by surrender. 

Mr. Gesell. Where policies terminate by surrender, the policyholder 
gets back a portion of his reserve but not the entire reserve, in some 
cases, and in some cases he gets back the entire reserve, does he not? 

Dr. Davenport. Practice differs in different companies. There is 
usually imposed what is known as a cash-surrender penalty or charge, 
presumably to compensate the company for the bookkeeping expense 
involved and also probably to act as a stimulus to keep the policyholder 
from withdrawing his cash-surrender value. 

Life-insurance policies carry what are known as nonforfeiture op- 
tions, which become available after the policy has been in force for a 
specified period. One of these options is known as extended term 
insurance. Under this option, the company will apply the reserve in 
the policy to the purchase of insurance equal to the face amount of 
the policy, which will continue for a term, the duration of which 
depends upon the size of the reserve. After having paid premiums 
for 5 years, for instance, the policyholder may be entitled to insur- 
ance for the face amount of the policy for an additional 5 years with- 
out the payment of any more premiums. At the expiration of this 
extended term the insurance is said to terminate by expiry. 

Another option, a nonforfeiture option, is called paid-up insurance 
for a decreased amount. Under this option, if the policyholder can 
no longer continue to make his premium payments, the reserve in the 
policy is used to buy for the policyholder insurance for the rest of his 
life for a smaller amount than the face of the old policy, but without 
obliging him to pay any additional premiums. The amount of this 
paid-up insurance is calculated by a formula that depends on the size 
of the reserve when the premium payments stopped. From the com- 
panies' point of view, this represents a decreased amount of insurance 
in force, and consequently we have insurance that terminates by de- 
crease. When policyholders can no longer continue to pay their pre- 
rniums but they have paid those premiums long enough to become 
eligible enough for one of these non^forfeiture options, this type of 



4290 CONCENTRATION OF ECONOMIC POWER 

paid-up insurance for a decreased amount ma}^ be put in force. The 
difference between tiiat amount and the amount of the face value of 
the original policy means a writing off the books of a certain amount 
of insurance of the company, and that kind of a decrease is a termi- 
nation, and it is described as decreased. 

Senator King. However, there is a liability there to make certain 
payments from time to time, annual or otherwise. 

Dr. Davenport. Not on the part of the policyholder. On the part 
of the company there is a liability to pay that face amount of the 
decreased policy whenever the policyholder dies. 

Mr. Gesell. In fact, what happens is that the company takes the 
cash value on the policy and uses that to purchase paid-up insurance 
which the policyholder then has entirely paid up, and upon which he 
has no requirement to make any further payments ? 

Dr. Davenport. That is correct. 

In addition, it should be pointed out that insurance may be taken off 
the books of the company by reason of the direct request of the insured 
to reduce the amount of his insurance. Such reduction in the cover- 
age of insurance is also reported as a termination by decrease^ so the 
total amount reported as a decrease arises from these two sources. 

Thus it appears that when insurance terminates by lapse, surrender, 
decrease, and, in certain cases, expiry, it terminates in a manner not 
representing the purpose for which the insurance was sold. Such 
modes of termination are called by the insurance industry volimtary 
terminations. They represent the extent of the frustration of the 
original purposes for which the insurance was taken out. 

Mr. Gesell. Now, Dr. Davenport, if you will refer to the chart 
entitled "Terminations of Life Insurance, 1922-37, Amounts," ^ and 
explain to the committee the basis upon which that chart has been 
prepared and the relative ratios and percentages illustrated both for 
ordinary and industrial insurance 

Dr. Davenport (interposing). In the chart that is on the easel to 
the left 

Mr. Frank (interposing). That is the chart entitled "Terminations 
of Life Insurance, 1922-37"? 

Dr. Davenport. The chart entitled "Terminations of Life Insur- 
ance, 1922-37," we have a picture of the amounts and modes of termi- 
nations of ordinary insurance and industrial insurance for the period 
from 1922 through 1937. The schedules upon which this chart is 
based ^ give the figures for each year separately. In presenting the 
material graphically, we have summarized the period in four periods 
of 4 years each. The first bar that you see represents the 4 -year period 
from 1922 through 1925, inclusive. In that period the total amount of 
ordinary insurance that terminated was $17,127,000,000. The height 
of that bar is proportional to the amount just stated. 

In the next 4-year period the total amount of ordinary insurance 
that terminated was a little in excess of $25,000,000,000, and in the 
third period the amount reached over $42,000,000,000. In the fourth 
period, from 1934 through 1937, the total terminations amounted to 
$28,000,000,000. 



1 "Exhibit No. 683," infra, p. 4293-a. 
- Ibid., appendix, p. 4735. 



CONCENTRATION OF ECONOMIC POWER 429] 

Bear in mind that this refers only to ordinary insurance. 

Mr. Gesell. Now, am I correct in saying, Dr. Davenport, that for 
all four of those periods, generally speaking, the percentage of termi- 
nations which are accountable to death, maturity, and expiry, are rela- 
tively the same? 

Dr. Davenport. Practically the same. 

Mr. Gesell. Taking the period 1934 to 1937 for purposes of illus- 
tration, what percentage of the terminations of ordinary insurance 
in that period terminated by death? 

Dr. Davenport. At the bottom of the table supporting that portion 
of the chart appears the percentages that you have just requested. 
Under the caption "Death," which appears in the next to the last col- 
umn on that table, we have the following figures that represent the per- 
centages of the total terminations of ordinary insurance by reason of 
the death of the insured. In the first 4-year period they amounted to 
7.94 percent. On the chart that is represented by the black segment of 
the bar ; 7.94 percent by death. 

In the next 4-year period it amounted to 8.29 percent; in the third 
period, from 1930 through 1933, death accounted for 6.66 percent ; and 
in the last period death was responsible for the termination of 9.88 
percent of the ordinary insurance that terminated. 

Mr. Gesell. Now, will you give us the figures on a similar basis for 
the amount of insurance which terminated in each period by lapse? 

Dr. Davenport. On the table, the second column gives the percent- 
ages of terminations that occurred by reason of lapse. On the chart 
lapse is represented by the segment of the bar that is at the bottom, the 
very bottom, the dark red portion of each of these bars. 

In the first period, lapse accounted for 52.59 percent ; in the second 
period, 53.16 percent; in the third period, 42.19 percent; and in the 
fourth period, 36.47 percent. 

Mr. Gesell. "Well, now, so far we have been discussing the ordi- 
nary section — the ordinary insurance section of the chart. Now, on 
the right-hand portion of the chart you have a section marked "In- 
dustrial insurance," and I believe, as we have already defined indus- 
trial insurance in these hearings, it is a form of insurance which is 
sold usually in small amounts, collections being made by the agents 
through door-to-door canvassing, and it is familiarly known, some- 
times, as "burial insurance," is it not ? 

Dr. Davenport. That is correct. 

Mr. Gesell. Now, will you tell us for industrial insurance termina- 
tions the amount of insurance that actuallv terminated by death 
during the four periods covered on the chart ? 

Dr. Davenport. These amounts are given on the second schedule 
that supports this chart, the schedule entitled "Terminations, Indus- 
trial Life Insurance, Amounts, All Companies, in Thousands of Dol- 
lars, 1922-37." 

In the period from 1922 to 1925, death accounted for the termina- 
tion of $348,000,000 of industrial insurance, an amount that repre- 
sented 5.14 percent of all industrial insurance that terminated in 
that period. You will note that the percentages that represent ter- 
minations by death are considerably smaller in the case of industrial 
insurance than they were in the case of ordinary insurance. 

In the second period, from 1926 through 1929, death accounted 
for only 4.7 percent of total terminations of industrial insurance ; in 



4292 CONCENTRATION OF ECONOMIC POWER 

the third period, 3.11 percent; and in the fourth period, 4.01 percent. 

Mr. Geseli.. Now, as you did in the case of ordinary, will you 
irive us the lapse percentages for industrial insurance for these 
periods ? 

Dr. Davenport. Lapses, represented on the chart by the segment 
of the bar that is colored in deep red, are the segment that appears 
at the bottom of the bar. In the first period, lapse accounted for 
83.75 percent of all terminations of industrial insurance. In the 
second period the percentage was 81.66 percent; in the third period, 
73.67 percent ; and in the fourth period, 63.32 percent. 

Mr. Frank. Does that mean that in the period 1926-29, and again 
in the period '34-'37, $10,000,000,000 of policies lapsed and that the 
purchasers received nothing back of what they had paid in ? 

Dr. Davenport. They received no cash value for what they paid 
in. There was no cash return to those purchasers. They had pro- 
tection during the period that their insurance was in force. That 
is all they had. 

Mr. Frank. And for those respective periods, approximately 83 
percent for the earlier period and 63 percent for the second period I 
mentioned ? 

Dr. Davenport. That's right. 

Dr. LuBiN. Dr. Davenport, I note that in more recent years, par- 
ticularly since 1930, the percentage that went to these policyholders in 
surrender values increased. Can you explain why that happened? 
Was it due to the fact that some of them for the first time learned that 
there was a surrender value, or were there other factors involved, such 
as a change in type of policy ? 

Dr. Davenport. Tliere were two factors that I think probably ex- 
plain the increase in the percentage by surrender under which the 
policyholder got back a portion of his reserve. One of them was a 
liberalization of industrial policies taking place over this period which 
made available to those people who had to lapse their policies pre- 
viously a cash surrender value. I think, too, the fact that during the 
twenties tjiere was this great surge of interest in insurance, and tre- 
mendous volumes of insurance were written, meant that we gradually 
accumulated on the books of the companies policies that continued 
long enough so that they had cash surrender values and, consequently, 
when they did go off the books, could go off the books by surrender 
rather than lapse. 

Dr. LuBiN. Is there a difference in the surrender clauses of the in- 
dustrial policies as compared, let's say, to the ordinary ? 

Dr. Davenport. It varies from company to company. 

Dr. Ltibin. Is the industrial more or less liberal than the ordinary ? 

Dr. Davenport. It is much less liberal than the ordinary. 

Dr. LuBiN. I notice that you have got here, under "Maturity," cer- 
tain figures, both for industrial and for ordinary. I take it that some 
of the i]\dustrial insurance is endowment, is it not? 

Dr. Davenport. That is right — a small proportion. 

Dr. LuBiN. Can you read into the record the actual percentage of 
industrial policies that actually matured as shown by your table? 

Dr. Damenport. The figures that appear in the third from the last 
colunm, Dr. Lubin, show the amounts in thousands of dollars of 
industrial policies that terminated by maturity during this period. 



CONCENTRATION OF ECONOMIC POWER 4293 

In the first period, 1922 throug:h 1925, $61,079,000 of industrial insur- 
ance terminated by maturity. In the last period, 1934 through 1937, 
the total amount of industrial insurance that terminated by maturity 
was $107,879,000. 

Mr. Gesell. I believe Dr. Lubin asked for the percentage that those 
maturity terminations represented to total terminations for all kinds, 
of ^"ndustriai insurance. 

'. Da\-enport. Those percentages appear just belotv the figures I 
have, just read, and they constitute 0.90 percent for the first period, 
0.36 percent for the second, 0.26 percent for the third, and 0.68 percent 
for the fourth. 

Mr. Geseix. Just before passing to the next chart, to clarify one 
phase of this matter, where your figures and your chart show a per- 
centage and amount of insurance terminated by surrender, that meai>s 
the amount of insurance that terminated by surrender and not the 
amount which was paid in surrender values, does i,t not? 

Dr. Davenport. Quite right. It is all based on the face amount 
of insurance terminating. 

Mr. Frank. Do I understand correctly that industrial insurance is 
largely purchased by people in the lower-income brackets? 

Dr. Davenport. Yes, sir. 

Mr. Frank. That means poor man's insurance ? 

Dr. Daatenport. It is poor man's insurance. It is called burial in- 
surance — weekly payment premium insurance. Usually the premi- 
ums are collected by the agents that call upon the policyholders at 
their homes weekly, and in some cases monthly. In some cases the 
companies give an inducement to the policyholder if he will pay his 
premium on industrial insurance directly to the office, but that does not 
account for a very large percentage of the total amount of industrial 
insurance. It is poor man's insurance. 

Mr. Frank. Perhaps I am anticipating, but do I understand the 
surrender rights in poor man's insurance are generally less favorable 
to the insured than other types of insurance ? 

Dr. Davenport. I think there is no question about that. 

Mr. Gesell. We will come in a moment to a more-detailed considera- 
tion of the termination experience in industrial insurance. 

I would like to offer for the record at this time the chart entitled 
"Terminations of Life Insurance, 1922-37, Amounts," which Dr. 
Davenport has just been discussing, together with the two supporting 
tables, one labeled "Terminations, Ordinary Life Insurance, Amounts,"" 
and the other labeled "Terminations, Industrial Life Insurance, 
Amounts." 

Acting Chairman Reece. They may be admitted. 

(The chart referred to was marked "Exhibit No. 683" and appears 
on p. 4293-a. The statistical data on whicli this chart is based are 
included in the appendix on p. 4737.) 

Mr. Gesell. Now, Dr. Davenport, you have before you, have you 
not, a chart entitled "Life Insurance in Force, Newly Issued, and 
Terminated, Amounts, 1918-37, 1928-37" ? ^ 

Dr. Davenport. That is right. 

Mr. Gesell. Will you explain that c^iart to the committee, please? 

1 Subsequently introduced as "Exhibit No. 684," infra, p. 4300. 
124491 — 40— pt. 10 11 



CONCENTRATION OF ECONOMIC POWER 4293-1, 



Exhibit No. 683 



TERMINATIONS OF 
LIFE INSURANCE. 1922-1937 



AMOUNTS 



l^'^ll ORDINARY 



INDUSTRIAL b°uSnI 




1988-25 1986-89 1930-33 1934-37 1922-85 1926-29 1930-33 1934-37 

tovwe: aKCTgroK mauK/uiet rrtii books os-itst mtP*iieo er see. a eiren. cotm. 



4294 concp:ntration op economic power 

Dr. Davenport. In order to study the significance of terminations 
of life insurance, we have devised this cliart exhibited before you. 
This shows the total of industrial and ordinary insurance combined. 
The data upon which this chart is based appear on the accompanying- 
table entitled "Terminations, Ordinary and Industrial Life Insur- 
ance, Amounts, Compared with Total New Business and Insurance in 
Force." ^ 

Mr. Gesell. I notice that the chart is divided into two intervals of 
10 years each, for which separate totals and separate percentages have 
been computed. Will you kindly step to the chart and explain for 
the committee what each of the several bars on the chart represents ? 

Dr. Davenport. You will note that the chart is divided into two 
parts. The first part represents the history of this insurance business 
as reflected by the total of ordinary and industrial insurance in the 
decade of 1918-27. The scale of the chart runs from zero at the base 
to $150,000,000,000 at the top. The first bar, that colored in yellow 
on the chart 

Mr. Gesell. That is the one entitled "Old Business," is it not? 

Dr. Davenport. Entitled "Old Business," represents the amount of 
business on the books of the companies, the amount of life insurance 
in force, as of January 1, 1918, the beginning of this 10-year period. 

Mr. Gesell. That is ordinary insurance and industrial insurance. 

Dr. Davenport. A combination of all ordinary and industrial 
insurance. 

Mr. Gesell. Group insurance has been exluded from this chart. 

Dr. Davenport. Group insurance is subject to peculiar conditions 
which necessitate a separate treatment of group insurance. At the 
present time group insurance accounts for approximately 12 percent 
of the total amount of insurance in force. It is wholesale insurance 
purchased by employers for the behefit of their employees. 

Mr. Gesell. The second bar is entitled "New Business" and repre- 
sents business written during this period from 1918 to 1927. Is that 
correct ? 

Dr. Davenport. That is correct. We started this period with 
$27,000,000,000 of life insurance on the books of the companies. Dur- 
ing the 10-year period a total of $109,800,000,000 of new business 
was put on the books of the companies. 

Mr. Gesell. At the top of that bar there is a segment entitled 
"Revivals." Will you tell us what "revivals" are. 

Dr. Davenport. Revivals represent the reinstatement of policies 
that had previously lapsed, which are reinstated by the policyholder 
and put again on the books of the company. 

Mr. Gesell. It might also represent the revival of an extended 
term policy, might it not? 

Dr. Davenport. Yes. The third bar is entitled "Total Termina- 
tions." In this 10-year period there was a total of $54,400,000,000 
of insurance that passed off the books of the companies. 

Mr. Gesell. May I ask here, to make the record clear, whether 
that termination bar, the third bar, represents only the termination 
of business covered by the bar entitled "New Business," or whether 
it represents terminations of all business, that is' p^ the old business 
plus terminations of some portion of the ne\^ business. 

1 "Exhibit No. 684," appendix, p. 4737. 



CONCENTRATION OF ECONOMIC POWER 4295 

Dr. Davenport. In all probability many of the insurance policies 
that terminated during this period had been in force at the begin- 
ning of the 10-year period. It is quite likely that some of the 7.9 
percent of the terminations that terminated by death were on the 
lives of individuals that had been insured even before this period 
started. 

Mr. Gesell. So it includes termination of both new business 
Avritten during the period and terminations of some portion of the 
old business which was on the books at the beginning of the period. 

Dr. Davenport. That is correct. 

Mr. Gesell. Now I notice there that the terminations were some 
62.32 percent accountable to lapse, and only some 7.97 percent ac- 
countable to death. Is that correct? 

Dr. Davenport. These are the figures on the chart and they are 
correct. 

Mr. Geseli.. The fourth bar entitled "Ten- Year Gain" represents, 
does it not, the amount of increase in insurance in force which re- 
sulted in the writing of the new business shown on the second bar ? 

Dr. Davenport. The fourth bar represents insurance in force at 
the end of the 10-year period. This bar is broken into two seg- 
ments, the first segment of which is exactly the size of the old busi- 
ness. . The difference between the height of the bar that represents 
new business issued and the height of the bar that represents total 
terminations in the 10-year period is exactly the height of this seg- 
ment of the fourth bar that represents insurance in force. 

Mr. Frank. The upper portion. 

Dr. Davenport. That is right; the upper portion is exactly the 
difference between the height of that bar of new business and the 
lieight that represents total terminations. 

Mr. Gesell. Will you tell us how much of the gain was made 
during this 10-year period in insurance in force? 

Dr. Davenport. The total gain for the 10-year period is $53,- 
000,000,000. 

Mr. Gesell. And to accomplish that gain how much insurance 
was written? 

Dr. Davenport. The figure is $109,800,000,000. 

Mr. Gesell. Am I correct in saying thai the second portion of 
your chart, that marked "1928-1937," is prepared on a comparable 
basis showing the experience during the period from January 1, 
1928, to December 31, 1937? 

Dr. Davenport. Yes, sir. 

Mr. Gesell. Now will you tell us, Mr. Davenport, how much btisi- 
iiess was written during that period and what the resulting gain 
was for that period? 

Dr. Daa-enport. We started the second period of 1928-37 with 
$80,000,000,000 of business on the books of the companies — that is 
the same figure that we had to end with the previous period. Dur- 
ing this 10-year period the new business issued amounted to a total 
of $146,700,000,000. 

Mr. Geseix. I didn't hear that figure. 

Dr. Da\t:nport. $146,700,000,000 of new insurance put on the books 
of the company in the 10-year period from 1928 to 1937. In that 
same 10-year period tlie total of tKe insurance that terminated was 



4296 CONCENTRATION OF ECONOMIC POWER 

$126,700,000,000, and the difference between the new business and the 
business that terminated is represented by this small segment here. 
$16,000,000,000. In other words, as of December 31, 1937, we ended 
with $16,000,000,000 more life insurance on the books of the com- 
panies in their ordijiary and industrial departments than we had 10 
years before. 

Mr. Gesell. Then, as compared with the previous fteriod, a great 
deal more insurance was written and a much smaller net gain in 
insurance in force was accomplished. 

Dr. Davenport. Yes. In the first period we wrote $109,800,000,000 ; 
in the second period we wrote $146,700,000,000. In the first period 
$54,400,000,000 terminated ; in the second period $126,700,000,000 ter- 
^ninated. The gain in the first period was $53,000,000,000; the gain 
in the second period was $16,000,000,000. 

Mr. Frank. Are those figures right? He said 146 for the second 
and 126 terminated. According to the table, the difference between 
the two would be 20. 

Dr. Davenport. The difference arises. Commissioner, by reason of 
the manner in which the figures are compiled. We do not have a 
complete census of the insurance business. We are forced to depend 
on the figures that are reported to the Spectator and puLiisihed in 
the Spectator Yearbook every year. The number of companies in- 
cluded is never the same, and consequently there is a slight discrep- 
ancy which arises when a company fails or is reinsured or merged 
with another company, or when a company doesn't report in time to 
get into the Spectator Insurance Yearbook. 

Mr. Gesell. That is explained in a footnote to the table which 
accompanies the chart.^ 

Mr. Frank. What you have just said, to recapitulate, means that 
during the period 1928 to 1937 there was approximately $146,000,- 
000,000 of new business, and the net result was only $16,000,000,000 
of gain. 

Dr. Davenport. That is right. 

Mr. Frank. So you wrote 146 billion to add 16 billion ? 

Dr. Davenport. That is right. 

Mr. Gesell. Once again- your terminations by death represeilted 
considerably less than 10 percent of the terminations. How much did 
they represent? 

Dr. Davenport. The terminations by death in the first period rep- 
risented 7.9 percent of the total terminations; in the second period 
they dropped to 6.59 percent of total terminations. 

Mr. Gesell. Using the terms which you used in discussing termina- 
tions on the previous chart, is it fair to say that in both periods the 
terminations representing the successful accomplishment of the plan 
contemplated by the policyholder at the time his insurance was taken 
out are a relatively small percentage in either of the 10-year periods? 

Dr. Davenport. A very small percentage. I have summarized the 
significant relations that are revealed in this chart, as follows: The 
largest single mode of termination was by lapse. Lapse accounted 
for 62 percent of all' terminations. Surrender accounted for almost 
16 percent, and decrease for 4.4 percent. 

' Set- 'Exhibit No. 684," appendix, p. 4737. 



CONCENTRATION OF ECONOMIC POWER 4297 

Mr. Gesell. That is in the first period ? 

Dr. Davenport. That is in the first period. These three modes con- 
stituted terminations that represented the frustrations of the inten- 
tions of the policyholders when they took out their insurance. To- 
gether these modes of terminations that represent frustration of j)ur- 
poses account for over $82 of every $100 that terminated in the period. 

Senator King. Did you use the word "frustration" accurately ? A 
person might take out insurance for a few months or a few years. 

Dr. Davenport. If he did he would take out term insurance, in which 
it would terminate at maturity. 

Mr. Gesell. You mean terminate by expiry. 

Dr. Da\t:nport. Yes. If he took out an endowment policy, say, a 
10-year-endowment policy, at the end of 10 years it would mature ; it 
would terminate in a manner that would be successful so far as he 
was concerned. 

Senator King. Are not some of the industrial policies taken out with 
the expectation that they will not be continued more than a short time, 
perhaps in the employment of A or B or C, or for some other reason ? 

Dr. Davenport. It would be hard to look into the mind of the indus- 
trial policyholder to determine the real reason why he bought that 
insurance. 

Mr. Frank. When 

Senator King. Let him complete the answer. 

Mr. Frank. I didn't mean to interrupt. 

Dr. Davenport. When we find such a l^rge percentage of industrial 
policies that lapse by the end of the first, second, or third week, it 
doesn't seem that the policyholder took it out with the intention that 
he would allow that policy to lapse so soon. 

Mr. Gesell. By and large, industrial insurance is known as burial 
insurance, is it not, and is taken out primarily for the purpose of 
burying the worker when he dies, so the family will have some way 
of taking care of him? 

Dr. Daatnport. Again I say it would be hard to understand the 
motives that activate the policyholder in taking out that insurance, 
but certainly the necessity of having burial expenses to prevent 
being buried in poverty is a very potent motive. 

Mr. Frank. Dr. Davenport, may I ask, where an industrial policy 
terminates by lapse, is the cost to the insured greater than if he 
took a policy for that same period in the form of term insurance? 

Dr. Davenport. Oh, much greater. 

Mr. Frank. Then, if his intention had been to have insurance 
only for the limited period, his cost would have been much less 
if he had taken term insurance? 

Dr. Davenport. Yes. 

Mr. Frank. Would you not, therefore, assume that if he were well 
instructed and intelligent, he would not have taken out the ordinary 
industrial insurance for the short period? 

Dr. Davenport. That is a very great assumption which doesn't 
jibe with the facts as we understand them. 

Mr. Frank. But if he had been well -instructed. 
Dr. Davenport. If he were an intelligent --prospect arid had been 
well informed by the agent what you say is perfectly true. 



4298 CONCENTRATION OF ECONOMIC POWER ' 

Mr. Frank. Then, in that sense you can say the intention which, 
if well instructed, he would have had, has been frustrated. 

Dr. Davenport. That is right. 

Mr. Henderson. Dr. Davenport, again picking up on that, it is 
true, isn't it, that the most active of the agents selling policies and 
the one that comes to the attention of the workman most is the indus- 
trial policy agent? 

Dr. Davenport. Yes. 

Mr. Henderson. Since the buying of one of these weekly policies is 
the only thing before him and he had merelj' a short period in mind, 
he would have taken that, although he could have done better if he 
had taken term insurance. 

Dr. Davenport. Yes. 

Dr. Lfbtn. Can you buy term insurance on a weekly basis? 

Dr. Davenport, 'iliorc are some companies that sell it. 

Dr. LuBiN. Whenever there is a surrender value in a policy and 
1li(^ policy is given up — let us assume that a man has a policy and if 
he suddenly finds that he can't continue to pay his premiums, he lets 
it lapse — does the policyholder automatically get the surrender value 
or must he make application for it or how does he proceed to get his 
share of the return ? 

Dr. DwHENPORT. Never having worked inside a life-insurance com- 
pany, I don't know what the procedure is. I imagine that in the 
companies that do an industrial business where they don't know tlie 
name of the industrial policyholder, and he is merely known by a 
number, that sometimes they lose sight of the claims that might 
arise, and it is only when the family or the beneficiary to the policy 
makes inquiry of the company that the facts are known. In the case 
of the ordinary policies, I should imagine that the companies would 
know the name, address, and so forth, and would be much move 
likely to take the initiative. 

Dr. LuBiN. In other words, as you understand it, it is possible for 
a policy to lapse without the individual getting his surrender value 
back, although there is a surrender value under the contract? 

Di'. Daatenport. Well, I call your attention to the fact that if the 
policy lapses there is no surrender value that is accessible to him. 

Dr. LuBiN. I am using the term "lapse" in the unscientific way. 
In other words, a man gets to the point where he can't continue to pay 
liis weekly premium; lets the policy go. It is possible under those 
conditions, even though he may be entitled under his contract to some 
surrender value, tliat he may not get it. 

Dr. Davenport. That is right. There is a bill introduced in the 
New York State Legislature to attempt to recapture from the com- 
panies unclaimed moneys to the credit of the policyholders that have 
simply disappeared. I know in the case of the Massachusetts Savings 
.J^ank Life Insurance of one individual, a policyholder that disaji- 
peared. The man had apparently moved or died ; they didn't know. 
They had $8 a month to his credit because it was an endowment poli:y. 
Tliey finally located the man. He himself didn't know he liad any 
' legitimate claim against that particular savings bank life-insurance 
department. 

Mr. Gesell. Some of these matters, Dr. Lubin, will be considered as 
we ])rocced later on. 



CONCENTRATION OF ECONOMIC POWER 4299 

Mr. Frank. May I ask this question— perhaps I am anticipating? 
In the period 1928 to 1937, more tlian 51 percent of these industrial 
])olicies lapsed. Have you any approximate notion of the number of 
persons who held such policies which thus lapsed? 

Dr. Damsnport. In just a moment we shall introduce figures on 
the number of policies. We do not know the number of persons 
involved, but the number of policies will add a different light to 
this picture from what is given when we are talking about amounts. 

Acting Chairman Reeck. Do you think, Mr. Gesell, you expect to 
cover most of the ground that is approached by these questions and, 
tlierefore, prefer to proceed uninterrupted until tlie witness has 
completed his testimony? 

Mr. Gesell. It is perfectly all right. I think perhaps if the ques- 
tions are held until the completion of a single cluirt, we might move 
a little faster. 

Mr. Frank. We are admonished. 

Acting Chairman Reece. You may proceed. 

Dr. Davenport. Still speaking of this first lO-yeur period, I have 
indicated that these three modes — lapse, surrender, and decrease — 
constitute terminations that represent the frustration of the inten- 
tion of the policyholders when thej^ took out their insurance. To- 
gether these modes of termination account for $82 out of every $100 
of all insurance terminated. The modes of termination that rep- 
resent the fulfillment of the objectives of the insured — death, ma- 
turity, disability, and expiry, including all of expiry though part 
of expiry may actually have occurred through fruoiration — combined, 
account for only $18 out of every $100 that terminated. 

The decade just discussed was one of remarkable growth in life 
insurance; it occurred during the period of expanding industrial 
activity and increase in the standard of living. 

During the second 10-year period, 1928 to 1937, inclusive, large 
amounts of new insurance were sold and large amounts of insurance 
were terminated. Except for 2 years, 1932 and 1933, the amount of 
insurance sold each year exceeded the amount terminated. The dec- 
ade ended in 1937 with over $96,000,000,000 of insurance in force, an 
amount that was $16,000,000,000 greater than insurance in force in 
1928. In this 10-year period the total of the ordinary and industrial 
insurance business that terminated amounted to 126 billion. As indi- 
cated in the accompanying exhibit, lapse accounted for over 51 per- 
cent; surrender, for almost 27 percent, and decrease for over 4 percent. 
These modes of termination combined accounted for $83 out of every 
$100 that terminated. 

In comparing the experience of the first decade with that of the sec- 
ond, it will be noticed that the relative importance of lapses declined 
as the relative importance of terminations became greater. The total 
surrender of lapse, surrender, and decreases, representing the frus- 
tation of the policyholders' plans is almost exactly the same in the 
two decades. 

Mr. Gesell. I would like to offer for the record at this time the chart 
entitled "Life Insurance in Force, Newly Issued, and Terminal <^(1," 
which \vas discussed by the witness and the supporting table. 

Acting Chairman Reece. It may be received. 



4300 CONCENTRATION OF ECONOMIC TOWER 

(The chart referred to was marked "Exhibit No. 684" and appears 
on this page. The statistical data on which this chart is based are 
inchided in the appendix on p. 4737.) 

p]XHll:IT No. 081 

LIFE INSURANCE IN FORCE, 
NEWLY ISSUED & TERMINATED* 

AMOUNTS 




.INS. IN NEW TOTAL INS. IN 

FORCE BUSINESS TERMINA- FORCE 

JAN. I -IB ISSUED TIONS DEC. 3l-'eT 



INS. IN NEW TOTAL INS. IN 

FORCE BUSINESS TERMINA- FORCE 

JAN. I -eB ISSUED TIONS DEC. 3 1 "'ST 



»ORo. a IMP. ms. eotiBiNco or u.$. uml i>s$CKye un m$. co$. 



t$-»n t^tuKi gr ste. a aen oomf. 



CONCENTRATION OF ECONOMIC POWER 439 1 

Acting Chairman Reece. I think Mr. Ballinger has a question that 
would be permissible. 

Mr. Ballinger. Is it true that the total amount of money received by 
insurance companies on lapsed policies is in considerable excess of the 
cost of writing policies and carrying that insurance ? 

Dr. Davenport. That is a matter that is subject to considerable dis- 
pute, a matter in which the terminology that is employed in setting up 
the accounts of the insurance companies, convention forms in which 
they report to their respective superintendents and commissioners of 
insurance, leaves something to be desired, shall we say, in clarity ; but 
I will touch upon that matter to the extent that I am able to. 

Mr. Ballinger. I wanted to ask this for information : I had always 
heard that because insurance companies put the time from 3 to 5 years 
before a policy has any surrender value, that the period is put that 
long because the chances are the policy will lapse, and if it lapses it is 
a clear gain to the insurance company over and above the cost of Avrit- 
ing and carrying that insurance. If that is the case then the period 
ought to be reduced so the policy would have a quicker surrender value, 
I mean a nearer surrender value. 

Dr. Da\tenport. The law requires that upon the payment of the first 
premium a specified reserve should be set up against that particular 
policy, and the way in which that reserve accumulates out of successive 
])remiums and out of the interest earned on that reserve is specific, it is 
definite. Now, actually, after you have taken out of the first 
year's premium and set up this reserve which is required by law and 
is in accordance with the actuarial tables and the assumption of the 3- 
percent interest earned on the reserve, after you have done what the 
law requires, there remains a portion of the first year's premium to 
pay expenses, agents' connnissions, home-office expenses, and the actual 
share of that particular policyholder toward the death losses in that 
first year. Those claims, those expenses, exceed what is left after the 
first year's reserve is set up out of the first year's premium. 

Mr. Gesell. Now we are going to consider, are we not, following 
this chart the nature of the gains and losses and surrenders and 
lapses shown on the convention forms, and discuss this matter in 
great detail at that time.^ 

Dr. Davenport. I think probably that will help answer your in- 
quiry, Mr, Ballinger. 

Mr. Gesell. You have before you, have you not, a chart entitled 
"Industrial Life Insurance in Force, Newly Issued and Terminated, 
Number of Policies"? "^ 

Dr. Davenport. That is correct. 

Mr, Gesell. That chart has been prepared on the same basis as 
the previous chart except that it relates to numbers of policies rather 
than amounts of insurance and also is confined solely to industrial 
insurance rather than having both ordinary and industrial insurance 
combined? 

Dr. Davenport. That is right. This differs from the previous 
chart in that it is based upon the number pf policies. 

1 Infra, p. 4"12. 

' Suhspqiiently introd»ioo(l as "Exhibit No. 685/' infra, p. 4nn4. 

»In tliis connoction see siibsecment testimony ©f Dr. Davenport, and "Exhibit No. 94n,"' 
IleariTigs, Part XII. p. .".GO? et se<|. 



4302 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. As against dollars. 

Dr. Davenport. As against the dollar amount involved in the poli- 
cies. Up to the present time we have been discussing the amount of 
insurance that terminated. Now we have turned in the case of indus- 
trial insurance to the number of policies involved. Again we have 
the period divided into two decades, 1918 to 1927 and 1928 to 1937. 
The scale on the chart runs from zero to 200,000,000 policies, number 
of policies. The first bar represents the numVjer of old policies in 
force at the beginning of the first period. There were 38.763.000 
industrial policies in force at the beginning of this 10-year period. 
During the 10-year period 127,800,000 new business, new policies, were 
put on the books of the companies. 

In that same period of time 85.100000 industrial policies termi- 
nated. The gain is represented by the dift'erence between the new 
business and the amount that terminated. The gain, added to whv^ 
we had before, brings the number of policies in force as of Decembei' 
31, 1927, to 82,246,0()(). 

Mr. Gesell. Now, if you will explain the period from 1928 to 1937 
and make comparisons between the two periods, I tliink it would be 
helpful. 

Dr. Davenport. The second period started with 82,200,000 of indus- 
trial policies in force, and in this period the new business put on 
tlic books totaled 193,700,000 policies. 

Mr. Gesell. Do you mean to say that there were 193.000,000 indus- 
trial policies written during the period of 1928-37? 

Dr. Da"\^nport. One hundred ninety-three million seven hundred 
thousand. 

Mr. Hendekson. That wns an avernge of about 19,000,000 a year. 

Dr. Davenport. That is riglit ; a.lO-yeur period. 

ISIr. Gesell. And from Avritiug all that — — 

Dr. LuRTN (interposing). Tliat includes the i>olicies revived, too, 
does it not ? 

Dr. Davenport. That includes the ])olicies revived. 

INIr. Gesell. From writing all that business what was the net 
gnin? 

Mr. D\^ EXPORT. The net gain is 6,600,000 jiolicies. 

Mr. Gf,seij.. In otlier words, over $193,000,000 policies were written 
lo r.ccomplish a net gain of around 6,500,000. 

Dr. Davenport. That is right. We climbed up that majiy steps in 
ihe ladder and we dropped back this many rungs in the hutder. We 
actually made a net gain of 6,600,000. 

Mr. Frank. That is a little over 3 percent. 

Dr. DA^^i:NP0RT. Yes; about 4 percent, I should say, of the total of 
new business. 

Mr. Gesell. And of the policies that went off the books during that 
period, wliat percentage of tliem went off by lapse? 

Dr. Davenport. The la})se percentage is shown by the heavy red 
segment, the bottom segment of the bar ^^■hic1\ is next to the last bar on 
the chart. That percentage was 70.68 percent of 187.800,000 policies 
that terininated. Seventy point sixty-eight percent of them termi- 
nated by lapse. 

]\rr. Frank. Or, in number, that was 132,700,000, ai)proxii!iately. 



CONCENTRATION OF ECONOMIC POWER 4303 

Dr. Davenport. Tlie figures are given at the bottom of the chart; 
132,708,000 policies terminated by lapse in this 10-year period. 

Dr. LuBiN. Mathematically it means that for every family in the 
United States four policies lapsed during that period — a minimum of 
four policies lapsed. 

Dr. Davenport. Yes; but of course we have to recognize that it is 
only the lower income families that buy this kind of insurance, so if 
you segregated your population on an income level it would have to 
be a larger figure for the average family that actually is exposed to 
the purchase of this kind of insurance. 

Dr. LuBiN. I was interested in Mr. Gesell's questionj namely, that 
193,000,000 policies had been sold during that period, which means that 
for every family in the United States six policies were sold. 

Dr. Davenport. That is right. 

Mr. Gesell. Now will you make the comparjson between one period 
and the other. 

Dr. Davenport. I think probably the most interesting comparison is 
between the third bar in the first part of the chart, "Total Policies 
Terminated," and the next to the last bar in the second decade, "Total 
Policies Terminated." 

Mr. Gesell. You are comparing the termination experience of the 
10-year periods. 

Dr. Davenport. The termination experience in the 10-year periods. 
You will note that in the first 10-year period almost 82 percent of 
the terminations terminated by lapse ; in the second period 70.68 per- 
cent terminated by lapse. Surrenders in the first period accounted 
for 7.39 percent; in the second period surrenders had increased to 
20.47 percent. Deaths accounted for 7.34 in the first period; in the 
second period deaths accounted for 4.45 percent only. 

Mr. Gesell. I think I can properly say, "Wliat was that?" due to 
the buzzer. How much by death during the 1928 period? 

Dr. Davenport. Four and forty-five one-hundredths percent of the 
terminations. Of the number of industrial policies that terminated 
in the 10-year period from 1928-37, 4.45 percent of them terminated 
by death. In the prevous period, 7.34 percent terminated by death. 

Dr. LuBiN. I may appear to be naive, but I do want to ask a 
question which occurs to me. How do you account for the fact that 
the American people buy 193,000,000 policies in a period of 10 years ? 
In other words, how does it happen ? Are people so anxious to have 
insurance that t:hey are willing to do almost anything to get it? 

Dr. Davenport. Well, of course, the institution of insurance satis- 
fies a very deeply rooted desire on the part of the average man. In 
part it is an answer to that, but that has been present "all the time. 
In part it is a tribute to the perfection of the art of salesmanship and 
the organization of large crews of selling agents. I think we have 
learned a technique of selling Ufa insurance. 

Dr. LuBiN. Are you implying that we have learned the technique 
of taking advantage of this fundamental desire for security? 

Dr. Daatsnport. I am not impugning the motives of the insurance 
company or the agent. 

Mr. Henderson. But in all this squirrel-cage activity in that 193,- 
000,000 you pointed out there must have been some Workers that had 
five, six, eight, and nine policies. 



4304 CONCENTRATION OF ECONOMIC POWER 

Dr. Davenport. We find cases where they have as many as 20 
industrial policies. 

Mr. Henderson. As many as how many ? 

Dr. Davenport. Twenty industrial policies in force in a particular 
family. 

Mr. Henderson. But I mean in this period 1928-37, if you took 
all the working population there was, there must have been an average 
of at least four policies to each member of the labor force. 

Dr. Davenport. Many of the policies were written on children, on 
the wives, on other members of the family. 

Mr. Gesell. But the net result of this tremendous selling of new 
policies with a very small gain is that there must be a continual turn- 
over of policies within a single family or family group. 

Mr. Henderson. Are you trying to avoid my characterization of 
this as squirrel-cage activity ? It seems to me you are going around 
the barn. 

Mr. Geselx.. There must be continual selling and reselling of poli- 
cies to the same family and individual, must there not? 

Dr. Davenport. I am sure that occurs. 

Mr. Gesell. There are not 193,000,000 people in the United States, 
are there, Dr. Davenport? 

Dr. Davenport. No ; according to the Census about 130,000,000. 

Mr. Gesell. Every time a policy lapses there is some loss to the 
policyholder, is there not? 

Dr. Davenport. It means he has paid a great deal more for the 
protection that he had than was necessary. 

Mr. Geselll. So that as this process continues and he is sold and 
resold and sold again, he, as a laboring man, is suffering continual 
loss every time that occurs, is he not? 

Dr. Davenport. That is perfectly true. 

Mr. Frank. If he took term insurance, there would be no such loss, 
I assume. 

Dr. Davenport. That is right. The cost of term insurance would 
be much lower and would be more in proportion to the actual ex- 
penses involved covering him, giving him what he actually got. 

Mr. Frank. In buying ordinary industrial insurance he is paying 
for something which he does not get if there is a lapse ? 

Dr. Davenport. That is right. 

Mr. Gesell. I would like to offer for the record at this time a 
chart entitled "Industrial Life Insurance in Force, Newly Issued and 
Terminated, Number of Policies," and the supporting schedule which 
we have just been discussing. 

Acting Chairman Reece. They may be received. 

(The chart referred to was marked "Exhibit No. 685" and appears 
on p. 4305. The statistical data on which this chart is based are in- 
cluded in the appendix on p. 4739.) 



CONCENTRATION OF ECONOMIC POWER 



4305 



Exhibit No. 685 



INDUSTRIAL LIFE INS. IN FORCE, 
NEWLY ISSUED & TERMINATED* 



MILLIONS 
OF POLICIES 



NUMBER OF POLICIES 
1918 -1927 



1928-1937 ofpouc°eI 




NO OF TOT.NEW TOTAL NO. OF 

POLICIES POLICIES POLICIES POLICIES 

IN FORCE ISSUED a TERM- IN FORCE 

JAN. l-'ie REVIVED INATED 0EC.3l-'27 



NO. OF TOT NEW TOTAL NO. OF 

POLICIES POLICIES POLICIES POLICIES 

IN FORCE ISSUED S TERM- IN FORCE 

JAN. 1-28 REVIVED INATEO OEC.31-37 



os-itio PKH/teo er sec a ckch comm 



Mr. Gesell. So far, Dr. Davenport, we have been considering the 
business as a whole. Take this problem of industrial insurance policy 
terminations. Have you prepared ce^rtain studies of the experience 
of representative indusd-ial companies? 



4306 <;ONCKNTKATION OF ECONOMIC POWER 

Dr. Davenport. We have a study that shows the experience of 
seven coin])anies selling industrial life insurance. 

Mr. Ge<ell. That is a schedule entitled "Industrial Insurance — 
Termination, Experience of Seven Companies,"^ is it not? 

Dr. Davenport. Correct. 

Mr. (jesell,. Will you describe what that schedule demonstrates? 

Dr. Davenport. The seven companies from which this informa- 
tion was assembled are listed at the top of this table. They are the 
Metropolitan Life Insurance Co., Prudential Insurance Co., Western 
& Southern Life Insurance Co., Life Insurance Co. of Virginia, 
Equitable of the District of Columbia, Washington National, and the 
Peoples of the District of Columbia. The chart is ai-ranged in three 
segments of the exhibit. The first segment relates to the experience 
in the period 1924-28; the second the period 1929-33, and the third 
ilie period 1934—38. Both amounts and percentages of terminations 
are given. For example, for the Metropolitan Life Insurance Co. in 
the first period, $3,798,210,000 of industrial insurance terminated. Of 
that amount of terminations 76.48 percent terminated by lapse and 
5.88 terminated by death. Perhaps it would be easier to follow the 
table by merely reading down through the columns that are headed 
"Percent." 

Metropolitan percents: Death, 5.88 in the first period; lapse, 76.48. 
In the second period, death, 4.23 percent; lapse, 58.72 percent. In 
the last period, death, 5.49 ; lapse, 50.31 percent. 

Mr..GESELL. How does that compare, say, with the Peoples? 

Dr. Davenport. We will take the row headed "Death" and run 
right across the page. You can see the variety of experience is 
revealed by these seven companies. Death for the Metropolitan in 
the first period, 5.88; for the Prudential Insurance Co. of America, 
5.93; for the Western & Southern Life Insurance Co., only 2.71; Life 
Insurance Co. of Virginia, 4.41; the Equitable of the District of 
Columbia, 1.86 ; the Washington National, 1,22 ; Peoples, 1.23. 

Mr. Gesell. Will you do the same thing with the lapse line for 
that first period? 

Dr. Davenport. Certainly. We will run across the row entitled 
"Lapse," and we find that in the Metropolitan 76.48 percent termi- 
nated by lapse; in the Prudential, 76.26; in the Western & Southern, 
88.23; in the Life Insurance Co. of Virginia, 83.13; in the Equitable 
of the District of Columbia, 92.08; in the Washington National, 
98.40; in the Peoples, 98.74. 

Mrn Gesell. That is the all-high on this schedule, is it not, 98.74 
percent ? 

Dr. Davenport. That is the highest figure reported on this sched- 
ule. We have listed only seven companies. We might find others 
where it would be even, perhaps, higher than that. 

Mr. Gesell. Will you tell us what the basis of selection of these 
companies has been? The Metropolitan and the Prudential, as we 
know, are the two principal companies selling industrial insurance. 

What about the other five companies? How do they rank? 

Dr. Davenport. We took in two of the largest, two medium-sized 
companies, and two companies that are in between, as you can see from 
the amounts of insurance that terminated, for example, in the Metro- 

1 Entered later as "Exhibit No. 686," see appendix, p. 4739. 



CONCENTRATION OF ECONOMIC POWER 4307 

politan, $3,798,210,000 in that first 5-year period; in the Prudential, 
$8,717,814,000; in the Western & Southern, only $611,000,000; in the 
Life Insurance Co. of Virginia, $211,000,000. Now we come down to 
companies tliat are somewhat smaller, the Equitable of the District of 
Columbia, almost $55,000,000; the Washington National, $35,000,000; 
Peoples, $181,000,000. These companies are not new companies. 
The JNIetropolitan was organized in 1879, the Prudential in 1873, -the 
Western & Southern in 1888, Life Insurance Co. of Virginia in 1871 ; 
Peoples began in 1916. 

Mr. Gesell. You are talking now of the dates, not of the organiza- 
tion of the company, but the date they started to write industrial 
business. 

Dr. Davenport. That is correct ; the date they began doing indus- 
trial business. The Equitable Life Insurance Co. of the District of 
Columbia, 1902, and the Washington National was formed as a merger 
in 1926 of other companies; the other companies ha^ industrial busi- 
ness in force at the time of the merger. 

Mr. Gesell. Would you say this is a representative gi'oup of indus- 
trial companies and that by and large it represents the more important 
industrial companies ? 

Dr. Davenport. Well, certainly there is no question about the 
Metropolitan and the Prudential being the most important industrial 
companies. Those two companies together probably account for 
$15,000,000,000 of insurance in force in 1937, and industrial insurance 
in force was about $20,000,000,000. Those two companies alone take 
almost two-thirds or three-fourths of the total. 

Mr. Gesell. Is it fair to say that you view the period from 1924 
to 1928, the period from 1929 to 1933, and from 1934 to 1938, as shown 
on this schedule, as prepared on a comparable basis and by and large, 
as showing comparable results? 

Dr. Davenport. I think the figures do not show any great differ- 
ence in the three periods, with the exception of the last period. If 
you will come down to the last period and run across on the line 
labeled "Lapse," you will find that the MetropoliJ:an had 50 percent 
of its policies that lapsed in that period, the Prudential only 22.5. 
This was a sudden change in the characteristic of terminations of 
the Prudential's insurance, and an explanation is in order. The 
Prudential liberalized its industrial-insurance policies by a provision 
which in effect was this : That a policy that was in force for 3 weeks, 
if it lapsed and no more premiums were paid on it, would be carried 
on for 1 additional week as a term policy. At the end of that week, 
if no additional premium was collected it would then terminate as a 
terrn policy terminates by expiry. Consequently, the expiries jumj) 
up in this last period, although fundamentally the reason for the 
termination is essentially the same as the reason in the previous pe- 
riods before they liberalized the policies, when such a policy was 
called a lapse. 

Mr. Gesell. All that has happened is that the policyholder lias 
gotten a slightly greater amount of protection for the money that 
lie paid in. 

Dr. Davenport. That is correct. 

Mr. Henderson. One week? 

Mr. Davenport. He has been given 1 week for every three weeks 
the policy had be^n in force. 

1 04401 _4o >>«■ in 



4308 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. One week for every three; so if at the end of 30 
weeks 

Dr. Davenport (interposing). He would have 10 weeks' additional 
coverage at no additional expense to himself. 

At the end of that 10 weeks, then the policy passes out by expiry. 

Mr. Henderson. Yes ; but if he took Prudential, they nad an expiry 
rate on the first period of about 5.5 percent and about 5 percent in 
the second period. If you took, say, 6 percent of that expiry rate 
of 33 percent as a liberal allowance for expiry on their usual experi- 
ence in the two previous periods, there would remain about 27 percent 
which ou^ht to be added to their lapse. 

Dr. Davenport. That is correct. 

Mr. Henderson. Making it 49.50, or almost the same again as the 
Metropolitan. 

Dr. Davenport. With that adjustment, the percentages that repre- 
sent termination by frustration of the objectives of the policyholder 
at the time he was sold his insurance remains about the same through- 
out the period. 

Mr. (jESELL. I would like to offer for the record at this time the 
schedule quoting the experience of the companies Dr. Davenport has 
just been discussing. 

Acting Chairman Reece. It may be received. 

(The schedule referred to was marked "Exhibit No. 686" and is 
included in the appendix on p. 4739.) 

Mr. Gesell. Coming to the question Mr. Ballinger raised slightly 
earlier in the period, am I correct in stating, from the gain-and-loss 
exhibits of the various companies as compiled in the Spectator Year- 
book, you have prepared a statement showing the net gains or losses 
from the surrendered and lapsed policies both for ordinary and indus- 
trial, as reported by the companies for the years from 1918 to 1937, 
inclusive ? 

Dr. Davenport. That is correct. 

Mr. Gesell. Now, will you explain in more detail for the com- 
mittee what is shown on that schedule and how it was prepared? 

Dr. Davenport. The schedule lists for each jy^ear from 1918 to 
1937 the number of companies from which this information was 
assembled in the Spectator. The number of companies was 144 
companies that reported this information. 

Mr. Henderson. In 1918. 

Dr. Davenport. In 1918. The next year it was 165. We come 
down at one time to when it was 283 companies, from which this 
information was available that particular year. The last year, 1937, 
there were only 250 companies included in the aggregate. The 
column at the right is entitled^ "Net gain or loss." I should like to 
read this as I phrased it rather carefully. 

In the gain and loss exhibits contained in convention forms, which 
the life-insurance companies submit to their respective insurance 
commissioners, there appears an item designated as "Net gains or 
losses" — surrendered and lapsed policies. Each year the amounts 
under this heading reported by a large number (the number stipu- 
lated over here) of companies are summarized in the Spectator 
Insurance Yearbooks. These summaries, covering the years 1918 
through 1937, are presented in the accompan\ing table. If these 
amounts represent what is indicated by their title, it appears that 



CONCENTRATION OF ECONOMIC POWER 4309 

(he life-insurance business gains from the fact that such a large 
amount of the life insurance terminates through lapse and surrender. 
In every year covered by this table gains were reported. The total 
gain from this source over the 20-year period amounts to over 1.3 
billion dollars, and average of $66,000,000 a year. 

Mr. Frank. That is a total for the period ? 

Dr. Davenport. That is the total for the period 1918 through 1937. 

It is maintained by life-insurance officials that the amounts re- 
ported as gains from this source are not really profits. It is con- 
tended that the reserve which the law requires the company to set 
up against each policy takes so much of the premiums for the first 
few years that there is not enough left to pay the full costs of 
acquisition. That is the home office expense, and so on. Therefore, 
the company must borrow from its surplus to meet part of the 
selling costs. When insurance is terminated by lapse or surrender, 
the gain reported therefrom is merely a recovery of these sums and 
is transferred back to the surplus. Howevet- this may be, this much 
is perfectly clear — the figures given show that the policyholders 
whose insurance terminated *by lapse and surrender lost at least 
this amount of their savings. In other words, the total of the 
policyholders' reserves that was not returned to policyholders upon 
the lapse or surrender of their policies amounted to 1.3 billion dol- 
lars in these 20 years. 

Mr. Ballinger. In this chart you combine surrender and lapse 
policies. Is it possible to separate them ? 

Dr. Davenport. They are not separated in the convention forms. 

Mr. Ballinger. Would it be possible to find out from 1918-37 
the total amount of money paid in to insurance companies on lapsed 
policies, the total amount paid in before the policies lapsed? 

Dr. Davenport. Probably by interrogating the companies' direc- 
tors we might get that information, of the items which the convention 
report does not segregate. 

Mr. Ballinger. I should think on a surrendered policy the gain 
that the company made, if anything, would be very slight, but I should 
think on a lapsed policy the gain might be considerably more. 

Dr. Davenport, There is a surrender charge that is imposed. It 
varies in different States and it varies in the same State with different 
companies. The law usually stipulates the maximum surrender 
charge that can be imposed upon the termination of a policy by sur- 
render, and that is imposed presumably on the theory that certain 
expenses are involved in terminating that policy, and also, quite 
frankly, upon the theory that there should be some kind of incentive 
for the policyholder not to give up his program of coverage and 
savings. 

Mr. Ballinger. I mean 3 to 5 years might be pretty strong incen- 
tive and also it might be one to break the back. 

Dr. Davenport. I have some figures, that deal with the practice. 
Under the New York law a certain maximum surrender charge is 
allowed. The surrender charge the third year for the Mutual Lite of 
New York is $13.25. The policyholder would get back two-thirds of 
the reserve against his policy at the end of the third year. At the end 
of the fourth year the surrender charge is $13.40, He would get back, 
then, 25 percent of the reserve against his policy. The percent ge that 
is imposed as a surrender charge runs down from 33V^ percent in the 



4310 CONCENTRATION OF ECONOMIC POWER 

third year to 1 percent in the nineteenth year. That is the Mutual 
Life of New York's schedule on surrender charges. In the case of 
the Northwestern Mutual Life Insurance Co., the surrender charge on 
the second year is $16 per thousand ; $14 per thousand the third year ; 
and then it drops down so that by the ninth year it is only $2 per 
thousand. 

Mr. Gesell. This figui-e of $1,338,000,000 that you have mentioned 
for this 20-year period is simply the figure as shown on the gain-and- 
loss exhibits of the various companies, is it not ? 

Dr. Davenport. That is the figure that is reported in the Spectator 
Insurance Yearbook. It represents a consolidation of those items 
reported by the individual companies in their convention forms. 

Mr. Gesell. Is it your contention that the $1,338,000,000 is all that 
the policyholders lose whose policies lapse and are surrendered, or 
is it rather your contention that this is the only figure bearing on that 
matter which can be obtained from published sources ? 

Dr. Davenport. This is the only figure that we can obtain readily 
which seemed to have a clear connotation. If we mean by "lose" 
what the policyholder loses, the first 2 or 3 years that he has- paid for 
the premium and eventually has a lapse of policy. I think we have to 
define a little more clearly what are the legitimate costs to be imposed 
against it. That has never been satisfactorily defined. Until we do 
that, and agree to it, I would be loath to attempt to estimate what is 
lost. This is a minimum. 

Mr. Gesell. That would get, for example, into the whole question 
of whether there have or have not been in certain companies excessive 
acquisition costs charged against the policyholders brought in for this 
short period of time and lapsed. 

Dr. Davenport. Yes ; and whether the new policyholder should pay 
the entire acquisition cost of putting his policy on the books of the 
company; should pay his share of the commission, the expenses of the 
insurance agent calling upon 20 other people whom he didn't sell. 

Mr.. Gesell. I have no further questions. 

Mr. Frank. May I ask a question ? Have you any figures showing 
the total amounts of premiums paid in on industrial policies, poor 
man's insurance, with respect to lapsed policies? ^ 

Dr. Davenport. We haven't those figures segregated, Mr. Commis- 
sioner, but we would be very glad to assemble them and introduce 
them later.^ 

Mr. Frank. Have you any figures to show how murh of that amount 
thus paid went to pay agents for soliciting insurance in the first 
place, and for collecting premiums? - 

Dr. Davenport. Those figures are not in shape to give them to you 
now. 

Mr. Frank. Could it be said that, even assuming that the companies 
did not gain as a result of lapses in the manner indicated, nevertheless 
the insured in these lapsed industrial policies were paying a very 
considerable amount for the expenses of the company in connection 
with solicitation and collection of premiums by agents? 

Dr. Davenport. I think there is no question but that these policy- 
holders that have to lapse their policies pay a great deal more than 



^ In this connection see subsefinent hearings on industrial insnr.-ince, HparinKs, I'art XII. 
See also, infra, p. 4312. 
» Ibid. 



CONCENTRATION OF ECONOMIC POWER 4311 

(hey would have to pay for what they actually got in the way of 
protection. 

Mr. Frank. Have you any figures to show what the difference 
would be in cost to the insured, on this poor man's insurance that 
lapses, the difference between what it costs those people in the aggre- 
gate and what it could have cost them if they had taken out term 
insurance ? 

Dr. Davenport. We haven't for the industrial. The picture that 
we have here shoAvs only for the ordinary whole-life policy of $1,000.^ 
It would be a considerably worse picture if we could get that for 
typical industrial policies. 

Mr. Gesell. Is it not true that published reports considering vari- 
ous ages upon w^hich the policyholders come into a company, the 
various types of policies they have, the various periods within which 
lapse and surrender occur make it impossible to prepare the type of 
figure that Commissioner Frank has just mentioned? 

Dr. Davenport. We could make illustrative examples of what hap- 
l^ens to a particular policyholder at a certain age taking out a certain 
kind of policy, but it is very complicated to present the over-all. 

Mr. Frank. Assuming, and I think from my limited knowledge, 
correctly, that where the intention of the policyholder is not frus- 
trated, to use your terminology, that industrial insurance would be 
better than term insurance, nevertheless does the experience indi- 
cate that so large a proportion of such insurance lapses that it would 
be better in the aggregate for poor men taking our insurance to have 
t aken out term insurance rather than industrial insurance which they 
did take out? 

Dr. Davenport. I am coming rapidly to that conclusion. Com- 
paring what they actually got, the cost of what they actually had in 
tlie way of protection, with what it would have cost them to get that 
protection in another way, probably these people who have to pay 
their premiums on a -weekly basis w^ould have been much better ad- 
vised not to try to take insurance that accmnulatively involved a 
savings element. 

Mr. Frank. In other words, a good argument could be made cer- 
tainly for a iiiaii of means in favor, in certain circumstances, of liis 
taking ordinary life instead of term. But where the experience indi- 
cates that the great bulk of the policies, or so large a proportion, are 
going to lapse and mean nothing so far as the insured is concerned 
excej^t in terms of its consequences as tei-m insurance, then term insur- 
ance would be what he ou^ht to take out? 

Dr. Davenport. There is a possibility that a different marketing 
mechanism, a different method of distributing industrial life insur- 
ance that Avould be much less expensive than the present method, could 
be devised which would enable these poorer people to obtain the same 
kind of insurance that the wealthier man gets at a much lower cost. 

Mr. Frank. What, from your study of the subject, do you think 
is the motivation of the company in seeking to sell to poor people the 
kind of insurance that they do. rather than the less expensive type 
which, you say, would be more serviceable to these poor ^Deople taking 
out insurance? 



1 See "Exhibit No. 682," supra, p. 4286. 



4312 CONCENTRATION OF ECONOMIC POWER 

Dr. Davenport. Well, it started this way. It got a big momentum. 
They have a big organization of agents. They know how to handle 
chose agents in the old methods; any great change in the method of 
applying agents' incentives is rather difficult to accomplish. 

Mr. Gesell. May -I say that this afternoon and for some period of 
time tomorrow w^e will present representatives of the insurance busi- 
ness and interrogate them on that point? Dr. Davenport's presenta- 
tion here has been, as far as we have been able to make it, purely a 
statistical presentation of background material for the study. 

Mr. Frank. Just to clarify my own thinking, perhaps I have been 
anticipating this, I would like to get Dr. Davenport's reaction. Leav- 
ing out the so-called gains with reference to which you have tes- 
tified, it would appear that, so far as the companies are concerned, 
they get no financial advantage from the loss to the insured whose 
policies terminate and whose intentions are frustrated. 

Dr. Davenport. In many cases' they claim that unless the insurance 
policy has been in force for 3 or 4 or 5, and in some cases 7 years they 
actually suffer a loss; that is, the continuing body of policyholders 
has lost by reason of getting this man in for such a limited period of 
time. 

Mr. Frank. So that there appears to be no strong profit incentive 
on the part of the companies in the maintaining of this present 
system. 

Dr. Davenport. As most of these companies are mutual companies, 
consequently the profit motive shouldn't predominate. 

Mr. Frank. The explanation, therefore, must be found, as you 
indicate, rather in inertia than in selfishness. 

Dr. Davenport. I should think so. 

Mr. Gesell. May I offer for the record a schedule entitled "Net 
gains and losses from surrendered and lapsed policies"? 

Acting Chairman Reece. It may be admitted. 

(The schedule referred to was marked "Exhibit No. 687" and is 
included in the appendix on p. 4740.) 

(Whereupon, at 12:35 p. m., a recess was taken until 2:15 p. m. 
of the same day.) 

afternoon session 

(Whereupon the hearing was resumed at 2:20 o'clock, upon the 
expiration of the recess.) 

Acting Chairman Reece. The committee will come to order. Are 
you ready to proceed, Mr. Gesell? 
Mr. Gesell. I am. 

Before calling the first witness, one or two points came up due to 

questions of the committee this morning that I would like to mention. 

