Life Assurance In India

THE BOOK WAS
DRENCHED

1 64646

LIFE ASSURANCE

IN INDIA

By
P. A. S. MANI

WITH A FOREWORD BY

L. S. VAIDYANATHAN, M.A., F.I.A., J.P.

Manager, The Oriental Government Security
Life Assurance Co. Ltd., Bombay.

President, Actuarial Society of India.
President, The Indian Life Assurance Offices Association (1950-51)

" The direct contribution of insurance to civilization is made ... in the
intangible and immeasurable forces of character on which civilization is
founded,"

THE ENCYCLOPEDIA BRITANNICA

BOMBAY

HINDUSTAN ADVERTISERS
1950

FIRST PUBLISHED, DECEMBER, 1950.

All Rights Reserved.

This book, or paits thereof, may not be reproduced in tiny fotrn, 01
translated, without the pcnnisuon of the author

Printed by K. N. Pillay at Western Printers and Publishers, 15 and 23,

Hamam Street, Fort, Bombay, and published by P. A. S? Mani, Hindustan

Advertiseis, 138, Bansilal Motilal Building., Opera House Tram Terminus,

Bombay 4,

FOREWORD

The day when intuition and unsupported assumption were the
chief bases of business judgment and administration is long past.
Modern business, following the tradition established by Physical
Sciences, is conducted by analysis and study on scientific lines of
the facts of the past drawing lessons from previous errors and
making the advancement achieved in the past progress by success-
ive stages. That the author of this book has amply succeeded in
the twin object of providing the facts of the past for us to draw
lessons from and serving as a guide for the future will be evident
to any one that carefully studies its pages. There arc in the' field
several books on Life Insurance written by distinguished authors
but Mr. Mani's message to the community vitally interested in
the protection given by Life Insurance and to those associated
with its functions as a vital factor in our economy of production
of Insurance, its management and the ultimate distribution of
the benefits conferred by Insurance can best be given only by
a book written with an essentially Indian background. In that
respect the book docs supply a want. The author takes us through
phases of Insurance history in this country and others and the
development of Insurance is traced with logical sequence as the
natural resultant of economic development. The author also has
attained a large measure of success in explaining technical
matters, short of quoting formulae, in simple and at the same time
telling language. I can confidently ^recommend the book to one
and all interested in the study of Life Insurance in all capacities.

Oriental Buildings,

Bombay. *" <^ j~ ?^_

jth December, 1950.

In preparation

FIRE INSURANCE IN INDIA
P. A. S. MANI and CHANDULAL C. KAJI, B.COM,, A.C.I.I. (LOND.).

PREFACE

Since this book was in the press, the Insurance (Amendment)
1950 has come into force. And with that life insurance
enters a critical phase of its onward march. At this juncture,
therefore, it is but right to review the past in its proper setting,
to comprehend the general principles that should govern this
noble profession and to plan the future in the light of the past,
keeping to the path of equity and sound practice. Life Assurance
in India is an attempt at a review of the past and an exposition
of the principles and practices of sound life insurance to serve
as a guide to the future.

To the professional insuranceman, Life Assurance in India is
aimed at providing a proper background to his profession; to
the unprofessional general reader, a popular introduction to the
subject. The book is written to be intelligible to those who have
had no previous study of insurance; for that reason, very few tech-
nical terms have been employed, and when such terms were
unavoidable, they have been clearly denned when they first occur.

Life Assurance in India is the culmination of five years of intense
study of the problems that beset insurancemen. Those problems
were very complex and have been further complicated by political
and economic developments. That insurancemen themselves are
keenly alive to the problems and are anxious to find just solu-
tions to them is amply evident from the periodical pronouncements
of responsible insurancemen. Problems such as mortality investi-
gation, substandard insurance, reinsurance and the like call for
concerted action, whilst the development of group insurance,
extension of insurance to rural districts, limitation of expenses and
lapsation (which incidentally is essentially intertwined with indi-
vidual sales organisations and sales policies) may be the concern
of individual offices. To cite only one instance, " the remedy for
lapsation," said Mr. A. D. Shroff at the Annual General Meeting
of the New India, " lies with each of the parties concerned,
namely, the insurer, the agent and the insured, though the res-
ponsibility for taking the necessary initiative and maintaining the
drive towards the elimination of all avoidable lapsation lies with
the insurers. We have to educate the insured . . ." and if Life
Assurance in India can help towards such education and be of
service to the life insurance companies and to the insuring public,
my efforts will be amply rewarded.

vi PREFACE

The immediate need of India is wealth; the immediate problem
poverty. I offer this book to the public in the profound hope
that it would help to combat poverty at its source, and to banish
it from posterity. A companion volume on Fire, Insurance is
under preparation and will be published during the coining year.

The material for this book has been collected from several
sources. I am deeply indebted to the great works ol the dis-
tinguished authors whose list is appended to this book, and more
especially to the technical papers submitted to the Institute of
Actuaries. The factual data have been compiled from the various
statistical information of the Government of India and from other
authoritative sources, and checked as far as possible.

The book would not have taken the, shape it has, but for the
valuable co-operation and encouragement I received from a host
of friends, both in the insurance business and outside. I am deeply
thankful for then solicitude. I am particularly indebted to four
people two qualified actuaries, a student of actuarial science and
a statistician for valuable, suggestions and help. One of the
actuaries, especially, placed his entire spare time and immense
knowledge at my disposal, at great personal inconvenience, I am
sure, to go through the manuscript, read through much of the
proof } check up all the actuarial data and offer his own sugges-
tions. To him I owe a debt of gratitude.

I am further grateful to Mr. L. S. Vaidyaiiathan, M.A., F.I.A.,
J.P., who, in the midst ot his multifarious activities, readily con-
sented to go through the book and has contributed a very
valuable Foreword. I am also .thankful to the management of
the Oriental in giving me permission to reproduce their Mortality
Table and other data contained in their Mortality Investigations.

Bombay, P. A. S. MANI.

8th December, 1950.

CONTENTS

FOREWORD iii

PREFACE v

PART I
HOW INSURANCE WORKS

CHAP. PAGE

I THROUGH THE AGES i

Indus Valley Entry of Aryans Village Co-opera-
tives, Craft Guilds, Insurance, among Aryans
Charities Origin of Marine Insurance First Policy
Craft Guilds and Economic Developments in Eng-
land Chaitcred Companies Gambling Act Life
Insurance in America.

II FUNDAMENTALS 17

Mutual Aid Mortality Rates Yearly Increasing
Piemiums Assessment Plan Level Premiums -
Reserves and Interest Net Single Premium Calcu-
lations Level Premium vs. Yearly Increasing rate.

III TYPES OF INSURANCE COMPANIES . . 32

Mutual Offices and Co-opei alive Societies Pro-
prietary CompariK s -Organisation^ Capital Struc-
ture Registration Preliminary Expenses -Prelimi-
nary Operation Mutualisation Control Organisa-
tion in America and England.

IV TYPES OF INSURANCE CONTRACTS . . 41

Participating and Non-participa.ting Policies and
Relative Advantages Whole Life Special Whole
Life Limited Payment Whole Life Single Pre-
mium Whole Life Endowment Assurance Invest-
ment Element in Assurance Term Assurance Con-
vertible Term Decreasing Term Immediate An-
nuities Joint Life Annuities Deferred Annuities
Reversionary Annuities Annuities us. Life Assur-
ance.

V MISCELLANEOUS INSURANCES AND

ANNUITIES .. .. ., .. 57

Reduced early premium policies- Family Income
policies Annuity settlements- Pure endowments
Double endowments Triple benefit policies
Debenture policies Joint life Last Survivor > and ,
Contingent Survivorship policies Children's defer-
red assurances Children's endowments Educa-
tional endowments Life assurance in business.

viii CONTENTS

CHAP. PAGE

VI MORTALITY RATES 76

Preparation of mortality table Select, Ultimate and
Aggregate Tables British tables American tables
Early Indian experience Oriental Investigations
Joint Mortality Investigation Annuity Tables
Actual to expected ratio Population basis Deaths
from specific causes.

VII LIFE FUND AND INTEREST . . . 101

Conception of Life Fund Testing its adequacy
Prospective and Retrospective methods of valuation
Investments: Security, Yield, Distribution, Con-
vertibility Suitable Investments: Government Secu-
rities, Approved Secuiities, Public Corporations,
Real Estate, Mortgages, Farm Mortgages, Shares
Government restrictions Distribution of assets -
Taxation and its inequity Trend of Interest yields.

VIII EXPENSES: PREMIUM RATES .. . . 137

Conception of expenses History of loading- Indian
experience Expense control Trend of expenses
Profit-fluctuation loading Adequacy of premiums
Non-participating and Participating premiums -Pre-
mium bases in IndiaTrend of premium rates
Cost of Insurance Fallacies in premium rates.

IX RESERVES, SURPLUS, BONUS . . . 154

Adjusted net premium valuation Gross premium
valuation Special reserves-XBases of valuation
Solvency factor and solvency valuation Origin of
surplus Equity in taxation Distribution of surplus
Reversionary systems Cash bonuses Premium
reductions Tontine system Contributory method
Vesting bonuses Iriterim bonus.

X SELECTION, SUB-STANDARD LIVES, RE-

INSURANCE 169

Importance of selection Agents' selection Pro-
posal Form Medical report Personal history
Family history Build Circulatory and Respiratory
systems Blood pressure Other organs Company's
selection Standards of insurability Occupation
Residence Moral Hazard Financial Hazard
Limitation of age Insurance on females -- Non-
medical schemes Sub-standard lives Basis of extra
premiums Rating up of age Flat Rate Liens
Numerical basis Removal of extras Importance of
Sub-standard insurance Retention Net Risk Plan
Coinsurance Automatic Facultative Need for
Reinsurance company.

XI CONDITIONS, BENEFITS, PRIVILEGES . . 197

Historical development Policy Form Premium
payment Annual and half-yearly reductions
Deposits Dating Back Reductions for larger sums

CONTENTS ix

CHAP. PAGE

and for residence Days of grace Surrender
values Extended term Paid-up assurance Auto-
matic non-forfriture Application of non-forfeiture
benefits- -Revival of lapsed policies Claims settle-
ment Proofs of death, title and age Rectification
of errors of age Optional modes of settlement
Fully paid-up policy Payment of interest Annui-
ties Combinations Indisputability clause Moral
Hazard Suicide and murder Absence of direct
motive War Risk Loans Nominations and assign-
ments -Married Women's Property Act Income-
tax rebate Disability Benefits Historical develop-
ment in America and Britain Disability benefit in
India and its future Double Indemnity for
accidents.

XII LEGAL ASPECTS: ORGANISATION .. 239

Legal requisites of a contract Legal capacity to
contract - Insurablc Interest Legal relationship
with company Nature of the contract Presumption
of Agency Apparent powers of Agents Limitation
of powers Uberrima /idtfj Principle of State Con-
trol Security to public in the Indian Act Policy-
holders' rights National rights Life Insurance
Council Controller and his functions Internal
Organisation Head Office Course of a policy
Functions of the Actuary, Accountant, Secretary,
Investment Manager Mechanisation Agency
Manager, Inspectors, Special Agents, Branch
Managers and Chief Agents-- Selection, Training
and Remuneration of AgentsDefects in Insurance

Act.

PAR T II
HOW INSURANCE HAS WORKED

XIII BLUEPRINTS 261

Formation of the East India Company Oriental
Assurance Co. Bombay Life of 1823 Madras
Equitable and Madras Widows Missionaries and
Missionary Societies- Social and Religious conflicts
Mutiny Medical and Albert Early foreign
companies Institute of Actuaries English Assur-
ance Companies Act, 1870 Move for Government
Insurance Department in India Industrial Assur-
ance.

XIV FOUNDATION (1870-1900) 275

Bombay Mutual- Oriental Political and economic
grip Middle classes Opening of foreign compa-
nies Early Mutual Aid Societies Indian Life
Empire Bharat David Gostling.

XV FRAMEWORK (1900-1912) 289

Indian National Congress Political consciousness

CONTENTS

CHAP.

Progress of old companies Social evolution
Swadeshi Movement Indian Mercantile, United
India, National Indian, Hindustan, General, Bom-
bay Life, Asian Failure of companies Armstrong
Investigation Commission and New York Law
English Assurance Companies' Act 1909 Indian
Assurance Companies' Act 1912 Reaction to the
new Act.

XVI THE STRUCTURE (1913-1930)

Western India War Economic, banking and in-
surance ciisis Influenza epidemic New India-
Entry of Mahatma Gandhi into Indian politics-
Civil Disobedience Movement Council Entry -
Lakshmi National awakening New companies
Life Offices Association Social and economic
changes Act XX of 1928 Foreign competition.

XVII THE EDIFICE (1930-1939)

Civil Disobedience Movement Depression in
America, Britain and India- - Gold Exports Unfair
foreign competition Flotation of new companies
and their unscientific operation Bonus mania and
Rebating Sen's Report Advisory Committee
Provisions of Insurance Act 1938 and reaction to
the Act.

XVIII THE LAST DECADE (1940-1950)

Confusion and contradictions in the Act With-
drawal of foreign companies Political consequences
of war- Amendments to Insurance Act Govern-
ment co-opeiatioii Panic psychology Test case for
the interpretation of Section 27 Small Insurers'
Deposits Insurance Advisory Committee - Bonus
reductions and premium increases Attempts at
expense control 1942 movement War Risk In-
surance Economic consequences of war Industrial
activity, controls and famine; Government financial
policy, inflation, capital founation- Effect of finance
capitalism on insurance Cowasjee Jehangit En-
quiry Committee - Short Term policies States
Legislation New company flotations Partition
and I ndo- Pakistan insurance problems -Insurance
(Amendment) Act 1950.

XIX ON TO THE FUTURE

Advantages and benefits of life assurance to the
individual, society and State Social Security ser-
vices Industrial assurance Group insurance
Insurance expansion to rural districts to counter
rural indebtedness Question of cost Nationalisa-
tion Conclusion.

APPENDIX

BIBLIOGRAPHY

INDEX

PAGE

304

318

33 6

366

383

4 J 7
421

CONTENTS OF TABLES

No. PAGE

1. All-India Life Table, extract .. .. .. 20

2. Present Value of Re. i . . . . . . . . 26

3. Net Single Premium, Whole Life . . . . . 27

4. Net Single Premium, Endowment . . . . . . 28

5. Premiums for different contracts . . . .48

6. Comparative rates of annuity payments . . . . 51

7. Progress figures of annuities . . . . . . 54

8. Benefits on Triple Benefit Policy . . . . . . 62

9. Rates for ordinary and educational endowments . . 70

10. Illustration of Mortality table . . . . . . 78

1 1 . Comparative study of Mortality figures . . . . 83

12. Percentage of policies by communities . . . . 83

13. Ratio of actual to expected deaths . . . . . . 84

14. Break down figuies, ultimate section . . . . 85

15. Graduated Select Table . . . . . . . . 87

16. Oriental (1925-35) Ultimate Table .. .. 88

17. Comparative Rates of Mortality . . . . . . 91

1 8. Birth and Death Ratvs . . . . . . . . 92

19. Death Rate and Expectation of Life . . . 93

20. Infant Mortality in India . . . . . . 94

21. Deaths from Specific Causes . . . . . . 94

22. Tuberculosis Death Rates . . . . . . . . 95

23. Caloric Value of Food . . . . . . 97

24. Composition of Food . . . 97

25. Illustration of Prospective Method . . . . 105

26. Yields on Government Securities . . . 112

27. Assets and Life Funds . . . . . 122-123

28. Distribution of Assets, 1913-1948 . . + . 124-126

29. Variation in Percentage Distribution of Assets . . 129

30. Oriental's Influence on Percentage Distribution . . 130

31. do. . . 130

32. Average Net Yields of Life Funds . . . . . . 136

33. Rates of Agents' Commission . . . . . . 140

34. Expense Ratios: 1913-1948 . . . . . . 144

35. Variations in Net Annual Premiums . . . . 148

36. Interest Basis in Revised Premiums . . . . 148

37. Trend of Premium Rates . . . . . . . . 149

38. Average Premium for Rs. 1000 . . . . . . 150

39. Rates of Interest in Valuation., 1913-47 . . . . 159

40. Height Weight Table . . . . . . 174

41. Blood Pressure Table . . . . . . 175

42. Death Rates, Males and Females . . . . 182

xii CONTENTS OF TABLES

NO. **AGE

43. Expectation of Life, Males and Females . . . . 182

44. Maternal Mortality . . . . . . . . 183

45. Extra Premiums, Rating up of Age . . 188

46. Benefits of Extended Term Assurance . . . . 208

47. Value of Paid-up Assurance . . . . . . 220

48. Annual Premium in 1871, Bombay Mutual . . 277

49. Business Figures Around 1905 . . . . - . 291

50. Surrenders in Britain during Depression . . . . 320

51. Surrenders in India during Depression . . . . 321

52. New Business., 1929-38 . . . . . . - . 323

53. Company Flotations, 1929-38 . . , . 325

54. Index of Industrial Activity, 1939-45 346

55. Inflationary Trends during War . . . . . , 348

56. Capital Formation during War . . . . . . 349

57. Capital Investment in Insurance, 1942-45 . . 351

58. Business Figures Around 1900 .. .. .. 383

59. Business Figures, 1914-1929 .. .. .. 384

60. Business Figures 1930-1939 .. .. .. 387

61. Business Figures 1940-1948 .. .. .. 387

62. Trend of Business 1914-1948 .. .. .. 393

63. Trend of Business 1930-1948 .. .. .. 395

64. Trend of Business 1930-1948 .. .. .. 396

65. Foreign Business of Indian Offices . . . . . . 400

66. Analysis of Foreign Business . . . . . . 400

67. Business Figures of Foreign Offices . . . . 401

68. Table of Policies Issued . . . . . . . . 402

69. Table of Policies, Foreign Business . . . . 404

70. Analysi* of Policies . . . . . . . . 404

7 1 . Table of Policies, Foreign Offices . . . . . . 405

72. Analysis of Policies, Foreign Offices . . . . 405

73. Analysis of Policies, Foreign Offices . . . . 405

74. Average Sum Assured per Policy . . . . . . 406

75. Income of Indian Offices . . . . . . . . 408

76. 'Outgo of Indian Offices, 1914-1938 .. .. 410

77. Percentage Distribution of Outgo .. .. 411

78. Outgo of Indian Offices (1939-48) .. .. 412

79. Per capita Insurance .. .. .. ..413

80. Extent of Insurance in India . . . . . . 413

81. do. . . . . . . 414

82. Distribution of Population by Ages . . . . 414

83. do. 414

84. Composition of Sexes . . . . . . . . 415

CONTENTS OF CHARTS

No. PAGE

1. Diagrammatic Illustration of Premiums . . . . 27

2. Level Premium vs. Term Assurance . . . . 30

3. Number Dying, Oriental Ultimate Table . . . . 87

4. Number Dying, Oriental Ultimate Table . . . . 89

5. Birth and Death Rates . . . . . 92

6. Composition of Food . . . . . . . . 99

7. Analysis of Assets, 1938-48 . . . . . . 127

8. Growth of Assets and Life Funds . . . . . . 1 28

9. Growth of Assets, 1915, 1920, 1925, 1930, 1935 . . 128

10. Net Yield on Life Funds . . . . . . 135

11. Price Fluctuation of 3/2 c / c Paper .. .. .. 306

12. Business Figures, 1914-1929 . . . . . . 385

13. Business Figures, 1930-1939 . . . . . . 388

14. Business Figures, 1940-1948 . . . . . . 391

15. Progress of Business, 1914-1948 . . . . . . 394

1 6. Trend of Business, 1930-1948 . . . . . . 397

17. Growth of Policies, 1930-1948 .. .. .. 403

1 8. Index Numbers of Average Sum per Policy . . 407

19. Maturities, Death Claims, Surrenders . . . . 409

ERRATA

Page

Line

For

Read

7

6

Bands

Bonds

24

3

simplics

simplifies

26

33

683,104 -r 1850

663,1044-

38

Footnote

1938

1950

45

9

whole

whole life

1850

PART I

HOW INSURANCE WORKS

CHAPTER I
THROUGH THE AGES

INDIA is a land of wide open plains, picturesque hills, valleys,
temperamental rivers and five lakhs of villages. Sturdy,
hardworking farmers live in mud houses thatched with dried palm
leaves or hay and house their gods and goddesses in delightful
architectural edifices. The temples abound in wealth but the
farmer is poor for the good earth is a poor provider. His ancestors
suffered much at the hands of conquering armies who threatened
them, terrorised them and took away everything except their soul
and the good earth, so they converted all earthly belongings into
gold, silver and precious stones, and offered them to their favourite
gods. The temple was, and still remains, the only tangible ele-
ment in the changing order of things. If crops fail more offerings
follow, for the farmer firmly believes that in god alone can he
seek a remedy. He is indifferent to pain and hunger, philosophic-
ally detached and humble to the extreme.

Indus Valley Civilization

About seventy miles from Sukkur in the Sind desert, archaeologists
have recently uncovered one of the greatest of all Indian cities,
Mohenjo-Daro, which flourished in the fourth millennium B.C.
Along with palatial dwellings, well-built baths, well-paved dressing
rooms and scientific drainage, scientists unearthed ' faience, models
of rams, dogs and other animals, intaglio engravings on seals dis-
tinguished by a breadth of treatment and a feeling for line and
plastic form,' 1 exquisite jewellery, finely carved toys and a well-
developed civilization dating back to thousands of years to reach
that stage. The Indus Valley had regular trade contacts with
Persia, Mesopotamia and Egypt, influenced them and was in its
turn influenced. " Manufactures from the Indus cities " says
Gordon Childe " reached even the markets on the Tigris and
Euphrates. Conversely a few Sumarian devices in art, Mesopo-
tamia toilet sets and a cylinder seal were copied on the Indus.
Trade was not confined to raw materials and luxury articles; fish
regularly imported from the Arabian Sea coasts, augmented food
supplies. ... A surprising wealth of ornaments of gold, silver,
precious stones and faience, of vessels of beaten copper and of

1 Sir John Marshall.

2 LIFE INSURANCE

metal implements and weapons has been collected from the ruins."
Merchants were wealthy and prosperous. Craftsmen were deft
and produced articles for * the market.' " What, if any, form of
currency and standard of value had been accepted by society to
facilitate the exchange of commodities is, however, uncertain."
Mohenjo-Daro was planned with the precision of a modern
architect; years of study, experiment and labour went to perfect
their system of trade, industry and communal life and, were fuller
details of their living available, wonderful systems of protection
against risk and losses to life and property would have been
revealed.

Aryan Civilization

A thousand years later came the Aryans from Central Asia and
a great fusion of races and culture took place between them and
the Dravidians, the original inhabitants of India and probably the
direct descendants of the Indus Valley civilization. The early
vedic Aryans, full of the zest for life, enriched our beautiful land
with rapturous hymns about the beauties of life, and the Vcdas shine
without parallel to this day " as a poetic testament of a people's
collective reaction to the wonder and awe of existence." * Much
of the present day knowledge of family life and corporal existence
in the vedic period is derived from the upanishads and other pre-
historic literature. The vedic hymns are full of the wonderous
beauties of the external world, of the mists and mysteries of the
universe and of the joy and vitality of life, but it is probable that
racial and political problems arose out of the contact and conflict
between the great Aryan and Dravidian races. Caste system
gradually took root and solved many of these problems by dividing
society into specialised, functional classes. Out of the large mass
of agriculturists grew the vaishyas agriculturists, artisans and
merchants Kshatriyas who ruled and Brahmins who guided, pre-
served and maintained the ideals of society. Below these three
classes came the shudras or unskilled labour. Learning and
erudition always stood high in public esteem and the Brahmin
enjoyed the highest respect and honour denied even to the rulers
and the richest in the land. Dharma or the innermost conception
of obligations, moral duties and righteousness took deep root and
formed the central idea of Indo-Aryan culture.

At the end of the Veda, vedanta, we have the philosophy of the
Upanishads, dating from about 800 B.C. and immediately after-

1 Rabindranath Tagorc.

THROUGH THE AGES 3

wards the two great epics of Ramayana and Mahabharata took
shape. They deal with the remote past when the Aryans were
settling down in India and contain various references to social and
other functions. The Jataka talcs collected and arranged to be-
come, an important part of Buddhist literature deal with the period
when the Aryan and Dravidian races finally integrated. And
from all these great works it is possible to form a satisfactory con-
ception of the life and society of ancient times.

Economic Structure

Autocratic monarchs ruled the State. There was a council of
ministers but the king was held responsible for the misfortunes of
his kingdom. Village assemblies were self-governing and formed
the basic units of government. They were grouped in tens and
hundreds and built up the political and economic structure. Wheat,
rice, millet and corn formed the principal articles of diet, with
flesh as a common food. Metals were mined, metallurgy was per-
fected and gold, silver and copper were used in coinage. Spin-
ning, weaving and dyeing were highly developed and produced
silks, woollens, cotton textiles, rugs, blankets and carpets. Metal-
lurgy, masonry, wood-work, perfumery and medicine were some
of the other industries in which the numerous artisans and
craftsmen were employed. There were also musicians, teachers,
physicians, merchants, actors, pedlars, domestic servants and
undertakers.

Partnerships grew up to promote trade and when capital was
short, loans were taken on interest. A wonderful system of trade
associations and craft-guilds was evolved. They grew, " partly for
economical reasons, better employment of capital, facilities of
intercourse," and, " partly for protecting the legal interest of their
class." x The Jataka mention eighteen guilds but specify only
four. " Safeguard of corporations (guilds) is union," states the
Mahabharata. The merchant guilds were powerful, and even
the king had no authority to introduce any law repugnant to their
unions. Their leader wielded considerable authority and was the
object of royal concern, second only to the priests.

Special settlements or village corporations belonging to particular
crafts sprang up near cities, bought over the entire production of
the craftsmen and provided their members with the necessities of
life. Probably these villages of specialised craftsmen worked on
a co-operative basis, bought up the articles, distributed them and

1 Richard Fick, "The Social Organisation of North-East India in
Buddha's time."

4 LIFE ASSURANCE

prevented losses to the craftsmen. Trade was prosperous within
the country and outside. Traders took merchandise in overland
caravans to the sea-ports of Broach, or Surat in the west, Kaveri-
patnam in the South, or Vanga in the East, or to the great cities
of Central Asia. Indian-built ships, laden with Indian manu-
factures, set sail to Egypt, Greece, Babylon, Lanka, China or the
islands of South-East Asia. The seas were rough and dangerous,
land routes were infested with wild animals and robbers, and
fortunate was the man who returned home safe and with his earn-
ings. The merchant guilds and unions had means of insuring the
ships and caravans against loss, as also the merchants who went
ywith them and the merchandise they carried. Manab Dharma
Shastra (Codes of Manu) contain rules for contracts of sea-borne
and land traffic whereby loans were advanced at specified rates of
interest depending upon the risks to be run and the length of time
for which money was required. Technical men skilled in sea
voyages or land journeys worked out the rate in proportion to the
time required and the risk involved and the rate was specified on
the contract. The borrower returned the loan and the interest
on successful conclusion of the voyage or journey, but if he was
robbed or was unable to deliver the goods in good order at the
time and place specified, his liability was cancelled. To the
modern conception of insurance, this represents a reverse order of
practice. The interest is the premium, a total loss in the form of
a loan was paid before the journey or voyage took place and the
borrower returned the amount of the loan plus premium when the
risk ceased.