-First, the question was asked as to what the total of premiums received 

by the industrial companies was,^ and for 1937 the best figure we were 

ble to find available showed 66 of the 140 companies had a premium 

icome from industrial insurance of in the neighborhood of $775,- 

00,000. Also, the question was asked as to how much industrial in- 

iirance is whole life insurance and how much is endowment.^ From 

a. p. 4810. 
-It, p. 4292. 



CONCENTRATION OF ECONOMIC POWER 4313 

figures as of December 31, 1937, it would appear that there are about 
50,000,000 whole life policies, and 33,000,000 endowment policies in 
the industrial field, and in terms of amount there is almost twice as 
much whole life as endowment in force. 

The first witness to be called this afternoon is Mr. Gilbert A. Clark. 

TESTIMONY OF GILBERT A. CLARK, ACTUARY, EQUITABLE LIFE 
INSURANCE CO., WASHINGTON, D. C. 

Acting Chairman Reese. Mr. Clark, do you solemnly swear that 
the testimony you are about to give in this proceeding shall be the 
truth, the whole truth, and nothing but the truth, so help you God ? 

Mr. Clark. X do. 

Mr. Gesell. Mr. Clark, you are actuary and vice president of the 
Equitable Life Insurance Co. of Washington, D. C, are you not? 

Mr. Clark. Yes, sir. 

Mr. Gesell. Your company writes industrial insurance, does i 
not? 

Mr. Clark. Both ordinary and industrial. 

Mr. Gesell. Is your principal business industrial or is your princi- 
pal business ordinary? 

Mr. Clark. Two-thirds industrial and about a third ordinary. 

Mr. Gesell. How long has your company been writing industrial 
insurance ? 

Mr. Clark. Since 1887. The company was organized in 1885 under 
the laws of the State of West Virginia and wrote only 5-year endow- 
ment policies until 1887. In 1902 the company was reincorporated 
under the laws of the District of Columbia. 

Mr. Gesell. And how many States does your company do business 
in? 

Mr. Clark. Five States, including the District of Columbia. 

Mr. Gesell. Those States are in the neighborhood of the District 
of Columbia? 

Mr. Clark. Delaware, Maryland, West Virginia, and Ohio. 

Mr. Gesell. How long have you been with the company ? 

Mr. Clark. Fifty years. 

Mr. Gesell. Now, as of the end of 1938, how many industrial policies 
were in force in your company? 

Mr. Clark. Industrial, 288,416. 

Mr. Gesell. And how much insurance did that represent ? 

Mr. Ci^RK. Sixty-seven million, one hundred seventy-one, two- 
twenty-four. 

Mr. Gesell. Am I coi-rect in saying that your company is, in terms 
of size, with relation to other industrial companies, about seventh or 
eighth, somewhere along there? 

Mr. Clark. No; I don't think we come up that high on the list; 
possibly tenth or eleventh. 

Mr. Gesell. Somewhere in that neighborhood. And you have about 
less than 1 percent of total industrial insurance in the country in force? 
Do you know, in terms of amount ? 

Mr. Clark. I don't know ; I can't say ; I don't know the total amount 
in force. 



4314 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Have you prepared a schedule showing the experience 
in terminations of your company in the period of January through 
March 1939?^ 

Mr. Clark. I have. 

Mr. Gesell. Is that a copy of the schedule ? 

Mr. Clark. That is right. 

Mr. Gesell. Will you tell us what that schedule purports to show 
and on what basis it was compiled ? 

Mr. Clark. This purports to show the duration for which premiums 
were paid on the termination of those 3 months. Column No. 1 shows 
the period. That runs down for 51 weeks and then drops off into 
years, 1 year, 2 years, 3, 4, 5, and then I take it up in groups of 5 years 
each, 6 to 10, 16 to 20, and so on down; the last one is 51 to 55 years. 

Mr. Gesell. You mean you took all terminations of policies during 
the period from January to March through 1939 and classified those 
terminations, first, as to the period in w^hich the policy involved had 
been in force ? 

Mr. Clark. Yes ; that is it. 

Mr. Gesell. Then did you also classify the terminations in terms 
of voluntary and involuntary terminations? 

Mr. Clark. Yes; we first took all terminations. Then we showed 
terminations by death and maturity, and then the difference between 
those two we considered voluntary terminations. 

Mr. Gesell. Voluntary terminations would be all terminations other 
than terminations by death or maturity ? 

Mr. Clark. Yes ; that would include a lot of cash surrenders. 

Mr. Gesell. Now this schedule shows, does it not, that by number 
of policies IJ 9 percent terminate within the first week that they are 
in force. 

Mr. Clark. Yes ; that item shows policies on which only one pre- 
mium was paid on eadi policy. 

Mr. Gesell. So on those policies you had only received one pre- 
mium before termination. 

Mr. Clark. Yes. 

Mr. Gesell. Then am I correct in saying that some 48.4 percent 
of your policy terminations during this period were voluntary termi- 
nations on policies which had been in force 25 weeks or less? 

Mr. Clark. That is right. 

Mr. Gkskll. And by the end of the first year your terminations 
durii\g the period were some CO percent voluntary on policies which 
had not been in force more than the year period. 

Mr. Clark. That's right, 

Mr. Gesell. Now, calling your attention first of all to the 11.9 
percent of your policies wliicli terminate after one premium has been 
paid, is there some special explanation for that high percentage in 
that week, and if so what is it ? 

Mr. Clark. Well, we can only surmise to a certain extent that these 
people are supposed to make a deposit of 1 week's premium before 
the policy is issued and the agent being unable to collect that 
premium has advanced the money himself. Probably in quite a num- 
ber of those cases the insured did not pay the premium, the premium 
w as paid by the agent. 



1 Subsequently introduced as "Exhibit No. CSS,'" infr.i, p. 4H17. 



CONCENTKATION OF ECONOMIC POWER 4315 

Mr. Gesell. Ill an effort to put business on the books. 

Mr. Clark. Yes ; that is right. 

Mr. Gesell. And so even if we make adjustment for that high 
termination rate in the first week, it is clear, is it not, that ])y the 
end of the twenty-fifth week — or rather that some 37 percent of 
your policies terminate within the first 25 weeks by voluntary causes — 
for voluntary causes, rather. 

Mr. Clark. At least that. 

Mr. Gesell. Probably the figure is somewhat higher? 

Mr. Clark. Yes. 

Mr. Gesell. Now, have you made an effort to find out whether your 
company makes money or loses money by these voluntary termina- 
tions ? 

Mr. Clark. No; we have not. I think we would be better off if they 
did not terminate. We prefer tliat the insured do not terminate (heii- 
policies. 

Mr. Gesell. Taking your ]iolicies that lapse specifically, those are 
all policies which go off the books sometime during the first 3 years 
they are in force, are they not? 

Mr. Cl\rk. Yes; there is no value in those policies. 

Mr. Gesell. Do I understand you to sny that your company does 
not profit for any of those lapses during the first 3 years? 

Mr. Clark. Oh, there must be profit on some of them, I think. 

Mr. Gesell. Would you say that probably those policies which 
lapse sometime after they have been, in force 2 years and before 
they have been in force 3 years are the policies upon which your 
company makes some money? 

Mr. Clark. Probably so; tliere is some profit thei'c 

Mr. Gesell. Is there any way you can definitely detei'uiine the 
top and bottom period within which your company malces nioney bj' 
lapse? 

Mr. Clark. No; I don't see any method of doing that. 

Mr. Gesell. Have you ever been able to make any estimate as to 
the amount of money involved? 

Mr. Clark. No; we cannot on account of the cost of opening new 
territories. We assume that we will not make any money under 10 
years in a new district. 

Mr. Gesell. Mr. Clark, is it clear in your mind that these policy- 
holders who lapse lose? They, as policyholders, lose, do they not? 
The policyholders themselves lose, regardless of whether the com- 
pany makes or loses. 

Mr. Clark. There is no doubt about that. 

Mr. Gesell. And as to whether or not the com]")any makes inoney, 
or how inuch,^ understand you to say that on this lapsed business 
you have no specific figures. 

Do you know^ of any company which does make that type of 
computation? 

Mr. Clark. No; I have never seen anything of the kind. 

Mr. Gesell. Your company is a stock company, is it not? 

Mr. Clark. Yes. 

Mr. Gesell. It is rather importa-nt from the point of view of the 
management for your company to know- whether it is making or 
losing money on this lapsed business, is it not? 



4316 CONCENTRATION OF ECONOMIC POWER 

Mr. Clark. Well, I don't know. At the end of the year, if we 
have found out we have made some money w^e are satisfied. We 
don't have to look to see exactly where it came from. 

Mr. Gesfxl. But part of the profits which have been made have 
been made from lapsed business, have they not? 

Mr. Clark. Well, probably so. 

Mr. Gesell. Can you give us any idea as to the reasons why 
policies lapse? 

Mr. Clark, I talked to the supervisor of our field force in regard 
to this matter. There are various reasons given. As to the industrial 
class of people, a great many of them can be sold anything provided 
the installment payments are small, and often they become overloaded 
with installment payments. This is one reason. 

There is another explanation. Many of these people are in-and- 
outers as far as insurance is concerned. A great many of them 
become insurance-wise. They go into one company, pay premiums 
for a week or two and at the expiration of the 4 weeks' grace period 
they insure in another company, and continue this practice to quite 
an extent. This is based on statements of some of our field force. 

Mr. Gesell. Then we have so far two ; one that some policyholders 
are in-and-outers, and the policyholders are frequently overloaded 
both w^ith insurance and other forms of installment commitments. 
Are there any other reasons? 

Mr. Clark. There is a question of removal. These jooople often 
move, and the agent is not able to ascertain the new address. They 
cannot find them. Whether it is deliberate on the part of the mover 
I do not know. Tliey disappear and we can't locate them. 

Mr. Gesell. Are there any other reasons? What about the selling 
and agency side of the question? 

Mr. Clark. There is some high-pressure salesmanship in the selling 
of industrial insurance. That is apt to take place where a person sur- 
renders a policy for cash and the agent wishes to replace it, and uses a 
little pressure there. 

Mr. Gesell. You mean that when an industrial policyholder turns 
in his policy and gets a cash value, the agent attempts frequently to 
turn that money right back into new insurance? 

Mr. Clark. Well, he doesn't try to get all of it. He 'tries to get part 
of it, anyway, and to replace the policy which has gone off his books. 

Mr. Gesell. Do you think that frequently, perhaps, agents sell more 
industrial insurance to the policyholder than he can afford to carry 
because of his other installment commitments? 

Mr. Clark. Yes ; that is true. 

Mr. Gesell. In terms of your company, do you find that you have a 
difficult time getting a high grade of business because of the competi- 
tion of the larger companies, and is that a factor in your lapse experi- 
ence ? 

Mr. Clark. Well, I assume that the larger companies can get a 
slightly better grade of business than we do. So far as competition is 
concerned, we are not worried. 

Mr Gesell. You think you have the same grade of business as, say. 
Metropolitan and Prudential? 

Mr. Clark. I imagine very close. We may not have quite as good, 
but we have a very good grade of business. 



CONCENTRATION OF ECONOMIC POWER 4317 

Mr. Gesell. What about the agents? 

Mr. Clark. We have more turn-over than the larger companies, 
because we do not have such large debits which we can give a man. 

Mr. Gesell. And this factor of agency turn-over brings about a 
high-lapse experience, does it not? 

Mr. Clark. Yes ; it does. Every time an agent leaves it mean^ft|iere 
will be a rather good amount of lapses against the company. 

Mr. Gesell. Are there any other factors ? 

Mr. Clark. I don't think of any at this moment. 

Mr. Gesell. I would like to offer for the record at this time the 
chart which Mr. Clark identified, showing the experience of his 
company. 

Acting Chairman Reece. It may be admitted. 

(The chart referred to was marked "Exhibit No. 688" and is included 
in the appendix on p. 4740.) 

Mr. Gesell. I have no further questions of Mr. Clark. 

Acting Chairman Reece. Are there any (questions l)y the com- 
mittee? 

(None.) 

Mr. Gesell. Thank you, Mi\ Clark. 

(The witness, Mr. Clark, was excused.) 

Mr. Gesell. Tlie next witness is Mr. John Marshall Holcombe. 

Acting Chairman Reece. Do you solemnly swear the testimony you 
are about to give in this proceeding shall be the trutli, the wliole truth, 
and nothing but the truth,- so help you God? 

Mr. Holcombe. I do. 

TESTIMONY OF JOHN MARSHALL HOLCOMBE, JR., DIRECTOR, LIFE 
INSURANCE SALES RESEARCH BUREAU, HARTFORD, CONN. 

Mr. Gesell. Will you state your full name, please, sir ? 

Mr. Holcombe. John Marshall Holcombe, Jr. 

Mr. Gesell. What is your business, Mr. Holcombe? 

Mr. Holcombe. Manager. Life Insurance Sales Research Bureau. 

Mr. Gesell. That is at Hartford, Conn., is it not? 

Mr. Holcombe. Yes, sir. 

Mr. Gesell. Will you tell us who and what the bureau is? 

Mr. Holcombe. The bureau is the organization consisting of ninety- 
odd life-insurance companies in the United States and 15 in Canada. 
The purpose of the bureau is to study the problems of distributions of 
ordinary life insurance to the end that we shall thereby assist the com- 
panies, in better distribution. It is the only bureau of its kind, we are 
told, in the country, whose sole purpose is to study the distribution 
problem in that particular business, one of its primary purposes being 
to make for more efficient distribution among the companies which 
are members of the bureau. Its significance is partly, at least, that 
it undertakes to achieve the benefits that can come from research and 
distribute them to all of the membership. 

All of the membership gets the information from our research, and 
in that manner we are undertaking to do for the business and to pass 
on to the consumer the knowledge which we secure from research, 
its purpose being to achieve a better form of distribution and thereby 
eliminate gradually such human frailities as we may have in the dis- 
tribution of life insurance. 



^3j^g ("ONCIOXTKATrOX OF KCONOillC POWER 

Mr. Gesell. Well, no^Y, when was this bureau organized? 

Mr. HoLCOMBE. January 1922 

Mr. Gkseli.. Have you been with it since that time? 

Mr. HoLCOMBE. Yes, sir. 

Mr. Gesell. Now, do I understand that you receive dues or con- 
tributions from your member companies and use that money in making 
studies of problems affecting the distribution of life insurance, and 
then take those studies and put them in forms of reports which are 
rendered to the member companies for their guidance? 

Mr. HoLCOMP.E. Yes, sir. You did say life insurance, and we do 
nothing except ordinary. 

Mr. Gesell. Your studies ai'e couHned ejitii-ely to ordinary insur- 
ance? 

Mr. HoLCOMBE. Yes, sir. 

Mr. Gesell. How many companies did you say were members? 

Mr. HoLCOMBE. Ninety-one in the United States, 15 in Canada, and 
we have un associate membership basis, without voting privileges and 
other privileges, that consists of about a dozen companies scattered 
over the rest of the world. 

Mr. Gesell. Doesn't your mcinlK'rsliip include the principal com- 
j)anies in this country? 

Mr. HoLCo:\rBE. Yes, sir. 

Mr. (Resell. Princijval legal rosei've companies? 

Mr. HoLCOMBE. Yes, sir, 

Mr. Gesell. You referred to voting privileges. What pi()|)oi-l ion 
aie they? Is that an organization? 

Mr. iloLcoMBE. 1'here never has been one. 

Mr. Gesell. Do they outline, or do you outline the studies made by 
you? I mean by "3'ou," the bureau,- 

Mr. Holcombe. Well, we operate under a board of directors of 15 
company officers, 12 in the United States and 3 from Canada; and that 
in turn has an executive committee consisting of 5 company officers, 
1 from Canada and 4 from the United States, I suppose the answer to 
your question really is that it is out of the deliberations of that execu- 
tive committee in conjunction with our staff that the subjects to be 
considered are finally chosen. 

Mr. Gesell. Now the studies are prepared, I take it, from material 
submitted by the member companies? 

Mr. Holcombe. Yes, sir; with perhaps the possibility that' we might 
study an entirely different line of business with a viow^ to finding 
something that would benefit the life-insurance business, but that 
would be a very small activity, 

Mr. Gesell. And you have at your disposal, then, figures which are 
in greater detail and perhaps more confidential than the figures which 
are available by and large through published reports of the members? 

Mr. Holcombe. Well, I don't believe that is quite true, is it, be- 
cause 

Mr. Gesell. Let me ask it this way, then, because I think it is : Do 
you base your studies entirely upon, the published reports of the com- 
pany ? 

Mr. Holcombe. Oh, no. 

Mr. Gesell. Then you receive other information from them which 
IS not published, do you not? 



con(m:xtrati<)N of v^conomtc rowEU 4319 

Mr. HoLCOMBE. Quite. The only dittereiice between what you gave 
this morning and what we would give is tliat you have a much larger 
group of companies than what we would have. 

Mr. Gesell. Now, what kind of a budget do you have ? How much 
money do you spend on this research a year, approximately ? 

Mr. HoLcoMBE. Two hundred thousand. 

Mr. Geseel. The reports that you render are confidential to the 
membership, are they ? 

Mr. HcLCOMBE. Some are confidential to the membership and some 
are available to noimieinbers at a price per report. 

Mr. Gesell. I was interested in your statement that you passed on 
the studies, the results of your research, to the consumer. If your 
reports are confidential, and assuming that the policyholder is the 
ultimate consumer here, he doesn't see those reports, does he? 

Mr. HoLCoaiP.K. No; I think what I intended to say was, the advan- 
tages of the research went to th§ ultimate consumer. 

Mr. Gesell. Provided the membership deemed it wise to follow the 
recommendations that you made. 

Mr. H01.COMBE. Quite, quite. 

Mr. Gespjx. You have no authority, I presume, in the bureau to 
force your recommendations into operation. 

Mr. HoLajMBE. No. 

Mr. Gesell. You are simply advisory. 

Mr. HoixjoMBE. Quite. 

Mr. Gesell. Am I correct in saying that (me of the subjects which 
has been of considerable interest to the bureau in the past has been 
tile study of the subject of conservation of business, persistency of 
business, lapse ratios and rates, agency turn-over, acquisition costs — 
matters of that sort? 

Mr. Holcombe. Yes, sir. 

Mr. Gesell. Will you give us a little idea of the type of studies you 
have made in that direction and what the results of your studies have 
indicated ? 

Mr. Holcombe. Shall I go back and trace it a bit chronologically? 

Mr. Gesell. Any way that you think best. 

Mr. Holcombe. When the bureau first started there was a consid- 
erable body of thought that lapses were largely to be considered as 
perhaps synonymous ; that the lapse question was to be considered as 
synonymous with the reinstatement question. The material that you 
saw on some of these charts this morning used the word "revival," but 
that, for- this purpose, is synonymous with reinstatement. When we 
first started the bureau, in 1922, we began realizing that there was a 
different way of looking at the lapse problem than the one which was 
properly called reinstatement, for reinstatement involves cure, and so 
almost immediately we began to turn our studies onto the question of 
prevention. In other \vords, the basic idea in that line of reasoning 
was, to prevent a lapse was more desirable than to let it lapse and then 
reinstate it; so with that beginning we then have proceeded through 
various channels 

Mr. Gesell (interposing) . If I may interrupt just a moment, I don't 
want to cut your statement short at all, but the fact that you deter- 
mined that it would be advisable to prevent lapses indicates that your 
studies had demonstrated that it was desirable to do so, and I wish 



4320 CONCENTRATION OF ECONOMIC POWER 

you would tell us as you proceed why it would be desirable to reduce 
lapses. 

Mr. HoLcoMBE. Well, the companies, of course, were, as you sug- 
gested a little while ago, extremely anxious to reduce ordinary lapses 
for reasons that I think have perhaps already been brought out. They 
were extremely anxious to reduce lapses by their prevention wherever 
possible, and the things that have been done both by the bureau and 
by the companies themselves since 1922 are an evidence of the fact 
that today there is being done in the business a very considerable num- 
ber of things which 10 years ago or 15 years ago were practically not 
being done at all. 

Now, the bureau, I suppose, has had an influence in bringing that 
about in that we have shown various things that could be done. I 
don't know that we needed to drive home to the companies the desir- 
ability of cutting their lapse rate, for they are quite well aware of that 
already; and then, in addition to those various general studies that 
we made, we make a periodic study called the lapse survey, which you 
have in your files, and which I should discuss now or later. 

Mr. Gesell. Those are some of the results of your lapse survey on 
the sheet that I have handed you ? 

Mr. HoLcoMBE. Yes, sir. 

Mr. Gesell. I wish you would tell us on what basis those studies 
liave been prepared ; what they purport to show. 

Mr. HoLCOMBE. Those studies were the result of an effort to find a 
basis of collecting lapse figures which the companies" generally could 
contribute to and which also would attack the lapse problem at the 
point of its greatest importance, to wit, in the early years of the 
policy. Those figures on that memorandum which you have show 
the percentage of lapse of new ordinary business which fail to pay two 
full annual premiums; that is to say, the figures there indicate the 
business which at the rate we are going, at the particular time that 
report was published, will fail to pay two full annual premiums. 

Mr. Gesell. You mean that from the material which you col- 
lected you found out what percentage of each company's business would 
lapse within the first 2 years after the policy was in force? 

Mr. Holcombe. Yes. I am not quite sure that is the technical way 
to phrase it, but it is the amount of business that will go off the books 
before the two full annual premiums have been paid, going at the 
rate we are going now. 

Mr. Gesell. Am I correct in saying that you classified your com- 
panies by various groups in terms of size and location ? 

Mr. Holcombe. Yes, sir; hardly by location. We classify all com- 
panies in four classes and that classification is used there. 

Mr. Gesell. Your A, B, C, and D classifications. 

Mr. Holcombe. Yes, sir. 

Mr. Gesell. They include in total about how many companies ; your 
entire membership ? 

Mr. Holcombe. No, no; I think the total on that memorandum is 
about 55. 

Mr. Gesell. And your A companies, are they the largest companies, 
by and large? 

Mr. Holcombe. That contribute to this survey ? 

Mr. Gesell. Yes. 

Mr. Holcombe. No; hardly. 



(JONCKNTKATION OF ECONOMIC POWER 4321 

Mr. Gesell. What is the basis of the classification of the A and B 
companies ? 

Mr. HoLcoMBE. Oh, well, the A companies are the largest, but this 
particular study does not have the figures from all of the membership 
and there are quite a few of the larger companies that do not con- 
tribute to this, as I thought perhaps you were asking. 

Mr. Gesell. On the basis of your survey, your A companies are 
the largest companies contributing to the survey? 

Mr. HoLCOMBE. Yes. 

Mr. Gesell. Your B companies are the next largest? 

Mr. HoLcoMBE. Yes. 

Mr. Gesell. Now, with these sheets before you, will you tell the 
conmiittee in a general way what the results of your findings were 
with respect to various companies? 

Mr. HoLCX)MBE. The lapse rate as figured on this formula show^s a 
variation between companies and a variation between sections of the 
country. We give this by States of the Union and the variation be- 
tween the various sections of the country is noticeable in these figures. 
The variation, therefore, in these two sets of figures here are between 
individual companies and between sections of the United States. 

Mr. Gesell. Referring to the last sheet on that memorandum, to 
begin with, am I correct in saying that for the total United States busi- 
ness of the companies reporting to this survey, you found that the lapse 
percentage for the 1930 series was 17 percent. 

Mr. HoLCOMBE. Yes, sir. 

Mr. Gesell. And that it grew as high as 22 percent for the whole 
country in 1933 ? 

Mr. Holcombe. Yes, sir. 

Mr. Gesell. And that at the end of 1938 it was only 1 percent below 
what it was in 1930, namely, 16 percent? 

Mr. Holcombe. Yes, sir. 

Mr. Gesell. And then, in breaking the lapse rate down as between 
various localities, which localities did you find to have the highest 
lapse expei-ience ? 

Mr. Holcombe. The highest in 1938 was the Mountain section, and 
the lowest was New England and Middle Atlantic. 

Mr. Gesell. And generally speaking the Mountain States have been 
among the highest, have they not, and the New England States among 
the lowest in the point of view of experience? 

Mr. Holcombe. Yes, sir; for the high I should think it varied a 
little between the West South Central and the Mountain. 

Mr. Gesell. Now, will you look at the other sheets which you have 
and tell us among your A companies which company had the highest 
and which company had the lowest rate for 1938? 

Mr. Holcombe. 1938, the highest lapse rate for the first 2 years, 
which is all this is, was the Lincoln National. 

Mr. Gesell. What did it have ? 

Mr. Holcombe. Thirty-seven. 

Mr. Gesell. You mean that 37 percent of the policies written in the 
Lincoln National lapsed during the first 2 years? 

Mr. Holcombe. Yes. 

Mr. Gesell. What is the lowest ? 

Mr. Holcombe. The lowest for 1938 is the Northwestern Mutual 
and the Massachusetts Mutual, each w*ith 9. 



4322 CONCENTRATION OF PX'ONUMIC POWKli 

Mr. Gesell,. So then, taking your B companies, will you ajnain give 
us the highest and the lowest company experience? 

Mr. HoLcoMBE. The highest was the Occidental of California with 
50, and the lowest was the Manufacturers of Toronto — of course con- 
sidering only their United States business — with 19. 

Mr. Gesell. So that by and large the B companies, which are 
smaller than the A companies, had a worse experience^ did they not? 

Mr. HoLcoMBE. Yes, sir. 

Mr. Gesell. Does that follow through for the C and D companies? 

Mr. Holcombe. Yes. 

Mr. Gesell. What were your highest rates shown there? 

Mr. Holcombe. The highest was 48 percent, West Coast, and the 
lowest was 21 percent. National Guardian. 

Mr. Gesell. I would like to offer these scliedules, which Mr. Hol- 
combe lias identified, for the record. 

Acting Chairman Keece. They may be received. 

(The schedule referred to was marked "Exhibit No. 689" and is 
ijirluded in the appendix on p. 4741.) 

Mr. Frank. Mr. Gesell, does the word "lapse" used in this testi- 
mony have the same meaning at it had this morning, meaning termi- 
nation without any surrender value or any return to the policy- 
holder? 

Mr. Holcombe. Yes; with the rarest exception there might be a 
value in there, but we are using it in the sense that it is without A^alue. 

Mr. Gesell. You understand, do you not, Mr. Frank, that this 
afternoon we are relating the lapse to the period of time the policy 
has been in force, whereas this morning our figures were only bulk 
figures showing percentages of total. 

Mr. Henderson. The material Dr. Holcombe is giving has to do 
with ordinary and not industrial? 

Mr. Gesell. Yes. 

Mr, Henderson. Is there any bureau that does analytic work simi- 
lar to yours for the industrial? 

Mr. Holcombe. Not that I know of ; no, sir. 

Mr. Gesell. Now can you tell us just so we will have it for the 
record, Mr. Holcombe, what the formula is upon which this lapsed 
percentage or ratio has been determined ? 

Mr. Holcombe. I don't know that I can do it in the accuracy that 
it is described on that survey. What it is basically is to take — well, 
in the last one, latest one we give it there; apparently it isn't here; 
yes, here it is. The formula; the rate is the total amount regarded 
as lapsed during the quarter, divided by one-eighth of total sales 
during a 24-month period, ending 2 months before the beginning of 
the quarter. It is an effort to relate lapses to the current sales.^ 

Mr. Gesell. And that formula was developed after a great deal of 
thought and study, was it not ? 

Mr. Holcombe. Yes; we had a committee of company officers who 
considered the matter, and this was their conclusion. 

Mr. Gesell. And am I correct in saying that these lapsed survey 
figures which we have had summarized here for the record are figures 
which are distributed among the companies and relied upon and used 
by them? 

1 In this connoctiop see later testimony of Dr. Donald 11. Davenport, infra, pp. 4684- 
4686, see also "Exhi it Nos. 826 and 827," appendii, pp. -192C. and 4927. 



CONCENTRATION OF ECONOMIC POWER 4323 

Mr. HoLCOMBE. Yes; I think that is fairly true. 
Mr, Gesell. Now, so much for the facts with respect to lapse expe- 
rience in ordinary insurance. Can you tell us what you think the 
causes are, and what studies you have made to determine the causes? 

Mr. HoLCOMBE. The causes of lapse are perhaps to be classified in 
two main classes: One is the market and the other is our method of 
reaching that market. Now, of course, we are undertaking—the life- 
insurance business is undertaking — to interest people- in doing some- 
thing which involves thrift. It is an undertaking to make people put 
aside money against a day in the future when that money will be 
needed. 

Now, in that connection, of course, we know that we are dealing 
with a difficult element in human nature. We Imow that whether it is 
a very informal resolution that we make at New Year's, or whether 
it is an effort to carry out some policy looking to thrift for our own 
advantage in the future, we know that we are dealing with something 
that is difficult to handle. Other businesses that liave certain points 
in common with the life-insurance business have a similar problem 
confronting them. 

The record in. other lines of business — in the savings banks — ^we 
understand that approximately one-third of the savings accounts are 
lost within 2 years, 33 percent as against 20 percent, the figure that 
we are discussing in these lapse rates here today. 

Mr. Gesell. Just in passing, there is a tremendous difference. If a 
bank loses a savings account, the fellow who has the account gete his 
money back, and the fellow wholapses his policy doesn't get his n' .ney 
back, so it isn't quite the same thing. 

Mr. HoiiCOMBE. Quite. The only reason I cited that is because we 
are both interested in thrift. Now, taking up the point Mr. Gesell 
makes, namely, that in life insurance there is a distinction between 
that and savings banks, if we consider the matter of automobiles. 
In 1938, 8 percent of the automobiles which were sold on installments 
were taken a-way from the owner within the year, and. in the case of 
used cars 19 percent of the automobiles were taken away from the 
prospective owners within that period. 

Mr. Geseix. Again I just remark, Mr. Holcombe, that in automo- 
biles the fellow pays for what he is getting, and on the level-premium 
insurance plan, as we demonstrated here this morning, a fellow 
doesn't get what he is paying for, does he? 

Mr. Holcombe. Well, that is a pretty broad statement. 

Mr. Henderson. I think, Mr. Gesell, the automobile case is not to 
be likened to the savings banks. There is quite a loss on the repos- 
session of automobiles, siiice it is possible in many States to serve the 
prospective buyer with the amount of the contract bill in full, less 
the resale value. There is a decided lossage there. 

Mr. Holcombe. Well, that is one element. In other words, we are 
dealing with the human frailty in this matter of carrying out a plan 
of purchasing an automobile or a plan of. putting money in the sav- 
ings banks. 

Mr. Henderson. Do you have any record of wha,t it is m the build- 
ing-and-loan associations? Have you looked into that? ' 

Mr. Holcombe, Well, we don't have as accurate figures in that as ' 
we have in these other fields. One field which has — none of these are 
exactly like life insurance, of course, but they all apparently have some 

124491— 40— pt.. 10 13 



4324 CONCENTRATION OF ECONOMIC POWER 

relation to the problem that we are working on. Christmas clubs, as 
an example. We understand that the Christmas club procedure of 
putting in 25 cents each week for 50 weeks, before the year is out 
60 percent of those plans have fallen. So that you asked in general 
the reason for these lapses. We certainly are dealing with the general 
field of human nature, which apparently runs through both life insur- 
ance and some other businesses. 

Mr. Gesell,. That is when you said that one of the factors in lapse 
was the market ? 

Mr. HoLcoMBE. Quite so. 

Mr. Gesell. You did also say, I believe, that there were the 
methods used by the companies in selling insurance? 

Mr. HoLcoMBE. Yes. 

Mr. Gesell. Can you tell us a little about what the difficulties there 
are? 

Mr. HoLCOMBE. Well, may I finish the market first? 

Mr. Gesell. Certainly. 

Mr. Holcombe. The first point in the market is this matter of 
what I called human nature. Now there is another factor in the 
market, which is clearly of value in major importance, and that is 
change in circumstances of tha insured. A very easy example of that, 
type is the case where an insured takes out a policy, makes his wife 
the beneficiary, and in a short time they are divorced or she dies. A 
very large part of the reason for taking out that policy has dis- 
appeared, which I have called a change in circumstance. 

Now there are all kinds of changes in circumstance that may occur 
to this policyholder. He may lose his job, something that no one 
could have foreseen. He may have some serious illness in his family 
and he may lose the person for whom the insurance was taken out, 
be that his wife or be that one of his children; so that there are a 
considerable number of examples where the change in circumstance 
of the insured is a factor in bringing about that lapse. Well, now, 
there are two main classifications which would fall under the main 
heading of the market. Now, of course, there are other factors which 
I described a moment ago as the manner in which we sell. 

I don't mean the bureau sells the business; the manner in which 
the institution sells its policies. And there we have our imagination 
which can picture a considerable number of possible activities on the 
part of the company or the agency, but, in answer to your question, 
Mr. Gesell, what studies we have made. Such studies as we have been 
able to make — and they are not awfully easy to make, as you can 
imagine — indicate that the market element, the market factors appear 
to me to account for the very considerable majority, the very great 
majority, I think I would be safe in saying, of these lapses. 

Such failure as there is on the part of our distributive system being 
the thing that the bureau has, of course, attacked with all the vigor 
we can but which we have to recognize, is a minor contribution out. 
of the total causes. 

Mr. Gesell. Let's find out what you meant when you said that 
there were things in the distribution system of insurance which had 
something to do with lapse. What are those causes? 

Mr. Holcombe. Oh, there must be examples of cases where an 
agent has unwisely acted in regard to a particular policyholder. 
There are examples 



CONCENTRATION OF ECONOMIC POWER 4325 

Mr. Geseix (interposing). You mean by that high-pressure selling? 

Mr. HoLCOMBE. Well, 1 was even making it broader than that. 1 
was thinking to include high pressure selling in it, but I was even 
trying to cover the whole field and suggest that there are agents 
who misrepresent, either through ignorance or through intent, and 
some small element in there. I would suppose that a research man 
Would have to tell you that those were possibilities. 

Mr. Geseix. Then from the management point of vifew, what abour, 
the drive of the companies for volume? Hasn't that got a lot to do 
with it, Mr. Holcombe? 

Mr. Holcombe. Oh, without any question, and there you clearly are 
considering a social question. I assume that we could adopt the 
system that is in use not on this continent, but elsewhere, where they 
have no agents whatsoever. We could abandon the agency force, 
drastically cut down the amount of business sold, unquestionably 
drastically cut down the lapses, and so far as that distribution of it 
is concerned, it would have been a gain because of the drop in lapses. 
But we unquestionably would be tackling a social problem because 
we would have so very heavily cut the total protection which our 
united States system of distribution seems largely to have caused. 

Mr. Gesell. I notice that in a publication of your agency entitled 
"Measuring agency profit" you say, "It is generally admitted today 
that volume is one of the false gods of our business." What do you 
mean by that, that there is too much emphasis upon volume, too much 
emphasis upon new business? 

Mr. Holcombe. When we call it a false god we are, of course, 
undertaking to talk to our companies somewhat in the way, if I am 
not presumptuous in saying this, a teacher talks to a class; namely, 
puttmg on a very vigorous statement for the desired end, and our 
studies, of course, indicate that we want to cut down these lapses 
all that we possibly can, and we recognize what I mentioned a moment 
ago, that we can cut down . lapses by cutting down the volume of 
business, but just where is the optimum point is a difficult question 
to settle. 

Mr. Frank. Omitting, for the moment, the possible socially desir- 
able consequences of large volume, what, from the company s point 
of view, is the incentive to obtain a large volume? 

Mr. Holcombe. Why, I suppose, Mr. Frank, that that is in itself 
the conviction on the part of these companies, that life-insurance 
protection is a good thing and that the more of a spread of that pro- 
tection we achieve, the greater the value of the institution's service 
to the country. 

Mr. Frank. Omitting- that factor of desire to aid the country 
generally, which you mi^ht ascribe to the industry as a whole, why 
does any one company which is of already great size desire to become 
larger and compete with another company in attaining largeness? 
In other words, if there are two companies, A and B, one might stop 
its pressure for increasing volume and leave that to the other, but 
as I see the picture — I may be in error — they are all actively engaged 
in attaining large volume. Now, why does a company which is 
already very large in volume want larger volume? 

Mr. Holcombe. I suppose that it is part of this philosophy of the 
institution of life insurance, then being reduced to one company, 
namely, that if the A company now has X amount of insurance in force 



4326 CONCENTRATION OF ECONOMIC POWER 

the accumulation of X plus 1 is carrying out the mission of life 
insurance. 

Mr. Frank. Do you really believe that there is no other interest than 
the" general desire to benefit the country ? 

• Mr. HoLCOMBE. Well, of course, there is not the interest for the profit 
element, because in life insurance that is practically nonexistent. 

Mr. Frank. Certainly so far as the mutual companies are concerned. • 

Mr. HoLcoMBE. It is practically so for all of them, because the non- 
participating companies have got to stay in line with mutual pro- 
cedures so far as cost to policyholders goes, else they wouldn't write any 
business. 

Mr. Frank. Yes ; but I can conceive that a stock company would be 
interested in making profits. 

Mr. HoLcoMBE. Quite. 

Mr. "Frank. Take the mutual company that cannot be interested in 
making profits, which profits will not go to any stockholders ; take the 
two or three largest companies, if one of them would somewhat reduce 
its pressure for increasing size and the others were to keep it up, the 
country as a whole would be just about in as good condition, 
wouldn't it? 

Mr. HoLcoMBE. Yes. 

Mr. Frank. So if we look at single companies, why is it that any 
particularly very large company wants to increase its volume ? 

Mr. HoLCOMBE. Well, I suppose it is the human desire to gi'ow, 
isn't it? 

Mr. Frank. Yes. Now, if you were thinking of social values, do 
you think there is any inherent virtue in just getting bigger? 

Mr. HoLCOMBE. Wliy, I don't — certainly the larger companies have 
done the particular question we have this afternoon with a good deal 
of success, and that is to hold down the termination rate. Well, now, 
is that a factor of size ? 

Mr. Frank. I don't know, but I am restricting my inquiry to this 
specific question. If you take one of the gigantic companies, appar- 
ently it, in common with the other gigantic companies and the smaller 
ones, manifests a desire to grow. If it were to cease growing at the 
same rate and the others kept it up, the country would be just about 
as well off ; and yet, as you indicate, there is this desire to grow, an end 
in itself, regardless of the social consequences. It seems to me, look- 
ing at it, that we have to recognize that is so, and perhaps somebody 
should look at the social consequences ; but do you think there are any 
other motivations? I am asking out of ignorance, now. Is it pos- 
sible that you have an institution that consists of agents w^ho are 
themselves eager to increase their emoluments by increasing the 
amount of insurance that they bring? 

Mr, HoLCOMBE. Oh, I shouldn't think we could deny that at all. 

Mr. Frank. It may be that their eagerness to increase their emolu- 
ments may or may not have socially desirable consequences. 

Mr. HoLcOMBE. Yes ; I think that is true ; and I should think that 
the work that this bureau has been doing and all the emphasis that 
we have been throwing in our attempt to emphasize this lapse busi- 
ness was an indication of the fact that we now are attempting to 
make a greater net contribution than we did 10, 12, 15 years ago. 

Mr. Frank. If you found that the percentage of lapses were very, 
very much higher than the figures you have would indicate, would 



CONCENTUATION OF ECONOMIC POWER 4327 

that not be some sign to you that the growth was not a desirable 
growth ? 

Mr. HoLCOMBE. You mean 

Mr. Frank, Let me explain what I have in mind. You directed 
your attention to lapses in ordinary life. Now the figures we had 
this morning showed an extraordinarily greater percentage in indus- 
trial insurance. Suppose that the lapses in the field which you have 
been survej'ing approach in percentage terms the quantity of lapses 
in the industrial field, wouldn't you feel that that was some index of 
something wrong? 

Mr. HoLcoMBE. Well, we certainly would if they went from one to 
the other in a relatively short period. If we had entered this study 
as we did in 1922 and found that condition, it is very easy for me 
to agree with you ; I am not quite sure what the standard would 
have been, however. 

Mr. Frank. An extraordinarily high percentage of lapses would 
indicate that growth was being attained without much regard to 
social desirability, would it not? 

Mr. HoLCOMBE. Yes; I should think that was true. 

Mr. Frank. And that this anthropological phenomenon of desire 
for growth might be something that just happened, like Topsy; it 
was a habit like biting one's nails or something or other, that might 
not necessarily be socially useful and perhaps we might find there 
were other motivations other than the profit to the company as an 
entity that might be one of the factors. 

Mr. HoLcoMBE. Yes; I suppose that is conceivable. Of course, the 
question of the optimum size or the question of the contribution to 
this social problem we are talking about, based on size of company, 
is a pretty large order. This afternoon the lapse figures of course 
show that the largest companies have very much the best lapse rate. 
Now you might well ask me what causes that, and I suppose I might 
say that there was something about the prestige of a large company 
that really caused people to hesitate to drop their business there, 
Avherc in a very small company they might not. 

Mr. Frank. I wasn't speaking so much of size as we find it, but 
of the desire on the part of all of them, large and small, to get bigger 
and bigger, 

Mr. HoLCOMBE. Yes. 

Mr. Frank. And I was wondering vrhether that desire in some 
instances, and particularly in the field of industrial insurance where 
the lapse rate is so high, was necessarily desirable and whether, 
when you had that large lapse rate the eagerness to grow might 
not indicate that there was something that wasn't socially desirable, 
that if the eagerness to grow has concomitantly the consequence of 
very large lapse rate, one might question w^hether that eagerness 
to grow ought not to be curbed. Don't you think that might be true? 

Mr. HoLCOMBE. Yes; I should think that might clearly be true; 
just where the dividing line is we don't know. 

Mr. Gesell. Haven't you taken a very decided attitude on size? 
Let me read some of the things from your publications.^ 

In life insurance, selling is but the first step in a much more complicated 
process. In the first place, if the true function of life . insurance is to be car- 

"^ Measurinf) Agency Profit, Juue 1935, p. 4. 



4328 CONCENTRATION OF ECONOMIC POWER 

ried out to the maximum benefit of policyholder, company, and agent alike, 
more must be done than to collect the first premium. If the policyholder is to 
receive protection, if the company and agent are to earn legitimate profits, 
business sold must remain in force for a reasonable period of years. Hence, 
nonperslstant business, while swelling the total of sales, cannot be justified 
from any point of view .and is an economic waste. 

Or again. 

While much of the heavy lapse in recent years has been to a large degree 
unpreventable, it has been substantially less in those companies and agencies 
which have observed the essentials of good management and have looked for 
quality rather than quantity. 

Or again. 

For the last 6 years we have been selling about the same amount of business 
as we sold 15 years ago. It raises the question of whether we have achieved 
an approach to a stabilized market and, if so, what we shall do about 
it. * * * It begins to look as if the wise agency ofiicer will lay his sights 
not on the old horizon of increasing sales at the rate of 10 percent a year, 
but on a much more stabilized situation. * * * But when the tide turns 
and life insurance is faced with a situation where sales are harder to make, 
our response is instinctive — we must find ways to secure more new business be- 
cause it is the only road to success which we know * * * and unques- 
tionably adopt methods which are unwise. We are "scraping the bottom of 
the barrel" and securing what we have recently come to call "marginal 
agents" or "marginal business," the significance of which acquirement we are 
now beginning to see. * * * The "marginal agents" tribe increases. * * * 
Genuine agency success can be achieved without the yearly 10-percent increase 
in new business — 

And so forth. 

I am sure you can find a lot jnore in these publications. Now 
those indicate that your studies have ^own tliat companies have 
placed too gi-eat an emphasis on volume, that the agency managers 
have been shooting for a 10-percent increase every year, that there 
has been not sufficient attention to persistency in conservation, and 
these last few quotations coming from something you .said in 1938 
would indicate to me that there has been no substantial change since 
1929 in the selling tactics of the company. 

Mr. HoLcoMBE. No ; that assumption, if I may say so, is not correct, 
for I could recite to you a very long list of the motivating factors put 
into the distribution process by these companies designed solely to re- 
duce lapses. 

Mr. Gesell. But the figures we put in evidence showed in 1930 a 
lapse rate of 17 percent and in 1938 a lapse rate of 16 percent,' a very 
insubstantial reduction. 

Mr. HoLCOMBE. Quite so, but we are dealing with something which 
r told you originally was a minor contributor, namely, the work of our 
distribution forces and as it is a minor contributor We must recognize 
that we are not going to get a major result by whatever we do in that 
field because wiB are operating on a very small factor of the total. 

Mr. Gesell. We had figures here this morning, did we not, which 
showed that during the last 10 years in both the industrial and ordi- 
nary and industrial combined, there was much more business sold than 
in the previous 10 years," and yet we all know certainly the market for 
insurance in the last 10 years was not as receptive to new business as 
the market during the previous 10 years. 



^ See "Bxhibit No. 680. • appendix, p. 4741. 

2 See "EjMbits Nos. 6S4 and 685," supra, pp. 4300 and 4304. 



CONCENTRATION OF ECONOMIC POWER 4329 

(Mr. Henderson assumed the chair.) 

Mr. HoLCX)Mi}E. Those two periods that you had, the second period 
started with '28, so of course, you had three very large life-insurance 
years in there ; the sales since then of course having been materially 
less. 

Mr. Gesell. Do you believe there has been any substantial reduc- 
tion of emphasis upon volume ? 

Mr. HoLcoMBE. Yes, I do ; I believe it in this way. As we have this 
annual meeting, the minutes of which you have there, to which come 
the agency officers of the United States and Canada, we can see in those 
reports a very marked increase in the amount of attention given to 
lapse and conservation now in comparison to 10 years ago. For ex- 
ample, I took occasion the other day to see if I could measure it in this 
Avay — I think this is in answer to your question — to find out how much 
change there is in the insurance press, and I found that in one of the 
insurance journals for 1928 there were 268 lines of information given 
out to their readers in 1928 on lapse and conservation ; in 1938 there 
were 413. That is undoubtedly typical. Now, you say, as you did a 
moment ago, that we haven't achieved very much in result, and we 
haven't; I still would tell you that the emphasis that we see going 
through our office on persistency is very much greater now than it was 
10 or 12 or 14 years ago. We haven't achieved a drop in the lapse rate 
that is noticeable, but of course there are at least two reasons for that, 
one of which I just mentioned, that we are attacking what apparently 
is a minor contributor, namely, the distribution process, and secondly, 
of course, we are operating in a period in our country's history when it 
is a question of where we would be if we hadn't put all this pressure 
onto lapses. Perhaps instead of having improved 1 percent, as I 
think tliose figures you have there indicated, if we had done no more 
than we were doing 10 years ago that lapse rate would have increased 
5 or 10 or more percent. 

Mr. Gesell. On the other hand, the figures which we have been 
discussing here do not contain, for example, do they, the experience 
of some of the largest of the companies, like the Metropolitan or 
the Prudential or the New York Life ? 

Mr. HoLCOMBE. That is right. 

Mr. Gesell. We don't know whether there may not have been an 
increasingly adverse condition in the operation of those companies. 

Mr. HoLcoMBE. No; from those figures you don't know what they 
did. 

Mr. Gesell. I have no further questions. 

Acting Chairman Henderson. I was interested. Dr. Holcombe, in 
this illustration you used of some other countries which have a sort 
of cafeteria basis for selling insurance. Have you any idea what their 
lapse rate is as compared with, say, your 20 A companies or your 
13 B companies? 

Mr. Holcombe. No, sir ; I don't tliink we have ever seen it. I have 
no idea. 

Acting Chairman Henderson. You would imagine it would be a 
much lower rate; it certainly would be in this country if it were 
on that basis. Is that it? 

Mr. Holcombe. Oh, I think without a doubt. 

Acting Chairman Henderson. You have here, I see, lapse rates of 
the A companies that run around 16 percent. 



4330 CONCENTRATION OF ECONOMIC POWER 

Mr. HoLCOMBE. I think that is the figure. 

Acting Chairman Henderson. You have been letting these experi- 
ences and these rates run through your fingers for something like 17 
years now, more than that ; I would imagine you were doing some- 
thing of this kind at Carnegie Tech, weren't you ? 

Mr. HoLCOMBE. Well, that is where we started; that is included. 

Acting Chairman Henderson. '22. 

Mr. HoLCOMBE. Yes. Of course we didn't collect any of these 
figures until 1926, 1 think— it was 1925. 

Acting Chairman Henderson. Have you ever determined in your 
own mind what under proper conditions a lapse rate should be, one 
where you would meet the socially desirable demand and still would 
avoid all the ills that go with excessive lapse? 

Mr. Holcombe. The ideal at the moment, of course, is the lowest 
company record. Now, if we could get every company down to that 
lowest company record that would be the ideal. 

Acting Chairman Henderson. I think in your discussion with 
Chairman Frank you indicated that practically all of these companies 
were in the general sdramble for increase in size. Isn't that true ? 

Mr. HoLcoMBE. "Well, they certainly vary, but they all want to 
grow. I think that is clearly true. 

Acting Chairman Henderson. Suppose some company didn't go out 
with high-pressure selling as it had in the past. Have you any idea 
what its lapse rate would probably be cut to ? 

Mr. Holcombe. I don't see how I could have. 

Acting Chairman Henderson. That is what I am trying to get at, 
whether, in all this research you have done, upon which you cer- 
tainly have ruminated, to say the least, you have established in your 
own mind any standards for what a normal lapse rate would be. 

Mr. Holcombe. No, sir; I don't think we have. I think we prob- 
ably haven't gone beyond the desire to get every company's lapse rate 
reduced, but as for a reasonable figure or a desirable figure, I don't 
think we have gone that far. 

Acting Chairman Henderson. This means that in the A companies 
1 out of every 6, and ift the 13 B companies about 1 out of every 3, 
and in the C and D companies about 2 out of every 5, lapse. 

Mr. Holcombe. Yes. 

Acting Chairman Henderson. You would expect it to be something 
much less than that, wouldn't you, certainly less than 2 out of 5? 

Mr. Holcombe. You mean if I wei-e just viewing this thing in 
general ? 

Acting Chairman Henderson. Yes; which you do, as I know, from 
things which you have written. 

Mr, Holcombe. Of course we want to get it down very much. T 
^don't know that I can see any foundation for a standard. For in- 
sStauce, I don't know wlietlier I would say tliat these Christmas clubs 
liad a very high lapse rate or not until I compared it with life insur- 
ance, or these other comparisons. We wish the life insurance lapse 
would go down, and the companies in supporting this bureau have 
certainly given tangible evidence of their desire to bring it down. 
. Acting Chairman Henderson. Let me ask you in anotlier way. 
You say you don't know what are the elements of a standard. It 
isn't necessary to have a 10-percent growth- in an insurance company 
eacii yf^.o.T in order that it be sound, is it? 



CONCENTRATION OF ECONOMIC POWER 4331 

Mr. HoLCOMBE. To be solvent? 

Acting Chairman Henderson. Sound or solvent. 

Mr. HoLCOMBE. No. 

Acting Chairman Henderson. Is it necessary for them to have a 
1-percent increase? 

Mr. HoLCOMBE. Well, there, of course, you are getting. into the 
field of comparison between the rights of the present policyholders 
and the rights of the prospective policyholders. 

Acting Chairman Henderson (interposing). But put it this way: 

Mr. HoLCOMBE. And that is 

Acting Chairman Henderson (interposing). But put it this way: 
Could a company remain sound, or solvent, in your terms, if it didn't 
increase the number of policyholders it had? 

Mr. Holcombe. If it just wrote enough business to take care of the 
lapses and all terminations; rather, if it just wrote enough business 
to take care of all terminations, would it be a sound institution? 

Acting Chairman Henderson. Yes. 

Mr. Holcombe. I should think it would be a sound institution. 

Acting Chairman Henderson. Even if it didn't write enough to 
take ciare of all the terminations, it could be, couldn't it? Isn't that 
percentage of an insurance policy which is really savings enough to 
cariT the obligations of the insurance company? 

Mr. Holcombe. Well, certainly the company could be sound if it 
was properly managed and didn't increase insurance in force, I 
should think. 

Acting Chairman Henderson. And even if it had a decline and 
managed its affairs, its investments, ,with reasonable diligence, it 
could continue? 

Mr. Holcombe. Well, of course, I am not an actuary and I think 
you are gettin<j pretty close to the actuarial field. 

Acting Chairman Henderson. Dr. Holcombe, you know a little 
about the actuarial science. 

Mr. Holcombe. I don't know much about the actuarial business. 
I tliink that is pretty nearly an actuarial question. 

Acting Chairman Henderson. You wouldn't guess that the policy- 
holders in their current payments are paying enough to keep tlie'ir 
insurance in force? "V^Hiat I am getting at is, is it necessary to have 
growth in order that life insurance companies remain sound ? 

Mr. Holcombe. I don't suppose it is necessary because I suppose 
you have examples of companies with varying degrees of growth, all 
of which are perfectly sound. It is, as Mr. Frank said, the anthro- 
pological tendency to want to grow. It is the feeling of life insur- 
ance companies that the more protection is available in the country 
the better the country is. 

Acting Chairman Henderson. That is an American as well as an 
mthropological idea, too, of course. But I am trying to get at 
whether in your mind, if you were approaching a standard — and 
evidently you have thought about a standard though you indicate 
you do not know the elements — whether you wouldn't look toward 
what constitutes soundness for policyholders. Wouldn't that be the 
test you would apply? 

Mr. Holcombe. Well, the soundness of policyholders, the particular 
thing we are talking about this afternoon, lapses; the larger com- 
panies have the_ soundest position on that score. • 



4332 CONCENTRATION OF ECONOMIC POWER 

Acting Chairman Henderson. Do j^ou attribute that to the growth 
rate? 

Mr, HoLcoMBE. I suppose you have to; don't you? 

Acting Chairman Henderson. How about some of your other com- 
panies? Don't you have some of the smaller companies with just as 
good experience records on lapses as the larger ones ? 

Mr. Holcombe. Oh, no. The best C and D company there is a 
21-perccnt, and there are more tnan half of the A companies that 
are less than 21. 

Acting Chairman Henderson. I am saying, aren't there some of 
the smaller companies whose experience record is just as good? 

Mr. Holcombe. Not from those. 

Acting Chairman Henderson. Sixteen percent here in Home and 
New York for the year 1938, for example. 

Mr. Holcombe. Well, that is just the average of the A companies, 
whereas half the A companies are lower than that. 

Acting Chairman Henderson. That is right; it is lower; but don't 
some of the small companies approach the good record of the larger 
companies ? 

Mr. Holcombe. Well, they approach it, but none of them are down 
to it. 

Acting Chairmun Henderson. None of them touch it? 

Mr. Holcombe. Oh, no. If I recall the figures correctly, your av- 
oi-age there for 1938 — I don't think the average is on the sheet Mr. 
Gesell handed me — is 16 for the A companies, whereas none of your 
B companies are as low as the A average. 

Mr. Frank. There is a B company that is as low as the A average, 
the Home of New York. 

Mr. Holcombe. Yes; just on the avei*age, I guess. 

Acting Chairman Henderson. That is what I said earlier. 

Mr. Gesell. And again we don't know what the figures for the 
three largest companies in the country are, do we? 

Mr. Holcombe. No. 

Mr. Frank. Mr. Holcombe, may I ask you, if you found that lapses 
in the ordinary-life Xield went up to 70 percent, wouldn't you think 
lliat was some indication that there was some undesirability in the 
amount of insurance written ? 

jSIr. Holcombe. Clearly, if I had been educated to a 20. 

Mr. Frank. In any event, wouldn't 70 percent seem an extraordi- 
narily large ^gure to you? 

Mr. Holcombe. Sixty percent seems to me high for these Christmas- 
savings funds. 

Mr. Frank. But what I am getting at is, When you are t:ying to 
appraise the value of growth and you find that there is 80 oi 70 per- 
cent of lapses, doesn't that disturb you, that figure ? 

Mr. Holcombe. Wouldn't it disturb me? 

Mr. Frank. Wouldn't it disturb you? 

Mr. Holcombe. Certainly it would disturb me, if I had any stand- 
ard such as 20 percent to compare it with. 

Mr. Frank. Taking the standard for a moment, the ordinary life 
policy is the policy written by the moderately well-to-do person as 
compared with industrial insurance — industrial insurance being poor- 
man's insurance. Now, in the poor-man's-insurance field we found this 
morning that the percentage of lapses for the years 1918 to 1927 was 



CONCENTRATION OF ECONOMIC POWER 4333 

81 — something over 81 — percent; and for the years '28 to '37 it was 
70.6 percent.^ 

Mr. Geseli,. May I make a correction, Mr. Frank? Those figures 
this morning were percentages of total terminations, wliereas Mr. Hol- 
combe's figures have some relation to exposure, length of time insur- 
ance has been in force, and they are not comparable. 

Mr. Frank. How would you make them comparable ? 

Mr. Gesell. It would be necessary to make new calculations. We 
can't make any comparison between the figures which are in the record 
at the present time. 

Mr. Frank. Are the figures, may I ask for information, as to indus- 
trial lapses not much larger than the figures if you were to use them on 
a comparable basis for ordinary life? 

Mr. Gesell. I think you will find the industrial figures are larger 
but not on the basis of the comparison you have before you; and in 
some cases considerably larger. 

Mr. Holcombe. I was assuming, Mr. Frank, that you actually meant 
that our figure expanded from 20 to 70, which would be enormous, and 
would worry me if I had been educated to 20. 

Mr. Frank. No; I didn't mean that. 

Just one more question : If we were looking solely to the welfare of 
existing policyholders, a great reduction in expansion would not affect 
them adversely, would it? 

Mr. Holcombe. In regard to the present policyholders ? 

Mr. Frank. They Avould not be endangered by a reduction in the 
increase jier annum. 

Mr. Holcombe. Well, I don't hardly believe that is true;. is it? 

Mr. Frank. Why? 

Mr. Holcombe. They would begin to lose the advantage of the pres 
tige of the company, which apparently is something of a factor, be 
cause the company would gradually dry up, as I understand it. 

Mr. Frank. I am not quite sure I follow that. I have a policy in 
the X company. Is it necessary for the protection of my investment 
in that policy that that company grow so much per year — ^^increase the 
number of iU policies? 

Mr. Holcombe. Why, yes; probably, because there is something 
about that factor of lapse that I have related to size, and if the com- 
pany begins to drop in size, apparently they begin to lose business on 
this lapse formula that we have in a rather significant manner. 

Mr. Frank. Seriously enough so that I, an existing policyholder, 
would be injured? 

Mr. Holcombe. Of course, you couldn't be injured immediately, be- 
cause the institution is too big; but it would be in that direction, I 
should think. 

Mr. Frank. You mean I would lose something in the loan or sur- 
render value, or the ultimate payment to my estate, in event of death? 

Mr. Holcombe. Oh, no. I don't think you could lose that; but the 
most delicate thing Avould be dividends and, if you w^ore beginning to 
throw factors in there that cut dividends you would feel it there. 

Mr. Gesell. Are you clear in your own mind, Mr. Holcombe, that 
because the figures for the larger companies are slightly lower, that 
that is because the companies are large ? Is it not rather that your 

' See "Exhibit No. 685," appendix, p. 4738. 



4334 CONCENTRATION OF ECONOMIC POWER 

figure are higher for the smaller companies because they are growing 
faster, and doesn't the whole thing relate itself directly again to 
volume?. 

]\Ir. HoLCOMBE. I have not undertaken to say that volume is not 
in there, for I did suggest that you are really dealing with this social 
problem of whether you want to cut down your total spread and 
cut down your lapses. 

Mr. Gesell. But your figures do not demonstrate that the larger 
the company the smaller the lapse rate, necessarily. The question 
relates itself rather to the amount of new business which is being 
written, does it not? 

Mr. HoLcoMKE. To some extent; but if you had our insurance in 
force figures there, which perhaps you have, you would see that 
there are some companies that can write a proportion of new business 
considerably in advance of others, some of those large companies, 
and still have a good lapse rate. 

Mr. Gesell,. That is the quality of management in each case. 

Mr. HoivCOMBE. Yes. 

Mr. Gesell. But couldn't you argue from these figures just as well 
tliat volume — new sales — is one of the contributing factors to lapse? 

Mr. HoLcoMBE. I should think that there was very little question 
of that. 

Mr. Gesell. Then this whole question of growth and increase of 
size does have a direct bearing on lapse rate, which can't be excused 
simply by saying, "Well, look at the big companies; they have a 
smaller figure." 

Mr. HoLco:srRE. Yes; and of course our bureau is an evidence of 
the desire to find the best condition dealing with both new business 
and lapses. 

Acting Chairman Henderson. That is where I wanted to pick up 
again, Mr. Holcoml)o. When you find that a company in your group 
has a lapse rate of 40, 50, or 60 percent over a period of years, do 
you make any special inquiries as to the reasons why theirs departs 
so mucli from tlie average? 

Mr. HoLCOiMBE. Well, not a statistical study. 

Acting Chairman Henderson. More of a qualitative study? 

Mr. PIolcombe. Yes; more of an effort to help them. I think of 
one company that did have a higher lapse rate than many, and I 
think we perhaps have been of assistance to them in putting in 
certain factors. I know we have. 

Acting Chairman Henderson. Well, what factors did you change? 

Mr. HoLcoMBE. Their sales force had been motivated by sales, by 
so-called agency clubs, by attendance at company conventions, by 
all of that kind of motivating influence. 

Acting Chairman Henderson. Special reward for meeting quotas 
and the like ? 

Mr. HoLcoMBE. Things like that. I was thinking really not mone- 
tary at the moment. I was thinking of more things in the way of 
honors. 

^ Acting Chairman Henderson. Recognition, psychological promo- 
tions, and things like that? 

Mr. HoLCCfMBE. Now I think we have undoubtedly assisted- that 
company in changing the emphasis over to persistent business in a 
way that has changed the picture there to some extent. 



CONCENTRATION OF ECONOMIC POWER 4335 

Acting Chairman Henderson. When you run into some of these 
companies, witli this persistence of a high rate, do you pretty generally 
find that it is the kind of selling arrangement which is responsible, or 
is it the percentage of growth they are aiming at, or what is it? 

Mr. HoLCOMBE. Well, in the first place, of course, it often seems to 
be related to the section of the country where they are operating. I 
don't think he got the figures. 

Acting Chairman Henderson. I have the regional. 

Mr. HoLCOMBE. In that regional figure we oftentimes find a com- 
pany will be considerably influenced by that. 

Acting Chairman Henderson. Will it run to double the average, 
as I notice some of them do here, particularly in the C and B company 
list? ^ 

Mr. HoLCOMBE. I am not sure how wide those geographical varia- 
tions run, those figures you have there. 