The laws of Manu contain the legal position of women in
society. They were always dependent on the father in childhood,
on the husband in later life and on the son in old age. But life
was good in the village. Marriages were elaborate but family
life was simple. Everyone in a house obeyed and followed the
head who was the oldest male member. He owned all the land,
ordered the younger men about, supervised their work, selected
their brides and treated everyone alike. Women cooked, bore
children, fussed around the house, prayed and wept. Widows
seldom remarried, but chanted more hymns and invoked the bless-
ings of gods to the peace of their menfolk in heaven. None thought
of setting up a separate life and no problems therefore of widows
or orphans arose.

Thus in the early days of Aryan civilization, village co-operatives
insured against any loss of profit and earnings from industry,

THROUGH THE AGES 5

precise contracts safeguarded risks of carriage by sea or land and
a wonderful system of joint family satisfactorily met the needs of
the community.

Later Developments

Years rolled on. Out of the mental conflict of man and his
environment grew the great Upanishads and a strong current of
materialism then swept the land. Out of it again grew the two
great faiths of Buddhism and Jainism and the six systems of Indian
philosophy. Great leaders like Buddha and Mahavira rose and
influenced Indians and their lives; great empires grew up and
fell. Internal conflicts and invasion of foreign armies destroyed
much that was good in the ancient civilization. Trade and com-
merce waned and merchant guilds and rules of contract went into
disuse. New institutions sprang up in cities and new forms of
craft guilds, mercantile associations and banking corporations met
the needs. The centre of gravity shifted to agriculture and self-
governing village panchayats zealously guarded the liberties and
privileges of the common man. A cultivator had the right to till
the land and out of the produce a major share went to him, the
king or the State took a share and a share was distributed to every
functional group which served the village in any way. Invading
armies hardly affected the village.

Hunger and suffering shaped a peasant's life. He believed in
Gita and Dharma. If his neighbour died he was liberal in his
help to the widow and orphans although they rarely stood in
need of such a help for he believed, and religion strengthened
his belief, that therein lay moksha or emancipation. He shared
his one whole meal with whoever was in need; no man went to
him for help and returned empty-handed. Population increased,
but cultivable land did not. Some were idle and idle hands were
costly then as they are now. The share of the produce given to
functional groups was augmented by the immense wealth of the
temples, and when necessary voluntary contributions were made
towards a central fund. These funds became common and met
a specific need. They exist even today in parts of South India.

Brahminism and after

Then the rigid caste system gave the brahmin superior power.
He became the spiritual head and wielded considerable authority
in all temporal matters. Shrewd, and ambitious, he argued the
others into letting him manage the funds. With the sharp brain
of a Wall Street investor, he acquired large tracts of good land,

6 LIFE ASSURANCE

tilled them with the help of sudras and fed and educated his heirs
and dependents, Sons were taught vedic arts and crafts and
priestly rites; daughters were bedecked in silks and jewels and
married off, and if, perchance, they became widows, were fed and
supported. Additions were made to the fund; religious rites
brought in handsome bounties, annual tithes were collected and
every conceivable mode of augmenting the fund was practised.
The funds exist to this day, but secretaries, committees and even
trustees exert a measure of supervision. Benefits have, however,
changed much in character and it is rarely that the needy gets
a helping hand, although there is much feasting and revelry.

In the march of India's colourful history, her traditional wealth
attracted many invaders, opportunists and warring elements.
Kingdoms fell before conquering foes and with them families, but
most of the simple, almost primitive, village folk met them by the
easy method of removing themselves from the enemy's way lock,
stock and barrel. Whatever they or their families could carry they
took away : whatever they could cash in they converted into gold
and other precious metals. Long years of mounting trade and
prosperity had made them rich, abject fear of the marauding foe
enriched their love of gold. That deep-rooted love for gold re-
mained undiminished until quite recent times. Foreign races
brought with them divergent faiths and cultures, but Indian
philosophy was so elastic and her religious beliefs so tolerable that
the country absorbed every foreign element. The largely self-
contained village was strong enough to withstand the onslaught
of alien cultures and the victorious armies settled down to the
land accepting and adopting the traditional ways of life and culture
to a remarkable degree. The joint family system continued until
comparatively recent times : the temples largely, and village funds
in a smaller way, continued to absorb the surplus wealth of the
village and distribute it to the deserving poor; charities sprang up
around the temples and a remarkable degree of efficiency was
achieved in their administration.

Collective co-operation among persons exposed to a particular
risk, in order to share that risk whenever it takes place which we
know as Insurance to-day, is as old as humanity.
The degree of efficiency achieved in the process depended
upon the progress of civilization and culture reached by
different races at different times. The Indo-Aryan races
perfected a system of village and communal life which was
proof against the ravages of time and gave sustenance to everyone:
other civilized peoples of the world conceived the idea of collective

THROUGH THE AGES 7

protection in various ways to suit individual needs.

Bottomry, Respondentia, General Average

Sometime before 2250 B.C. the Babylonians practised a form of
transaction, somewhat similar to the Indian contracts of insurance
against loss in journeys, but different in many ways. These tran-
sactions were indirect forms of insurance and were known as
Bottomry and Respondentia Bands, 1 as they are today. In the
early days a lender advanced a loan before a voyage started at an
agreed rate of interest, on the security of a ship and/or cargo and
the borrower had to return the loan plus interest on the successful
completion of the voyage. As in the case of the Indian contracts,
a trader was given a total loss before the event took place, but
refunded the amount plus premium after the risk ended.

From Babylon the practice spread to the countries of the Levant
and to the Greeks, Carthaginians, Phoenicians and Romans. The
Greeks developed extensive trade connections with the countries
in the Eastern Mediterranean and opened an Exchange at Athens
for Bottomry Bond transactions. They also organised a system of
marine intelligence for the supply of important information to
merchants, market conditions, natural and political events and
other affairs to their advantage or disadvantage.

A subsequent development was the practice of General Average,
well known to the Rhodians and referred to in the earliest codes
of sea law and custom. The City of Rhodes was the centre of
shipping and commerce, enjoyed the title of "Mistress of the Seas"
from about 500 B.C. onwards and "Rhodian Laws" became the
earliest system of marine law. In shipping parlance "Average"
means "damage" and General Average meant the losses sustained
by the voluntary sacrifice of cargo or part of it and the general
sharing of such loss. Justinian's Digest of Roman Law a col-
lection of Roman Civil Laws contains a concise but complete
definition of the principle of General Averages: "The Rhodian
Law decrees that, if goods are thrown overboard to lighten a ship,
all shall make good by contribution that which has been given for
all." The Roman code, much of which is used as a basis for 'the
modern law of General Average, contained several rules dealing
with particulars of losses to be admitted, ransoms given to pirates,
computation of losses and methods of recovery of the contributions
made. After the fall of the Roman Empire in the Fourth Century

1 Bottomry: In maritime law, a conditional obligation in which the
ship or its cargo or both are pledged as security for a loan. When the
cargo alone is pledged the obligation is known as Respondentia.

8 LIFE ASSURANCE

A.D. its laws became obsolete but usage and custom among sea-
faring merchants retained the practice of General Average, confi-
dent in the essential equity of the principles. Owners and masters
of ships and merchants with sea-trading interests used as much of
the rules as tradition and memory enabled them to do, until they
eventually appeared in later collection of sea laws.

Hansa and Lombard Traders

With the fall of the Roman Empire, many merchants settled
down in the cities of the Baltic and North Sea Coasts and among
them the inhabitants of Hamburg and Lubeck started the
"Hanseatic League" originally for the defence of these two cities.
The league established itself in many other cities and countries,
including England, until it became a formidable political and com-
mercial alliance. Membership was limited to the inhabitants of
cities on the sea coast or navigable highways and was much sought
after for the remarkable advantages its members received. Several
commercial codes were framed by the league, including the "Laws
of Wisby" and a form of marine insurance was practised, as apart
from the system of Bottomry. The constant conferences of mer-
chants at Wisby on the island of Gothland contain many references
to Bottomry also.

At the time when the Hansa merchants wielded undisputed
commercial supremacy in Northern Europe, the traders of Lom-
bardy held equal sway in the Mediterranean coast. Many believe
that insurance, as opposed to Bottomry, was introduced by the
Lombards, that is to say, they insured a risk on the payment of
a premium. It is, however, known that the Hansa and Lombard
merchants met, exchanged views, traded with each other and
founded an insurance exchange or market in the city of Bruges
about the year 1310 A.D. "On the demand of the inhabitants
of Bruges the Count of Flanders permitted in the year 1310, the
establishment in this Town of a Chamber of Assurance, by means
of which the merchants could insure their goods, exposed to the
Risks of the Sea or elsewhere, on paying a stipulated percentage,"
says an ancient book, Chronyk van Vlaendern.

The Ordinance of Barcelona in 1435 laid down rufes for the
regulation and control of insurance, and traders of most of the
maritime countries of Europe followed various mercantile codes,
including rules for the conduct of marine insurance. There is
little doubt that Marine Insurance, as it is practised today, was
firmly established in Europe in the fifteenth century.

When the Jews settled down in England during the Norman

THROUGH THE AGES 9

period they became the most powerful force in her financial affairs,
controlled much of her foreign trade and introduced a form of
marine insurance, long before their expulsion in 1290 A.D. Hansa
traders (known in England as Esterlings or Easterlings, from which
the word "sterling" is derived 1 ) then settled down in London and
were given special trading privileges. With their advent the
system of Bottomry was extensively practised for their marine
trade, but it is doubtful whether they used any other form of
marine insurance. The Lombards also settled down in England
during the thirteenth century and introduced a highly developed
system of banking and financial practices, and marine insurance.
Lombard Street which they built is still famous as the home of
many banking and financial institutions of London. Even after
the Hansa traders were eventually eclipsed and expelled with the
rise of English trading interests, Lombards continued with limited
privileges. The influence of Hansa and Lombard merchants per-
fected marine insurance to a remarkable degree and their rules for
conduct of insurance were recognised as essentially the most fair.
Lloyds policies today are worded, in many cases, almost identically
with the fourteenth century phraseology, of those traders.

From then on, marine insurance became an essential part of all
sea-borne trade. No central organisation existed to undertake in-
surance until much later, but speculators sprang up who were
willing to share the risks. Traders and shipowners drafted
policies with the name and date blank, and took them to these
speculators for signature at the bottom. From this practice arose
such words as "underwrite" meaning to sign at the bottom, "under-
written" and "underwriter". Registration at a central office of
Assurance made the documents valid and gave protection against
fraud. An Act of Parliament in 1601 set up a Court of Policies
to settle disputes arising out of Marine Insurance. "By means of
a Policy of Insurance it cometh to pass that upon the loss or
perishing of any ship there followeth not the undoing of any man
but the loss lighteth rather easily upon the many rather than heavily
upon the few, and rather upon them that adventure not rather
than on those which do adventure, whereby all merchants, especial-
ly the younger sort, venture more easily," says the preamble to the
Act. The turning point in the history of marine insurance was
the birth of that world-wide organisation "Lloyds of London".

1 Another theory is that i oo years before Esterlings settled in London,
the penny was called "sterling*' or "little star" from the star on the
pennies of Norman times.

10 LIFE ASSURANCE

The First Life Policy

The progress of marine insurance inevitably led to consider-
ations of a more comprehensive cover such as the life of a
merchant, master mariner and crew, the underwriters who accept-
ed the marine risk insuring them too. The "policy" would cover
the nominated person against the risk of death during a voyage.
Later the masters and captains of vessels trading in the Eastern
Mediterranean stipulated "with their merchant freighters or others
for the restitution of their persons, in case they were captured;
and this they can do even for the people of their crew". "On
account of the fear which they have of galleys, fustes and frigates
of the army of the Turk or Corsairs" they made arrangements for
the payment of ransom; "in such a case the master must in the
policy estimate his ransom and that of his companions at so much
per head". Another kind of insurance also WAS practised by which
"certain sums were paid to the heirs and creditors of those who
deceased upon the voyage".

Death during a voyage and payment of ransom in case of capture
formed the basis of the early "Marine" types of "Life" policies.
They were issued without regard to age and the only governing
factors were the length of the voyage and the route of the vessel.
The earliest available record of a policy of this type is on the life
of one William Gybbons, a citizen and salter of London effected
on the 1 8th June 1583. Richard Martin, an Alderman of the
City of London issued a policy to Gybbons for a sum assured of
383-6-8 for a period of twelve months at 30-13-4 (representing
eight per cent) on the following condition :

" If it happen (as God defend) the said William Gybbons to dye
or decease out of this present world by any ways or means whatsoever
before the full end of the said xii months be expired."

" God send the said William Gybbons health and long life.'*

This policy also became the first recorded case on Life Assurance
before the English Courts of Justice. On the death of Gybbons
on the 345th day of the policy, the underwriters protested that the
twelve months specified on the policy were of the lunar variety
and had expired at the date of death. But the Courts rejected
the plea and ordered the underwriters to make good the amount.

Guilds : Poor Relief

The early Middle Ages saw the formation of organised associa-
tions in many towns of England called "Merchant Guilds" to
regulate the trade and prevent unfair dealing. Frith Guilds which

THROUGH THE AGES 11

were partly religious, social and industrial and to some extent,
political, were believed to be the earliest kinds of such associations.
"Membership was confined to followers of the common religion,"
writes F. J. Maclean. "All classes seem to have been united in the
Frith Guilds and each man paid a fixed amount to the common
fund, which was expended on feasts, fines, mass for the dead,
burials and brothers in need." When life in the towns became
complex, Frith Guilds gave way to Merchant Guilds. All the
traders in a town seem to have joined the Merchant Guild, which,
in consequence, became rich and exclusive, but its power waned
when its common regulations failed to meet the needs of the ex-
panding individual traders. Journeymen and master craftsmen
could not, for instance, gain admission to the Merchant Guilds,
so they formed themselves into Craft or Trade Guilds which, in
course of time, regulated trade in every detail and safeguarded
the interests of producers and consumers. By the end of the four-
teenth century the authority of Merchant Guilds declined and
their place was taken up by Craft Guilds, wielding considerable
power and authority in the regulation of production and sales,
enforcement of law and order and protection of life and property.
The Great Plague (Black Death) of the fourteenth century lead
to a violent agitation throughout England and practically abolish-
ed serfdom. A Statute of Labourers passed in 1351 applied equal-
ly to craftsmen and workers in agriculture and regulated labour
and wages. The conclusion of the Wars of the Roses made many
soldiers destitute and the dissolution of the monastries intensified
general distress. By 1388 legislative acts gave sustenance to the
impotent poor from the benevolent charity of the rich or of the
church and the method continued for nearly two hundred years.
In 1536 a law was passed to give work to the unemployed and
relief to the deserving poor through organised charities. Collec-
tions in churches were made compulsory and the proceeds were
regularly distributed. In 1552 two collectors were appointed to
each parish "gently to ask and demand" so much per week from
each man and woman. Those who refused were admonished by
the bishop and in 1563 the magistrates were given legal powers to
assess the contribution of those who still refused. The Poor Relief
Act 1 60 1 replaced all earlier statutes and was a most comprehen-
sive measure dealing with authorities, funds, recipients and
methods. A tendency towards competitive and "famine rent" left
the occupier of a farm only a bare living, and indeed in many
parts of England spinning wheels and looms supplemented the
income of the farmer and enabled him to live. Each parish was

12 LIFE ASSURANCE

made responsible for the maintenance of its own poor and for the
administration of its own poor relief. An overseer was chosen
from, if not by, the parish vestry and took orders from the autho-
rities who were the Justices of the Peace. The number of poor
persons were estimated and funds were raised by a compulsory
rate levied upon the householders of the parish; those who refused
were severely punished. Hemp, wool, iron and other materials
were regularly stocked, the able-bodied were set to work on them,
idlers were punished and the " poor in very deed " received relief.
The children of the poor were taught specific crafts. The unit of
administration was the parish, but poor parishes were helped by
an assessment on the "hundred". The main principles laid down
in these laws formed the main basis of English poor law system
until altered by the Rating and Valuation Act, 1925, which abolish-
ed overseers and the parish as the poor law unit.

Comparative peace reigned but competitive rent and diminish-
ing yield kept the farmer on "starvation wages". The system of
poor law relief led to the formation of groups in some of the
parishes to give voluntary relief to the heirs and dependents of
poor farmers who died, principally to meet funeral expenses, and
out of this tendency grew a system of equal levy on the surviving
members of the group to raise a fund for the dependents. The
chief defect of the practice lay in the fact that members of thte
group were called upon to pay as many contributions in a year as
there were deaths in that year, and younger men, consequently,
paid many more contributions during their life than those who
joined the group at older ages, although the benefits were the
same for all age groups.

This defect was, to a small measure, remedied in the schemes of
the earliest regular company formed in the first quarter of the
eighteenth century. Established in 1706 by Royal Charter, the
Amicable Society is the oldest life assurance company to be regis-
tered in the world and its charter gave permission to some 2,000
citizens to form a corporation in order to provide a scheme of
permanent assurance for their mutual benefit the forerunner of
present-day life assurance. The society issued shares to its mem-
bers, entitling them to a small annual dividend out of the profits
and to a larger sum as benefits payable to their nominees on death.
Each shareholder paid an annual sum of 5 to the society,
throughout his life without any consideration of age and the total
net amount collected during any one year was equally divided
among the nominees of those who died during that year. Benefits
consequently varied from year to year, but in 1757 were raised to

THROUGH THE AGES 13

125 and in 1770 to 150. The plan was in effect a scheme of
Whole Life Assurance for a sum of 150 for an annual premium
of 5, with the fundamental difference that every policyholder
had to pay the same amount of annual premium irrespective of
age.

The Royal Exchange and the London Assurance incorporated
in 1720 under the Royal Charter of George I specifically to transact
fire and marine insurance, had no connection at all with specu-
lative business, which was rampant at the time. They had their
charter extended in 1721 to include life assurance and transacted
a limited amount of life business on marine lines, issuing policies
for a short term (usually not more than a year) at the fixed
premium of 5 irrespective of age. The London Assurance is
known to have limited the sum assured to 500 on any one life,
the term to twelve months or less and, at the discretion of the
Directors, restricted travel outside Great Britain. The following
extract of instructions to the agents of the company is interesting:

U A11 persons whose lives are to be assured must first appear before
you, and then you are to take a convenient time to inquire after their
state of health and manner of life; either by persons in their neigh-
bourhood, or by such means as you can best inform yourself.

You are to be particularly careful that the person who appears
before you is really the person whose life is to be assured.

It is always to be inquired whether the person whose life is to be
assured hath had the small-pox.

If a woman's life is offered, whether she be married or not, because
child-bearing women and persons not having had the small-pox must
pay a higher premium.

If the person for whose benefit the assurance is made is unknown
to you, you are to learn, if possible, the reason why the assurance is
made, for unless there are good reasons why the assurance is made
the person assured may be in a worse state of health than you appre-
hend. When you have satisfied yourself in the foregoing enquiries
and are of opinion an assurance may be made, you are to take 55. for
the policy and for the premium as followeth :

For any person in good state of health having had the small-pox

and not exceeding fifty years of age or under ten years five guineas

per cent.

For persons of the like ages not having had the small-pox and

child-bearing women six guineas per cent."

These earlier policies made no difference in premium rates for
people of different ages, although mathematicians were alive to
its necessity. As far back as the fourth century A. D. Ulpian, a
Roman Jurist, had prepared a rudimentary mortality table. In

14 LIFE ASSURANCE

1671 the Dutch Government used a table prepared by one De Wit
to raise funds by the sale of annuities; in 1693 the Astronomer
Dr. Halley submitted a paper to the Royal Society on the estimate
of the Degree of Mortality of mankind from the * bills of mortality '
(registered deaths) in the city of Breslau. He deduced a valuable
principle for the calculation of premiums, viz., ' the price of
insurance upon lives ought to be regulated and the difference
discovered between the price of insuring the life of a man of
twenty and fifty for example, it being a hundred to one that a
man of twenty dies not in a year and but thirty-eight to one for
a man of fifty years of age."

From then on mathematicians got busy and produced several
mortality tables from registers of deaths and funerals in the large
towns of England. One James Dodson, a teacher of mathematics
at Christ's Hospital prepared a table of mortality from the records
of deaths in London between the years 1728 to 1737 and based
premium rates thereon. On its incorporation in 1762, the Equit-
able Life Assurance Society of London issued policies based on the
table and became the world's first life assurance company to adopt
scientific principles which are the basis of modern life assurance.
When a valuation was made of the Society's assets in 1776 and
accrued profits distributed, life assurance progressed a step further
in its onward march.

The first quarter of the eighteenth century was also remarkable
for the serious economic crisis in England consequent upon a wave
of unbridled gambling and fantastic speculation. Every kind of
business was affected, numerous bogus companies were floated With
fantastic claims, thousands of citizens were made to invest their
savings in them, and unscrupulous promoters ' vanished f with
their ill-gotten gains. One such was the South Sea Company,
and its crash in 1720 (the much publicised "South Sea Bubble")
drove many honest citizens to the verge of penury. The fantastic
speculative mania let loose at this time resulted in the formation
of about a hundred insurance companies which did a large volume
of highly speculaitve business in the City of London. Policies
were issued, for instance, on such transactions as "insurance from
highwaymen", "Rum insurance", "Assurance on Female Chastity",
"insurance on the life of the Prime Minister" and other public men
both famous and infamous. Any event of public interest was
made the basis of a policy more for its gambling value than any-
thing else. These indiscriminate acts of gambling led to the enact-
ment of the Gambling Act of 1774 "for regulating insurance upon
lives and for prohibting all such insurances except in cases where

THROUGH THE AGES 15

the persons insuring shall have an interest in the life or death of
the person insured." This important act not only abolished
gambling from the scope of insurance but also laid down one of
the fundamental principles on which modern life insurance is
based, viz., insurable interest.

At the beginning of the nineteenth century there were barely
eight companies transacting lift insurance, by 1855 the number
rose to 192, but in the next fifteen years nearly half of them failed.
Half a century of notoriously bad company finance saw the flota-
tion of many financially unsound companies. Helped by the ease
with which incorporation was made possible by a Parliament which
yielded to the demands of the commercial community, unscrupul-
ous company promoters exploited financially unsound schemes and
cheated the public. Insurance too suffered but a few of the com-
panies formed at the time such as the Norwich Union, Scottish
Widows and Sun Life Assurance Societies, survived and made large
contributions to the progress of life assurance.

In America

The establishment of life assurance in America was an offshoot
of marine insurance which was practised by those merchants who
followed in the wake of early Colonial settlers. These merchants
got together in coffee houses to transact their business and were
met by individual underwriters who offered their services in pro-
tecting ships and/or cargo. The practice grew, public insurance
offices were established in Philadelphia, Boston and New York
where underwriters issued policies for the protection of ships and
cargo and extended the cover to provide funds for the payment of
ransom in case of capture during a voyage or occasionally to meet
the risk of death. The policies were for short terms of usually
a year or six months and the customary rate was five per cent per
annum, irrespective of age.

In 1759 the Synod of Philadelphia established the Presbyterian
Ministers' Fund which is the first organised society in America to
provide benefits payable on death. The church funds available
for providing pensions for the families of those Presbyterian Church
ministers who died were inadequate and the fund enabled them
to receive additional annuities which ranged from 10 to 35 for
an annual premium of one-fifth of the annuity. Voluntary subs-
criptions augmented the fund and extended the benefits to others,
the premiums being deemed sufficient to provide the annuities.
Originally limited to clergymen of the Presbyterian Church, the
fund was subsequently extended to students of Presbyterian

16 LIFE ASSURANCE

colleges and later, rules permitted the issue of regular life and
endowment policies to those qualified for membership. The fund
still exists and successfully operates on a limited section of the
population.

Aided by prosperous business conditions the closing years of the
eighteenth century saw the flotation of about thirty insurance com-
panies, of which five had power to issue life assurance, but only
one actually did so. Incorporated in 1794 the Insurance Com-
pany of North America became the first company to transact life
assurance business, but in five years its business was limited to six
policies issued by individual underwriters and in 1804 it discon-
tinued life business altogether. During the short period of its
existence, arbitrary rates of premium were charged and no attempt
was made to adopt the graduated rates of premium according to
age, which had already been introduced in Europe.

Several individual underwriters who issued policies on the marine
principle disputed claims which fell due or were unable to meet
their liabilities, and many of the large number of proprietary com-
panies which were established during the first forty years of the
nineteenth century, went into liquidation after a brief existence.
Public confidence which was greatly shaken by these occurrences,
was revived by the formation of a few large companies with
sufficient share capital to represent a substantial guarantee of pay-
ment, and their success led to the organised progress of life assur-
ance in that country on scientific lines. The first of the successful
companies was the Pennsylvania Company for Insurance on Lives
and Granting Annuities incorporated in 1809 with a capital of
$500,000, and it is also the first commercial company in America
organised for the sole purpose of issuing life assurance policies and
annuities, and the first to transact life assurance on a scientific
basis, requiring medical examination and charging premium rates
which increased with age.

No authentic records of the introduction of life assurance busi-
ness in India exist, but it is believed that no underwriters Came
to India in the days of the East India Company, nor were policies
issued on the marine principle. It is probable that in the closing
years of the eighteenth century a few policies in sterling were issued
on the European residents in India by English Companies and it
is recorded that by the first quarter of the nineteenth century in-
surance companies existed to issue life policies.

CHAPTER II
FUNDAMENTALS

Civilization evolved chiefly as a result of mutual help and co-
operation, and life assurance, as of course the various other classes
of insurance, has as its basis this great principle of co-operation.
Modern insurance with its highly scientific framework, amazing
elasticity, and well-organized methods of operation, is a definite
stage in the evolution of human civilization. It may be interest-
ing, therefore, to examine rapidly how the basic human instincts
of mutual dependence and mutual aid had their earlier stages of
slow development before reaching this decisive stage.