Acting Chairman Henderson. But you are familiar 

Mr. HoLCOMBE. This year they went from a low of 14 to a top of 21, 
which is just exactly 50 percent. 

Acting Chairman Henderson. Getting back to this question of 
where you have a compilny which, over a period of time, has something 
which you plainly recognize, regardless of an exact standard, as a 
higher than average or a higher than standard lapse rate, do you 
find anything else that is really the cause of that extraordinarily high 
rate?- 

Mr. HoLCOMBE. Well, in this particular company that I am thinking 
of, they weren't doing any of those things that seemed to us to be 
possible, and they 

Acting Chairman Henderson (interposing). I don't quite get what 
you mean, "They weren't doing any of those things that seemed to us 
to be possible." 

Mr. HoLCOMBE. Such as having the motivating influence on the 
agents partake more of the persistent factors than they did before; 
that is to say, company clubs for agents, company conventions, and 
the like. They put those things in, and it had an effect. 

There is one company that you find there — the Lincoln National — 
whose rate you had me quote a few minutes ago. They have done one 
thing in the last few weeks, which was to put into their house organ 
a very elaborate analysis of their lapse situation, in an effort to show 
their general agents and their agents the desirability of reducing that 
lapse. 

Acting Chairman Henderson. Wliat did tliat run to, do you recall ? 
What were the admonitions they gave in the article ? 

Mr. HoLCOMBE. In this particular case it was just to show the agent 
the desirability of writing business that stays on the books, and in- 
cluding in that bis own monetary advantage because of the renewals 
he loses if the policy goes off the books. 

Acting Chamnan Henderson. Have you looked into more than one 
company with a higii lapse rate, or is it just this one you are talking 
about ? 

Mr. HoLCOMBE. 1 suppose we are looking into them all the time in 
more or less degree, because our office is studying all these companies 
with a view to improving lapse rate. 

1 See "Exhibit No. 689," appendix, p. 4741, 



4336 CONCENTRATION OF ECONOMIC POWER 

Acting' Chairman Hendekson. I come back again to what are some 
of the things you feel they might do to reduce that ? 

Mr. Hoix:oMBE. Well, they can, of course, give noticeable attention 
in their company publications to terminations in their education of 
their agents', through their published material they can emphasize 
terminations and persistency, just as we get out this material which 
we collect from all the companies. 

(Representative Reece resumed the chair.) 

They can give honors to the agents at the company convention and 
hold the man up to the honor by that basis. They can study the 
factors of persistency and attempt to train the agent to go to some 
part of the market that shows a better persistency record. 

Mr. Henderson. Wliat would be those factors of persistency? 

Mr. HoLCOMBE. Well, there are a good many of those factors that 
we now know about. We know, for example, that young people lapse 
their policies more frequently than older people. 

Mr. Henderson. So you can steer clear of young people and go 
toward the older group? 

Mr. HoLCOMBE. If that is sound policy; it might not be a sound 
policy in the eyes of that company, but at least they know the fact 
which, until research dug it up, they often didn't know. Tae^ can 
direct the agent toward the writing of business With ^uch char- 
acteristics as annual premium as against quarterly premium; they 
can direct the agent to secure settlement of the policy at the time 
he sells it, rather than to postpone it for 30 days or 60 days, with 
the likelihood that there will be a loss there. 

Mr. Henderson. That is rather than any agent taking any kind of 
speculative risk there, to count only as business what he gets on the 
line? 

Mr. HoLCOMBE. Yes, sir. There are a good many factors that we 
know about today that even 6 or 7 years ago hadn't been brought to 
the surface. Today we know a good deal about them. 

Mr. Henderson. What are some of the others beside those? 

Mr. Holoombe. One of the other factors is that we are constantly 
trying to have agents sell to cover individual needs, rather than 
simply sell a policy of $5,000 for no specified need, and the partic- 
ular way that that evidences itself is that those policies, with an 
agreement in the policy for the payment of the proceeds to one or 
several beneficiaries under various contingencies, that kind of busi- 
ness shows a better termination than the kind of business where it is 
sold without that. 

Mr. Henderson. More people interested in the continuation of the 
policy, then, would affect — ^liow about the various kinds of industrial 
risks? Do you do anything on that? 

Mr. Holcombe. You mean industrial insurance? 

IVIr. Henderson. Well, no; the character of the employment of 
different people. Do you canalize them toward those as being better 
risks in having lower lapse rates? 

Mr. Holcombe. Yes, sir; we have some figures on that now which 
indicate something in that direction. 

Mr. Henderson. So that it might be possible, then, going at these 
factors of persistency, to construct a standard ; might it not ? 

Mr. Holcombe. You mean to construct one in advance and direct 
your sales force toward that ? 



CONCENTRATION OF ECONOMIC POWER 4337 

Mr. Henderson. Yes. 

Mr. HoLCOMBE. Not only possible, but it is being done. We 
created such a procedure after our research, and now that is being 
used by a very large number of the companies in the bureau. 

Mr. Henderson. But your idea is, however, that the reason why 
it hasn't shown any better average results is that probably you 
have prevented the lapse rate from going higher? 

Mr. Holcombe. Yes, sir; plus the fact that we believe that we are 
dealing by concentrating on the distribution process, with the minor 
factor in the total causes of lapse. It looks as though the other 
elements were the major cause of the lapse and the agents' and the 
companies' contribution was minor. 

Mr. Henderson. It is just the plain bedevilments of human nature? 

Mr. Holcombe. Well 

Mr. Henderson. How would you explain the range that runs all 
the way from your lowest to your highest, Mr. Holcombe, if there 
isn't something in what the company does? How would you explain 
why one group has a low rate and another has a high rate, on the basis 
of the average failings of human nature*? 

Mr. Holcombe. Well, I am not trying to wash out the company's 
contribution entirely. 

Mr. Henderson. No; but you are trying to minimize it when you 
say it is a minor factor, and yet we see this enormous range that 
they run. 

Mr. Holcombe. Well, I suggested that the geographical factor 

Mr. Henderson. It doesn't bear up as I read it. 

Mr. Holcombe. Well, you will find that those smaller companies, 
to a very considerable extent, operate in some of the territory where 
the lapses are higher. I think you will find that there is that 
tendency. 

Mr. Henderson. Well, that isn't human nature, then. Human 
nature in the Pacific Northwest and West South Central is not 
different. 

Mr. Holcombe. Certainly not. 

Mr. Gesell. Just to throw some light on the questions Mr. Hender- 
son is asking, isn't it possible that your insurance market is saturated, 
that all the good risks have been taken, by and large, and you have 
a great bunch of agents out trying and trying to sell and all they 
can do is sell marginal business and poorer risks, and therefore can't 
keep your lapse rate down any lower, as you Jiave said yourself in 
this publication which I read to you a minute ago?^ 

Mr. Holcombe. Of course, there are two viewpoints. One is that 
we are reaching something in the way of a stabilization factor, and 
the other is that we are nowhere near stabilization because we have 
only got so few hundreds of dollars of ordinary life insurance, or 
total insurance per capita in the United States. There are certainly 
two attitudes in regard to it. 

Mr. Gesell. It is your opinion from a study of the situation, is it 
not, that the market has become saturated? 

Mr. Holcombe. Not saturated. I should say that we hadn't become 
persuaded that we had done more than approach saturation, but cer- 
tainly we haven't reached saturation. 

1 Supra, p. 4327. 



4338 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Well, it is just a matter of degree is what you quarrel 
with me about. 

Mr. HoLCOMBE. I don't mean to quarrel about it, but I think the 
connotation of saturation implies that we just can't expect to write 
more business, and I just don't hardly believe that is true. 

Mr. Gesell. As you say, we can't return to the old 1929 standard, 
Mr. Holcombe. A good many companies are still operating on that 
basis. Don't you mean that the market has been sold to a much 
higher extent than it was before, that you can't keep busy the same 
number of agents working on the same basis day in and day out 
when you haven't got the people to sell the business to ? 

Mr. Holcombe. Of course, the reduction in agents which has oc- 
curred seems to us to be sound, and no doubt that is going to continue. 

Mr. Henderson. I noticed, Mr. Holcombe, in the list of things we 
were going through that no attention was paid to the commission ar- 
rangements which the agents have. Does that have anything to do 
,with the rate of lapse? Do you find that in your special studies? 

Mr. Holcombe. Theoretically, of course, it would have a very large 
.influence, but we have no research, no material on which we have 
been able to make any study that amounts to much to come out with a 
conclusion as to what ought to be done. 

Mr. Gesell. Our next witness will have something to present to 
the committee on that question, Mr. Commissioner. 

Mr. Henderson. I gather you said that in countries where life 
insurance is sold on a come-and-get-it basis,, you have thought at 
times perhaps something like that ought to be approached in this 
country ? 

Mr. Holcombe. No, sir; I don't. I think our job is not to give up 
the agency System, 'but is to make the agency system do a better job, 
which it can do and is doing, but as for giving up the agency system, 
it seems to me that we would immediately lose very much more than 
we would gain. 

Mr. Henderson. The social advantage is greater by having this 
extra amount written even though you lose 1 to 5 ? 

Mr. Holcombe. I don't think there is any question of that, Mr. 
Henderson, because although I don't have the figures in my head, I 
think that is beyond question, that if we were to abandon our agency 
distribution system we would be a minus in the net that we would 
accomplish. 

Mr. Henderson. That is, the amount of insurance which could be 
bought, with the lapsed insurance wouldn't offset what is written 
for the individuals who stay in. 

Mr. Holcombe. I don't think that is 

Mr. HJENDERSON (iuterposing). Although the cost would be con- 
siderably less. 

Mr. Holcombe. Oh, yes; but the net loss to society would be sizable. 

Mr. Henderson. I just wanted to wind that up and put a little blue 
band around it. 

Mr. Gesell. If the committee please, I have no further questions 
for Mr. Holcombe. We have another witness that we could put on 
today and by doing so I believe we can nui only a half-day session 
tomorrow, if that would be preferable to discontinuing now and run- 
ning a whole day tomorrow. Is that agreeable? 

Acting Chairman Reece. Suppose you call your next witness. 



CONCENTRATION OF ECONOMIC POWER 4339 

Mr. Gesell. Our next witness is Mr. Montgomery. 

Acting Chairman Reece. Do you solemnly swear that the testimony 
you are about to give in this procedure shall be the truth, the whole 
truth, and nothing but the truth so help you God ? 

Mr. Montgomery. I do. 

TESTIMONY OF WILLIAM MONTGOMERY, PRESIDENT, ACACIA 
MUTUAL LIFE INSURANCE CO., WASHINGTON, D. C. 

Mr. Gesell. Will you state your full name to the reporter? 

Mr. Montgomery. William Montgomery. 

Mr. Gesell. What is your position? 

Mr, Montgomery. President, Acacia Mutual Life Insurance Co. 

Mr. Gesell. That is right here in Washington, is it not ? 

Mr. Montgomery. Yes, sir. 

Mr. Gesell. How long have you been associated with that company ? 

Mr. Montgomery. Forty-five years last December. 

Mr. Gesell. How long have you been president ? 

Mr. Montgomery. Nineteen years. 

Mr. Gesell. You have heard the testimony that has been before 
the committee this morning^ have you not ? 

Mr. Montgomery. Yes, sir. 

Mr. Gesell. Can you tell us a little about your company in the 
way it has operated and what you have done to cut down your lapse 
experience and what you consider the factors' to be which contribute 
to high rates of voluntary terminations? 

Mr. Montgomery. You ask me what we have done or what I think; 
which do you want? 

Mr. Gesell. Will you first tell us what you have done and then 
tell us what you think? 

Mr. Montgomery. Well, we have tried to sell quality business. 
By quality business I mean business that will stay on the books as 
long as the policy is sold for and we base our agency contract on that 
assumption. We don't pay the usual renewal ^commission that is 
paid by other companies. We pay the usual commission that all com- 
panies pay for first-year business, and then we pay the agents in 
proportion to the business that they service and keep in force. 

Mr. Gesell. You have found by adopting that method of com- 
pensation you have been able to keep on your books a more consistent 
type of business? 

Mr. Montgomery. Yes; and more persistent agents. 

Mr. Gesell. And can you tell us what you consider to be some 
of the factors causing voluntary terminations, and what the relative 
importance of those factors is? 

Mr. Montgomery. Well, there is a saying in life insurance that the 
lapse begins with the sale. You know what I mean by that. 

Mr. Gesell. I have heard the expression. You tell us what is 
meant by that. 

Mr. Montgomery. The way life insurance is marketed is conducive 
to lapse. 

Mr. Gesell. Will you explain that more in detail? 

Mr. Montgomery. Well, life insurance is not sold as the ordinary 
product, if I can use that expression, is sold. The mutual companies 
sell life insurance under a system of estimated dividends. Now, we 

491— 40— pt. 10 14 



4340 CONCENTRATION OF ECONOMIC POWER 

know that estimated dividends, or rather dividend estimates, don't 
always mature. We know that when men are given an estimate of 
dividends, to use in a sale the agent isn't always as careful as he 
might be in the figures he makes, and where there is high pressure 
of that kind in the sale of life insurance we feel that contributes 
very materially to lapses. 

Mr. Gesell. You mean that the general practice of many com- 
panies in giving to their agents dividend schedules and illustrations 
which are a way of anticipating what will be paid back to the policy- 
holder from mortality savings and otherwise, leads to the agent 
building up in the mind of the prospective policyholder too many 
advantages for insurance which don't really exist. 

Mr. Montgomery. Well, not only advantages but the matter of 
costs. 

Mr. Gesell. Will you explain what you mean when you mention 
costs ? 

Mr. Montgomery. Well, if the dividends are not as large as the 
estimates, then the cost has been increased. 

Mr. Gesell. And you feel that frequently the policyholder finds 
himself paying more for his insurance than he had reason to believe 
at the time the agent sold it to him, he would have to pay ? 

Mr, Montgomery. That is my opinion. 

Mr. Gesell. What other factors do you believe contribute to lapse ? 

Mr. Montgomery. Well, high-pressure salesmanship. 

Mr. Gesell. What do you mean by high-pressure salesmansliip ? 

Mr. Montgomery. Pushing agents too hard to get a volume of 
business that will make the company good window dressing. 

Mr. Gesell. Do you mean that you feel that from your experience 
in the business many company managements put too much emphasis 
upon volume? 

Mr. Montgomery. Well, if you will notice all the ads at the end 
of the year or at any other time, every companjr advertises, how much 
it has paid for instead of how much it has gained. We believe that 
a company should emphasize what it keeps and not what it pays for. 

Mr. Gesell. You think there has been too much emphasis upon 
what it writes. 

Mr. Montgomery. I think there has been too much emphasis on 
size. 

Mr. Gesell. Now, about this matter of size; yours is a mutual 
company is it not? 

Mr. Montgomery. Yes, sir. 

Mr. Gesell. Do jjou feel there is any advantage in your increas- 
ing your size? 

Mr. Montgomery. No, sir ; no special advantage. 

Mr. Gesell. What do you consider some of the disadvantages in 
increasing your size? 

Mr. Montgomery. I don't know that there are any great disad- 
vantages so far as the company is concerned. 

Mr. Gesell, What about the policyholder? 

Mr. Montgomery. Well, if size doesn't reduce cost or size doesn't 
improve service or size doesn't give added strength, then of course 
there is no particular advantage in size. 

Mr. Gesell. Your feeling would be that in some companies at least 
that have been for volume and size, as to point of view of service 



CONCENTKATION OF ECONOMIC POWER 4341 

and point of view of distribution of risk and point of view of distribu- 
tion of investment, they have already reached a size adequate for the 
full protection and servicing of their policyholders' interests? 

Mr. Montgomery, I don't know that I could say that, sir, but I 
feel this. I can't quite agree with Mr. Holcombe in the matter of 
size. I feel that if there is anj difference in lapsation in one of the 
A or B companies compared with another, and that is in favor of the 
larger company, I think it will be found not in the efficiency of the 
management, it will be found in the competition in the fii Id ; it will be 
found by the agent of the large company telling the policyholder of 
the smaller company that "We can do better for you; look at our 
size," and so forth. 

Mr. Gesell. And be able to get a better quality of business as a 
result ? 

Mr. Montgomery. Yes, sir. 

Mr. Gesell. So far we have mentioned high-pressure selling, as 
you called it, dividend estimates. What about overselling? Do you 
think that that is another factor contributing to lapse? 

By overselling, I mean agents attempting to load a policyholder 
with more than he can carry or more than is needed to meet his par- 
ticular insurance program? 

Mr. Montgomery. Isn't that, after all, what you would call high- 
pressure salesmanship ? 

Mr. Gesell. Well, perhaps, although I related high-pressure sales- 
manship more to' questions of misrepresentation, and the type of thing 
that you see in the funny papers when the salesman holds the man's 
pen to the paper. 

Do you think lapse has any relation to the quality of agents ? 

Mr. Montgomery. Yes; to an extent. 

Mr. Gesell. Do you believe that a heavy turnover of agents, inade- 
quate training of agents, the employment of too many agents, are all 
factors which may lead to a high lapse rate ? 

Mr. Montgomery. Unquestionably. 

If an agent isn't trained, if he doesn't understand what he is sell- 
ing, is picked off the street, given a rate book: and told to go out 
and sell life insurance, how can he intelligently sell any man a policy ? 

Mr. Gesell. Is it your experience in the business, Mr. Montgomery, 
that frequently that is what is done? 

Mr. Montgomery. It seems so, sir. 

Mr. Gesell. Would you feel managements which do engage in that 
practice are perhaps motivated by the desire for volume in getting 
business on the books at any cost without regard to the training of 
their personnel in connection therewith ? 

Mr. Montgomery. Well, if that isn't their motive, why should thjey 
do it? 

Mr. Gesell. So much for tne causes. On this question of who gains 
and who loses from lapses, what is your opinion on that score, and we 
might include other forms of voluntary terminations? 

Mr. Montgomery. Well, we have a saying that every man loses on 
a lapse — the company loses, the policyholder loses, the agent only gets 
a part of what he earns because he only gets his commission and 
doesn't get his renewal. 

Mr. Gesell. The agent just gets his first commission, and doesn't 
get the commission he would get from renewals? 



4342 CONCENTRATION OF ECONOMIC POWER 

(Mr. Montgomery nodded his head in the affirmative.) 

Mr. Gesell. The policyholder loses, because he has paid for some- 
thing he doesn't get. 

Mr. Montgomery. Yes, sir. 

Mr. Gesell. The company loses for what reasons, the expense in 
putting the business on the books? 

Mr. Montgomery. Because it costs far more than they can get back 
from it. 

Mr. Gesell. Then you would feel that it is a serious economic 
waste. 

Mr. Montgomery. I would say yes in one way, no in another. 

Mr. Gesell. Well, you explain yourself any way. 

Mr. Montgomery. I think that the lapses that occur in the first 
2 years are a very definite economic waste because a man gets back 
nothing at all for what he has put in, except, of course, in term 
insurance. Now, if a man gets to a point where he can get a sur- 
render value of whatever kind it may be, then, of course, the loss is 
not so large. 

Mr. Gesell. So that if you define lapse as the termination of the 
policy where the policyholder gets nothing back, then you say that all 
lapse is an economic waste. 

Mr. Montgomery. Well, there is no profit by it, so it must be a 
waste. 

Mr. Gesell, How much does it cost to put a policy on the books 
in your company, for example, Mr. Montgomery? 

Mr. Montgomery. You mean the commissions or the home-office 
expense ? 

Mr. Gesell. The whole works. 

Mr. Montgomery. Well, it costs more than the first annual 
premium. 

Mr. Gesell. In other words, you take in money from a policy- 
holder on his first premium, and by the time you have set up a reserve 
which is required under the law you find yourself dipping into your 
surplus in order to have accomplished that particular acquisition ? 

Mr. Montgomery. That is right. 

Mr. Gesell. And do you feel that all of that money is returned to 
the company by the recapturing of the policyholder's reserve if his 
policy lapses? 

Mr. Montgomery. The company would recapture the reserve that 
has been charged against the policy for the first 2 years ? 

Mr. Gesell. Yes. 

Mr. Montgomery. Well, that would go into, of course, the gen- 
eral funds of the business. 

Mr. Gesell. And do you feel that your gains from lapses and sur- 
renders are sufficient to compensate you for the amount of money 
which you had to expend to get that type of business on your books? 

Mr. Montgomery. I could only say that the surplus increases, and 
the dividends have increased, so that I guess that goes back to the 
policyholders. 

Mr. Gesell. Well, then, do you feel that if that is true, then your 
company is not losing money by its lapsed policies? 

Mr. Montgomery. No, sir. 

Mr. Gesell. You are breaking even? 



CONCENTRATION OF ECONOMIC POWER 4343 

Mr. Montgomery. No, sir. 

Mr. Gesell. You are losing money? 

Mr. Montgomery. Yes, sir. 

Mr. Gesell. Then I gather that you do not feel that by returning 
some of the policyholder's reserve to the surplus you make up for 
the amount of money that it has cost you to get the business? 

Mr. Montgomery. I think not. 

Mr. Gesell. Now, what about this question of the gross premium 
in a mutual company? Do you feel the fact that most mutual coni- 
panies have adopted the policy of charging more than they antici- 
pate will be required with a view to returning some of that sum in 
dividend, leads to a higher lapse rate? 

Mr. Montgomery. Yes: and a wee bit more. 

Mr. Gesell. Now, will you explain what you mean? 

Mr. Montgomery. Because you can never return to the policy- 
holder in its entirety the additional amount you have collected be- 
cause the agent gets his commission, the Government steps in and 
gets taxes; it costs a ^ood deal of money to adjust these, to arrange 
these dividends and distribute them again. Then how can you pay 
back to the policyholder the overcharge? 

Mr. Gesell. And your company has adopted the policy, has it 
not, of reducing the amount of its gross premiums somewhat con- 
siderably below the standard gross premiums of other comparable 
mutual companies with a view to eliminating that amount of the 
waste which would occur if the policies written lapsed? 

Mr. Montgomery. We reduced our premiums in 1925 to about the 
same amount as the stock companies charged, that is the nonpartici- 
pating companies, charged. 

]Mr. Gesell. In other words, instead of taking the money away 
from the policyholder and giving it back to him again, you decide to 
leave it with him in the first plac^? 

Mr. ]\Iontgomery. Well 

Mr. Gesell. Tliat is the net result of it, isn't it? 

Mr. ]Montgo:mery. Well, isn't that common sense? 

INIr. Gesell, And the charging of large gross premiums then you 
feel does not only increase the lapse rate but results in increasing 
the amount of waste involved when policies lapse? 

Mr. ISIontgomery. Yes ; and it contributes to the lapse. 

Mr. Gesell. I have no further questions of this witness. 

Mr. Hlnderson. I have none.- 

_Acting Chairman Reece. Any further questions? You may be 
excused, ilien, Mr. Montgomery. Thank you very kindly for your 
appearance. 

^Ir. Gesell. I have no further witnesses today. We can meet 
either in the morning or the afternoon to meet the committee's pleas- 
ure. The witnesses have been subpenaecl for the morning. 

Acting Chairman Reece. The committee will stand in recess until 
tomorrow morning at 10 : 30. 

(Whereupon, at 4 : 25 p. m., a recess was taken until 10 : 30 a. m. 
Tuesday morning, June 13.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER 



TUESDAY, JUNE 13, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington, D. G. 
The committee met at 10:50 a. m., pursuant to adjournment on 
Monday, June 12, 1939, in the caucus room, Senate Office Building, 
Mr. Leon Henderson presiding. 

Present: Messrs. Henderson (acting chairman), O'Connell, Lubin, 
and Brackett. 

Present also : Messrs. Willard L. Thorp, Department of Commerce; 
Willis J. Ballinger, Federal Trade Commission; Joseph Borkin, De- 
partment of Justice ; and Gerhard A. Gesell, special counsel, Securities 
and Exchange Commission. 

Acting Chairman Henderson. Will you call your first witness, Mr. 
Gesell? 

lobbying and legislative activities — ^association of life insurance 

presidents 

Mr. Gesell. The first witness this morning is Mr. Vincent Whit- 
sitt. This morning the testimony will relate to the activities of the 
Association of Life Insurance Presidents. Mr. Vincent Whitsitt, 
manager and counsel of the association, will be the first witness. His 
testimony will be confined to a consideration of the general organiza- 
tion of the association, the purposes for which it was created, its 
membership, and present objectives. 

Tomorrow additional witnesses will be called for purposes of de- 
veloping the activities of the association in more detail, with particular 
reference to the association's legislative work and the participation 
of member companies therein. 

Has Mr. Whitsitt been sworn ? 

TESTIMONY OF VINCENT P. WHITSITT, MANAGER AND GENERAL 
COUNSEL, THE ASSOCIATION OF LIFE INSURANCE PRESIDENTS, 
NEW YORK CITY 

Acting Chairman Henderson. Do you promise to tell the truth and 
nothing but the truth in these proceedings, Mr. Whitsitt? 

Mr. Whitsitt. I do. 

Mr. Gesell. Will you state your full name for the reporter, please, 
sir ? 

Mr. Whitsitt. My name is Vincent P. Whitsitt. 

4346 



4346 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. You are connected with the Association of Life Insur- 
ance Presidents, are you not ? 

Mr. Whitsitt. Yes, sir. 

Mr. Gesell. In what capacity ? 

Mr. Whitsitt. I am the manager and general counsel and chairman 
ex officio of the executive committee. 

Mr. GrrELL. How long have you been with the association, Mr. 
Whitsitt? 

Mr. Whitsitt. Nineteen years. 

Mr. Gesell. Have you always been manager and general counsel? 

Mr. W'hitsitt. No, sir. I started as a law clerk in 1920; I have 
been manager since January 1, 1934. I was acting manager for the 
year 1933. 

Mr. Gesell. The association has offices in New York City, has it 
jiot? 

Mr. Whitsitt. That is right. 

Mr. Gesell. And your offices are there, I take it? 

\Mr. Whitsitt. That is right. 

Mr. Gesell. Well now, will you tell us what the Association of 
Life Insurance Presidents is? 

Mr. Whitsitt. The association was founded in 1906, shortly after 
the Armstrong investigation. If you recall, the Armstrong report 
made some criticism of the methods that the life insurance companies 
had prior thereto used in handling their legislation. It will also be 
recalled that following the Armstrong investigation the Equitable 
Life Assurance Society was reorganized; as a member of the com- 
mittee, of that reorganization committee, was Grover Cleveland. Mr. 
Grover Cleveland induced Mr. Paul Morton to become president of 
the Equitable Life Assurance Society. Mr. Morton had been in 
Mr. Theodore Roosevelt's Cabinet. Some months later Mr. Paul 
Morton conceived the idea of some association, one of whose object- 
ives was to take care of the legislative matters which were flooding 
the country in the various legislatures to handle this legislation ui a 
manner quite different from that which had been criticized by the 
Armstrong investigation. They induced- Mr. Grover Cleveland to be- 
come the first manager and general counsel. Mr. Cleveland laid 
down the, guiding principles of the association's activities, which 
have been followed' ever since. 

In connection with legislation, we receive and examine thousands 
of bills and examine them from the standpoint of their effect upon 
life-insurance policyholders. 

Mr. Gesell. We will come to that phase of it. To develop your 
testimony a little more with respect to the original organization of 
the association, do you recognize this document v\7hich I show you 
as the minutes of the first meeting of the association ? 

Mr. Whitsitt. Yes, sir. 

Mr. Gesell. I would like to offer these minutes for the record. 

Acting Chairman Henderson. They may be admitted. 
(The minutes referred to were marked "Exhibit No. 690," and are 
included in the appendix on p. 4744.) 

Mr. Gesell. I wish to read a portion of these minutes for the 
record [reading from "Exhibit No. 690"] : 

The first meeting of the proposed "Association of Life Insurance Presidents" 
of the United States was held at the Waldorf-Astoria in New Yorl< City on Fri- 



CONCENTRATION OF ECONOMIC POWER 4347 

day, December 21, 1906, in response to the letter sent out by President Morton, 
of the Equitable Life Assurance Society, on December 3, IDOO. 

There are then listed the names of tlie companies present, their 
location, and their representatives. The minutes go on to state : 

The chairman stated that the object of the meeting was clearly set forth in 
his communication of December 3 addressed to the presidents of the principal 
life-insurance companies throughout the country, the said objects being: 

First. To promote the welfare of policyholders. 

Second. To advance the interests of life-insurance companies in the United 
States by the intelligent cooperation of officers in charge. 

Third. To prevent extravagance and reduce expenses by encouraging uniformity 
of practice among life-insurance companies in matters of general administration. 

Fourth. To consider carefully measures that may be introduced from time to 
time in legislative bodies, with a view to ascertaining and publicly presenting the 
grounds which may exist for opposing or advocating the proposed legislation, 
according as the welfare of the companies and their policyholders shall point to 
the one course or the other. 

Fifth. To consider anything that may be suitably a matter of general concern 
to the life-insurance business. 

Now, those five principles which I have just read, Mr. Whitsitt, were 
embodied in the constitution of the association, were they not, and 
they are the five principles to which you refer in your testimony when 
you say that the general objectives of the association have always been 
the same? 

Mr. Whitsitt. Those, together with various informal expressions 
which Mr. Cleveland and other managers at various times made to the 
executive committee. 

Mr. Gesell. Those are the principal guiding objectives of the asso- 
ciation ? 

Mr. Whitsitt. Yes. 

Mr. Gesell. Now, before proceeding to the activities of the associa- 
tion, can you tell us a little more about its organization; first of all, 
who is eligible to belong to the association? 

Mr. Whitsitt. According to our constitution, any legal reserve life 
insurance company — the term used is "regular life insurance com- 
pany" — of the United States or Canada.^ We have also a rule that 
no company is eligible until it has conducted a legal reserve business 
for at least 10 years. 

Mr. Gesell. Now, does the company join the association or does one 
of its officers, or some of its officers, join? 

Mr. Whitsitt. Perhaps that is a little technicality. We are an 
association of life insurance presidents, and the president makes the 
application. As a practical inatterj of course, it is the company. 

Mr. Gesell. Am I correct in saymg that as far as the meetings of 
the association are concerned only the presidents and vice presidents 
of the member companies can attend ? 

Mr. Whitsitt. That is usually correct. The president may attend 
himself, as they frequently do, or he may send one of the vice presi- 
dents, or he may send another officer who does not happen to have the 
rank of vice president, such as general counsel or secretary. 

Mr. Gesell. Do I understand that both American and Canadian 
companies are eligible to membersliip ? 

Mr. Whitsitt. That is right. 

Mr. Gesell. As nuuuiger, I take it you arc the person actively in 
charge of tlie office from day to day. 

'See "Exiiibit No.'G'J2." appendix, p. 4748. 



4348 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. I am in charge of the administration of the office; 
tliat is right. 

Mr. Gesell. How many employees does the association have? 

Mr. Whitsitt. Somewhere slightly over 60, 

Mr. Gesell. Are they all located in New York City? 

Mr. Whitsitt. That is right. 

Mr. Gesell. Do you determine the policy of the association from 
time to time, or is it determined by some committee or vote, or how is 
it determined ? 

Mr. Whitsitt. Our executive committee determines the policy of 
the association. 

Mr. Gesell. How often does the executive committee meet? 

Mr. Whitsitt. Ordinarily it meets every other month, from No- 
vember to May. Frequently we have, special meetings on special 
occasions. 

- Mr. Gesell. What type of thing vv^ould prompt the calling of a 
special meeting of the executive committee? 

Mr. Whitsitt. Some question of policy might come up that 
needed determinatioti, and we would call a meeting of the executive 
committee. 

Mr. Gesell. Do you recognize this list which I show y(.>i as the 
list containing the members of the association and their dues and 
contributions during the last 5 years? 

Mr. Whitsitt. That seems correct. Yes; here is our identifying 
number. That is correct. Perhaps one of those companies is not a 
member at the moment. 

Mr. Gesell. How much of the legal reserve business of the United 
States is represented by your membership? 

Mr. Whitsitt. I could only give you an approximation; I think 
it is about 85 percent, 

Mr. Gesell. Do the member companies pay dues? 

Mr. AVhitsitt. There are annual dues of $100 per year, but the 
bulk of the contributions are distributed among tho companies by 
what we call "calls" for contributions. Usually there are four each 
year. 

Mr. Gesell. What is the basis upon which those calls are made? 

Mr. WniTsirr. They are based one-half upon first year premiums 
of ordinary business and one-half upon assets. 

Mr. Gesell. But what is it that prompts your asking for the 
money? Your budgetary requirements? 

Mr. Whitsitt. That is right. We make up a budget in November 
or early December each year, approximating what we anticipate we 
will spend the next year, and then calculate roughly about the amount 
and the rates of these calls, and then at the annual meeting in De- 
cember the authority is given for those calls, and those calls are then, 
in turn, passed on to member companies. 

Mr. Gesell. And the companies contribute on the basis of size and 
premium income. 

Mr. Whitsitt. That is, first year premium income; that is right. 

Mr. Gesell. This schedule shows the fees, dues, and contributions 
received from the member companies for the years 1935 to 1938, does 
it not? 

Mr. Whitsitt. That is right — I am not sure. Does it say "dues"? 
Yes, 



CONCENTRATION OF ECONOMIC POWER 4349 

Mr. Gesell. That shows that you received in 1934 a total of 
$332,694.16; in 1935, $442,896.15 ;* in 1930, $365,211.29; 1937, $495,- 
086.85; 1938, $435,375.96. 

I wish to offer this schedule for the record. 

Acting Chairman Henderson. It may be received. 

(The schedule referred to was marked "Exhibit No. 691" and is in- 
cluded in the appendix on p. 4746.) 

Mr. Gesell. That money, Mr. Whitsitt, represents your operating 
funds, does it not, and with those funds you operate ? 

Mr. WiiiTSiTT. That is right. 

Mr. Gesell. In view of the system which 

Mr. Whitsitt (interposing). Tlie disbursements may not equal the 
contributions because there might be a small balance at the end of the 
year. 

Mr. Geseix. But in view of the nature of your system of calling for 
contributions, your receipts pretty well equal your disbursements from 
year to year, do they not ? 

Mr. Whitsitt. Oh, definitely. 

Mr. Gesell. In order that the record maj' be complete, do you rec- 
ognize this as the present constitution of the association? 

Mr. Whitsitt. Yes, sir. 

Mr. Gesell. Reading from article VI of the constitution, it states 
[reading from "Exhibit No. 692"] : 

The manager shall have sole charge and management of the affairs of the asso- 
ciation subject to such direction and control as may be exercised by the executive 
committee or by the association. 

He shall receive and carefully keep all the moneys belonging to tlie association 
and disburse the same as may be directed by the association from time to time, 
or by the executive committee. 

He shall notify the members of the association of all meetings. In the case of 
special meetings, the business for which the special meeting is called shall be 
stated in the notice. 

He shall take and keep a record of all proceedings of each meeting and conduct 
the corr-espondence of the association. 

He shall employ such assistants as in his judgment may be necessary and the 
association or the executive committee may approve. 

That article sets forth then, does it not, your duties? 

Mr. Whitsitt. Yes, sir. 

Mr. Gesell. I wdsh to offer the constitution for the record. 

Acting Chairman Henderson. It may be received. 

(The constitution referred to was marked "Exhibit No. 692" and is 
included in the appendix on p. 4748.) 

Mr. Gesell. You mentioned the executive committee. That, I take 
it, is the working committee of the association which makes most of its 
policy decisions. 

Mr. Whitsitt. I wouldn't say "most." According to the constitu- 
tion, the decision of the executive committee governs the policy 
between association meetings. 

Mr. Gesell. Who are the members of the executive committee 
at the present time ? 

Mr. Whitsitt. I haven't a list here. I think you have a list right 
with you. I can name them. There are 11 members. 

(Mr. Gesell submitted a list to Mr. Whitsitt.) 

Mr. Whitsitt. Mr. Alfred L. Aiken, president of the New York 
Life; Mr. Elbert S. Brigham, president of the National Life of 



4350 CONCENTRATION OF ECONOMIC POWER 

Vermont ; Mr. W. Howard Cox, president of the Union Central Life 
Insurance Co. The name given here is Duffield; Mr. Franklin 
D'Olier, president of the Prudential Insurance Co. of America; Mr. 
John R. Hardin, president of the Mutual Benefit Life Insurance Co. ; 
Mr. David Houston, president of the Mutual Life Insurance Co. of 
New York ; Mr. Leroy A. Lincoln, president of the Metropolitan Life 
Insurance Co. Mr. Nollen has resigned; there is one vacancy. Mr. 
Thomas I. Parkinson, president of the Equitable Life Assurance 
Society; Mr. George Willard Smith, president of the New England 
Mutual; Mr. L. Edmund Zacher, president of the Travelers Insur- 
ance Co. 

Mr. Gesell. Those appear to be, by and large, the larger eastern 
companies which are represented on this executive committee. 

Mr. Whitsitt. Well, there are some exceptions to that. The 
National of Vermont I wouldn't say was such a large company and 
Mr. Cox lives in Cincinnati and Mr. Nollen who was representative 
of the West; although he has resigned, he did represent the Middle 
West. 

Mr. Gesell. The majority of your committee are officers of the 
larger eastern companies. 

Mr. AViiiTsiTT. Well, that depends upon where you draw the line 
of "large." 

Mr. Gesell. Let's call them big. Does that help? 

Mr. WiTiTsiTT. Well, how big is big ? 

I would say this, the New York Life, the Prudential, the Mutual 
Life, the Metropolitan, and the Equitable are members of the 
executive committee; also the New England Mutual, the Travelers, 
and the Mutual Benefit and the National Life of Vermont. 

Mr. Gesell. How do these members vote? Does ertch vote? 

Mr. Whitsitt. Each has a vote. 

Mr. Gesell. Each one has one vote? 

Mr. Whitsitt. That is right. 

]Mr. Gesell. In the association as a whole, does each meinber have 
one vote? 

Mr. Whitsitt. That is right. 

Mr. Gesell. No member has any preference by reason of its size in 
the voting of the organization. 

Mr. Whitkitt. No ; not at all. 

Mr, Gesell. We have mentioned the executive committee. What 
other committees are there of this association ? 

Mr. Whitsitt. Oh well, there are numerous committees. 

]\Ir. Gesell. Can you name some of the more important committees 
and tell us a little what they do? You have a coihmittee, have you 
not, on informing the public on life insurance? 

Mr: Whitsitt. We did have ; that committee has completed its duties 
and been discharged. 

Mr. Gesell. That was a committee, was it not, which made a survey 
to determine what the attitude of the people was concerning^ life insur- 
ance and what could be done, if there was anything which would be 
done, to change the situation? 

Mr. Whitsitt. About 2 years ago — there had been growing for some 
years tlie thought that something might be done along the line of 
informing the public on life insurance. It finally culminated about 



CONCENTRATION OF ECONOMIC POWER 435 1 

2 years ago (I am not sure of the exact date) in a motion at an asso- 
ciation meeting that a committee be appointed to explore the question 
of whether tlie public seemed well enough informed on life insurance 
and, if not, whether anything might be done about it. That committee 
was under the chairmanship of Mr. Frazer B. Wilde, of the Con- 
necticut General Life Insurance Co. of Hartford. It made quite a 
lengthy study and made a report to the association and was discharged 
with thanks. 

Mr. Gesell. Nothing was done on the basis of the study that was 
made? 

Mr. WmrsiTT. Not so far as the association was concerned. 

Mr. Gesell. What other committees do you have? What do they 
do? 

Mr. Whitsitt. Well, we have a committee on State premimn tax 
interpretation, which makes studies regarding the State premium-tax 
lawsjand how to apply the various statutes to premium taxes. We 
have a committee on Federal tax interpretation, which studies various 
problems of interpretation of the Federal act as it applies to our 
member companies. Most of our committees at the moment are not 
very active. 

Mr. Gesell, Would you say you had named the principal com- 
mittees of the association ? 

Mr. Whitsitt. There are some others. They don't occur to me just 
at the moment. 

Mr. Gesell. May I ask you this, are members bound in any w:ay by 
the action of the association? If there is a meeting or a decision 
reached by the executive committee or the association at large, aije 
members bound by that action ? 

Mr. Whitsitt. Not at all. 

Mr. Gesell. If the association decides that it wants to take some 
position with respect to a piece of legislation or any other matter of 
policy and the other members, some other member, doesn't feel that 
he wants to go along, he can just refuse to cooperate in that venture. 
Is that correct? 

Mr. Whitsitt. Quite right. 

Mr. Gesell. Is he assessed for his share of the expenses even though 
he disagrees with the program of the association? 

Mr. Whitsitt. Well, there wouldn't be any breaking down for in- 
dividual projects normally. I don't recall an instance where we had 
a breaking down of a special assessment for a special purpose. Any 
expenses we have come out of our general budget. 

Mr. Gesell. So that he would simply contribute to the general 
budget and no change would be made because of his not agreeing 
with a particular policy or program which was under way. 

Mr. Whitsitt. That is right. 

Mr. Gesell. The only way he could prevent paying his pro rata 
share would be to resign from the association. 

Mr. Whitsitt. That is quite right. 

Mr. Gesell. Your association has an annual meeting, does it not ? 

Mr. Whitsitt. We have an annual meeting' each year in December. 

Mr. Gesell. Do you also prepare statistical studies of one sort and 
another ? 

Mr. Whitsitt. Oh, quite definitelj^. 



4352 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And do you give, make those statistical studies avail- 
able to the companies and to public organizations which may be 
interested in examining them? 

Mr. Whitsttt. We have quite a variety of statistics that we gather. 
Referring to the annual meeting, we gather elaborate statistics on 
various subjects and quite a number of those, or several sets or series 
of those, frequently form the basis of an address at our annual meet- 
ing. There are other statistics we gather; for instance, our monthly 
figures, the monthly figures on new business. We gather those at the 
request of the United States Department of Commerce, and furnish 
them to the Department regularly. 

There are several other series, monthly figures on assets, monthly 
figures on premium income, and data on number of employees, and 
the number of agents. 

Mr, Gesell. I think perhaps, Mr. Chairman, we might stop and 
have these pictures over with, and then go on, if that is agreeable. 

Acting Chairman Henderson. Very well. 

Mr. Gesell. Now, in addition to preparing this statistical informa- 
tion, Mr. "Wliitsitt, does the association participate in what might 
be called test litigation of one sort and another? 

Mr. WiirrsiTT. Yes, sir. 

Mr. Gesell. Does this schedule which I show you contain the prin- 
cipal cases in which the association has participated? ^ And the 
cimount of the fees that have been paid ? And the lawyers involved ? 

Mr. Whitsitt, Yes ; this is of recent years ; runs from 1934 to 1938, 
inclusive. That is right. 

Mr. Gesell. Now, I would like to — this schedule indicates that 
one of the cases which you handled in 1935, or to which you con- 
tribut-ed, was the case of the so-called Radford suit, involving the 
Frazier-Lemke Act? 

Mr. Whitsitt. Quite right. 

Mr. Geseij^. Can you tell us a little about that suit and why the 
association took a participation in that? I notice that it involved 
fees in 1935 alone of $60,0Q0. 

Mr. Whitsitt. You may recall the original Frazier-Lemke Act, 
which was in the nature of a moratorium on mortgages, and also 
would have permitted scaling down of mortgages; it was felt by our 
executive committee that this act, if it went into effect — and we op- 
posed it in Congress unsuccessfully — might cause grave damage to the 
security behind the many mortgages held by our companies, and 
hence the security behind the policy reserves of our millions of policy- 
holders. Consequently or subsequently we were unsuccessful in op- 
posing it before Congress, and one of the early cases tested its valid- 
ity which arose in Louisville, Ky., Radford against tlie joint-stock 
land bank, I believe it was. 

Mr. Gesell. Who is Radford? 

Mr. WiiiTSirr. I do not know. 

Mr. Gesell. He wasn't an insurance person, was he, at all? 

Mr. Whitsitt. He wasn't as far as I know ; I don't know him. 

Mr. Gesell. And yet the association wanted to help him out? 

Mr. Whitsitt. We wanted to test the principle of the constitu- 
tionalitv of the Frazier-Lemke Act, so we retained Mr. William 



^ Entered later as "Exhibit No. 693," see appendix, p. 4750. 



CONCENTRATION OF ECONOMIC POWER 4353 

Marshal Bullitt, of Louisville, Ky., who frequently handles cases 
before the Supreme Court for us, to select a case. It just so happened 
that one of the junior associates in his office had been retained in 
this case to test the constitutionality of it. We were very much 
interested in wanting to employ the best counsel in order to see that 
it was properly presented to the Supreme Court, so we employed 
Mr. John W. Davis and Mr, William Marshal Bullitt, who handled 
the case before the Supreme Court, and it was declared unconsti- 
tutional by a unanimous decision, by Mr. Justice Brandeis. 

Mr. Gesell. Now will you tell us 

Acting Chairman Henderson (interposing). You mean Justice 
Brandeis wrote the opinion? 

Mr. Whitsitt. Wrote the opinion, that is right; concurred in by 
the eig;ht other Justices. 

Acting Chairman Henderson. The law would have been a great 
deal different in this country if a decision could have been made by 
Justice Brandeis. 

Mr. Gesell. Can you tell us what sort of procedure your associa- 
tion went through in determining that it would participate in this 
particular piece of litigation? Did you have a regular meeting of 
your executive committee and did they approve the program? 

Mr. Whitsitt. As I recall we had several meetings in connection 
with that. My recollection is that the first meeting authorized us 
to retain those two gentlemen, Messrs. Davis and Bullitt, to render 
us an opinion on the constitutionality of the act. That opinion was 
rendered, the conclusions of which were that the act was invalid. 
How many meetings we had I can't say without referring to our 
minutes. 

Mr. Gesell. Did you consult your whole membership, or was this 
a determination made by the executive committee? 

Mr. Whitsitt. I am not sure of that; I can't say; it may have 
been; there may have been an association meeting intervening and 
there may not have been. I can't say. AH of the acts — may I inter- 
ject this? — at every meeting of the association the full minutes of all 
executive committee meetings in the interim are presented for rati- 
fication and approval and endorsement. Then later the executive 
committee concluded on the basis of the opinion rendered by these 
two gentlemen that we should select some case to carry it to the 
Supreme Court, and have a final determination on the point.. 

At that time it was determined that Mr. William Marshal Bullitt 
and Mr. John W. Davis be selected. 

Dr. LuBiN. Mr. Whitsitt, your organization and no company con- 
nected with your organization were parties to that suit, as I under- 
stand it ; is that correct ? 

Mr, Whitsitt. That is right. 

Dr, LuiiiN, Nor were you amicus curiae in the case ? 

Mr. Whitsitt, Whnt is that? As I explained a few moments 
ago, the case happened to be in the office of ^Ir, Bullitt, He — one 
of his associates had been retained by the, I believe, joint-stock land 
bank to handle the case, and so the case was in INIr. Bullitt's office. 
In canvassing the various cases Ihat seemed the most appropriate 
one to select for the testing, and also seemed the one nearest to 
appeal. 



4354 CONCENTRATION OP ECONOMIC POWER 

Dr. LuBiN. In other words, here was an individual private citizen 
who had brought suit against a given agency the plaintiff was not 
related to you in any way, but you, your association, said "We will 
pay the counsel fees for this person, even though he has no relation- 
ship to us, because we are interested in seeing to it that this case is 
presented to the court in a certain way. 

Mr, Whitsitt. I guess that is right. 

Mr. Gesell. Did your interest in the litigation appear at all, as 
a matter of public record ? 

Mr. Whitsitf. I don't recall. In this way, our books are always 
examined by the New York Insurance Department and we make no 
secret of it, of our interest in any test litigation. Mr. Bullitt is 
rather well known as a counsel for insurance companies. 

Mr. Gesell. If I were to pick up the record in the Radford case^ 
or go look at the Supreme Court reports now, would I know the 
Association of Life Insurance Presidents was interested and had 
participated in that piece of litigation to the extent of at least 
$60,000? 

Mr. WHrrsiTT. I do not know. 

Mr. Gesell. I notice another suit on here called the "New York 
<^ity Contemplated Suit." Can you tell us what that was ? That was 
in 1934 and involved fees in 1934 of some, $17,500. 

Mr. Whitsfft. Was that the 

Mr. Gesell. The payments were made to three sources, Shearn; 
Root, Clark, Buckner & Ballantine; Bruce and Bullitt. What was 
the nature of that? 

Mr. Whitsftt. My recollection is that had to do with a proposed 
city ordinance in New York City, taxing in some manner — I am not 
familiar and don't recall the details — taxiing in some manner our 
insurance companies, and we retained counsel in order to be prepared 
so that when, as, and if, the act became effective we might want to 
test its constitutionality. That is my best recollection. 

I haven't reviewed the files on that for some time. 

Mr. Gesell. In other words, then, these were simply fees ex- 
pended ? 

Mr. Whitsitt. In conferences and for opinions. 

Mr. Gesell. Getting ready to oppose this legislation if it did go 
through ? 

• Mr. Whitsitt. If our counsel and if our executive committee fin- 
ally concluded that it was invalid and should be opposed. It was a 
preliminary step. 

, Acting Chairman Henderson. I presume you opposed the passage 
of the ordinance? 

Mr. Whitsitt. As I recall — now this is from recollection; I am a 
little dim on the recollection of this — there were some hearings before 
the New York City Board of Aldermen and Council. 

Acting Chairman Henderson. And you probably appeared — did 
you appear yourself? 

Mr. Whitsitt. I did not appear. 

Acting Chairman Henderson. Did counsel for the association ? 

Mr. Whitsitt. My recollection is that we had a committee of offi- 
cers of the New York City companies; that is my recollection. I 
haven't reviewed this file for quite some time. 



CONCENTRATION OF ECONOMIC POWER 4355 

Acting Chairman Henderson. So your interest in this particular 
ordinance was apparent? That is, you did make your appearance 
in the contemplation of the ordinance? 

Mr. Whitsitt. That is right. Before we leave the Frazier-Lemke, 
may I add in connection with the question over there (Mr. Lubin's), 
our representation in that was in behalf of the Louisville Joint Stock 
Land Bank, and not Radford. 

Acting Chairman Henderson. Not Radford? Your people didn't 
represent Radford, is that it ? Your people fej^resented the Govern- 
ment agency? 
Mr. Whitsitt. Yes. 

Dr. LuBiN. May I ask a question, Mr. Chairman? Just for per- 
sonal enlightenment. I don't happen to be a lawyer, so I don't know 
much about legal procedure, but is it customary for — in the practice 
before American courts — an outside agency to hire counsel to defend 
cases without being themselves a party of record? Ts that a cus- 
tomary procedure in our courts? It is for my own personal enlight- 
enment that I ask that question. 

Mr. Whitsitt. It is not uncommon; the railroads, I believe, have 
done that a great many times. 

Acting Chairman Henderson. I think that is correct, Mr. Whitsitt. 
I think it is not an uncommon thing. 

Mr. Gesell. I would like to oflfer this schedule of litigation fees 
and expenses. 
Acting Chairman Henderson. It may be received. 
(The schedule referred to was marked "Exhibit No. 693" and 
appears in the appendix on p. 4750.) 

Mr. Gesell. As far as your legislative activities are concerned, Mr. 
Whitsitt, am I correct in saying that each year there is a break-down 
of your disbursements which shows those expenditures, the amount 
spent for legislative purposes and the amount spent for nonlegisla- 
tive purposes? 

Mr. WHiTsrrr. Oh, definitely ; that is in order that we may furnish 
our companies in turn a break-down so that they may comply with 
what is known as schedule K in the annual statement blank. It is a 
little bit broader than legislation. It is what is known as D of G, 
departments of government,, meaning legislation or departments of 
government. Schedule K is a part of the nnual statement. Every 
life insurance company must file, arfd that was one of the statutes 
requiring that; to my recollection it Was a result of the Armstrong 
investigation; that each company show in detail the amounts ex- 
pended for legislation; so we allocate our expenses to legislation and 
others; and litigation also for schedule J; and then in turn break 
that down for each of our companies in proportion that they have 
contributed to our total receipts. 

Mr. Gesell. Now can you tell us for the period from 1935 to 193S 
by each year the amount of your total disbursements and the amount 
disbursed for legislative purposes? 
Mr. Whitsitt. I think you have some of those here. 
Mr. Gesell. Am I correct in saying that in 1935 vou disbursed 
$480,783, of which $139,601 was for legislative purposes? 

Mr. Whitsitt. That allocation, yes; and that also includes break- 
down for office rent, other overhead, and salaries, and so on, $139.- 
601.50. ' 

124491— 40— pt. 10 15 



4356 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. And in 1936- 



Acting Chairman Henderson. To clear that up, I gather from 
your statement that you have a basis of allocation in your office of 
overhead expense in this break-down you make? 

Mr. Whitsitt. In addition to those items that are directly allocable, 
for instance, if we reimburse a legislative representative so many 
dollars and so many cents, that is directly allocable, those are directly 
allocable items. 

Then in addition we allocate for our auditors — Haskins & Sells — 
report, other general items on a basis of a formula compiled by our 
actuary. 

Acting Chairman Henderson. Instead of your accountant? 

Mr. Whitsitt. That is right, and that 

Acting Chairman Henderson. You must have a good actuary, then. 
An actuary we had before us last week professed not to know much 
about accounting. Do I understand from that, then, a part of your 
salaries would be allocated in this break-down to legislative expense? 

Mr. Whitsitt. Quite right. 

Acting Chairman Henderson. So that the $139,000 wouldn't 
represent moneys that had been expended entirely in direct legislative 
activities ? 

Mr. Whitsitt. The actual disbursement figure for that year, which 
you have on another year 

Mr. Gesell. $487,000. 

Mr. Whitsitt. Not actual disbursement; for legislation and D of 
G I think around $90,000. 

Mr. Gesell.. We wilL introduce that schedule in a moment. Now 
in 1936 your total disbursements were $331,260, were they not, and 
your legislative disbursements $91,241? 

Mr. Whitsitt. That is right, 

Mr. Gesell. In 1937 your total disbursements were $390,380, and 
your legislative disbursements $181,246? 

Mr. Whitsitt. That is right. 

Mr. Gesell. And in 1938 your total disbursements were $505,344, 
and your legislative disbursements $147,683 ? 

Mr. WnrrsiTT. That is right. You haven't included '34 ; I think you 
are referring to 5 years. 

Mr. Gesell. Will you give us the '34 figures ? 

Mr. Whitsitt. The total disbursements were $331,307.71, and legis- 
lative $66,121.83. And may I say regarding the year 1938 the total 
disbursements were $505,000? There was one sizable nonrecurring 
item, something over $100,000, which was for setting up a retirement 
annuity plan for our employees. 

Acting Chairman Henderson. That accounts for the fact that your 
disbursements in that year outran your income? 

Mr. Whitsitt. Yes. Well, we had a balance at the end of the 
previous year which enabled us to handle this large lump disburse- 
ment. 

Acting Chairman Henderson. But you say you were not in the red. 

Mr. Whitsitt. That is right. 

Mr. Gesell. Mr. Wliitsitt, do you recognize this schedule, which I 
now show you, entitled "Total fees, compensation, and expenses in con- 
nection with legislation and appearances before departments in the 
Government by States, 1934r-38," as a schedule prepared by your office. 



CONCENTRATION OF ECONOMIC POWER 4357 

showing the fees, expenses, and compensations paid during the years 
covered directly for legislative purposes to persons not in the employ 
of the association ? 

Mr. Whitsitt. For legislative purposes, and, as I said a moment 
ago, D. of G. 

Mr. Gesell. Appearances before departments of government. 

Mr. Whitsitt. The heading of schedule K will explain this. Only 
one minor suggestion, "Prepared by our office" — it was {)repared on the 
form, and the figures were taken from our books by one of your 
examiners, and our statisticians checked it about 2 weeks after and 
verified it. 

Mr. Gesell. It is a correct statement, is it not ? 

Mr. Whitsitt. My statisticians tell me that it is correct. 

Mr. Gesell. I wish to offer this schedule for the record. 

Acting Chairman Henderson. It may be received. 

(The schedule referred to was marked "Exhibit No. 694" and is in- 
cluded in the appendix on p. 4752.) 

Mr. Gesell. This schedule shows for 1934 fees and compensation 
of $10,400 and expenses of $18,758, and for 1935 fees and compensa- 
tion of $46,085 and expenses of $44,154.49 ; 1936, fees and compensa- 
tion of $13,850, expenses of $13,996.65; 1937, fees and compensation 
of $39,675, expenses of $34,381.15; 1938, fees and compensation of 
$8,950 and expenses of $14,551.41. 

Mr. Whitsitt. You will notice that there is a variation from the 
even numbered year to the odd numbered year — ^between the even 
numbered and the odd numbered years because in the odd numbered 
years there are some forty-odd State legislatures in session and in the 
even years there are not so many regular sessions. 

Mr. Gesell. I notice on the right-hand column this schedule under 
the heading "Legislative Representatives to Wliom Fee or Com- 
pensation was Paid," and the names of various individuals and law 
firms in some instances. Will you explain to us who those persons 
are, what their connection with the association is? 

Mr. Whttsitt. The first one, Mr. Brown, is aji agent, possibly a 
general agent, of the Guardian Life in Alabama ; Montgomery, I 
believe, is his home. For many years he has 'acted as a correspond- 
ent with us, for us, in watching legislation in Alabama which might 
be detrimental to the interests of our policyholders. 

Mr. Gesell. Then you have on that list other individuals con- 
nected with insurance companies who receive fees from you for 
their work in connection with legislative matters. 

Mr. Whitsitt. Only in very exceptional cases are payments made 
to men who are connected with some com|>any. Most of our legis- 
lative correspondents are voluntary workers. It happens that 5iis 
was one of the exceptions and there are two or three from time to 
time. Usually where we are represented by a general agent or a 
manager he is a voluntary worker. 

Mr. Gesell. Then the bulk of the names that appear on that riglit- 
hand column are persons who are employed specially by the associa- 
tion to give representation in the particular State. Is that correct* 
They have no connection with any insurance company ? 

Mr. Whitsitt. Most of these, I believe — ^may I glance down- aro 
counsel. One of these, Mr. Peterson — there is a fee to him — is a 



4358 CONCENTRATION OF ECONOMIC POWER 

general counsel of a member company, but it was a matter for a 
department of the government, as I recall, not in connection with 
legislation. 

Mr. Gesell. In order that we can understand in a little more de- 
tail what prompts the selection of these particular individuals in 
some cases, in some cases why you use voluntary workers, as you call 
them, and in other cases why you employ someone specially, will 
you tell us a little about your procedure? Am I correct in saying 
that you review a great number of bills from all States as they come 
to you in the New York office ? 

Mr. Whitsitt. Quite right. We have received in each of the last 
2 "on" years about 10,000 bills, I suppose. 

Acting Chairman Henderson. You mean by an "on" year 

Mr. Whitsitt (interposing). The odd-numbered year. 

Mr. Gesell. When the legislature is in session. 

Mr. Whitsitt. Yes. 

Mr. Gesell. You review those bills and classify them in some way in 
terms of those you consider objectionable and those you consider not 
objectionable — those you want to watch actively and those you don't. 

Mr. Whitsitt. There are various classifications. 

Mr. Gesell. Tell us what your classifications are. 

Mr. Whitsitt. You have practically stated it. There are bills we 
feel would be quite objectionable from the standpoint of our policy- 
holders and other bills that might be amended in the course of passage 
and become objectionable; they would be watched. Other bills are 
obviously of no interest. 

Acting Chairman Henderson. You say objectionable to your policy- 
holders. You don't mean you consult the policyholders as to w^hether 
or not you should oppose a certain bill ? 

Mr. Whitsitt. For instance, a premium-tax bill materially increas- 
ing the premium tax on policies would obviously have to be borne by 
the policy ohlders. 

Acting Chairman Henderson. But that isn't the sole test you apply 
as to whether you oppose it or not ; that is, it isn't a test of exactly what 
the policyholders' interest is. . 

Mr. Whitsitt. Obviously we couldn't consult 64,000,000 persons. 

Acting Chairman Henderson. My question is, the test you apply 
is whether or not the insurance companies which are members of 
your association find it objectionable? 

Mr. Whitsitt. Obviously anything that would be to the detriment 
of a company, I believe, would also be to the detriment of the policy- 
holders. 

Acting Chairman Henderson. Would that be true with a stock com- 
pany, would you say, or isn't there a division of interest as between 
the stockholders and an insurance company similar to what exists in 
other types of companies ? 

Mr. Whitsitt. Almost 75 percent of the business is in purely 
mutual companies ; obviously, insofar as that goes, there is no divi- 
sion of interest. 

Acting Chairman Henderson. What determination is made by the 
companies themselves as to whether your association oppose or favor 
any given piece of legislation as representing these companies? That 
was the purpose of the formation of the association. 



CONCENTRATION OF ECONOMIC POWER 4359 

Mr. Whitsitt. That is right. 

Acting Chairman Henderson. Tlieir interests may coincide at times 
with the policyholders? 

Mr. Whitsitt. I think largely so. 

Dr. LuBiN. Mr, Whitsitt, in the event that you ran across a, piece 
of proposed legislation which strengthened the position of the policy- 
holder at the expense of the company, would you feel that you would 
have to pass judgment as to whether or not that bill should be opposed 
or favored? 

Mr. Whitsitt. I am afraid that question is too general. 

Dr. LuBiN. Let us be specific. 

Mr. Gesell. May I suggest that within the next few minutes we will 
have specific bills before the committee which the association opposed 
Perhaps that will give a better basis for the question. 

Dr. LuBiN. Thanks. 

IVIr. Gesell. Mr. Whitsitt, after you have determined which bills 
are objectionable to the association, I presume you have some contact 
at the particular State where the bill has been introduced. 

Mr. Whitsitt. We have a correspondent or representative or a law 
firm. We always — you were asking me a moment ago that I didn't 
quite complete. It is far better, we have found b}^ experience, that 
legislative representations be made by men in the business, so that most 
of our legislative correspondents and representatives are either com- 
pany officials of, say, a member company, domiciled in thaf particular 
State, or some leading general agent or manager in that State. There 
are, however, several States — I would guess some 8 or 10 — where such 
a person is not available. In those instances we find it necessary to 
employ counsel to represent us. 