Origin of Mutual Aid

It is a reasonable presumption that the fight against lower
animals segregated nomadic men into tribes and the inroads of
hostile tribes led members of a tribe to co-operate and offer resist-
ance. Later, this co-operation gave a corporal shape to communal
life and the individual emerged as a " family " man. Families grew
in numbers, grouped together by ties of mutual affinity. Barter gave
way to a monetary system of values for trade and exchange of
commodities, individual families began to amass personal posses-
sions, as distinct from weapons of attack and defence, attached
intrinsic values to those possessions and evolved practical ideas of
protecting them. Society produced social needs and mutual help
took monetary shape to meet those needs. Alms for the impotent
poor, benefits for the dependents of the dead and funeral expenses l
were probably the earliest of the social needs which the march of
time produced, and social clubs and communal groups pledged to
raise voluntary contributions were perhaps the first attempts to
meet them. Records go to show that the members of the earliest
of those clubs collected contributions whenever a death occurred
in the community and the total sum thus collected was paid out
to the widow and the children. Benefits paid therefore depended

1 Long before organised charities were started in England records exist
of a club for making provision for funeral expenses in the time of the
Roman Emperor Hadrian. The club paid the burial expenses of the
deceased member and followed the body to the grave. A contract of
membership was drawn up, and one interesting proviso was the repu-
diation of liability in the case of suicide; members in arrears with their
subscriptions were expelled.

17

18 LIFE ASSURANCE

upon the number and amount of contributions paid and so varied,
but, later, when the needs were put on a more rational basis, the
amount of benefit paid at each death was definitely fixed. When
this was done a fund was reeded out of which benefits could be
paid out whenever death took place, and to create the fund col-
lections were made from the members of the clubs once a year in
advance and the system of collecting contributions whenever a
death took place ceased. Thus a stage was reached when mem-
bers of a club paid one fixed sum at the beginning of the year
depending upon the disbursements made in the previous year, and
out of the fund thus created, a fixed sum was paid out to the
beneficiaries upon the death of a person.

The evolution of a chartered company to take charge of the
collection and distribution of benefits was a natural sequence, and
when the Amicable Society was founded it became the first orga-
nised association to make definite monetary payments on the death
of any member from the funds created by fixed annual contri-
butions from each member. Mutual aid thus took a definite shape
and life assurance emerged as a planned scheme of sharing the
losses of an individual by the equal contributions of a group. The
basis of such a plan of mutual aid was equity equity in the sense
that all who were members were insured, shared the losses incur-
red in meeting the claims, and shared them equally.

Mortality

Then followed scientific evolution of insurance. The scheme
of the Amicable Society was admirable in many ways and met a
definite need, but the enlightened public raised a demur. By its
rules the Society required every member to pay an annual sum
of 5 to assure for his dependents on his death a definite sum of
150. Equality of annual contributions was thus ensured but
people realised that when a member joined the Society at a very
early age, he had to pay much more than another who joined it
later in life and this absence of equality in the total amounts of
contributions paid to the Society by different members was a matter
for concern. It was soon realised that as a man grows older his
annual contributions should correspondingly increase in order to
equalise the total contributions of every subscribing member, that
is, people for the first time began to feel the implications of
mortality.

Mathematicians entered the field at this stage and endeavoured
successfully to give a definite inerpretation to the preliminary ideas
of ' mortality '. They averred that the basis of a man's contri-

FUNDAMENTALS 19

butions should be linked up with his age. They observed the
number of deaths in successive years among a group of people
all of whom had attained a particular age. They studied the
phenomena of life and death, made actual calculations from
the registers of births and deaths kept at the town and municipal
registeries and concluded, after considerable research, that the
percentage of deaths during a year among a group of persons all
of the same age (i) remained fairly constant, and (2) increased
with age; in other words, the 'mortality' (that is 'death-rate' or
4 susceptibility to death') remained fairly constant for a given age,
and increased with age.

The Mortality Table: The Rate of Mortality

Basing their calculations on these basic conceptions of mortality
and with a view to employing them for an accurate assessment
of the amount of benefits to and contributions from persons seek-
ing life assurance cover, the early life offices in England caused
4 Mortality Tables ' to be constructed from data readily available
to them. The earliest mortality tables, like the Northampton and
Carlisle Tables, were constructed from insufficient and meagre
data in the shape of incomplete and imperfect returns of births
and deaths recorded in the Town Registers and, in consequence,
seldom gave the desired degree of accuracy to the figures of benefits
and contributions calculated from them. With the passage of
time actuarial science emerged as a living subject for research and
actuaries rose in numbers to give a scientific basis to life assurance
technique. Better and more accurate tables of mortality were
evolved from the most accurate data available to replace the old
and imperfect ones. Such are the tables in use today by the esta-
blished life offices in India as elsewhere to base all their calcula-
tions. Tables of mortality and other mathematical and monetary
tables based on various rates of interest for use in life offices and
allied calculations are indispensable instruments of the modern
insurance technician.

A table of mortality has essentially three columns: (a) the age,
(b) the number of persons living at the commencement of the
year of age and (c) the number of persons dying during the year
of age. Additional columns the values of which arc calculated
directly from columns (b) and (c) may be included and the chief
of these is the ' rate of mortality ' which, for any age, is the pro-
portion of people who die within a year of attaining it, to the total
number entering it. It is thus the result of dividing the figure
in column (c) by the corresponding figure in column (b).

20

LIFE ASSURANCE

Premiums

To illustrate the process by which premiums (a premium may
be defined as the sum, whether single or periodical, payable in
consideration of an assurance) were evolved, let us turn for a
moment to the All-India Life Table of Males (1931 Census),
part of which is given below:

TABLE No. i.
Life Table All India (Males)

a
g
x

(1)

Dying Living

Living at between Mortality between
age x ages x and per cent x and

x plus 1 x plus 1
(2) (3) (4) (5)

o

100,000

24,874

24.87

85,443

20

5^ 2 3

6 49

1.27

50,878

30

43,931

850

i-93

43>56

4

34>5 6 3

1,017

2-94

34,054

5

24,348

998

4.10

23*849

Living Mean after
above life time
age x at age x

(6)

(?)

2,690,881

26.91

i ,5 i 3,935
1,036,776

642,884
348 3 43 6

29-57
23.60
1 8.60
14.31

If 10,000 people all aged 30, of the same state of health, desired
to form a group to secure a sum of Rs. 1,000 each, if death occur-
red before they attained age 31, every man in the group would
have to bear an equal share of the cost of the benefits paid to the
193 1 persons who would die in that year, provided the death rate
coincided with that indicated by the above table. The benefits
to be paid would then total Rs. 193,000 and if the expenses of
operating the scheme were eliminated, a payment of Rs. 19.3
from every member would become necessary. Similarly for
the 4O-year old people, the rate would be Rs. 29.4 and for the 20-
year olds Rs. 12.7. If the insurance cover required for every member
for one year was only Re. i, the rate of contribution from every
member would be Re. .0193 for the 3O-year old people, Re. .0294
for the forty-year old and Re. .0127 for the 2O-year olds. If,
therefore, the rate of mortality were to be expressed as the pro-
portion of deaths per unit, instead of per hundred, it would be
found that the unit rate of death for any particular age would
become the premium (or contribution) for a temporary assurance 2

1 Column (4) of the above Table shows 1.93 as the death rate per
hundred at age 30, so the number of deaths for 10,000 people would be

2 Also called * term assurance '.

FUNDAMENTALS 21

of Re. i for one year. A point of the highest importance in these
calculations is that this would be true only if large numbers of
people grouped together, as otherwise the death rate may not con-
form to the assumptions.

Let us take the case of a group of persons numbering 1,00,000
born in any year. Past experience from the census report would
show that 24,874 would die in the first year and only
51,203 live to attain the age of 20. If, however, all these 51,203
persons take out a temporary assurance for one year the rate of
mortality being .0127, a sum f R S - - OI 27 would be required to be
paid by each one of them to secure an assurance of Re. i for one
year, or Rs. 12.7 for an assurance of Rs. 1,000. When all the
51,203 persons pay this sum of Rs. 12-11-3 each, the total sum
of approximately Rs. 6 l /z lakhs thus collected would provide
Rs. 1,000 to the representatives of each of the 649 persons who,
according to the mortality table, would die during that year. If
the survivors of those who applied for insurance for one year at
age 20 desired to continue the arrangement for another year, each
member had only to pay another premium based on the death
rate for age 21 instead of age 20 and so on until all the people
died. Mathematicians prepared tables of mortality and corres-
ponding tables of premiums for all ages and sought to apply them
to the life assurance companies formed at the. earliest times.

These rates of premium increased with age. Despite this, a scheme
was prepared for life assurance under which a man took out an
insurance contract or c policy ' for life paying increasing amounts of
premium at every succeeding age, to secure for his dependents
a definite sum on his death. The contract, in some cases, pro-
vided for insurance protection for a specified number of years and
contained a schedule of the successive premiums payable. The
scheme provided a workable plan of assurance subject to yearly
increasing premiums, and there was no necessity for the accumu-
lation of any fund beyond a small margin for working expenses
and other contingencies, as the premiums paid during any year
paid for the death claims occurring in that year. In theory, the
scheme was workable (and is still being used to a limited extent
as the yearly-renewable-term assurance, particularly group insur-
ance and the net-risk plan of reinsurance, although important
practical limitations preclude its more extended application) but
in practice it failed. For when it was continued without any limit
of age, many and eventually all the older policyholders dropped
out, as they were unwilling or unable to pay the prohibitive rates
of premiums. Those in poor health were tempted to keep their

22 LIFE ASSURANCE

insurance in force a.s long as possible in spite of excessive cost but
those in good health withdrew, thus creating an artificially increased
mortality rate among the older age groups, until a stage was
reached when the rate of mortality went beyond that provided
for.

Assessment Plan

Because of the limitations and the practical deadlock that was
experienced, a slightly modified scheme was evolved by the large
numbers of assurance societies formed towards the end of the
eighteenth and at the beginning of the nineteenth centuries. The
scheme, as modified, and called the c assessment plan ' implied
that if a sufficient flow of new members at younger ages were
obtained the average age of the whole group would remain fairly
constant and therefore the total death rate would not increase,
so that if an equal assessment were made from all survivors to
meet the death claims in one year, the annual rate would be about
the same.

Unfortunately they were working under a fallacy. Their
assumption was that with new members entering at younger ages
and old members going out as a result of death, the average age
would remain constant, and hence, they assumed, the death rate
would also remain constant, so that an assessment might remain
fairly constant. In actual practice the average age did not remain
constant, and even if the average age remained constant the death
rate did not remain the same. Nevertheless many com-
panies persisted with the scheme. For the first few years
the death rate was negligible as the number of deaths was
few and no difficulty was experienced in inducing new members
to join, but as years passed on, death rate increased, the proportion
of claims became larger, assessments were accordingly higher and
some of the younger and those in good health even among thr
older members gradually dropped out. Thereafter fewer new
members were obtained which inevitably led to a further and
more rapid increase of death rate and the assessment companies
found it impracticable to continue.

Lack of proper realisation of the importance of taking age into
account was the chief defect of the assessment plan. There was
a time when the plan was modified to include age, but then the
assessment was made in proportion to the number of deaths among
people who entered at the same age without making any adjust-
ment for the attained age at death, with the result that all schemes
of assessment assurance ended in failure. It is now generally

FUNDAMENTALS 23

accepted throughout the world that any plan of life insurance for
successful operation indefinitely should recognise the principle that
the cost to each member should be based on his attained age.

Level-Premium Plan

The practical disadvantages of the assessment plan led to the
evolution of the. ' level-premium plan ' under which a rate of pre-
mium is determined on the basis of attained age (or age next birth-
day) and is payable throughout the period of the policy the same
amount of premium every year. If a mortality table is selected
upon which the probable death rate the company will experience
can be based it is possible by a purely arithmetical process, to
determine a uniform or level premium for each of the persons
insured which will be sufficient to meet the claims when they occur.
This is the basis of the level-premium plan. Under the yearly-
renewable-term plan the premium in the earlier years is small and
increases with every succeeding year, but under a levelling process
the premiums are constant and will be greater than the actual cost
of insurance in the earlier years and less in later years. This is
the most practicable plan of insurance yet devised and is the only
plan suitable for whole-of-life insurance or insurance extending
upto advanced ages. This is the plan which is universally adopt-
ed by all the regular life insurance companies throughout the world
for most of the insurances issued.

It will be evident that in the earlier years premiums in excess of
the actual cost of insurance for those years will form a fund to
counteract the inadequacy of the premiums as the life gets older.
The level-premium plan therefore introduces an entirely new
element into the scheme of operation., viz., the invested fund, which
is called the Reserve on the policy. This is not a c Reserve ' in its
strictly commercial sense implying * surplus ' but is a fund formed
by the excess amount paid over the actual cost of insurance for
thr age, and maintained by the company at compound interest
to pay for the death claims as and when they occur; the company
must maintain it if it should function solvently. When a policy-
holder dies the Reserve on his policy will be available as part of
the amount payable, and as the Reserve increases every suc-
ceeding year bv the accumulation of such excess payments, the
actual cost of insurance, or the amount ' at risk ' (which is the
value of the policy less the Reserve on the policy) corresponding-
ly decreases. Increasing death rate is offset by a decreasing effec-
tive amount of insurance, the actual cost of insurance is kept down
to practical levels and insurance companies are able to operate the

24 LIFE ASSURANCE

scheme indefinitely on a solvent basis. The level-premium plan
is thus a combination of investment and insurance and not pure
insurance like the yearly renewable term plan or pure investments
like savings bank accounts.

Interest

The accumulation of the Reserve introduces an entirely new
element into the calculation of premiums, viz., interest, for right
from the date on which the first premium has been paid, a reserve
is created on which the company earns compound interest. This
interest increases the amount of the Reserve and corresponding-
ly decreases the cost of insurance to the insured and to that extent
credit is given in calculating rates of premium. In a level-pre-
mium plan the rate of mortality and the rate of interest determine
the amount of ' net ' premium which can be defined as that pre-
mium which, in the aggregate, will be exactly sufficient to pay all
claims. In the preparation of net premiums, it is assumed that
death takes place in accordance with the mortality table adopted
as a basis of calculations and that the amounts of premium paid
to the company are invested immediately on receipt at the rate of
interest which the company hopes to realise. The net premium
provides funds necessary to meet all the claims of the policy whe-
ther by death or otherwise or upon surrender.

In the preparation of premium tables it is customary to calculate
the net single premium (one lump sum) necessary to secure the
desired assurance and to determine annual premiums on the basis
of such single premiums. In all theoretical work it is also usual
to assume that death claims are paid at the end of the policy
year in which death occurs and, although in view of the fact that
claims are nowadays paid immediately upon proof of death and
title, the above assumption may not strictly be in accordance with
facts, the presumption simplies calculations. The amount of
interest lost in such an assumption is really negligible for some of
the deaths take place at the end of the year and some at the
beginning so that an average loss of about five months' interest
will be what is actually experienced. This loss is sometimes taken
into consideration when fixing the final premiums payable by an
individual.

So far we have been confining our discussion to a mortality table
constructed on the basis of population statistics, but actually for
reasons explained in the chapter on ' Mortality ' population figures
;\rc unsuitable for life assurance calculations, and the companies
use special mortality tables constructed on the actual experience

FUNDAMENTALS 25

of life offices. In India almost all the companies now use the
Oriental (1925-35) Mortality Table 1 and for the purpose of illus-
trating the calculation of the net single premium required let us
assume that this table is being made use of. According to this
Table if 1,000,000 people enter at the age of 20, 4,200 would die
before they reach 21, leaving a balance of 995,800 people at the
beginning of the second year. 4,182 would die in the second year,
leaving 991,618 to continue insurance at the beginning of the third,
and if this process is continued all of them would have died before
1 02. When they group together to effect insurance, all of them
pay the appropriate premiums at the beginning of each year, and
the representatives of those who die receive the sum insured at
the end of the year. That is to say, if there were 1,000,000 people
taking out policies at the age of 20, all of them would have
to pay the premium at the beginning of the year, and out of this
group 4,200 would have to be paid the amount of insurance at
the end of the year, but as all the premiums would have been re-
ceived at the beginning of the year they would earn interest during
that year. If the insurance is for Re. i only, the amount required
to pay the death claims of Rs. 4,200 at the end of the year would
be Rs. 4,200 less the interest earned during that year. An interest
table would show that Re. i invested at 3 per cent would amount
to Rs. 1.0300 at the end of the year, and conversely a sum of
Rs. .97087 invested at the beginning of the year would amount
to Re. i at the end, so that in order to enable a company to pay
Rs. 4,200 at the end of the year a sum of Rs. 4,200 x .97087 or
Rs. 4,077.654 need only be collected from all these people
taking out policies. If the insurance is for Rs. 1,000 the amount
to be collected from them would be Rs. 4,077,654. Similar values
can be calculated for all subsequent ages.

In this we have assumed that interest will be earned at the rate
of 3 per cent., but the actual rate earned by a company will de-
pend upon various circumstances, and it is the duty of the actuary
of a company to determine the rate of interest to be assumed in
these calculations. We shall take for granted that the rate >of
interest assumed is 3 per cent. In order to illustrate further what
the net single permium should be, let us assume that the insurance
is commenced at age 95 so that arithmetical calculations would
be considerably reduced. From the table given in Chapter VI
it would be found that 1850 people enter that age out of whom
683 die in that year leaving 1167 people to enter age 96.

iSee Chapter VI for details of the Table.

26 LIFE ASSURANCE

The figures given below, taken from a compound-interest table,
give the present values of Re. i due in the number of years at
3 per cent :

Table No. 2.
Present value of Re. i at 3 per cent, compound interest.

Number of years. Present value of Re. 1 due in

number of years stated.

1 .97087

2 .94260

3 -91514

4 .88849

5 .86261

6 .83748

7 -81309

8 .78941

The table shows that .97087 invested for one year at 3 per cent,
will amount to Re. i at the end of the year and that Re. .94260
invested for two years at the same rate would amount to Re. i at
the end of two years and so on.

If a one-year term policy for Rs. 1,000 is taken out at age 95 by
each of the 1850 people living at the beginning of that age, and
if the actual death rate among them was as given by the Oriental
Mortality Table, the sum required to pay death claims in that
year would be Rs. 683,000. Although these claims occur through-
out the year, it is assumed that they would be paid at the end of
the year and the whole of this money would be available for in-
vestment in that year, so that in order to pay Rs. 683,000 a sum
of Rs. 683,000 x .97087 would have to be collected at the begin-
ning of the year. This amounts to Rs. 663,104.21 or Rs. 663,104
(correct to the nearest digit) would be required, and everyone of
the 1850 people living at the beginning of the year would have to
pay the same amount of premium. This premium therefore would
amount to Rs. 358.43 (683,1041850) which is the net single
premium for a one-year term assurance at age 95 according to thr
Oriental Mortality Table and 3 per cent interest. If the 1 167
people left over at the beginning of agr 96 continued the arrange-
ment similar calculations would prove that a sum of Rs. 432,653
would have to be collected now to pay for the death claims occur-
ring in that year and so on, and a final table as given below could

be prepared:

FUNDAMENTALS

Table No. 3.

27

Calculation of Net Single Premium for Whole
Life Policies for Rs. 1,000. Age 95. Oriental
(1925-35) Ultimate Mortality Table. 3 per

cent interest.

fear

Number

Number

Death Present value Present value of

living

dying

claims

of Re. 1

Death claims

(1)

(2)

(3)

(4)

(5)

(4) x (5)

i

1850

683

Rs.

683,000

.97087

Rs.

663,104

2

1167

459

Rs.

459,000

.94260

Rs.

432,653

3

708

296

Rs.

296,000

9I5H

Rs.

270,881

4

412

183

Rs.

183,000

.88849

Rs.

162,594

5

229

1 08

Rs.

108,000

.86261

Rs.

93> l62

6

121

60

Rs.

60,000

.83748

Rs.

5>*49

7

61

4i

Rs.

41,000

.81309

Rs.

33.337

8

20

20

Rs.

20,000

78941

Rs.

15,788

Total

present

valiK

" of death

claims

Rs. i

,721,768

Single

premium for

each of the 1850

Rs.

93-7

Chart No. i.

NUMBER OF CLAIMS PAID AT THE END OF:

SUM ASSURED --KS 1.000

Total present j I7.2I.7M-M850 (Number auurinj)
values of all claims/ = R 8 9307 net single premium.

Diagrammatic illustration of calculating net single premium. See Table 3.

28 LIFE ASSURANCE

This will mean that a net single premium of Rs. 930.7 will have
to be paid by each of the 1850 people taking out insurance for
Rs. 1,000 at age 95, the insurance to be continued until all of
them die. If, however, another type of insurance is taken by
which, after the insurance has been in force for five years, those
living do not continue payment of the premium but receive the
amount of the insurance then, (that is to say they create an
'endowment' of Rs. 1,000 payable after five years) the same cal-
culations would hold good except that all the amounts would be-
come payable at the end of five years, as given in the following
table :

Table No. 4.

Calculation of Net Single Premium for Endow-
ment Policies for Rs. 1,000. Age 95. Oriental
(1925-35) Ultimate Mortality Table. 3 per cent
interest.

Year Number Number Death

living Dying claims wi i^, A /^ x ,^

(I) (2) (3) (4) (5) (6)'

1 1850 683 Rs. 683,000 .97087 Rs. 663,104

2 1167 459 Rs. 459,000 .94260 Rs. 432,653

3 708 296 Rs. 296,000 -91514 Rs. 270,881

4 412 183 Rs. 183,000 .88849 R S - ^2,594

5 229 108 Rs. 108,000 .86261 Rs. 93,162
Maturity claims of 121 living

at the end of 5 years Rs. 121,000 .86261 Rs. 104,375

Total present value of death and maturity claims Rs. 1,726,769
Single premium for each of the 1850 Rs. 933-39

The above illustration shows that if all the 1,850 people at age
95 group together for the purpose of effecting endowment assur-
ances for Rs. 1,000 to be paid at the end of five years or on earlier
death, the net single premium which each of them would have to
pay would be Rs. 933.39. Similar premiums can be calculated
for all ages and for all kinds of assurances issued and these cal-
culations are done by the actuaries.

Net Annual Premiums

So far the calculations have been limited to payment of a single
lump sum at the beginning of the term of insurance to provide

FUNDAMENTALS 29

cither a whole life or endowment policy by every one of the people
taking out insurance. The calculation of the net annual premiums
is more complicated, and in practice mathematical formulae are
used, but for the non-mathematical reader it may be stated that
the annual premium is a life annuity payable by the assured to the
company. An annuity is an annual payment and if the present
value of a life annuity of Re. i (i.e. net single premium for an
annuity of Re. i ) is determined,, the net annual premium equiva-
lent to any single premium can be calculated. These calculations
are beyond the scope of this volume as they involve complicated
mathematical calculations.

Level-premium plan vs.
yearly-renewable-term plan

In the case of all those who die before the age of about sixty
the yearly increasing premium plan would be cheaper. In actual
life the chances of death before 60 is small, but, if it does not
occur before sixty, the probability of death becomes a certainty
during the period after that age. Every man has an equal chance
of living upto a ripe old age and such persons as live after 60 will
have to pay considerably enhanced premiums in later years under
the yearly increasing premium plan than the other method, at a
time when their financial position is none too good. Under the
level-premium plan, on the other hand, the insured is actually
4 insuring himself ', that is to say, accumulating reserves of a
steadily increasing amount each year to pay for insurance in later
life. It is not purely insurance as it requires larger payments than
are required for pure insurance in the beginning, but the insured
builds up an investment as represented by the reserve.

Under the level-premium plan the company is never * on the
risk ' for the full sum insured at any time but only for the face
value less the accumulated excess payments made by the policy-
holder. The plan is thus a combination of increasing investment
with decreasing insurance, the two amounts being mathematically
computed in such a way as to make their sum equal to the face
value of the policy at any time. The financial operation of a
level-premium plan is not so simple as these observations imply
and entails much mathematical work which only the technical
man or actuary is qualified to undertake, but this is the funda-
mental principle of modern insurance. The level-premium plan
is the only scientific way in which it is possible to provide insur-
ance payable at death, no matter when it occurs, without the
possibility of the cost being prohibitive. The whole calculation

30

LIFE ASSURANCE

is based on the assumption that a sufficiently large number of
policyholdcrs will be enlisted in order to ensure average results on
which alone will the assumptions made in calculating the premium
come true. The level-premium plan is now recognised both by
the public and the governments as the only practicable way of
effecting insurance permanently and equitably : it is equally appli-
cable to whole of life and all other plans of insurance which cater
to individual requirements.

It has been observed that the basis of the level premium plan
is the accumulation of reserve, and the basis of the plan and its

Chart No. 2.

WHOLE- OF- LFE LEVEL PREMIUM vs
YEARLY RENEWABLE TERM ASSURANCE PREMIUM

1000

MORTALITY: ORIENTAL (1925-35) ULTIMATE
INTEREST; 2,r/ per annum

100 102

advantages can best be illustrated by means of a diagram. In this
graphical illustration, the figures are based on the Oriental 1925-35
(Ultimate) Table of Mortality with interest at 2/ 2 per cent. The
curved line A to B shows the increasing premiums to be paid at
successive ages to provide for an insurance of Rs. 1,000 in each
year from age 40 until very old ages. At age 40 the premium is
Rs. 7.5, at age 60 Rs. 41.8 and at age 90 Rs. 262.4! The
curve shows that in the beginning the cost of insurance under a

FUNDAMENTALS 31

yearly-renewable-term plan is very low, at about the age of 56 it
becomes equal to the level-premium (represented by the line
GED), then it becomes high and rapidly increases from that point,
and from about the age of 70 or 75 it becomes utterly prohibitive.
The level premium at age 40 on the assumed Table of Mortality
and interest for an ordinary whole life policy is Rs. 29.87.
At no stage is the premium prohibitive, and so the insurance can
be continued without strain until death. From age twenty to
about fifty the level-armual-prcmium for ordinary life insurance is
higher than the yearly increasing premium.

Loading

We have so far confined our discussion only to a consideration
of the abstract principle of insurance and its working, but when
insurance is arranged through a company, which is the only way
in which it can be secured, provision has to be made for the ex-
penses of operating the scheme, for profits of those who operate
it and for other contingencies of any kind not reflected in the
basic assumptions of mortality and interest. It thus becomes
necessary to modify the net premium by the addition of the
amounts required to cover expenses together with an allowance
for contingencies and profit. This addition is called ' loading '
and the net premium increased by the loading is the * gross pre-
mium J which is paid by all those taking out insurance. But before
considering all the factors that go into the loading, and before
attempting to di c cuss the actual premiums paid, let us pass on to
the organisation of a company, and all the different types of
policies issued.

CHAPTER III
TYPES OF INSURANCE COMPANIES

A life insurance company may be oiganised as a * Proprietary
Company ' or as a ' Mutual Office '. The earlier Indian com-
panies were registered under the Indian Companies' Act X of
1866 : they are now registered under the Indian Companies' Act
1913. A majority of the companies transact life insurance busi*
ness only, but 47 companies (on 31 December 1948) transacted
other classes of business in addition to life: in the case of these
offices., known as c Composite Companies ', the Life Funds 1 are kept
separately from the other funds and are not liable for the claims
of other departments.