Mr. Gesell. Let me see if I understand that. You, in the normal 
case excluding these 10 or 12 instances that you refer to, deal directly 
with some company official in the particular State. He may be either 
an officer of a company or he may be the head of the local agents or 
underwriters' association, or he-may be a specially appointed man rep- 
resenting all the agents and underwriters in that district. Is that not 
correct ? 

Mr. Whitsitt. Just along that line, it may be the president or, say, 
the general counsel or some vice president of a member company, or it 
may be some leading general agent. He might not necessarily be presi- 
dent of, say, the local life underwriters, or even the chairman of their 
legislative committee — they frequently have legislative committees. 

Mr. Gesell. And you have had frequent contact with the legisla- 
tive committees of the underwriters' associations in the various States, 
have you not? 

Mr. Whitsitt. Well, quite frequent, but our direct contact is with 
the man whom we have designated as our correspondent. 

Mr. Gesell. There is one man designated as your correspondent in 
each of these States. 

Mr. Whitsitt. That is right. There are one or two exceptions. For 
instance, in Minnesota we have two member companies there. We 
send a copy of the correspondence to the man in each company, and 
there may be one or two other exceptions of something like that. 

Mr. Gesell. If you find that you don't get, can't have handy, the 
right kind of agent or manager or official to represent you in some 



4360 CONCENTRATION OF ECONOMIC POWER 

locahty, or suppose the work becomes too diflScult or too complex or 
too legal in character, you designate some attorney frequently to repre- 
sent you as your correspondent in that. 

Mr. Whitsitt. That is quite right. In a number of States there 
does not seem to be a man available willing to give his time or a man 
qualified to handle the situation, and then it becomes necessary to 
employ counsel. 

Mr. Gesell. The selection of a counsel in those States is illustrated 
on this schedule which you had before you a minute ago, showing fees 
and compensations, is it not? 

Mr. Whitsitt. That is right. 

Mr. Gesell. Then, if during a particular legislative session there 
seems to be a great deal doing and too much to be handled by the 
local representative, am I correct in saying that it is your practice on 
many occasions to send down to the legislature an employee of the New 
York office of the association who goes down and contacts the people 
there in that State and helps whip things into shape ? 

Mr. Whitsitt. To coordinate the local activity, oh, yes. 

Mr. Gesell. So that you have three different possible contacts in a 
particular State, or a combination of those three. 

Mr. Whitsiti. Explain what you mean by three different combina- 
tions. 

Mr. Gesell. A representative of the industry, an attorney that you 
appoint specially, or a representative that you send down, 

Mr. Whitsitt. One or the other and possibly an officer of the asso- 
ciation. 

Mr. Gesell. Now, I ask you whether this document which I show 
you now, being a letter dated July 12, 1937, addressed to Leroy A. 
Lincoln, president of the Metropolitan Life Insurance Co., is not a 
summary of the association's legislative activities for the year 1936, this 
being a form letter which was sent not only to Mr. Lincoln but to 
all other member companies ? 

Mr. Whitsitt. This is in the form of a report, and attempting to 
boil it down into two pages. 

Mr. Gesell. I would like to have this for the record. 

Acting Chairman Henderson. It may be received. 
(Thp letter referred to was marked "Exhibit No. 695" and is in- 
c.lucjed in the appendix on p. 4754.) 

Mr. Gesell. This letter is captioned "1937 Legislative High Points" 
[reading from "Exhibit No. 895"] : 

For the confidential information of mem'ier companies, there are outlined be- 
low a few of the high points of the 1937 legislative proposals. Detailed informa- 
tion appears in our regular bulletin service. 

Of the 46 regular and 14 special sessions — in 46 States, two Territories and 
<>)ngress — Congress and three States (Minnesota, New Hampshire, Ohio) are still 
active. Total bills examined here, 11,047, set a new high, almost double that of 
G years ago and over three times that of 10 years ago. 

Ten premium-tax-increase bills on foreign companies failed in 8 States, Cali- 
fornia, Colorado, Florida, Georgia, Minnesota, Nevada, Oklahoma, Washington. 
None enacted. Such proposals so far failed this year would have increased the 
annual tax by $3,300,300. A bill, still pending, was passed by the House to in- 
<Toase the District of Columbia rate from V/y to 2 percent. This increase has 
bi'cn deleted by the Senate committee. 

Seven bills were introduced in five States to subject annuity considerations to 
premium taxation. Five failed, one was amended in Maryland to exempt 
Mnnuitits and enacted, and the other, in "New Hampshire, is still in committee. 

Four compulsory-investment bills failed in two States. None enactt^d. 



concentrXtion of economic power 4Z61 

Nine savings-bank life-insurance bills failed in seven States, Colorado, Con- 
necticut, Missouri, New York, Ohio, Pennsylvania, Rhode Island. None enacted 

Seven bills specifically to restrict policy-loan interest failed in five States- 
41/2 percent in Minnesota and New York, 4 percent in Colorado and Pennsylvania,' 
and prohibition of any interest in California. None enacted. Numerous other 
bills to restrict general interest failed. 

New insurance codes were enacted in Illinois and Alaska. Proposed codes 
failed in Penilsylvania and Hawaii. 

Proposals were made in nine jurisdictions to subject applicants for life agents' 
licenses to department examination. All failed or were amended to exempt life ; 
except in Washington a new law requires examination but permits it to be given 
by a company with an approved course of instruction. 

A large number of net- and gross-income and sales-tax measures broad enough 
to include insurance were proposed. Numerous inheritance, intangible, gift, 
stamp, capital stock, mortgage, and municipal tax bills would have imposed 
additional taxes on life insurance. One intangible-tax proposal would have spe- 
cifically taxed annuities and surrender values. 

A new Georgia law requires deposits by life-insurance companies. In Alabama, 
Arkansas, Delaware, and Nebraska proposals to require bonds or deposits in the 
State were unsuccessful. The Nebraska bill would have required a deposit equal 
to Nebraska reserve with either 30 percent in Nebraska securities or an 
additional 2 percent premium tax. 

Other noteworthy adverse measures which failed included proposals for pre- 
mium notices, attorneys' fees and penalties, insurance investigations, prohibition 
of race distinction, segregation of life-insurance assets, appointment of certain 
life companies' directors by a State insurance commissioner, and all companies 
to offer renewable term insurance. 

Forty measures of interest from a mortgage-loan viewpoint were enacted. 
Nearly half extend emergency laws permitting stays of foreclosure,, extensions of 
i-edoniption periods, or modifications of deficiency judgment rights. Others pro- 
hibit deficiency judgments In certain cases 01*" p''ovide other changes in fore- 
closure procedure. Two bills in Oklahoma would have provided for escheat of 
corporate-owned farm lands held beyond 7 years. One which became law was 
amended to substitute a penalty. In four States six bills to impese a graduated 
land tax failed. Two such measures are pending in Minnesota. Numerous other 
measures adverse to mortgage-loan investments failed. 

The favorable outcome is attributable to the cooperation of life-insurance men — 
both home oflfice and field — wholly typical of the institution of life insurance. 

Mr, Whitsitt. I think yon stated that went to the presidents of 
each of our member companies. 

Mr. Gesell. Yes; that is correct. 

Mr. Whitsitt. That is correct. 

Mr. Gesell. Do you recognize this document which I show you as 
a simihir report sent to the member companies on July 5, 1935? 

Mr. Whitsitt. Yes; quite right. 

Mr. Gesell. I wish to offer this for the record. 

(The letter referred to was marked "Exhibit No. 696" and is in- 
chidcd in the appendix on p. 4755.) 

Mr. Gesell. Now, the report which I read for the 1936 legislative 
session sets up, generally speaking, does it not, the type of bill which 
the association considered desirable to oppose'^ 

Mr. Whitsitt. Well, I think you will find some bills in there ihnt 
we do not take action on. It was a mere question of report, \.h\~ 
doubtedly, most of the bills in there that were referred to as objec 
tionable were opposed. I have to review the list, but I think thero 
were some there that we didn't oppose. 

Mr. Gesell. By aad large, the bills mentioned in there were op 
posed by the association. 

Mr. Whitsitt. By and large, the bills were opposed, but possibly 
some of them ^;^'8re supported. I would have to go through it again. 



4362 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Will you just pick out of there those bills mentioned 
which were defeated but which the association didn't oppose. 

Mr. Whitsitt. Well, I would say this irenerally. We have never 
opposed an investigation of insurance. That is the one thing that 
caught my mind. 

Mr. Gesell. All right. What else, Mr. Whitsitt? 

Mr. Whitsitt. And I have no recollection of ever opposing prohi- 
bition of racial distinction. 

Acting Chairman Henderson. What was that? 

Mr. Whitsitt. I have no recollection that we ever opposed a bill 
described here as prohibition of race distinction. I think that gen- 
erally would be true. There may be some exceptions that I haven't 
caught, but generally that is- true. 

Mr. Gesell. Now, coming 

Mr. Whitsitt (interposing). On insurance codes, we do not oppose 
the complete insurance code. Mr. Hogg reminded me of that. 

Mr. Gesell. You have your own code, which is the code you wanted 
adopted. 

Afr. Whitsitt. Not necessarily, at all. We are very happy to make 
suggestions; and if there is a first draft, we are happy to go through 
that and make suggestions for amendments as we have for a period 
of '2 years in New York. 

Acting Chairman Henderson. Do you have a model code of your 



own 



Mr. Whitsitt. We have one. It is a . little antique right now. 
The American Bar Association has one which, as far as life is con- 
cei-ned, is substantially the same that we considered, so-called stand- 
ard. We receive requests quite frequently from various persons in 
Slates for what we consider standard provisions or a model. We 
have used it for that, substantially the same as the American Bar 
Association code. 

Mr. Gesell. Referring back to a question by Dr. Lubin for a 
moment, I noticed there a reference to the defeat of bills requiring 
a State examination for agents. Your association has opposed that 
type of legislation, has it not? 

Mr. Whitsitt. In the past, some years ago, and for a good many 
years. up until quite fairly recently, we have — our association, the 
executive committee — felt it was undesirable, and we have opposed 
those bills; however, it happens that our position on written ex- 
aminations for life-insurance agents Jias been reversed, and we are 
not now opposing written examinations for life-insurance agents 
where there is a provision that a man may be licensed and operate for 
6 months, say, on trial pending his opportunity to take an examination. 

Mr. Gesell. During the period before you had this reversal of 
policy you had opposed examinations by States of life-insurance 
agents, had you not ? 

Mr. Whitsitt. That is quite right in most instances. 

Mr. Gesell. Was that not the type of situation to which Dr. Lubin 
referred where the legislation may have been the type of legislation 
which would have brought to the policyholder an added protection? 

Mr. Whitsitt. Is there a question? 

Mr. Gesell. Yes; I will repeat it again. Was that not the kind of 
.a bill which would have brought to the policyholders added protection? 



CONCENTRATION OF ECONOMIC POWER 4363 

Mr. Whitsitt. I will answer it this way : The reasons that our ex- 
ecutive committee and association felt it advisable to oppose written 
examinations were these: In a good many States in practice in the early 
days of examinations it was found that examinations were not given 
frequently enough, and it Avas found that they were not given in 
various sections of a populous State. Some of the agents had to travel 
great distances, and, also, it was an added expense to the insurance 
department, which in turn would be an added expense imposed on 
the policyholders. Tlie companies also felt that since they had been 
introducing schools — most of our larger companies and most of our 
membership have various training courses and schools for the training 
of their agents — they felt that their own training was a sufficient test. 
Furthermore, it was felt that the mere passing of a written examina- 
tion does not make an honest man or a man of good character. I 
would say an educated crook would be worse than an uneducated 
crook. 

Dr. LuBiN. Of course, tliQ fact that a man passed an examination 
doesn't compel you to hire him. He might be dishonest and pass the 
examination but that is no assurance that you a];e going to hire him, 
is it? 

Mr. WiiiTsixr. Under the procedure, as I understand it — I am not 
an agency man — a man applies to the company for an opportunity to 
become an agent, and the company certifies to the department in order 
to have an examination given to that man. The arrangement tenta- 
tively is made with the com])any before the examination is taken. 

Dr. LuBiN. So the company in the last analysis determines whether 
they will hire the man. 

Mr. WiiiTSTTT. Now I am referring to our past policy, prior to our 
recent reversal. At that time it was felt that it was an added burden; 
however, there have been changes in the times. In recent years there 
have been many more — well, there have been many taxes; and the 
way you leave your life insurance will frequently invplve the payment 
of your death taxes and other complications — the various modes of 
settlement which make it necessary to have a higher standard and 
our reversal of attitude was along the line of the trends of the day 
for having higher qualifications for life-insurance agents so that they 
be better equipped to deal with the injuring public. 

Mr. Gesell. Let's see about that. In 1934 your association opposed 
such a bill in Rhode Island, did it not ? 
Mr. Whitsitt. I wouldn't say offhand ; we probably did. 

Mr. Gesell. Will you examine this file, please, and refresh your 
recollection ? 

jMr. Whitsitt. Yes; this is — as I said, our reversal was quite recent. 

Mr. Gesell. Nov\', you opposed it in 1934 and, as this file indicates, 
a letter went out to Mr. Stearns, general agent of John Hancock, 
stating [reading] : 

As you know, the policy of the member companies of this association in opposi- 
tion to measures calling for written examination of applicants before they can 
be licensed as life-insurance agents, is long established and unaltered. 

This man, who was a Maurice H. Stearns, you addressed as general 
agent of the John Hancock, and he replied (o you as chairman of the 
law and legislative connnittee of the Rhode Island Underwriters Asso- 
ciation and said 



4364 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt (interposing). Yes; he disagreed. 
Mr. Gesell. He said [reading] : 

This bill was prepared in this office after a personal visit to the insurance 
department of one or two of our surrounding States and in correspondence with 
other insurance departments. You may also know that various other bills, and 
particularly the bill recodifying the entire life-insurance law of the State, also 
had our attention. Life-insurance men have done considerable work for the 
betterment of the business in the State of Rhode Island, and we know that 
the life-insurance fraternity believe that this bill should become law. 

Mr. Whitsitt. Yes; it is quite true. That is an indication of one 
point that we do not control the agents; they do not always agree 
with us. 

Mr. Gesell. Now, let's just see what happened about that. You 
wrote back to him again, the association did, and said [reading] : 

We are fully in accord with you as to the desirability of having the life-insur- 
ance business represented by the highest type of agency personnel. In this con- 
nection, however, we feel tliat the companies, rather than others, should bo 
responsible for the selection of competent and trustworthy agents. 

And' after that letter had gone out you received a reply, a memo- 
randum in your file, from Mr. Crane, which says: 

In view of the sentiment among the underwriters in Rhode Island in favor 
of this bill, Mr. Creswell — 

Who is he? 

Mr. Whitsitt. He is our statistician. 

Mr. Gesell (continues reading) : 

telephoned the following with the request that they communicate with their 
general A companies, making known that opposition to measures of this type 
and llioy are the representatives of the Metropolitan, the Prudential, the Equi- 
table, the Mutual Life of New York, the Mutual Benelit, the New-York Life, the 
Nortliwe.stern Mutual, the Connecticut Mutual, Massachusetts Mutual, the Phoenix 
Mutual, the Now England Mutual, and the State Mutual — 

and tlicre is recorded against the memorandum that thoy all will 
do so. 

And subsequently there is a memorandum from Mr. Crane, which 
says that — 

Mr. White, of the Puritan Life, telephoned Mr. Whitsilt this afternoon. He 
said that a meeting of the agents had been held yesterday to consider the merits 
of tliis bill and that tlie agents had decided to withdrnw their support and 
oppose it. 

So that even if there is this disagreement with you among the 
agents, you are pretty vigorous in your efforts to have your position 
succeed, are you not? 

Mr. Whitsitt. Yes; we were carrying out the policy of our <"xecu- 
tive committee. Now, it is instances like that and a growing feeling 
is that there should be written examinations, which resulted in a 
reversal of our policy. 

Mr. Gesell. Why iiot leave well enough alone if the agents in 
Rhode Island want this bill and the people of Rhode Island through 
tl^eir elected legislature have proposed a bill which they want to enact, 
and (iiose people are policyholders; why not have the bill enacted* 
Why should yon inter]ect yourself into the situation at all? 

Mr. Whiisitt. We feel we have a stake in the life-insurance busi- 
ness. As a mtitter of fact we have changed our policy. 



CONCENTRATION OF ECONOMIC POWER 4365 

Acting Chairman Henderson. I gather you would support the bill 
now; is that it? 

Mr. WHirsiTT. I don't know as we would go so far as to actively 
support one; in changing a policy of an organization from one posi- 
tion to another it is usually a matter of evolution; it goes slowly. 

Acting Chairman Henderson. But if they went ahead you wouldn't 
have Mr. Creswell telephone down? 

Mr. Whitsitt. That is right; quite right. 

Acting Chairman Henderson. And try to kill it? 

Mr. Whitsitt. That is right. 

Mr. Gesell. Now one thing that interested me in that file was the 
indication that the association on occasion apparently communicates 
with the offices of the member companies and asks them to communi- 
cate in turn with their general agents with a view to establishing a 
concerted action on a particular measure? 

Mr. Whitsitt. Quite right. 

Mr. Gesell. Now will you explain that procedure to us in some 
detfiil and how it works out, and how it is handled ? 

Mr. Whitsitt. We may have a very vicious tax bill. The average 
premium tax, which is nothing more than a gross sales tax or a 
transaction tax, is slightly less than 2 percent. Now assume a bill 
has been introduced, as has happened in some States, making that 4 
or 6 percent. There is an added burden on the policyholders. We 
feel that such additional burden should not be imposed. We take 
such local steps as we may have available to us to ascertain the situa- 
tion as to how strongly the bill is being pressed. In order to meet 
the situation, however, we need the cooperation of the general agents 
and managers of our member companies, so we frequently, as you 
say, will send a telegram to the home offices asking their local repre- 
sentatives in that State — calling their attention to this vicious bill 
which they might not otherwise be acquainted with, and suggesting 
that they cooperate with whoever happens to be representing us in 
the State at that time. 

Mr. Gesell. What is the procedure ? You wire to the member com- 
panies, they get their general agents to meet with your representa- 
tive, or correspondent, and then a plan of procedure is worked out 
with a view to defeating the particular bill ; is that correct? 

Mr. Whitsitt. Insofar as they respond ; yes. 

Mr. Gesell. Well, what can the general agents do besides vote? 

Mr. Whitsitt. Well, they can cooperate with our agent in appear- 
ances before committees and possibly conferences with members in 
educating any member they might happen to know upon the evils of 
the bill. 

Mr. Gesell. You mean they can go out and contact the various rep- 
resentatives and present to them the position of the life-insurance 
companies? 

Mr. Whitsitt. Present their own position as an agent of their com- 
pany in behalf of their policyholders. 

Mr. Gesell. What about stirring up policyholders? 

Mr. Whitsitt. Well, in some instances that may have been done. I 
don't know of a general campaign of that type. It has been suggested 
many times that we circularize all policyholders; I don't recall that 
that has ever been done, although frequently an agent will have some 



4366 CONCENTRATION OF ECONOMIC POWER 

prominent policyholder or several prominent policyholders who would 
feel that they slioiild also resist the imposition of this burden upon 
their premiums. 

Mr. Gesell. Well, I have here a letter in my hand from Mr. Eear- 
don to you, under date of March 2, 1935, in which he refers to some 
legislative activities in California. It says [reading] : 

We are using as our field forces the California Association of Life Insurance 
Agents, the State organization of life underwriters, and the various local under- 
writers' associations throughout the State who are working under our direction. 
Among other things, they have by this time, through friendly agents, contacted 
practically every member of the senate and assembly in the State. In addition 
to that, we are securing a certain amount of publicity through the metropolitan 
and rural papers against the increase in insurance taxes. 

Now, this is the part I was particularly interested in ; it says : 

While we have only allowed a comparatively small luimber of iiolicyholders to 
be contacted, we have succeeded in creating the impression that over 2,000.000 
policyholders in this State are up in arms against any increase in insurance taxes, 
and the writer is competently advised that Governor Merriam's administration 
is weakening in its purpose to increase the insurance taxes. 

That would indicate to me that there are some dangers in approach- 
ing ])olicyho]ders with respect to legislation. 

Mr. Whitsitt. I think you are quite right. 

Mr. Gesell. I wanted to know 

Mr. Whitsitt. Mr. Reardon no longer represents us. 

Mr. Gesell. I wanted to know whether it was the policy of your 
association to encourage representatives to approach policyholders or 
whether it was not the policy. 

Mr. Whitsitt. Generally not ; generally not. 

Mr. Gesell. Now that isn't a sufficient answer for my purposes. 
What do you mean, "Generally not" ?' You mean not unless necessary ? 

Mr. Whitsitt. AVe wouldn't approve of that. It apparently was 
the idea of the local State association. We can't control the State 
associations when they get enthusiastically into a legislative fight. 
They do a good many things we do not approve. 

Dr. LuBiN. The members of these State associations are employees 
of the various companies that are among your members? 

Mr. Whitsitt. They are not employees under the doctrine of 
independent contractor. They are agents of either both members 
or nonmember companies. 

Dr. LrniN. Well now in the case of Rhode Island, where you did 
want to control them, it was relatively simple, by calling up the home 
office and telling their boys what to do and what not to do. Would 
it not be possible to control them in other instances? 

Mr. Whitsitt. That is one of our ]:)roblems. 

Dr. Li'Bix. I raise the question because you just said you can't 
control these ])eople, but apparently in some instances it is possible 
to control them if you use proper devices to do it ? 

Mr. Whitsitt. Is that in the form of a question? If so, I didn't 
understand it. 

Dr. LiTRiN. Well, I tried to explain why I asked you that question. 
I can't understand why you coiddn't control them in California and 
you coidd in Rhode Island, if in both instances they are employees 
or agents of member companies. 

Actiuff Chaiiman Henderson. Mny I put it in the form of a ques- 
tion? Do you have any genei'al policy not to contact policyholders? 



CONCENTRATION OF ECONOMIC POWER 4367 

Mr. Whitsitt. I can answer that in this way. Our general policy 
has been not to contact policyholders on a wholesale basis. There 
have been instances, as I mentioned a moment ago, where a number 
of general agents or agents will wish to contact a certain limited 
number of their own policyholders, men whom they have insured, 
and enlist their assistance in o])posing certain legislation, but our 
policy has not been, so far as I have been with the association, to 
send out a wholesale circularization or wholesale request to policy- 
holders to enlist them. 

Acting Chairman Henderson. Well, it isn't necessary and would 
be impractical with 11,047 bills, wouldn't it? 

Mr. WnrrsiTT. Beg pardon? 

Acting Chairman Henderson. It would be impracticable and al- 
most impossible with 11,047 bills? 

Mr. Whitsitt. Yes; it would. 

Acting Chainnan Henderson, Then when you do give a "go ahead" 
on this contact in these special circumstances, what is the controlling 
factor in the association's mind which lets them do it in one case 
as against the general policy? 

Mr. Whitsitt. As a matter of fact quite a bit of that is spon- 
taneous on the part of the agents. 

Acting Chairman Henderson. That isn't my point. I can see 
your point, that in their enthusiasm to kill a bill in an individual 
State all kinds of things are done. I am talking now as to the 
association policy. You have told me the general policy is you dp not 
encourage that; in some special instances you do. Can you give me 
some illustrations of the circumstances in which you do? 

Mr. Whitsitt. I think it would depend somewhat upon how 
strongly supported and how vigorous the press was on the particular 
bill in question. 

Acting Chairman Henderson. Can you give me some instances 
of specific bills? 

Mr. Whitsitt. I don't recall; it has happened several times. 

Mr. Gesell. We will present some testimony with respect to that 
tomorrow, Mr. Henderson, with subsequent witnesses.^ Now you say 
it is hard to control underwriters in this matter, referring again to 
this matter of Mr. Reardon. He was your representative, was he not? 

Mr. Whitsitt. At that time. 

Mr. Gesell. He stated that the underwriters were working under 
his direction, did he not ? 

Mr. Whitsitt. 1 think he was bragging a bit. 

Mr. Gesell. Did you write to him at all about not circularizing 
policyholders when you received his letter? 

Mr. Whitsitt. I don't recall. 

Mr. Gesell. Do you recall whether or not you made any effort 
to acquaint the legislators that there were. not 2,000,000 policyholders 
stirred up? 

Mr. Whitsitt. I don't recall. 

Mr. Gesell. In view of the principles set forth in your consti- 
tution, which is the fourth principle, it states — 

to consider carefully measures that may be introduced from time to time in 
legislative bodies with a view to ascertaining and publicly presenting the 
grounds which may exist for opposing or advocating the proposed legislation. 

1 Infra, p. 4384. 



4368 CONCENTRATION OP ECONOMIC POWER 

I was wondering how, under any circumstances, the association 
justified an approach to a legislature through the policyholders; that 
is not a public presentation of a position of the association, is it ? 

Mr. WHrrsiTT. In such a situation as that we make no secret of 
our opposition. Isn't that quite public? 

Mr. Gesell. Do these telegrams to policyholders say "at the re- 
quest of a representative of the Association of Life Insurance 
Presidents Ij am telegraphing to protest against such and such a 
bill"? 
Mr. Whitsitt. I couldn't say. 

Mr. Gesell. You know that isn't the fact, don't you? 
Mr. WHrrsiTT. I do not know it isn't a fact ; I do not know one 
way or the other. 

Mr. Gesell. Is it part of your procedure when you do approach 
policyholders to tell your men to make sure that the policyholders 
advise the le^T^islature that the association has had an interest in that 
telegram? 

Mr. Whitsitt. The point really is this. Here is a very bad bill 
that would affect these policyholders^ and the work of our agents is in 
educating the policyholder to the evils and dangers of this particular 
legislation • as it would affect him and his family and other policy- 
holderSj and when he becomes so familiar with the facts our policy 
is to present the facts to him — our great trouble in legislation, as 
a mati,3r of fact, is getting an opportunity to lay the facts before 
the members of the legislature. 

Mr. Gesell. You can go into a legislature with the facts, with a 
whole written memorandum as to what is wrong with a bill. - You 
can pi esent your position rather actively, can you not ? 

Mr Whitsitt. It all depends on the legislature. There are 48 
different kinds of legislatures ; there are frequent occasions when you 
can*t even have a committee hearing. A bill will be assigned to a 
committee and reported out before you ever have a chance to present 
your facts. 

Acting Chairman Hes^jderson. In those cases, then, you take some 
more direct action. Is ihat it? 

Mr. Whitsitt. It is obviously necessary, but we make no secret of 
our opposition to any bill. 

Mr. Gesell. May I ask you whether this document is the form 
of document used by your association in a typical case in encouraging 
general agents to cooperate with the local representative, and does 
that second sheet contain the list of persons to whom it was sent? 

Mr. WnrrsnT. I think that is quite correct. It usually has on it 
"sent to" and this doesn't have "sent to" here, but I think that is 
«:;orre«-t. 

Mr. Gesell. This is a letter which was sent out in connection with 
a CaVifornia bill on April 8, lUbT, was it not? 

Mr Whitsitt. Yes. 

Mr, Gesell. I wish to offer it in the record. 

Acting Chairman Henderson. It may be received. 

(The letter referred to was marked "Exhibit No. 697" and is in- 
cluded in the appendix on p. 4756.} 

Mr. Gesell. There is one part of this problem that I would like 
to ask you a few more questions about before we finish. You have 
spoken of your cooperation with underwriters' associations and may 



CONCENTRATION OF ECONOMIC POWER 43g9 

I ask whether you have any formal agreement or understanding 
with the underwriters' association that they will cooperate with you, 
or is it a matter which is dependent upon the particular circum- 
stances in every case? 

Mr. Whitsitt. We have no agreement whatsoever. 

Mr. Gesell. By and lar^e you are able to call upon the under- 
writer's associations for assistance, are you not? 

Mr. Whitsitt. Their interests are largely the same as ours on most 
propositions. 

Mr. Gesell. You have worked rather closely with them, have you 
not? 

Mr. Whitsitt. At times, in some States, yes — in some States not 
so much. 

Mr.. Gesell. In some States over a period of maybe as many as 10 
years you have always had as your correspondent a representative 
of the underwriters' association, have you not? I have in mind, for 
instance, Georgia. 

Mr. Whitsitp. I will have to answer from recollection but I do 
not think Mr. Cooney, who is our contact man in Georgia, is a 
member of the underwriters, or very active. 

Mr. Gesell. You mean he is not chairman of the legislative com- 
mittee of the Underwriters' Association qf the State of Georgia? 

Mr. WHrrsiTT. He may be, I know that he doesn't think much of 
the national association; he may have a formal membership. 

Mr. Gesell. If the underwriters' association is not in agreement 
with your association have you had many cases where, for instance 
in Rhode Island, through approach to the management of the various 
companies you have been able to get association cooperation ? 

Mr. WiHTSirr, I don't recall. 

Mr. Gesell. You have no ideas about it at all ? 

Mr. WmTSiTT. Will you make it specific? 

Mr. Gesell. Certainly. Have you been able to get cooperation of 
the underwriters by approaching the managements of your mem- 
ber companies whenever you have desired it ? 

Mr. Whitsitt. We have not often undertaken, as I recall, to influ- 
ence the agents of our member companies contra to the action of the 
underwriters. There have been some exceptions, and you put your 
finger on one in Rhode Island. There may have been one or two 
others, but I don't recall them offhand. 

Mr. Gesell. By and large, then, it has not been necessary to par- 
ticularly attempt to line up the underwriters, their interests and 
yours have been more or less synonymous. 

Mr. Whitsitt. Generally speaking, the interests of tKe under- 
writers are in their policyholders, as are our interests. 

Mr. Gesell. And so they cooperate with you in legislative matters? 

Mr. Whitsitt. Yes; they do from time to time. 

Mr. Gesell. I have no further questions of Mr. Whitsitt at this 
time. I would like to ask the committee not to excuse him but to 
recall him to the stand tomorrow. 

Acting Chairman Henderson. Are you going to discuss legislative 
activities again tomorrow? 

Mr. Gesell. Yes; in much greater detail. 

Acting Chairman Henderson. Do ^you wish the members of the 
committee to withhold their questions until tomorrow ? 



4370 CONCENTRATION OF ECONOMIC POWER 

Mr. Geseli.. I am perfectly agreeable to any questioning. 

Acting Chairman Henderson. Mr. Wliitsitt will be back on the 
stand ? 

Mr. Gesell. He will be back tomorrow. The general questioning 
today has been on the organization of the association. We have not 
laid emphasis on the direct legislative activities which we will cover 
tomorrow. 

Dr. LuBiN. Mr. Whitsitt, can you tell us briefly why the Associa- 
tion of Life Insurance Presidents opposes the segregation of assets 
under State laws ? 

Mr. Whitsitt. You are referring to that California bill? That 
would mean a walling off, and if carried to its logical conclusion 
would break a company up into many small bits, the assets of each 
division only being subject to the liabilities of that section. The 
whole theory of insurance is that all of the assets of the company 
are subject to all the liabilities of the company. 

Dr. LuBiN. So that in the event that a company wrote both life 
insurance and, let's say, casualty insurance, if the casualty division 
.was losing money the assets of the life-insurance section would be 
available to meet those needs. 

Mr. Whitsitt. I am not familiar with companies writing that "type 
of business, but my impression is that that would be true, in the ques- 
tion of California related to our disability. Do I make myself clear? 

Acting Chairman Henderson. We run into this question which I 
notice was discussed concerning the Nebraska bill requiring a reserve 
of 30 percent in Nebraska securities or an additional 2 percent pre- 
mium tax. Would your association oppose that kind of legislation 
which would require a company to buy securities ? 

Mr. Whitsitt. Special deposit. Is that what you have in mind? 

Acting Chairman Henderson. Yes. 

Mr. Whitsitt. I don't have the text of the bill here, I have only a 
summary. A special deposit, somewhat similar, would tend to break 
down 

Acting Chairman Henderson (interposing). Where a state wants 
to require the insurance company to buy securities of that State equal 
to the amount of the insurance in force. 

Mr. Whitsitt. That is right. 

Acting Chairman Henderson. You oppose that. 

Mr. Whitsitt. Yes. 

Mr. O'CoNNELL. Does your association oppose bills designed to re- 
strict policy loan interest? Several of those are referred to in your 
letter of July 12. 

Mr. Whitsitt. Policy loan interest rate? 

Mr. O'CoNNELL. Yes; your letter refers to seven bills specifically 
to restrict policy loan interest.^ Do you oppose those ? 

Mr. Whitsitt. We have opposed the reduction of the interest rate 
on policy loans. 

Mr. O'CoNNEix. On the theory, too, that that is contrary to the 
interests of the policyholders ? 

Mr. Whitsitt. Yes; definitely. 

Mr. O'CoNNELL. Of course, those that borrow on policy loans are 
policyholders. 

1 See "Exhibit No. 605," appendix, p. 4754. 



CONCENTRATION OF ECONOMIC POWER 4371 

Mr. Whitsitt. Approximately ojie-third of the policyholders only 
are borrowers. About two-thirds of policyholders are nonborrowers. 
Any reduction in investment income which would result from a re- 
duction in the interest rate would in turn result in decreased divi- 
dends or increased costs of insurance so that two-thirds would be 
penalized for the one-third. Furthermore, there are various, many 
additional reasons, if you are interested in them. 

Mr. O 'Con NELL. Go ahead. 

Mr. Whitsitt. There is a point somewhere in the reduction of the 
policy loan interest rate — just where I wouldn't say, not being an 
economist^ — but somewhere there is a point in reducing the interest 
rate on policy loans wher^ a company would become nothing more 
than a banking institution and there would be too big a temptation 
for the policyholders to borrow on their policies; the company's 
assets would necessarily have to be in a much more liquid f prm, 
hence shorter term securities, hence lower return, and a materially 
reduced investment income, and hence higher cost t)f insurance on the 
policyholders generally. 

Mr. O'CoNNELL. At a later point in your letter you refer to legis- 
lation providing for the appointment of certain life-insurance com- 
pany directors by a State insurance commission. Does your associa- 
tion oppose that type of legislation ? 

Mr. Whitsitt. Frankly, I do not recall. I could check up on that. 
I do not recall. Those bills are very rare and I only recall one many 
years ago and I am not familiar with this. 

Mr. O'CoNNELL. You don't recall whether you opposed the one 
bill many years ago ? 

Mr. Whitsitt. I would have to check on that. 

Mr. O'CoNNELL. Do you recall whether your association opposes 
legislation designed to require all companies to offer renewable term 
insurance ? 

Mr. Whitsitt. I will have to check on that. That would depend 
entirely upon the phraseology of the bill. I would have to see the 
full text of the bill. 

Mr. O'CoNNELL. I gather generally speaking tJiat this whole letter 
related to bills that at that time you opposed. 

Mr. Whitsitt. That is right,, generally speaking, and I wouldn't 
want to say until I had reanalyzed that particular bill. 

Acting Chairman Henderson. Getting back to that question of the 
opposition to restricting policy loan interest, your point was, I gather, 
that the rate of somewhere around 6 percent which is charged on 
policy loans, which has been reduced recently I understand 

Mr. Whitsitt. New York has reduced it to 5. 

Acting Chairman Henderson. I gather from that that you feel 
that is a deterrent against the policyholder borrowing back his own 
savings. 

Mr. Whitsitt. It is a deterrent to borrowing on hi^ policy. I 
wasn't here, but I understood you were discussing lapses yesterday. 
I am not a statistician, but I imagine if you checked the figures you 
would find a very high percentage of policies with loans on them 
eventually lapse. 

Acting Chairman Henderson. And your idea is that the higher in- 
terest rate would be a deterrent. 

Mr. Whitsitt. It is one deterrent. Of course, it is only a small- 
loan business after all. The average policy loan is less than $600. 

124401 — 40— pt. 10 16 



4372 CONCENTRATION OF ECONOMIC POWER 

including the ordinary and industrial companies, and in some com- 
panies the average would be either, say, $200 or $300, so the overhead 
is really a small-loan business. Small-loan concerns charge much 
more. 

Acting Chairman Henderson. I understand that. What a man 
does when he borrows this average $600 — it is his own savings, isn't it ? 

Mr. Whitsitt. I wouldn't say that. I wouldn't put it that way, 
quite. It has been so characterized. 

Acting Chairman Henderson. It is savings, isn't it, Mr. Whitsitt? 

Mr. Whitsitt. It is the reserve on his policy, or approximately the 
reserve on his policy ; it is the amount the company has to carry. 

Acting Chairman Henderson. What do the advertisements of life- 
insurance companies say? Don't they characterize it as savings? 

Mr. Whitsitt. It is a fund that is available. 

Acting Chairman Henderson. I didn't ask you for your character- 
ization, but isn't it generally represented as savings? Life insur- 
ance is a form of savings ? 

Mr. Whitsitt. Life insurance definitely is a form of savings. 

Acting Chairman Henderson. When he borrows back at 6 percent, 
or under the present term, 5 percent, he is paying more for that re- 
serve — I will adopt your term — than that reserve is drawing under the 
accruals which come to it from investment? 

Mr. Whitsitt. He is really borrowing from all of the other policy- 
holders. All of the other policyholders of the company. 

Acting Chairman Henderson. You mean it isn't separately com- 
puted as to how much is a reserve for him ? 

Mr. Whitsitt. For the purposes of having it in the policy form. 
This is an actuarial problem. I am not an actuary. 

Acting Chairman Henderson. I am not an actuary, but I under- 
stand fairly reasonably how that' reserve is built up. It is the sum 
total of the reserves of all the individual policies, but he does pay 
a higher rate, doesn't he, than the reserve generally is earning? 

Mr. Whitsitt. You mean higher than the 3 or 3^/2 assumption 
rate? 

Acting Chairman Henderson. Yes. 

Mr. Whitsitt. Obviously more than 3iA. 

x^cting Chairman Henderson. In that case, what happens is that 
the two-thirds who do not borrow get an extra earning rate from 
him, do they not? 

Mr. Whitsitt. Well, the cost of insurance is kept down. 

Acting Chairman Henderson. I didn't ask you that. I said they 
get an earning from him so that what actually happens 

Mr. Whitsitt. The same as they get earnings from all invest- 
ments. 

Acting Chairman Henderson. Yes. But my question was — fol- 
low this a little more closely — my question was- they get a higher 
earning rate 

Mr. Whitsitt. Wliether the net yield over the cost would bo 
higher I wouldn't know. You would have to ask the investment 
men or the actuaries. There is quite an overhead. 

Acting Chairman Henderson. If there is a higher earning rate, 
what the two-thirds would lose would be this difference ; it wouldn't 
be that they would be subtracting anything from their 3 or 3i/^ 
percent assumption rate? 



CONCENTRATION OF ECONOMIC POWER 4373 

Mr. Whitsitt. Which would be reflected, whatever it would be, 
would be reflected eventually, I would assume, in the cost of their 
insurance. 

Acting Chairman Henderson, In what way? 

Mr. Whitsitt. If it would reduce the general investment iiicoine, 
therefore, the investment of the whole company being lower, there 
would be less available. 

Acting Chairman Henderson. Wait a minute; let me see. I am 
assuming that there is a little profit on these loans, just a little bit 
more than is gotten from the investment, from the assumed interest 
rate, 

Mr. Whitsitt. I couldn't tell you. I am not qualified as an actuary. 

Acting Chairman Henderson. Adopt for just a minute my as- 
sumption ; my assumption is — let's leave out the question of whether 
you know or do not know whether there is anything there — that there 
IS, say, 1 percent ; it is 1 percent higher ; then those who do not borrow 
do not lose anything. 

Mr. Whitsitt. I wouldn't be prepared to discuss something that 
I don't know much about. 

Acting Chairman Henderson. Then perhaps you won't mind if I 
seem to r^'ard this as a little evasion on your part. I mean, I am 
asking you just for a simple statement on an assumed set of facts. 
Suppose that there is $100,000,000 which is borrowed by one-third of 
the policyholders out of the reserves on their policies, and you get 
on that 1 percent more than you get on the assumption rate. 

Then the two-thirds who are left who have $200,000,000, are getting 
a higher rate of return, aren't they ? They are getting more income, 
assuming always, again — don't let this cloud your mind — that there 
is that 1 percent there. I am not trying to trap you. I am just 
asking you a question in terms of a statement you piade. You made 
the statement that the two-thirds lost something. 

Mr. Whitsitt. Because they are penalized. 

Acting Chairman Henderson. You said they were penalized, anv^ 
I am taking you over to a set of facts where they get more rather 
than less. 

Mr. Whitsitt. You are taking me to a set of facts where they 
would get more if the rate were maintained, is that it ? 

Acting Chairman Henderson. No. They would get more if they 
got more. I am assuming they laorrowed this $100,000,000 for a year 
and they got on that $100,000,000, the company got, 1 percent more 
than it would have gotten from its investments. The two-thirds that 
were left would profit by that, would they not? They might have 
a lower cost of insurance to take the assumption you make ? 

Mr. Whitsitt. You are assuming they would get a higher net 
yield from this field than say a Government bond ? 

Acting Chairman Henderson. Yes. 

Mr. Whitsitt. And that the two-thirds who did not borrow woula 
gain by having the policy loans in existence as differentiated from 
Government bonds? 

Acting Chairman Henderson. Yes. 

Mr. Whitsitt. That seems right. 

Acting Chairman Henderson. They would gain? 

Mr. Whitsitt, That would seem so. 

(Whereupon at 12 : 30. noon the hearing recessed until 10 : 30 Wed- 
nesday, June 14, 1939, at 10:30 a, m.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWEK 



WEDNESDAY, JUNE 14, 1939 

United States Senate, 
Temporary National Economic Committee, 

Washington., D. C. 

The committee met at 10: 50. a. m., pursuant to adjournment on 
Tuesday, June 13, 1039, in the caucus room, Senate Office Building, 
Senator Joseph C. O'Mahoney presiding. 

Present: Senator O'Mahoney (chairman); Representative Reece; 
Messrs. O'Connell, Ferguson, Henderson, and Brackett. 

Present also: Senator Homer T. Bone, of Washington; Repre- 
sentative J. M. Barnes, of Illinois; Harry J. Daniels, Department of 
Commerce; Commissioner Edward C. Eicher, Securities and Ex- 
change Commission, and Gerhard A. Gesell, special coufisel, Secur- 
ities and Exchange Commission. 

The Chairman. The committee will please come to order. Mr. 
Gesell, are you ready to proceed? 

Mr. Gesell. Yes, I am; and the first witness this morning will be 
Mr. Robert L. Hogg. 

The Chairman. Do you solemnly SAvear that the testimony you 
are about to give in this proceeding shall be the truth, the whole 
truth, and nothing but the truth, so help you God? 

Mr. Hogg. I do. 

TESTIMONY OF ROBERT I. HOGG, ASSISTANT GENERAL COUNSEL, 
ASSOCIATION OF LIFE INSURANCE PRESIDENTS, NEW YORK 
CITY 

Mr. Gesell. Will you state your full name for the reporter, please, 
sir? 

Mr. H(x;g. ]My name is Robert L. Hogg. 

Mr. Gesell. Are you empltgyed by the Association of Life In- 
surance Presidents ? 

Mr. Hogg. I am. 

Mr. Gesell. In what capacity? 

Mr. Hogg. I am now the assistant general counsel. 

Mr. Gesell. How long have you been with the association? 

Mr. Hogg. I have been with the association as assistant general 
counsel since September 1, 1935. Prior to that time, from January 
1 until July 1, 1935, I was special counsel for the organization. 

Mr. Gesell. Have you always been attached to the New York 
office of the association ? 

Mr. Hogg. I have. 

4375 



4376 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell, What was your experience before you joined the 
association ? 

Mr. Hogg. I was engaged in the general practice of law in West 
Virginia. 

Represent&.tive Reece. And one time had the misfortune of serving 
in the House ? 

Mr. Hogg. That is right. You are entirely too modest. 

The Chaikman. I hope that Members of Congress, both ex-Mem- 
bers and present Members, won't nominate that a misfortune. 

Mr. Gesei-l. You notice I didn't say that, Senator. 

The Chahiman. As a matter of fact I have always had a great 
deal of respect for the House. 

Mr. Hogg. That is the reason I thought Mr. Reece was very 
modest. 

Mr. Geseil. Now, will you tell us in a general way what your 
duties have been since you have been with the association, the type 
of work you handle, the type of problems that come across your desk ? 

Mr. Hogg. I believe that Mr. Whitsitt, the general manager or 
manager and general counsel on yesterday explained the activities 
of the association in a very minute way. As assistant general coun- 
sel I might sQ,j that the very designation of my title, assistant gen- 
eral counsel, ties me very decidedly into the legal aspects of the 
business. As Mr. Whitsitt pointed out ye.sterday, about one-third 
of the activities of the association are concerned with legislation. 
I have had certain connections with that. My work generally, I may 
say, has had to do with the preparation of memoranda on legal sub- 
jects, and particularly the participation from the home office stand- 
point of the test litigation which you referred to yesterday. 

Mr- Gesell. Have you on occasions been sent by the association to 
some State during the time that the legislature is in session in that 
State to help handle legislative matters there? 

Mr. Hogg. I recall one occasion that I think would meet that 
question. 

Mr. Gesell. Do you recall that you went to Florida in connec- 
tion with the session of the legislature in 1935? 

Mr. Hogg. I went to Florida; yes. 

Mr. Gesell. I show you a memorandum entitled "Memorandum 
with reference to Florida Legislature activity — 1935," and ask you 
whether that is not a memorandum which you prepared summarizing 
some of your activities during that session of the legislature. 

Mr. Hogg. It is not necessary for me to examine it. I can see 
(his is a photostat copy of such memorandum, but let me qualify 
your question and my answer. When you say "your activities," this 
is a su!nma''y of the activities.as I observed them. 

Mr. Gi:se;,l. Were you during that period the representative of 
I hi' association vrho was in charge of legislative matters in Florida? 

fdv. Hogg. I was not. 

Mr. Gi'.y.r.LL. "V\1i(^ was in charge of them? 

Nfr. Hugo. If you will permit just a little hitroductory remark 
there the member of the staff who was in charge or who primarily 
?-)ad been in touch with legislation in that State, hnd a minor opera- 
tion in thr- spring or wiptpr of 19-^5, nid I might «:iy thnt T went 
down (here merely to pir^cli-hit in an emergency. I rlii'.'. 1 vvct;^ Loui 



CONCENTRATION OF. ECONOMIC POWER 4377 

one day that it would be necessary for me to go to Florida, and I left 
the next day. 

Mr. Gesixl. How long were you down there, Mr. Hogg? 

Mr, Hogg. My trip to Florida — I made two trips there. I wasn't 
down there continuously. I remember that I went there and was 
there a few days, returned to West Virginia ^or a few days, and 
went back to Florida later, but I was there a substantial portion 
of the time. 

Now, with reference to the first trip, I went .down there on the 
first trip, as I said, pinch-hitting because there suddenly appeared a 
tax bill which would have levied or exacted a premium tax from 
foreign insurance companies on a graduated basis. By that I mean, 
a tax at a certain rate for so many thousand dollars of premiums 
in one bracket and the rate of tax constantly increasing to the higher 
brackets. That was a very vicious piece of legislation, and contrary 
to a decision of the Supreme Court of the United States 3 weeks 
before that, in the case of Stewart Dry Goods Co. against Lewis, 
and I went down there priniarily on that one bill ; that is the reason 
I went there the first time. 

Mr. Gesell. I would like to offer the memorandum which has just 
been identified by the witness for the record. 

The Chairman. The memorandum may be received. 

(The memorandum referred to was marked "Exhibit No. 698" and 
is included in the appendix on p. 4757.) 

Mr. Hogg. Mr. Gesell, I presume I will have an opportunity to 
further explain this. 

Mr. Gesell. I am going to interrogate you on it at length. [Keaci- 
ing from "Exhibit No. 698" :] 

In handling Florida legislative matters, the following is a chronological outline 
of activity : 

(a) A close check of all pending measures, being a review of such bills, notices 
of introduction of which had been received by the association, as well us a check 
for any possible new introductions. 

(b) Ascertainment of the attitude of the administration upon general insur- 
ance legislation, as well as specific measures. 

(c) Ascertainment of whether the organization of the senate and house had 
been effected by the administration. If so, effectiveness of control. 

(d) General sentiment of the legislature as to insurance matters. 

(e) Establishing legislative contacts through various life groups, attention 
first being given to the membership of the insurance and finance committees 
of the two houses. 

(/) General development of a favorable legislative atmosphere with special 
emphasis ucon particular measures. 

Before proceeding to the next section of the memorandum, Mr. 
Hogg, referring to item (e), which states, "Establishing legislative 
contacts through various life groups," will you explain what is meant 
by that in your memorandum? 

Mr. Hogg. When I found that I was going to Florida I went 
through the files for the two previous terms to find out exactly who 
represented the companies, who had done work, and generally tried 
to find out the people who were in touch with the situation from an 
insurance standpoint. 

Mr. Gesell. Finding out who was who, in other words. 

Mr. Hogg. Yes. 

Mr. Gesell. And I assume contacting them and getting them ac- 
quainted with who you were down there. 



4378 CONCENTRATION OF ECONOMIC POWER 

Mr. Hogg. When I first went there, that was scarcely as essential 
as at a later period, and for this reason. I say I went down there 
primarily on this one bill which laid down a principle which the 
Supreme Court of the United States 3 weeks previously declared 
invalid. In Florida there are no general agents in Tallahassee, the 
capital; it is a very peculiar situation. I was told that the general 
agents primarily were in Jacksonville and Miami. Jacksonville was 
on my way, of course, to Tallahassee, and I stopped off to see them, 
I think one morning, and spent the day going around introducing 
myself. I knew no one in Florida at all. in the insurance business. 
I handed them a- memorandum on the legal aspects of this bill, and 
I left that with these men whom I met. 

Mr. Gesell. That was to acquaint yourself with the people who 
might be able to help, who were associated with insurance companies 
in and around Tallahassee ? 

Mr. Hogg. Well, yes; and, in addition to that, I felt that anybody 
would know that it was impractical for me, as a stranger, to make 
any approach to any member of the legislature; as a matter of fact, 
I never did. I have to find somebody to pass this memorandum along, 
somebody who was in "touch with that particular situation, and point 
out the defects of that bill. 

Mr. Gesell. Under (/) the memorandum states "General devel- 
opment of a favorable legislative atmosphere." Is that much the same 
thing as establishing legislative contact? 

Mr. Hogg. No; it isn't. 

Mr. Gesell. Will you explain what you mean by that ? 

Mr. Hogg. As I say, my approach to this whole thing was — you 
might say, I started from scratch; I didn't know how to handle it 
or how it had previously been handled, but I found, very much to 
my surprise, that all of the difficulties in that State were due entirely 
to misinformation about insurance. That wasn't, you understand, on 
the first trip. 

Mr. Gesell. This memorandum relates to the whole experience ? 

Mr. Hogg. To the whole thing ; yes. The situation was this : There 
was an atmosphere in Florida that by taking the total premium in- 
come of the life-insurance company and the losses as reported, the 
balance represented some sort of a margin of profit, and a memoran- 
dum had been circulated, had been placed legislative wise, showing 
the collection, I think, of $17,000,000 in premiums and the payment of 
$10,000,000 in losses. 

Mr. Gesell. That was one of the unfavorable factors which are 
summarized in the second section of your memorandum, was it not, 
"Prevailing unfavorable factors"? 

Mr. Hogg. You requested to know what "general development of a 
favorable legislative atmosphere" was ; I have to tell you about the un- 
favorable atmosphere first. 

Mr. Gesell. Perhaps I had best read the second section before you 
proceed. [Reading further from "Exhibit No. 698" :] 

1. In 1934, through the adoption of a constitutional amendment, residence 
property of the assessed value of $500, when occupied by the owner as a home, 
was exempt from taxation. 

Representative Reece. Shouldn't that be $5,000? 
Mr. Gesell. I think so. 



CONCENTRATION OF ECONOMIC POWER 4379 

To overcome this deficit it was necessary to obtain $10,500,000 in additional 
taxes from other sources. This, in itself, even in the absence of other factors, 
constituted a serious threat of increased taxation upon insurance. 

2. The Governor, at the beginning of the session, firmlj* expressed his intention 
of placing additional taxes upon insurance, due primarily to his conviction that 
insurance companies had been exploiting tlie people of Florida, but specifically 
referred to the report of the insurance connnissioner of the State showing that 
life companies 'in a particular year had collected approximately $17,000,000 in 
premiums while it had, over the same period, paid losses to the extent of only 
$10,000,000. He insisted the difference represented profit, his position ignoring 
payments to living policyholders and residents of Florida. He was firmly con- 
vinced of his position and the accuracy of his figures. 

That is the situation? 

Mr. Hogg. Yes; that is precisely so, and that was so thoroughly so 
that I was, as a newcomer to the life-insurance business, absolutely 
shocked to know that that position prevailed. 

Mr, Gesell. [Reading further from ''Exhibit No. 698'" :] 

The Governor further distributed memoranda of these figures to eacli of the 
members of the legislature as justifying his position that insurance taxes should 
be materially increased and such proposed increase was made a part of the 
administration program. 

4. As indirectly affecting the insurance atmosphere, organized propagandists 
had created the impression that the fire companies had taken many millions of 
■dollars from the people of Florida by fixing rates in Florida to offset losses in 
other States. This erroneous impression reflected itself many times with refer- 
ence to life measures. 

5. A general belief that life-insurance companies had unconscionably foreclosed 
mortgages in the State of Florida. 

6. Erroneous belief that life companies took from Florida policyholders many 
millions of dollars which wore invested in other States. 

7. Many matters dealing with the internal organization and operation of the 
large life-insurance companies. 

8. Complete domination of both houses of the legislature by the Governor. 

Now, those prevailing unfavorable factors, I take it, were the fac- 
tors which you desired to offset by developing a favorable legislative 
atmosphere, as mentioned in paragraph (/) on the first page of the 
memorandum ? 

Mr. Hogg. Let me replirase it. Those were the practical aspects 
of the thing we were facing. I wouldn't say we were trying to 
develop a favorable atmosphere particularly, but we were trying to 
minimize an unfavorable atmosphere. 

The Chairman. Before you proceed, may I get a definite conclu- 
sion with respect to that figure in the first ])aragraph? Was the 
exemption under the Florida law $500 or $5,000? 

Mr. Hogg. I am inclined to think it was $5,000. I am quite sure 
it must have been $5,000. 

The Chairman. Do you know? 

Mr. Gesell. I do not know. 

Representative Reece, It is my information that it was $5,000. 

Mr. Gesell. That seems reasonable. 

Mr. Hogg. Yes. 

Mr. Gesell. Now, the next section of your memorandum is en- 
titled "Procedure," and I want to ask you one or two questions about 
that, but we will read it first. [Reading further froni "Exhibit 
No. 698" :] 

As soon as a study of the pending insurance measures had been completed 
and some thought given to anticipated introductions, it was decided, in view 
of the administration control of both houses, that it was imperative some efPbrt 



4380 CONCENTRATION OF ECONOMIC POWER 

should be made to overcome the anhigoiiistic attitude of the Governor, other- 
wise effective contacts with the membership of either house would be ineffec- 
tive. To accomplish this end, it was decided the approach to the Governor 
should be through purelj' political contacts. Work was begun immediately 
along this line and was prosecuted incessantly throughout the entire session. 
Further, since proposed insurance taxation was only a part of the Governor's 
program and was the portion capable of mustering strenuous opposition, the 
Governor, through its defeat, might suffer a loss of prestige. Consequently 
these political contacts urged upon the Governor that a further increase in 
insurance taxes was wrong on principle and then from the purely political 
viewpoint the measure might be defeated on its merits, thus affecting admin- 
istration prestige. 

These efforts were stressed while at the same time direct legislative contacts 
were also developed by the insurance groups. 

Now, will you tell me what you mean when you say it was decided 
the approach to the Governor should be purely through political 
contact? 

Mr. Hogg. I will be very glad to explain that. As I say, when 
we got there and found — when these measures appeared — I am 
speaking now primarily of taxation — there was one bill that would 
have placed an additional 4 percent premium tax on life-insurance 
premiums. That would have represented — and incidentally the aver- 
age rate in the United States at that time, I was informed, was 1% 
percent — that additional 4 percent would have represented 6-percent 
premium tax in the State of Florida. I might have become more 
unduly exercised and shocked because of my comparatively slight 
experience up to that time, but, as I say, it impressed me; it was 
shocking to think a 6-percent bill was in there. 

I contacted the New York office for information as to what that 
meant. 1 asked them to convert for me what a 6-percent premium 
tax would represent in net income, .and found it would' have repre- 
sented 147-perccnt net income tax on life-insurance companies doing 
business in the State of Florida. 

Another bill 

Mr. Geseli. (interposing). Mr. Hogg, my question was very spe- 
cific. I asked you what you meant by "it was decided the approach 
to the Governor should be through purely political contact." 

Mr. Hogg. That is just exactly what I am leading up to now; we 
couldn't get those facts before any committee. We would request an 
opportunity for a hearing — when I say "we" I say that, I am speak- 
ing about the general agents; I never contacted anybody. It was ab- 
solutely impossible to get a committee hearing on those bills. Not that 
there was any reflection upon any of the people in charge of it, but 
they were so firmly convinced tliat these figures were correct that 
they were just going to bull this thing through. 

Now, under those circumstances there was only one tiling to do, and 
that was to explore and follow up every conceivable angle to convince 
these people that those figures were wrong; and the only way you 
could do that, the only practical way — regardless whether you agree 
with the situation or not — the only practical way to do that was 
to get somebody, get hold of somebody who personally knew 
the people who were pushing this program, and some of these gen- 
eral agents were those people. I recall that two or three of them 
were close personal friends of the Governor. 

They were interested in our problem, and they were interested in 
him, not only on account of the fact of long personal acquaintance- 



CONCENTRATION OF ECONOMIC TOWER 43gl 

ship, but tlioy were also interested in seeing lie did not get off on a 
tangent on a thing that was fundamentally wrong, and those arc the 
men that attempted to get audiences with the Governor. 

Mr. Gesell. Then the answer to the question is simply this, I take 
it, that not being able to get a committee hearing, you decided to 
get friends of the Governor who were interested in your point of 
view to present that point of view to the Governor ? 

Mr. Hogg. To get our facts to the Governor; we were trying to 
get our facts before the legislature, and before the people responsible 
for these ridiculous bills. 

Mr. Gesell. Now, some of that is discussed in the next paragraph 
of your letter, is it not, "Cooperation with Florida life under- 
writers"? [Reading from "Exhibit No. G98":] 

1. The agency directors' and managers' conference at Jacksonville is the 
best organized group of life underwriters in the State. These men were ad- 
vised of the threatening nature of the legislative situation and requested to 
furnish a list of the names and addresses of their Florida agents. Card index 
was then made for this information. 

2. Contacts were immediately established with the individual agents to ascer- 
tain their sphere of influence with Members of the House and Senate Each 
agent was furnished with the names of the Members of the House and Senate 
from his particular locality and asked to advise us at once as to acquaintance- 
ship. Where the particular agent was close to some Member, suggestions were 
made to ascer^ain the attitude of the particular Member towai'd insurance. 
Many other items of a personal nature were also made the subject of inquiry. 

3. After the agency contacts had been established, the check of House and 
Senate membership was made to ascertain the names of those with whom any 
such agency contacts had been directly established. For example, in many 
instances Members came from some towns where there were no life agents. 
To meet this problem those Members from various small communities with 
no resident life agents were listed and assigned to a larger city for contact. 
Notably the Jacksonville agents assumed the responsibility for contacts with 
some Members from the north and the iiortheast section of the State, Tampa 
for the south-central portion, and so on. 

Now, one or two points in that paragraph interest me. One, 
you say: 

contacts were immediately established with the individual agents to ascertain 
their sphere of influence with Members of the House and Senate. 

Did you make those contacts? 

Mr. Hogg. No; I didn't make those contacts; no. I knew they 
were being made. 

Mr. Gesell. Who made them? 

Mr. Hogg. The general agents were in and out of there; it was 
more or less of a hit-and-run proposition ; one agent might be there 
in Tallahassee and another the next day: I don't recall the details; 
I would have looked them up if I had had an opportunity. 

Mr. Gesell. You say contacts were immediately established. 
Someone must have had the responsibility for making those contacts. 
1 want to know who it was and how it was done. 

Mr. Hogg. Well, at this late date I presume they wore made by the 
Jacksonville organization ; I don't know ; it has been so long airo. 

Mr. Gesell. Was that on the suggestion of the Association of" Life 
Insurance Presidents? 

Mr. Hogg. I imagine it was; I would have suggested it if nobody 
else thought of it. 

Mr. Gesell. Now what did you mean by "many other items of a 
personal nature were also made the subject of inquiry"? 



4382 CONCENTRATION OF ECONOMIC POWER 

INIr. Hogg. A lot of these ajients had sold insurance to Members 
of the House and Senate. They knew them. We felt — when I say 
"we," ajiain I want to say the whole ^roup trying to handle this 
thing — it would be futile to send a stranger to anybody to convince 
him of the accuracy of your figures. jSIore or less informal infor- 
mation was kept as to Uie amount of insurance and what agents had 
sold it, and so forth, and those items of personal nature; if a man 
had written a letter saying that he favored a bill or he was against 
one of these bills, a memorandum was made of that, but it wasn't 
broadcast, of course. 

Mr. Gesell. Let me go on and call your attention to the next para- 
graph, entitled "Legislative contacts" [reading from "Exhibit No. 
698"] : 

In order to obtain the most effective contact with Members of the Senate and 
House, the following course was followed : 

1. The geographical location of each ;Member was indicated upon a large map 
of the State by using red tacks for House and blue thicks for Senate Members. 
Attached to each tack was the name and post-ofiice address of a particular 
Member. The map was on a large scale and clearly discernible for ready 
reference. 

Where was tliat map kept? 

Mr. Hogg. That map was originally kept in some room the general 
agent had, and I had it put in my room. 

I\Ir. Gesell. It was sort of a chart which helped you with your 
activities. 

Mr. Hogg. It was just an example of salesmanship that any life- 
insurance agent possessed, I presume. 

Mr. Gesell. What were these agents selling? 

Mr. Hogg. Well, they were selling life insurance. 

Mr. Gesell [reading further from "Exhibit No. 698"] : 

2. An individual card index was made for Members of the House of Represen- 
tatives and a similar index for Memliers of the Senate. Each carried the post- 
office address aiKl personal data of the particular Member. Notation was made 
in some instances as to the best method of approach. For example, if a par- 
ticular life-insurance agent was personally acquainted with a Member, a nota- 
tion was made to that effect. It was not considered wise, however, to place 
much personal information on these cards. This was carried on a separate 
memoranda. To indicate a Member's attitude toward insurance, or the names 
of the particular agents with whom he was on intimate terms, might be subse- 
quently the cause of some embarrassment to both the Member and ourselves 
in the event that the cards should come to the attention of unauthorized persons. 
Consequently records as to attitude of Members or each plan of contact were in 
most cases omitted from the card record, although preserved by independent 
means. 

Now what is there embarrassing about having a card which shows 
wdiether or not a legislator will vote one way or another on a bill or 
whether or not he owns insurance? 

Mr. Hogg. Well, I am very glad you have asked that, because it 
puts me in a position to be able to answer how I would feel personally 
as a legislator. I would not want as a legislator a card with my name 
on it saying I had w^ritten to Bill Jones and was going to oppose a 
certain bill and have that lying around loose, or possibly lost on the 
street. 

Now, another thing, there are a good many people who doubtless 
approved our position. I think I recall one distinct instance when a 
man said, "Well, confidentially, I am opposed to that bill, but I am 



CONCENTRATION OF ECONOMIC POWER 4383 

not goino^ to make any declaration or statement until I Lave got to 
vote on it." 

Tlie Chairman. Do yon su))})ose you have any card index on the 
members of this connnittee? 

Mr. Hogg. I think a good many people had them on me. I say legis- 
latively I think they might have had some of those things on me. 

The Chairman. But you haven't answered my question. 

Mr. Hogg. I don't think that was such a remarkable development 
that the agents had it copyrighted or patented. 

The Chairman. Still you haven't answered the question. 

Mr. Hogg. In this light vein, I have been quite evasive. To return 
to your question, of course we have had no occasion to be in such 
close touch with your committee. 

The Chairman. You say "of course not." 

Mr. Hogg. Of course not. 

The Chairman. If you were a Member of" the House-, I understand 
from your statement just now, that you Avould ha^-e distinctly resented 
any such cataloging of your activities and your personal foibles, and 
so forth. 

Mr. Hogg. Absolutely, if they had been broadcast so as to carry 
wrong implications. 

The Chairman. I wonder how Congress would feel about that. 

Mr. Gesell. The thing I have difficulty understanding, however, is 
why, although you keep the information, you keep it on a separate 
card system ; I don't see that that results in your keeping the infor- 
mation any more confidential than it would be if it was all on one card 
instead of two. 

Mr. Hogg. As a matter of fact, I don't know — I don't recall what 
all of the details were. I remember very distinctly some of them had 
the information written on the back of a letterhead, in his pocket, pre- 
served by independent — it wasn't stuck on a card index w^ith a man's 
name, post-office address, and all that sort of stuff on it at all. 

Mr. Henderson. You didn't have in mind that any of these cards 
were going to be lost on the street. 

Mr. Hogg. Oh, not necessarily. 

Mr. Henderson. You said they might come to the attention of 
unauthorized persons. 

Mr. Hogg. Well, at the end of the session, nobody knew — I don't 
know — wdiat became of the cards. Nobody else kncAV, but I don't 
know what would have happened or what did happen, as a matter of 
fact. I want to reiterate again this was written in 1935 and a detail 
I just don't recall. It w^asn't prepared for any use except in connec- 
tion with the entire file we have in the State of Florida. 

Mr. Henderson. You probably had some pretty hot information 
on some of those cards and that was the reason you wanted to keep 
it a little more secret. 

Mr. Hogg. Not at all. I will give you an example. 

Mr. Henderson. What was the purpose, then, of keeping it? 

Mr. Hogg. Well, here is one thing. If a man had made a statement 
which would indicate his position — no use annoying him to death, 
like is frequently done to legislators. If he made a statement and 
his position was fairly definitely known, why go back-tracking. 

Mr. Henderson. I can understand why you had that on the card, 
but I gather ftr «vent a little bit beyond that. 



4384 CONCENTRATION OF ECONOMIC POWER 

Mr. Hogg. I think they also had in there the amount of insurance the 
man had and what company. There is a great .deal of jealousy as to 
this. There was a lot of hesitancy on the part of these agents, giving 
out the information, who their clients were and the amount of insur- 
ance they held. That is one thing. 

Mr. Henderson. Did you record whether or not they were lining 
up with the Government ? 

Mr. Hogg. That is an angle I didn't know anythii.j r«bout. I want 
to reiterate again, I knew nobody there personally tht ^ hole time I 
was there. 

Mr. Henderson. You saw these cards? 

Mr. Hogg. Not knowing the individuals, they meant nothing to me. 

The Chairman. Well, as a matter of fact, I think it may be proper 
for me to say here I think that when a man goes into public life or 
even when he goes into an executive position with big business, he 
ought to be content to living in a goldfish bowl, and he shouldn't ob- 
ject to anybody having all the information there may be about his 
whole personal history. 

Representative Reece. And objection usually doesn't avail him. 

The Chairman. It doesn't avail him anything at all. . 

Mr. Hogg. You ask the type of information carried here. My at- 
tention has been called here to one letter that is fairly typical. I would 
have no doubt this went on the record somewhere, telling about a con- 
versation he had with two Members and what they said — this letter, 
May 16, 1935, from a man named Partridge. I think you have that 
letter. It just gives a pretty fair picture of the situation. 

Mr. Henderson. You don't have all the letters though, Mr. Hogg? 

Mr. Hogg. I have two or three scattered around here. The only ones 
I have are the ones the S. E. C. took. 

The Chairman. I do take it that in the compilation of this card in- 
dex and in the assembling of the information with respect to each of 
the various Members of the House and the Senate you overlooked 
nothing that could possibly be regarded as helpful in swaying the vote 
of that Member. 

Mr. Hogg. Absolutely not. In conformity with facts. 

Representative Reece. I think the memorandum indicates he was 
doing a very good job. 

The Chairman. Yes ; I think very. 

Mr. Gesell. Now if I may, I would like to come to the last section of 
the memorandum. The next section is entitled "Nature of contacts." 
I notice there that one of the contacts which was followed, was tele- 
grams and letters from the public generally. Will you explain what 
you mean by that ? 

Mr. Hogg. I had a little — what turned out to be a little unorthodox 
thinking in connection with these vicious measures down there. When 
this 147-percent-net income tax bill put in its appearance, I found 
out that I had become much more exercised even than the com- 
panies had. I wanted to get these agents to contact every policy- 
holder in the State of Florida and tell him exactly what was going 
on. That was overruled. The agents said it hadn't been done before, 
but that still didn't convince me; and I attemj)ted to get the per- 
sonnel from the association to do that very tiling, just tell every- 
thing — ^get the facts of the case before these policyholders in the 
State of Florida. 



CONCENTRATION OF ECONOMIC POWER 4385 

Mr, Gesell. And do I understand your testimony to be that you 
never did encourage or get letters and telegrams from policyholders 
during the 1935 legislature in Florida ? 

Mr. Hogg. Oh, by no means. The point I am making is I didn't 
get authority to get enough of them. 

Mr. Gesell. But you did pursue the practice, didn't you, of getting 
letters and telegrams from policyholders? 

Mr. Hogg. We certainly did^ What I wanted them to do was, the 
company was to release the list of policyholders in the State, but it 
was not done. 

Mr. Gesell. But, using other means which you had at your dis- 
posal, you did get together as much information about policyholders 
as you could and encouraged the sending of letters and telegrams 
by policyholders to the legislature. 

Mr. Hogg. Well, again I want to say when you say it was the whole 
plan down there, I subscribed to it most assuredly; as a matter of 
fact, I was more enthusiastic about it, I think, than the agents were. 

Mr. Gesell. Let me call your attention to a letter dated May 5, 
1935, and ask you, did you not write this letter to Mr, Frank P. 
Bearing of the Mutual Life Insurance Co. of New York? 

Mr. Hogg. Unquestionably I think I recognize that. 

Mr. Gesell. This letter states [reading from "Exhibit No. 699"] : 

Senator Futeh has just introduced in the senate a companion measure of 
House 776, which would increase the premium tax to 6 percent. It is now 
necessary that we establish some immediate contacts with all the members of 
the senate and the house and unfortunately we have no agents in the home 
communities of many of these members. Consequently, we have decided to ask 
you on behalf of the Jacksonville group to establish contact with the following 
members — 

then you list names of senators and representatives, and the next to 
the last paragraph of your letter states: 

It is thought wise that there should be as many telegrams and telephone 
calls as possible to reach these members from their respective home communities. 
This, of course, is a matter with which you are thoroughly familiar. Further- 
more, it is advisable to have as many communications as possible from policy- 
holders. These, of course, are details concerning which you will use your own 
judgment. 

Mr. Gesell. I wish to offer that letter for the record. 

The Chairman. It may be received. 

(The letter referred to Avas marked "Exhibit No. 699" and is included 
in the appendix on p. 4761.) 

Mr. Gesell. Do you recall this as the telegram you received in 
response to that letter? 

Mr. Hogg, Unquestionably. That unquestionably is. 

Mr. Gesell. Tliis is a telegram to you at the Floridan Hotel, Talla- 
hassee, Fla., signed by F. P. Bearing [reading from "Exhibit No. 
700"] : 

Letter 5th given consideration lengthy session of agency directors conference 
today, all members writing all agents to immediately solicit 10 letters each from 
policyholders to representatives, each name listed taken as individual responsi- 
bility of one or more members of conference and quick action promised ; details 
tomorrow. 

I wish to offer this for the record. 
The Chairman. It may be received. 



4386 CONCENTRATION OF ECONOMIC POWER 

(The telep'am referred to was marked "Exhibit No. 700" and is 
inchided in the appendix on p. 4762.) 

]Mr. Gesell. Now, may I ask you, Mr. Hogg, who paid for all this ? 

Mr. Hogg. All of the expenses of the agents in making the trips to 
Tallahassee, such trips as they made, Avere paid by the individual 
companies. I think the only item of expense we paid was Mr. Dear- 
ing— wasn't it— $50 or $60. 

Mr. Gesell. Is it not a fact that the association paid Mr. Bearing 
for stenographic expense involved in the preparation of these com- 
munications to policyholders? 

Mr. Hogg. I presume it is a matter of fact. I think he should have 
been reimbursed, I think, unquestionably. 

Mr. Gesell. Then this solicitation of the policyholders and the 
subsequent mailing by them of letters and the transmission of tele- 
grams to the legislators was financed in part by the Association of Life 
Insurance Presidents? 

Mr. Hogg. I ami not in charge of the financial end of it. I will 
consult Mr. Whitsitt. 

Mr. Whitsitt tells me that in part those disbursements were paid by 
the association for the purpose of disseminating correct information to 
policyholders. 

Mr. Henderson. I gather that that meant they paid also for the 
telegrams that were sent by the policyholders. 

Mr. Hogg. I don't think so. 

Mr. Gesell. I have a file liere which I think discloses the nature of 
the expenditures. I would like Mr. Hogg to identify it and then I 
will put it in the record. 

Mr. Hogg. Yes ; unquestionably it is a photostat of the correspond- 
ence that passed. Mr. Whitsitt tells me there is $35.10; Mr. Whitsitt 
says it is some more than that possibly. 

Mr. Gesell. The letter, dated May 8, 1935, from Dearing to your- 
self at the Hotel Floridan, Tallahassee, says [reading from "Exhibit 
No. 701"] : 

By mail last night we sent you 71 letters addressed to senators and repre- 
sentatives, and as these were put on the train with special-delivery postage 
they doubtless reached you early this morning. We will send you the balance 
of the letters today. We regret that it was not possible to send all of them 
to you last night, but as we understood that you wanted them to be personal 
letters, it proved to be quite an undertaking on such short notice. 

If the other companies' representatives are having as good luck with their 
efforts as we have had, I feel sure that there are a number of personal letters 
from policyholders on the desks of the senators and members of the legislature 
today, and there will be an increasing output of these letters daily from now on. 

I enclose copy of a letter written by one of the Sun Life men from Tampa to 
the chairman of the finance and taxation committee. It is not much of a letter, 
but the response from Mr. Sandler on the back thereof is quite enlightening. 

P. S. — I am keeping a memorandum of the outlay for extra help and overtime 
work ; also, of long-distance calls and telegram tolls, as I suppose the Life 
Presidents' Association will want to defray this cost as in previous years. I 
know they do not expect Mutual Life to bear this cost, and when we have it all 
assembled I will get your "O. K." on the charge and submit it in the usual 
way. 

Subsequent letters indicate a bill of $35.10 was rendered and that 
bill of the statistician of the association to Dearing on July 1, 1935. 
The bill was honored. I would like to ofi^er this file for the record. 

The Chairman. The file may be received. 



C(^NCENTRATION OF ECONOMIC POWER 4387 

(The file referred to was marked "Exhibit No. 701" and is included 
in the appendix on p. 4762.) 

The Chairman. Does this purport to cover the entire expense of 
this particular campaign? 

Mr. Gesell. No ; it does not. Mr. Whitsitt has stated that, I un- 
derstand. Is that correct, Mr. Whitsitt? 

Mr. Whitsitt. I think there was another item or two that we dis- 
bursed to the underwriters. I can't be sure without looking up the 
record. I think there possibly was another item or two of small 
amounts. 

The Chairman, Were any local attorneys retained? 

Mr. Hogg. Absolutely none. If there had been, I wouldn't have 
had to stay there. 

The Chairman. I thought possibly as a stranger you might have 
felt it necessary to have some other help. 

Mr. Hogg. No. 

The Chairman. Were any of the attorneys who- represent the vari- 
ous insurance companies in the ordinary business impressed into 
service ? 

Mr. Hogg. Absolutely none. > 

The Chairman. They were not called upon then to make any rep- 
resentations to the members of the legislature whom they knew. 

Mr. Hogg. If I recall correctly, and just intersperse further obser- 
vation, that it has been so long ago I have forgotten a good many of 
the details but if I remember correctly one of these measures Would 
have also included domestic companies and the attorney for a do- 
mestic company, Florida company, at one time conferred with the 
agents down there, I think. But we employed no counsel, had no 
connection with any counsel ; that is, the life group. 

The Chairman. But in bringing your pressure to bear upon the 
Governor, the political pressure to which you referred in the memo- 
randum, did you avoid using any influence that they a« attorneys 
might have exerted? 

Mr. Hogg. We avoided that. The people who went to the Gover- 
nor, Mr. Chairman, as I indicated before, were life, were general 
agents and managers who stood well in their community and knew 
the Governor. They were finally able to get an audience with him 
and convinced him that he was absolutely wrong in his figures, and 
I have here now a copy of a letter which the Governor wrote to this 
man who had gone in there to try to convince him, and just three 
short paragraphs I would like to read it with your permission. 

The Chairman. That will be quite all right. 

Mr. Hogg. Dated May 22, and this is in your file, I think, Mr, 
Gesell. After the salutation, it says: 

Just a line in the midst of a busy day to tell you that I am sorry if I offended 
your feelings the other day when you were in the oflSce. As you probably 
noticed, I was worn out. However, some good did come from our meeting. As 
a result of which I checked thoroughly into the situation and have come to the 
conclusion that you are correct in your statements. 

I hope the next time you are in Tallahassee we can have a good laugh over 
the occurrence and renew our friendship. 

That wound up the whole thing. 

The Chairman. May I say, Mr. Hogg, that to my mind the in- 
trinsic merits of the issue are not particularly significant. You mar 

124491 — iO — pt. 10 17 



1388 CONCENTRATION OF ECONOMIC POWER 

indeed have been wholly right in resisting this legislation. You 
probably were right in resisting the legislation, let me say. The 
significant thing to me, however, is that it was necessary for an asso- 
ciation of life-insurance presidents, with its offices in New York, to go 
to the legislature in Florida to resist this thing, to conduct a very 
thorough lobby of that legislature — and when I use the word lobby, 
I don't use it in any offensive sen-se, understand. I recognize fully 
the complete right of any citizen or any group of citizens to make 
representations to the legislative bodies whether they are local bodies 
or national bodies, but the significant thing to my mind is that this 
is a national business and its interest is conserved by an association 
of life-insurance presidents, with headquarters in the city of New 
York, and those life-insurance presidents have found it necessary to 
build up a very efficient organization, let me say, to employ a very 
efficient staff, as evidenced by your testimony and by this material, 
to make representations to these State legislatures to bring pressure 
to bear through policyholders upon the representatives of the public, 
and the thought that arises in my mind is whether it would not be 
better for the policyholders and better for the insurance companies 
if we had one national system to handle what is obviously a national 
business. 

Mr. Hogg. It is quite true what you say with reference to the na- 
tional scope of the business. At the same time I want to point out 
that on account of the mutual nature of the life-insurance business — 
when I say that I am talking about substantially 80 percent of it — 
you can't do anything to a policyholder in a mutual company in the 
State of Florida that doesn t affect the policyholder in the State of 
Maine. 

The Chairman. That is just exactly what I am pointing out. 

Mr. Hogg. Now I want to get to the point where we possibly part 
our ways. These companies hold themselves out, and are trustees for 
the benefit of these various policyholders. We would be derelict in 
our duty as an association if we didn't go in here and preserve the 
interests of these policyholders who are really beneficiaries of this 
trusteeship now. 

Now I don't see where particularly there would be any advantage 
in consolidation; of course, that is a matter of a question of policy to 
be decided, and there is a difference of opinion on that. I don't 
know, that is an angle I never have investigated ; it is clear out of my 
sphere of activity. 

The Chairman. I am ready to agree with you that you are trustees 
for the policyholders, and particularly in the mutual companies. I 
think you are trustees for policyholders even in those companies which 
are not mutual. You are trustees in a very real sense for the whole 
public which is affected by the operation of the life-insurance busi- 
ness, and yet the conclusion which you seem to have in mind is that 
these trustees should be permitted to exercise their judgment with 
respect to what is right and proper and beneficial for the beneficiaries 
without the inteiwention of any public party which by reason of its 
scope would be competent to deal with the situation. Now you present 
the picture of a national insurance system by which legislation in 
Florida would affect the policyholders in New York. That prac- 
tically was your statement, wasn't it? 



CONCENTRATION OP ECONOMIC POWER 4389 

Mr. Hogg. Yes. 

The Chaieman. What happens to the policyholder in Florida by 
reason of the legislation there affects policyholders from the Pacific 
to, the Atlantic, from the Canadian border to the Gulf, and yet under 
this system it becomes necessary for your association to travel from 
State to State and bring pressure to bear upon local legislative bodies 
which by reason of the very facts of the case cannot be expected to be 
able to apply an adequate pressure to the problems with which they 
are dealing. Now wouldn't it be better, under such a system, to have 
a national rule of trusteeship to which these trustees would have to 
respond ? As it stands now, there is no effective way of making them 
respond. 

Let Mr. Whitsitt answer for himself and you answer for yourself. 

Mr. Hogg. I think I can pass on to a statement here that I was 
getting ready to make. That is purely a matter of polic}^ and any 
expression that I make would not be sufficiently grounded in experi- 
ence to be worth anything. That is my answer to that. It is clear 
out of my sphere of activity. 

The Chairman. Mr. Whitsitt, you had some definite information? 

Mr. Whitsitt. I wouldn't say that my views are final or anything 
like that. I would say this : It depends entirely upon what type of 
Federal supervision or regulation you have in mind. If you have in 
mind the complete elimination of any contact by the States over 
insurance including taxation, in other words taking away the taxing 
power of the States, then our work would be somewhat simpler. If, 
however, you only intend to superimpose upon the present State reg- 
ulation some further supervision, then it would not affect our travel- 
ing from State to State, as you said. 

The Chairman. Of course, I have no intentions about it at all 
personally. 

Mr. Whitsitt. What you had in mind wh6n you asked the question. 

The Chairman. I don't believe any member of the committee has, 
either. I am merely trying to probe the situation, but here we have 
clearly presented a national business with effects upon the whole 
economy, with no effective system of supervision in the public interest. 
I feel that those of you who are experts in this business and experts 
in other industrial lines and in other lines of commerce could very 
well advise the National Legislature as to what the contents should be 
of a national system, but that there should be a national system be- 
comes increasingly apparent to me as we proceed with this study. 

Mr. Whitsitt. As I say, it would depend entirely upon the type of 
national supervision, whether you would take away the rights of the 
State or the rights of the various States to tax the business of insur- 
ance. If that were eliminated it would save our trips, but if it is 
something superimposed and States are allowed to retain their right 
to tax the insurance premiums, we still would have our tax problem 
before us in every State. 

The Chairman. My personal desire would not be to create any new- 
burdens to be placed upon insurance or upon any other industry. My 
purpose would be rather to remove burdens which now exist and to 
provide a better system of protection for the policyholders, and a 
greater certainty that the trusteeship which unquestionably lies upon 
the shoulders or the executives in every line ^f big business would be 



4390 CONCENTRATION OF ECONOMIC POWER 

more adequately enforced. I didn't mean to interrupt your examina- 
tion, Mr. Counsel. 

Mr. Gesell. That is perfectly all right, Senator; we have just one 
further matter from this witness. Do you recognize this document 
as a summary prepared by the association of results of the legisla- 
tures in 1935? 

Mr. Hogg. Yes. That is on our form of bulletin ; it unquestionably 
is. 

Mr. Gesell. I wish to offer this for the record. 

The Chairman. It may be received. 

(The summary referred to was marked "Exhibit No. Y02" and is 
included in the appendix on p. 4764.) 

Mr. Gesell. Now, Mr. Hogg, it wasn't made quite clear to me as 
to who was in responsible charge of the activities which we have been 
hearing about before the legislature in Florida while you were there. 

Mr. Hogg. It was more or less of a cooperative undertaking upon 
the part of the general agents who were primarily in Jacksonville. 
There was one man who had had a great deal of experience in the work 
and he assumed the responsibility generally, but I am frank to say 
that there was nothing done there that I wouldn't have approved. 

Mr. O'CoNNELL. You want me to believe that you were not in charge 
but that you would have been perfectly willing to be. 

Mr. Hogg. If I had thought it would have been practical I would 
have. I was there primarily for furnishing information in connection 
with these various matters that these agents didn't have at their com- 
mand. I did ; I amassed all the data and all the information that I 
could in connection witihi it and I had it. We conferred with persons 
as to putting it in shape, writing it out, and things of that kind ; but 
the responsibility, that is I might say the "guiding influence," as far 
as the effective work was done, was done by the agents, and I want 
again to say that I knew no legislator. It would have been presumptu- 
ous for me to attempt it at all. 

Mr. O'CoNNELL, But the battle plan, the card index, and so forth, 
was kept in your room ? 

Mr. Hogg. No. 

Mr. O'CoNNELL. I thought you said that. 

Mr. Hogg. I said the map was there ; I don't know ; it was just a de- 
tail, and that wasn't novel. I think we fell into the plan that had 
been prosecuted prior to that time. I don't know what the plan has 
been since. That is the only time I was there. 

Mr. O'CoNNELL. Quite apart from the question as to who was in 
charge, you see no impropriety in anj^ of the activities outlined in 
the memorandum which we have been referring to? 

Mr. Hogg. Not with the supplementary statement which I have made 
in connection with it. 

Mr. O'CoNNELL. I also understood you to say in answer to a ques- 
tion of the chairman that the facts that you collected in connection 
with the individual members of the legislature were used and it was 
thought entirely proper to use them to "sway," I think was the word 
you used, judgment in connection with insurance legislation. 

Mr. Hogg. I wouldn't say "sway." Largely it was used for the pur- 
pose of being able to get to them and explain the facts. It was in- 
formation whicli would have been of use ; yes. 



CONCENTRATION OF ECONOMIC POWER 4S91 

Mr. O'CoNNELL. Would 5^ou accept the word "influence" as the use 
to which you put the facts that you collected ? 

Mr. Hogg. I wouldn't say it was influence at all. 

The only thing that we asked was an opportunity to present the 
facts. If the facts influenced him — yes; if the facts influenced him. 

Mr. O'CoNNELL. The facts I was referring to were facts about the 
members of the legislature, not about the insurance. 

Mr. Hogg. Oh, no; those facts hadn't anything to do with it. 

Mr. O'CoNNELL. You collected them. 

Mr. Hogg. Yes. 

Mr. O'CoNNELL. You were referring to those facts which you said 
to the chairman that you collected for the purpose of influencing 
members of the legislature. 

Mr. Hogg. Oh, no. When I say "the facts," I mean the statistical 
data to influence them. 

Mr. O'CoNNELL. You wouldn't think it proper to use facts which 
you collected about members of the legislature ? 

Mr. Hogg. No. I can very aptly call your attention 

Mr. O'CoNNELL. That isn't necessary; I just wanted to he f;ure 
that you didn't mean that. 

Mr. Hogg. I wrote a letter before this thing ever arose — it is 
only eight lines — as to just exactly what our policy was in reference 
to it. May I read it, Mr. Chairman? Just eight lines? 

The Chairman. Yes. 

Mr.HoGG. It is a letter which is in your flies, I think, Mr. Gesell, 
referring to our attitude toward a legislator. [Reading:] 

In addition, I infer from you that Mr. Blank is the type of legislator regard- 
less of his own personal connections who will exercise his judgment primarily 
in the interest of his State without at the same time subjecting any of its tax- 
payers to unreasonable burdens. No one has the right to expect more from a 
person charged with the responsibility of public office. From your connection 
with the Association of Life Insurance Presidents in the past, you of course 
know that its policy has been and will continue to be to take no position which 
cannot be substantiated upon a basis of sound judgment and fair dealing 
toward both the State and the policyholder. 

That was sent out before. That is exactly the statement of our 
position. 

The Chairman. May I see that? 

Mr. O'CoNNELL. That is very interesting, but that has nothing 
to do with the question I asked. I asked as to how far you people 
would go, how far you would think it proper to go in effectuating 
one of these so-called policies which is very important to your 
policyholders. My question had to do with what you would tliink it 
proper to do in influencing a legislature to carry out a policy that 
you believed to be sound. 

Mr. Hogg. We would-not use anything which would be unethical 
in any sense of the word. 

Mr. O'CoNNELL. That is a rather broad word. 

Mr. Hogg. I am willing to stand on that — nothing that would be 
unethical in any sense of the word. 

Mr. Henderson. But in this set of paragraphs having to do with 
legislative contacts ^ you did emphasize that the facts collected about 

1 See "Exhibit No. 698," appendix, p. 4757, at p. 4759. 



4392 CONCENTRATION OF ECONOMIC POWER 

the members were important. You take it that they were important 
in establishing the contacts in order to get your facts before the 
members ; is that it ? 

Mr. Hogg. Yes ; in some respects possibly so, but primarily this : If 
a man was a substantial policyholder in a mutual company, the in- 
ference would be that he would be more inclined to give favorable 
consideration or would give sympathetic hearing to a bill whi;;h would 
aifect his interests, as these proposals would, and which would put a 
terrific burden, an unconscionable burden, upon the companies ; and I 
want to say this 

Mr. Gesell (interposing). May I ask a question? You say "would 
be an unconscionable burden," If the Florida tax is increased to 
6 percent, that doesn't mean that the Florida policyholders pay that 
tax, does it? Is it not a fact that the companies prorate those taxes 
on a Nation-wide basis, so that, as far as the Florida policyholders are 
concerned, it might have been only an increase of one-half percent? 

Mr. Hogg. Well, here, you can't establish a policy applicable to one 
State and expect some other State to sit idly by and acquiesce and 
penalize their own people, as the people of Florida would have done 
if they passed a measure of this kind, 

Mr. Gesell. Will you answer my question? Is it not a fact that 
tlie companies do prorate those taxes on a Nation-wide basis, so if 
one State raises its taxes it does not mean that those taxes are paid 
entirely by the policyholders of that State ? 

Mr. Hogg. You have raised a — let me answer and say you are cor- 
rect ; but tliere has long been this question of taxation, which has been 
a very vexatious one with reference to disparagement. The companies 
have had a recurring occasion to consider the advisability of classify- 
ing the policyholders geographically for dividend purposes, with an 
extensive examination made, and nobody knows but what that might 
be the case. Now, if you classify them geographically for dividend 
purposes, the whole thing is right back on the shoulders of a re- 
stricted class of policyholders. 

Mr. Gegell. That is not a fact, though. 

Mr. Hogg. There is very decided legal opinion to the effect that 
that can be done; if they would put 147 percent net income tax on 
Florida policyholders it woud certainly justify the companies; it 
would certainly be justified in making geographical allocation. 

Mr. Gesell. Has it ever been done? 

Mr. Hogg, It has not ever been done. 

Mr. Henderson. Where did you get that 147 percent? It isn't 147 
percent of the premium itself, is it? 

Mr. Hogg. I have the break-down of that and would be glad to 
give to you. 

Mr. Henderson. One hundred and forty-seven percent of what ? 

Mr, Hogg. Here is what we had in mind : Tlie tax system — to put it 
another way, the substantial taxes of life-msurance companies are 
represented by premium taxes. We wanted to compare the burden 
which these measures would have put upon insurance companies 
with the burdens borne by comparable other businesses^ and the only 
way you could do that was to transpose this 6 percent premium tax 
into terms of a net income tax, so that instead of passing a 6 percent 
premium tax, making a 6 percent premium tax, if they had trans- 
posed it and put it into a net income tax it would have represented 



CONCENTRATION OF ECONOMIC POWER 4393 

147 percent of the net iiicome of those companies. Do I make myself 
plain ? 

Mr. Henderson. You call net income the amount of savings, due to 
savings and mortality, from the loading? 

Mr. Hogg. Frankly, I can't tell you the elements that enter into 
those figures. Our statistical department prepared the fornmla. 

Mr. Henderson. But the 6 percent would have been on the amount 
of the premiums paid. 

Mr. Hogg. That is correct. 

Mr. Henderson. For each dollar of premiums paid. 

Mr. Hogg. That is correct; on the gross premium. 

Mr. Henderson. Another question. You felt that the situation was 
so serious that it was likely to recur for the next year, I gather. 

Mr. Hogg. I don't know. I didn't know whether I would ever be 
back down there again or not, but I felt it was to the benefit of the 
association, whoever did go do^vn again ought to have the benefit of 
the picture as I saw it at that time, hence this memorandum. 

]\Ir. Henderson. You suggest that they get started earlier. 

Mr. Hogg. That is correct. 

Mr. Henderson. Get started on factual presentation to legislators? 

Mr. Hogg. No; not necessarily. I found that it was difficult to 
rouse those agents. 

Mr, Henderson. I gather from your memorandum that they said 
this thing had always been defeated and therefore there wasn't any 
hope. 

Mr. Hogg. It was a sort of laissez f aire attitude. You couldn't get 
them to believe that anything like that could happen. 

Mr. Henderson. And you were somebody from New York who felt 
more seriously aboyt it than the local people. 

Mr. Hogg. Precisely so. 

Mr. Henderson. And you suggested that they get together in ad- 
vance of the next session and establish die legislative contacts then. 

Mr. Hogg. Whatever was necessary to cope with the situation in 
view of our experience down there. 1 was willing, from that memor- 
andum, to leave this entirely in the hands of those local men. Those 
men, agents and managers, were men ever.y one of w^hom stood well 
in the community; they couldn't ha^ve had that position if they 
didn't, and those details I was perfectly willing to leave in their 
hands. 

Representative Barnes. May I ask one question? Not being here 
yesterday, I was v.ondering if one of tlic purposes of your associa- 
tion of which you are counsel was to work to get a uniform system 
of taxation on policyholders in various States at this time? 

Mr. Hogg. I wouldn't say a "uniform system." 
Representative Barnes. In other words^ there is no equalization 
between States as to the amount of taxes charged upon the policy- 
holder, but one uniform rate applies to each company as to the 
States they do business in regardless of taxation. 

Mr. Hogg. No uniform rate; no. The average of the United States 
at that time was 1% percent premium tax. The present law down 
there, by the way, is 2 percent. 

Mr. Gesell, The next witness is Mr. Cooney, if there are no more 
questions. 



4394 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Mr. Hogg, my attention has been called to the 
letter of Mr. Whitsitt of July 12, 1937, addressed to Mr. Lincoln, 
which I think you put in the record yesterday, in which I find this 
paragraph [reading] : ^ . - 

Of the 46 regular and 14 special sessions — in 46 States, 2 Territories, and 
• Congress — Congress and 3 States (Minnesota, New Hampshire, Ohio) are still 
active. Total bills examined here, 11,047, sets a new high, almost double that 
of 6 years ago and over 3 times that of 10 years ago. 

Since your association with this organization you have been de- 
voting your time largely to this legislation activity ? 

Mr. Hogg. No; I have not. 

The Chairman. You have not? 

Mr. Hogg. No; I have not. 

The Chapman. Could you tell us about this increase ? 

Mr. Hogg. I couldn't tell you about that. 

The Chahiman. Mr. Wliitsitt, are you familiar with that? I am 
referring to that letter of yours of July 12, the increase in the 
number of bills. You said that it was double that of 6 years ago — 
speaking from 1937 — and 3 times that of 10 years ago. Has this 
legislative activity been increasing throughout the States? 

Mr. Whitsitt. You are familiar, as I stated yesterday, that the 
number of bills varies from year to year, depending on whether it is 
an even-numbered year or an odd-numbered year. 

The Chairman. According to the number of legislatures in session. 

Mr. Whitsitt. In the odd numbers there are some forty odd and 
in the even, some 13 or 14 with some special sessions. When we com- 
pared, we compared the odd-numbered years with the previous odd- 
numbered and the even-numbered with the previous even-numbered 
years. For the present year — of course it isn't complete yet — I 
imagine it will be somewhere around 10,000 bills passing through 
our ojffice. 

The Chairman. The point is. This represents a steady increase of 
legislation affecting life insurance? 

Mr. Whitsitt. Not all of those bills directly affect insurance. Of 
course many of them do not, but they are bills that it is necessary 
to examine in order to determine whether or not they have any effect 
upon our business. Many of them are quite objectionable, some of 
them are bills that do not appear objectionable on the surface but 
should be watched during the course of the session for possible 
objectionable amendments ; others when we receive them are obviously 
of no interest. If I get your question, there has been an increase in 
the last 10 or 15 years, a gradual upgrade. 

The Chairman; To what do you attribute this increase of legis- 
lation to which you must give attention ? 

Mr. Whitsitt. I would consider part of it as a byproduct of the 
depression. I think that there are more adverse bills, probably other 
industries (I do not know) have had the same experience, and also 
because of the taxation situation. We have more tax bills than we 
used to have, they occur with more frequency. We have had a 6 
percent bill in Florida ; we had one this year, and I think we had one 
in 1937 if I am not mistaken, I am not sure of that. The States 
are— it is an obvious fact — very much in need of money and conse- 



1 See "Exhibit No. G95," apiwndix, p. 4754. 



CONCENTRATION OF ECONOMIC POWER 4395 

quently more tax bills are coming in. The same is true of other 
things. 

The Chairman. In any event it is perfectly obvious that you have 
to examine at least 10,000 bills every year — 

Mr. Whitsitt (interposing). In recent years. I don't recall the 
figure for '35, but I think it ran fairly close. I am not sure whether 
the letter has '35 on it or ftot. 

The Chairman. Would you care to express an opinion as to whether 
or not most of these bills are beneficial to life insurance ? 

Mr. Whitsitt. Of the total of 10,000, it is only a comparative few 
that turn out actually to require attention. I am not sure that I got 
your question. 

The Chairman. I am trying to find out wliether on the whole, 
after the examination of this large amount of legislation, you feel 
that most of the bills are satisfactory bills and beneficial legislation, 
or are most of them subject to criticism? 

Mr. Whitsitt. Out of the 10,000, a very small proportion would 
be subject to, shall I say 

The Chairman (interposing). But out of those which you-finally 
determine do affect your business? 

Mr. Whitsitt. Do I get you this way : Out of the ones that we 
actually take action on, for a period of years are they increasing? 

The Chaujman. Are they good, bad, or indifferent ? 

Mr. Whitsitt. Out of the ones we actually take action on ? 

The Chairman. That is right. 

Mr. WiHTSiTT. Well, I would say that the number run about the 
same proportion during the various years. Assume 200 — I have no 
figures on it, but assume 200 in '37; I would assume, say, 200 in '39. 
If that is what you mean, the number of bills on which we take 
action ( 

The Chairman. I am not referring to the number now. This let- 
ter of yours was entitled "1937 Legislative High Points," and as I 
glance over it I would judge that most of these high points had to 
do with bills which you regarded as at least adverse to the interests 
of life insurance. 

Mr. Whitsitt. Generally so. 

The Chairman. Wliat I am trying to determine is whether or not 
most of this legislation you regard as being adverse lo the interests 
of the insurance companies. 

Mr, Whitsitt. I am not sure that I get you clear ; not most of the 
10,000. 

The Chairman. Oh, no, no; those that you have examined. 

Mr. Whitsitt. Most of those that we take action on, of course, that 
is quite right. 

The Chairman. Most of them are adverse? 

Mr. Whitsitt. Most of those we tajce action on are either adverse, 
or quite a number of those bills merely need a clarifying amendment, 
through an oversight, or lack of facts. As lystated yesterday, our 
greatest trouble with State legislation is the lack of opportunity to 
present the facts to the members. 

The Chairman. And this applies to all the States indiscriminately, 
I mean this situation might arise in Maine or in Florida or California 
or Oregon. 



4390 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. It might arise anywhere, and there are 48 different 
kinds of State legishxtnrop;; there are no two alike. 

"^J'he Chairman. And yours is a national organization? 

Mr. Whitsitt. Intern:itional. We have some Canadian members. 

The Chairman. Any Mexican members? 

Mr. Whitsitt. Not yet. 

The Chairman. It is obvious, is it not, that you are dealing with a 
national problem, and the State legislatures are passing laws which 
affect tlie interests of companies which have an international aspect 
and policyholders who are scattered all over the continent ? 

Mr. Whitsitt. We follow the legislation in all of the 48 States and 
tlie District. 

The Chairman. Because it is a national business? 

Mr. Whitsitt. Because it affects our policyholders, who reside 
everywhere. 

The Chair:man. Because it is a national business; it is an interstate 
business, is it not ? 

Mr. Whitsitt. I wouldn't say it is an interstate business. 

The Chairman. Well, let the record speak for itself. 

Mr. Hogg. Mv. Chairman, may I express one qualification to that 
last answer? Did I understand you to ask whether or not I had any 
connection with the 11,000 bills? Of course, I have occasion to 
examine some of the measures. I am not completely divorced from 
that feature of it at all. 

The. Chair:man. Let the record show that you are one of the legis- 
lative experts. 

There are a large number of questions that might be asked, but, Mr. 
Gesell, you have another witness that you want to call ? 

Mr. Gesell. I have. 

'The Chairman. Ve;.-y well. Thank you, sir. 

(The witnesses, Messrs. Hogg and Whitsitt, were excused.) 

Mr. Gesell. The next Vv itness is Mr. Kobert L. Cooney. 

The Chairman. Do you solemnly swear that the testimony you are 
about to give in this proceeding shall be the truth, the whole truth, 
and nothing but the truth, so help you God? 

Mr. CooNEY. I do. 

TESTIMONY OF ROBERT L. COONEY, INSPECTOR OF AGENCIES, NEW 
YORK LIFE INSURANCE CO., ATLANTA, GA. 

Mr. Geseix, Mr. Cooney, are you connected with the New- York Life 
Insurance Co. ? 

Mr. CooNEY. Yes, sir. 

Mr. Gesell. In what capacity ? 

Mr. CooNEY. My title is inspector of agencies. 

Mr. Gesell. Where do you reside, in Atlanta? 

Mr. CooNEY. Yes, sir. 

Mr. Gesell. What are your duties as inspector of agencies ? 

Mr. CooNEY. I have charge of what is called the agency work. 

Mr. Gesell. In what States? 

Mr. CooNEY. Florida, Georgia, North and South Carolina, Virginia. 

Mr. Gesell. Are you also a member of the legislative committee of 
the GeorsJ a. Underwriters Association? 



CONCENTRATION OF ECONOMIC POWER 4397 

Mr. CooNEY. I am. I am chairman of it, sir. 

Mr. Gesell. What was that answer ? 

Mr. CooNEY. I am chairman of those committees. 

Mr. Gesell. Are yon also the representative of the Association of 
Life Insurance Presidents in Georgia? 

Mr. CooNEY. Yes, sir; but not by any direct appointment. That 
sort of thing is like Topsy, it has just "growed" on me. 

Mr. Gesell. But you have had that as one of your functions for a 
period of years ? 

Mr. CooNEY. Yes, sir. 

Mr. Gesell. For how many years ? 

Mr. CooNEY. Oh, I should say for 15^ at least. 

Mr. Gesell. You have represented the association in Georgia for 
about 15 years ? 

Mr. CooNEY. I should say about that ; yes, sir. 

Mr. Gesell. How often does the Georgia Legislature meet — once 
every 2 years unless there is a special session? 

Mr. CooNEY. At one time it was once every 1 year; now the law is 
once every 2 years, but we usually have a special session in addition 
to that. 

Mr. Geseij.. Can you tell us how much time you spend during a 
year that the legislature is in session on legislative matters? 

Mr. Cooney. I would say directly, sir, not so much, because as a 
matter of fact I have to remain in close contact for possibly the length 
of each session, 

Mr. Gesell. So a good proportion of your time each day for the 
period of the session is taken up with legislative matters in one way or 
another ? 

Mr. Cooney. No, sir; I wouldn't answer it that way. I would say 
that I keep close in contact and usually stay in Atlanta during the 
session. As a matter of fact, my time is occupied principally in mak- 
ing addresses to committees when we are called before committees to 
argue in regard to any bill that happens to be before that committee 
relating entirely to life insurance. I attend to nothing else. 

Mr. Gesell. Now, Mr. Cooney, will you tell us a little about fhis 
legislative committee of the Georgia Underwriters Association, of 
which you are a member ? Who are the other two members ? 

Mr. Cooney. At the present time I happen to be chairman ; a man 
named Sam M. Carson is one member of the connnittee, and Mr. Baxter 
Maddox is the other member. We have on occasion called in one or 
two others who are not directly members of the committee but who 
have done committee work. 

Mr. Gesell. How is that committee appointed? 

Mr. Cooney. There are two associations, one the Atlanta Association 
of Life Underwriters, and the other is the State Association of Life 
Insurance Companies. I happen to be chairman of the committees 
appointed by both of those. 

Mr. Gesell. They are appointed by the agents either in Atlanta or 
the State? 

Mr. Cooney. Yes. 

Mr. Gesell. I take it you incur some' expense in connection with 
your appearances before the legislature, do you not? 

Mr. Cooney. Yes. Part of the expenses are paid by the Life Pres- 
idents Association. 



4398 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Am I correct in saying that generally speaking the 
Association of Life Insurance Presidents will reimburse you for travel, 
telephone, stationery, stenographers, purchasing of a legislative serv- 
ice, or something of that kind ? 

Mr. CooNEY. No, sir ; only a part of it. As a matter of fact, they 
pay no traveling expenses whatever. If we incur telegraphic expenses 
or telephone expenses to the association asking instructions or impart- 
ing information, and they make a certain allowance for sundries, we 
will say like taxicab fares going up and down, after all, you go up and 
down four times in 1 day 

Mr. Gesell (interposing). Some of your expenses are paid out of 
your own pocket, are they ? 

Mr. CooNET. Yes, sir. 

Mr. Gesell. Is it true that the Underwriters Association at the 
end of the year chips in to try to reimburse the legislative committee 
for some of its work? 

Mr. Coonet. To a certain extent, yes. 

Mr. Gesell. And during the time that the legislature is in session 
I take it that you continue to receive your salary from the New York 
Life Insurance Co. ? 

Mr. Cooney. Yes, sir. 

Mr. Gesell. Will you tell us or describe for us the methods which 
you adopt when a particular bill which is or may be adverse to life 
insurance is introduced in the legislature? 

Mr. Cooney. After it is introduced — as a matter of fact, if I can 
put in here, if we can learn that a bill is about to be introduced we 
try to get hold of the man to introduce it and argue the question 
on its merits and get him to withdraw it. I may say to you, sir, if 
yon will let me diverge a minute, we rather believe in that, like the 
dutch man at the boarding house where they were tough roosters. 
He said he ate them when they were eggs. 

^r. Gesell. You moan, you like to get at a bill at its earliest 
possible moment? 

Mr. Cooney. That is right. 

Mr. Gesell. Let's say you cannot prevent the sponsor from intro- 
ducing the bill. "What happens? 

Mr. Cooney. We try to deal with it before the committee to which 
it is referred. 

Mr. Gesell. Suppose the committee reports it out? 

Mr. Cooney. Well now, if it is reported unfavorably tliat ends it. 

Mr. Gesell. Let's assume it reports out favorably, 

Mr. Cooney. Then we begin to try to get hold of different mem- 
bers of the legislature in one way or the other and try to convince 
them they ought not to vote for it. 

Mr. Gesell. Suppose the matter is coming up for a vote and the 
result looks as tliough the bill may get through? 

Mr. Cooney. Wo have to wait until we see what that is, sir, and 
then possibly deal with it in the Senate after it goes there, if it is 
a revenue bill. 

Mr. Gesell. You follow the same procedure through the Senate? 

Mr. Cooney. To a certain extent. 

Mr. Gesell. May I ask you if it is your practice on some occasions 
to introduce another bill, hoping that by introducing another bill 



CONCENTRATION OF ECONOMIC POWER 4399 

you can initiate obstructionist tactics which will prevent the original 
bill from passing? 

Mr. CooNEY. I can't agree to the word "obstructionist," sir, at all. 

Mr. Gesell. Do you recognize this memorandum which I show 
you? 

Mr. CooNEY. Yes, I know-; i wrote that. I am going to try to 
explain that to you. 

Mr. Gesell. May I read it to you before you begin? This is a 
letter signed by yourself and Mr. Carson and Mr. Allen. I take it 
they are the other members of the committee. 

Mr. CooNEY. Yes, sir; at that time. 

Mr. Gesf^:.. Addressed to Mr. Hogg, dated February 25, 1935. 
The letter states [reading from "Exhibit No. 703"] : 

On general principles we are taking up our duties again today, after a 3-day 
vacation ; while the legislature has junketed, we would like to say that we appre- 
ciate the arguments 

The Chairman. What is that ? 
Mr. Gesell [reading] : 

junketed, we would like to say that we appreciate the arguments furnished us, 
and this committee assimilates same and uses them where practical. There is 
not the same disposition, however, to regard the altruism of the situation as 
there was at the time when the money was less needed. So unofficially, we 
make the following statement. It has been our practice for years. 

1. To try to persuade the author of a bill, either before its introduction or 
after introduction and reference to a committee, to withdraw same. This has 
worked out ofteuer than might be thought. 

2. We make effort in advance, as described to you, to have friends on the 
committee and to have meetings at the proper time and under favorable environ- 
ment. This has frequently worked out. 

And this refers, I believe, to the matter we were discussing, Mr. 
Cooney — 

3. If we do not succeed in getting a biU adversed, we try to introduce another 
bill, hoping that the whole thing will wind up in a row, to be plain about it. 

That sentence was what prompted me to use the word "obstruc- 
tionist." 

The Chairman. Your word was mild, compared with "row." 
Mr. Gesell [reading further from "Exhibit No. 703"] : 

This has worked out at this session, and I will add, in passing, that we have 
one man that if any bill comes out on the floor to get up and say that he does 
not believe in taxing Hfe-insurance premiums at all, and create u diversion in 
that way. 

4. If a bill passes either house and goes to the other house, we try to repeat 
the above tactics. 

5. At this session particularly we have considerable confidence in the Gover- 
nor's statement that he will veto any tax increase. His language, however, was 
"citizens of Georgia," but we hope, if any bill should pass both houses, to show 
him that the taxes rest on the citizens of the State of Georgia. 

I would like to offer this letter for the record. 

The Chairman. Mr. Cooney's letter to Mr. Hogg? 

Mr. Gesell. Together with Mr. Hogg's reply of February 27, 1935, 
which is attached thereto. 

The Chairman. Has that been identified ? 

Mr. Gesell. Will you identify that as a copy of the letter you 
received ? 

Mr. Cooney. Yes. 



4400 CONCENTRATION OF ECONOMIC POWER 

The Chairman. The exhibit may be received. 

(The letters referred to were marked "Exhibit No. 703" and are 
included in the appendix on p. 4767.) 

Mr. CooNEY. What particular phase do you want me to comment 
on, Mr. Gesell ? 

Mr. Gesell. I asked you whether it was your practice on occasion 
to introduce a bill, having in mind the possible benefits which would 
result from obstructionist tactics, and you were about to explain. 

Mr; CooNEY. I am sorry — if I had known I would have to explain 
that I would have used a different word. There is no question about 
that. As a matter of fact what I meant was here comes a man where 
we have II/2 percent premium tax in Georgia. Somebody introduces 
a bill to increase it to 3 percent. We will say, for the sake of argu- 
ment, it gets on the floor of the house, and that has happened only 
once in several years. In that particular case 

The Chairman (interposing). I take it the auditors thought that 
was a compliment; the auditors thought that was a reason for com- 
plimenting you. 

Mr. CooNEY. I respect your opinion. Excuse me. 

The Chairman. I just interfered unnecessarily. 

Mr. CooNEY. Not at all, sir; I am glad you gave me the oppor- 
tunity. Mr. Gesell, as a matter of fact we have any number of men 
who agreed with us, and I state my unqualified opinion that taxation 
on life-insurance premiums ought not to be more severe than enough 
to pay for the regulatory body and there are any number of men 
that agree. 

Mr. Gesell. Now I am not interested in the merits of the case 
here; I am interested more in the methods pursued and I want you 
to explain, if you can, how you justify introducing obstructionist 
legislation. 

Mr. Cooney. I wanted to confine myself to the word you used. 
Nojv, I will repeat, if a 3-percent bill gets on the floor of the house, 
which it would not usually do, we try to get some man who objects to 
any taxation on life-insurance premiums at all to introduce a bill to 
abolish them entirely, except to support the insurance department. 
Now, as a matter of fact, that gives us an opportunity to argue on 
both sides of that question, and it has been successful up to a certain 
point. 

Mr. Gesell. Now will you tell us a little more about the procedure 
which you adopt in approaching sponsors of bills or committee mem- 
bers before the bill gets out onto the floor of either the house or the 
senate ? 

Mr. Cooney. I either get somebody who knows them to introduce 
me, or if I can't get that, I go and introduce myself, which is a 
poor introduction, I know, and argue the question with him as to the 
merit of the case. 

Mr. Gesell. Now, is it frequently your practice to entertain mem- 
bers of the legislature ? 

Mr. Cooney. Yes, sir; not as members of the legislature altogether, 
but as my personal friends, when they are my friends. 

Mr. Gesell. Do you recognize this letter of March 22, 1933, signed 
by yourself, and the two other members of the committee to Mr. 
Creswell, of the association ? ^ 

I Entered later as "Exhibit No. 704," Infra, p 4402. 



CONCENTRATION OF ECONOMIC POWER 4401 

Mr. CooNEY. Yes, sir. 

Mr. Gesell. I wish to read a portion of that letter, commencing 
on page 3 [reading from "Exhibit No. 704"] : 

* * * We mention here that roughly speaking, the expense in money to 
members of our committee, no part of which has been paid by anybody else, 
has been about $500. About $30 of this wns for cab fares to and from the 
capitol, on hurry calls from our friends, or to get bills just introduced and 
before the service people were in position to get them. Not one cent for any 
purpose that is not legitimate, or which any other man, if he worked as we 
work, would not have incurred. We might mention in passing that we believe 
in killing a bill before it gets on the floor, or before a committee, if possible. 
It is much easier to handle one man or two men alone than it is to argue 
with a whole committee and it is impossible to argue with the whole house. 
This money has been spent in invitations to those of whom we wished to make 
friends, and seeing that their wives and daughters were looked after properly 
and courteously ; and a large portion of it in giving a dinner after the session 
was over to all of those who were good enough to favor us. We have been 
told that one reason we are kindly received is that we do not forget favors after 
we get them. The other is that we do not seek to interview members of the 
legislature while they are in their seats, going through the lobbies, or stop 
them at their lunches, as most people do. 

Now with reference to my questions on entertainment, you say 
that some of the money has been spent in seeing that the wives and 
daughters of legislators are looked after properly ? 

Mr. CooNET. Yes, sir; a good deal of that was spent in my own 
house and I think if you will let me say.it, what I had in mind 
there, though I didn't make it plain, was that some. of that $500 
was in connection with previous -experiences but, however that may 
be, I don't remember just how that was arrived at at that time 
because I know we spent a good deal of it and pay everything 
ourselves. 

Mr. Gesell, May I suggest we pause for the pictures and then 
proceed ? 

The Chairman. It is all over now. 

Mr. Gesell. Now did I understand you to say that it was the 
practice of you or other members of the committee to entertain 
members of the legislature in order to obtain a means of putting 
before them your position? 

Mr. CooNEY. Yes; I would like to make proper explanation of 
that, my dear sir. 

Mr. Gesell. Certainly. 

Mr. CooNEY. As. a matter of fact I repeat what I said in that 
letter; it is very hard, if you ever had that kind of an experience, 
maybe you have, to argue a man out of his position before a number 
of other men. It doesn't make any difference whether he is right 
or wrong. If you can get that man and show him the merit of your 
case and the mistake that he may have in his mind when he is advo- 
cating certain propositions, it is easier to reverse him in his own 
mind by himself, than it is before a lot of other people. 

Mr. Gesell. That I take it is what you meant on page 2 of the 
memorandum when you state [reading from "Exhibit No. 704"] : 

The Honorable J. W. Culpepper (previously our friend and our friend again 
now) previously chairman and now on the ways and means committee, gave 
notice that he would introduce a 3 percent tax bill. One of our committee 
had supper with this gentleman, and a long interview afterwards. This bill 
never made its appearance. 

The Honorable -J. Scott Davis, of Cedartown, Ga., had prepared by the 
attorney general of the State, a bill increasing our taxes to 21/2 precent One 



4402 CONCKNTRATION OF ECONOMIC POWER 

of our couimittee entertained this gentleman and some of his friends, and 
after an argument on the merit of the case, the Honorable Mr, Davis withdrew 
this bill. 

The Honorable Orville A. Park, of Macon, Ga., introduced a bill, had it read 
once, referred to ways and means committee, which bill would have increased 
insurance premiums to 3 percent, but eliminating municipals. We likewise 
obtained an interview, through entertainment, with the Honorable Mr. Park, the 
result of which was his statement then that he would withdraw this bill, and 
that he was suflBciently convinced of the merits of the case to promise opposition 
to any other hill of the kind that might come up, and to ask for the appoint- 
ment of a committee to inquire into insurance taxes and make a report to the 
next session. 

Mr. CooNEY. i think that means exactly what it says, except that 
the word "entertainment" I think you misunderstand. I don't mean 
entertainment with any sinister motive at all. 

The Chairman. I didn't understand what you said. 

Mr. CooNEY. I don't mean entertainment with any sinister motive 
at all, any ulterior motive. For instance, you mention Judge Park. 
That is the man who has written the Code of Georgia twice. I had 
that gentleman out to my house and after the dinner was over I 
argued the question with him exactly as that letter states, and he said : 

I think the presentation you make convinces me that it would be wrong to 
increase the insurance taxes, and I won't pursue the bill, and I will oppose 
anything else. 

Mr. Gesell. What I was interested in, Mr. Cooney, as much as any- 
thing else, was why it was necessary to approach representatives of 
the legislature in that manner. Is it not possible to go to see them 
and talk to them about it in a more public manner ? 

Mr. CooNEY. Yes ; as a matter of fact, it is. I have had men engaged 
in what our chairman has called a lobby, meaning it in an inoffensive 
way, to stop men running across the lobbies of the house. I have 
access to the floor of the house but I never use it, except simply to listen 
to an argument. Now those men don't like that and it never gets 
anywhere because a man who comes off the floor of the house to go 
somewhere else has something in his mind, and if you stop him, why 
he is irritated over it — not mad, you understand; I differentiate be- 
tween "mad" and "irritated." I am going to be careful about the 
language I use hereafter. 

Mr. Gesell. I would like to offer this letter for the record at this 
time. 

The Chairman. The letter may be received. 

(The letter referred to was marked "Exhibit No, 704" and is in- 
cluded in the appendix on p. 4768.) 

Mr. Cooney. That letter means just about what it says, except I 
don't want the word "entertainment" as we used it to be misunder- 
stood. We entertain them, offer them a lunch or dinner, to talk to 
those gentlemen when they have nothing else on their minds but the 
consideration of the question we bring up with them. 

Mr. Gesell. Now, Mr. Cooney, let me ask you this: What about 
campaign contributions? Does your legislative committee make any 
campaim contributions in the State of Georgia? 

Mr. Cooney. I don't know what anybody else does, except what I 
do on occasion, I do wdth my personal friends whom I want to see 
elected. I have done that. Even, may I say, that one time I made 
some contribution to the campaign fund of the President of this United 
States. 



CONCENTRATION OF ECONOMIC POWER 44Q3 

Mr. Gesell, Now, have you made many? 

Mr. CooNEY. Yes. 

Mr. Gesell. Or few ? 

Mr. CooNEY. Quite a number. 

Mr. Gesell. Does your association attempt to participate in the 
elections and help get men elected whom you want to see in the 
legislature ? 

Mr. Cooney. I don't know what the others do. I know I do. 

Mr. Gesell. Now, do you recognize this letter of March 1, 1938, 
written by you to Mr. Pierson, vice president of your company? 

Mr. Cooney. I have to tell you at the moment that Mr. Pierson 
and I have been more or less intimate persoiml friends for a long, 
long time, and he and I joke with each other, but I will never do it 
again. 

Mr. Gesell. I notice you marked the letter "Personal," 

Mr. Cooney. Yes; that sounds so funny I don't see any reason to 
explain it. 

Mr. Gesell. You do recognize the letter, do you not? 

Mr. Cooney. Yes. 

Mr. Gesell. I was interested particularly in the second paragraph. 
You state [reading from "Exhibit No. V05"] : 

they have remitted to me all of the expenses that would be proper to charge 
up. There are some, of course, that do not go into an account of this kind. And 
I am going to say in passing that (admitting, of course, that we have been 
rather successful in heading off legislation) the method is to interest ourselves 
in key men before they are elected, help them to get elected, and then they owe 
us something instead of oup owing them. That is the whole secret. 

Mr. Cooney. If tliat language is not misunderstood, it means 
exactly what it says. 

Mr. Gesell. That is fine. 

The Chairman. The letter may be received. It is rather explicit, 
Mr. Cooney; I think nobody can misunderstand it. 

(The letter referred to was marked "Exhibit No. 705" and is in- 
cluded in the appendix on p. 4770.) 

Mr. Cooney. Senator, may I say a word off the record? 

(Remarks off the record.) 

The Chairman. I don't know why you say that off the record. 

Mr. Gesell. Now, Mr. Cooney, I wish you would tell us a little 
more about what tactics you use in obtaining advance information 
about proposed bills and advance copies of bills which are about to 
be introduced. I gather from what you said previously that that was 
somewhat essential to the program which you had adopted of getting 
to the sponsor as soon as you could. 

Mr. Cooney. That is to save as much time and trouble as we pos- 
sibly can. As a matter of fact, we have a number of friends — very 
evident from the letters you have read. A member of the legislature 
frequently talks to one of his friends about a bill that is about to be 
introduced. If you know the method, you know they try to enlist 
votes for it before they ever introduce it. Our friends sometimes will 
tell us Bill Smith is about to introduce a bill that will do some dam- 
age to us in that jjarticular case. We try to get hold of the man and 
ask him to withdraw it. I think I made that plain in my letters. 

Mr. Henderson. What do you call a bill like that, Mr. Cooney? 
Is that a bell ringer, or do you have some other nnrae for it ? 

124491 — 10— pt. 10 1** 



4404 CONCENTRATION OF ECONOMIC POWER 

Mr. CooNEY. I have another one, but I don't use it here. 

Mr. Henderson. I think I know it, but I will let it go. 

Mr. Gesell. Now, my question was, Mr. Cooney, is it not a fact 
that you have worked out arrangements with people who have the 
privilege of the floor to supply you with advance information? 

Mr. CooNEY. Yes, 

Mr. Gesell. Will you tell us what those arrangements are and how 
you have made them and who you have made them with ? 

Mr. Cooney. I don't know whether the result had anything to do 
with the arrangement, but as a matter of fact we had one man who 
is a reporter for a new^spaper who had the privilege of the floor and 
he hears talk all over the floor about bills to be introduced and then 
reports it to mCj so we can get hold of the men individually instead 
of having to wait to argue the question in detail before a large body 
of men. 

Mr. Gesei,l. Do you recognize that letter I show you, Mr. Cooney '? 

Mr. Cooney. Yes. This is the man I referred to as a newspaper 
reporter. 

Mr. Gesell. This is a letter dated November 21, signed by your- 
self, addressed to Mr. Creswell, statistician of the association [read- 
ing from "Exhibit No. 706"] : 

Of course we have to have copies of these bills to study them, but Ed Bradley, 
of a local newspaper, has access to the floor of ^he house and a partner, so 
to speak, on the floor of the senate. For $100 this man will keep his eyes open, 
not only for the introduction of bills but for the talk that goes on before a bill 
is introduced, and this service has proven very valuable to us and has enabled 
us to abort on occasion the proposed tax measures. X think we should have 
this service, and I hope we will have your approval. 

I would like to offer that for the record. 

Mr. Cooney. That letter means ^'ust what it says, too. 

The Chairman. That may be received. 

(The letter referred to was mai^ked "Exhibit No. 706" and is 
included in the appendix on p. 4771.) 

Mr. Geheli^. That expenditure was approved by the association, 
was it not ^ Now do I understand you to say that you yourself have 
the privilege of the floor? 

Mr. (JooNEY. I have, but I don't take advantage of it very often. 
As a matter of fact, I am going to say here for the record, or other- 
wise, tliat t think there is a resentment against a man who is not a 
member of the legislature running around on the floor of the house 
and I have had complimentary cards to both the senate and the 
house for years and years. At the last session of our legislature I 
don't think I went into it three times. 

Mr. Gesell. May I ask just from 'he point of view of ignorance 
and curiosity what the difference is between your going and your pay- 
ing a man $iOO to go for you ? 

Mr. Cooney. Because he is there all the time and he legitimately 
is there seeking information, news for his newspaper, and I am not. 