Mutual Offices

A Mutual Life Assurance Company is a co-operative associa-
tion of individuals incorporated for the specific purpose of effect-
ing insurance on their own lives. No separate shareholders control
it, but every policyholder is a ' shareholder ', if such a term can
be applied to a member. The primary object of a mutual office
is not to make profits but to offer insurance. In America, Mutual
Offices incorporated in the State of New York are prohibited, by
law, from issuing policies within the State which do not participate
in profits, although they do so outside. This has no scientific basis
as a mutual office can reasonably operate a department writing
insurances at * fixed cost ' for those who prefer them. In India
mutual offices transact both types of insurances: technically, how-
ever, non-participating policyholders of a jnutual office are nott
members (i.e. shareholders) in the sense that the profit or loss of
business is shared only by the participating policyholders.

Closely allied to the Mutual Offices are the Co-operative Life
Assurance Societies, the essential difference being that the latter
confine their activities to the limited field of the co-operative move-
ment. The Co-operative Insurance Societies have to register
themselves under the Provincial or Central Co-operative Societies'
Acts, in addition to the Indian Companies Act and the Insurance
Act. They are an adjunct to and work in close collaboration with

1 See Chapter VII for definition of Life Fund.

32

TYPES OF INSURANCE COMPANIES 33

the co-operative societies and there is no restriction on the amount
of insurance under a single policy issued by them.

The origin of co-operative insurance may be traced to the
Annual Co-operative Conference held in 1867 representing all the
co-operative societies of Great Britain. That conference resolved
to form an Insurance Institution for the benefit of those societies
. and their members to underwrite fire, life and fidelity guarantee
business. The first Co-operative Insurance Society was formed on
29 August 1868 and started active life assurance in 1886 on the
principle of dividing profits from life business exclusively among
life policyholders.

Started towards the end of the last century under Government
auspices primarily to extricate the peasants from indebtedness, the
co-operative movement in India had made much headway before
the first co-operative insurance society was formed. The origin
of this insurance was the formation of a Thrift Society intended
to promote the habit of saving among the urban iniddleclasses.
The society collected regular monthly savings from members for a
period of two or three years and then returned the total amount
plus interest at the end of the period. Regular co-operative life
societies were evolved out of this practice and they have now
made much progress in Bombay, Madras and Hyderabad. The
first in the field, however, was the Bengal Co-operative Insurance
Society Ltd. at Calcutta, but after various vicissitudes, it was
finally forced to amalgamate with a Proprietary company soon
after the Insurance Act 1938 was brought into operation.

The Bombay Co-operative Insurance Society was formed in
1930, worked in the beginning on a small scale issuing policies for
Rs. 150 and Rs. 500 without medical examination. It was in-
tended to bring life assurance on economic terms within the reach
of small income groups in both the rural and urban areas. The
venture was so successful that it has considerably widened the scope
of its activities, developed an all-India organisation and writes
policies for larger amounts and all types of life assurance.

The South Indian Co-operative Insurance Society, Madras, was
started in 1932 and has, likewise, made considerable headway.
The Hyderabad Society, however, confines its activities to that
State. There are a few more co-operative insurance societies with
restricted fields of operation among certain classes and professions
only.

The co-operative insurance society works through co-operative
societies and caters only to their members: every policyholder has
to be a member of a recognised society before he is insured. The

34 LIFE ASSURANCE

co-operative movement has a definite place in the society and in
the country's economy and the development of co-operative in-
surance is a distinct and laudable offshoot of the co-operative
movement: insurance offered by the societies helps to complement
the other activities of the co-operative societies. It is gratifying
to note that co-operative insurance has begun to enter the general
fields of insurance also.

Proprietary Companies

Proprietary insurance companies arc organised as joint stock
companies with shares subscribed by the public to such sufficient
amount as to start the business. Like any other business the pro-
moters or shareholders of a proprietary life assurance company
run it primarily for the purpose of making a profit for themselves
out of transacting insurance business, and generally issue both
participating and non-participating policies. Indian proprietary
companies distribute 1 ninety per cent of the profits as bonuses
among participating policyholders a practice which has received
allround approbation throughout the insurance world. These
profits (surpluses) are actuarially ascertained at intervals. The
Indian Insurance Act 1938 makes it obligatory for proprietary
companies transacting life insurance business to elect at least one-
fourth of the total number of directors from among the policy-
holders to enable them to have an effective voice in the conduct
of the company.

Organisation

No special organisational procedure governs the formation of
a life office; it is formed just like any other joint stock company.
Those who decide upon its floatation, determine its location, define
the objects, the powers and how they will be exercised, settle in-
ternal organisation, the amount of capital (if it is a proprietary
company) and all other legal details and incorporate them in the
Memorandum and Articles of Association. Proprietary companies
limit the issue usually to one class of shares, viz., ordinary shares,
and the latest amendment to the Insurance Act 1938 prohibits
life offices from issuing more than one class; with the further stipu-
lation that the face value and called-up amount of every share
should be the same and the voting right of every shareholder is
strictly proportionate to the number of shares held by him. It is
the usual practice to have a part only of the face value of a share

1 Insurance (Amendment) Act, 1950 limits the share of the shareholders*
profits to 7/2% of the surplus.

TYPES OF INSURANCE COMPANIES 35

called-up in order to make the uncalled part of it an additional
reserve for the liabilities of the company, especially during the
initial years. After a period of satisfactory operation this uncalled
capital has no practical value, as the reserve accumulated out of
the excess payments made by policyholders creates a fund many
times larger than the shareholders' capital itself. In some cases
it is not so; and any deficit in valuation is usually met by calling
up this reserve liability or if all the shares have been fully paid-up,
by introducing fresh capital.

Capital Structure

Under the provisions of the Insurance (Amendment) Act, 1950,
no person (which expression includes a public or private limited
company, partnership firm, or their executives, or a private in-
dividual) can hold, either for his own benefit or for the benefit
of others, shares of a company the value of which exceeds five per
cent of the total paid-up share capital : in the case of a banking
or investment company this percentage is further limited to 2^2
per cent. Companies are required to ( i ) maintain registers of
actual and beneficial owners and (2) refuse transfer of shares if
the total paid-up holdings of one individual, either for himself or
on behalf of others, exceed the percentage prescribed. All holders
of shares either in individual capacity or for the benefit of others,
and all beneficial owners are required to file declarations with the
companies regarding the extent of interest in the shares: default
in the filing of these declarations would deprive them of their
voting rights. Reasonable time and facilities have been provided
to the existing shareholders to dispose of their excess holdings.

Prior to the enactment of the Insurance Act 1938 life offices
were permitted to have Managing Agents, and usually had them.
That Act abolished the system altogether and since then properly
elected directors manage the affairs of the company.

Registration

When the organisers have filed the necessary papers with the
Registrar of Joint Stock Companies and obtained a certificate of
incorporation, they are in a position to receive the actual subscrip-
tions to the capital in the case of a proprietary company or to
receive applications for insurance and premium amounts in the
case of mutual companies, but they cannot as yet issue policies.
Before issuing them, companies have to obtain certificates of regis-
tration from the Controller of Insurance, which are issued
only when the capital, the necessary minimum amount of statutory

36 LIFE ASSURANCE

deposit and working capital have been received and when such
a deposit has been made with the Reserve Bank. Under the In-
surance Act 1938 the Statutory Deposit in respect of a life assur-
ance company, whether proprietary or mutual, is Rs. 2 lakhs and,
in addition, a net working capital of Rs. 50,000 has to be collected,
exclusive of any sums payable as preliminary expenses. There
was no separate insurance law prior to 1912, and no question of
deposit or minimum capital, therefore, arose. The Indian Life
Assurance Companies Act, 1912, made an initial deposit of
Rs. 25,000 in Government securities obligatory, this amount to be
increased by annual payments of a third of the annual premium
income until it reached a lakh of rupees and thereafter by annual
payments of a third of the increase in life insurance fund until it
reached Rs. 2 lakhs. These provisions were extremely liberal and
enabled promoters to float life assurance companies with com-
parative ease, while the absence of provision for any minimum
subscription of capital induced many of them to start with no funds
at all to meet organisational expenses, with the result that such ex-
penses were met from premium incomes without adequate provi-
sion for them in the loading. It is evident that the principle of
meeting the statutory deposit required by law, and organisational
expenses, if any, from the premium income is highly unsatisfactory,
since the premiums are required for claims and ordinary expenses.

Preliminary Expenses

In the case of a proprietary company preliminary expenses are
easily met by the sale of shares which, under favourable condi-
tions, may be sold at a premium, thus creating an immediate sur-
plus fund in excess of the statutory capital out of which prelimi-
nary expenses of organisation can be met. During the war, a few
companies were able to adopt such a procedure, and get subscrip-
tions of capital, at a premium, much in excess of their actual
requirements.

The situation is different with mutual companies and presents
a difficult problem. It is often not easy to obtain a sufficient
number of applications from persons willing and able to insure
with a new company so as to utilise the premium amounts towards
the deposit required by law and the capital needed for registra-
tion. Further considerable expense is involved in the details of
preliminary organisation like rent, stationery, wages, printing, legal
fees and so on all of which have to be paid in cash. The com-
bined expenses will generally exceed the possible income from the
preliminary application for insurance and are usually met by a

TYPES OF INSURANCE COMPANIES 37

loan from the organisers, with provision for redemption with
interest when the surplus funds of the company are sufficient for
that purpose. In the case of all companies it is usual to write
off the preliminary expenses out of actuarially ascertained sur-
pluses at the time of valuation as early as possible.

Preliminary Operation

The premiums charged by a life assurance company, whether
mutual or proprietary, are based on the theory of averages and
probabilities, and on the assumption that past experience may re-
peat itself in future. This is possible only where there is an ade-
quately broad basis of operation, and it is desirable to follow two
guiding factors in the formation of companies : ( i ) a definite plan
of organisation to secure insurances from sufficiently large numbers
to eliminate the possibility of any deviation from the expected
average experience, and (2) provision of enough capital to offset
any unfavourable experience. It is a good plan to create a general
contingency reserve fund out of the capital from the beginning to
provide for unforseen unfavourable fluctuations of mortality and
claims, and this can be provided out of the share capital of a pro-
prietary company. In the case of a mutual office such a fund
can be created only from borrowings in which case the loan is
considered as a loan to policyholders and redeemed with interest
when the surplus funds from the company's operation is sufficient
to meet them.

Mutualisation

It therefore follows that it is easier to promote a proprietary
company than a mutual association, for the simple reason that it
is easier to raise the money required for preliminary expenses of
organisation by public subscription of capital than by immediate-
ly securing a large number of persons willing to take policies in
a new concern, or by securing loans. Later, when the company
has become a going concern and has been in successful operation
for some years, the accumulated funds make the security of pay-
ments furnished by the shareholders' capital less important, and
even unnecessary. In a proprietary company with a good record
of successful operation for quite a number of years the share-
holders' capital, although a substantial amount, is eventually small,,
compared to its total liabilities; it is possible therefore for the
policyholders, to entertain a desire for its control in view of their
greater stake in the finances. The impending purchase of a large
block of shares by undesirable financiers in order to gain control

38 LIFE ASSURANCE

of the huge reserves of a company may also sometimes influence
the management to initiate mutualisation of proprietary com-
panies. In all such cases the company creates a fund out of the
policyholders' reserves to purchase the shareholders' interests. Such
a mutualisation scheme should have the consent of both the policy-
holders and shareholders and when a majority of them agree to
the sale and to the terms of purchase, the scheme is put into opera-
tion with the sanction of the Central Government. 1 It may
sometimes happen that a minority of recalcitrant shareholders
refuse to sell and in such cases the shares already sold are tem-
porarily held by trustees for the policyholders who receive the
bonuses when they are declared and pay them back to the policy-
holders. The company would then be technically a proprietary
company, and as the trustees would be in a majority, they would
have the actual control of its affairs and work it, for all practical
purposes, as a mutual company, until all the shares have been
purchased.

Control

A proprietary company is owned by the shareholders and is con-
trolled by the directors elected by them, through the executives.
For all practical purposes, control usually vests with the holders
of the majority shares, who may be a small group or an individual;
this position might change considerably in the future. The
directors statutorily ekctcd by the policyholders to the extent of
twcntyfive per cent of the total number of directors, are in a per-
petual minority and have no effective voice in the management.
Insurance (Amendment) Act 1950 vests power with the Govern-
ment to appoint two additional directors if necessary.

In mutual companies control theoretically rests with the policy-
holders but they are too numerous, scattered all over the country
and, in many cases, ignorant of their rights and responsibilities as
owners of the company. There are innumerable practical diffi-
culties in taking united action (the absence of any convenient
method of intercommunication is only one of them), so that, for
all practical purposes, a mutual company is controlled by the
officers and directors. For the purpose of electing or re-electing
the directors, proxies are collected from eligible policyholders by
sending them a proxy form together with the notice intimating the

1 New Section 6C, Insurance (Amendment) Act, 1938. This section
gives the right of appeal to the High Court to any person aggrieved by a
scheme of mutualisation sanctioned by the Central Government.

TYPES OF INSURANCE COMPANIES 39

holding of the meeting at which the election is scheduled to take
place.

Continuous concentration of control has its advantages, for
where a quick decision is needed, as it very often happens, the
management will be able to act immediately and effectively. Fur-
ther, frequent changes in management are usually bad for the
proper conduct of business, and where an efficient and responsible
administration has secured power, it is undesirable and often
deleterious to the interests of sound business to effect a change.
On the other hand, if an unscrupulous group of individuals gain
control of a company, either by the purchase of a block of shares
(in proprietary companies) or by influencing a majority of policy-
holders, it is possible for them to disregard the interests of policy-
holders, but such a situation will rarely occur in the case of large
and well-established offices. The fact that directors and executives
of a proprietary company owe no allegiance or responsibility to
policyholders is often used as a strong reason to advocate the
elimination of proprietary concerns from the whole business of
life insurance, but the allegation is baseless for no executive or
director can afford to ignore the legitimate interests of the policy-
holders with immunity and without jeopardising his institution.
The shareholders' share of the profits is very negligible, and, com-
pared to the mutual companies the bonuses declared by Proprie-
tary Companies have not been in any way unfavourable. Further
the close supervision exercised by the Controller of Insurance acts
as a stabilising factor against common malpractices, and policy-
holders have absolutely no cause for fear under the existing systems
of control. All the same, the prevailing tendency in the world
is for the mutualisation of proprietary companies.

Organisation in Foreign Countries

In the establishment of life offices, almost the same procedure
is followed all over the world, except in the matter of initial de-
posits and paid-up capital required by law. In America, for
instance, it is necessary to secure advance applications from 500
persons for a total insurance of $1,000,000 before a mutual com-
pany can be organised, and a further initial deposit of $100,000
has to be made with the Superintendent of Insurance before it
can proceed to do business. Preliminary expenses of organisation,
apart from the deposit required by law, are usually met by raising
a loan, and in view of these strict provisions, no new mutual com-
pany has been organised in New York for some considerable time,
but many of the stock (proprietary) companies have since been

40 LIFE ASSURANCE

tnutualised, the largest insurance companies there being run on
the mutual basis now.

In the case of proprietary companies, the law in force in the
State of New York requires that the share capital shall not be less
than $100,000 and that before the company commences operation,
the paid-up share capital and a further sum of $50,000 earmarked
as ' surplus ' should be collected : this surplus serves to meet the
preliminary expenses of organisation and is usually obtained by
selling the share at a premium. The statutory deposit required
to be paid in is $100,000 and the capital either the whole or part
of it may be used towards this payment, but not to meet the
surplus. The stipulation of the amount of $50,000 needed to be
collected for organisational expenses as distinct from the share
capital puts considerable practical difficulties in the way of orga-
nising a new company unless the promoters are able to sell the
shares at a premium.

The Assurance Companies Acts of 1870 and 1871 in the United
Kingdom stipulated a deposit of 20,000 for all new life assurance
companies floated in that country, more to counteract the pro-
motion of financially unsound institutions than to offer any safe-
guard to policyholders' liabilities. The Assurance Companies' Act
of 1909 retained the provisions but the Assurance Companies' Act
of 1946 dispensed with the requirement of a deposit. This deve-
lopment is a further step in the principle of free trading in insur-
ance with healthy publicity on which the United Kingdom laws
of insurance are based, and has been hailed in British insurance
circles as an invitation for other countries to follow. At no time
has there been any statutory provision for a stipulated minimum
paid-up capital and there is a company working in that country
with a paid-up capital of only 25,000.

CHAPTER IV

TYPES OF INSURANCE CONTRACTS
INSURANCES AND ANNUITIES

Participating and Non-participating

In the early days of life assurance, most of the offices based
premium calculations on the Northampton and Carlisle Tables
which were unscientific and showed very high rates of mortality.
Consequently premiums were higher than were actually needed
to meet the risks involved, and when large surpluses accumulated
in course of time, a portion of those surpluses was distributed as
4 bonuses ' to policy-holders. Later, premiums were charged in
excess of that required to meet the risk involved and the expenses
incurred in pursuance of a deliberate plan, with the stipulated
intention of paying back that excess as bonuses. Naturally, all
those who took out insurance were not prepared to pay such higher
rates of premium, nor were they keen on the benefits of a bonus
and to meet the needs of those who demanded protection at a
minimum cost, anothr type of policy was offered without any share
in the profits of operation. Thus were evolved two types of
policies., and with rare exceptions, Life Insurance is today offered
under two great classes : ( i ) those which share in the profits called
k< With Profit" or "Participating" policies, and (2) those which
do not share in the profits called " Without Profit " or " Non-
participating " Policies.

Despite the fact that the holders of participating policies pay
a slightly higher premium to get a share in the business profits the
actual advantages obtained largely depend upon the efficiency of
administration, economy, skilful and even fortunate investment of
funds and the general economic condition of the country which
has a direct bearing on the interest earned by the company. > It
is the usual practice of all offices to include the reserves of all
policies in one fund. Profits accruing from non-participating
policies, either due to favourable mortality experience, higher
interest earnings or economic management, go back to the general
surplus to be distributed among the participating policyholders.
For all practical purposes, therefore, in favourable circumstances,
and in the case of well-managed offices, the bonus received by
participating policyholders will represent considerably higher value

41

42 LIFE ASSURANCE

than the additional premium they pay for securing the benefit of
a share in the profits.

But favourable, or even normal conditions, rarely exist for any
length of time and it is possible that at any time there may be a
tendency towards increased mortality, rising expense or falling
interest rates; the rates of bonus will then be automatically reduced
and insurance will become costlier to the participating policy-
holders. In other words they share in the losses too. The ex-
perience of companies during and after the war is illustrative of
changed conditions affecting the cost of insurance. The actual
expenses of management were higher and interest rates lower than
those assumed in the pre-war contracts and as the premiums of
existing policies could not be altered, bonuses were drastically cut
down or discontinued altogether.

Non-participating policies, therefore, have certain advantages.
In the first place they offer insurance at a guaranteed annual cost,
which is constant and not subject to any variation. Secondly,
insurance is offered at a rate of premium which is fixed at as low
a level as it can safely be made. No company can afford to charge
a premium less than the expected actual cost, but the difference
between the net cost of insurance and the actual premium charged
is kept down to meet the necessary margin of safety, solvency, and
legitimate profits. In participating policies, on the other hand,
premiums arc admittedly higher than the net cost, and no attempt
is made to fix them with exactitude since the excess is usually re-
funded as bonuses.

The periodical payment of bonuses during a period of years
results in a lower net cost to the participating policyholder, but
reductions in bonus rates due to lower interest yields in recent
times have resulted in net costs which are ostensibly higher than
non-participating policies. This is a factor which has to be
reckoned with when deciding upon the class of policy taken. A
compensating advantage of a participating policy is the extra
margin of safety both to the company and the policyholder due
to the higher premium.

Normal Classification of Policies

The universal recognition of life assurance as an essential adjunct
of social life has resulted in the evolution of various types of
policies designed to meet individual requirements. All first class
life offices continuously evolve progressive types of policies to meet
changed conditions. The one predominant feature of all policies
evolved in the past or to be evolved in the future is that an

TYPES OF INSURANCE CONTRACTS 43

insured pays for exactly the kind of benefit he gets, nothing more
and nothing less. Insurances can be effected on a single life, on
more than one life and on a group of individuals, and generally
fall under three broad heads:

A. Standard forms of life assurances

B. Standard forms of annuity contracts

C. Miscellaneous contracts, and combinations of assur-
ances and annuities.

A. STANDARD FORMS OF LIFE ASSURANCE
CONTRACTS

They are issued on the life of a single individual or on the lives
of two or more individuals, the principal forms of assurances being
(i) Whole life (2) Endowment and (3) Term.

Whole Life

Whole Life Assurances by premiums payable throughout life
are the most popular and widely issued contracts in the United
States at present, and for many years previously the most popular
in the United Kingdom. They have never been particularly
popular in India. In 1914, for instance, only 12.5% of the total
new business transacted by Indian companies were under this
plan, and the percentage gradually fell and stood at 7.43 in
1919, 7.90 in 1924 and 7.40 in 1927. After 1927, separate figures
for different classes of insurance were not published by the Gov-
ernment, but comparatively very few people show any active
interest in assurances for whole of life, with premium payable
throughout. Under this policy, in return for premiums payable an-
nually, half-yearly, quarterly or even monthly, throughout life, the
company agrees to pay a specified sum at the death of the insured,
whenever it may occur. Being the most ideal type of policy for
those who require a plan of insurance protection for an indefinite
period, it purchases for a given sum an insurance cover that is,
in most cases, larger than that under any other form of permanent
assurance and enables a man to make a definite provision for his
dependents on death. The without-profit policy under this plan
is real life assurance. It is a perfect plan of assurance for those who
can afford to pay only a limited amount of premium and wish to
secure the largest protection with it, and the most adaptable to
meet the needs of changing circumstances and special require-
ments. Inherent in the scheme, however, is the draw-

44 LIFE ASSURANCE

back that the premium has to be paid even at a period of a man's
life when he is usually unable to do so.

"Special" Whole Life Policies

The present tendency is to replace the ordinary whole of life
assurance by a very long term " special " whole life policy, with
payment of premium ceasing at very old ages, usually 65 or 70,
the sum insured becoming payable only at death.

In living to the ripe old age of 75 or 80, an assured, as a rule,
is likely to pay an aggregate amount of premium far in excess of
the sum assured under the regular whole life plan, but not under
Special Whole Life, for it is specially devised to make it fully
paid-up when the aggregate premiums paid amount to just less
than the face value of the policy. The age at which this happens
and the policy becomes fully paid-up generally coincides with his
age of retirement from active life and the possibility of having to
pay premiums at a period of his life when his income has practi-
cally ceased, is also eliminated. When the premiums have ceased
and the policies have become fully paid-up, they generally partici-
pate in future declarations of bonuses under the participating plan.

Whole Life, limited payment

The inherent drawback of the ordinary whole life plan, namely,
the liability to pay premiums at extreme old ages, is eliminated in
this scheme by limiting premium payments to a specified number
of years, the amount of insurance being payable at death. Policies
are issued providing for a specified number of premiums such as
10, 15, 20, 25 or 30 or for payment of premiums upto a specified
age, such as 40, 50, 60 or 70 and the companies are usually willing
to issue a limited payment policy with any desired number of
premiums. The benefit of being able to arrange for the premiums
to cease at the anticipated retirement age makes it an ideal policy
to provide protection for the family, as, on retirement from active
business life, the insured is in possession of a fully paid-up policy.
Usually they carry a rider to provide for their surrender for a sub-
stantial cash payment when all the premiums have been paid.
With Profit Policies generally participate in profits even after the
premiums have ceased.

For the same amount of outlay the sum assured that can be
obtained under the whole life limited payment scheme is substan-
tially greater than on an endowment assurance maturing at the
time the premiums cease. The comparative advantages to a
healthy life aged 25 under the limited payment whole life assur-

TYPES OF INSURANCE CONTRACTS 45

ance and the endowment plan can best be illustrated on the basis
of a prominent company's tables of premium.

For an annual premium of Rs. 100 payable for a maximum
period of 35 years (premiums ceasing at age 60) a man can
secure either (i) a policy for approximately Rs. 3,750 without
profits payable at death (2) Rs. 2,900 with profits payable at death
(3) an endowment assurance of Rs. 3,200 without profits maturing
at age 60 or (4) endowment assurance of Rs. 2,825 with bonus
additions. In a whole limited payment policy premiums ceas-
ing at age 60, he will have a paid-up policy for Rs. 3,750 at 60
(without profits) and will have no further premiums to pay: he
will have the option of continuing the policy as a free paid-up
whole life assurance for Rs. 3,750 without profits, or surrender
the policy for a cash value of a little over Rs. 2,000. Under
the endowment plan he receives a cash payment of Rs. 3,200 at
age 60, that is to say he receives roughly Rs. 1,200 more than what
he would have obtained under the whole-life limited payment plan
when the option of a cash value is availed of, but, at the same
time, it is apparent that he has obtained an additional insurance
cover of Rs. 550 (Rs. 3,750 minus Rs. 3,200) for 35 years, with
the option of continuing an assurance for Rs. 3,750 without profits
after age 60, without the liability to pay any premiums at all. Thus
the element of insurance protection is more in the case of a whole
life scheme than the endowment and the former is an ideal plan
of insurance for those young men who desire to have a definite
scheme of protection for the benefit of their dependents in the
event of early death.

In the United Kingdom this class of policy is very largely used
to make a satisfactory provision for death duties, which could
cripple the estates of a deceased person even in normal times.
Various attempts were made in the past to introduce death duties
in India and a legislation is actually pending; when they are intro-
duced (and by all present indications that time will not be far
distant) the whole of life limited payment assurance will be the
most suitable method of providing for the relatively large sum of
money required to meet the dues before the heirs can obtain legal
possession of an estate. Life assurance is almost the only practi-
cable way of providing for this payment without immediate finan-
cial loss.

Single Premium Whole Life

Competitive bidding for the available amount of assurance has
influenced most of the companies to quote special rates for a single

46 LIFE ASSURANCE

premium whole life policy., which is really a special case of a
limited payment policy in which the number of premiums payable
has been limited to one. Usually the policy is entitled to a sur-
render value from the outset, ranging from 85 to 95 per cent of the
single premium paid according to the rules of the particular com-
pany. The surrender value usually remains at this figure until,
after the lapse of several years, a larger value becomes payable
under actuarial calculations. The effective insurance protection
in this type of policy is substantially less than the face value of
the policy and the investment portion correspondingly greater, and
the policies should therefore be viewed from an investment angle.