Mr. Gesell. He is there under an entirely different guise ? 

Mr. Cooney. Absolutely. 

Mr. Gesell, Now, do' you recognize this letter to Mr. Hogg, dated 
March 3, 1937? 

Mr. Cooney. Yes, sir. Let me get the gist of it, if you don't mind. 



CONCENTRATION OF ECONOMIC POWER 4405 

Mr. Gesell. Certainly. 

Mr. CooNET. Yes, sir; that man is a good friend of ours and a good- 
sized policyholder in the New York Life. 

Mr. Gesell. Now, I was interested particularly in the last two para- 
graphs where you say [reading from "Exhibit No. -707"] : 

we have made five or six friends who will oppose on the floor of the house any 
increase whatever in premium taxation. A. typical letter from the Honorable 
J. B. Joel is herein, together with copy of ray reply. 

I have replied in this way because I have understood this morning, to repeat 
the expression used to me, that I am a marked man. I have the privilege of the 
floor and I have been down to the legislature several times, possibly a dozen or 
more. The speaker of the houpe has made the public statement that he does not 
wish any member to accept any invitation given by any person who has any 
interest in legislation before the house. I will try to deal with this later. 

Mr. CooNEY. Yes, sir; that means what it says, too. As a matter of 
fact, I have abandoned the invitations we used to give to a very great 
extent. 

Mr. Gesell. I notice in the accompanying letter that on ihe very 
same day you offered Mr. Joel an invitation to come to your house,' 
saying: 

I know that you will not understand me as having any ulterior motive when 
I say I will be glad to have you at a meal at my house any time convenient to 
you, and herewith promise not to bring up the question of insurance taxation. 

Mr. Coonet. I think that is a plain social invitation. It says so on 
the face of it. 

Mr. Geselt^. But w^hat about the other entertaining which we have 
already considered in the record? 

Mr. Cooney. One minute. Entertainments are of various kinds and 
I repeat my explanation of what I mean by the word. Sometimes I 
have one man to lunch; sometimes I have a man and his wife to my 
house to dinner. If you will take a particular species I will try to 
explain it. 

Mr. Gesell. I would like to offer this letter of which I have just 
read a portion for the record. 

The Chairman. The letter may be received. 

(The letter referred to was marked ''Exhibit "No. 707" and is in- 
cluded in the appendix on p. 4772.) 

Mr. Gesell. Now, will you tell me whether as part of your program 
you occasionally, Avhen a bill gets out on the floor of either the house 
or the senate, attempt to stir up interest in the agents and general 
managers and policyholders m the State so that they can express their 
disapproval through letters and telegrams and otherwise? 

Mr. CooNEY. I want to correct the statement "gets out on the floor of 
the house." That has happened only once in the last several years. 
I repeat that because we have another letter; now, as a matter of fact 
I think Mr. Eeilly took from my files a letter that I had written to 
every insurance agent in the State of Georgia that we knew ; that is, 
the agents of the members of the association. 

Mr. Gesell. Is that the letter I show you now ? 

Mr. CooNEY. This is one of them I wrote^ too ; I don't know whether 
you have the other ojie p v not. 

Mr. Gesell. That is such a letter? 

Mr. CooNEY. If you read that, please read it all. 



4406 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I certainly will. A letter dated February. 26, 1937; 
it is a letter signed by yourself as an inspector of agencies, written 
to all Atlanta Kylics (reading from "Exhibit No. 708") : 

Since the middle of January I have been so busy fighting any increase in 
premium tax that I have hardly had time to do anything else. 

By the way, that would indicate that you were a little busier than 
you indicated at the first part of your testimony? 

Mr. CooNEY. Not at all. It indicates this particular session, when 
the State needed money more than it ever did, it worked harder. 

Mr. Gesell [reading from "Exhibit No. 708"] : 

You know when we insure a man we persuade him to tax himself to keep his 
dependents from taxing others after his death, and it is really not fair to levy 
any tax on premiums in any amount except enough to pay for supervision. We 
are paying in Georgia today a little more than the average in the United States. 
There is a bill to increase this. The rate of percentage as named in the bill 
now under consideration would make taxes here higher than anywhere else in 
the country. 

Your senator or your representative will probably be back home tomorrow. 
The legislature adjourns this afternoon until Monday. I want you, for the sake 
of your own business and for your policyholders, whom we are bound to protect, 
to see this representative or senator personally and urge against any increase in 
premium taxation in this State for the reasons above stated. 

I feel sure that you will do this, and I am going to repeat to you that I have 
been giving all my time to it for the last month, and I do it because I think it is 
fair to the policyholders, out of whom we make our living. That's the plain 
fact in the long run, so kindly do this for me. 

I ana glad to tell you that the business this year is 50 percent ahead of last 
year, and I hope you have had your share. I have wanted to see every one of 
our agents, and I will do that as soon as the matter that has been so serious is 
over. 

Good luck to you, and see if you can't send me an application by return mail. 
Address it to me personally and I will see that it gets to the right place. 

I would like to offer that for the record. 

(The letter referred to was marked "Exhibit No. 708" and is included 
in the appendix on p. 4772.) 

Mr. CooNEY. I say, if Mr. Gesell will tell me what criticism he has 
of that letter I will be glad to try to make it plain. 

Mr. Gesell. I have not attempted to criticize, only to bring out 
the facts, Mr. Cooney. Is that the type of letter which you have 
written on occasion to the agents of the New York Life Insurance Co. 
eliciting their support? 

Mr. CooNEY. Yes, sir; but I want to say here I am perhaps con- 
fusing myself with the statement about my giving my whole time 
to it for a long while, that is to put the responsibility on those fellows 
to give some of their time to it. 

Mr. Gesell. Well, you are anxious when a bill comes out, then, I 
take it, on the floor, to have as much support as you can from the 
agents and general managers throughout the State ? 

Mr. CooNEY. I answer that "Yes" ; unequivocally. 

Mr. Gesell. Do you send similar letters or cause similar letters 
to be sent to the agents and managers of other companies? 

Mr. CooNEY. Yes, sir ; as far as I can. 

Mr. Gesell. What efforts do you make to stir up a policyholder 
himself in the expressing of disapproval? 

Mr. Cooney. None at all, except through tlie agents who have in- 
sured them and who know them. 

Mr. Gesell. Will you explain that in a little more detail? 



CONCENTRATION OF ECONOMIC POWER 4407 

Mr. CooNET. Your question was, what efforts do I make outside 
of letters like this to contact policyholders and stir them up, is 
that it? 

Mr. Gesell. That is it. 

Mr. CooNEY. None, except that way. 

Mr. Gesell. You answer none except those agents to see the policy- 
holders ? 

Mr. CooNEY. Yes. 

Mr. Gesell. And have them wire 

Mr. Cooney. I stopped that all years and years ago. If you men 
stopped that you would be happier. Everybody knows they are 
paid for by somebody else and incited by somebody else, and written 
by somebody else, and sometimes signed by somebody else. 

Mr. Gesell. The agent makes a personal contact with a man whom 
he has insured, calling his attention to the fact that he has put a 
tax on himself to keep his children from taxing somebody else? 

Mr. CooNEY. That is the^ strongest support there is. 

Mr. Gesell. Your objection to telegrams is that they are a source 
of irritation and initiated too obviously by someone else? 

Mr. Cooney. Do you remember some utility man? If I had been 
president of that company tliat wouldn't have happened. No; Mr. 
Gesell, those things simply irritate the men; they know the source 
of those; they know there isn't 1 out of 100 written by the name 
signed to it, and possibly half of them are signed by somebody else. 
I think that was in evidence here sometime ago. 

The Chairman. The practice still continues, Mr. Cooney, I can 
testify. 

Mr. Cooney. Won't you let me help you stop it ? 

The Chairman. If you know how to do it, I would Avelcome it. 

Mr. Gesell. Do you recognize this as a letter which you wrote 
to Mr. Pierson ? 

Mr. Cooney. Yes, sir. 

Mr. Gesell. That is a letter dated 

Mr. Cooney. 1934. 

Mr. Gesell. July 5, 1934. It reads as follows [reading from "Ex- 
hibit No. 709"! : 

Please let me write you in a personal way. Last week I went to Rome, 
Ga., and invited to lunch 20 men, whom I happen to know, large policyholders. 
Every one of them in our company, and, of course, with other companies, 
too, some of them. The -0 men carry a n\illion and a lialf of life insurance. 

I talked to them some about the taxation of premiums, as I am sure we are 
going to have a world of f rouble with the next lesislature. We have laid some 
foundation, I think, on which to build, to stnll this. But what I want to say 
is, that I asked thes^e men (and repeat, in a most personal way, they under- 
standing that no company had anything whatever to do witli it, hut tliat I was 
inviting them and meeting them as a fellow policyholder ) what they would 
do if it were indicated that this, that, or the other man would vote to increase 
the tax on their premiums. Their response wa^'. to name the man who would 
do that and they would do the best they could to keep him frcm going to the 
legislature again. This is a straw. 

Mr. Cooney. Now, I will have to ask you, Mr. Chairman, may I 
amplify that a little? 

(The letter referred to was marked "Exhibit No. 709" and is in- 
cluded in the appendix on p. 4773.) 



4408 CO'NCENTRATION OF ECONOMIC POWER 

Mr. CooNEY. As a matter of fact, the use of the word "legislature'" 
was absolutely improper. That, was a city managership government 
and the people that were involved in that were the city manager and 
the city clerk. 

Now, as briefly as I can put it, we have a 11/2 percent premium 
tax in Georgia, and in five cities of Georgia we have another premium 
tax on top of the State tax. We also have in nearly every city of 
Georgia a license tax. We have a county tax on the statute book, we 
have taxes in every which way. Now, this city manager came to At- 
lanta and asked whether his city couldn't levy a premium tax. The 
answer was that other cities had done it. Mr. Carson and I did our 
best to convince those two men that no premium tax ought to be levied 
in Rome and we couldn't get anywhere. So I invited — and by the 
way paid for that lunch myself, it has never been reimbursed from 
any source — a lot of those men to dinner, 1 made a beautiful speech 
at the senate, if you will permit hie to say so, I almost cried qver it 
myself. I explained that any mutual taxes in a mutual company like 
ours are bound to come out of the policyholder, they are bound to in- 
crease the cost of this insurance which we universally tiy to make as 
little as wexjan, and if they wanted to vote to return the city manager 
nnd the city clerk with the idea that they would levy a |)remium tax 
and cost their own cities more for then insurance to do it, that is the 
gi^t of that.. 

Mr. Gesell. Do 3'ou recognize tliis letter dated February 12^ 1937, 
i^ddressed to Mr. Hogg, as a letter ^^' licli you wrote ^'^ 

Mr. Hend^pson. For the purpose of the record, Mr. Cooney, you 
said the use of the word "legislature" was improper. You mean it 
was incorrect? 

Mr. CoONEY. The legislature has been on my mind for so many 
years, I meant tlie city council in that particular case, the city man- 
.iger. Please accept that explanation if you can. 

Mr, Gesell. Do you recognize that letter as one that 3'Ou wrote? 

Mr. CooNEY. Yes; I do. 

The Chairman. Before you go to that, does the city council in 
Rome, Ga., meet in special sessions? 

Mr. CooNEY. That I don't know, sir. 

The Chairman. In stated sessions? 

Mr. CooNEY, That I don't know. 

The Chairman. That isn't the practice, is it? 

Mr. CooNEY. That I don't know. 

The Chairman. You see, your reference to the legislature in your 
k ter reads as follows [reading f rorh '"Exhibit No. 709"] : 

1 talked to them about the taxation of premiums, as I am sure we are going 
to have a world of trouble with the next legislature. We have laid some 
foundation, I think, on wliich to bnild to stoll this. 

Am I to understand that those two sentences were not referring to 
(lie next session of the legislature? 

Mr. CooNEY. Wliat did you say, Senator; I beg your- pardon? 

The Chairman. I say am I to understand that this reference is not 
to the next session of the legislature but to the continuing sessions of 
the city government ? 



1 Subsequenfly introduced as "Exhibit No. 710," infra, p. 4U0. 



CONCENTRATION OF ECONOIMKJ POWER 4409 

Mr. CooNEY. Yes, sir. Yes. sir; if I remember the letter — the indi- 
vidual letter that you are referring to. 

The Chairman. You have just been handed a copy of the letter. 
Will you read it over 'I 

Mr. CooNEY (reading from "Exhibit No. 709") : 

Please let nie write you in a personal way. Last week 1 went to Rome, Ga.. 
and invited to luucL 20 men, whom I happen to know, large pohcyholders. Every 
one of them in our company, and, of course, with other companies, too, some of 
them. The 20 men carry a million and a half of life insurance. 

I talked with them about the taxation of premiums, as I am sure we are going 
to have a world of trouble with the next legislature. We have laid some founda- 
tion I think, on which to build to stall this. But what I want to say is that I 
aslced these men (and repeat, in a most personal way, they understanding that 
no company had anything whatever to do with it, but that I was inviting them 
and meeting them as a fellow policyholder) what they would do if it were 
indicated that this, that, or the other man would vote to increase the tax on 
their premiums. Their response was to name the man who would do that and 
they would do the best they could to keep him from going to the legislature 
again. This is a strav- 

This referred to the city manager and city clerk. 

Incidentally that legislative business — I am going to have to reverse 
something I said. As a matter of fact, the men in Rome who elect 
members of the legislature and those important men who are interested 
largely in life insurance I addressed on that subject, too ; I remember 
that at the moment, Senator. 

Tlie Chairman. Then you were dealing 

Mr. CooNEY. AVill you let me say this much more before I quit? 
One fellow there who had about $200,000 of insurance put his hand on 
the .shoulder of the city manager and said, "Mr. Cooney, if we do that, 
we V ill see they never get back." That related entirely to the taxation 
on the part of the city, don't you understand, in addition to the State 
tax. On the other hand, }'olitics — we call it so — more or less is bound 
up in various ways. You have county politics, city politics, State 
legislation, and any impression made in regard to city taxation extends 
itself, of course, to State taxation. 

The Chairman. And you qualify as an expert in all these lines, I 
take it. 

Mr. CooNEY. No, sir. I claim to be nothing but a common life- 
insurance agent with a point of view that is distinctly in the interest 
of the policyholders. 

The Chairman. Oh, I understand your point of view. But the 
effect of the testimony is that it was your job as the representative of 
the company and as acting for the association to watch legislation 
affecting life insurance, whether it was before the legislature or before 
the city council. 

Mr. CooNEY. Yes ; I. would say that. 

The Chairman. And you devoted a good deal of your time to that 
task. 

Mr. Cooney. No ; not so much. I have tried to tell you I give most 
of my time to work v/ith the agents and I give a great deal of my 
time to get tliem to give theirs. 

Mr. Gesell. You have identified a letter dated February 12, 1937, 
which reads in part [reading from "Exhibit No. 710"] : 

* * * and we have stirred up activity all over the State. All the 
insurance associations have protested, and I ventured to suggest a little 



4410 CONCENTRATION OF ECONOMIC POWER 

reprisal some day on the part of policyholders. That has made several of 
them sit up and pay attention. 

That would indicate to me that it is part of the program on 
occasions to stir up policyholders. 

Mr. CooNEY. Not at all, except insofar as an individual conversing 
with me in a personal way; I have often said if we have too much 
taxation we may have to bring it to the attention of the policy- 
holders as a whole, just as I brought it to the attention of the Kome 
policyholders as indicated in that letter you just filed. 

Mr. Gesell. I wish to introduce the letter I have just read from 
for the record. 

(The letter referred to was marked "Exhibit No. 710" and is 
included in the appendix on p. 4773.) 

Mr. Gesell. May I ask if it has been your practice on occasion 
to attempt to work out an arrangement which will give legal business 
to some member of the legislature in order that you may win his 
friendship ? 

Mr. Cooney. As a matter of fact, sometimes when we find a good 
lawyer in the legislature — and I want to interject here that at one 
time in the early days when we had one general counsel in the city 
of Atlanta, I went with him several times to various little country 
towns where we almost invariably lost our case, and as a matter of 
fact it was suggested to me that we should avoid the criticism that 
we brought a city slicker to the little country town. You have prob- 
ably heard that expression. I asked the company to allow me to 
indicate to our general counsel some counsel locally to be taken into 
our local cases in order that we might get the local atmosphere. 
For that I make no apology. When we found a smart lawyer in 
the legislature and we were unable to show him that our particular 
proposition was correct and h^ indicated that he believed it, I 
have told our general counsel to take that man into any local litiga- 
tion that we might have. I repeat that, and am going to keep on 
doing it. 

The Chairman. You say "sometimes when you find a smart lawyer 
in the legislature." 

Mr. Cooney. Yes, sir. 

The Chairman. Dc you find a smart lawyer there very often? 

Mr. Cooney. When I say "a smart lawyer," I mean one that agrees 
with me. [Lavighter.] 

Mr. Gesell. Mr. Cooney, did I understand from your statement 
that, where you can, you attempt to give that type of employme'it to 
members of the legislature because of the other incidental bf nefits 
that may accrue ? 

Mr. Cooney. I don't think I get your question. 

Mr. Gesell. Will you tell me whether you wrote the letter which I 
now hand you? 

Mr. Cooney. Yes ; that is my signature. 

Mr. Gesell. That is a lettor addressed by you to Mr. Pierson, 
vice president or second vice president of the New York Life Insur- 
ance Co., dated March 5, 1934, in wliich you refer Jto the possible 
employment of Judge E. M. Davis, of Camilla, in a case known as 
the Larmie Thompson case^ which had been in the hands of your 



CONCENTRATION OP ECONOMIC POWER 4411 

Savannah attorneys, and reading in the last paragraph I notice this 
[reading from "Exhibit No. 711"] : 

He is one of two men to whom the legislature listens with the greatest 
respect, and has been on the law committee at every session that he has 
attended. We are going to need him in the legislature to cover the constitu- 
tionality of an act depriving municipalities of the right to levy taxes, and that 
is the principal reason why I would like to see him in this Lanyiie Thompson 
case, aside from the fact that, as I said in my letter of March 1, I believe 
that the respect in which he is held will be a material factor in securing a 
change in the point of view of our appellate court, one of whose judges did 
me the honor to discuss that situation academically yesterday. 

The Chairman. I note the word "academically." 

Mr. CooNEY. Senator, there was no case before the court so it had 
to be academic. 

Mr. Gesell. I offer that for the record. 

(The letter referred to was marked "Exhibit No. 711" and is in- 
cluded in the appendix on p. 4774.) 

Mr. CooNEY. One minute, Mr. Gesell, I want to ask you to let me 
make a statement in regard to that. 

The Chairman. You may make the statement. 

Mr. CooNEY. There is a disposition all over the country, not only 
in Georgia but I think mors severely there than anywhere else, to 
disregard entirely the intent of the language of the contract; and 
not only that but when it comes to a question of law for the judges 
to sidestep the tiling by referring it to the jury as a question of fact. 
Now Judge Davis — the poor fellow is about dead now — was a vei7/ 
prominent constitutional lawyer, and I repeat what was said in that 
letter, that the legislature looks to him on a question of constitu- 
tional law to give them advice and usually abides by 4t. That has 
been so for years. What we want — just a minute, pardon me, you 
said you would let me explain this — we have in Georgia, I told you 
that, a premium tax in the State, a premium tax in some of the 
cities, a county tax on every agent, a city tax everywhere, and it 
has been my desire, speaking individually, to transfer to the State 
the ent' o amount of that taxation and eliminate the possibilities of 
the cities levying anything further so that we may know, which we 
don't know now, that when we have paid the one tax we have paid 
it all. 

The Chairman. In other words, your position is that it was sound 
policy in order to obtain the objective which you had in mind, namely, 
to prevent the passage of legislation to which you were opposed, to 
secin-e a favorable attitude among influential lawyers who had a repu- 
tation with the legislature, by employing them in cases on behalf of 
the company while the legislature was not in session. 

Mr. CooNEY. Senator, not with any distinct reference to that par- 
ticular conclusion, but because of the fact that it is impossible for any 
man who ]ias taken a point of view that some other man has presented 
to him, not to .feel to a certain extent that that man ought to take 
another point of view favorable to him. 

The Chairman. I understand, but tliis is the statement in vour 
letter [reading from "Exhibit No. 711"] : 

Judge Davis. I make the statement uiu-eservedly, has the reputation in the 
legislature of knowing more general constitutional law than all the rest. He 
is one of the two men to whom the legislature listens wiih the greatest respect, 



4412 CONCENTRATION OF ECONOMIC POWER 

and has been on the law committee at every session tliat he luis attended. 
We are going to need him in the legislature to cover the constitutionality of an 
act depriving municipalities of the right to levy taxes, and that is the princpal 
reason why I would like to see him in this Lannie Thompson case. 

Now, there is an explicit -statement. 

Mr. CooNET. Unquestionably. 

The Chairman. That the principal reason you are bringing him 
into this Laiiftiie Thompson cas<c was not because of his knowledge of 
the law upon which that case depended but upon the fact that you 
would need him in the legislature with respect to legislation. 

Mr. CooNEY. Yes. I think it might be read that way. One min- 
ute, will you allow me to go a bit further, Senator? 

The Chairman. Certainly. 

Mr. CooNEY This particular Lannie Thompson case is one of the 
most aggravating that I ever had hold of. As a matter of fact, our 
contract is tliat a man shall not do any labor for profit. The decision 
in the coiu't of aj^poals was that, though we produced evidence with 
his ]iicture on it applying for work as the city clerk of the town of 
Glennville, ihQ, language is that the public shall generally pass on the 
claims of political aspirants and if they didn't elect him it was proof 
positive that he couldn't do the work. We produced a photograph of 
manual labor to the United States Government and that was treated 
in the same way. 

The Chairman. I say the "principal reason." Those were the other 
reasons. 

Mr. CooNEY. I wanted to get that thing reversed. That is the con- 
trolling judgment in Georgia today, and it is very serious. 

The Chairman. Let's read the rest of that sentence [reading from 
"Exhibit No, 711"] : 

That is the principal reason why I would like to see him in this Lannie Thomp- 
son case, aside from the fact that, as said in my letter of March 1, I believe that 
the respect in which he is hold will be a material factor in securing a change in 
the point of view of our appellate court, one of whose judges did me the honor 
to discuss that situation academically yesterday. 

I am not interested in the facts respecting the Lannie Thompson 
case; I am just interested in the principle of the retaining of lawyers, 
which is exemplified by this statement. These are your own words, 
and they sum up to a statement on your part that lawyers should be 
retained by insurance companies in the litigation in which those com- 
panies may engage, not particularly because of their knowledge of the 
law in the particular cases but for the use to which you ma}" be able 
to put their influence and reputation in affecting legislation. Is that 
not a proper summary of your statement? 

Mr. CooNEY. Senator, I dislike to disagree with you at all, but I 
don't think so. I said the principal reason we wanted him was a ques- 
tion of constitutional law in which he was the ablest man in the legis- 
lature. The secondary reason was this particular thing where we had 
had a decision in contradiction to the language of our contract, and is 
now coded, and I wanted him to try to reverse that under some consti- 
tutional provision. I think there is some understanding that the lan- 
guage of a contract 

The Chairman. I know ; but, Mr. Cooney, you are apparently trying 
to induce Mr. Picrson to retain Mr. Davis. 

Mr. Cooney. Yes. 



CONCENTRATION OF ECONOMIC POWER 4413 

The Chairman. You wanted to have him retained in the Lannie 
Thomfsoii case^ and this is apparently a matter which is still to be 
acted upon in the future, because you say : 

That is the principal reason why I would like to see him in this Lannie 
Thompson case — 

and that prmcijial reason has to do solely with the infiuencfe that he 
will bring to bear upon the legislature in matters of legislation. Now, 
I ask you, Do you believe that that is a proper principle to be followed 
in retaining attorneys? 

Mr. CooNEY. Senator, I think that statement is a bit negative instead 
of positive. As a matter of fact, Judge Davis, you will notice I said 
because of his constitutional ability, was one of two men they would 
listen to. Therefore if that doesn't relate and make plain it wa& 
because of his ability in constitutional law, and this Thomption case 
involved a question of constitutional law, also the question 

The Chairman. Now, now, Mr. Cooney, your great virtue on the 
stand today has been your frankness. 

Mr. CooNEY. I am trying to be so now. 

The Chairman. We all recognize that you are a man of great 
ability and oi great personal charm, let me say, and I can imagine 
nobody who would be more influential in dealing with members of 
the legislature or even with Members of Congress than you. Now, 
here we have a letter to Mr. Pierson in which you begin [reading from 
'^Exhibit No. 711"] : 

Referring to my letter of March 1, marked "strictly personal," and in regard to 
the possible employment of Judge E. M. Davis, of Camilla, in what we call the 
liannie Thompson case, originally in the hands of our attorneys, Messrs. Lawton 
c^ Cunningham of Savannah — 

Now, obviously, you are trying to sell a bill of goods to Mr. Pierson, 
to use the common phrase, and the bill of goods is "Hire Judge 
Davis," Then you say to him — this is the reason you should hire 
Judge Davis [reading further from "Exhibit No. 711"] : 

He has the reputation in the leerislature of knowing more general constitu- 
tional law than all the rest. He is one of two men to whom the legislature 
listens with the greatest respect, and has been on the law committee at every 
session that he has attended. We are going to need him in the legislature to 
cover the constitutionality — 

Now are yoti going to tell me and tell this committee that was not 
your purpose to bring him into the Lannie Thmnpson case'^. 

Mr. CooNEY. No; I wouldn't say that. That letter says that was 
my purpose. 

The Chairman. Certainly ; therefore I ask you, Mr. Cooney, do you 
regard that to be a sound principle for the insurance companies to 
retain lawyers in their litigation because of the influence that they 
are going to exert in future legislation before the legislature ? Do you 
regard that as a sound principle ? Now you can answer that question 
"yes" or "no." 

Mr. Cooney, I don't think I can. I am going to be frank. T want 
to continue the good opinion you have expressed but I can't get away 
from the fact that that controlling point in that particular event, 
rather the two controlling points, both of which involved constitu- 
tional questions, and I repeated in that letter, as you remember, that 
Judge Davis was one of the two able constitutional lawyers, and the 



4414 nONCENTRATION OF ECONOMIC POWER 

constitutional question about taxation would come up and, as a matter 
of fact, the use of the words "in the legislature" — if the question had 
been raised in the legislature with the bill that we did have there to 
take away the taxing power of the cities and transfer it entirely to 
the State, he would have argued the constitutionality of it better than 
anybody else, and with more respect for his opinion. That is all I 
]m\ant, Senator. 

The Chairman. Of course; that is exactly what you meant. 

Mr. CooNET. If your question is, "Do you think that is a proper 
thing to do?" I am compelled to ansvrer "y^s," from my standpoint. 

The Chairman. That is what I thought you would answer, of 
course, and that is exactly the point that I wanted to bring out. Not 
only is it true that you regarded that to be a proper method of 
influencing legislatures, but that is true of the entire national in- 
dustrial system. It has been the practice of these large corpora- 
tions that are engaged in interstate and foreign commerce to hire 
the best lawyers they could find in the particular States in partic- 
ular litigation for tlie purpose ratlicr of influencing legislation than 
of the service that could be performed in particular cases. That is 
a matter of connnon knowledge. 

Mr. CooNET. I can't argue that with you, sir. 

The Chairman. Of course, you can't argue it because that is the 
fact, and we all recognize it. 

Mr. Geseix. Do 3'ou recognize this letter dated February 8, 1933, 
signed by yourself and addressed to Mr. Creswell, as a letter that 
you wrote, and do you recognize the attached sheet as a copy of a 
reply which you received? 

Mr. CooNEY. Yes, sir. 

Mr. Gesell. I should like to read this letter. [Reading from 
''Exhibit No. 712":] 

You wrote me on February 2 in regard to senate bill No. 21, suggesting 
some amendments. 

The easiest way to handle this bill is to kill it. I think that has been 
done. The First National Bank, of Valdosta, Ga., is the financial backer of 
the Honorable Nelson, who introduced the bill. I hand you a copy of a tele- 
gram that was sent to Senator Nelson yesterday by this bank, at the iostaneo 
of one of our agents, ex-Senator E. E. Dekle, to wit. 

I have an idea that the bill will now be withdrawn. 

The telegram to Nelson states [reading further from "Exhibit No. 
712"] : 

We believe passage of senate bill No. 21 detrimental to business interests of 
Georgia. Hope you will not urge its passage. 

Signed "First National Bank, Valdosta, Ga.," by the president. 

You received in response to your letter to Mr. Creswell the fol- 
lowing reply from him dated" February 10, 1933 [reading further 
from "Exhibit No. 712"] : 

Thanks for your letter of February 8 with regard to the above-numbered 
bill in which was enclosed a copy of a telegram. We much appreciate this 
reassuring information and trust that the measure wt.11 not now be seriously 
pressed for passage 

I wish to offer this for the record. 
The Chairman. It may be received. 

(The documents referred to were marked "Exhibit No. 712" and 
are included in the appendix on p. 4775.) 



CONCENTRATION OF ECONOMIC POWER 4415 

Mr. Gesell. May I ask you who was chairman of the house com- 
mittee on insurance in 1933? Was it not Mr. Harold Dobbins? 

Mr. CooNEY. I think so. 

Mr. Gesell. Am I correct in stating he was a young nian ap- 
pointed at the instance of the insurance men to that position? 

Mr. CooNEY. I wouldn't say "instance." He was appointed on 
the recommendation of them. 

Mr. Gesell. Do you recognize this letter signed by you dated 
March 4, 1933, addressed to Mr. Whitsitt? I call your attention to 
the portion underlined in red. 

Mr. CooNEY. Yes. That is another very unfortunate word that 
I didn't exj^cct to have to explain, the "instance." I meant more 
"recommendation." 

Mr. Gesell. This letter states : 

This young man was appointed at the instance of the insurance men here. 

Mr. CooNEY. We have to let it go. I used that word and I have to 
stand by it up to a certain point. 

Mr, Gesell. Do you recall, Mr. Cooney, whether or not in 1933 or 
in 1934 you paid occupational taxes for Mr. Dobbins by reason of 
the fact that he was employed as a special agent for your company? 

Mr. Cooney. No; he wasn't a special agent; he was an ordinary 
everyday local agent and a poor boy, and my recollection is that he 
paid it back. It was $10. 

Mr. Gesell. He was an agent for the New York Life Insurance 
Co. ; was he not ? 

Mr. Cooney. Yes. 

Mr. Gesell. Do you recall any of the circumstances surrounding 
the payment of that tax? 

Mr. Cooney. I think I had a letter from the acting insurance com- 
missioner of Georgia, didn't I ? 

Mr. Gesell. Do you recognize this letter signed by Mr. Lewis A. 
Irons, deputy insurance commissioner, to you dated December 1, 1934, 
as the letter to Avhich you refer? 

Mr. Cooney. Yes; I do. 

Mr. Gesell. I would like to call your attention specifically to a 
portion of that letter. This letter states [reading from "Exhibit No. 
713".] : 

A few days ago I had a call from Mr. Harold Dobbins, who seems to have an 
agency contract with you and who is very much concerned about the payment 
of his occupational tax, although it had been my previous understanding 
that the company takes care of such matters for its agents. In any event, Mr. 
Dobbins gave me the impression that he was called on to pay this tax and 
that by reason of his inability so far to close some business, although he said 
he had some under way which he expected to close if he could hang on, he 
found himself unable at this time to pay the tax levied against him, and asked 
whether or not it could be allowed to run along for a little while unpaid. 

I did not take up the above matter with Miss Nagle, although she is in direct 
charge of, and has supervision in, the matter of occupation tax collection and 
license fees. My plan was rather to take it up with you, in the thought that 
under all of the circumstances you might feel that it would be a good "invest- 
ment" for the company to meet this expense, at least for the time being, in 
view of the fact that Mr. Dobbins is again scheduled, 1 understand, for the chair- 
manship of the insurance committee and his good will might be worth keeping. 

Think it over, and destroy this letter when you have its contents in mind. 

That is signed by the deputy insurance commissioner of the State 
of Georgia ; is it not ? 



4416 CONOENTRATION OF ECONOMIC POWER 

Mr. CooNEY. Yes, sir. I paid that $10 and he got some business 
to pay it baci<:. As a matter of fact our company doesn't pay those 
taxes. 

Mr. Gesell. I wish to offer this letter for the record. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 713" and is in- 
cluded ni the appendix on p. 4776.) 

Tlie Chairman. You say the company does not pay it. 

Mr. CooNET. No, sir. 

Mr. Gesell. You paid this tax in this case. 

Mr. CooNET. I paid it myself. 

(Whereupon, at 1:05 p. m., a recess was taken until 2:15 p. m. of 
the same day. ) 

AFTERNOON SESSION 

(The hearing was resumed at 2 : 35 p. m. upon the expiration of the 
recess. ) 

The Chairman. The committee will please come to order. Mr. 
Gesell, will you resume where you left off this morning '? 

Mr. Gesell, Will you return to the stand, Mr. Cooney, please, sir ^ 

Mr. Cooney, I show you a letter addressed to Mr. Robert L. Hogg, 
assistant general counsel of the Association of Life Insurance Presi- 
dents, dated February 12, 1937, signed by yourself, and ask you if you 
recognize that as a letter written by yourself. 

Mr. Cooney. Yes, sir; that is my signature. 

Mr. Gesell. Do you also recognize the attached sheet? 

Mr. Cooney. Yes, sir ; yes, sir. 

Mr. Gesell. The letter is dated February 12, 1937, and says [read- 
ing from "Exhibit No. 714"] : 

Re House bUl 179 ; House bill 180. 

Your telegram of yesterday concerning House bill 179. 

There were two bills by Daves of Dooley. Daves being one of our examiners. 
We were promised a hearing by the chairman of the subcommittee. We went 
u> the hearing and remained 2^^ hours without the committee meeting. The 
'hairman gave another assurance as to a hearing. Bill 179 apparently was put 
Through in what might be called a secret meeting. 

Bill 180, which related to the character of notes which could be taken by life- 
insurance companies, was withdrawn. 

We are after 179. I have an agreement with Mr. Daves, and I expect we can 
get this one withdrawn. There has been quite considerable pressure put on him. 
It is a foolish bill. 

And approximately 2 or 3 weeks later, under date of March 4, 1937, 
you again wrote to Mr. Hogg as follows [reading furtlier from "Ex- 
hibit No. 714"] : 

Bill 179; by Daves of Dooly, was duly and finally killed yesterday. This writer 
had rather a salty interview with the gentleman, who happens to be examiner for 
^''arious life-insurance companies. He promised to withdraw the bill firit, to 
imend it afterward. I am getting a copy of the bill as it was killed, and if "he 
lid not amend it as he said he would or indicated he would, I do not think he ought 
to have any more examinations. 

I wish to offer these for the record. 

The Chairman. They may be received. 

(The letters referred to were marked "Exhibit No. 714" and are 
included in the appendix on p. 4776.) 

Mr. Gesell. When you say Dr. Daves is examiner, you mean a med- 
ical examiner for insurance companies? 



CONCENTRATION OF ECONOMIC POWER 4417 

Mr. CooNET. Yes. 

Mr. Oesell. And I take it from the correspondence it was your feel- 
ing that if he didn't vote right on this particular legislation, he 
shouldn't be allowed to receive any further examinations. 

Mr. CooNEY. I don't think you put that right. That bill absolutely 
cancelled the contracts we would make with every insured that if he 
has concealed something from us we can go to the doctors and get them 
to make statements, and this bill said we couldn't call on any informa- 
tion of that kind unless, after a suit was started, the man himself gave 
permission to crucify himself and, of course, that couldn't be done. I 
mean just exactly that, 

Mr. Gesell. You m^eant, when you said that if he did not amend it 
as he said he would, or indicated he would, "T do not think he ought 
to have any more examinations" ? 

Mr. CooNEY. I meant just that, sir. As a matter of fact, that bill 
would have upset everything we have ever done; would liave caused 
a change in our method of doing business ; and really would have pre- 
vented us from getting the proper information and testimony in case 
of law suits where a man had absolutely lied over his signature. 

Mr. Gesell. What did you tell this fellow when you had a salty 
interview with him ? 

Mr. Cooney. That is another unfortunate word, as it looks now. 
As a matter of fact, I told him that he simply was putting through 
that bill in order to get fees for examiners to furnish statements with 
the permission of the man, which has happened. 

Mr. Gesell. Did you indicate to him in tliis salty interview that if 
he didn't withdraw and amend the bill, you w-ould attempt to see that 
he didn't get any more examinations? 

Mr. CooNEY. Yes ; I told him that very thing. 

Mr. Gesell. Now, Mr. Cooney, what has been your approximate 
salary during the last 2 or 3 years from the New York Life Insurance 
Co.? 

Mr. CooNEY. Well, sir, it has been all the way from $9,600 a year to 
$11,000. 

Mr. Gesell. In addition to that, I take it you receive some commis- 
sions. 

Mr. Cooney. Yes. 

Mr. Gesell. Has any proportion of your salary at any time been 
xllocated by the New York Life Insurance Co. under schedule K of 
its annual statements for lobbying or expenditures ? 

Mr. Cooney. No, sir. If I would suggest that, they would fire me. 

Mr. Gesell. What's that 1 

Mr. Cooney. If I suggested anything like that the company would 
fire me. Never a 5-cent piece has been paid me by anybody for lobhy- 
ing ; not a nickel. 

Mr. Gesell. Now, let me turn to schedule K. Schedule K of the 
annual statement of the New York Life Insurance Co. calls for a 
showing of ail expenditures in connection with matters before legis- 
lative bodies, officers, or departments of government during the year, 
does it not ? 

Mr. CotwEY. I think so, sir. As a matter of fact, they don't send 
us those things any more. We don't get them. They keep those at 
headquarters. 



4418 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. a considerable portion of your time during some of 
these lemslative sessions was spent on legislative matters, was it not? 

Mr. CooNET. I agree with your word from 3'our standpoint — con- 
siderable. From my standpoint, not so m\ich, because I had people 
watching it. I told you about one man that let me know when I had 
to be there. I didn't have to hang around every minute, as some of 
them do. 

Mr. Gesell, From the correspondence we have of you in connec- 
tion with your testimony you appear to have been at least busy. 

Mr. Coonet. Yes, sir. 

Mr. Gesell. Now, I want to know if you have any explanation as to 
why there does not appear in schedule K of the New York Life Insur- 
ance Co. reports any item allocating a proportion of your salary to that 
type of expenditure? 

Mr. CooNET. Because that is done in connection with other work, 
and to very little detriment of the other work. I tried to tell you when 
I write letters to agents telling how busy I am that I want them to get 
busy, too. I want to be an example. 

Mr. Gesell. So that during all these years you were engaged in 
legislative activity in the State of Georgia there has not been, to your 
knowledge, any reporting of any proportion of your salary or ex- 
penses in the schedules K of the New York Life Insurance Co. ? 

Mr. CooNET. No, sir there has never been any understanding of that 
kind. If it is there, I don't know it, and I don't know why it is there. 
I don't think so. Would you mind telling me if there is anything of 
that kind there ? 

Mr. Gesell. I can assure you there is not. 

Mr. CcKiNET. That's what I thought I knew. 

Mr. Gesell. Do you recognize these three bulletins of the Associa- 
tion of Life Insurance Presidents, dated April 8, 1934; April 2, 
1937; and February 19, 1938, as bulletins of the association covering 
the history of the legislatures in 1935 and 1937 in the State of Georgia, 
showing which bills were enacted and which were defeated ? 

Mr. CooNEY. I think I recognize these, sir. I think I have copies 
of them. 

Mr. Gesell. Those schedules would indicate that you have been 
quite successful in your efforts to defeat legislation, would they not? 

Mr. Coonet. Yes, sir ; thank you. 

Mr: Gesell. And that is a fact, is it not ? 

Mr. Coonet. Yes, sir. 

Mr. Gesell. I wish to offer these for the record. 

The Chairman. They may be received. 

(The bulletins referred to were marked "Exhibits Nos. 716, 716, and 
717" and are included in the appendix on pp. 4777, 4781, and 4783.) 

Mr. Coonet. I wish to put in that the legislation we defeated was 
that which we thought would do harm to policyholders of life-insur- 
ance companies. 

Mr. Gesell. I have no further questions of Mr. Cooney. 

The Chairman. Do any members of the committee desire to interro- 
gate the witness? [None.] The witness may be excused. 

(The witness, Mr. Cooney, was excused.) 

Mr. Gesell. Mr. Whitsitt, will you resume the stand ? 



CONCENTRATION OF ECONOMIC POWER 4419 

TESTIMONY OF VINCENT P. WHITSITT, MANAGER AND GENERAL 
COUNSEL, THE ASSOCIATION OF LIFE INSURANCE PRESIDENTS, 
NEW YORK CITY— Recalled 

SAVINGS-BANK INSTIRANCEi— OPPOSITION OF INSURANCE INTERESTS 

Mr. Gesell. Mr. Whitsitt, I wanted to review with you this after- 
noon the efforts of the Association of Life Insurance Presidents to 
defeat savings-bank life-insuranc^ bills in the various States. Eefer- 
ring to "Exhibit No. 696," ^ which was introduced in the record yes- 
terday, reporting on the activities of the association in 1935, I note 
the statement in your report that — 

Six savings-bank life-insurance bills similar to the Massachusetts law failed in 
five States, as did a constitutional ajnendment in Missouri to permit creation of 
savings banks with or without life-insurance departments. * * * The gen- 
erous and loyal cooperation rendered by executives and agents in the various 
States in behalf of life-insurance policyholders in warding.off unjust impositions 
of all types is a real tribute to the institution of life insurance. 

And again, in "Exhibit No. 695," ^ which is a report on the asso- 
ciation's activities during the follawing legi.'^Iative period, your report 
states : 

Nine savings-bank life-insurance bills failed in seven States — Colorado, Con- 
necticut, Missouri, New York, Ohio, Pennsylvania, Rhode Island; none enacted. 
*;4* * The favorable outcome is attributable to the cooperation of life-insur- 
ance men, both home office and field, wholly typical of the institution of life 
insurance. 

From those two exhibits I gather that it has been the policy of the 
association to oppose savings-bank life insurance under certain cir- 
cumstances. 

Mr. Whitsitt. You are asking me for the policy of the association ? 

Mr. Gesell. I am asking you, first, whether it has been the policy of 
the association to oppose savings-bank life insuranxje under certain 
circumstances. 

Mr. Whitsitt. I can't better answer tnat question than by reading a 
resolution adopted by our executive committee on January 9, 1931. It 
is an excerpt from the minutes which determine our policy : 

The manager brought to the attention of the meeting correspondence with 
Massachusetts companies regarding the operation of the Massachusetts savings- 
bank plan of life insurance, and of the threatened extension of that plan to other 
States. All of those present took part in the ensuing discussion. It was revealed 
that for many years in Massachusetts the State had paid the expenses of the divi- 
sion of savings-bank life insurance, which has prepared the plans and supervised 
the operation of this business, and that the savings banks engaged in the life- 
insurance business are not subjected to the same restrictions nor to the same 
taxation as legal-reserve life-insurance companies doing business in that State. 

Upon motion, duly seconded and carried by unanimous vote, it was resolved 
that the association should hereafter oppose legislation authorizing savings banks 
to engage in the life-insurance business, wherever any form of State subsidy is 
provided and wherever such savings banks engaged in the life-insurance business 
are not subjected to the same restrictions and burdens as are imposed upon legal- 
reserve life-insurance companies. It was emphasized that no objection was 
expressed to savings banks engaging in the life-insurance business on equal foot- 
ing with the existing legal-reserve life-insurance companies. The real objections 
were to the granting of some forms of State subsidy to such enterprises, to the 
unfairness of requiring policyholders in life-insurance companies whose pre- 



* See appendix, p. 4755. 
■ See appendix, p. 4754. 

124491 — 40— pt. 10 19 



4420 CONCENTRATION OF ECONOMIC POWER 

miums are taxed for State purposes thereby to pay any portion of the expenses 
Incident to the conduct througli another agency of a life-insurance business whose 
policyholders would not be subject to the same taxation, and to the failure to 
subject savings-bank life insurance to the same regulatory laws provided for the 
protection of policyholders in existing legal-reserve companies. 

Mr. Gesell. I take it from what you have read that the answer to 
my question is "j^es," that you did oppose savings-bank life insurance 
under certain circumstances. 

Mr. Whitsitt. Under certain circumstances; and may I explain 
that ? It is in the minutes I have read. But briefly, it has been felt, 
out of fairness, that no State subsidy should be granted to a compet- 
ing private enterprise. In other words, we only oppose the savings 
bank life-insurance bill where there is some form of State subsidy, 
and preferential taxation. Under the so-called Massachusetts plan, 
for 20 years — it is not true now — or approximately thereabouts the 
State had a form of subsidy to the savings banks by furnishing 
through an office in the State capitol, whose letterheads carried the 
title of the Statehouse, actuarial advice, preparation of policy forms, 
computation of premiums, the computation of dividends, surrender 
values, and such other actuarial advice as was necessary, and these 
forms were furnished to the various banks. 

Also, ill Massachusetts, the life-insurance departments of the savings 
banks were subjected to the same type of taxation which the savings 
banks were, which, as a net result, computed in dollars and cents, was 
less than the tax paid by the life-insurance companies. For these 
reasons it was felt that that type of bill in other States would be 
unfair to existing private enterprises, as exemplified in life insurance. 

There are a number of instances — several — where we have not op- 
posed such bills. In 1932 there was a bill introduced in the New 
York Legislature which provided for life-insurance departments in 
savings banks subjected substantially to the same requirements, to the 
same taxation, and no State subsidy. That bill we did not oppose 
in 1932. 

In 1938 there was a bill introduced which also met our objections. 
As a matter of fact, the present New York savings-bank life-insurance 
law was not opposed by our association. 

Mr. Gesell. It is the only one which has ever passed since the 
Massachusetts law was enacted, is it not? 

Mr. Whitsitt. That is correct. The present New York savings- 
bank life-insurance law provides for a subsidy for the first year of 
operation, but after the first year of operation the division or bureau 
of savings bank life insurance in the insurance department, which 
furnishes all of this actuarial advice I described in Massachusetts, 
will assess against the various savings banks that do a life-insurance 
business their pro rata portion of the expenses of that bureau. 

There is a subsidy for 1 jear, but beginning next year, unless the 
legislature extends the subsidy, they will stand on their own feet. 

Also, the New York bill, when introduced, provided for equal tax- 
ation, the same taxation as domestic legal reserve life-insurance com- 
panies. For that reason, also, we did not oppose that bill. 

Mr. Gesell. Well then, except for the New York bill, which went 
through, we have reported in the exhibits already in evidence the 
opposition of the association to some 15 measures in various States, 
have we not? 



CONCENTRATION OF ECONOMIC POWER 4421 

Mr. Whitsitt. Quite a number, a number in New York prior to 
1932, and some since, but not the ones that complied with our objec- 
tions. In other words, we had made these objections before the vari- 
ous committees at various times, and what happened apparently was 
that the proponents of the bill in New York, in 1938, met our 
objections. 

Mr. Gesell. And that is the only bill that passed ? 

Mr. Whitsitt. That is the only one that has beefi enacted since 
the Massachusetts law. 

Mr. Gesell. Do you recognize this letter, dated June 10, 1935, 
as a copy of a letter written by Mr. Creswell, statistician of the asso- 
ciation, to Mr. William Kin^sley, vice-president of the Penn Mutual, 
reviewing some of the experience in savings bank life insurance prior 
to that time ? 

Mr. Whitsitt. I believe that is correct, yes, sir. 

Mr. Gesell. This letter would indicate that prior to 1931 there 
had been two bills introduced in New York in 1909 and two bills 
introduced in 1910 in New York, one in Rhode Island in 1910, one 
in New Hampshire in 1913, one in North Carolina in 1929. Do I 
understand that the association opposed the enactment of those bills ? 

Mr. Whitsitt. Prior to '31 ? 

Mr. Gesell. Yes. 

Mr. Whitsitt. Not to my knowledge. I think not. That is indi- 
cated by these minutes that I read a few moments ago, at which the 
question came up as to what attitude we should take, and that was 
dated January 9, 1931. 

Mr. Gesell. Was that not simply a reviewal of the policy of the 
association prior to that time, and a slight modification of it? 

Mr. Whitsitt. Well, my recollection back in those years is not 
entirely clear, but so far as I know we did not. I would be glad 
to review our files to see. My best recollection is that we didn't 
before '31. It is possible we did. 

Mr, Gesell. This is for the record. 

The Chairman. The exhibit may be received. 

(The letter referred to was marked "Exhibit No. 718" and is 
included in the appendix on p. 4785.) 

Mr. Gesell. Now I want to understand one thing rather clearly 
at this stage. Am I correct in saying that the opposition to savings 
bank life insurance by -the association has been by and large moti- 
vated by a feeling that it does not want any competing insurance 
business to develop under some form of State subsidy ? 

Mr. Whitsitt. Our executive committee feels that it would prefer 
not to compete with State subsidized organizations. It has no objec- 
tion to any savings bank wishing to write life insurance if it will 
write on an equal basis, equal fee, the same taxes, and stand on 
its own feet, the same as a life insurance company. In other words, 
we wouldn't oppose the organization's incorporation of a new life 
insurance company. It is a question of a State subsidy and prefer- 
ential taxation. 

Mr. Henderson. Mr. Gesell, have you finished with this letter to 
Mr. Kingsley? ^ 

Mr. Gesell. Yes. 



4422 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. I want to ask a question, if I may. I notice 
that it records a Missouri proposal for the form of a constitutional 
amendment. Did your association oppose that? 

Mr. Whitspit. We did in '37. I can't say offhand Vv^hether we did 
in '35 or not. 

Mr. Henderson. Do you recall what you did in your opposition ? I 
mean, did you work through your locals? 

Mr. Whitsitt. Missouri is one of the States that I referred to yes- 
terday where we have no member company and no general agent or 
manager available for legislative contact work in that State. We 
employ counsel. 

Mr. Henderson. Who is your counsel? 

Mr. WinTSiTT. James C. Jones, Hocker, Gladney and Grand, those 
are tlie names. They are in St. Louis. 

Mr. Henderson. They are in St. Louis. Did they act in the name 
of the association, or did they act in the name of the 

Mr. WnrrsiTT (interposing). They represent our association. 

Mr. Henderson. You employed no underwriters' association there? 

Mr. Wiiirsirr. I suppose there are times — and I rather think there 
have been times — when this law firm would cooperate with the local 
underwriters, depending upon the type of the bill and the pressure 
behind it. 

Mr. Henderson. Something on the same order as Mr. Hogg men- 
tioned ? 

Mr. Whitsitt. Depending entirely on the circumstances at the 
time. 

Mr. Gesell. In reference to the Missouri activity, do you recognize 
this telegram to Mr. Jones dated February 24, 1937, signed by Mr. 
B. E. Shepherd, the telegram sent by a representative of the associa- 
tion to Mr. Jones at that time ? 

Mr. Whitsitt. Oh, yes; yes. That was in 1937. That was when 
the constitutional amendment and the bill was pending at that time, 
I believe. 

Mr. Gesell. This telegram states [reading from "Exhibit No. 
719"] : 

As promised in telephone conversation this morning, have arranged with 
President Sears of Columbian National to wire Dyer expressing adverse views 
House Resolution 11 while presuming Dyers opposition. Massachusetts Mutual 
air-mailing letter St. Louis representative and Scott in Kansas City also express- 
ing adverse views. New England Mutual wiring similarly to St. Louis agent 
today. John Hancock writing Cammack to cooperate with you, as it has already 
expressed opposition this bill. Still working on State Mutual. Sending air 
mail one copy DeGroat's recent analysis Massachusetts plan, distributed by 
National Association Life Underwriters. Can obtain additional copies this 
pamphlet or other material similar to that sent 2 years ago if you wish. Re- 
ferring view of Crocker, former president John Hancock, think, perhaps he may 
have said savings bank insurance not in competition with industrial insurance. 
This because former written in larger amounts so as to be in competition ordi- 
nary insurance, and not because Crocker favored Massachusetts system. On 
contrary, he was violently opposed. Think Dyer must have misconstrued his 
meaning. Will be glad to take further action if such desirable. 

I wish to offer this for the record. 
The Chairman. It may be received. 

(The communication referred to was marked "Exhibit No. 719" 
and is included in the appendix on p. 4785.) 



CONCENTRATION OF ECONOMIC POWER 4423 

Mr. Gesell. Now, do you recognize this letter which I now show 
you dated February 25, 1937, signed by Mr. Jones; addressed to the 
Association of Life Insurance Presidents, a letter which was received 
by the association? 

Mr. Whitsitt. May I glance through it? 

Mr. Gesell. Certainly. 

Mr. Whitsitt. Yes. 

Mr. Gesell. Referring to the entire file in your hand, do you recog- 
nize that as the correspondence from the association's offices? 

Mr. Whitsitt. Yes. 

Mr. Gesell. I notice Mr. Jones says in his letter to you of Feb- 
ruary 25, in discussing savings bank life insurance bill at that time 
[reading fron "Exhibit No. 720"] : 

Some of the smaller banks are reported to be distinctly in favor of H. R. 201, 
which provides for the organization of savings banks, and favoring this, they 
also favor H. R. 11, which would authorize savings banks to write Insurance. 

Now when the agent, apathetic in the sense above adverted to, ascertains 
that his friend, the small banker^ favors these measures, he naturally becomes 
more apathetic because he fails to appreciate what he is building up against 
himself, as indicated in De Groat's pamphlet, particularly at page 24. 

In response to that letter in which Mr. Jones suggested that ma- 
terial be sent to the agents, Mr. Shepherd wired Mr. Jones on Feb- 
ruary 26 [reading from "Exhibit No. 720*'] : 

Interested in plan you suggest for educating agents on savings bdnk insurance 
but wish time to consider fully. In view difBgulty securing results at present 
session by this method suggest you might want to consider immediate distribu- 
tion DeGroat pamphlet by yourself in St. Louis and Scott through underwriters 
association if sufficiently well organized and if you think this would reach right 
persons. If this appeals to you wire number of copies desired by yourself and 
Scott. 

And Mr. Jones replied in his letter of February 25 to the associa- 
tion partly as follows [reading further from "Exhibit No. 720"] : 

The telegrams which were sent to the agents of the various companies have, 
I think, materially changed the attitude of most if not all of them, and, from 
being apathetic, I think they have become, or will by the time of the hearing, 
distinctly cooperative in opposing this resolution. 

I wish to offer this file for the record. 

The Chairman. The file may be received. 

(The documents referred to were marked "Exhibit No. 720" and 
are included in the appendix on p: 4786.) 

Mr. Henderson. Is tliat the constitutional amendment that was 
proposed? Does that plainly indicate that there was to be a State 
subsidy in connection with it? 

Mr. Whitsiit. There was also a bill, House bill 409, pending 
jointly with concurrent resolution 11, which did follow the Massa- 
chusetts plan. 

Mr. Henderson. But the constitutional amendment 

Mr. Whitsitt (interposing). The amendment itself provided for 
the organization of mutual savings banks with or without life insur- 
ance departments. We would have been satisfied if they had stricken 
out that part with reference to life insurance, but there was pending 
at the same time a bill along the line of the Massachusetts subsidy 
plan. 



4424 CONCENTRATION OF ECONOMIC POWER 

Mr. Henderson. So you joined in the opposition to an amendment 
which would have given permission to these banks under proper 
authorization from me State legislature to do a life-insurance busi- 
ness ? 

Mr. Whitsitt. That is right. However, if they had amended the 
constitutional amendment, leaving out reference to life-insurance 
departments, that would have answered the problem regarding the 
pending bill. Do I make myself clear? 

Mr. Gesell. If the amendment had- gone through, Mr. Wliitsitt, 
would it not be a fact that banks could have written savings-bank life 
insurance without a subsidy? 

Mr. Whitsitt. There was at that time pending a bill providing for 
the institution of the Massachusetts plan. 

Mr. Gesell. But that doesn't answer my question, Mr. Wliitsitt. 
I said if the constitutional amendment went through, would that not 
have enabled banks to write savings bank life insurance without any 
subsidy ? 

Mr. Whitsitt. If this bill had been defeated and a substitute bill 
along the present New York plan, but up to that time, to the best 
of my knowledge, we had never seen a bill without some subsidy. 

Mr. Gesell. Now will you stick to the constitutional amendment 
which I am asking you about, Mr. Whitsitt? My question was if the 
constitutional amendment went through it would have authorized 
banks to write savings-bank life insurance. They could have written 
savings-bank life insurance without having received any subsidy, 
provided the bill itself was defeated? 

Mr. Whitsitt. They could; that would depend entirely upon the 
legislation which was enacted to carry into effect the constitutional 
amendment. 

Mr. Gesell. Yet I, understand from Mr. Henderson's questioning 
and your replies that you opposed the constitutional amendment as 
well as the bill itself? 

Mr. Whitsitt. They were coupled together ; it was all one program. 

x.Ir. Gesell. All one program from your poi'it of view but two 
separate pieces, of legislation? 

Mr. Whitsitt. That is right. 

Mr. Gesell. Now I want to call your attention to a letter dated 
March 17, 1937, addressed to the. association, signed by Mr. Jones, 
:ind accompanying sheets of paper entitled "Arguments for Industrial 
Agents," and ask you if these do not come from the files of the Associ- 
ation of Life Insurance Presidents? 

Mr. Whitsitt. Apparently; the letter does definitely. Now these 
sheets attached, so far as I know — how they got in I don't know; 
I really think Mr. Jones drafted those for possible use. Whether 
he ever used' them I do not know. 

Mr; Gesell. They are referred to in the body of the letter, are 
they not? 

Mr. Whitsitt. Let me review the letter. 

Mr. Gesell. Certainly. I am referring, I think, to the last para- 
graph where he mentions that he has prepared arguments for dis- 
tribution. 

Mr. Whitsitt. Yes, apparently he had appended them. 

Mr. Gesell. So far as you know he had handed them the attached 
documents for arguments for industrial agents? 



CONCENTRATION OF ECONOMIC I'OWER 4425 

Mr. Whitsitt. I don't know; the assumption would be from the 
letter that that is correct, but I wouldn't know from my own personal 
knowledge, 

Mr. Gesell. Is it your understanding that these arguments for 
agents were prepared by Mr. Jones for the use of the agents? 

Mr. WiiiTsiri'. So far as I know they were. 

Mr. Gesell. They come from the files of the association, do they 
not? 

Mr. Whitsitt. Yes; apparently he either sent them or left them 
in our office. 

Mr. Gesfll. The letter states in part as follows [reading from 

"Exhibit No. 721"] : 

I talked to about 40 of the insurance agents yesterday at a luncbeon of the 
Managers' Association and explained to them what our course was,, handing 
them a document prepared for their use with the section relating to bankers 
somewhat modified. Those managers are now engaged in picking the men best 
available for contact purposes, but they are not to be turned loose until I 
give them word, which will not be until this measure gets over into the 
Senate, which will probably be sometime next week. 

I would like to offer the letter and accompanying documents for 
the record. 

The Chairman. The exhibit may be received. 

(The documents referred to w^-re marked "Exhibit No. 721" and 
are included in the appendix on p. 4787.) 

Mr. Gesell. Now the bill was defeated in Missouri; both tne con- 
stitutional amendment and the bill itself? 

Mr. Whitsitt. I believe they failed in passing; but by what process 
of defeating I do not know, 

Mr. Gesell. They didn't pass? 

Mr. Whitsitt. They did not pass. 

Mr. Gesell. Now you refer, the letter refers, to the fact that copies 
of a pamphlet written by Mr. De Groat — G-r-o-a-t — were sent to Mr. 
Jones to assist him in his work in opposing this legislation? 

Mr. Whitsitt. That is right. 

Mr. Gesell. Is this the pamphlet that I show you? 

Mr. ' Whitsitt. I think so. I am sure it is, unless there has been 
some later edition, and this is an earlier edition; that is the pamphlet. 

Mr. Gesell. Is that tlie pamphlet that has been used frequently by 
the association in acquainting agents and managers and other persons 
with the nature of savings bank life insurance ? 

Mr. Whitsitt. We have used it fi'om time to time; the National 
Association of Life Underwriters, I believe secured quite a supply 
of those pamphlets. Mr. De Groat is a general agent of the Mutual 
Benefit in Boston and has been there for a good many years, since 
the inception of savings bank life insurance, and has given great 
study to it, and it is rather a hobby of his to w^rite articles about it. 

Mr. Gesell. And the association has, after examining this pam- 
phlet, adopted -it for its use and distributed it from time to time 
when people wanted information about savings bank life insurance? 

Mr. Whitsitt. That is quite right. We have received requests for 
all sorts of information on all sorts of subjects, directly or indirectly 
connected with life insurance. 

Mr. Henderson. Mr. Gesell, are you going to cover this argument 
for industrial agents? 



4426 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I intended to cover some of it tomorrow, Mr. Hender- 
son, with a subsequent witness. I am afraid we won't have time 
today. 

Mr. Henderson. Will you be covering this part, part 6 on Mis- 
souri's insurance record, where it says: 

First, are we going to add to or lessen the occasion for further scandal by en- 
couraging small banks to go into the life insurance business? I think the 
answer must be that we will increase the scandal. For if. there is any one 
thing true in business life it is that men interested in the banking business 
make a failure of trying to run an insurance company. 

Are 3''ou going to cover that ? 

Mr. Gesell. I was going to cover that argimient, yes, tomorrow. I 
have no objection to it being covered now. 

Mr. Henderson. I want to make sure that this thing is covered. 

Mr. Gesell. I have no objection. 

Mr. Henderson. I just don't want to miss it. 

Mr. Gesell. I should like to offer the De Groat pamphlet for the 
record. " We will have occasion to discuss the contents of this pamphlet 
on several occasions. 

The Chairman. Do you want it to appear in the record ? 

Mr. Gesell. It is not necessary for it to appear if it is an exhibit ; 
the portions I am interested in we can discuss specifically. 

The Chairman. Whatever you say. Of course, I haven't read the 
pamphlet. 

Mr. Gesell. It is rather lengthy, I am afraid, for the written record. 

The Chairman. Unless it is necessary to put it in the printed record 
shall we just file it with the committee?.^ 

Mr. Gesell. That is perfectly all right. 

The Chairman. And if there are any sections of it that you want 
they '^hould be read at the proper time. 

Mr. Gesell. That will be the procedure. 

The Chairman. Then we will leave it 'in your possession until this 
phase of the record is concluded. 

Mr. Gesell. It has been admitted then as an exhibit and shall we 
give it a number ? 

(The pamphlet referred to was marked "Exhibit No. 722" and is in- 
cluded in the appendix on p. 4790.) 

Mr. Gesell. Now the association opposed savings banks legislation 
in the State of Pennsylvania, did it not? 

Mr. Whitsitt. Yes ; I think twice. I am not sure of the number of 
times ; once in 1935 or 1937 and there was a bill there this year. 

Mr. Gesell. Now I would like to calTyour attention to a letter which 
you wrote to Mr. Guy A. Smith, dated April 29, 1937, and ask you 
whether you recognize "that as a copy of your letter, and the attached 
paper as a reply which was received thereto ? 

Mr. Whitsitt. Eight. 

Mr. Gesell. This letter from Mr. Smith states — it was written 
by you, was it not? 

Mr. Whitsitt. Yes. 

Mr. Gesell (reading from "Exhibit No. 723") : 

in connection with House bill No. 883 now pending in the Pennsylvania 
Legislature, authorizing savings banks to issue life insurance, I am sending to 

^ The committee subsequently decided to print the De Groat pamphlet, see infra, p. 4426. 



CONCENTRATION OF ECONOMIC POWER 4427 

you today 25 copies each of the following material on the subject: (1) Printed 
pamphlet on savings bank life insurance by Mr. Floyd E. DeGroat of Boston ; 
(2) mimeographed copy of a statement on the same subject by Hon. M. Joseph 
Cummings, chief of the division of banking and insurance of Rhode Island. 

This material is not intended for general distribution, but is sent to you for 
the personal information of yourself and the leading members of your associa- 
tion, so that you may be fully informed on the experience of this system in 
Massachusetts, the only State which has ever adopted such a plan. 

Trusting this will be helpful to you, I am — 

And Mr. Smith's reply to ^ou, dated May 3, 1937, which you have 
also identified, states (reading further from "Exhibit No. 723") : 

Upon receipt of your April 29 letter, with publication from the Hon. M. 
Joseph Cummings, and Mr. Floyd E. DeGroat, I am pleased to inform you 
that the Wilkes-Barre Association of Life Underwriters, which represents all 
the "old line" companies, and which are approximately 500 in number, were 
very much in accord with your letter, and immediately contacted all State 
senators, and each member of the house of representatives, including the chair- 
man of the insurance committee, and protesteti strongly against House bill No. 

883. 

Undoubtedly, such an avalanche of telegrams and personal calls has never 
before been received by these individuals. We have had definite assurance 
from tliem that the bill will be strongly opposed. 

I write this word that you may know your letters have not dropped by the 
wayside. 

We are wholehearted iu guarding Lhe fair name of the institution of life 
Insurance and strongly oppose any encroachment such as this bill No. 883 
represents. 

I wish to ojffer these for the record. 

The Chairman. They may be received. 

(The letters referred to were marked "Exhibit No. 723" and are 
included in the appendix on p. 4801.) 

Mr. Hendekson. This letter you wrote to Mr. Smith in which 
you said you sent some material for personal information to mem- 
bers in your association. As I understood, when your association was 
created the minutes of the first meeting, I thinlf the fourth item,^ 
stated that it "was to consider carefully measures that may be intro- 
duced from time to time in legislative bodies, with a view to ascer- 
taining and publicly presenting the grounds which may exist l^r 
opposing or advocating the proposed legislation." You have gotten 
away from that a bit, haven't you ? 

Mr. Whitsitt. No ; I wouldn't say so. We make no secret of our 
opposition whatsoever. 

Mr. HE^-DERS0N. Not the opposition; it says publicly presenting 
the grounds which may exist. That is a little bit different from 
just the opposition, isn't it? 

Mr. Whitsitt. It all depends by what you mean publicly. In 
other words, we made no secret of our opposition-whatsoever and as 
has been stated several times, one of the best ways to approach a 
member is to see him personally and this was for the education of 
the agents ; inform them upon the objections to the bill so that they 
might be well informed and in turn pass that information to mem- 
bers. 

Mr. Hendef'Wn. As I understood it, this meeting was called as a 
result of the Armstrong investigation, wasn't it ? 

Mr. Whitsitt. You mean our association? 



* Previously introduced as "Exhibit No. 090." See appendix, p. 4744, at p. 4745. 



4428 CONCMNTKATIUN OF ECONOMIC POWER 

Mr. Hendiorson. Yes. 

Mr. Whitsitt. As I stated yesterday, it was a byproduct or an 
uLityrowth somewhat of that. 

]\lr. Hendi KSON. The Arinstroiig committee, Mr. Gesell, was pretty 
stroii<r aoainst lobbyin<^, wasn't it^ 

Mr. Gesell. Yes; there is a section in volume 10 of the report 
which discusses the lobbying practices of the companies as revealed at 
that time. 1 have a copy here if it is thought desirable to have it 
for the record. 

Mr. Hogg. They used the word "clandestine" in the report of the 
Armstrong connnittee. 

Mr. WiiiTSi'iT. That same report also suggests the company sliould 
conununicale with all of tlieir policyholders. 

ISlr. Hendehson. The Armstrong report? 

Mr. WiOTsrrr. Yes, sir; it su<jgesls that. 

Mr. Gesell. 1 liave a copy of it here. 

Mr. Hogg. Page 302. 

Mr. Gesell. If it is read it shovdd all be read or not read. 

The Chairman. Let us get it in the record. 

Mr. Henderson. Is it very long, Mr. Gesell? 

Mr. Gesell. It is three and a half single space. 

The Chairman. As a matter of fact, I think you can probably 
summarize wliat it is. We all know what the Armstrong report was, 
and what it was intended to pre\ent. I don't assume that it was 
intended by that report uj prevent insurance companies from making 
proper representation to legislative bodies. 

]\Ir. Gesell. The report is quite specific on the fact that they 
should be permitted to engage in lobbying activities but it attempts 
to detine what the scope of tliose activities should be and how they 
should be reporteel. 1 think it might be just as well to offer the 
entire section of the report for the record. 

The Chahiman. Suppose we do that. It may be printed. 

(The excerpt of the Armstrong report referred to was marked 
"Exhibit No. 724" and is included in the appendix on p. 1802.) 

Mr. Hogg. Tlie Armstrong committee prepared a bill carrying into 
effect this very recommendation and that is in the report. 

Mr. Gesell. Was the bill passed? 

Mr. Hogg. Oh, yes. 

The Chairman. By the Legislature of New York? 

Mr. Gesell. You will find it was amended several times,- I would 
like to offer the report for the record. 

The Chairman. The report was received. Can you state whether 
or not the New York statute was adopted in Florida? 

Mr. Hogg. I don't know. 

The Chairman. How about Georgia? 

Mr. Hogg, I think they have a very stringent one in Georgia. 

Mr. Henderson. In Georgia they get a little bit away from the 
public presentation, don't they, Mr, Whitsitt? Could I get you to 
admit that they get away ? 

Mr. Whitsitt. Obviously, as I stated yesterday, you can't secure a 
committee hearing; a bill will be introduced 

Mr. Henderson (interposing). I asked you a simple question ajid 
you give me an explanation of something you said yesterday. In 



CONCENTRATION OF ECONOMIC POWER 4429 

Georgia they do get a little bit away from the public presentation 
of the grounds ? 

Mr. Whitsitt. So far as I know, Mr. Cooney lias never made a 
secret of his opposition to objectionable bills to life insurance. 

Mr. Henderson. I still consider that you do better than any wit- 
ness who has been before us in not responding to a direct question, 
Mr. Whitsitt. 

Mr. Whitsitt. I don't intend to be evasive, I am sure. 

Mr. Henderson. You may not, but you certainly unconsciously 
achieve it. 

Mr. Gesell. Do you have any further questions, Mr. Henderson? 

Mr. Henderson. No. 

Mr. Gesell. Noav may I ask Mr. Whitsitt whetlier this Pennsyl- 
vania bill which we have just been considering in tlie previous ex- 
hibit ^ was a bill which provided for a State subsidy? 

Mr. Whitsitt. That is my understanding. 

Mr. Gesell. Is it not a fact, however, that the bill as finally re- 
ported out contained provision for reimbursement of the State for 
expenses incurred in behalf of the proposed savings-bank life-insur- 
ance department? 

Mr. Whitsiit. I don't recall. Possibly there was such an amend- 
ment made. 

Mr. Gesell. Is it the position of the association that it will ojipose 
savings-bank life insurance, even where the statute provides for a 
reimbursement over a period of time of the subsidy involved? 

Mr. WniTSirr. It is our association policy not to oppose them 
where there is reimbursement to the State. If there was an amend- 
ment, it was quite possible that the agents who were most heavily 
hit by these bills pursued a policy of opposition after the amend- 
ment. I don't recall the details. 

Mr. Gesell. Now, there have been savings-baiik life-insurance bills 
introduced on several occasions in the State of llhode Island^ have 
there not? 

Mr. Whitsitt. Yes, sir; at times. 

Mr. Gesell. Has the association opi)osed legislation there reg- 
ularly? 

Mr. Whitsitt. On several occasions. 

Mr. Geseix. I want to ask you whether you recognize this letter 
which I am about to show you, addressed to Mr. (,'reswell, from Mr. 
White, Clinton C. White, of the Puritan Life Insurance Co. of Khode 
Island, dated March 22, 1935. It is a letter from the files of your 
association. 

Mr. Whitsitt. Quite right. 

Mf. Gesell. This letter relates to House bill No. 79o, savings-bank 
insurance. The letter states [reading iAnn "Exhibit No. 725"]: 

This bill, t feel, is a serious one to life-insurance interests, an'.l has taken 
considerable time. From all I can ascertain, the following is the situation : 
The bill still rests in the House Finance Committee. Fortunately a member 
of this committee is Mr. Charles Brown, general agent of the Columbian Na- 
tional, and he naturally is opposed to the bill. Today I spent an hour with 
him and went through the bill very much in detail, and I am "sve that he will 
do everything possible to hold it back. This noon we had a meeting of the gen- 
eral agents of Rhode Island and at their request I reviewed (lie bill with them 



'See "Exhibit No. 723," appendix, p. 4801. 



4430 CONCENTRATION OF ECONOMIC POWER 

and presented the objections. Very fortunately, Mr. Tracy, the president of the 
Massachusetts Life Underwriters, was present, and he gave a very fine exposi- 
tion of the experience in Massaclmsetts witli savings banlt insurance, so that 
the general agents have a thorough understanding of tlie Rhode Island bill and 
recognize as a result of Mr. Tracy's remarks, the evils and misrepresentations 
which will probably follow if the bill is made law. They, however, will not 
raise too mucli dust unle^^s it is necessary. Too much opposition with this par- 
ticular legislature might give the bill lindue importance. 

I would like to offer this letter in its entirety for the record. 

The CiiAKMAN. The letter may be received. 

(The letter referred to was marked "Exhibit No. 725" and is 
included in the appendix on p. 4804.) 

Mr. Gesell. That bill was defeated, was it not ? 

Mr. WiiiTSiTT. It must have been. They do not have it in Rliode 
Island. 

Mr. Geskll. There was another bill introduced in the following 
year, was there not — the followinf^ legislative year? 

Mr. WiTiTSiTT. If 3'our record shows so, I assume you are correct. 
It has been tliere several times. 

Mr. GEsr.i.iv. I want to ask you whether you recognize this letter 
dated April 10, 1937, addressed to the Association of Liff Insurance 
Presidents, signed by Mr. Wliite, as a letter from the files of the 
association. 

Mr. IVniTSirr. Quite right. 

Mr. Gesell. This letter states in part as follows [reading from 
"Exhibit No. 726"] : 

As I informed you luidor date of March 17, I do not anticipate the enact- 
ment of this legislation permitting the savings banks of Rhode Island to 
engage in the life-insurance business. There is, however, more pressure being 
brought upon the Governor this year than previously, and I think there is a 
feeling hero that in another year the pressure will be even greater. I appre- 
ciate very much the material which you have sent to me as it was helpful in 
formulating the necessary facts in opposition. AVill you pardon me for making a 
suggestion along a line of thought which to me is fundamental in this whole 
situation. Let me make the mere suggestion and in your office with your 
expert ability you can develop it and incorporate it if you see fit in future 
memoranda. 

It seems to me that greater emphasis should be laid upon the fact that by 
this legislation certain private institutions arc granted special privileges which 
are not granted to the existing private institutions engaged in the same busi- 
ness. I believe that this simple thought can be developed so that it is an 
unanswerable item. If the State itself were to engage in the life-insurance 
business we would expect the State to avail itself of certain inherent rights. 
This would be entirely consistent with the prevailing social tendencies of tb.e 
day, but when a State grants special privileges to one private institution and 
exempts that private institution from established requirements and regulations 
which control competitive private institutions, there is involved a fundamental 
principle which I believe would convince any honest citizen. 

Then, skipping a bit of the letter, it states : 

Pressure was brought upon our Governor for favorable action on the savings 
bank life insurance legislation, and he naturally turned to the chief of the 
division of banking and insurance for information. I gave to the latter the 
material which you so kindly sent to me accompanied by a letter, a copy of 
which I enclose. I am also enclosing copy of the report which Mr. Cummings. 
chief of the division of banking and insurance, has made. This has been sent 
by him to each general agent and to some of the insurance commissioners, kg 
that it is not now confidential. 

I wish to offer that letter for the record. 



CONCENTRATION OF ECONOMIC POWER 4431 

Mr. Whitsitt. I may say that Mr. Wliite is an officer of the Puri- 
tan Life Insurance Co., one of our member companies in Rhode 
Island. 

The Chairman. The letter may be received. 

(The letter referred to was m:irked ''Exhibit No. 726" and is in- 
cluded in the appendix on p. 4805.) 

Mr. Gesell. Do you know what material it was that you sent to 
Mr. White? I assume it was the De Groat pamphlet. 

Mr. Whitsitt. I couldn't recall offhand. If that were up today I 
would probably send that pamphlet and possibly some memoranda 
we have preDared in our own offices for similar purposes. We have 
prepared a number of memoranda ourselves attemptin<v to brief the 
chief arguments that we find available for use in such circumstances. 

Mr. Gesell. The bill was again killed in 1937, was it not? 

Mr. Whitsitt. It was. 

Mr. Gesell. Do you recall this as a letter w^ritten to you by Mr. 
Wliite on that occasion? 

Mr. Whitsitt. Yes; quite. 

Mr. Gesell (reading from "Exhibit No. 727") : 

I iim particularly pleased that we were able to defeat the savings bank life 
insurance bill. As I stated to Mr. Crane previously, I am quite certain that 
there will be an increased effort on the part of the proponents of this legislation 
next year. I certainly trust that you will be able to defeat its adoption in 
Pennsylvania and Connecticut, for if adopted elsewhere it will surely influence 
its acceptance in other States. 

I wish to offer that for the record. 

The (.'H AIRMAN. It may be received. 

(The letter referred to was marked "Exhibit No. 727" and is in- 
cluded in the appendix on p. 4806.) 

Tiic Chairman. Did this letter of Mr. While, Mr. Whitsitt, repre- 
sent the point of view of the Puritan Life Insurance Co. and the point 
of view of the Association of Life Insurance Presidents? 

Mr. WniTsrrr. Well, of course, it primarily represents the personal 
point of view of Mr. Wliite, 

The Chairman. Naturally ; yes, of course. 

Mr. Whitsitt. And I assume it represents the point of view of the 
Puritan Life, since it is written on their stationery. 

The Chairman. This letter didn't come to you ? 

Mr. WniTSiTi. It is one of my associates to whom it is addressed. 

The Chairman. Tt is addressed to the association and it is noted 
for the attention of Mr. Crane. 

Mr. Whitsitt. Yes. 

The Chairman. So it didn't come to you personally ? 

Mr. Whitsitt. That is right. 

The Chairman. I was very much interested in his statement [read- 
ing from "Exhibit No. 726"] : 

If the State itself were to engage in the life-insurance business, we would expect 
the State to avail itself of certain inherent rights. That would be entirely con- 
sistent with the prevailing social tendencies of the day. 

I was just wondering whether that expression on the part of Mr. 
Wliite indicated a feeling by himself and those with whom he was 
associated that the entry of the States into the insurance field might 
not be objectionable. 



4432 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. I couldn't put that down as an expression of the 
association at all. 

Mr. Gesell. Did the association adopt those arguments that he 
siig^'csted ? 

Mr. WiiiTsi'iT. My recollection is that they are more or less a re- 
phrasing of ai iruments Ave had used before emphasizing the objection- 
able features of the State subsidy' to private enterprise. My recollec- 
tion is that it is a rephrasing. 

The Chairman. That particular sentence I quoted was merely a 
passing remark and doesn't enter into the merits of that controversy. 

Mr. Henderson. In this letter of Mr. White's to the association I 
notice that pressure was brought upon the Governor for favorable 
action. He naturally turned to the chief of the division of banking 
and insurance [reading from "Exhibit No. 726"] : 

I gave to the latter the material which you so liincUy sent to me, accompanied 
by a letter, a copy of which I enclose. I am enclosing a copy of the report which 
Mr. Cummings, chief of the division of banking and insurance, has made. This 
has been sent by him to each general agent and to some of the insurance commis- 
sioners, so that it is now not confidential. 

In other words, you sent some material to Mr. White^ or Mr. Crane 
did. Mr. Wliite gave it to Mr. Cummings, the State officer. 

Mr. Whitsitt. Who asked him for the information. 

Mr. Henderson. I would like to finish the sentence, 

Mr. Whitsitt. I beg your pardon. 

Mr. Henderson. Mr. Crane sent some material to Mr. White, of the 
Puritan Life. Mr. Wliite gave it to Mr. Cununings, who had re- 
quested it, I gather. Mr. Cummings then made a report to the Gov- 
ernor, as chief of the division of banking and insurance. Then he 
gave a copy of that to Mr. White, and then he sent it to the various 
insurance commissioners. What I am getting at is, is that the mimeo- 
graphed copy of the statement which you sent to Guy Smith? 

Mr, Whitsitt. Yes, sir ; we received some copies of that and re- 
produced it. 

Mr. Henderson. So in effect this has been sort of an adaptation 
of your idea, as has been suggested, in that statement, and it goes 
out now under the imprimatur of the chief of the division of bank- 
ing. 

Mr. Whitsitt. As I understand it, Mr. Cummings gave mature 
consideration of all this material and came to the conclusion that he 
did not favor savings bank life insurance for the State of Rhode 
Island. 

Mr. Henderson. I mean that is how it originated. 

Mr. Whitsitt. That is right. 

Mr. Gesedll. I have a copy of that report here which I can offer 
for the record under the same restrictions that were involved when 
we offered the DeGroat pamphlet. I think it would be well to have 
it in the record.^ Do you recognize this as the mimeographed state- 
ment that you have distributed? 

Mr. Whitsitt. Yes, sir; on various occasions. 

The Chairman. The exhibit may be numbered and filed for the use 
of the committee.^ 



1 The committee subaequently decided to print the Cummings report, see infra, p. 4433. 



CONCENTRATION OF ECONOMIC POWER 4433 

(The report referred to was marked "Exhibit No. 728" and is in- 
ckided in the appendix on p. 4806.) 

Mr. Gesell. The association then opposed savings-bank life in- 
surance in Rhocie Iskmd in 1938, did it not ? 

Mr. WHiTsrrr. That is my recollection. 

Mr. GeseixL. Is this a memorandum from the files of the associa- 
tion which I show you now? 

Mr. Whitsitt. Yes, sir. 

Mr. Gesell. This memorandum relates to "Rhode Island House 
bill No. 552," and is dated April 20, 1938, and prepared by Mr. C. F. 
Creswell. It states [reading from "Exhibit No. 729"] : 

Mr. Crane telephoned late this afternoon that this measure was reported 
favorably today in the House. 

Mr. Crane is your representative, is he not ? 

Mr. Whitsitt. Mr. Crane is an officer of our association. 

Mr. Gesell [reading further] : 

Mr. Crane telephoned late this afternoon that this measure was reported 
favorably today In the house. He anticipates that it is likely to pass the 
house but feels that it is much less likely to receive favorable consideration in 
the senate. He had not seen Mr. White since the bill had been reported in the 
house and placed on the calendar, but is to go over the matter with him tonight 
and will pass on to us the result of their conference. Mr. Crane thought they 
might desire us to get in touch with the companies, seeking cooperation of 
general agents in the State, but is going to consider first with Mr. White 
the possibility of seeking such cooperation through the local general agents. 

I wish to offer this memorandum for the record. 

The Chairman. It may be received. 

(The memorandum referred to was marked "Exhibit No. 729" and 
is included in the appendix on p. 4810.) 

Mr. Gesell. That bill did not become law, did it? 

Mr. Whitsitt. That is right- 
Mr. Gesell. So that we have, then, in effect three different savings 
bank bills offered in the State of Rhode Island on three different 
occasions, none of which became law. 

Mr. Whitsitt. That is right. 

Mr. Gesell. All of which were opposed by the association. 

Mr. Whitsitt. Right. 

Mr. Gesell. Was there also a proposal in the State of New Hamp- 
shire for the adoption of savings-bank life insurance ? 

Mr. Whitsitt. T seem to recall one; just what year it was, I 
couldn't say. Your data will show the year. 

The Chairman. One apparently in 1939 and one in 1935, accord- 
ing to the memorandum which you have. 

Mr. Gesell. With respect to the 1935 bill, is this a form of letter 
which was sent out by your association to your member companies? 

Mr. Whitsitt. Yes ; this is one of ours. 

Mr. Gesell. This is a letter which w<as written to all of the member 
companies, was it not, or at least distributed to some of them? It is 
a form letter, isn't it? 

Mr. Whitsitt. It apparently is; since there is no list of com- 
panies — our uniform letters usually have a list of persons whom they 
are sent to — I rather imagine it was sent to a list of companies in the 
New England jirea. 



4434 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. Those who would have the personnel in New Hamp- 
shire or thereabouts. 

Mr. Whitsitt, 1 believe that was asking for some actuarial slants 
on the bill and it was probably written to Massachusetts companies, 
possibly Connecticut and Vermont, possibly some New York com- 
panies. I can only speak from recollection on that point. 

Mr. Gesell. Now this letter states that [reading from "Exhibit No. 
730"] : 

Maj. Robert P. Burroughs, special agent at Manchester, N. H., of the National 
Life Insurance Co., of Vermont, who is active in the opposition to this measure, 
has suggested that we request the actuaries of several companies to write to 
him with respect to the actuarial defects of a proposal of this nature. He has 
particularly in mind that any life insurance originating from such a small geo- 
graphical area could not place the usual reliance in mortality averages with 
the result that any local epidemic might be disastrous. He believes that letters 
from actuaries along this line, as well as pointing out any other actuarial un- 
soundness, will prove of material help in presenting opposition to the measure. 

The letter goes on to discuss the bill in some detail. I wish to offer 
it for the record. 

The Chairman. It may be received. 

(The letter referred to was marked "Exhibit No. 730"- and is in- 
cluded in the appendix on p. 4810.) 

Mr. Gesell. \Vliy should the association encourage opposition to 
the bill because of actuarial defects if the only reason for its opposi- 
tion is because of State subsidy? 

Mr. Whitsitt. I think Mr. Burroughs thought that if he could 
have some argurpents against the bill on various phases, signed by 
some actuaries, it might carry more weight. 

Mr, Gesell. That isn't the answer to my question, Mr. Wliitsitt, 
and so I will ask it again. Why should the association encourage 
sending actuarial arguments against a bill if its opposition is based 
entirely on State subsidy? 

Mr. Whitsitt. Well, a great many of our actuaries think the 
Massachusetts system is unsound actuarily, and Mr. Burroughs, as 
I recall — and this is only from recollection — w^as very much impressed 
with that viewpoint, and he was very anxious to defeat the bill. 

Mr. Gesell. Since you won't answer my question directly, can I 
get at it this way ? Once you decide to oppose a savings-bank bill, do 
I understand that you adopt all the conceivable arguments you can 
to defeat that bill? 

Mr. Whitsitt. Not all the conceivable arguments, all the legiti- 
mate arguments. 

Mr. Gesell. All the arguments that you consider legitimate, I 
take it. 

Mr. Whitsitt. That is quite right. 

Mr. Gesell. So if, though the motivating reason for opposing the 
bill may be State subsidy, you do prepare arguments of all kinds with 
respect to the inadvisability of the legislation and adopt such argu- 
ments as are used, for instance, in the DeGroat pamphlet. 

Mr. Whitsitt. Mr. Burroughs was very active and was very help^ 
ful in defeating this bill and we decided to do everything we could 
in propriety to assist him, so we complied with his request to secure 



CONCENTRATION OF ECONOMIC POWER 4435 

some letters from some actuaries, he thinking that they would carry 
some weight, 

Mr. Gesell. So that once you decided to oppose a bill you adopt 
all the arguments that you feel legitimate and urge all of them, not 
just the argument that prompts your opposi;:ion to the bill. 

Mr. WurrsiTT. That was true with certain limitations. I wouldn't 
want to say all arguments, but the most effective ones, those that 
we consider most effective. Mr. Burroughs apparently thought the 
actuarial argument might prove effective in his particular situation. 

Mr. Gesell. Now can you tell us what some of the arguments 
that have been generally by your association against savings bank 
life insurance are? We have mentioned the State subsidy, we have 
mentioned your feeling that it is actuarily unsound. Will you tell 
us what other arguments you have publicly made or made through 
agents and representatives against that kind of bill in all States ? 

Mr. Whitsitt. I think you have taken a memorandum from our 
files on that that summarizes all of our arguments. I don't know 
whether I have one here or not. I could gladly give you a typical 
memorandum that covers that. 

Mr. Gesell. I would appreciate that very much. 

Mr. Whitsitt. I don't have one here, but I rather think you took 
one from our files. The other principal arguments would be prefer- 
ential taxation and not subjected to the same original capital require- 
ments nor the same examination and strict advisory requirements 
that ordinary legal-reserve life-insurance companies are subjected to. 

Those would be the principal arguments that you will find. 

Mr. Gesell. Is this memorandum entitled Reasons why New 
Hampshire house bill No. 125 to permit savings banks to engage in 
the life-insurance business should not be enacted" prepared by you 
what you call a typical memorandum? 

Mr. Whitsitt. I rather think that is correct.- We have a rather 
standard form and we adjust it from State to State because some- 
times there are little variations in these bills other than the subsidy 
and other than the taxation measures. They are frequently copies 
from one State to another. One State will frequently copy the 
Massachusetts law and sometimes they copy the Massachusetts name. 

Mr. Gesell. I wish to offer this memorandum for the record. 

The Chaikman. It may be received. 

(The memorandum referred to was marked "Exhibit No. 731'! and 
is included in the appendix on p. 4811.) 

Mr. Gesell. Did the association oppose savings bank life insurance 
in the State of Connecticut ? 

Mr. Whitsiit. Connecticut is a somewhat different State legisla- 
tively than most other States in that it is quite a life-insurance center 
itself. Of course, we are on record against opposing savings bank 
life insurance there, but our correspondents are company officials, 
and there are five, I believe, of our member companies located there. 
In the actual mechanics of handling the opposition there it is left 
practically entirely to the domestic companies, other than furnishing 
them some material, memoranda from our office, which they put to 
their uses. We have sent them memoranda and possibly the DeGroat 
article — I don't remember that. 

Mr. Gesell. But they carry on the burden of their work right 
there in their own State. 

124491— 40— pt. 10 20 



4436 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. That is right. 

Mr. Gesell. I show you two letters from Mr. Albert H. Yo.st, vice 
president and general counsel of the Phoenix Mutual Life Insurance 
Co., of Hartford, Conn., dated April 28, 1937, and May 19, 1937, ad- 
dressed to you, and ask you if those are letters which you received 
from Mr. Yost with respect to the Connecticut situation in 1937. 

Mr. Whitsitt. I think so ; but may I glance through them ? 

Mr. Gesell. Certainly. 

Mr. Whitsitt. Quite right. 

Mr. Gesell. May I read these letters for the record? The letter 
dated April 28, 1937, states [reading from "Exhibit No. 732"] : 

Thank you very much for the material that accompanied your letter of April 26 
with reference to the savings bank life insurance legislation pending in the 
general assembly here. I hope to be able to use it with good effect. 

The companies have finally waked up to the fact that the bill might possibly 
slip through the legislature. We all met yesterday in Mr. Brosmith's office and 
outlined a plan of campaign which will be directed particularly at the banking 
committee of the house. The situation here in Connecticut this year is that 
the senate is Democratic and inclined to be radical ; the house is Repulilican 
and of a more conservative complexion. 

So far as I can find out, this bill, which is a senate bill, is likely to be reported 
favorably and passed by the senate. 

It so happens that one of our own agents is a member of the house banking 
committee. He told me yesterday over the phone that, while he had made no 
canvass of the membership of the house committee, from casual conversations 
he had had with some of the members, he was of the opinion that the bill will 
not be recommended favorably by the house committee. The chairman of tho 
committee, he told me, is open to argument, and we are going to concentrate most 
of our efforts right there. 

Because of these later .developments I am a little more optimistic now of 
being able to defeat the bill than I was after the hearing last week when 
none of the companies raised any protest against the passage of the bill. 
The suggestions that you made to me, last week and the information that you 
have sent will, I know, be very helpful. 

Again he writes on May 19 [reading further from "Exhibit No. 
732"] : 
Roger B. Hull called me up the other day—: 

Who is Mr. Hull? 

Mr. Whitsitt. He is the manager and general counsel of the 
National Association of Life Underwriters. It is an association of 
life-insurance agents. 
■ Mr. Gesell [reading further] : 

Roger B. Hull called me up the other day to find out the present status of 
the savings bank insurance bill in the Connecticut legislature. I suspect that 
he probably found out from you that I had some connection with the opposition 
to the bill, and it occurred to me that perhaps you would be interested to know 
what the situation is at the present time if you have not already heard. 

The opposition, as I probably have told you, has been organized since the 
first hearing and the committee, headed by Berkeley Cox, whose other members 
are Allan Brosmith, and John Thompson, general agent of the Connecticut 
Mutual, has been working on the matter. They have particularly seen to it 
that sombody has gotten in touch with the key members of the senate and 
house committees. The net result has been that the senate commitee has 
reported the bill favorably, as we expected they would, hut we have found out 
that some of the Democratic members of the committee, particularly those 
from Hartford, are not entirely favorable to the bill, and there is a slight 
chance that it may not even pass the senate. 

The house committee has reported unfavorably, and presumably since the 
house is largely Republican, while the senate is predominantly Democratic, the 
probabilities are that the house will kill the bill. 



CONCENTRATION OF ECONOMIC POWER 4437 

The Chairman. Apparently the agent on the house committee was 
a rather effective member. 

Mr. Gesell. That is what it would appear to be. 

Mr. Gesell. Mr. Brosmith represents the Travelers, does he not? 

Mr. Whitsitt. He is an attorney for the Travelers, and Mr. Cox 
is an attorney for the Aetna Life. 

Mr. Gesell. I wish to offer these letters for the record. 

The Chairman. The letters may be received. 

(The letters referred to were marked ^'Exhibit No. 732" and are 
included in the appendix on p. 4813.) 

Mr. Gesell. Now before leaving this subject Mr. Whitsitt, I want 
to ask yoa a few more questions. Is your opposition to these sav- 
ings bank life insurance measures an opposition which you would 
say was in the interest of the policyholders? 

Mr. Whitsitt. I would say that in answering that question it is 
quite possible that the interests of the policyholders in our opposin^g 
savings bank bills is not quite so predominant as in some other bills. 
However, it has been felt by our executive committee and our asso- 
ciation that any widespread introduction and passage of bills pro- 
viding for State subsidy and preferential taxation, savings-bank life 
insurance, amounts to an assault on the established companies. And 
any assault on the established companies is an assault on their policy- 
holders. 

Mr. Gesell. Let me understand that. You mean that if I am a 
policyholder in a company that is a mutual company and well Or- 
ganized and has sound investments, that I am going to be injured" 
because someone sets up a rival system of insurance? 

Mr. Whitsitt. If it has been subsidized by the State. 

Mr. Gesell. How am I injured ? 

Mr. Whitsitt. Just a moment. If it has been subsidized by the 
State and has preferential taxation, the chances are the rates will 
be lower. I would suppose that some people might drop their in- 
surance and take savings bank life insurance. If so, they would be 
the healthy lives and not the uninsurable lives; consequently the 
mortality of the existing companies would tend io rise over a period 
of years, thereby reducing dividends in the future. 

Mr. Gesell. Is that all of it, or is there any other way ! 

Mr. Whitsitt. That is for the moment. 

Mr. Gesell. Well, that is the same if you set up any company 
with a low net cost, has the same result ? 

Mr. Whitsitt. I am not an actuary. 

Mr. Gesell. Well, you present an exteremely actuarial analysis 
of the situation. 

Mr. Whitsitt. Just a layman's analysis. 

Mr. Gesell. if I set up a company, even if I haven't a State subsidy, 
and I sell at a lower net cost than your company, I may take a few 
policyholders away from you and lower the standard of risk that you 
have and increase your mortality ? 

Mr. Whitsitt. I would suppose that if you were a wise man over a 
period of years your selection would be the same as that followed by 
the existing companies, and your expenses would be somewhat 
comparable. 

Mr. Gesell. And your feeling is that the savings-bank selection is a 
bad risk, I take it? 



4438 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. Not necessarily ; but you suggested that you would 
have lower net costs if you set up a company. There is a question as 
to where you would secure those savings in costs. One way would be 
to have a looser selection. If you had looser selection you would have 
higher mortality If you save in your overhead, how would you save 
in the overhead as compared with existing companies? 

Mr. Gesell. You don't imagine that all existing companies have 
the same net cost, do you ? 

Mr. Whitsitt. Certainly not. 

Mr. Gesell. Well, then, there are low net cost companies and high 
net cost companies; the low net cost companies are possibly taking 
business away from the high net cost companies all the time, are they 
not? Just the same way that savings-bank insurance might do? 

Mr. Whitsitt. I suppose that is quite right. 

Mr. Gesell. Is that the the only way in which you can say that the 
opposition to savings-bank life insurance is in the interests of the 
policyholders ? 

Mr. Whttsiit. I supposp if is ir> <"lie Interest of the policyhuluers. 
Take a man who has a policy in an existing life-insurance company who 
is uninsurable; in other words, he has his limit; why should he be 
taxed to support another life-insurance company ? 

Mr. Gesell. Oh, do you mean that if this State subsidy 

Mr. Whitsitt- (interposing). The life-insurance companies pay 
taxes on the premiums. Part of those taxes must go toward the State 
subsidy of a competing private enterprise. 

Mr. Gesell. That involves a matter of amount that comes in the 
next question I have : What kind of State subsidies do you oppose and 
what kind of State subsidies do you approve ? 

Mr. Whitsitt. I have in mind the type of subsidy that was in the 
original Massachusetts plan, which I believe I outlined earlier. Do 
you want me to review that? There is set up in the statehouse at 
Boston a bureau known, I believe, as the division of savings-bank life 
insurance, under the charge of a director, I believe. They have an 
actuary, possibly an assistant actuary, and a medical director. That 
bureau provided — I am speaking in past tense for the early periods 
of the savings-bank system — actuarial advice, forms, computed the 
rates, computed the surrender values. 

Mr. Gesell. If I may interrupt, if this is a question of the policy- 
holders' interest, the form of a subsidy isn't as important as the 
amount of money involved, if it is an actuary or a charwoman or if 
it is an office or a printing bill, as far as the policyholders are con- 
cerned, the expense is the item? 

Mr. Whitsitt. In dollars and cents. 

Mh Gesell, So does your association have some expense standard 
by which it operates in 'determining whether or not it will permit 
subsidy ? 

Mr. Whitsitt. No; we have not. As I was trying to outline, it is 
the type of bill to which we object that follows the original Massa- 
chusetts plan, whereby the actuarial service and the forms and the 
policies were given free gratis from the State to the savings banks, 
writing life insurance, as well as a medical director who gave medical 
advice and underwriting advice. 

Mr. Gesell. Even without regard for the amount of money that 
would be involved? 



CONCENTRATION OF ECONOMIC POWER 4439 

Mr. Whitsitt. The dollars and cents involved may be secured; I 
do not have them at hand ; from rmining through the appropriation 
bills I believe of the Massachusetts legislature for that period of 
time. 

Mr. Gesell. We will present those figures shortly but do I under- 
stand you to say that it doesn't involve a question of amount at all; 
that if those services are given you oppose the bill, regardless of how 
much they cost? 

Mr. Whitsitt. I think you can say that that is correct. On the 
other hand, in the New York bill, and the present New York law, 
there is a State subsidy for 1 year, despite that we did not oppose the 
bill because there was a provision, distinct provision, to come into 
effect 1 year after the law went into eflfect to provide for a reim- 
bursement to the State and for equal taxation, and we — our com- 
panies — feel they have no fear from savings bank competition so long 
as it operates on equal footing with existing companies. 

Mr, Gesell. I think you have stated the thing very nicely; it is 
the question of a fear of competition from State life insurance, sav- 
ings bank life insurance, that concerns the companies, is it not? 

Mr. WHiTsm. May I qualify the way you put it? I may say it 
this way. It is the unfairness, from our point of view — from our 
company executives' point of view — with a State subsidized organiza- 
tion and an organization which has preferential tax. 

Mr. Gesell. I have no further questions. 

The Chairman. There are other questions to be asked of the wit- 
ness? 

Mr. Henderson: I wasn't quite clear on the part which your asso- 
ciation took in connection with the New York savings bank life 
insurance act. You opposed the earlier acts? 

Mr. WrrsiTT. We did. Prior to the year 1932 I think there were 
one or two introduced. I am not sure if there were ; my recollection 
is that we opposed them in the year 1932 ; there was one of somewhat 
different type; it wasn't copied from the Massachusetts law, as most 
of them are. But it did not provide for any State subsidy and it 
did provide for equal taxation. We did not oppose that bill in 1932. 

Again, in 1938, a bill came in, copied quite substantially from the 
Massachusetts law, but with several material variations, among them 
the one I just mentioned, a plan for the reimbursement to the State 
for the costs of this division of savings-bank life insurance which was 
created in the insurance department and also for equal taxation with 
domestic life-insurance companies. We did not oppose that bill. 

Mr. Henderson. Did you support it? 

Mr. Whitsitt. We did not support it. 

Mr. Henderson. What about your members individually? 

Mr. Whitsitt. So far as I know, our company members did not take 
action. Mr. Hogg reminds me tliat one of our company presidents 
wrote a letter to the Governor, I believe, who sponsored the bill or 
recommended it in his message, stating that for those reasons, as I 
have outlined, his company would not oppose the bill. That was the 
attitude so far as I know of our member companies in New York State 

Mr. Gesell. What about the agents? 

Mr. WHiTSirr. The agents were rather active. 

Mr. Henderson. You mean against? 



4440 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. The agents suggested an amendment. The agents 
are the persons always most desirous to defeat -a savings-bank bill 
because the experience in Massachusetts is that it does not compete 
with industrial life insurance, the average policy in Massachusetts is 
about $900, the average industrial life-insurance policy is materially 
less than that, so the agents writing ordinary life insurance felt that 
after they had worked hard on a prospect and practically sold him the 
idea of taking, say, 5 or 10 or 15 thousand dollars worth of life in- 
surance, with all that work, then the man could walk across the street 
and buy a savings-bank life-insurance" policy at a somewhat cheaper 
rate, that was taking business away from them. 

I am merely explaining the background of why the agents are much 
more enthusiastic than any group that I know in opposing savings- 
bank life insurance. In New York they proposed an amendment, I 
believe through their State association, limiting the amount of life 
insurance which may be issued on any one life. As you may recall, in 
Massachusetts the limit is $1,000 on each life in each savings bank, but 
there is no limit on the number except limited by the number of savings 
batiks writing life insurance, which I believe is about twenty-five or 
twenty-six at this time. So a man in Massachusetts can take some 
twenty-five or twenty-six thousand. The agents in New York, having 
learned from the experiences of the agents in Massachusetts, the busi- 
ness that they had practically sold up to the signing of the application 
had been lost to them, were anxious to secure some limitation in New 
York, and I gather that through their efforts a limitation was put in. 
I think they proposed a lower limitation than was finally adopted. 
There was a question of conference back and forth. Finally a $3,000 
limitation was adopted in the New York savings-bank insurance law. 

Mr. Henderson. For any one bank? 

Mr. WHiTsrrr. No ; $1,000 per bank but not more than $3,000 on any 
one life. 

Mr. JIenderson. Tlie agents were very active there and were apa- 
thetic, I gather, in Florida and sometimes in Georgia, on premium 
taxes. 

Mr. Whitsitt. The agents in New York are much closer to Massa- 
chusetts and in much closer contact with the agents in Massachusetts. 

Mr. Henderson. They are much closer to the association and to 
its headquarters. Would that explain it a little bit ? 

Mr. Whitsitt. Oh, I wouldn't say that, if you know how we view 
the. contacts we have with the ai^ents. 

Mr. Henderson. You wouldn't expect an agent in Florida, then, to 
be very active in opposing savings bank legislation? 

Mr. Whitsitt. He is far removed from Massachusetts, where the 
system began. 

Mr. Gesell. If the committee is interested in this question of the 
activities of the Underwriters' Association in the State of New York, 
we can present for the record two publications sent out by the Under- 
writers' Association to the agents in New York indicating the type of 
efforts taken by them to defeat savings-bank insurance there.^ 

Mr. Henderson. There is no indication that there was any connec- 
tion between the underwriters in this case and the Association of 
Life Insurance Presidents? 



1 Subsequently entered as "Exhibits Nos. 733 and 734." See appendix, pp. 4814 and 
4815. 



CONCENTRATION OP ECONOMIC POWER 4441 

Mr. Gesell. No ; this would be an independent effort. 

Mr. Henderson. I wanted to make that distinction, as I understand 
there is sometimes. 

Mr. Whitsitt. That is quite true ; in this instance, not. 

Mr. Gesell. If the committee would be interested, however, I can 
present this material for the record and call one of our representatives 
who obtained it from the files of the Underwriters' Association. I 
think it would help to complete the picture. 

The Chairman. If the material is available. You can't have it 
identified by this witness? 

Mr. Gesell. No ; I will have to call another witness. 

The Chairman. Very well, at the proper time. 

May I ask Mr. Whitsitt whether his association has interested itself 
in promoting any legislation? 

Mr. Whitsitp. In some instances wjiere there seemed to be a need 
of clarification of some statutes there have been times ; those are excep- 
tions, but there have been some instances. 

The Chairman. Not very many? 

Mr. Whitsitt. Comparatively few. 

The Chairman. The question was prompted by the provision of 
your minutes, I believe, reading from the record of yesterday — yes; 
the minutes — which state that among the objects of the association^ 
was — 

to consider carefully measures that may be introduced from time to time in legis- 
lative bodies with a view to ascertaining and l)ublicly presenting the grounds 
which may exist for opposing or advocating the proposed legislation. 

I understand that you have had very little experience in advocating 
legislation. 

Mr. Whitsitt. There is, of course full authority for that, and when 
a situation arises where it seems necessary w6 have done it, but as a 
practical matter those occasions haven't arisen so often. There have 
been a number. I could furnish you with a list of them; I haven't 
them offhand. 

The Chairman. But, as you said a moment ago, that is exceptionjtl ? 

Mr. Whitsitt. I would say it is exceptional. 

The Chairman. Have you ever interested yourself in opposing or 
advocating any legislation in any other field ? 

Mr. Whitsitt. Other than life insurance? 

The Chairman. Yes. 

Mr. Whitsitt. No, sir; other than directly or very closely affecting 
our business. In other words, may I give you an illustration? When 
the Wlieeler-Rayburn bill was pending affecting the utilities, we were 
importuned — our association was importuned— to take part in it on 
the theory that it Avould affect the securities of our companies. As a 
matter of fact, the utilities securities for our companies are the under- 
lying operating companies, and we took no part in that, even though 
it might in some instances have affected us, because we felt that was 
out of our field. 

The Chairman. As an association you took no part in it. 

Mr. Whitsitt. That is correct. As an association Ave had nothing 
to do with it. We try to attend to our own business. 

> See "Exhibit No. 690," appendix, p. 4744. 



4442 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Do you know whether any of the insurance com- 
panies individually did ? 

Mr. WiriTsirr. That may be true ; I wouldn't be in a position to say. 

The Chairman. I may say that the question was suggested to me 
by Senator Bone, of- Washington, who has joined us this afternoon 
to listen to the testimony, and he has just remarked to me that at least 
one insurance company intervened in a legislative matter in the State 
of Washington over a measure dealing with municipal power com- 
panies. The Senator corrects me — an initiative matter, authorizing 
municipal power plants to sell power outside the boundaries of the 
city. That was opposed, the Senator says, by some insurance 
companies. 

Senator Bone. Very vigorously. 

The Chairman. Apparently that was not tlie association. 

Mr. Whitsitt. Evidently not. I never heard of it before. 

Mr. Henderson. How about social security ? 

Mr. Whitsitt. On social security, meaning the Federal Social Secu- 
rity Act, we have taken no position. We have not opposed it. We 
have very carefully avoided opposing the Federal Social Security Act. 

Mr. Henderson. You are not opposing it now? 

Mr. Whitsitt. We are not. 

Mr. Henderson. Nobody representing your association is here in 
Washington? 

Mr. Whitsitt. May I make a slight explanation ? In the course 
of the spread of the State unemployment act over all of the States, 
we have a very important question, to us, regarding the interpretation 
of the act, namely, whether life-insurance agents on the commission 
basis are employees under the various State acts or under the unem- 
ployment provisions of the Federal act. We have been rather active 
in that field in attempting to secure rulings and in one instance some 
test litigation attempting to determine whether or not our agents on a 
commission basis are employees under the State acts. We presented 
many briefs to the Bureau of Internal Revenue with regard to the 
Federal act in behalf of various of our member companies because we 
maintained that such agents are independent contractors and not 
employees under the act, and, in addition, as a practical matter, it 
would be rather difficult to apply any unemployment act on a commis- 
sion basis. 

Mr. Henderson. No one is authorized to represent your associa- 
tion in opposing the present proposals' for liberalization of the 
Social Security Act? 

Mr. Whitsitt. Not so far as our association is concerned. What 
any individual company may do would be a matter for its own 
determination. 

Mr. Gesell. Your association has been very active in the real 
estate and mortgage field. 

Mr. Whitsitt. That is quite right, as affecting our investments. 

Mr. Gesell. How do you distinguish between mortgages and utili- 
(ies? What was the reasoning there? 

Mr. Whitsitt. My executive committee so decided. 

Mr. Gesell. You mean in the case of mortgages and real estate 
the executive committee did authorize the association to extend it? 

Mr. Whitsitt. That is correct. 



CONCENTRATION OF ECONOMIC POWER 4443 

Mr. Geseli.. Tliey have not yet given that authorization in the case 
of utilities ? 

Mr, Whitsitt. Utilities, railroads, or any other bonds as distin- 
guished from real -estate mortgages. 

Mr. Hogg has handled all our social -security matters. Mr. Hogg 
made an appearance before the Ways and Means Committee on these 
bills in the House opposing the possible extension of the act to agents 
or an express inclusion of agents on a commission basis to be em- 
ployees insofar as the unemployment provisions are concerned. Our 
official attitude is that we have no objection to their being under the 
old-age provisions. 

Mr. Hogg. And the committee adopted our suggestion. 

The Chairman. In presenting your point of view to the legisla- 
tive bodies, you have followed the program which was outlined by 
Mr. Hogg and by Mr. Cooney wherever you have operated. I mean 
to say of briftging pressure to bear upon the legislators through the 
policyholders, through lawyers who may be retained, and through 
your agents, and any other person to whom you could present argu- 
ment or whom you could stimulate to expression of your point of 
view. 

Mr. WiirrsiTT. If the net result of your question is: Is Georgia 
or is Florida a typical State? I would have to say "No." There 
is no typical State. 

The Chairman. I didn't intend to imply that, but I am glad to 
have you make the answer. 

]Mr. Whitsitt. There is no typical State; there are 48 varieties 
of States and I couldn't say the procedure followed in either Georgia 
or Florida was typical of any other State. There are dift'erent situa- 
tions. It happens that those two States are two of our busiest States. 
They have given us many headaches and they have been most trouble- 
some insofar as objectionable taxation legislation is^ concerned. 

The Chairman. But in carrying on a legislatiA^e campaign the 
strategy of the association has been to arouse as much popular pres- 
sure as possible or the appearance of as much as possible by produc- 
ing telegrams and letters of various kinds to be laid on the desk or 
poured in the ears of the legislators. 

Mr. Whitsitt. I would say to a much lesser degree in substantially 
all of the other States. 

The Chairman. It is a perfectly natural procedure and I don't 
know how we are going to get away from it. 

Mr. Whitsitt. I would like to get away from it myself. It just 
so happens that those two States are unusual from the standpoint 
of increased taxation proposals. 

The Chahjman. Do you mean by your answer to convey the im- 
pression that .you feel that the methods which were employed in 
Georgia and in Florida are perlia}:>s a little bit reprehensible? 

Mr. Whitsitt. I wouldn't go so far as to ?ay that. 

The Chairman. Well, undesirable? 

Mr. Whitsitt. There may have been some things done in Georgia, 
for instance, that I wouldn't have approved if I had been in charge, 
but I was not in charge. 

The Chairman." Well, the point of my question is merely that when 
you go into these various States to fight a bill, you use all of the well- 
known methods_to effect your objectives. 



4444 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt, Insofar as we consider them proper and legitimate. 

The Chairman. And one of the principal means is to put arguments 
before the legislators through the mouths of agents and lawyers and 
policyholders. 

Mr. Whitsitt. I don't know about lawyers; through the agents 
and at times their policyholders, but largely through the agents. It 
is a question of educating the agents. Our great trouble is the lack 
of information in the hands of the members of the legislature. If we 
get opportunit}^ to lay our facts before them, we find we get a very 
fair reception. 

The Chairman. How do you educate the policyholders? 

Mr. Whitsitt. That isn't done very extensively. 

The Chairman. Of course, I have in mind the letter that Mr. Guy A. 
Smith wrote to you on May 3, 1937,^ and undoubtedly such an ava- 
lanche of telegrams and calls had never before been received by those 
individuals. 

Mr. Whitsitt. Quite right ; I think I can say that that was rather 
an unusual situation. 

The Chairman. How did you proceed to educate these policyholders 
to express themselves ? 

Mr. Whitsitt, In that instance it was a question of the State asso- 
ciation and the various local associations of life-insurance under- 
writers. 

The Chairjian. What I am getting at is this: Doesn't it all boil 
itself down in the end to the presentation by the insurance executives, 
your association, through the mouths of dozens if not hundreds of 
people who themselves don't know the arguments, the arguments that 
you prepare in your office and circulate aroimd ? 

Mr. Whitsitt. It is really a question of educating them to the dan- 
gers that will react to them and to their policyholders if such objec- 
tionable legislation is adopted. 

The Chairman. And the judge as to what those dangers are is the 
association. 

Mr. Whitsitt. The association and our executive committee and 
our member companies. 

The Chairman. In other words, your association determines what 
you believe to be the desirable standards to govern life insurance and 
all legislation that affects life insurance, and then you endeavor to 
make those standards effective by opposing legislation that threatens 
those standards when it arises. 

Mr. Whitsitt. As has been so many times said, our executives con- 
sider themselves trustees for the policyholders, and obviously they 
would feel they were neglecting tlieir duty if they did not call the 
attention of the agents and the policyholders to such bills. 

The Chairman. And there is no public body which'' participates 
with your organization of insurance companies to determine what the 
desirable standards are. 

Mr. Whitsitt. That is right. I may say, referring to public bodies, 
we are subject to examination by the New York State Insurance De-* 
partment. We have been examined several times, and they audit our 
books, they go over all of our accounts, and they look through our 
minutes, even more completely than some of the examiners for the 

1 See "Exhibit No. 728," appendix, p. 4801. 



CONCENTRATION OF ECONOMIC POWER 4445 

S. E. C. have. They spend quite a time there every few years bring- 
ing up to date examinations and then make a report to the insurance 
department. 

The Chairman. Wlien you refer to that, I also have in mind the 
testimony which appeared here this afternoon that at least one of the 
State insurance commissioners adopted the arguments which the asso- 
ciation made for him and issued that statement and then in turn the 
Association circularized a particular legislat'ire with his statement.^ 

Mr. Whitsitt. We didn't prepare the argument. We submitted to 
him data. So far as I know, he gave it consideration and then he 
came to his conclusion and prepared it. 

Mr. Henderson. Did you send a copy of Plain Talk to him ? 

Mr. Whitsitt. No ; I guess I am not familiar with that. 

The Chairman. Senator Bone has suggested that he might like to 
ask a question; and if there is no objection, the Senator will be per- 
mitted to address a question or two to the witness. 

Senator Bone. Mr. Whitsitt, I would like to ask you what would 
induce a very prominent life-insurance company to enter into a politi- 
cal campaign in a State against a power bill of the character described 
by Senator O'Mahoney, which was then before the people of the State 
in the form of an initiative, subject to popular vote? In this particu- 
lar instance this big insurance company circularized all of its policy- 
holders and participated very actively in that campaign. That bill 
merely authorized the cities owning their own light and power systems 
to sell power to surrounding farm areas. Why would an insurance 
company feel called upon to come out on the Pacific coast and inter- 
fere in a thing of that kind and try to prevent the enactment of a bill 
of that character? It dealt purely with local matters. 

Mr. Whitsitt. I am sure I wouldn't be able to explain that. 

Senator Bone. Is there any explanation for it at all ? 

Mr. Whitsitt. I would suggest the best answer to that would be the 
executive of whatever company you have in mind. 

Senator Bone. I assume that you as an executive of a life insurance 
organization would be able to inform me as to why they would feel 
called upon to come clear across the country from New York to 
interfere. 

Mr. Whitsitt. I never heard of it until a few minutes ago. 

Senator Bone. That was in 1924 in the State of Washington. At 
the moment I can't give you the name of the company — I think it was 
the Metropolitan or the New York Life — but one of the larger ones. 
I have my files full of material they sent out to their policyholders. 

Mr. Whitsitt. Our association does not have any control over the 
actions of its members whatsoever. We are an entirely voluntary 
association. 

Senator Bone. Do the big insurance companies feel called upon to 
defend private power companies against that form of small competi- 
tion? 

Mr. Whitsitt. I am afraid I will" have to suggest that the only 
way to get an answer to that question is to direct it to the oflScers 
of that company. 

Senator Bone. They had the question directed to them. 

The Chairman. In any event your association did not intervene. 

^ See supra, p. 4432. 



4446 CONCENTRATION OF ECONOMIC POWER 

Mr. Whitsitt. No, sir. 

Mr. Henderson. I think you suggested, Mr. Whitsitt, that Georgia 
and Florida were a couple of States that gave you the most head- 
aches. 

Mr. Whitsitt. Yes. 

Mr. Henderson. They are not the ones that cost your association 
the most.^ 

Mr. Whitsitt. Excuse me. They are two ; there are some others. 

Mr. Henderson. Oklahoma seems to be bad. 

Mr. Whitsitt. Oklahoma is very troublesome. 

Mr. Henderson. Virginia seems to be very small, and Missouri 
seems to have some high expenses; and California. 

Mr. Whitsitt. That is rig! it. It will vary from State to State. 

Mr. Henderson. Wisconsin. So it isn't just a couple of Southern 
States that happened to be chosen for exhibit today ? 

Mr. Whitsitt. I didn't intend to imply they were the only two 
lieadaches. We have headaches here and there and it may break 
out in a previously quiet spot. 

Mr. Henderson. Some of these seem to have repetitions.^ 

Mr. Whitsitt. Oklahoma, you will find, has always Been a head- 
ache. 

The Chairman. Well that, of course, brings back the question that, 
perhaps, I propounded this morning, whether or not it isn't a fact 
that this is a business with a pronounced national aspect, but in which 
there is no agency representing the public interest to cooperate with 
the experts of business in effecting necessary standards. 

You have formed an association of insurance executives for the 
purpose of improving the general insurance picture. In these cir- 
cumstances do 3^ou think it would be. good or a bad thing if there were 
national legislation in this field ? 

Mr. Whitsitt. I_think, as I intimated this morning, it would depend 
entirely upon what kind of 

The Chairman (interposing). Naturally it would.. 

ISIr. Whitsitt. Whether it was supervision superimposed upon the 
existing, or whether it would eliminate entirely the 48 State insurance 
departments that we now have, which have been functioning for many 
years. If you eliminate them entirely, excluding in the elimination 
the rights of the various 48 States to tax the premiums, from which 
they get a very sizeable revenue — I suppose some 15 or 20 times more 
than it takes to support the insurance department — it depends entirely 
upon what kind of legislation is contemplated. 

The Chairman. You wouldn't object to proper legislation, and if it 
were proper, if a national system were adopted, it might be approved? 

Mr. Whitsitt. My association lias never taken a position on that 
subject; therefore, as for the association, I could not express an opinion. 

The Chairman. This is probably not the proper place to pursue 
the inquiry anyway. 

Are there any other questions ? 

Mr. Gesell. No further questions of this witness. 

If the committee desires, I can call a member of our staff to identify 
two documents relative to the activities of the Life Insurance Under- 
writers Association. 



1 See "Exhibit No. 694," appendix, p< 4752. 



CONCENTRATION OF ECONOMIC POWER 4447 

The Chairman. Let that be done. That will go into the record 
as of today. 

Do you solemnly swear the testimony you are about to give in 
this proceeding will be the truth, the whole truth, and nothing but 
the truth, so help you God ? 

Mr, Reillt. I do. 

TESTIMONY OF JOSEPH A. REILLY, INSURANCE SECTION, SECURI- 
TIES AND EXCHANGE COMMISSION, WASHINGTON, D. C. 

Mr. Gesell. What is your full name ? 

Mr. Reillt. Joseph A. Reilly. 

Mr. Gesell. You are on the staff of the insurance section of the 
Securities and Exchange Commission, are you not? 

Mr. Reillt. That is right. 

Mr. Gesell. Did you have occasion recently to call at the offices 
of the Life Underwriters' Association of the city of New York and 
talk to Mr. Arthur V. Youngman, president of that association ? 

Mr. Reillt. I called at the offices of the Life Underwriters' Asso- 
ciation of New York and talked to Mr. Don Hughes, managing direc- 
tor. Mr. Hughes was not managing director at the time, during the 
early part of 1938, however. 

Mr. Gesell. Do you recognize these two documents which I show 
you? 

Mr. Reillt. Yes ; these were obtained from Mr. Hughes at the office 
of the Life Underwriters' Association of New York. 

Mr. Gesell. Did he state that they were documents used by the 
association ? 

Mr. Reillt. He did. 

Mr. Gesell. I wish to offer these documents for the record; first, 
a circular letter dated February 25, 1938, sent over the heading of 
the committee on law and legislation of the Life Underwriters' Asso- 
ciation of the City of New York, Inc. 

The Chairman. The document may be received. 

(The document referred to was marked "Exhibit No. 733" and is 
included in the appendix on p. 4814.) 

Mr. Gesell. And a second document, undated, marked "Flash !" 
also over the signature of the committee on law and legislation of the 
Life Underwriters' Association. 

The Chairman. It may be received. 

(The document referred to was marked "Exhibit No. 734" and is 
included in the appendix on p. 4815.) 

The Chairman. If there is no further testimony to be offered this 
afternoon, the committee will stand in recess until 10 : 30 tomorrow 
morning. 

(Whereupon, at 4 : 30 p. m., a recess was taken until 10 : 30 a. m. 
Thursday, June 15, 1939.) 



INVESTIGATION OF CONCENTEATION OF ECONOMIC POWER 



THURSDAY, JUNE 15, 1939 

United States Senate, 
Tebiporart National Economic Committee, 

Washington^ D. C. 
The committee met at 10:50 a. m., pursuant to adjournment on 
Wednesday, June 14, 1939, in the caucus room, Senate Office Building, 
Senator Joseph C. O'Mahouey presiding. 

Present: Senator O'Mahoney (chairman) ; Messrs. Williams, Reece, 
Henderson, Lubin, O'Connell, and Brackett. 

Present also : Joseph Borkin, Department of Justice, and Gerhard 
A. Gesell, special counsel. Securities and Exchange Commission. 

The Chairman. The meeting will please come to order. Will you 
call your first witness ? 

savings bank life INSURiVNCE — DESCRIPTION 

Mr. Gesell. Yes. I would like to make a short statement at the 
opening this morning. On yesterday we presented testimony indi- 
cating the character of the opposition which the Association of Life 
Insurance Presidents has made in recent years against the enactment 
of savings-bank life insurance in many States. 

Today we will present testimony illustrating the operations of 
savings bank life insurance in Massachusetts and New York, the 
two States in which it has been enacted to date. Many of the prob- 
lems the committee has been considering will be brought into sharper 
focus through today's testimony. Not only will the activities of the 
association be more clearly understood, but the testimony will bear 
on such problems as size, net cost, the relationship between agency 
selling and voluntary terminations, and other matters in which the 
committee has expressed an interest. 

The first witness will be Mr. Judd Dewey, deputy commissioner of 
savings bank life insurance in the State of Massachusetts. 

Mr. BoRKiN. On behalf of the Department of Justice I would like 
to introduce for the record some of the contracts used during the last 
investigation, but not introduced.^ I should like to introduce them 
at this time. 

The Chairman. Not for the record ? 

Mr. BoRKiN. Not to be printed, but to be filed with the committee. 

The Chairman. It is so ordered. 

(The contracts referred to were marked "Exhibit No. 735" and are 
on file with the committee.) 



*Por record of hearing on the glass container industry, see Hearings, Part II. 

4449 



4450 CONCENTRATION OF ECONOMIC POWER 

Tlie Chairman. Mr. Dewey, do you solemnly swear that the testi- 
mony you are about to give in this proceeding shall be the truth, the 
whole truth, and nothing but the truth, so help you God? 

Mr. Dewey. I do. 

TESTIMONY OF JUDD DEWEY, DEPUTY COMMISSIONER OF SAV- 
INGS BANK LIFE INSTJEANCE IN THE STATE OF MASSACHU- 
SETTS, BOSTON, MASS. 

Mr. Gesell. Will you state your full name, please, sir? 