Endowment Assurances

The most popular form of assurance in this country is the
Endowment Policy which provides for an amount of insurance
(called the sum insured) payable in the event of death during
a specified period (the endowment term) or upon the survival of
the life assured till the end of that period (i.e. at the maturity
date). Rates are quoted either for maturity dates at specified
ages (i.e. endowment age) or for specified terms of years, and the
premiums are almost always payable throughout the whole cur-
rency of the policy, although special policies may be issued provid-
ing for shorter periods than the full term of the policy or under
the single premium plan.

A plan of insurance under which the sum assured becomes pay-
able only in the event of death within a stipulated period is term
assurance, while a policy which provides for payment only upon
survival of a stated date and not in the event of prior death is
* pure endowment ', and by combining the benefit of both term
assurances and pure endowments, present-day endowment pojicies
present a very equitable combination of investment and assurance
protection. Rates of premium are calculated to ( i ) create a
steadily increasing reserve out of the annual premiums, which,
with interest, will equal the sum assured on the maturity date, and
(2) the level annual premium required for decreasing assurance
protection. These combined rates, at any given time, are exactly
sufficient to grant the benefits provided for in the insurance
contracts.

There is a fallacy in the minds of even knowledgeable people
that, since, generally a larger aggregate amount is paid by way of
premiums than the face value of insurance, endowment assurance
is an economically unsound system of investment. This criticism
is largely actuated by the fact that until very recent times the sum

TYPES OF INSURANCE CONTRACTS 47

insured, with bonus additions under participating policies, repre-
sented a reasonable yield on the premiums, even apart from the
life assurance protection received. The argument is fallacious for
two reasons: firstly, only a certain portion of the premium paid
is the investment element and in considering endowment insurance
from an investment point of view, only that part has to be taken
into account for computing yields, and secondly, that portion of
the premium which is paid for insurance protection is spent, not
invested, and is comparable to premiums paid for fire insurance
or for protection for any other risk.

Occasionally, an argument is advanced by even responsible
persons that in the event of an assured surviving the maturity
date, the excess of the premiums paid over the oum assured should
be returned with the amount of assurance. How absurd the argu-
ment is can very easily be understood by analysing the nature of
the premium: a definite part of it goes to give protection to the
insured during the currency of the policy and is spent, and if he
should get any amount additional to the sum assured (with
bonuses) a considerably higher premium will have to be charged
to pay for the excess.

In point of actual fact the investment element in an endow-
ment contract is greater than under limited payment whole life.
Premiums under term assurances are paid for insurance protection
only: level premiums under whole life schemes create an increas-
ing fund in the hands of the company which constitutes an invest-
ment element, the whole or part of which is refunded in the event
of surrender but this investment portion is greater in the case of
an endowment policy than whole life schemes. A participating
policy in a well-managed office in normal circumstances secures
a better^ yield than non-participating policies, and a short-term
plan will, within certain limitations, give a better yield than a
long-term plan, since there is less insurance protection. A short-
term endowment plan is therefore eminently suitable for a young
man whose primary object is investment, but if his needs are for
a large insurance protection then the policy must mature at a
very old age.

The following table gives a rough idea of the relative cost of
insurance protection and investment element in (i) term assur-
ance, (2) endowment assurance and (3) whole life limited pay-
ment assurance: (for table, see next page).

A rough idea of investment element under plans B and C can
be had by deducting the cost of term assurance from the respective
premiums.

48 LIFE ASSURANCE

TABLE No. 5.

Typical Rates for a Rs. 1,000 contract term
assurance (providing for cost of life protection
only), endowment assurance and whole life
assurance. Premium payment limited to
10 years, in all cases.

Age Term Assurance 10-year Endowment Limited payment
' 10 years Assurance whole Life Assurance

ABC

20 16 2 104 9 60 9

25 16 n 104 ii 64 8

30 18 i 105 o 69 2

35 20 *5 *5 *3 74 *

40 26 3 107 9 81 3

45 34 10 i 10 10 89 o

Investment element in Plan A Nil.

By taking out a policy to mature at a very old age at whatever
age he desires to retire from active life -a young man will be able
to provide a substantial amount of money in the event of his early
death, and, at the same time, make suitable provision for his own
old age, but if his investments or income from other sources pro-
vide for his old age, and his desire is to create an estate for his
dependents on death, the limited payment whole life plan is emi-
nently suitable.

Term Assurances

If in return for a single premium or for periodical premiums
the amount of insurance is payable only if the assured die within
a specified period, that plan is a term policy. Upon survival, the
policy becomes void and all premiums paid are forfeited.

This is the oldest form of life assurance, provides temporary
protection at a low rate of premium, and is being increasingly used
as a means of protection by businessmen making short trips,
especially by air. In the normal course of business technical and
key men are often obliged to undertake frequent journeys from
the head office on behalf of their employers and their death would
invariably put the management to monetary loss, especially if, to
replace them, a considerable amount of money has to be spent for
training the new incumbent. In such cases a term assurance
affords a better form of protection to the organisation than any

TYPES OF INSURANCE CONTRACTS 49

other method. Perhaps an even better use to which this type of
policy may be put is in connection with loan transactions where
the repayment of a loan depends upon the survivancc of a debtor
and the man advancing it wishes to protect himself. Protection
is also provided for film stars and producers during the production
of a film by means of term policies.

Convertible Term Assurances

Recent trends in the world point to the increased application of
the principle of term assurance to special policies with provisions
for conversion to more permanent plans, such as whole of life
assurances or endowment assurances without any further medical
examination. These convertible policies fully meet the needs of
those who arc unable to pay the larger premiums under regular
plans of assurance at an early age of their life, but who expect to
be in a position to pay for such policies at a later date. They are
also useful when a person wishes to leave the final decision regard-
ing the plan of assurance he eventually decides to take, to a later
date. Conversion may be made either as of the date of conver-
sion or at the date of the issue of the policy. In the former case
future premiums after conversion are payable in accordance with
the company's tables for the age at the date of alteration, and
in the latter, special terms and premiums will be quoted for whole
life or endowment assurances to commence from the date of the
contract. In either case some limitation as to the time within
which conversion may be made is usually stipulated in the original
contract.

Decreasing term assurance

A type of policy which has been perfected in England is the
decreasing term assurance under which the sum assured is subject
to periodical decreases. It is usually effected to protect a lender
in the event of a borrower's death in cases where the loans are
repayable by instalments, and the outstanding feature of the policy
is its low cost. It is invariably subject either to a single premium
or to level annual premiums payable for a portion (usually one-
half) only of the term of the policy. The reason for the absence
of any scheme of level annual premium payment throughout the
life of the policy is inherent in the plan itself: if the assurance
were issued at level premiums payable throughout the whole
period and the policy lapsed after a short time, the company would
have received by way of premiums a sum quite inadequate to meet
the risk incurred.

50 LIFE ASSURANCE

B. STANDARD ANNUITY CONTRACTS

An annuity is an annual payment. Applied to life, assurance,
it is defined as a periodical payment to continue during a given
status, which can be the lifetime of a single life (in which case
it is called a Single-Life annuity), or joint lifetime of two or more
lives when it can either be a Joint Life Annuity or Joint Life and
Survivor Annuity. The person during whose life the annuity is
paid is called the annuitant. Annuities are mainly issued in two
forms: (i) Immediate and (2) Deferred.

Immediate Annuities

Are those in which the first payment begins one year after the
date of purchase when payable annually. It may also begin at
the end of six months, three months, or one month according to
the agreed terms of purchase. Under the usual conditions of
issue, when an annuity of Rs. 100 is payable in two half yearly
instalments of Rs. 50 each, the. annuitant will naturally earn an
additional six months* interest on Rs. 50 every year, and
will also receive an extra payment of Rs. 50 if his death should
occur in the second, and not the first half. The company
incurs additional expense in making quarterly and monthly annui-
ties, hence the purchase price is more.

An annuity may be either ' apportionable ' (or complete) that
is to say a provision is made in the contract for a pio rata payment
calculated up to the date of death, or ( non-apportionable ' (or
curtate) which is the usual kind, and is issued on the assumption
that the annuity ceases with the last full periodical payment prior
to the date of death.

In no case is evidence of the state of health of the annuitant
demanded: the company assumes that under normal conditions
the annuitant is in a very sound state of health, as otherwise, he
would not purchase an annuity in fact the longevity of annuit-
ants, especially ladies, is notorious. Proof of age is usually de-
manded before an annuity is effected.

A minimum Guaranteed Period

A drawback attributed to immediate annuities, is that payment
ceases at the death of the annuitant, no matter how soon after
purchase it occurs. In order to prevent serious loss to the pur-
chaser through early death, some offices issue immediate annuities
with payments guaranteed for a minimum period, such as fifteen
years; under this plan the company undertakes to continue pay-
ment of the original periodical instalments for a period of years

TYPES OF INSURANCE CONTRACTS 51

certain, even if death takes places within the period and to con-
tinue paying the instalments until death if it occurs after the ex-
piry of the guaranteed term. The purchase price of such an
annuity is naturally higher than that of the regular type, as the
additional benefits stipulated have to be paid for. The following
table illustrates the typical rates under two different forms of
immediate annuities the rates differ as between companies, and
not all the companies offer the two different forms in their tables:

TABLE No. 6.

Annual annuity payable quarterly which
can be purchased for Rs. 5,000.

Age Annuity payable until Annuity payable for 15 years

death only certain

Males Females Males Females

45 Rs. 286-6 Rs. 263-14 Rs. 262- 3 Rs. 246- 7

55 Rs. 362-1 Rs. 324- 4 Rs. 305-12 Rs. 287* 8

65 Rs. 503-0 Rs. 439-12 Rs. 350- 6 Rs. 337-10

Annuities are purchased primarily with the object of obtaining
the highest possible income from one's capital and normally the
amount of annual payments varies from about 4^2 per cent at age
40 to nearly 14 per cent at 75, with slightly lower percentages in
the case of female lives, who are, at these ages, better lives than
males. In every case a portion of the capital is returned with each
payment of annuity, so that, especially in the case of people with
excellent physique (who are the persons normally taking out
annuities), the aggregate of the instalments paid would represent
the entire capital plus a very good interest thereon. The fact that
income-tax has to be paid on the instalments is a factor that some-
times militates against annuities especially for those who desire to
have a large settlement of permanent income.

Joint Life Annuities

Can be of two kinds (i) ordinary joint life which are granted
on two or more lives with payments ceasing at the first death and
(2) Joint Life and Survivor annuities which provide for payments
until the death of the survivor of two or more lives. The former
type is seldom purchased. Joint Life and Survivor annuities
usually provide for uniform payments of annuity during the entire
currency of the contract, although, annuities may be purchased
stipulating payment of a reduced amount after the first death, and

52 LIFE ASSURANCE

possibly after the second death too, if three lives are involved.
This is reasonable, since the cost of living for a single person is
less than that for two.

A combination of Joint Life Annuities may be purchased with
advantage. A man aged 60 and his wife aged 55 can, for instance,
take out three annuities: (i) single life annuity on the husband,
(2) a single life annuity on the wife, and (3) a joint life and
survivor annuity. With the same outlay it may be possible, by
this combination, sometimes to ensure a higher annuity payment
during the life time of both the annuitants, with a lower payment
after the first death, than could be arranged under a single Joint
Life and Survivor Annuity plan.

Deferred Annuities

Payments under deferred annuity commence only after a speci-
fied number of years and not immediately: they are issued under
the single life, joint life or Joint Life and Survivor Plans, and can
be purchased either by a single sum payment or by annual pre-
miums payable during the whole or part of the deferred period.
The most common and the simplest form of the contract is a
single life deferred annuity under which the first payment is made
upon the annuitant attaining a certain age or upon the expiration
of a specified term of years, if he or she is then living and pay-
ments then continue till death. If payment of premiums is stop-
ped after the contract has been in force for two years, the policy
usually becomes automatically paid-up for a reduced amount of
annuity.

In the event of death during the deferment period, all premiums
paid are refunded in full, usually without interest, although the
practice of adding interest at a low rate to the amount returned
is becoming more common. It acquires a cash surrender value
during the deferment period which amounts to a very high per-
centage of the premiums paid such as 90% or more excluding the
first year's; at the expiration of the deferment period and before
the commencement of the annuity payments, option is usually
granted of making a cash payment in lieu of the annuity. The
companies may alternatively agree to pay annuities for life and
for a guaranteed number of years in any event, but the amount
of the annuity will be reduced.

Under another form of deferred annuity which is rarely
issued premiums paid are non-returnable in the event of death
during the deferment period: premiums are correspondingly
lower, but the fact that premiums are not returned frequently

TYPES OF INSURANCE CONTRACTS 53

leads to much dissatisfaction among the public. Such an annuity
is evidently purchased to get an exemption from income-tax and
is usually taken in conjunction with some other form of insurance
or annuity contract.

Reversionary or
Survivorship Annuities

When the deferment is limited, not to a period of years, but
until the death of a person (who is the ' insured ' and is usually
subject to medical examination) it is called a Reversionary or
Survivorship annuity and is generally useful to make provision for
a wife upon the death of the husband. Payments commence im-
mediately upon the death of the specified person and continue
during the life-time of the beneficiary but if the latter dies first
the contract immediately comes to an end and premiums paid are
retained by the company.

The only advantage attaching to this type of policy is the benefit
of providing the largest possible income for a fixed annual outlay
on more beneficial terms than are possible by any other form of
life assurance or annuity contract, but, the fact that the whole
of the premiums paid are lost in the case of the earlier death of
the beneficiary robs it of much of its advantage. Strictly speak-
ing this is not an annuity at all, but life assurance under which
the sum assured on death, instead of being paid as a lump sum
is converted into an annuity of a specified amount payable during
the life time of the beneficiary.

A slightly modified but more complicated form of this contract
is issued by some companies, under which pensions are guaranteed
for a number of years such as twenty, but the premiums payable
depend on the guaranteed period too. Return of a percentage of
the premiums paid after the third year is guaranteed in the event
of the beneficiary predeceasing the insured.

Annuities vs. Life Assurance

Despite the numerous advantage$ of annuity contracts, the pro-
portion of annuity business transacted by Indian companies is very'
low, and has always remained low compared to regular life assur-
ance business, as illustrated by the table on the next page.

Income settlements under annuity contracts arc definite,
guaranteed and free from the risk of fluctuation or even loss of
principal or yield that usually attaches to other forms of invest-
ment. The advantages of investing relatively small sums at an
effective rate of interest which is generally higher than that obtain-

54

LIFE ASSURANCE

TABLE No. 7.

Net amount of annuities effected in India during 1939-48.
(lakhs of rupees)

INDIAN COMPANIES.

Year Number

1939
1940
1941
1942

1943
1944
1945
1946

1947

98

440

3 6 4
467
611
674

539

47 *

ted during

the year

Net

amount in

force

Annual

Annual

>r amount

Increase

Number

amount

Increase

Rs.

Rs.

Rs.

Rs.

0.50

4. '29

6.47

o-45

0.05

1,700

6.12

0-35

I.OO

0-55

6,35

15.06

8.94

1. 08

0.08

6,941

17.83

2.17

1.65

o-57

7,077

18.33

0.50

4.09

2.44

7.745

21.84

3-5 1

4-39

0.30

8,430

26.11

4.27

5-03

0.64

8,582

28.80

2.69

3.28

1-75

8,346

29.80

I.OO

NON-INDIAN COMPANIES.

Effected during the year

Met amount in force

Annual

Annual

amount

Increase

amount

Increase

Rs.

Rs.

Rs.

Rs.

2.16

8.12

i.8 7

0.29

11.74

3.62

5 .8i

3-94

*5-53

3-79

347

2-34

19.21

3.68

3-90

0.43

ig-5 1

0.30

5-37

'47

20.81

1.30

6.03

0.66

29.81

9.00

6.48

0.45

32.9

3-09

749

I.Ol

35-55

2.65

Year

1939
1940
1941
1942

1943
1944
1945
1946

1947

Separate figures for the number of policies

issued by No n- Indian companies, and policies in

force are not available. Source: Indian

Insurance Year Books.

able on government securities, savings bank deposits, equities and
other similar forms of investment, are real, and represent the most

TYPES OF INSURANCE CONTRACTS 55

attractive feature of the contracts. The cash options and the right
to effect alternative methods of settlement, with, of course, corres-
ponding adjustments of annuity payments, constitute great benefits.
This is a safe and practical plan of making adequate provision for
old age to those whose longevity is high; yet they are unpopular
in India.

The negligible proportion of people without dependents probably
accounts for the relatively low popularity of annuity contracts, as
they are more suitable for those who have no need to leave an
estate after their death. Each payment of annuity is made up
partly of the principal and partly of interest and the whole of the
principal is used up either before or with the last instalment: if,
however, as sometimes happens, the annuitant dies early before
the principal is used up, the balance of the principal goes to pro-
vide benefits for those who live longer than the anticipated period.
In thr case of annuities guaranteed for a specific period, the total
payments of annuities made to an annuitant generally exceeds the
outlay. But in no case does an annuity constitute provision for
the drprndrnts.

A sec ond factor that has contributed to make annuities less
popular than ordinary insurances, is the attitude of the general
public towards making provision for their old age. Many people
do not think of times thus far ahead, for the old ideas of an un-
divided family still linger in their minds with the result that far
more old people of both sexes depend upon the earnings of their
children, with, in many cases, disastrous consequences, both to
themselves and to their children. Usually the parents starve them-
selves out during their youth to give a decent enough education to
their children and live as disturbing, and often, unwanted, append-
ages in the homes of the younger people when they grow old.
Much of the family disputes and unhappiness is caused on this
score.

Until recent times it was the usual practice of the urban middle
class to go back to their villages on retirement and to utilise their
savings, if any, towards the purchase of an acre of land, or, in the
alternative, to earn a more than reasonable rate of interest by
lending money to the ryots. Money-lending was quite a lucretivc
business in the past, with extensive ramifications, but the tighten-
ing of the civil laws in recent times has robbed it of its peculiar
charm. The time is fast approaching, if it has not already arrivecj
when a man will find it increasingly difficult to settle down 05
acre of land as hf used to do before and when it happens,
ties will be the most satisfactory method of providing foj^.^.

F- /

56 LIFE ASSURANCE

Modern ideas of family life also tend to encourage the idea of
adequate independent provision for old age.

Immediate annuities, however, are not particularly attractive at
lower ages, but above the age of fifty or fifty-five they offer very
beneficial terms. Companies are prone to take a conservative view
of mortality and interest rates for annuities, because of the ten-
dency of the former to improve and of the very low levels to which
the latter has sunk in recent times. This is one of the chief reasons
for the relatively higher cost of immediate annuities, especially at
lower ages.

Deferred annuities with guaranteed payments for a specified
number of years are perhaps the best method of ensuring perma-
nent income settlement for old ages. But when calculations are
made to provide for a fixed income the fact that income-tax has
to be paid on each payment of annuity above the minimum exemp-
tion figure (Rs. 3,000 per annum) has to be taken into consider-
ation. On the other hand exemption of income-tax is allowed in
respect of premiums paid for those who take out deferred annuity
contracts to the extent of one-sixth of the total income or Rs. 6,000
whichever is less.

CHAPTER V
MISCELLANEOUS INSURANCES AND ANNUITIES

Besides the standard assurances and annuities, life offices issue
various special policies under different names to meet specific needs.
Not all such policies have popular appeal; for schemes designed
to meet specific needs become unsuitable when circumstances
change. Companies are mostly unwilling to evolve schemes of
assurance unless the chances of success are bright, and most of the
special policies are attractive.

Reduced Early Premium Policies

In these contracts premiums arc payable at whole-life rates for
the first few years usually the first five after which enhanced
rates apply. They were rarely issued before but are quite common
now.

Very often a young man who has begun to earn a living feels
the need for a large policy without the ability to pay for it at
standard rates then, although later, he may be able to do so.
These policies meet such a need. Indian Companies offer the
option of conversion to the endowment plan at the end of five
years, but if the option is not exercised the policy continues as a
whole-life plan under the same conditions as a whole-life policy
of the company, i.e. either for the premiums to cease at a very
old age corresponding to the special whole life plan of the com-
pany) or for the premiums to be continued until death. Usually
the option extends to conversion into a limited payment whole-life
plan at the end of the first five years. Both the participating and
non-participating policies arc issued. It is, however, possible, al-
though not customary to issue the policy at the non-participating
rates for the first few years until the optional period is reached
and thereafter give the option of conversion to the type of policy
desired. Under the prevailing conditions of low bonuses perhaps
this would be a more attractive plan as it would enable the assured
to alter the plan later in the light of the conditions then existing.
Surrender and paid-up values arc usually allowed as for other
policies and bonuses are adjusted when the plan is changed.

What actually happens in the case of these policies is that the
level premium for the whole endowment period of the contract
at the original date of issue is redistributed, so that the whole-life

57

58 LIFE ASSURANCE

rate is paid during the first five years, and thereafter, if the option
is exercised, a rate which is higher than the endowment rate appli-
cable at the time of taking out the policy but substantially lower
than the rate at the attained age on the date of conversion. They
are similar in effect to a term policy with automatic conversion to
the endowment plan, with slightly higher rates for the first five
years to create a small ' reserve ' which has the effect of reducing
the premiums applicable at the conversion date. In actual fact
the premiums may be redistributed and made applicable to any
standard form of policy.

Family income policy

A recent development of life assurance is the highly popular
" Family-Income " Policy which Is really a combination of ordi-
nary life or endowment assurance with an appropriate amount of
decreasing term assurance. The policy is issued on the participat-
ing plan although it can be issued on the non-participating basis
also, usually for a term of 20 years or sometimes less, and provides
for payment to the beneficiary in the event of the death of the
insured within the term, of (i) annual instalments usually 10 or
12 per cent of the sum insured, the first instalment to be increased
by the amount of bonuses accrued till the date of death and the
instalments to continue till the end of the term originally selected,
and (2) payment of the full sum assured on the expiry of the
term. If the insured survives the selected period he will receive
simply the sum insured, with bonus additions if it is on the with-
profit basis. The additional benefits granted under the plan in
the event of death during the selected term is paid for by the cost
of the term assurance which is usually shown on a separate table
in the prospectus, as an addition to the premiums under the whole
life or endowment assurances. This cost is generally calculated
to form, together with the interest on the regular premiums, an
amount just sufficient to meet the benefits guaranteed; if death
occurs during the earlier part of the term, total benefits received
are more, but each succeeding year decreases the benefit. As each
payment of the increased premiums has been spent on the purchase
of the benefit guaranteed, paid-up values, surrenders and bonuses
are calculated only for the basic sum assured and not for the in-
creased benefits.

A slightly modified form of the policy is the Family Protection
Plan under which, if the assured dies within the term selected, the
additional benefits are paid for a specified period of 10, 15 or 20
years running from the date of death. While the additional bene-

MISCELLANEOUS INSURANCES 59

fits in " Family Income Plan " cease at the expiry of the term
selected counted from the date of issue of the policy, benefits
under a " Family Protection Plan " continue until the expiry of
a specified term counted from the date of death of the insured.
When death occurs after the selected term, the original sum assur-
ed becomes payable as in the Family Income Plan. The increased
premiums under this plan are calculated on the basis of a uniform
term assurance (instead of a decreasing term assurance as in the
case of a Family Income policy) . Family Protection Policies are
not very common in India, but the Family Income Policy is given
various names such as Perfect Protection, etc.

Insurances with annuity settlements

Numerous plans of insurance have been lately evolved to provide
for advantageous pension settlements called variously as Pension
Schemes, Income Bonds, Retirement Annuities, Endowment
Annuities, Retirement Endowment etc. which are different com-
binations of deferred annuity contracts and decreasing term assur-
ances. Two options are given ( i ) a monthly pension for life
(usually with a limited minimum number of guaranteed payments)
or (2) a lump sum payment in cash on maturity called the cash
option. The cash option depends upon the basis on which the
company has calculated its premiums, i.e. either upon the simple
deferred annuity plan or the combined deferred annuity and de-
creasing term assurance. If death occurs before the maturity date
.it is the usual practice to return the premiums paid less expenses
together with a nominal rate of compound interest. A few com-
panies return the sum assured together with a percentage of the
premiums paid in the case of death prior to the pension com-
mencing age: premiums to be paid are, of course, higher to pay
for these benefits. These Pension schemes are increasing in popu-
larity due to their extensive application in group insurance, for
establishing employee pension schemes.

Many companies usually offer a scheme of endowment insur-
ance under which the sum assured is payable as an annuity,
guaranteed for a minimum number of years: under these schemes
the amount of endowment is treated as the purchase price of a
specified annuity, payable annually, half-yearly or quarterly for
a specified term of years after the expiration of which the annuity
ceases. Each periodical payment really represents interest and a
portion of the sum assured, and a schedule is issued by the office
showing the amount of the periodical payment.

60 LIFE ASSURANCE

Pure Endowments

Devoid of the element of insurance against the risk of death,
an endowment plan becomes 1 a ' pure ' endowment. It is not in-
surance at all, rather its opposite, and is aimed at providing a
fund, out of the accumulated premiums, to be paid to the insured
only in the event of his surviving to a specified date. The policy
is generally effected as a means of compulsory saving and is not
very popular except as a means of providing an estate for children,
but is also quite suitable for those men, without dependents, who
are confident of their longevity and who desire to create a capital
sum for old age provision or other similar purpose.

Usually, however, it is effected in cases of poor health, for at
no time is a medical report required, and the very benefits attach-
ed to the policy precludes any need for a medical examination. In
the event of death prior to the date of maturity, all the premiums
paid are usually returned, with or without a nominal rate of
interest added: a few companies deduct the commission paid and
expenses incurred in connection with its issue, and return the
balance of the premiums paid expressed as a percentage of the
premiums (usually 90% plus nominal compound interest). The
basis on which this return is made in the event of death deter-
mines the amount of premium. The company invariably assumes
that the insured is always in a perfect state of health; the death
benefit is consequently either entirely absent or limited to a full
or partial return of the premiums paid, with or without interest
added when death occurs during the currency of the contract.
Such a death, however, does not terminate the policy which can"
be continued by the beneficiary.

Occasionally policies are issued stipulating forfeiture of all pre-
miums paid to the company in the event of death before the full
term, called "non-returnable" pure endowments: they are not
issued in India and arc extremely rare even in other countries.

Double Endowments

By combining an ordinary endowment plan with a non-return-
able ' pure ' endowment, ' Double ' endowment policies are very
attractive, popular and stipulate the payment of the sum assured
on death during the currency of the contract but double the sum
on survival. This is made possible by limiting the death benefit
to that applicable (In the ordinary endowment plan and by adding,
on maturity, the sum assured under the ' pure endowment ' scheme.
A special advantage of the policy is the ability of the companies
to effect insurance at the tabular rates on physically disabled

MISCELLANEOUS INSURANCES 61

persons, who are, normally, subject to increased rates under all
the other schemes. This is made possible by the fact that a large
portion of the premiums paid is not used to moot current risk but
is applied purely to ' double ' the sum assured at maturity. Never-
theless, an under-average life suffering from a disability which may
prove fatal in the earlier period of a policy is as much unaccept-
able under this as in any other plan of insurance contrac t,
but a disability on which the risk is negligible at the outset docs
not affect the policy adversely because the increased investment
element inherent in the policy creates a relatively large reserve to
pay for the extra risk after the policy has been in force for a timr.
If the term remains constant^ the increasing mortality of older ages
is more than offset by that portion of the premiums intended to
augment the fund at maturity only and theoretically premiums
actually decrease with age, so it is usual for companies to
quote rates for each term of policy, irrespective of age at entry
with the stipulation that the policy shall not mature at an age
later than specified which is often 65. The policies do not
participate in profits as a rule, although occasionally c with profit '
policies are also issued.

Triple Benefit Policies

The uncertainty or even entire absence! of bonus declarations
under the ' with profit ' endowment plan has resulted in the evolu-
tion of a popular scheme of assurance under which the sum assur-
ed increases steadily by an attractive rate of c bonus ' usually Rs. 25
or Rs. 30 per thousand per annum. The scheme, called the Ideal
Option Benefit or Triple Benefit policy is, an ordinary non-parti-
cipating endowment plan with the sum assured increasing steadily
year by year with adjustments to pay for the extra bonus guaran-
teed. Thus the sum assured under a so-year 2^/2 per cent gua-
ranteed bonus Triple Benefit Policy for Rs. 2,000 will be increased
to Rs. 2,050 immediately after the second annual premium is paid,
and when the premiums cease the original sum insured, viz.,
Rs. 2,000 is returned and the balance utilised to form a fund to
pay for a fully paid-up whole life assurance, equal to the original
sum assured.

The reserve under the policy would include the present value
of future guaranteed payments; liberal surrender values are usually
guaranteed and indicated in the tables of rates and in lieu of the
cash payment at the end of the originally selected period and free
paid-up whole life assurance, options are given either to convert
it into an increased free paid-up assurance payable at death or to

62 LIFE ASSURANCE

receive an immediate cash payment. The benefits are fully illus-
trated in the following table.

Table No. 8.

Typical benefits guaranteed on a Triple Benefit Policy.

(Basic sum assured Rs. 1,000 increased by 3% per annum

after the first year to ensure on survival Rs. 1,000 payable

on maturity and Rs. 1,000 on death).

Number of Guaranteed Surrender Values

Annual (expressed as percentages of premiums paid)

Premiums paid 25-year term 20-year term

5 45 45

10 55 60

15 6 5 75

20 75

Guaranteed alternative benefits on maturity.

Attained age at Increased paid-up policy Cash payment (payable at
Maturity (Payable on death) the end of the term)

40 Rs. 2,816 Rs.

45 Rs. 2,658 Rs. 1,503

50 Rs. 2,526 Rs. 1,563

55 Rs. 2,420 Rs. 1,620

60 Rs. 2,336 Rs. 1,674

65 Rs. 2,269 & s

What actually happens in the case of conversion to an increased
paid-up policy is that the sum payable at the end of the endow-
ment term is utilised as a single premium to pay for a paid-up
policy at death, whilst in the case of increased cash payment the
sum payable on the date of maturity is returned with the present
value of the paid-up policy payable on death.

The guaranteed benefits are independent of the future profits
of the company and represent the most attractive feature of the
policy. If instead of a single Triple Benefit Policy two policies are
taken to secure similar benefits, viz., an endowment policy matur-
ing at the end of the term and a whole-life policy with payment
of premium limited to the same number of years, the premium
rates under the triple benefit policy are much less than the com*
bined rates of the two separate policies. The increased rates in

MISCELLANEOUS INSURANCES 63

the latter case pay for the increased amounts payable in the event
of death during the currency of the contracts.

Debenture Policies

They were much in vogue previously but are generally dis-
couraged now-a-days. They are issued both on the whole life
and endowment plans, with the proviso that the sum assured, on
its becoming a claim, is retained for a term of years and annual
interest paid either to the insured or his beneficiary at a rate higher
than can be normally obtained or earned by the company, with
the return of the original sum assured at the end of the term. It
is usual for many companies to have the sum insured retained by
them at a reasonable rate of compound interest but that interest
would normally conform to the average interest earned by the
company with the provision that the sum could be withdrawn
at any time. The procedure is different in a debenture policy.
In a so-year 6 per cent debenture policy for Rs. 1,000 providing
for payment of interest commencing at the expiration of 15 years
from the date of the contract or one year after date of death
should it occur previously, the sum of Rs. 1,000 would be payable
only with the last instalment of interest and not before. If the
company bases its calculations on a 3 per eent rate of interest per
annum, the equivalent sum assured will represent Rs. 1,000 plus
the value on a $% basis of an annuity of Rs. 30 payable for
20 years only (Rs. 30 being the difference between the Rs. 60
guaranteed to the insured and Rs. 30 actually earned by it) and
the premium rates would be correspondingly higher. Actually this
is a more expensive type of policy than the standard one and
usually mislead the public as to its true nature.

Assurances on more than one life

Assurances involving two or more lives are usually issued on
a husband and wife or on business partners. In the latter case
they are utilised to replace the capital that is generally withdrawn
from a firm on the death of a partner; on the dissolution of a
partnership, satisfactory adjustments in insurance cover and pre-
miums are generally made. In such cases, it is usual for the
erstwhile partners to make a joint request to divide the policy into
two single life policies, each for one-half of the original sum in-
sured; the companies may be willing to do this, as the alteration
would not adversely affect the reserves or hasten the payment of
the sum assured, and when it happens premium on each policy is
calculated on the basis of a separate policy issued on his life at

64 LIFE ASSURANCE

the original date of the contract. A similar situation might be
brought about in the case of divorces also, if the joint policy is
on a husband and wife, although satisfactory settlements will
necessarily be a part of the divorce decree.

There is no need to limit the number of persons on whose jomt
lives a single policy is issued; the more the number of lives the
greater is the premium amount, but many companies usually limit
the number to two or three, single policies covering four or more
lives being extremely rare. In India, however, quotations are
usually made only on two lives, other policies being rare. Both
the lives arc medically examined and if one of them (or both)
is a lady, the enhanced premium payable to ladies and all the
other limitations applicable to them, are enforced. Premium rates
for various combinations of ages are quoted only on application,
and it is usual for all companies to issue a table showing the num-
ber of years (depending upon the difference between the ages of
the two parties) that has to be added to the younger of the two
lives in order to ascertain the age applicable to the policy.

Joint life policies are issued rimer on the whole of life or endow-
ment plans; in the former case the sum insured is paid on the first
death of two or more lives and in the latter, either at the end of
the endowment term or on the first death of either of two lives,
if that is earlier.

Surrender values correspond to the standard forms of policies on
the whole-life, limited payment whole life or endowment plans,
as well as the benefits of conversion to a reduced paid-up assur-
ance. The net cost of insurance on two or more joint lives is
naturally higher than on single separate lives and the rates of
premiums are therefore slightly more than that for separate simi-
'lar contracts of proportionate amounts. Policies arc issued both
on with profit and non-participating bases.

Joint life term assurances are , sometimes issued on two or more
lives similar to single ordinary term assurances, the amount being
payable upon the first death of two or more lives, within a spe-
cified period. Premium rates are, of course, small and no sur-
render values or profits accrue.

Last Survivor Policies

Similar to the ordinary joint life policies in certain respects, last
survivor policies which guarantee the payment of the sum insured
on the death of the last survivor of a number of persons offer
a nice contrast. Issued with or without profits and without limit-
ation of the number of persons involved, the death of each member

MISCELLANEOUS INSURANCES 65

reduces the cost of insurance on the survivors. Medical examina-
'tion of all the persons involved is not compulsory, but is made on
the life or lives eligible for assurance, the others being included
in the contract as a matter of course. Rates of premium are
calculated on the basis of the eligible lives and persons who are
known to suffer from ill-health may be included as thereby the
company incurs no extra risk. Surrender values are usually
allowed and increase very rapidly upon each death. Last survivor
policies are very rarely issued and have very little practical .value.

Not so the CONTINGENT SURVIVORSHIP assurances. In
this case the sum assured becomes payable only if the life assured
predeceases another, technically known as the counter life. If,
for instance, A is entitled to an estate on the death of B but has
no title to it so long as B is alive, A can take out a policy against
the loss of his interest in case he dies before B: if, however, B dies
first A automatically inherits the estate and no longer requires the
protection. Here A is the insured, and B the counter life and in
the event of B's death before A the policy terminates and the
premiums paid arc forfeited to the company. The rate of pre-
mium under the policy depends upon the ages of the two lives
involved. In the event of the counter life being a v^ry old man
and the assured very young, as is usually the case, the premium
is very small; if, however, the difference between the ages is little
the rate approximates that of the non-participating whole of life
assurance, and in many cases it is relatively cheaper and more
beneficial to take out a whole of the life non-participating assur-
ance on the insured and to get the benefit of the cash surrender
value if the policy is no longer required. The comparatively
small premium and the greater risk to the company since the life
insured is considered below average, make the conditions attach-
ing to the eligibility of the assured very strict and exacting: the
state of health of the counter life does not enter into the calcula-
tions since his early death does not put the company to any loss.

Enquiries for complicated forms of the contract are rare but
sometimes there arises a genuine need for a policy of a very com-
plicated nature. A contract might be needed, for instance, to
protect the interest of the survivor of two persons in the event of
his death before a third : or to arrange for the payment of the sum
assured if either of two persons predeceases a third or various
other similar combinations. Premiums are determined according
to the peculiarity of each case and depend upon the circumstances
and the company, and no general indication is possible.

Contingent Survivorship policies, either in its simplest form or

66 LIFE ASSURANCE

of the more complicated type are rare in India.

Children's Deferred Assurances

Well co'nceived and capable of conferring the greatest amount
of benefit to a child or ward, just entering manhood, children's
deferred assurances are much encouraged by all life offices at pre-
sent and rightly too. The chief aim of the policy is to afford life
protection to a male child after he attains a specified age, at a rate
which is considerably less than what the child would have to pay
at the attained age. The child is the assured and the -assurance
on his life commences only at the attained age (which is usually
between 19 and 25) and continues under the whole life, whole-
life limited or the endowment plans. Option is sometimes allowed
to select the age at which assurance will commence between the
ages of 19 and 25, but in no case is any risk borne by the office
before the attainment of the specified age. In the event of the
death of the child during the deferment period premiums paid are
returned in full, with or without interest (sometimes the expenses
incurred are deducted) and the policy comes to an end. Most
of the offices allow bonuses in the case of participating policies
only after the deferment period is over, although there is no bar to
issuing policies on which profits are paid during the deferment
period. It is customary for some offices to keep the policies in
force for a reduced sum in the event of the discontinuation of
premium payments during the deferment period, either due to
the death of the proposer (i.e. parent or guardian) or other causes.
Some offices, however, agree to insert a clause in the policy for an
increased premium payment whereby the policy is kept in force
for the full amount on the death of the proposer during the defer-
ment period. The chief advantage of such an arrangement is to
secure his estate free from the liability of any premium payments
in the event of his death. In such cases the medical examination
of the parent or guardian is compulsory. It can even be arranged
to have all the premiums paid during the period of deferment in
order to enable the child to get a fully paid-up policy on his attain-
ing a specified age. Usually no medical examination of the child
is required, but when the deferment period is short, as for example
a policy taken on an eighteen year old son for assurance to com-
mence at age 23, some offices demand a medical examination of
the child.

Usually companies will be prepared to give the assured, i.e. the
child, various options of conversion after the attainment of the
specified age. These options are either specifically endorsed on

MISCELLANEOUS INSURANCES 67

the policy itself at the commencement or they are allowed on
written application on the completion of the deferment period
without fresh evidence of health. Allowed only in the case of
whole of life deferred assurances, these options usually take one
or the other of the folowing forms:

1 i ) conversion to an endowment assurance instead of a
whole of life scheme at the agreed reduced rates of pre-
miums, but for a reduced amount of insurance with the
choice of several maturity ages.

(2) conversion to a limited payment assurance for a reduced
amount at the original rates of premiums.

(3) conversion to a paid-up whole life or endowment assur-
ance for a reduced sum free from payment of future
premiums.

(4) surrender of the policy for a rash payment.

Options are usually not allowed on the endowment plans: this
fact has influenced many people to take out a deferred whole of
life policy for a larger amount with the option of conversion to
whatever scheme is finally required by the child on the attainment
of the specified date.

Children's endowments

They are similar to the pure endowments previously described
and are issued on the lives of children so as to mature on their
attaining the age of 21 or sometimes a later date. Since no life
assurance protection is involved, premium rates are calculated on
the basis of interest earned only and in the event of the parent or
guardian dying before the selected term, all premiums paid are
returned with or without interest or on some other basis depending
upon the corresponding rules for the pure endowment policies of
the particular company. Occasionally, for payment of a slightly
higher premium to cover the life of the proposer further pay-
ment of premium is waived on the death of the parent or guardian,
the policy being kept in force and the sum assured paid at the end
of the originally selected term. In the event of the death of the
child, for whose benefit the policy was taken, during the term of
the contract, option is allowed to substitute another. The policy
is mainly used to provide a sum of money on the child attaining
age or to provide a dowry. Thousands of young men would enter
life with a small bank balance and, consequently, with better
confidence to face the future, if their parents utilise some of the
money they literally throw away, to buy a policy of this type.

Closely allied to this is the marriage endowment. It is a pure

68 LIFE ASSURANCE

endowment policy issued on the life of the child with all the condi-
tions, benefits and other advantages, applicable to pure endow-
ments. The parent or guardian is invariably medically examined
and premium rates are calculated on the basis of affording him
life insurance protection so that, in the event of his death during
the currency of the contract, no further premiums become payable,
and the sum assured in full, that is, the marriage endowment, is
paid on the date stipulated on the contract. If, on the other
hand, the child dies during the term, the proposer is usually given
two options:

1 i ) Refund of all premiums paid with or without interest, or
such portion of the premium paid according to the usual
practice of the particular company.

(2) Substitution of another child to receive the benefits.
The usual facilities of automatic paid-up policy, and cash sur-
render values are allowed, but no loans. It is interesting to note
that the order of priority of the persons to whom the sum assured
becomes payable on maturity is : ( i ) the parent ( 2 ) the child if
she has attained majority (3) a guardian duly appointed. From
the proposer's point of view, a most satisfactory arrangement will
be the appointment of a guardian legally when the policy is taken
out, to whom the sum will be payable if he dies during the currency
of the contract, for it is very rare in India that the child would
have attained majority when the policy becomes a claim.

Educational Endowments

A somewhat analogous contract is the Educational Endowment
with premiums payable over a selected term of years but ceasing
on the prior death of the parent: the sum assured is usually paid
in the form of annuities with a minimum number of payments
certain, or may be paid in a lump sum. The annuities may be
equal in amount or may vary according to the manner in which
the future educational requirements of the child may have to be
met. The first instalment of the annuity commences on the child
attaining the selected age and the instalments are continued there-
after whether the child survives the selected number of years or
not; it may be possible, however, in the event of the child dying
before all instalments have been paid to commute the balance of
the instalments due at an agreed rate of interest. Surrender and
paid-up value correspond to other children's endowments.

Children's educational endowments are not the only contracts
by which provisions could be made for education, Short-term

MISCELLANEOUS INSURANCES 69

endowments on the life of the parent are ideal for the purpose
and in certain circumstances very satisfactory arrangements could
be and are made by means of these policies to provide for expenses
of education they should really be short-term, for the reason that
the strain of a child's education is felt more fully when the child
is between the ages of 12 and 21. The procedure in the case of
an ordinary endowment policy being utilised for the purpose of
securing an educational annuity is to take out an ' instalment '
policy, if the company issues it in the ordinary course, or to exert
the option of converting the sum assured into an annuity limited
to a definite period. Instead of one endowment, a scries of endow-
ments can also be effected, all of them to mature on one date
the date on which he wants to have the instalments to commence.
For instance, a man aged 35 can follow either of the two courses
detailed below to provide for the education of his five-}var old
son by means of annuities amounting to Rs. 400 annually payable
over a five year period by half-yearly instalments, the first payment
of the annuity being made on the child attaining his fifteenth
year :

1 I ) He can cither take out one endowment assurance matur-
ing on the date on which the first instalment is due or a series of
endowments all maturing on that date, with the provision to receive
the sum assured in periodical instalments according to require-
ments.

(2) He can take out an educational policy of an amount re-
quired to give the annuity needed.

The relative merits of the different forms of policies for this
purpose depend primarily upon cost. According to the present
cost of assurance, the premiums payable under the two methods
are given overleaf.

Let us suppose he chose the endowment plan to provide for an
educational annuity for his son. The first instalment of the
annuity will commence immediately on his death or on the maturity
of the policy, whichever is earlier, and the annuities will continue
until all the instalments stipulated have been paid. If, on the
other hand, he takes an educational annuity, the policy will be
kept in force as a paid-up one in the event of his death before the
full term of the contract and the payment of the instalments will
commence on the date originally stipulated. A point of the ut-
most importance in deciding the form of assurance to be selected
is the fact that, in many instances, education, let alone higher edu-
cation, becomes an impossibility upon the death of the parent, and
if an endowment policy is taken the sum assured becomes payable

70

LIFE ASSURANCE

immediately and may be used for other pressing needs. An edu-
cational policy is unsuitable for such purposes, as the annuity would
not commence until the specified date, but against this, the fact
remains that the child's education is assured. If the rebate of
income-tax on the premiums is not allowable in the case of edu-
cational policies due to the wordings employed, as may happen
in many cases, the endowment assurance may be found to be
actually cheaper.

Table No. 9.

Relative cost of securing an annuity for educational

purposes payable by half-yearly instalments of Rs. 200

for a period of five years commencing from the

fifteenth year of the child: (approximate rates)

Age of parent
or guardian

25

30
35
40

45
5

Duration of the pre-
mium paying
period

10 years
Do.
Do.
Do.
Do.
Do.

ANNUAL RATES OF PREMIUM

Endowment Educational

Policy

Rs. 190- 4

Rs. 190-15

Rs. 192- 7

Rs. 195-11

Rs. 200- 7
Rs. 210-10

Policy

Rs. 182- o

Rs. 182- 8

Rs. 183- 9

Rs. 1 86- o

Rs. 190- 4

Rs. 196-15

The relative merits of the two kinds of provision for education
of a child can be summarised by the following comparison:

Occurrence. Educational Policy. Endowment Assurance.

Instalments originally The instalments (of
stipulated are payable sum assured) be-

Death of the
parent during
the term.

upon the child at-
taining the specified
age.

come payable im-
mediately.

Death of child, (i) Premiums paid are The policy may be

returned with or continued and used

without interest or for other purposes or

according to the surrendered for cash

terms of the contract, (this event has no

or bearing on the policy

(ii) Another child at all),
could be substituted.

MISCELLANEOUS INSURANCES 71

There is still a third method of providing for the education of
the child. A series of short-term endowment assurances, each
maturing in consecutive years can be taken, the sum assured on
each policy being the amount of money sufficient to meet the ex-
penses during that year. This is a very suitable method and has
the advantage of providing for the immediate payment of a lump
sum of money, equal in value to all the policies contracted for,
in the event of the parent's death before the final maturity of the
contracts, and is particularly useful for those wishing to provide
for higher technical or professional education for their children,
especially in foreign countries. Each of such policies will have to
be for a sum equal to or greater than Rs. 1,000 which is the
minimum sum which can be assured under the Insurance Law now
prevailing in India.

It is deplorable, but unfortunately true, that adequate provision
for education of children is very rarely made and the result, in
many cases, is tragic. Brilliant, promising scholars are not infre-
quently denied the benefits of a higher education, chiefly due to
poverty or changed circumstances although, in many cases, a judi-
cious redistribution of the family budget during the infancy of the
child would havr enabled the parent to make adequate provision.
How far the system of education so far prevailing in India in-
fluenced parents against making this provision is a moot point;
true it is that the system intended primarily to produce a pool of
cheap graduates to meet the man-power required for the clerical
services of the Government and other private institutions, discour-
aged heavy expenditure on education. The absence of profession-
al and technical training in the usual curriculum of schools and
colleges, and the absence of adequate facilities for such a training,
made many people doubt the wisdom of imparting to their wards
a purely academic education. The acute unemployment among
the educated young men, which started at the beginning of the
century and continued unabated until after the outbreak of the
second world war, encouraged parents to finish off their children's
education at the school leaving age. With a little reorientation
of the curriculum and a greater emphasis on the technical and
professional aspect of education, more opportunities of full, profit-
able employment could have been created for qualified men, and
that in itself would have provided parents with the proper incen-
tive to make adequate provision for the education of their
children.

Independence of the country has given better opportunities of

72 LIFE ASSURANCE

employment to well qualified young men and greater emphasis
should therefore be paid on giving children adequate higher edu-
cation in order to equip them to grasp those opportunities. Both
the life offices and the general public should play their respective
parts in pursuance of this laudable effort the companies to pro-
pagate the proper use of life assurance contracts for educational
purposes and the public to make use of the multifarious facilities
offered by insurance to meet their needs. In England, many
offices specialise in this sort of insurance with really satisfactory
results. Various alternative schemes are 'offered providing for
adequate funds to pursue education to whatever stage is required
by the parents; their relative benefits are fully described and ex-
plained to the prospects, and a regular propaganda campaign is
centred round it. A better form of making provision for children
hardly exists.

Life Assurance and Business

There is an increasing tendency in the world to make use of the
diverse facilities offered by life assurance to the benefit of indivi-
duals, partnership firms and commercial institutions engaged in
business for business purposes. Yet that tendency has not yet be-
come widespread in India. Life Assurance is an invaluable assei
to a businessman, as it increases his credit, and goes on increasing
his credit, in greater degrees, as the life of the policy progresses.
When it has been in force for a sufficiently long period so as to
acquire a cash value, it is available as an appropriate co-lateral
security with banks and other financial institutions either for grant-
ing loans or against overdrafts. In granting such loans banks and
other institutions are prone to class life assurance policies as third
class securities in view of the fact that in the event of lapse due
to non-payment of premiums, the surrender values are invariably
utilised by the companies automatically to keep the policies in
force until the cash values are used up: afterwards the policy has
no value at all. A quite satisfactory arrangement in such circum-
stances will be for the businessman to make adequate arrange-
ments for the continuation of the policies, to the complete satisfac-
tion of the banks such as making the premiums a charge on his
future deposits, in which case the banks will be prepared to advance
the full surrender value of the policies as loans. Single premium
policies are eminently suitable in this respect, as the clement of
lapse is absent.

A point of no small value to business is the fact that all com-
panies are prepared to advance a large percentage of the cash

MISCELLANEOUS INSURANCES 73

surrender value of the policy as a loan upon demand, usually at
six to seven per cent interest, and this provides a source of raising
money at short notice in times of stringency, quickly and privately,
without in any manner impairing the financial standing of the
businessman. The value of such a ready source of money will be
all the more apparent during an economic crisis when private
loans are usually unobtainable from the open market, even on the
best of security and at the highest rate of interest.

When death duties come to be an integral part of the Indian
tax structure the withdrawal of a large amount of active cash from
a business or the raising of that cash by the sale of securities at
short notice, will be detrimental to the interest of any individual.
Life assurance is perhaps the most ideal form of providing for this
liability in fact, the only practicable method.

Term assurances particularly decreasing term assurances, are
very useful to individual businessmen to provide against the death
of a debtor in cases where the repayment of a loan or the payment
of an outstanding amount due, depends upon the element of per-
sonal security that is present.

The use of life assurance as a means of buying over the interest
of a deceased partner is an interesting development of recent times.
That interest may be so considerable, whether in terms of actual
cash or ability and knowledge, as to cripple a running business in
many cases and the lack of provision in this regard, has landed
many partnership firms in the doldrums. A Joint Life policy is
the popular method of ensuring satisfactory protection against
the loss to the business in the event of death of one of the partners.
There are a few points of importance to be noted. - The policy
by itself does not absolve the firm of all legal liabilities to the
deceased partner, nor are the life offices in any way liable to pay
the sum assured except under the condition of the contract. That
sum is only a satisfactory method of raising immediate cash to
meet the interest of the deceased partner in the business. It is
advisable in all cases where joint policies have been taken to meet
the eventuality, to have a separate agreement made out among
the partners as to the mode of settling the claims arising out o the
death of one of them. Instead of one joint life policy, sometimes
two separate policies are taken on the lives of the partners; in such
cases upon the death of one of them the sum assured becomes
payable to the legal heirs of the deceased unless a proper assign-
ment is made and this is an important fact to be remembered
when utilising the policies to meet 'the liabilities of a deceased
partner.

74 LIFE ASSURANCE

Many industrial and commercial institutions take out assurances
on the lives of their most important executives, to guard against
the heavy financial loss, either by decreased incomes or otherwise,
that usually follows the death of persons of exceptional business
ability, administrative capacity or unusual knowledge. The heavy
expense that is invariably incurred to train up new incumbents
upon the death of key men and technicians can also be generally
met by taking out life assurance policies on them.

Term Assurances are also useful to provide protection when the
executives or other keymen are on tour. This is particularly
valuable nowadays, as travel by air has become quite common.
Aviation insurance on the life of the passengers is based on term
assurance.

The last decade has seen an increasing use of life assurance
specially group insurance to ensure pensions and provident funds
to the employees of large business and industrial offices. Group
Insurance is still in its infancy in India.

In the case of a mortgage or a big loan, it is sometimes con-
venient to take out an endowment policy on the life of the chief
executive of .the business house, as it would ensure the proper
discharge of the debt or mortgage on the due date and also pro-
vide for its redemption in case the repayment is endangered by
the early death of the executive. Sometimes a special class of
insurance called Sinking Fund Policies, Capital Redemption
Policies or Leasehold policies are issued to cover this eventuality.
They are not truly life assurance contracts, as no element of in-
surance cover is present, interest being the sole criterion for decid-
ing rates of premium. These policies provide for the payment of
an amount of money on a specified date in return for a single
premium or periodical premiums during the course of the contract.
If the person contracting the policy dies during the period, (in the
case of an individual businessman) his executors can either keep
the contract in force for the original period or surrender the policy
for a cash value. Surrender values are always guaranteed usually
at about 95% of the premiums paid, excluding the first year's,
accumulated with compound interest. These policies are usually
taken in case of debentures or bonds repayable at the end of a
fairly long term and for large amounts: in case the amount in-
volved is small and the period short, endowment assurances are
more suitable.

A fact that too often escapes the attention of an Indian busi-
nessman is the amount of actual benefit, in terms of real cash, that
he derives from life assurance. On every instalment of premium

MISCELLANEOUS INSURANCES 75

he pays, he is entitled to a rebate of income-tax, and the advantage
does not end there. When a policy becomes a claim and the sum
assured is paid back into the business, that amount is not reckoned
as income in the calculation of income-tax.