Mr. Dewey. Judd, J-u-d-d, Dewey, D-e-w-e-y. 

Mr. Gesell. You are deputy commissioner of savings-bank life 
insurance in the State of Massachusetts, are you not ? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. How long have you occupied that position? 

Mr. Deavey. Since April 1934. 

Mr. Gesell. Were you connected in any way with savings-bank 
life insurance prior to that time? 

Mr. Dewey. I served as unpaid counsel for savings-bank life in- 
surance from 1916, when Mr. Brandeis came to Washington to go on 
the Court; I undertook to do as well as I could what he had been 
doing theretofore as counsel for the system, and I served as unpaid 
counsel from 1916 until in 1934 when Miss Grady, who was deputy 
commissioner, died, and I gave up my practice and took her position 
as deputy commissioner. 

Mr. Gesell. What is your salary . as deputy commissioner, Mr. 
Dewey ? 

Mr. Dewey. $4,200 a year. 

Mr. Gesell. Will you give us some idea of your responsibilities 
and duties and the extent to which you come into contact with the 
day-to-day problems of savings-bank life insurance in Massachusetts? 

Mr. Dewey. I am appointed deputy commissioner by a board of 
seven unpaid trustees. The division of savings-bank life insurance 
consists of a board of seven unpaid trustees who are appointed by 
the Governor for terms of 7 years each in rotation. The chairman 
of that board is the commissioner of savings-bank life insurance. 
They are all unpaid trustees and he is unpaid and is not expected to 
devote his time, or at least his full time, to the work of the division. 

The active administrative officer in charge of the division is the 
deputy commissioner, and that is my position. It is a full-time job 
and requires all of my time from morning till night, and sometimes 
late at night, and I am in contact with the banks which issue the 
insurance — that is, in daily contact not with all of them each day — 
but with the banks who issue the insurance, with the employers who 
act as agencies and other institutions who act as agencies, and with 
a great many of the policyholders, who come to the office or telephone 
to the office, have general administrative supervision of the division. 

I haven't actually any authority or any considerable authority. 
The authority is in the board of trustees and in the State actuary 
and the State medical director. 

Mr. Gesell. You say you are appointed by the board of trustees ( 

Mr. Dewey. Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 4451 

Mr. Gesell. How cah you be removed from office? What is the 
term of your appointment? 

Mr. Dewey. I can be removed from office or the State actuary or 
the State medical director can be removed from office only by action 
of this board of trustees which would have to be approved by the 
Governor and council, but the Governor and council couldn't initiate 
proceedings to remove either the State actuary or the medical di- 
rector or myself. Mr. Brandeis had the idea and that of the legis- 
lature which adopted this statute, which was that those in charge 
of the administration of savings-bank life insurance should be re- 
moved so far as humanly possible from any possible pressure or 
influence — political — because we have political influence in Massa- 
chusetts I suppose as they do in some other States, or financial or 
any other kind. And it was felt, therefore, that those officers, 
although they were to be State officers, should not be subjected to, for 
instance, expiration of a term of office when they would have to be 
wondering whether they would be reappointed. 

And so to accomplish that as far as possible it was provided that 
this division should consist of this board of seven unpaid trustees and 
they are appointed for a term of 7 years in rotation. 

Mr. Gesell. By whom are they appointed? 

Mr. Dewey. They are appointed by the Governor. 

Mr. Gesell. Mr. Dewey, will you tell us a little about the history 
of savings bank life insurance, how it was originated, and so forth ? 

Mr. Dewey. The act was enacted in June of 1907. Mr. Brandeis 
prepared the bill which was enacted at that time. It might be some 
illustration of the thoroughness with which he did his work to say 
that we have a letter from him to his consulting actuary, written in 
November 1905, saying he had now decided the savings bank could 
be adapted .to the writing of life insurance, and he was going to 
begin work in preparation of a bill for that purpose. That was in 
November of 1905 and he didn't have that bill in form satisfactory to 
him until September of 1906. He didn't devote all of that inter- 
vening time to it, but he was working on it all of that time, and when 
it was done it was in such form that there was no place where an 
amendment could be plausibly suggested, and it was enacted by the 
legislature finally, after a very vigorous fight, but it was enacted as 
Mr. Brandeis had prepared and presented it to the recess commission. 

Kepresesntative Reece. Did he hold any official position at that 
time? 

Mr. Dewey. He had no official position. He was in the private 
practice of law in Boston. 

Mr. Gesell. What was the purpose of savings bank life insurance ; 
what functions was it supposed to perform? 

Mr. Dewey. The primary purpose of it was to make life insurance 
available to the people of Massachusetts at lower cost than insurance 
could then be had for, and at what insurance would need to cost on a 
basis such as was proposed in the bill. 

I might say there, Mr. Chairman, that there has been considerable 
discussion of savings-bank life insurance in comparison with the 
companies and upon a basis that seems to assume that it should be 
conducted as the companies are : It should be remembered that when 
this was proposed in Massachusetts there were already some 35 or 

124491— 40— pt. 10 21 



4452 CONCENTRATION OP ECONOMIC POWER 

40 companies operating in Massaclnisetts, writing life insurance. 
Those were all of the larger companies, the good companies. Most 
of them are still writing insurance there. There was no need of just 
another life insurance company. These companies were all good and 
they could provide life insurance to the people of Massachusetts on 
that general basis of operating. So there wasn't any intention in the 
minds of the legislature of creating just another life insurance com- 
pany like those which were already functioning. Therefore, the 
system was set up on a different basis. It was proposed to provide 
the same type of life insurance actuarially, that is legal-reserve life 
insurance written under the laws of Massachusetts governing the 
domestic legal -reserve companies, but with a different structure and a 
different method of operation, and the structure was different in hav- 
ing those in charge of important functions in the institution State 
officers : That is, first, the State actuary. The State actuary does that 
work which is done for life insurance companies by their own actu- 
arial staff. 

The actuary is an important person in the life-insurance institu- 
tion. He decides a lot besides just technical questions. He decides a 
lot of questions that affect the welfare of the policyholder as well as 
the welfare of the institution that writes the policy. He computes 
the profits, he recommends what can be paid as dividends to policy- 
holders, he determines the policy forms, he has a lot to do with deter- 
mining how soon you can get a cash surrender value and how soon 
you can have a loan value, and a great many things that affect the 
welfare of the policyholder are determined by the actuary. 

In the ordinary life-insurance institution, those are decided by a 
person who is in the employ of the company that is going to write 
the contract. I don't say that isn't all right, but he is employed to 
do those things and to decide those questions, and he is employed by 
one of the parties to the contract, and the other one hasn't anybody 
representing him there. 

It was thought by Mr. Brandeis and by the legislature that it 
would be well to have those services performed for this new life- 
insurance institution by a person who wasn't employed by the insti- 
tution that was going to write the policy. 

Mr. Gesell. This State actuary, Mr. Dewey, is he appointed the 
same way you are, removable in the same way ? 

Mr. Dewey. He is appointed by the trustees and removable only 
by the trustees, with the approval of the Governor and council. 

Mr. Geseli^. What is the salary? 

Mr. Dewey. I beg j^our pardon, you asked me about the term of 
office. Neither the State actuary, the State medical director, or the 
deputy commissioner is appointed for any definite term; they are 
appointed during good behavior, if I may say so, so they don't have 
to wonder if they are going to be reappointed. 

Mr. Gesell. What is the actuary's salary ? 

Mr. Dewey. Thirty-eight hundred dollars. 

The Chairman. Wliat guaranty is there, if any, of permanent 
status as an employee and protection against political removal? 

Mr. Dewey. This structure of the thmg. Senator. The seven trus- 
tees in the first place serve without pay and ever since the sj'stem 
was established, ever since Governor Guild appointed the first board 



CONdENl^RATlON OF ECONOMIC pow5:r 4453 

of trustees, it has been possible to have men of the very finest type, 
public-spirited men: for instance, George Wigglesworth, chairman 
of the board of overseers of Harvard ; Bernard J. Rothwell, former 
president of the chamber of commerce ; George S. Barnes. That type 
of men give their time to this thing as trustees of this fund. 

Mr. Gesell. Those trustees ai-e appointed for a term by the Gov- 
ernor, are they not? 

Mr. Dewey. Yes, sir; in rotation. 

Mrs Gesell, Then they appoint the actuary, the medical director, 
and the deputy commissioner. 

Mr. Dewey. Yes, sir. 

Mr. Gesell. They can institute proceedings to remove the deputy 
commissioner, the actuary, or the medical officer, can they not? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. But the Governor himself cannot institute such pro- 
ceedings. 

-Mr. Dewey. No. 

Mr. Gesell, The Governor must, however, approve, must he not, the 
recommendation of the trustees, if removal is recommended ? 

Mr. Dewey. It would require approval of the action of the trustees 
by the Governor and council. If the gentlemen were disposed to be 
arbitrary — and, of course, they wouldn't be — their action in removing 
would be subject to review by the Governor and council. 

I don't know that I have answered the chairman's question. 

The Chairman. I think you have. 

Mr. Gesell. In the case of the medical officer, Ayhat is his salary ? 

Mr. Dewey. Dr. Burnett, the State medical director, and his assist- 
ant, Dr. Manton, are not full-time employees. They are paid on a 
basis calculated in proportion to what would be a full-time salary. 
Dr. Burnett received $2,000 a year, Dr. Manton about $1,400; that is 
for an hour and a half of Dr. Manton 's time and 2 hours a day of Dr. 
Burnett's time. 

Mr. Gesell. Do I understand they must approve each risk written 
by the savings banks in Massachusetts ? 

Mr. Dewey. Yes, sir. The application I might explain a little more 
if you want me to, just how the machinery works, because it is quite 
simple. If I went into a savings bank somewhere in Massachusetts 
and applied or went into the office of the United Shoe Machinery Co. 
and applied for say a $1,000 policy, the person who took that appli- 
cation would ^ive me a note to the local medical examiner. The local 
medical examiners are appointed as examiners for savings bank life 
insurance just the same as the companies have their local examiners. 
Then the application would be sent to the office of the State medical 
director. After he receives the report from the medical examiner, he 
either approves or disapproves the application. He so indicates in 
writing on the application, and if approved it is sent to the bank 
which issues the policy. The bank issues the policy and mails it to 
the place where the application originated, and they notify the per- 
son that the policy is there, and he comes in and gets it. We don't 
take any deposit with the application. We don't have the problem 
of policies, what are called N. T. O. — not taken out. People apply 
for savings bank life insurance, and when they are notified the policy 
is ready they go and get it and pay the first premium, and the policy 
is in force. 



4454 CONCENTRATION OF ECONOMIC POWER 

In response to your question, the application must be approved by 
the State medical director. 

Mr. Gesell. Did I understand that the State actuary fixes the rates 
at which the insurance policies are sold ? 

Mr. Dewey. He determines the premiums to be charged for the pol- 
icies. The banks have nothing to do with that whatsoever. They 
have no authority in the matter of determining the premiums. 

Mr. Gesell. And do I understand that the banks are authorized to 
write all the customary forms of life insurance which are written by 
the old-line companies? 

Mr. Dewey. The law authorizes the banks to write any type of pol- 
icy that can legally be issued by any domestic legal reserve company 
operating under the laws of Massachusetts. As a matter of fact, sir, 
after the insurance department is established in the savings bank, it 
receives a license from the commissioner of insurance ; it is, except for 
special provisions, governed by all of the laws of Massachusetts that 
govern domestic legal-reserve companies. It can issue any kind of 
policy they issue. 

Mr. Gesell. When did the first bank enter into the system ? 

Mr. Dewey. The first bank began operations in June of 1908. That 
was about a year after the act was passed which made it possible for 
such departments to be established. 

Mr. Gesell. I show you a schedule entitled "Massachusetts savings 
banks issuing life insurance listed in the order of their entrance into 
the system." Can you identify that as a schedule prepared in your 
office? 

Mr. Dewey. That schedule was prepared by Mr. Eugene F. Cald- 
well, the State actuary. He has put his initials on it, "E. F. C." 

Mr. Gesell. That shows the names of banks, the date they have 
entered, the number of policies in force, the amount of insurance in 
force, the admitted assets of the insurance department of the respec- 
tive banks, the assets of the savings banks, and the totals of those 
figures. 

Mr. Dewey. Yes, sir. 

Mr. Gesell. I wish to offer this schedule for the record. 

The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 736" and is 
included in the appendix on p. 4816.) 

Mr. Gesell. Are there any comments you wish to make on the 
schedule ? 

Mr. Dewey. First, I would say that the assets of the savings de- 
partment were included there only because it was thought they might 
be of interest. They have no relation to the insurance department 
whatsoever. The insurance department legally is entirely separate 
from the savings department. 

Mr. Gesell. Well now 

Mr. Dewey. Excuse me. It will be noticed there the growth in the 
number of banks was slow. The Whitman Savings Bank came in in 
June of 1908 ; then the Peoples Savings Bank during the same ^ear. 
Governor Douglas — by the way ex-Governor Douglas was president 
of that Peoples Savings Bank and he put up the entire $25,000 guar- 
anty fund. He was a shoe manufacturer and he wanted this made 
available to the workers in his factories. 



CONCENTRATION OF ECONOMIC POWER 4455 

Mr. Gesell. Now, am I correct in saying that there are now 24 
banks issuing savings-bank life insurance? 

Mr. Dewey. Twenty -six; two that are not included here because 
they became issuing banks on November 1, 1939, and had not had a 
full year's operation to the time when these figures were prepared. 

Mr. Gesell. What are the names of those two banks, Mr. Dewey, 
please ? 

Mr. Dewey. The Brockton Savings Bank and the Penny Savings 
Bank of Boston. 

Mr. Gesell. Now I show you a schedule entitled "Growth of sav- 
ings-bank life insurance in Massachusetts, 1908 and 1938," and ask 
you if that schedule is correct and prepared by the State actuary? 

Mr. Dewey. It is, sir. 

Mr. Gesell. I wish to offer this schedule for the record. 

The Chairman. The schedule may be received. With respect to 
this schedule, Mr. Dewey, I observe that there was a very substantial 
reduction of the amount of annuity premiums in 1938 as compared 
with 1937. 

(The schedule referred to was marked "Exhibit No. 737" and is 
included in the appendix on p. 4816.) 

Mr. Dewey. Yes, sir. 

The Chairman. How is that explained? 

Mr. Dewey. Well, whether it was in part due to people not having 
the money to buy annuities, I don't know, but we have been making 
from time to time in the last several years changes in our amiuity 
premium rates, increasing the premium somewhat, decreasing the 
benefits. Annuities, sir, are dependent almost entirely upon invest- 
ment earnings. You don't have any mortality profit from annuities 
like you do from life insurance policies. Annuitants don't die as fast 
as the table says they will. 

The Chairman. Well, if you will observe, if you will compare the 
figures for 1938 with those for 1936 you will note that the amiuity 
premiums suffered similar substantial decline as compared to '37, 
which I have already pointed out ; whereas the total premium income 
for 1938 was greater than that of 1936. 

Mr. Dewey. Well, this also occurred, sir. The savings banks which 
write these contracts are authorized under the law and have been 
from the start, to write annuity contracts paying $200 a year; that is 
the maximum that any one bank could write. That would make it 
possible when there were 24 banks, if a person bought an annuity 
contract in each bank he could buy as much as $4,800 of income, do 
you see^ in the savings bank system. Now that means quite a lot — 
very few could do that — but that means quite a lot of cash and it was 
felt that that was beyond the average, and that we ought to use our 
facilities not for people who had 20 or 30 or 40 thousand dollars to 
buy an annuity with. Our investment facilities, I mean, for those 
who could buy the smaller amounts. Not that there is anything 
wrong about the people buying the larger amounts, but savings bank 
investment boards have work to do, and they have this investment 
to do, and life-insurance premium income comes in steadily and grad- 
ually and in small amounts, but single premium annuity income 
comes in fairly large bunches, and so the banks agreed that notwith- 
standing that they could write $4,800 of annuity they would restrict 



4456 CONCENTRATION OT' ECONOMIC POWER 

the purchase of annuities to an income of $600. That accounts for 
that sharp drop. The banks will not now write — you can buy as much 
as $50 in any one bank and not more than 12 banks ; so that the total 
income you can buy at this time in savings bank life insurance 
annuities is $600 per. year. 

That was due, as I say, to the difficulty of investment, not the im- 
possibility, but it was a large sum of money to have to invest and we 
felt that our facilities should be used for other things. 

Mr. Gesell. Perhaps you should explain at this time to the com- 
mittee how the savings bank system operates, the different types of 
institutions that are members, the way in which a man must proceed 
to take out a policy, the procedure he must follow in paying for 
that policy. 

Mr. Dewey. Perhaps, Counsel, if you will pardon me, the com- 
mission might be interested to know first what a bank has to do 
before it can write a life-insurance policy. 

Mr. Gesell. Yes ; will you tell us that please ? 

Mr. Dewet. If a bank decides that it would like to become an is- 
suing bank — that is, to write life-insurance policies — it must call a 
special meeting of its board of .incorporators and its board of trustees 
and it must be called only for the purpose of considering the estab- 
lishment of an insurance department. It cannot be done at one of 
the regular- meetings — a special meeting must be called for this pur- 
pose upon 30 days' notice. At such meeting the trustees of the bank 
vote by not less than a three-fourths majority to establish an insur- 
ance department. If they do so vote, then that vote must be ratified 
by the incorporators of the bank, who are a larger body, correspond- 
ing in a general way perhaps to the stockholders, whereas the trustees 
would represent the directors. There is no such thing, but the incor- 
porators are a larger body of 40 or 50 men. They approve the vote 
of the trustees and then the treasurer of the bank must certify under 
oath and the president that these votes have been passed to establish 
the department; that the bank has been provided with a special 
expense guaranty fund oi $5,000 and with a special insurance fund 
of $20,000. 

Mr. Gesell. That makes a total of $25,000. 

Mr. Dewey. Yes. 

Mr, Gesell. May I ask, Mr. Dewey, whether all the savings banks 
incorporated in Massachusetts are eligible for membership in the 
savings-bank life insurance system? 

Mr. Dewey. Yes, sir; any savings bank in Massachusetts is eli- 
gible to become an issuing bank provided the commissioner of banks 
sees no objection. 

Mr. Gesell. He has a veto power, then, over their joining? 

Mr. Dewey. Oh, yes; we wouldn't go ahead encouraging the bank 
before we talked to the commissioner. I mean, we haven"t had any 
trouble, with savings banks, but, for instance, several years ago I 
talked with the commissioner, and said a bank was thinking of com- 
ing in, and he said, "I have told them they can't buy a new broom 
until they get such and such bond situation straightened out. Just 
leave them alone for a jittle while." 

Mr. Gesell. You work in close cooperation, I take it, with the 
commissioner of banks. 



CONCENTRATION OF ECONOMIC POWER 4457 

;Mr. Dewey. Oli, yes; he has legal authority to say the bank may 
not come in, but it has never gone to that point. 

Mr. Gesell. Do I understand that the banks in Massachusetts are 
mutual banks ? 

Mr. Dewey. Purely mutual banks. Those banks began^the first 
one was created about 120 years ago. There is a story about it in 
the Savings Bank Journal last week, and a Mr. Savage started thfe 
Provident Institution for Savings, which is an old one and a very 
line one, although in no way identified with the savings-bank life 
insurance. They are purely mutual. The country I come from out 
in Iowa they don't have mutual savings banks. A lot of the States 
don't have them, but these New England savings banks are very fine 
institutions. They have the best men, businessmen and professional 
men of the community who serve without pay as trustees and incor- 
porators of these banks, and they give their time and thgir thought 
to this purely public thing of making a place where the people can 
deposit their money, have it handled frugally and safely and care- 
fully, and paid such rate of- interest as can be paid, and they are 
really very fine, and they are purely mutual. 

Mr. Gesell. Quite a few other States, some 17 T ^^'^''''^ve, have^saur 
tual banks, do they not? 

Mr. Dewey. Well, there are a limited number in the States outside 
of New England and New York. There is a mutual sayings bank 
in Minneapolis, maybe two. There are three mutual savings banks 
in Ohio. There is a mutual savings bailk in Florida, I think one. 
There are a number in other States, I think perhaps one or more in 
as many as 17 States ; but the great bulk of them are in New England 
and New York. 

Mr. Gesell. Now, you have told us what a bank must do to become 
a member. Let us assume that a bank has applied and qualified; 
what is the next step? 

Mr. Dewey. Let me state first that these papers showing the votes 
have been taken and that the guaranty funds are on hand, are sent 
to the commissioner of banks and the conmiissioner of insurance, and 
they issue a joint declaration that the insurance department is estab' 
lished. Then the commissioner of insurance issues a license and tha 
bank is ready to begin business. Meanwhile, the State actuary has 
prepared the policy forms for the bank in the intervening time and 
they are provided with policy forms, premium rate sheets, and all 
of the things that they will, need to conduct the business. The only 
thing a new bank has to furnish is some kind of a cabinet in which 
they can keep these ^t policy forms, but they start it without any^ 
outlay for equipment for policies or premium rate sheets or similar 
material. 

Mr. Gesell. Now, let me ask whether the bank must contribute to 
any central guaranty fund when it enters into the system ? 

Mr. Dewey. Not now. When the system was established it was 
provided — you see, this thing had to be done on a basis where it not 
only would be absolutely safe and sound but where it would appear 
obviously so to the legislature that was considering it; and so it was 
provided — should I wait until the chairman is through? 

Mr. Gesell. No. 



4458 CONCENTRATION OF ECONOMIC POWER 

Mr. Dewey. And so it was provided not only that the insurance 
to be written shoiild be legal-reserve insurance under the laws of 
Massachusetts, but that there should be a statutory requirement of 
the building up of some surplus in the insurance department. Then, 
in addition to that, -it was provided that 4 percent of all premium 
income of every kind should be paid in to these trustees of the general 
insurance guaranty fund to be held by them and used for the making 
good of tbe impairment of the reserve or for any other purpose for 
which it might be needed by the insurance departments of these 
banks. 

Mr. Gesell. How big a fund was accumulated in that manner ? 

Mr. Dewet. That fund accumulated to something over a hundred 
thousand dollars. The law provided that after that fund — I have 
just said, Senator, in the early days, in addition to legal reserve and 
statutory requirements for surplus in each individual bank, the law 
also provided that 4 percent of all premium income should be paid 
into a special fund called the general insurance guarantee fund, to be 
held by these trustees of whom I spoke earher, and to be used to 
make good any impairment of the reserve in the insurance depart- 
ment of any of these banks from unusual mortality or for any other 
reason such impairment occurs. That fund accumulated to some- 
thing over $100,000. The law also provided that when it became a 
hundred thousand dollars or more, those contributions might be dis- 
continued or reduced. 

Mr. Gesell. So I understand there are no contributions at the 
present time. 

Mr. Dewey. Since that time — that is done with the approval of 
the commissioner of insurance and commissioner of banks. Since 
that time there have been no contributions to that fund. It has 
accumulated to $180,000 or $190,000 by interest accretions and it has 
never been needed. Those contributions could be at any time re- 
sumed if the trustees of the general insurance guaranty fund felt it 
would be desirable. Now, that would be quite a factor; premium 
income being about 5,000,000 a year, that would be quite a factor. 

Mr. Gesell. Do I understand when a bank enters into this system 
then it must set aside a total, I think you said, of $25,000 with which 
to commence operations? 

Mr. Deavey. The bank doesn't set that aside. That money is pro- 
vided to the Joank. Those funds don't come out of bank deposits. Not 
a dollar of the savings department money can be used for the insurance 
department. That $25,000 of guaranty fund is provided to the batik 
by interested individuals. 

Mr. Gesell. Oh, in other words, if the bank decides to go into it, it 
doesn't have to put up any of its capital at all. 

Mr. Dewey. It cannot. It does not put up a penny. 

Mr. Gesell. It is prohibited from doing so. 

Mr. Dewey. Oh, yes; they can't take a dollar out of the savings 
department. 

Mr. Gesell. During the course of operation of the bank after it 
enters into the system, do I understand that segregation is maintained ? 

Mr. Dewey. Oh, yes ; the statute provides for it definitely. One of 
the few places where the language is repeated says that the assets of 
the insurance department may not be taken for the savings depart- 



CONCENTRATION OF ECONOMIC POWER 4459 

ment and the assets of the savings department may not be taken for 
the insurance department, and they shall be kept separate in matters 
of accounting. They are kept entirely separate. 

Mr. Gesell. At the present time what are the expenses, total funds 
expended in the Division of Savings Bank Life Insurance of Massa- 
chusetts ? 

Mr. Dewey. Pardon me, before I answer that may I say that those 
guaranty funds which have been put up in that way have all been 
repaid to the people who put them up, and the law permits them to be 
repaid with mterest at the same rate being paid in the savings de- 
partment, and except for the two banks which came in last November, 
those funds have been returned to those who put them up with interest. 

Mr. Gesell. Now with respect to my question which was. How much 
are the expenses of the division of savings bank life insurance ? Can 
you tell us what the figure is at the present time ? 

Mr. De\\t:y. Well, the appropriation last year was $64,000, 1 think. 

Mr. Gesell. How is that appropriation made ? 

Mr. Dewey. It is made in the regular way. It is a regular part of 
the State budget. It is for the division of savings bank life insurance. 
We have two items in the budget, personal service and other than per- 
sonal. It includes the salary of the State actuary, medical director, 
deputy commissioner, and clerks and employees; and then other than 
personal is other exj^enses of the department, stationery, telephone, 
telegraph. Our budget last year was $64,000. That is appropriated 
whenever the budget is passed. 

Mr. Gesell. Is that fund reimbursed at the present time by the 
banks ? 

Mr. Dewey. On or before December 30 for the State fiscal year 
ending November 30 the entire State appropriation of that year is re- 
paid to the treasury of the Commonwealth by the issuing banks under 
a statute which we caused to be enacted in 1929 called the reim- 
bui-sement statute. That is assessed upon the issuing banks, not an' 
assessment — the statute provided for its allocation by the State actu- 
ary among the issuing banks in proportion to their premium income. 

Mr. Gesell. They in effect reimburse the State for the amount of 
money that it has to appropriate to maintain the division of savings- 
bank life insurance. 

Mr. Dewey, They reimburse it for every penny spent for the di- 
vision, but this interesting thing has occurred. The life-insurance 
people, having first talked about the appropriation which they said 
was a burden to the taxpayers, and they having been deprived of 
that argument by reimbursement having been provided, in the last 
year or two they have begun to say, "Yes, it is all repaid, but you 
have the use of the money for a year without interest," and so we, 
being tractable, reasonably persons, and liking to Jieep the life-in- 
surance people happy if we can without hurting anything, we pro- 
posed a bill in the legislature this year, which is what I spoke about 
before the Ways and Means, just before I came down here, under 
which we are going to provide the Commonwealth with the money in 
advance, so now the Commonwealth will have the money in advance 
for expenditure by the division of savings-bank life insurance. 

Mr. Gesell. I understood. you to say this reimbursement feature 
has been in existence since 1929. 



4460 CONCENTRATION OF ECONOMIC POWER 

Mr. Dewey. Yes, sir. 

Mr. Gesell. Do I understand prior to that time the State was not 
reimbursed for the appropriation which was necessary to maintain 
the division of savings-bank life insurance? 

Mr. Dewey. Not at all. 

Mr. Gesell. What was the total amount of money expended by 
the State from 1908 to 1929 in maintaining that division^ 

Mr. Dewey. About $500,000, a little less than that, $492,000. 

Mr. Gesell. There is no provision for reimbursing the State for 
that expenditure? 

Mr. Dewey. Oh, no; and there won't be any provision for reim- 
bursing. There is no reason why — actually there was no reason for 
reimbursing any of it. The people in the division of State savings- 
bank life insurance are State officers, performing a State function 
just the same as any other State officer. There is no reason why their 
salaries shouldn't be paid as they were by the Commonwealth of 
Massachusetts. The reason we jQnally proposed reimbursement wasn't 
because it wasn't proper for the State to pay State officers. It was 
because the life-insurance men were using the fact that there was a 
State appropriation. They were saying that that accounted for the 
low cost of savings-bank life insurance and that the taxpayers were 
paying for it. Of course, they weren't ; the savings banks, every one 
of them from the day it established its insurance department, every 
one of them has paid the expenses of running the insurance depart- 
ment. The State has never subsidized the insurance department of 
any savings bank. 

Mr. Gesell. Let me see if I understand that. This five hundred- 
odd-thousand-dollar figure has been money expended solely for the 
maintenance of the division of savings-bank life insurance as a 
department of the Massachusetts State government. 

Mr. Dewey. That is all. 

Mr. Gesell. The banks themselves since 1908 have always been 
able to meet their expenses in writing, underwriting, and handling 
insurance. Is that correct? 

Mr. Dewey. They have always paid the expenses of their own 
insurance departments and they have never even used a dollar of 
the special expense guaranty fund. 

Mr. Gesell. It has never had to go to that guaranty fund ? 

Mr. Dewey. Not to either the expense or the guaranty insurance 
fund, neither one. 

Mr. Gesell. Can you tell us a little more about this bank which 
we have been following? 

Mr. Dewey. I would like, if I may, sir, I would like to tell you 
why we put in reimbursement. 

Mr. Gesell. I will come to the question of reimbursement and 
cost in more detail. I would like you to answer my questions. 

Mr. Dewey. All right, the first question. 

Mr. Gesell. The bank which has entered into this system com- 
mences to write insurance after it has been approved. 

Mr. Dewey. Yes, sir. 

Mr. Gesell. What does it do to get insurance on its books? 

Mr, Dewey. Well, there will be some publicity connected with the 
fact that it has opened an insurance department. The local papers 



CONCENTRATION OF ECONOMIC POWER 4461 

will carry a story on it. It is a matter of news. The name of that 
bank will be sent to all of the agencies which there are which 
receive applications. There are 517 or 519 agencies which receive 
applications for savings-bank life insurance. 

Mr. Gesell. On that, in order that we can understand the mecha- 
nism of this system, I show you a schedule entitled "Number and 
Types of Agencies for Savings Bank Life Insurance on June 13, 
1939."^ That purports to show the number of agencies of various 
types per county in Massachusetts ; does it not ? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. It was prepared by the State actuary; was it not? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. Now I notice you have a total of 517 types of agencies 
for savings-bank life insurance. 

Mr. Dewey. Not 517 types, 517 agencies. 

Mr. Gesell. Agencies. 

Mr. Dewey. Yes, sir. 

Mr. Gesell. I notice there are 36^ issuing banks or their branches. 

Mr. Dewey. Twenty-six, oh, j^es; some of the issuing banks have 
branches. 

Mr. Gesell. Thirty-six the schedule states, 36 issuing banks or 
their branches. 

Mr. Dewey. You are correct. 

Mr. Gesell. Those, I take it, are banks which directly issue 
savings-bank policies; is that correct? 

Mr. Dewey. No. 11, Mr. Chairman ; yes, sir. 

Mr. Gesell. You then have a caption on this schedule "Agency 
Banks or Their Branches." What is an agency bank? 

Mr. Dewey. That is a savings bank, usually a savings bank. That 
is a savings bank which doesn't wish to open an insurance depart- 
ment for the purpose of issuing policies, but which does wish to make 
savings-bank life insurance available to the people in its community, 
and so it becomes an agency under a simple agency agreement. It 
becomes an agency for the issuing bank. 

Mr. Gesell. You mean by that if I were in Massachusetts I could 
go to one of these agency banks and take out a policy issued by one 
of the issuing banks? 

Mr. Dewey. Yes, sir ; you could go into the Springfield Five Cent 
Savings Bank, which is an agency, and make your application there. 
They would send the application to the issuing ba.nk or to the State 
House and then to the issuing bank, and the issuing bank sends it to 
them. You could have your savings account /there if you wished, 
pay your premiums and everything else. 

Mr. Gesell. Do the agency banks have any particular affiliation 
with a particular issuing bank? 

Mr. Dewey. No, sir ; the agency banks, each of them, is an agency 
for all of the issuing banks. 

Mr. Gesell. What sort of fee is taken by the agency banks? I 
assume there is some fee. 

Mr. Dewey. Tiiere is a collection fee which is now 3 percent; up 
to 2 years ago, a year ago, it was 2 percent of the premium income. 
That is supposed to take care of the expenses of the agency bank 

» Entered later as "Exhibit No. 738." See appendix, p. 4817. 



4462 CONCENTRATION OP ECONOMIC POWER 

in connection with handling the applications. It is not supposed 
to be a source of profit. 

Mr. Gesell. There is nothing for the application at all ? 

Mr. Dewet. Payment for it? 

Mr. Gesell. No fee? 

Mr. Dewey. Oh, no. 

Mr. Gesell. You have also on this schedule five public agencies. 
What functions do they perform? 

Mr. D-EWEY. "Well, they perform just the same — for instance, the 
Lincoln House, a settlement house in the South End. There is no 
savings bank anywhere near there and I suppose there are a thousand, 
1,500 people in that community whose principal social headquarters 
is that settlement house. 

Mr. Gesell. So that settlement house acts in the same capacity as 
the agency bank? 

Mr. Dewey. Exactly. 

Mr. Gesell. Do they get a fee? 

Mr, Dewey. They do. I don't know whether they take it at the 
Lincoln House, but at least they are entitled to 3 percent collection 
fee. 

Mr. Gesell. I notice there are 267 employer agencies. 

Mr. Dewey. Yes, sir. 

Mr. Gesell. Will you explain what an employer agency is? 

Mr. Dewey. Well, an emploj^er wanting to make savings-bank 
life insurance available to his employees, enters into an agency agree- 
ment much the same as the agency bank agreement. The employer 
agrees that he will receive applications for savings-bank life insur- 
ance and send them to the bank where the policies may be issued; 
that he will receive premium payme^its. He doesn't agree in the 
agency agreement to make weekly pay-roll deductions, but prac- 
tically all of the employers do; so that I could go in, if I worked 
for the United Shoe Machinery Co., General Electric Co., in Lynn, or 
Pittsfield, the Plymouth Cordage, or any of those places, I could 
go into tlie office, the paymaster or treasurer's office and say, "I want 
to take some savings-bank insurance." They have the application 
there. I fill out the application. The examination is made by one 
of our examiners, sometimes the plant doctor. In a large plant 
frequently the plant doctor might be one of our examiners in the 
community. The employer sends the application to the bank. , They 
send it back to the employer when the policy is is^ied and he delivers 
it to the employee. 

Mr. Gesell. That sounds much to me like group life insurance. 

Mr, Dewey. That has the advantages — not all the advantages — but 
it would have the advantage of giving most of the people in the plant 
an opportunity for coverage that will be at low cost, but it has ad- 
vantages over group. It is in my opinion a much better thing than 
group insurance. 

Mr. Gesell. I suppose you have in mind that if a person takes out 
insurance through an employer agency of this kind he may take 
that policy with him if he changes his etnployment? 

Mr. Dewey. Yes; that is one very great advantage; it is his policy; 
he can keep paying the premiums ; of course, if he is insured under 
a group policy he can convert that into an individual policy when he 
leaves the employment, but that privilege isn't much value because 



CONCENTRATION OF ECONOMIC POWER 4463 

he has to convert it into a higher-priced policy. This is his own 
policy and he keeps on with it — excuse me, it doesn't make it neces- 
sary for him to stay on that particular job to keep his insurance. 

Mr. Gesell. Now I notice you have headed here too, credit unions, 
50 credit unions. They act in the same way, do they ? 

Mr. Dewet. Exactly the same way.' Credit unions, I should say, 
Mr. Chairman, I don't know how widely they are spread throughout 
the country, but we have a lot of credit unions in Massachusetts and 
they are very fine institutions ; they are conducted under the banking 
department and they lend money on the security of three, usually 
three, comakers, and they have grown a great deal. I happen to be 
the director of a small one of State employees, with their assets two or 
three hundred thousand dollars ; they have been conducted very, very 
well under the supervision of the commissioner of banks, and they 
serve a great purpose and those credit unions — they act as agencies 
for savings-bank life insurance in the same way that employers do, 
and they receive the same collection fee. 

Mr. Gesell. I wish to offer this schedule entitled "Number and 
Types of Agencies for Savings Bank Life Insurance on June 13, 
1939," for the record. 

The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 738" and is 
included in the appendix on p. 4817.) 

Mr. De"v\'et. May I say, Mr. Chairman, that it is incorrectly said 
that the savings-bank life-insurance law made it unlawful for the 
savings banks to employ agents. It didn't at all. This shows you 
that we have provided opportunities, agencies for savings-bank life 
insurance. 

Mr. Gesell. Now let me see, Mr. Dewey. Is there anything, any 
such thing in savings-bank life insurance as the reqular life-insurance 
agent, as the term is familiarly known ? 

Mr. Dewey. What the law forbids the bank to do is to employ 
solicitors, doesn't forbid them having agents, though. 

Mr. Gesell. They may make connections with organizations of 
the type represented on this schedule^ which has just gone into the 
record, but they may not employ soliciting agents ? 

Mr. Dewey. That is it. 

Mr. Gesell. There are, however, are there not, employed by the 
banks persons known as instructors? 

Mr. Dewey. Field instructors; two. 

Mr. Gesell. Now what is the function of those field instructors? 
What do they do ? How do they operate ? 

Mr. Dewey. They go to factories and lecture to the workers and 
explain savings-bank life insurance to them; the detail of how they 
operate in particular factories depends somewhat upon the factory 
conditions. If it is a small factory with a couple hundred workers, 
the workers will probably be given half-hour or an hour on pay to 
come together and they will all come together, and the instructor 
will explain savings-bank life insurance. If it is a large factory 
with several thousand and a lot of different rooms and departments, 
the foreman will call them together, perhaps of one department at a 
time for a half hour or so, and it is explained to them. 

Mr. Gesell. Now who employs these instructors? 



4464 CONCENTRATION OF ECONOMIC POWER 

Mr. Dewey. They are State employees; they are ajDpointed under 
the classified civil service, field instructors in the division of savings- 
bank life insurance; there are only two. 

Mr, Gesell. They are then connected with the division of savings- 
bank life insurance? 

Mr. Dewey. Oh, indeed, they are employees in the division. 

Mr. Gesell. Their expenses are included in this? 

Mr. Dewey. Reimbursement. 

Mr. Gesell. This appropriation which is reimbursed? 

Mr. Dewey. Oh, yes. 

Mr. Gesell. Do they work for any particular bank or attempt 
to sell policies in any particular bank ? 

Mr. Dewey. Oh, no, indeed; not employed by the banks at all. 

Mr. Gesell. Do they get any commission if they succeed in get- 
ting business for the banks ? 

Mr. Dewey. Their compensation is fixed by statute under the laws 
of Massachusetts and does not depend in any way upon the amount 
of business that is dii*ectly or indirectly attributable to their work — 
has nothing to do with it whatsoever. As a matter of fact, one 
instructor today is working in Fall River. There hasn't been any 
instruction work done in Fall River for 15 or 20 years. 

Mr. Gesell. And do I understand 

Mr. Dewey (interposing). Excuse me. And he came up to me on 
Friday and said, "Mr. Dewey, there won't be any insurance written 
as a result, immediate result, of my work in Fall River." I said, 
''That is all right; you keep right on." He is going to be there for 
3 or 4 weeks, just lecturing in these factories; they don't know any- 
thing about this thing, or much about it. 

Mr. Gesell. I take it these instructors don't take applications 
themselves at all? 

Mr. Dewey. They would help you fill out your application; they 
wouldn't take the application, but they wJU help you fill it out; 
yes, sir. You see in each case where they do instruction work the 
employer has become an agency; the application would be ^iven to 
the employer's office and sent in ; the instructor doesn't take it at all. 

Mr. Gesell. Do the banks advertise? 

Mr. Devtey. Yes, sir. 

Mr. Gesell. In what manner do they advertise? 

Mr. Dewey. Well, they advertise in a variety of ways. All savings 
banks in Massachusetts are permitted by the commissioner— banks in 
the last 20 years, anyway — to do some newspaper advertising. You 
see, savings bank or bank advertising is not particularly striking. It 
says the name of the bank and the amount of the dividend being paid, 
and those banks which are agencies for savings-bank life insurance 
or issuing banks put into their regular advertisement, "We are an 
agency for savings-bank life insurance." The issuing banks and some 
of the agency banks publish advertisements which relate only to 
savings-bank life insurance. 

Mr. Gesell. Is it true that some of the banks place literature in 
passbooks and leave it around in leaflet form for people to pick up 
and look at? 

Mr. Dewey. Oh, yes; and they have, for instance, just now they 
have a new thing just going out; a slip ^bout this size [indicating] 



CONCENTRATION OF ECONOMIC POWER 4465 

that goes in every letter written, every mortgage interest notice; 
every communication to a depositor will contain that little slip which 
says : 

Savings-bank life insurance is available at this banlc ; inquire about it if you 
are interested. 

Mr. Gesell. What about radio advertising? 

Mr. Dewey. For the last 2 years and a half, I think, radio adver- 
tising has been conducted — it is now conducted by a group represent- 
ing the issuing banks. That is all paid for by the issuing banks ; cost 
about. Oh, $10,000 for the radio advertising last year, I should say. 
That is not very much. 

Mr. Gesell. Now may I ask if you recognize this schedule which 
I show ^ou, entitled "Savings Bank Life Insurance," showing num- 
ber of persons insured for the several stated amounts? 

The Chairman. Before that is put in, may I ask Mr. Dewey why 
it was decided to prohibit solicitation? 

Mr. Dewey. Because, Mr. Chairman, that is, firstly, the largest 
single item of expense in providing life insurance by the companies ; 
the largest single item of expense is commissions to agents, and you 
can never provide life insurance to people at what life-insurance pro- 
tection needs to cost if you are going to pay 40 and 50 percent of 
the first premium to somebody for selling the policy. Every policy, 
practically every policy, I think every new policy, sold by the life- 
insurance companies today is sold actually at a loss to the existing 
policyholders. So much is paid out for agents' commissions, acquisi- 
tion costs, that they have to borrow from their surplus to set up 
legally required reserve on that new policy, and they don't get even 
unless that policyholder stays in for 3 or 4 years. 

The acquisition cost, the commissions to agents firstly, that ifem of 
cost. Then the commissions are so high and there are so many agents 
working for them that the agents themselves are bound to feel under 
a good deal of pressure to sell policies, and the result is the selling 
of policies to people frequently who don't want to buy policies; buy 
them under pressure, with a large resulting termination, lapses of 
those policies. That is expensive. That costs money, and it all has 
to be paid for by the policyholders. 

The Chairman. Yet it is probable, is it not, that many persons are 
insured today who ought to be insured, and who are able to carry 
the insurance, but who never would have been insured had they not 
been solicited? 

Mr. Dewey. I have no doubt there are such cases ; perhaps a great 
many. There is no way of determining, but, I think, sir, that it is 
fair to say tliis, that the contention that is put forward without any 
qualifications and justification, of the high-cost agency system is that 
people won't buy insurance that has to be sold to them. Now, that 
statement is not true, and it is not capable of being proven ; it is true 
ther6 is more life insurance in force in America than European coun- 
tries, but there are more bathtubs, more radios, lots of things, here ; 
people are better able to buy them. We don't know that people won't 
buy. The records indicate that they are buying it in savings banks, 
life insurance in Massachusetts, and they keep it when they buy it. 

The Chairman. I gather from glancing over these exhibits that 
perhaps you intend to go into that subject ? 



4466 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. I do, Senator, in more detail, when we get to the 
questions of cost and mortality experience, and some of those other 
matters. Now, Mr. Dewey, I have asked you if yoli recognize a 
schedule entitled "Savings Bank Life Insurance," showing number 
of persons insured for several stated amounts? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. That schedule I wish to offer for the record at the 
present time. 

The Chairman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 739" and is 
included in the appendix on p. 4817.) 

Mr. Gesell, How many policyholders does this schedule show 
that your institution has, Mr. Dewey ? 

Mr. Dewey. I am not sure. Counsel, that I have a copy of that. 

Mr. Gesell. It shows 82,221 policies-, does it not ? 

Mr. Dewey. No, sir; 82,221 policyholders. 

Mr. Gesell, Policyholders? 

Mr. Dewey. That is the number of persons, this schedule here; 
that is the number of persons ; it isn't in there, Mr. Chairman ; this 
is the only one we have. This is the tabulation of the number of 
persons who were insured in savings-bank life insurance on indi- 
vidual policies on August 31, 1938. 

Mr. Gesell. In other words, at that time you had 82,221 persons 
insured in the system? 

Mr. Dewey. On individual policies^ that is excluding group. 

Mr. Gesell. Now, of those persons insured what percentage had 
policies of $500 or less ? 

Mr. Dewey. 26.79 percent. 

Mr. Gesell. What percent had policies of $1,000 or less? 

Mr. Dewey. 76,41 percent. 

Mr. Gesell. And what percent had policies of $2,500 or less? 

Mr. Dewey. 86.56 percent. 

Mr. Gesell, Now, I notice that there are some persons who have 
policies as high as $24,000, There were 73 such persons, were there 
not? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. What is the total amount of insurance that any one 
bank may issue ? 

Mr. Dewey. $1,000. 

Mr. Gesell, On a single person? I take it these 73 people who 
had policies of $24,000 apiece were persons who had gone around to 
each of these banks and taken out $1,000 ? 

Mr, Dewey. They hadn't gone around, but they had taken out 
$1,000 policy in each bank;- they can do it all in one bank. 

Mr. Gesell. YoU; mean it is possible to go to a single bank and 
take out any amount of insurance up to an amount equal to $1,000 
for each issuing bank ? 

Mr, Dewey. Yes,. sir; it was at that time. 

Mr. Gesell. Those applications can all be written at a single 
bank? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. And the mechanics of distributing it among the 
other banks is handled by the bank itself ? 

Mr. Dewey, Yes, sir. 



CONCENTRATION OF ECONOMIC POWER 4467 

Mr. Gesell. What is the maximum that anyone can take out at 
the present time ? 

Mr. Dewey. At the present time the maximum is $25,000. There are 
26 banks issuing policies, but we don't allow anybody to buy $26,000. 

JNIr. Geseix. I notice that the maximum persons taking out $24,000 
were .09 percent of the total? 

Mr. Dew^ey. Yes, sir. 

Mr. Gesell. The great bulk of your policies are 76.41 percent, or 
$1,000, or less, are they not? 

Mr. Dewey. YeSj sir. 

Mr. Gesell. I wish to offer this schedule for the record. 

Mr. Dewey. Now, let me say that those $500 or less include a great 
many $250 policies, some 150's and lOO's, but it was a matter of con- 
siderable expense to break those down below $500; we broke those 
down $500 or less, representing 26 percent. 

Mr. Gesell. You have, then, a considerable percentage that are 
below $500? 

Mr. Dewey. Of those less than $500, the great majority are $250; 
that is what we recommend people to buy on a child. 

Mr. Gesell. Now I show you a schedule entitled "Amount of New 
Insurance Written and Insurance Terminated in Massachusetts Dur- 
ing the Year 1938." 

Mr. Dewey. That schedule is in the exhibits, I think, isn't it? 

Mr. Gesell. Was that schedule prepared by your organization? 

Mr. Dewey. Prepared by the State actuary. 

Mr. Gesell. I wish to offer the schedule for the record. 

The Chairman. It may be received. 

(The schedule referred to was marked "Exhibit No. 740" and is 
included in the appendix on p. 4818.) 

Mr. Gesell. Will you state, Mr. Dewey, what that schedule shows? 

Mr. Dewey. Well, it shows first an illustration, Mr. Chairman, of 
what I said in response to your question regarding the prohibiting of 
solicitors on commission. There is the experience in Massachusetts 
in the year 1938. That word "ordinary" up there means to distinguish 
it from industrial ; this is ordinary level yearly premium. 

The Chairman. What number is this ? 

Mr. Dewey. It is that one before you now. That shows that in 
that year 1938 the 46 companies which write life insurance in Massa- 
chusetts, with the savings banks, issued, sold, and issued a total of 
$293,000,000 new insurance in that year ; that is the first column. The 
next column shows terminations, 258,000,000 terminated during the 
same year; and the next column shows the net gain in insurance in 
force. 

The Chairman. The column on terminations includes all types? 

Mr. Dewey. All types of terminations — death, surrender, lapse, 
everything — but that is the insurance that terminated. Now, the net 
gain for the year was $35,000,000. The new issues were 293,000,000. 
Now, the commissions on that 293,000,000 — if you look in the right- 
hand column you will see that the gain in savings-bank life insurance 
that year was nearly 16,000,000 ; the total gain for all 47 institutions 
was only 35,000,000. 

Mr. Gesell. So it is correct to say that no company gained as much 
insurance in force in Massachusetts in 1938 as did the savings banks? 

124491 — 40 — pt. 10 22 



4468 CONCENTRATION OF ECONOMIC POWER 

Mr. Devtet. Nobody gained as much; four companies wrote more, 
but nobody gained as much as the savings banks did. 

Mr. Gesell. What percentage did the savings banks account for of 
the new issues ? 

Mr. Dewey. They accounted for only 6.8 percent of the new issues. 

Mr. GeselIj. And what percent did the savings banks account for 
of the total increase in insurance in force ? 

Mr. Dewey. More than 45 percent of the total increase in insurance 
in force was in the savings oanks. Now, I was going to say, Mr. 
Chairman, you will notice that the gain then in the 46 companies, the 
total for the 47, was only 35 million. The gain of the savings banks 
was nearly 16 million : so that the total gained by those 46 companies 
was only about 20 million. Well, they paid about that much agents' 
conmiissions to sell that 293 million. 

Mr. Gesell. Now going 

Mr. Dewey (interposing). What other business could do that? 

Mr. Gesell. Going on with this matter, Mr. Dewey. Will you tell 
us how the lapse experience of savings banks life insurance compares 
with the lapse experience of the companies writing business in 
Massachusetts ? 

Mr. Dewey. Of course, the lapse ratio in savings bank life insurance 
has consistently been very much lower. 

Mr. Gesell. Have you any figures which compare the percentage 
of policies lapsed to the percentage of policies issued for the savings- 
bank life insurance banks as compared with the companies doing 
business in the State ? 

Mr. Dewey. Yes, sir., 

Mr. Gesell. Can you give us some idea of what that comparison 
shows ? Let's say for the period from 1927 to 1937. 

Mr. Dewey. Let me say first that our insurance commissioner's re- 
port in Massachusetts is not available for the years since 1936 ; the '36 
report is just out now. Let me say that is not at all the fault of the 
insurance department. Our annual report — this is not my depart- 
ment; this is another department — the report is audited, the figures 
from the companies, their annual statements are audited by the depart- 
ment of insurance before they go into the annual report; that means 
that the annual report of our commissioner of insurance comes out 
about a year after the year is terminated. 

Mr. Gesell. What you are saying is that your figures are based 
upon the annual reports and the annual reports aren't available since 
1937? 

Mr. Dewey. 1936. 

Mr. Gesell. Then, will you give us the figures for the period prior 
to 1936? 

Mr. Dewey. We will take 1927. The lapse ratio in industrial com- 
panies was 58 percent ; in the ordinary companies, the ordinarj^ busi- 
ness, you understand, Mr. Chairman, the distinction between indus- 
trial insurance, weekly premium insurance, and the so-called annual 
or annual. 

The Chairman. Yes ; that is understood. 

Mr. Dewey. I am sorry if I assumed too much. In the ordinary 
the lapse ratio was 24 percent, in the savings banks it was 93 hun- 
dredths of 1 percent. 



CONCENTRATION OF ECONOMIC POWER 4469 

Mr. Gesell. Now, I take it when you say lapse ratio you mean 
the relationship between the percentage of policies lapsed to the 
policies issued during the year? 

Mr. Dewey. That is the basis used. 

Mr. Gesell. Those are figures used by the commissioner of insur- 
ance in the State of Massachusetts ? 

Mr. Dewey. Yes, sir; that is one method of termination, lapse. 

Mr. Gesell. How do those figures reflect these for subsequent years ? 

Mr. Dewey. Well, in 1930 the lapse ratio in the industrial busi- 
ness was 74.91 percent. In the ordinary business it was 32 percent; 
in the savings banks it was 1.2 percent. In 1932 the lapse ratio 
on the industrial was 107 percent. They lapsed more than they 
wrote that year. The laps© ratio for the ordinary was 42, and the 
lapse ratio for savings banks was 2.63. 

In 1936 the lapse ratio in the industrial was 34.52 and the ordi- 
nary 29.9, and in the savings banks 1.25 percent. 

Mr. Gesell. Now, may I ask you this: Is there any reason — is 
one of the reasons why the lapse ratio of the savings bank life insur- 
ance reflects itself better than these other companies the fact that it 
pays surrender values at a much earlier period than the ordinary 
companies do ? 

Mr. Dewey. Yes, sir ; that does help account in part for it. 

Mr. Gesell. How long must I have a policy in force in savings bank 
life insurance before I have a surrender value? 

Mr. Dewey. Every policy issued by the sav^r.gs banks has a cash 
surrender value of the full legal reserve, without any surrender charge 
after 6 months' premiums have been paid. 

Mr. Gesell. Is that written into the statute? 

Mr. Dewey. That is required by the statute, but in addition to the 
requirement of statute, when we were getting out new policy forms 
November 1, the State actuary said to me, "We don't have to wait 
6 months to give a surrender value; we can give a surrender value 
any time after the policy is issued." It wouldn't be quite fair to give 
the full legal reserve immediately after the policy is issued, because the 
medical fee for writing that policy is $2 for examining the applicant, 
and we could have done it all right, but it would have meant that 
these applicants who dropped out within a month were getting a 
little something that somebody else paid for, so we make a surrender 
charge of $2 if you surrender the policy within 6 months ; that is, it 
begins with $2. 

Mr. Gesell. And after 6 months you get the full reserve? 

Mr. Dewey. Full reserve; but you have a surrender value at any 
time after the policy is issued if the reserve is more than $2. 

Mr. Gesell. Now, how does that compare with the companies 
operating in Massachusetts ? What is the usual period within which 
a policy must be in force before some surrender value accrues to 
the policyholder? 

Mr. Dewey. Well, the laws of Massachusetts, and I think New 
York, other States, require that the standard ordinary form — stat- 
utes in those States, in Massachusetts and the other States, ha,ve what 
we call, not irreverently, the "ten commandments," 10 things that 
must be in the standard form ; one thing is a loan value land a cash 
surrender value after 3 years' premiums have been paid. 



4470 CONCENTRATION OF ECONOMIC POWER 

Mr. Gesell. So that is the customary procedure in the companies? 

Mr. Dewey. That is the requirement but I think quite a number 
of the companies are now giving a cash surrender value after 2 years, 
some of the better ordinary companies, but let me say that that 
surrender value is subject to a substantial surrender charge. 

Mr. Gesell. You mean that the companies do not give the entire 
legal reserve? 

Mr. Dewey. They give — it says in the books "full reserve allowed, 
minus surrender charge," for instance. 

Mr. Gesell. For what period do the companies make a surrender 
charge, generally speaking? Is it around 10 to 20 years? 

Mr. Dewey= Well, I should say, in fairness to those companies 
which are doing better on that thing, that it ought to be looked 
up and ought not to be taken as a general observation. Some of 
them are now giving or discontinuing surrender charges within, oh, 
early years. The .Metropolitan in their ordinary department, their 
surrender charge is 2i/2 percent of the face of the policy, disappear- 
ing at the end of 20 years. Now quite a number of them have the 
surrender charge disappear earlier than that, but you could see how 
that would affect what the person would get back. Suppose the 
reserve at the end of 3 years is $33 on the Metropolitan policy. You 
get that full legal reserve minus surrender charge, 21/2 percent of 
the face of the policy. Now 2^^ percent sound small, but 21/2 percent 
of $1,000 face of a policj^ is $25, so that if you had that $33 reserve 
on that Metropolitan policy you would get $33 minus 25 ; you would 
get $8. If you had it on a savings-bank life insurance policy the 
reserve would be just the same. We are all on the same reserve 
basis, but you would get the $33, not minus $25. You would get $33 
instead of $8. 

Mr. Ballinger. Is the reason your policies have an immediate 
surrender value attributable principally to the fact that you don't 
pay any agents' commissions? 

Mr. Dewey. Yes^ sir ; and we have that money. 

Mr. Gesell. The only expense you have to make allowance for 
is this $2 medical expense, is it not, and as soon as the reserve is 
sufficient to take care of that you pay the full reserve back when 
the policy is surrendered ? 

Mr. Dewey. Of course, there is a little expense. There is the print- 
ing of a nice policy form and some few things of that type, but the 
principal item is the $2 medical fee, and we make enough profit on 
them to get that $2 back in 6 months. 

Mr. Ballinger. In previous testimony the^^ have emphasized the 
considerable cost in setting up this reserve against each policy. That 
also was one of the reasons they had to advance the time for surrender 
value. 

Mr. Dewey. There is no expense about setting up the reserve. The 
table tells what the reserve is. There is no expense about setting it up 
at all. It just is automatically there. The insurance commissioner 
makes you put it up as a bookkeeping liability ; that is all. 

Mr. Gesell. I show you a schedule entitled "Kelative proportions 
of amounts of insurance terminated by lapse and surrender in Massa- 
chusetts savings banks and in Massachusetts insurance companies, 
1911-38." Do you recognize that schedule as a schedule prepared by 



CONCENTRATION OF ECONOMIC POWER 4:471 

the actuary of the savings-bank life-insurance division of Massa- 
chusetts? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. Am I correct in stating that this schedule shows as 100 
percent the total lapses and surrenders of the companies and has di- 
vided that amount of termination by allocating what percentage went 
to lapse, what percentage went to surrender? 

Mr. Dewet. Yes, sir. 

Mr. Gesell. I wish to offer the schedule for the record. 

The Chaikman. The schedule may be received. 

(The schedule referred to was marked "Exhibit No. 741" and is 
included in the appendix on p. 4819.) 

Mr. Gesell. Have you any comments to make on that schedule ? 

Mr. Dewey. Just that I think it is perhaps significant of the differ- 
ent treatment that the policyholders get. In the industrial business of 
100 terminations, 64 of them are lapses. You understand, gentlemen, a 
lapse is a forfeiture. A lapse doesn't mean just a policy where you 
have stopped paying premiums. It is frequently used that way some- 
what loosely, but in the report of the insurance commissioner and in 
insurance circles a lapse is a policy where you have discontinued paying 
premiums before you could get back any cash or any paid-up or 
extended insurance. It is a forfeiture, except for such protection as 
you had up to that time. 

The Chairman. Lapse does not include surrenders ? 

Mr. Dewey. No ; lapse means where you stop paying before you can 
get anything. 

To finish answering your question, in the industrial companies in 
1937 of 100 terminations of these 2 classes 64 were lapses and only 36 
were surrenders ; on the surrenders they got something back. In the 
ordinary business, the nice business, 54 out of 100 were lapses and 46 
were surrenders, a little better than the industrial, you see. The 
ordinary policyholder gets treated better than the industrial all the 
way around. 

Then in savings-bank life insurance, out of 100 terminations only 
10 were lapses and 90 were surrenders. Those lapses don't occur with 
us at all, because if you pay a 1-month premium and then discontinue, 
then the policy is a lapse, but if you keep on for 6 months it can't 
become a lapse. You get something back when you quit. 

The Chairman. In other words, whenever the reserve is more than 
$2 there is no lapse. 

Mr. Dewey. There can't be a lapse there; no, sir; after 6 months 
there can be no lapse. There can be no forfeiture after 6 months. 

Mr. Gesell. What about your policy terms; are they just the same 
as the old-line companies, or are they more strict or more liberal? 

Mr. Dewey. They contain, they have to contain under the law all 
of the things required by statute for standard ordinary-form legal- 
reserve policies, but in certain particulars, particularly in those 
which we have just discussed, they are more liberal. The law re- 
quires a 3-year cash value and we give one in 6 months; the law 
requires a 3-year loan value and we give one in a year, and we give 
these without any surrender charges. Those are the particular pro- 
visions in which the policy is more liberal than the standard ordinary 
form. 



4472 CONCENTRATION OF ECONOMIC POWER 

The Chairman. Mr. Gesell, I assume you have gathered a com- 
plete file of all these various forms, have you not ? 

Mr. Gesell. Yes; we have. I didn't want to burden you with 
that. 

The Chmrman. I .wanted to be sure they are available. 

Mr. Gesell. They are available to the committee. 

Mr. Dewey, to get me straight on one thing, these savings banks 
write participating insurance, do they not? 

Mr. Dewey. Only. 

Mr. .Gesell. There is no nonparticipating insurance ? 

Mr. Dewey. No. Under the law of Massachusetts you are not sup- 
posed to write both participating and nonparticipating. I notice 
some of them are doing it a little bit. This is a mutual undertaking 
and writes only participating insurance. 

Mr. Geseijl. What about policy loans? Can a man who has a 
policy in a savings bank borrow? 

Mr. Dewey. He can borrow the full legal reserve without any sur- 
render charge being deducted from it, and we have al\^ays loaned at 
5 percent, that was until recent years. The practice of the companies 
was to loan at 6 and we have always loaned at 5. Until recent years 
.5 percent was about what the policyholder's money would earn. If 
interest rates continue down as they are, we will make a further re- 
duction in policy loan interest rates. 

Mr. Gesell. May I ask how the mortality experience of the savings 
banks has compared with the mortality experience of other companies 
operating in the State of Massachusetts? 

Mr. Dewtiy. By those operating in Massachusetts, you mean not 
their Massachusetts business but their business all over America? 

Mr. Gesell. Yes. 

Mr. Dewey. Well, the mortality experience in the savings banks 
has been very much more favorable than the experience of the com- 
panies over this entire period of 30 years since the system was estab- 
lished. 

Mr. Gesell. Is the difference between the experience of the com- 
panies writing ordinary insurance and the companies writing indus- 
trial insurance, savings-bank life insurance, demonstrated on this 
schedule eiltitled "Mortality Experience of Massachusetts Savings 
Bank Life Insurance Compared With Life Insurance Companies"? 

Mr. Dewey. Yes, sir; that was prepared by the State actuary. 

Mr. Gesell. It is correct, then? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. This schedule shows that in 1910, for example, the 
ratio of actual to expected mortality for the savings banks was 30.84 
percent ; for the ordinary insurance companies, 70.63 percent ; and for 
the industrial companies, 104.49. Is that right? 

Mr. Dewey. Yes, sir. 

Mr. Gesell. Have you any comments which you wish to make on 
this schedule? 

Mr.