Thus the benefits are real and tanglible, and on this score alone,
life assurance as an adjunct to business is a highly profitable pro-
position.

CHAPTER VI

MORTALITY RATES

Mortality Table

As was observed previously premium rates depend upon morta-
lity, interest and expenses; the most important of these is mortality.
A table of mortality is an instrument to measure the probabilities
of life and the probabilities of death, and the ' rate of mortality '
at a particular age is the proportion of persons of that age dying
within one year of attaining it to the number who entered that age.
The mortality table is a record of past experience suitably
adjusted to remove accidental fluctuations of death and is
used as a basis of premium calculations on the assumption that the
future is not likely to deviate very much from past experience.
Close observations of a very large number of persons over a period
of years has strengthened this assumption: nevertheless, it is never
completely realised in the case of any company, for the future
may not correspond entirely with the past. Improved medical
skill and increased State care of the public health result in a pro-
gressively lower rate of mortality and a correspondingly higher
duration of life; a person can expect to live longer. But this
process is too slow to make any appreciable change in the general
experience and the death rate is fairly constant over a period of
years for all practical purposes. The decrease, when it occurs, is
of negligible importance in the construction of a mortality table
for use in the operation of an insurance company, for so long as
the table is on the ' safe ' side, an adverse experience may be
overruled and the benefits of a favourable experience will be paid
back to the insured in the form of increased bonuses.

The great brains of insurance with intense study and research
at their back have patiently investigated the actual experience of
a number of offices over a period of years and out of the mass of
statistics collected prepared tables of mortality for general use in
connection with a comparable body of lives. Mortality has how-
ever never been constant: an eighteenth or nineteenth century
table would show totally different results from the actual experience
of the present day.

Preparation of Mortality Tables

The investigations are intricate and highly technical for problems

76

MORTALITY RATES 77

arise which exert a profound influence on the abstract numerical
calculations. To mention a few_, the sum assured may reflect an
economic and social class with a varying degree of mortality. In-
surances for large sums, for instance^ could be paid for only by
the higher-income groups who, because of their inc omc, get the
best available medical aid to maintain perfect health. Not so
a junior clerk. If he takes out insurance at all, he may have to
forego the necessities of life to pay for a modest policy and is
consequently exposed to considerable risk without the means to
pay for prompt medical aid. Again when a sickly man goes out
to buy insurance, it is usually to make the maximum possible pro-
vision for his wife and children at a minimum outlay and a whole-
life policy will be his ideal choice, but when a man is physically
fit, lives in ideal surroundings and has a non-hazardous job, a retire-
ment income will be his chief aim. Preference to a particular
type of policy may therefore indicate the soundness of the life
assured. These and various other factors such as sex, occupation,
financial status, lapsing etc. contribute appreciable variations to
the actual experience and have to be given due weight in the
final analysis and preparation of the table.

Years of training, experience and research equip an actuary to
undertake the highly technical job of compiling a mortality table;
it is however possible to give a general idea of the process involved
if only to indicate the intricacy of the problem. On a company
deciding to prepare a table of mortality from its own experience,
the number of assured for each age next birthday (or attained age
if that is the basis of calculation) at the beginning of a year is
tabulated along with the number dying in that year. Commencing
at the earliest age at which insurances are issued, tables are built
upto the age of ninety or more and the number dying at each
age during the year would then be expressed as a proportion of
the number who arc exposed to the risk of death at that age, the
proportion being expressed as so many per thousand or hundred
thousand assured. Some of the new entrants of that year would
have commenced insurance in the first half of the year and the
rest in the second half of the year and generally an average of
six months would give a fairly accurate estimate of the period * at
risk ' in their cases. Lapses limit the risk to that part of the year
when the insurance was in force. These finer adjustments make
the work of the actuary fairly complicated.

When completed the table would appear somewhat as follows:

78 LIFE ASSURANCE

Table No. 10.
Experience of Mortality

Age Number Number of Number of deaths per

at risk deaths 1000 assured

2O 476 2 4-2O

25 1168 5 4.28

30 4301 20 4.65

35 4529 *5 5.52

40 7806 60 7.68

45

The figures in the last column represent the rate of mortality
per one thousand, among the persons insured with the company
during the period of investigation, the rate for any age being the
proportion of persons of that age who die in the year following.
This rate may be expressed in terms of any number and calculated
for any specified contingency, as for example mortality from small-
pox for ten thousand, or deaths from road accidents in one lakh
of the population and so on. For purposes of theoretical calcula-
tion in their application to life insurance, rates of mortality are
expressed in terms of the unit, i.e. per insured, the rates given in
the foregoing illustration being expressed as follows:

Age Rate of mortality
20 .00420

25 .00428

3 .00465

35 -552

40 .00768

45 .01176

The foregoing illustration shows a rate of mortality of .00420 at
age 20, and if 10,000 people of that age insured with a company
in 1949, the number of probable deaths in that year would be
10,000 X .00420, or 42.

Investigation into the mortality experience of a company, how-
ever large, would show considerable distortion if confined to a single
year, as the probability of the mortality rate conforming to the
average in that year is remote, so invariably tables are prepared
on the experience of a number of years. Again the policyholders
of a company may be drawn from a particular social and econ-
omic class, for just as every shop has its own clientele every office

MORTALITY RATES 79

draws its policyholders from distinct groups and the individualism
which it builds up and studiously nurses may be reflected upon its
mortality experience, especially wbcq social classes evince large
divergences of mortality as they do everywhere. The experiences
of a number of companies over a period of years are therefore
pooled and the combined deductions are tabulated for the con-
struction of a Standard Mortality Table lor the use of all com-
panies. When doing so allowances are made for accidental fluc-
tuations of mortality and these adjustments or ' graduations ' as
they are called, are too technical to be explained in this book.

Select, ultimate, aggregate

A consideration of the highest importance in the construction
of tables for the use of life assurance is the effect of medical exa-
mination on mortality. Insurance is normally accepted on the lifc
erf 91 person <H> the basis of ipedical and other reports and the rate
of mortality will be affected by the time that has elapsed since the
date of the medical examination. When a man has been examined
Jby a qualified medical officer and found physically fit in all res-
pects the chances of his immediate death are remote but not so
a person who was medically examined some years ago. Out of
1,000 people aged 25 insured in the year 1947, the health of a few
would have been so affected in 1948 and 1949 due to adverse
causes that they might be borderline cases on the brink of the
inevitable by the end of 1949; so that in 1950 the rate of mortality
of that group would be considerably higher than that of a group
3ged 28 who, fresh from medical examination, were admitted to
the benefits of insurance in the latter year. This means that the
rate of mortality would be very low immediately after * selection *
but would reach higher levels and remain fairly constant after the
effects of selection 'wear off*. In 1955 therefore the experience
of those who insured in 1947 would not show any marked dis-
similarity from those who insured in 1950, although the difference
would be noticeable in the initial years. A table of mortality
which is so affected by selection is the ' Select ' mortality, and it
will show the rates of mortality by the duration of insurance (I.e.
the time after selection) in addition to that by age. A complete
select table would be a set of mortality tables, one for each year
of entry.

A table constructed on the basis of experience after the effect of
selection has worn off or become negligible is the * ultimate * mor-
tality table and shows the ultimate experience of mortality. The
of the first fcw vears is excluded from its preparation

ASSUKANCfc

and it is more convenient, more .suitable and more practical to use
an ' ultimate ' table of mortality for the financial operations of
a company (other than for calculation of premiums) than the
* select * table with its voluminous data. >

A third table is also constructed from the experience of insured
lives without any regard to the duration of insurance or selection
variously designated as the * aggregate ' c mixed * or ' general *
mortality tables. The number of deaths in any one year to the
lives at risk in that year forms the basis of this table; in the next
year the survivors of the previous year are added on to the new
entrants and no attempt is made- to adjust the experience on
account of the effect of selection. Tin- earlier tables of life assui-
ance companies and the present-dav census tables are of this typ .

Kritish Tables

When life assurance was in its infancy the effect of selection on
mortality was not properly understood and appreciated, and it was
the late Dr. T. B. Sprague of the Institute of Actuaries who pro*
pounded the principle of mortality calculations on the basi* ol
selection not only by the duration of insurance but also by the
class of lives selected for insurance and paved the way for the
more accurate determination of the rates of mortality which are
in use today. The table which he constructed on the basis of the
data collected from the experience of 20 English and Scottish
Offices in 1869 (the " H " Table 1 ) is used widely still.

Then .came the investigation of the experience of 60 British
Offices during the period 1863-93 jointly conducted by the Insti-
tute of Actuaries and Faculty of Actuaries, resulting in the ' O '
Table. The chief merit of this investigation was the enunciation
of a new principle, viz., that mortality depends upon the type of
policy selected by the assured, thus introducing a new element of
selection, which was in reality selection against the company, sine*'

1 For the sake of convenience different mortality tables are indicated
by specific letters. Thus 'H' stands for the table of the 20 British and
Scottish Offices comtiucted in 1869, C O' for the 60 British Offices* experi-
ence of 1863-93 and A( 1 924-29) for the British Offices' experience of 1924-
29. Distinguishing letters are added at the right hand top corner to
specify the kind of table and other details, as for example 'E* at the right
hand corner stands for Endowment assurance *N' for Non-participating,
M for Males rmd F for Females. When they are enclosed in square
brackets Select tables are referred to: numbers enclosed in round brackets
after the distinguishing letters refer to ' Ultimate * tables excluding the
first few years' experience corresponding to the numerals. Thus H^(5)
would refer to the 20 British and Scottish Offices' experience of t86o for
nalrs excluding thr first five years*

MORTALITY RATES 81

the lower the rate of premium the higher will be the rate of morta-
lity. The last comprehensive table was constructed in England on
the experience of selected offices during the six years ending 1929
(the A 1924-29 Table), which is currently being used as the stan-
dard by almost all the British Offices. This table showed that
British Offices arc experiencing considerably lighter mortality and
that the effects of selection lasted only two years.

American Tables

The principal tables in use in America are : ( i ) The American
Experience Table (2) The American Men Table (3) Table Z and
(4) The Commissioners' 1941 Standard Table.

Constructed about seventy-five years ago on the experience of
the Mutual Life Insurance Company of New York, the American
Experience Table was almost universally used by the companies
for the calculation of assurance premiums and reserves in the past,
but it is felt that it is no longer an accurate measure of mortality
rates especially at lower ages, since there was little or no data
available at extremely low ages and death rates were calculated
by a mathematical process from those at higher ages.

The American Men Table was published in 1918 based on the
experience of a group of companies during the period 1900-1915,
but was riot an accepted legal standard for some time; lately it has
been adopted by many American companies.

The National Association of Insurance Commissioners appoint-
ed a committee to study the need for a ' new mortality table and
related topics ' and basing their calculations on the experience of
the principal companies during the period 1920-1934 that com-
mittee prepared a Mortality Table in 1939 called the Table Z
to provide a table of representative modern mortality experience
for comparison.

The committee mentioned in tho foregoing paragraph prepared
another table on the basis of the experience of the representative
companies during 1930-40 arbitrarily increasing the rates of morta-
lity to provide for a ' safety ' margin for use in life premium cal-
culations called the 'Commissioners' 1941 Standard Table*
('C.S.O.').

Indian Experience

Many attempts were made in the past to construct mortality
tables from Indian experience. The first was the work of George
F; Hardy who investigated the experience of a mutual office in
the early eighties. A. J. Finlaison published the results of his

82 LIFE ASSURANCE

observations of European lives in the East India Covenanted Ser-
vices in 1874: A. T. Winter submitted the results of his investiga-
tions of the mortality experience of the British Empire Mutual
Life Assurance Society for 1872-1902. A number of investigations
were made by the Standard Life Assurance Company especially for
the periods 1870-85, 1895-1900 and 1846-1900 and because of the
preponderence of Europeans and other foreigners among the com-
pany's policyholders, business from Indians being limited to those
who had imbued western modes of life, the results of the investi-
gations as recorded in the * Notes on Mortality in India and other
Tropical Countries' 1 (extracts of which are reproduced below),
showed a surprising approximation to the Standard Tables used
by the company:

In India, more than any other country, an improvement has been
going on and the death-rate has materially decreased so that the old
tables of Woolhouse, Samuel Brown and others are no longer appli-
cable to the circumstances of the present day. The causes -which
have contributed are well known, viz., better sanitation, more
frequent change to home or to the hills as a result of improved means
of communication, simpler and sounder modes of life with a more,
moderate use of stimulants, the more frequent presence of ladies in
the country and most recently the destruction of malarial germs or
insects which play so large a part in carrying the infection from them
....The causes of death and incidence of mortality in India will
always vary from what these are at home, and it must specially be
borne in mind that the value of selection in India is not so potent
a factor as at home in reducing the death rate during the early years
of assurance. Doubtless a sound and healthy constitution, free from
taint of disease, will in many cases tell favourably, but a number of
diseases which prevail in India and which on most sanguine computa-
tion it will take many years to stamp out such as cholera, malaria
and other fevers may attack the strongest, while fatal accidents are
also probably more common, and none of these causes can be eliminat-
ed by selection." (Italics ours.)

Dr. Arthur Hunter of the New York Life Assurance Company,
which had a brief sojourn in India from 1885 till it finally with-
drew in 1922 after transferring its existing policies to the Sun Life
of Canada, investigated the mortality experience of the company
for the period 1885-1921, and concluded that mortality did not
record any improvement in the latter part over the earlier, but this
conclusion, in view of the later investigation of the * Oriental ' into
its own experience, is open to serious doubt. In any case the
company's Indian business showed a general falling off in the later

1 Transactions of Faculty of Actuaries (No. 10, Vol. I).

MORTALITY RATES 83

years due to war, and bore the full brunt of the influenza epidemic
of 1919 so that the results have only an academic interest. Never-
theless, an important feature of the working of this company, which
was reflected in its mortality experience was that * in the early
years a goodly portion of the policies were issued to British resi-
dents in India ' which condition was gradually changed so that
'since 1900 the great majority of the policies were granted on
natives partly due to the British companies granting the former
more liberal treatment than we did and partly to the absence of
any differential premium rates for Indians and others.'

Oriental Mortality Tables

The Oriental alone has so far investigated and published the
mortality experience of purely Indian lives. Five investigations
were conducted on the whole, the first three for overlapping periods
from the inception of the company: 1874 1897, 1874 1902
and 1874 1913 respectively and the last two for the periods
1905-1925 and 1925-35. The results of these investigations form
the only concrete record of the experience of Indian assured lives,
and the importance of these investigations is reflected in the in-
creasing use of the latest table by Indian Companies.

Confining the first and second investigations to the Hindus alone,
a comparative study of the mortality figures disclosed by the subse-
quent investigations was made on the basis of 1,000 Hindu deaths
in the period 1874-1897 :

Table No. u.

Hindus Other Communities

1874-1902 1 122

1874-1913 1089 968

93 2 8 ?6

6 34

Table No. 12.

Percentage of policies effected; healthy male lives.
Community Investigation

I II III IV V

Hindus .. 72.6 73.0 76.9 78.6 81.3

Mahomedans .. 3.1 3.1 4.1 4.0 8.1

Europeans 1 .. 6.2 5.7 3.1 1.2 0.3

Christians . . 10.0 9.7 8.8 10.2 7.7

Parsis .. 8.1 8.5 7.1 6.0 2.6

1 The larger percentage of Europeans shown in the first three investi-
gations is due to many Christians having been classified as Europeans.

84 LIFE ASSURANCE

The analysis proved conclusively that (a) mortality rates were
heaviest among the Hindus,, (b) there was a progressive improve-
ment of mortality in the fourth and fifth periods and (c) the last
decennium experienced the lightest mortality. To compare the
mortality of the different communities in India both with that of
the Hindus and inter se, breakdown figures of mortality were com-
piled on the basis of the 1925-35 ultimate experience for the fourth
.and fifth periods of investigation.

Table No. 13.

Ratio of actual to expected deaths
by the respective standard tables.

(ultimate experience)

Period Mahomedans Christians Europeans Parsis

IV .921 .789 .750 .662

V .958 .816 .615 .613

This table proved that Mahomedans experienced approximately
the same mortality as the Hindus and the trend was towards
lessening of the gap between the two. The Parsis and the Euro-
peans experienced marked savings in mortality.

The relatively higher rate of mortality indicated in the second
period (1874-1902) was chiefly due to the plague epidemic which
devastated large parts of Western India in the winter of 1896 where
the company confined its operations at the time, and although
natural laws tend to create a period of extremely low mortality
immediately after a catastrophic loss of humanity (called techni-
cally as the Generation Mortality), the final years of the investi-
gation were so soon after the event that the effects of the saving
were hardly felt during this period of investigation. 2

The third investigation covered the plague years and the period
of lighter mortality immediately following them and showed a

1 In point of fact this saving is not apparent in the census reports too as
the rate of mortality is, if anything, more in 1901 than in 1891 as the
following table will show.

Life Table
1881 1891 1901 1911 1931

Male ., 42 41 42 44 37

Female . . 39 39 42 43 38

MORTALITY RATES

85

saving: the saving was more marked in the fourth period, which,
incidentally, covered the 1918-1920 influenza epidemic which took
a toll of 8 millions in India alone, and the years of subsequent
lighter mortality. The fifth period was singularly devoid of cata-
strophic deaths, except the Bihar earthquake of January 1 934 which
it covered, and the Quetta earthquake of January 1935, which it
did not.

To compare the trend of mortality experience since the begin-
ning of the century, break down figures of lives exposed to risk,
actual deaths and expected deaths by the 1905-25 Standard Table
for quinquennial age groups were made at the time of the fifth
investigation.

Table No. 14.

Ultimate Section

(Includes whole-life and endowment assurances,

participating and non-participating, Hindu male

lives accepted at ordinary rates.)

Age group

(D

-'9
20-24

25-29
3-34
35-39
40-44

45-49
50-54
55-59
60-64
65-69
70-74

75-79
80-84

85-

Expected deaths

Exposed

Actual

by the Com-

to risk

Deaths

pany's 190S25

experience

(2)

(3)

(4)

34

.2

28,276

147

22O.O

1 14,806

532

976.1

I77,i5i

830

1,639.1

177,130

1,118

1,930.1

145,643

1,365

2,075.9

103,067

1,387

2,O66.2

60,305

1,312

1,749.6

24,136

830

1,007.5

12,801

629

725.5

7,3^4

446

539-2

4,241

369

401.4

1,845

I 9 l

228.9

575

77

95-8

152

23

34-5

857,476

9,256

13,690.0

Percentage of
actual to ex-
pected deaths

! : ^xlOO

66.8

54-5
50.6

57-9
65.8
67.1

75-
82.4
86.7
82.7

9'-9
83.4
80.4
66.7

67.6

86 LIFE ASSURANCE

The extent of the improvement in mortality in the latest investi-
gation will be apparent from the table. All the age groups have
shared in the improvement, the greatest improvement occurring
in the groups 25 40. From age 40 onwards mortality tends to
approach that prevailing at corresponding ages during the earlier
period, yet keeping substantially lower than the latter and there is
an over-all improvement of 33.4%. If this improvement is main-
tained, and if future investigations reveal substantially lighter
mortality figures, it might, in the long run, confer increased benefits
to the assured in the form of lower premium rates.

Standard Table

The fifth investigation for the period 1925-35 produced a Table
of Mortality which has since been accepted as the standard by
almost all the companies in India and a few of the foreign offices
for their Indian business. Mr. Vaidyanathan who conducted the
last two investigations built the table from the experience of the
Hindu assured lives as that alone met the twin requirements of
a standard, viz., (i) homogeneity, and (2) safety. If the statistics
of the heterogeneous groups of communities who make up the
policyholders of the Oriental had been combined to build the
table, the other communities would have distorted the rates and
made them unfit for universal adoption unless business was subse-
quently underwritten from those groups in the same proportion
as existed at the time of the analysis. Further, Hindus formed the
majority of policyholders and showed the heaviest mortality.

Select Table

A series of experiments designed to elicit the persistence of the
effects of selection enabled Mr. Vaidyanathan to reach the far-
reaching conclusion that medical selection, by itself, did not persist
for more than a year, thus comparatively simplifying the select
table: (see Table No. 15 opposite page).

Mr. Vaidyanathan's observations on the persistence of selection is
in accord with the almost unanimous opinion of all the other ob-
servers that in tropical regions medical selection affects only a
comparatively short period because of the rapid onset of tropical
diseases and because of the rapid deterioration in health which
can occur from comparatively minor causes.

Ultimate Mortality
The Oriental (1925-35) Ultimate experience given elsewhere

MORTALITY RATES

87

Age

Rate of Mortality

Age

'9

.00328

34

2O

.00328

35

21

.00328

36

22

.00328

37

23

.00328

38

24

.00331

39

25

00334

40

26

.00338

4 1

27

00343

42

28

.00349

43

29

00355

44

3

.00363

45

3'

.00372

46

3 2

.00382

47

33

00395

48

Table No. 15.
Graduated Select Table

Rate of Mortality Age

.00412
.00431
.00454
.00484
.00517
.00555
00599
.00648
.00705
.00768
.00837
.00917
.01004
.OIIO2
.01208

49
5
5*
5*
53
54
55
56
57
58

59
60
61

Rate of Mortality
.01326
.01454
01593
OI 743
.01906
.02080
.02264
.02460
.02668
.02884
.03108
03342
03587

is now the accepted standard for Life Assurance Valuation in

India.

A 9 a

20

25

30
35

AA^AAA^^AAAi

45 nniiiiiiii

50

CHART No. 3

Graphic representation of Oriental
( 1925-35 ) ULTIMATE mortality
table : Figures represent the number
dying at the specified ages out of
1,000 assured.

(Ages 2060)

iiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiiuiiiiiin

88 LIFE ASSURANCE

Table No. 16.
Oriental (1925-35) Ultimate Table of Mortality

Age

Number
liv ing

Nunrber
ci y i a g

Nu mber
dying
pir 1,. CO.
hate of
mortality

A v orage
f u t u r e

1 !.-> time
(- xpecti-
tion of life-)

Aga

Number
living

Number
dying

Nu mber
dying
per 1 COO
Rate of
mortality

A verage
future
life time
exprcta
tion of life)

20

1,000,000

4,200

4 20

41 60

60

603,303

25,852

4285

11 47

21

995 800

4,182

4.20

4077

61

577,451

26,557

45 99

1099

22

091,618

4,165

4 20

39 95

62

550,894

27.148

49 28

1052

23

987,463

4,157

421

39.12

63

523,746

7.654

52.80

1006

24

983,296

4,169

4 24

38 23

64

496,092

2P.014

56.47

9.62

25

979,127

4,191

4 23

37 44

65

468,078

28,267

6039

9 20

26

974,936

4,221

4 33

36 60

66

439.311

28250

64.49

879

27

970.715

4,271

4 40

35 76

6Z

411 461

28.284

6874

8 39

28

966,444

4,320

4 47

3492

68

383,177

28,072

73 26

8.01

29

962,124

4,378

455

34 08

69

355,105

27,630

7795

7 65

30

957.746

4.454

4.65

33 23

70

327,425

27,137

82 68

7.29

31

953,292

4 547

477

32 39

71

300,288

26,434

8303

695

32

948,745

4.649

490

31 54

72

273,854

25594

9348

662

33

911,096

4,737

5.07

30.70

73

248,260

24.605

99.11

631

34

939,309

4,960

5 28

29 86

74

223,655

23,488

10502

6.00

35

934,349

5,158

5 52

29.02

75

200 167

22,265

111.23

6.70

36

929.191

5,408

502

28.18

76

177,902

20.952

117 77

542

37

923, z 83

5,727

6 20

27.34

77

156,950

19,564

124 65

514

38

918.0L6

6,087

663

26 51

78

137,3bG

13,123

131 91

487

39

911,969

6,493

7 12

25 69

79

119,263

16,650

139 61

4.61

40

905,476

6,954

7 68

24 87

80

102,613

15,162

147 76

436

41

898.522

7,467

8 31

2407

81

87,451

13,682

15645

4 12

42

891.C55

8,055

9 04

23 27

82

73,769

12,225

16572

388

43

883.000

8,6b9

984

22.47

83

61,544

10,808

175 62

3.65

44

374,311

9,381

10.73

21 7J

84

50,736

9.450

18625

343

45

8G4.930

10,172

11 76

20 94

85

41.286

8,160

197 66

322

46

854,758

11,001

1267

20.19

86

33,126

6,953

209.91

3.01

47

843,757

11,922

14 13

19 45

87

26,173

5,339

223 10

2.81

48

831,0^5

I2,8o5

1549

18 73

88

20,334

4,825

237.30

262

48

818,950

13.922

1700

18.02

89

J5.509

3,917

25253

243

50

805.028

15.006

18 64

17.34

90

11,592

3.118

268.99

2.25

51

790.022

16,132

20.42

16 66

91

8,474

2,429

286.59

208

52

723.890

17,289

2234

16.01

92

6.045

1,846

30542

1.92

53

756,601

18,491

2444

15.38

93

4,199

1,367

325.50

1 76

54

738.110

19.6S5

26 67

14.76

94

2,832

982

346.83

1 61

55

718,425

20.856

2903

14 17

95

1.850

683

36939

1.47

56

897,569

22,001

31.54

13.59

96

1,167

459

393 15

1.33

57

675 568

23,104

34.20

1303

97

703

296

41800

1.19

58

652.464

24.122

36.97

12.50

98

412

183

44384

1.05

59

628.342

25,039

39.85

11,98

99

229

108

470.50

0.88

100

121

60

497.88

0.6?

101

61

41

668.67

0.33

102

20

20

1,000.00

-~

MORTALITY RATES 89

Age

65

CHART No. 4

7fl UUMMi Graphic representation of Oriental

/v IIIIII III (1925-35) ULT MATE mortality

AAAA A AAA A A A table: Figure represent the number

75 ilHllilili dying at the specified < ges out of

100 assured.

AAAAXAAAAAAAXAJ

80 TnilllfflllTfl (Ages 65- 100)

AAAAAAAAAAAAAAAA A AAJ

85 Ilnliimlllmilfi

AAAA^AAAAAAAAAAAAAAAAAAAAAA^AAAAAA^AAAAA

95 Hlinillinnllmifillllimllfiniffi

AAmAAAAAiiAAAimAAm

Joint Mortality Investigation

Writing in the Indian Insurance Year Book, 1944, Mr. Vaidya-
nathan observed that a combined Mortality Investigation of Indian
assured lives was needed. "No other insurer except the Oriental
can employ the Oriental Table in the valuation without an inves-
tigation. No actuary should come to a final decision as regards
the mortality basis to be adopted in a valuation before he has made
an investigation into the mortality experience of the insurer con-
cerned. A mortality table representing the combined experience
of all the Indian assured lives would provide a better standard for
use after adjustment than that of one particular company." The
need for such a table was recognised as early as 1935 and attempts
are being made to conduct an investigation and construct a table
under the joint auspices of the Indian Life Offices Association, the
Actuarial Society of India and the Federation of Indian Insurance
Companies' Association.

Mortality Tables for Annuities

None of the tables so far described is a suitable standard for the
calculation of premium rates for annuities. Annuitants stand on
a different footing altogether so far as mortality is concerned and
show considerably lower rates of mortality than insured lives, for
in general there is a class selection exercised by the buyers of
annuities over and above the fact that at the ages when annuities
are taken the sick and the infirm would have dropped off early
in the race of longevity, leaving only the survivors of the fittest to

90 LIFE ASSURANCE

enjoy ripe old age, whilst the best among the insured people gene-
rally give up their assurances, those with impaired health retaining
them. Where no separate mortality table for female annuitant
lives is available, mortality table based on the male experience is
in practice ' set back ' by four or five years to get the female rates:
the mortality rate for a female annuitant aged sixty-five, for ex-
ample, will be taken as the rate of a male aged sixty. Such a
calculation is practical and gives an assumed margin of safety for
the companies.

Ratio of Actual to Expected Mortality

The ratio of ' actual ' mortality experienced by a company to
that * expected ' (which is usually based on the rate of the morta-
lity table used for valuation) published in the valuation reports
has a limited significance. This is particularly true of younger
companies with a preponderance of new policyholders whose
mortality shows the effect of selection, for when the actual number
of deaths is compared with a table of ultimate mortality the ratio
of actual mortality is bound to be low. It will also be low in the
case of even an old company which has a high proportion of new
policyholders who have not yet reached the period of ultimate
mortality, i.e., a company writing a relatively large volume of new
business as compared to the business on the books. In the case
of an old company which is not writing a large volume of new
business the actual experience will almost be identical with the
expected and in any case will show only a little difference. The
proper basis of comparison between the mortality experience of
different companies or of the same company at different periods
is the calculation of actual experience of those of the same age
insured for the same length of time or those of the same age who
have all passed the stage at which the effect of selection has worn
off.

Population Basis

It is often asked whether tables of mortality constructed from
census returns may not form a workable basis for use by life offices.
The question carries its own refutation, as a comparison of the
census rates of mortality with the Oriental (1925-35) rate will
conclusively show: (see Table No. 17, opposite page).

The general public enumerated in the census includes many per-
sons whose health is bad, occupations hazardous and insurance
either unsafe or unacceptable, as opposed to the * select ' group of
healthy individuals insured after medical examination. The insured

MORTALITY RATES 91

belongs to an economic group able to prevent and cure common
diseases through prompt medical aid. Further, errors in age
usually found in the census enumerations in India are normally
eliminated in insurance, issued on the basis of acceptable proofs
of age in which the element of error if present is more often than
not capable of accurate determination.

Table No. 17.

Comparative Rates of Mortality at Quinquennial
Ages as deducted from the results of the 1881, 1891,
1901, 1911, 1921 and 1931 census, All-India, Male,
with Oriental Ultimate Mortality (1925*35) (%)

Age

Ail-India

Oriental

1881

1891

1901

1911

1921

1931

(1925-35)

o

28.41

27.26

28.54

29.00

24.87

5

2.41

2.68

2.67

2-75

2.52

!-93

10

I. II

1.14

1.24

'25

1.22

79

. .

*5

i. 5 6

I.!3

1.17

1.32

1.26

.98

. .

20

1.85

!-39

!-43

1.69

1.42

1.27

.42

25

2.OO

1.69

1.69

2.03

1.68

i-53

43

30

2.l8

2.04

2.O2

2-37

2.IO

'93

47

35

2. 3 8

2-43

2-49

2.77

2.67

2.41

55

40

2.66

2.85

3.01

3.24

3-33

2-94

77

45

3-05

3-37

3^4

3J2

4.OO

3-49

1.18

5

3.66

3-98

4-3

4.28

4.72

4.10

1.86

55

4.6l

4.78

5-09

4.98

546

4.81

2.90

60

6.12

5-93

6.25

6.00

6.31

5-79

4-29

65

8.50

7.64

8.14

7-57

7-43

7.27

6.04

70

12. l8

10.16

11.36

10.17

9-76

8.29

75

17.68

J 3-93

16.12

14.71

. .

14.27

II. 12

80

25.28

19-58

23.55

22.55

21.80

14.78

85

36.17

28.03

33.88

3 6 -35

36.08

'9-77

90

62.50

40.62

47.86

57-20

57-70

26.90

Nevertheless, population statistics give valuable data. The
improvement in mortality is negligible, and is manifest only in
1931 at certain ages. Life in the Pre-British era was mainly rural
with villages clustered around the healthier parts of India. Medical
aid was limited to the ayurvedic and unani systems which, though
effective in some cases, proved inoperative in others, yet a reason-
able measure of longevity was attained. Wide open spaces, good
food, fresh air and heavy manual labour kept villagers in robust

92

LIFE ASSURANCE

health and some of the modern diseases were unknown.

With Britishers came a steady pressure on soil and abject
poverty. The standard of health went low. A gradual trek to
the cities in the wake of slow but steady industrialisation began
about fifty years ago and gathered momentum in the last two
decades. Urbanisation produced new diseases, new factors to sap
vitality and far outpaced the improvement in available medical
facilities.

Comparative Death rates

A very significant fact is the high but steady birth rate, and the
high but fluctuating death rate: comparative death rates and
expectations of life tell a pathetic tale:

Table No. 18.
Birth and Death Rate of India per thousand

Natural Increase
Record- Estimat-

Year

I93I-35
1921-31

ii I-2I

Birth rate

Record- Estimat-
ed

Death rate
Record- Estimat-

35
35
37

ed
46.7
46.7

49'3

ed
24
26

34

ed
31.2
33-8
44.2

ed

II

9

3

ed

15.5
12.9

Source: Dr. Ghandrasckhar: Food and People, published by UNESCO.

Chart No. 5

^H Death Rate
I 1 Birth Rate

India G. Britain Japan Australia U.S.A.

MORTALITY RATES
Table No. 19.

93

Comparative table of mortality rates and expectation of life.

Death

Infantile

Expectation of

Country

Rate

Mortality

life

at birth

(1937;

(1937)

Males

Females

New Zealand

9-*

3'

65.04

67.88

('930

Australia

9-4

38

63.48

67.14

(i93 2 -34)

Union of South Africa

I O.I

37

57-78

61.48

(1925-27)

Europeans

Canada

IO.2

76

59-32

6i.59

(1929-30

U. S. A.

I 1.2

54

59- ' 2

62.67

Whites

47-55

49-5 *

Negroes

Germany

II.7

64

59-86

62.75

1*932-34)

England & Wales

12.4

58

58.74

62.88

(* 93 a -32)

Italy

I 4 .2

109

53-76

56.00

(1930-32)

France

15.0

65

54-30

59-02

(1928-33)

Japan

17.0

1 06

44.82

46.54

(1926-30)

Java

18.8

Palestine

18.9

'53

Ceylon

21.7

158

British India

22.4

l62

26.91

26.56

(1921-30)

British India

21.8

158

(i940

The expectation of life expresses in terms of the. probable length of
life of the individual, the cumulative effect of the specific mortality
rates at different ages in respect of the two sexes. While the ex-
pectation of the female is, in most countries, about 2-5 years higher
than the male, it is nearly six months lower in India. The lower
expectation of life is, to a great extent, due to the very high rate
of infant mortality: nearly one-fourth of the babies born die
during their first year. About half the deaths among infants occur
in the first month, and of these nearly sixty p\?r cent in the first
week. Nearly, forty-nine per cent of the total mortality in any
given year is among those below ten years of age, while the corres-
ponding figure for England and Wales is ten per cent (see over-
leaf).

Deaths from Specific Causes

Official statistics of mortality from specific causes is somewhat

94 LIFE ASSURANCE

Table No. 20.

Infant Mortality at specific ages expressed as percentages
of the total deaths at all ages:

Under 1-5 years 5-10 Total
one year

British India (average for 1935-39) 2 4-3 l8 -6 5-5 4^-4
England & Wales 6.8 2.1 i.i 10.0

Source: Bhore Committee Report.

incomplete and unreliable: available information on the incidence
of diseases is even more so. Nevertheless a rough idea of the
specific causes of death may be obtained from the following table
for British India for the period 1932-41:

Table No. 21.

Average annual deaths during 1932-41, British India
excluding Burma

cs^oii Dysentry Respi- nt>,^

Cholera *>"' Plague Fevers and ratory r*SL Total
P ox Diarrhoea Diseases Causes

144,924 69,474 30,932 3,622,869 261,924 471,802 1,599,4906,201,434
(2.4) (1.1) (0.5) (58.4) (4.2) (7.6) (25.8) (100.0)

Source: Bhore Committee Report. Figures within brackets
refer to percentages of total deaths.

(Dr. Chandrasekhar in his Food & People, published by UNESCO, lists
1.8 per thousand population and 8.1% of total deaths as due to injuries).

It is highly probable that where deaths have been unattended by
doctors, as considerable numbers are, the returns are usually listed
as "fevers" as the cause of death. The largest single cause under
* fevers ' is undoubtedly malaria, which in an endemic form,
according to official sources, causes i million deaths and as an
epidemic another half a million. Malarial attacks lead to lowered
vitality and cause between 25 and 75 million cases of indirect ill-
nesses so that deaths, with malaria as an associated cause, raises
the mortality rate to about 8 per 1,000 of the population.

A survey of the geographical distribution of malaria made by
the Public Health Commissioner (1939) revealed that:

MORTALITY RATES

95

Either Non-malarious or
relatively free from malaria.

Areas 5,000 feet above sea-level
and four widely separated regions
in Eastern Bengal, North-Eastern
Brahmaputra Valley in Assam, two
narrow strips in the Northern Cir-
cars and around Madras City in
Madras.

Coastal regions of Bombay,
Madras and Orissa, wide areas in
the Gangetic Valley, large tracts in
C.P. and eastern portion of C.P.

Sub-Himalayan regions, Chitta-
gong Hill Tracts, C.P. and Western
Ghats.

An extensive tract of dry area
running across India from north to
south.

Punjab, Delhi and parts of U.P.

Tanjore District, thin coastal
strip above Madras City and isolat-
ed spots in Orissa & Bengal.

Construction of road and railway embankments, irrigation canals
and dams have proved ideal for large-scale incidence of malaria.

Next to Malaria Tuberculosis takes the highest toll. Dr. Benja-
min has estimated urban mortality rate of between 20 and 45 per
thousand due directly to tuberculosis and 500,000 deaths for the
whole of India with 2,500,000 active cases: the following table
from Indian Medical Gazette (October 1941) gives a comparative
mortality rate:

Prevalent in static form
of moderate to high inten-
sity.

Exhibits hyperendemicity
associated with hill tracts
and terai land.

Varying degrees of ende-
micity depending on local
conditions and irrigation.

Outbreaks of fulminant
epidemic.

Strictly localised.

Table No. 22.

Tuberculosis deaths per 100,000 of population.

Paris Mexico New Berlin London Cawn- Luck- Madras Cal- Bombay

York pore now cutta

177 170 128 120 96 432 419 290 230 140

Dr. A. C. Ukil states "In predominently agricultural countries like
India the infection rate varies from 21 to 34 per cent in rural to
80 to 90 per cent in urban and industrial areas .... Tuberculosis

96 LIFE ASSURANCE

infection, though increasing in recent years, owing to the increas-
ing urbanisation, industrialisation and the introduction of rapid
transport, is not yet so widespread as in Europe and America."
The Bhore Committee Report states "There is reason to believe
that its incidence is higher in Urban than in Rural Areas and, in
both areas, infection is spreading and active tuberculosis increas-
ing. The growth of towns and cities, development of transport
facilities and industrialisation are contributory factors to this
increase."

The three major epidemic diseases of cholera (200,000 deaths)
small-pox (69,474 average deaths in 1932-41) and plague (average
deaths 19,347 in 1939-41) are preventable and * should have been
prevented long ago.'

On quite a different footing stands the mortality due to famines.
" Famines are no longer of frequent occurrence or devastating in
their effects" writes O'Malley in * Modern India and the 'West.'
but there is scarcely a year in which scarcity conditions do not
occur in some parts of the country bordering on famine, and they
are invariably followed by outbreaks of diseases. Yet, they affect
economic groups who can hardly afford insurance, so that famines
have little influence on the mortality figures of insured lives.

Besides the above catalogue of mortal diseases, endemic diseases
such as leprosy, filariasis, guineaworm, hook-worm disease and
venereal diseases cause considerable morbidity, although their con-
tribution to mortality is relatively small. Environmental hygiene,
nutrition and medical aid (both preventive and curative) are the
three essentials of good health: of this nutrition is the most vital
problem for life assurance, as defective nutrition is primarily res-
ponsible for poor physique and lowered resistance to a host of
diseases including tuberculosis, anaemias and rickets.

Economic, social and religious groups reveal marked differences
to the incidence of diseases; lower income groups show a higher
incidence to diseases and lower ability to get rid of them. Higher
income groups (to which belong the insured lives) and which,
until recent years, embraced the so-called higher castes, who have
a better education, better jobs and Consequently a higher standard
of living, have a comparatively better physique and better resistance
power.

Drs. Aykroyd and Krishnan of the Nutrition Research Labora*
tories, Connoor undertook diet surveys in South Indian villages in
1936 and concluded: "It is clear that if Group I which may,
without exaggeration, be described as half-starved, is representative
of a large group, the problem of malnutrition is more serious than

MORTALITY RATES

97

has yet been realised." The problem of nutrition is really two-
fold: (i) under-nutrition, or more truly, starvation diets, due to
economic causes and (2) rnal-nutrition due to ill-balanced diets.
The insured classes generally fall under the second category. Dr.
Marrack in his " Food and Planning " has given the following
composition of Indian diets:

Table No. 23.

Gm. of Protein, Fat and Calcium in
Indian diets per "man value" per day.

Calories Protein

Calcutta, Well-to-do
Hindu, Urban Punjab
Hindu, Rural
Sikh, Urban
Sikh, Rural

Animal
Protein

Fat Calcium

2,787

94.0

47-7

86.5

o-79

2,3 1 9

69.8

9-9

49-2

0.77

2,720

81.4

8-5

53- 1

0.8 1

2,776

87-9

16.0

59-2

I.OO

2,904

89.4

13.0

58.6

-99

This analysis may be compared with Dr. Aykroyd's surveys:

Table No. 24.

Ounces per consumption unit per day

Food

Cereal

Pulses

Milk

Leafy Vegetables

Non leafy Vegetables

Fruit

Vegetable Fats & Oils

Fish, Meat and Eggs

Ill-Balanced Diet

23

05 to 1.5

none or negligible amount
05 to 1.0
2 to 5
Negligible
less than 1.0
0.5 to 1.0

Weil-Balanced Diet

17
3
8
2
4
2
2

2 to 3 if no milk is
included

Approximate chemical composition (assuming cereal as milled rice)

Calories
Protein (G;
Fat (G)
^Calcium (Gt
Phosphorus (G)
Vitamin A
Vitamin C (MG)

2,600
55
25

0.025
0.90
1,100
60

2,600
80
70
1.0
i.20
2,000
150

KEMP & CO., LTD.

(Eat. in 1868.)

MANUFACTURING & DISPENSING
CHEMISTS

RENOWNED FOR HOUSEHOLD REMEDIES
ANDALL MEDICININAL REQUIREMENTS

Distributors of :

LILLY'S, AND WARNER'S PRODUCTS FROM
U S A, AND FULFORD'S, CONTINENTAL AND
ALLIED LABORATORIES FROM U K

Head Office :

OLZ> F A RB A D E Y I,
BOMBAY

Branches :

DELHI

CALCUTTA

MADRAS

MORTALITY RATES

Chart No. 6.

99

20

15

10

Ill-balanced Diet
Well-balanced Diet

1

B

In the last table both diets have the same caloric content, but the
more varied, better well-balanced diet is conducive to better stamina
and physique. The crux of the nutrition problem, therefore, is
the emphasis on quality rather than quantity, and as Dr. Chandra-
sekhar observes "As long as the people's vitality and resistance to
disease is low, owing to poverty, malnutrition and ignorance, and
as long as the shockingly insanitary and unhygienic conditions of
the towns and villages persist, any medical approach to this prob-
lem can only be fragmentary."

Environmental hygiene and the absence! of medical facilities
should have, theoretically at least, but little influence on the mor-
tality of insured lives because of their economic status: nevertheless
two factors may have to be borne in mind during selection:
( i ) habits of living and locale in addition to habits and health
and (2) extent of medical facilities available in the locality and
the capacity to make use of them.

During the last two decades there has been a steady fall in the
general mortality rate: a further fall is bound to occur if the large-
scale programmes for improving the health of the nation are put
into operation with vigour and drive for even a slight improvement
in the present health conditions ' can save three million lives '
If the belief in ' fate ' as the controlling factor in life is replaced
by a belief in the marvels of medical science, a better and easier

100 LIFE ASSURANCE

approach to human problems of life, longevity and death may
result.

In the case of life insurance human conservation and higher
duration of life will have a significant effect. It will decrease the
rate of mortality among comparatively younger people, but at the
very old ages, especially after a man has passed his sixtieth birth-
day, it can have no appreciable effect at all. While modern medi-
cal skill has enabled a man to reduce the chance of his early death,
it has not made the old live longer: it has only postponed the date
of his death, ft seems almost as if there is a natural upper limit
to the span of a man's life which no medical skill can extend.
Much of the reduction in the rate of mortality either in India or
elsewhere will be due primarily to the lessening of the incidence
of infant mortality, especially in the first year of life: only a limited
improvement is possible in higher ages and, of course, more people
will be kept alive longer by improved conditions of health and
living.

CHAPTER VII
LIFE FUND AND INTEREST

Next to mortality the rate of interest is the most important factor
in the determination of premiums. The fundamental problem of
choosing a suitable interest basis for premiums depends upon a
variety of factors, for example the future economic trends which
would have a bearing on future interest rates, the opportunity for
and the policy underlying the investment of the assets and the
actual rate of interest earned currently and in the past. This
Chapter deals with the accumulation of the funds, investment of
the assets that secure the funds and the interest earned.

Life Assurance Fund

On page 23 of the Chapter on 4 Fundamentals ' it has been
shown that every outstanding policy is a liability on the books of
the company. Let us forget the loadings for a moment (on the
assumption that the expenses of running the business absorb the
load) and see what happens when a group of sufficiently large
numbers takes out insurance, all at the same time. The premiums
they pay in the early policy years would more than meet the claims
by death and the balance would be c reserved ' for future liability.
This reserve would accumulate for a time, but later, depletion of
lives would render the premiums inadequate to meet the claims
and from that time onwards the reserves would augment the pre-
miums to pay for the claims. When all the claims have been met
there would be no more reserves.

In short a group of exactly similar policies will be self-support-
ing, receiving on the one hand no assistance from previous con-
tracts and requiring on the other none from those to be issued
subsequently; on any given date such a group would have a reserve
on hand against future liability which, together with future pre-
miums, would pay for all the claims. In the practical working of
a company it is hardly possible or necessary to maintain an inde-
pendent fund against the reserves of such an isolated group even
if sufficiently large numbers of exactly similar policies were on the
books (which may not be the case), for such groups may be many
and the regular flow of new business (at least in well-organised
offices) would steadily increase them, every group requiring a
separate fund. A more practical course would be to create one

101

102 LIFE ASSURANCE

consolidated fund out of the premiums received every year, suffi-
ciently large to rqual or exceed the combined reserves of all similar
groups and to maintain that fund at an adequate level. That
consolidated fund is the Life Assurance Fund. It will be evident
that the fund existing on any date belongs to the existing policy-
holders; that if there is a regular flow of new business reserve
would increase steadily and the life fund would be consequently
kept at higher levels and that if no more new business were forth-
corning the fund would have to be treated as a closed one, able
to fulfil all its obligations. It would therefore follow that the fund
should be adequate at all times and the determination of its ade-
quacy is fundamental.

Adequacy of the Fund

Let us turn for a moment to consider the Revenue Account of
a life assurance company. The two sources of income are pre-
miums (both on the new and the existing policies) and interest
on investments. Such items as claims (by death, maturity or
surrender), expenses of management and depreciation constitute
the chief items of outgo; the excess of income over outgo is credit-
ed to the Life Assurance Fund, less the appropriations re-
quired to maintain an Investment Reserve Fund and sometimes
a general contingency fund.

The very process of its creation would suggest that the life fund
is an arbitrary figure. In a thriving and well-regulated office, the
flow of new business will be regular, the premium income will
increase every succeeding year, the expenses will be controlled and
consequently the life fund will steadily grow; but not all the offices
are progressive or well-regulated and the other conditions may not
necessarily follow. The reserves, being the company's liability on
the outstanding policies, should not be left to the vagaries of an
arbitrary fund for they are capable of scientific determination and
should be maintained at an adequate level. The question would
therefore arise "Is the life fund adequate to meet the liability?"
It would be if on a ' valuation J of the liability of its policies the
life fund is equal to or exceeds the reserves; this valuation can
cover a review of the financial position of the company and deter-
mine the profits made or the losses sustained in the operation.

The Revenue Account is an annual statement prepared by those
qualified in company accounts. The Reserves may likewise be
determined annually, (and in fact in the United States annual
determination of the reserves is compulsory), biennially as is the

LIFE FUND AND INTEREST 103

practice with many English companies or triennially l as required
by the Insurance Act 1938 as amended in 1950. Economic condi-
tions, unfavourable mortality experience and other factors beyond
control may upset the financial position of even the largest offices
but their inherent strength would enable them to recoup soon;
the comparatively smaller capital and limited resources of the
newer and smaller companies may not stand the rigours of a strict
annual valuation early in their careri. Most of the large and well-
managed offices conduct a sort of internal valuation at the end
of every year to determine the extent of their liability strictly for
their own benefit and to review their financial position; this to-
gether with the triennial valuation required by law and the strict-
est supervision exercised by the Controller enables the Indian
companies to maintain their financial strength adequately.

This triennial valuation by a qualified member of the actuarial
profession is a statutory obligation. The actual process of deter-
mining the liability on the existing policies is interesting and
instructive, removing much of the misconception and meeting most
of the criticism levelled against life offices. That process is highly
technical and beyond the scope of this book; nevertheless a general
indication is attempted. There are two fundamental methods:
the Retrospective and the Prospective and although a few other
recognised systems are followed they tend to be combinations or
variations of these two. The final reserve arrived at by any method
should reflect the basic elements of safety, adequacy and solvency
of a company. Let us proceed to a discussion of the two methods
on the basis of the c net premiums ' omitting loadings altogether.

(f) The Retrospective Method

As its name implies the amount of the premium in excess of
what was required to meet the claims in accordance with a stand-
ard mortality table and a selected rate of interest is by this method
set apart as a reserve. This accumulation of excess premium in
respect of all groups of similar policies is the total reserve. This
reserve should be on hand to meet part of the claims by death or
maturity preferred in later years. On a given date the company
is actually ' at risk ' only to the extent of the difference between
the sums assured and the reserves accumulated with interest. We
have thus two quantities the reserves built up out of the accu-

1 State regulations in England and Canada [before the passing of the
Insurance (Amendment) Act 1950 in India too] permit quinquennial
valuations. That is the limit but companies have freedom to conduct
valuations oftener.

104 LIFE ASSURANCE

mulated excess payments of premium with interest and the net
amount at risk, and while the reserve on a policy which is con-
tinued for a long time increases, the net amount at risk decreases
correspondingly, until when the reserve equals the sum assured
the amount at risk vanishes. This phenomenon of an increasing
reserve and a correspondingly decreasing amount at risk is funda-
mental to the modern system of insurance based on the level
premium plan.

() The Prospective Method

It has been seen in Chapter II that when a policy is issued the
present value of all future net premiums payable on a policy is
equal to the present vahie of the sum assured at death or maturity
(the same rate of interest being used in calculating present values
in both cases) . After a policy has bren in force for a time a fewer
number of premiums remain to be paid and consequently the
value of the future net premiums is less than that on the date of
issue. On the other hand, the value of the sum assured has in-
creased because the date of its payment has drawn nearer. We
have thus two quantities on any specified date, viz., the value of
the remaining net premiums due and the value of the sum assured,
and while the value of the future premiums payable diminishes
with every succeeding year, the value of the sum assured increases.
On any specified date the difference between the two values should
be on hand as a reserve against future liability, for in its absence
the company will not be able to meet the claims. The reserve can
therefore be determined by estimating the present value of future
claims and that of the future premiums due (see table opposite) .

The Retrospective method is thus the process of determining
reserves by the accumulation of excess premiums and the Pros-
pective method their determination by the process of valuing the
' prospective ' premiums and the sum assured. Both methods have
their uses and advantages, although the prospective method is more
realistic and practical. The prescribed forms of returns under the
English Assurance Companies' Act 1909 and the (Indian) Insur-
ance Act 1938 make it necessary for the companies in the respective
countries to follow the prospective method; in America where
almost all actuarial calculations have been reduced to predeter-
mined formulae, approved by State Departments of Insurance,
prepared tables of Policy Reserves are used.

Having discussed the Life Fund and its functions, let us turn
'to" the investment of the assets that protect this fund.

LIFE FUND AND INTEREST

105

Table No. 25.

Illustration of accumulating reserves, PROSPECTIVE
METHOD, under an endowment assurance policy,
Sum Assured: Rs. 1,000. Entry Age: 20. Term: 5 years.
Net Annual Premium: P 2 o . s Rs - l8 7-334- Basis:
Mortality Oriental (1925-35) Ultimate, Interest
2/2% per annum.

Age

20
21
22
23
24
25

Present value

of Re. 1 pay

Value of Re 1

Lni of
year

t

able to a per-
son aged v

on his sur-
vival to age
25 or at
earlier death
[net single

Total value
of insur-
ance still to
bo paid

K s 1,000

per annum in
advance for
the remain-
der of term,
by person
aged x

V aluf oi
future
premiu ms

Rs. 187.334

R o s L> r v o
per policy
to nearest
r u poo

[4] - [6J

premium]

X [I]

A A + t : S fi

a.x r t S-t!

2

3

4

!5

r>

7

O

.8848

884.8

4-723

884.8

I

.9065

906.5

3-832

7I7-9

189

2

9289

928.9

2.Q 15

546.1

383

3

95 1 9

95 * -9

I .Q72

3^9-4

583

4

-975 6

975-6

1. 000

187.3

788

r

i .0000

1 000.0

_

1000

INVESTMENTS.

There are three main considerations in the investment of life
assurance funds; (i) security of capital, (2) adequacy of yield
and (3) diversification. Sometimes a fourth consideration is
mentioned, namely ready convertibility; for that matter a con-
sideration of general interest would be investments that aid life
assurance business.

Security

In the investment of the policyholders' funds security may at
first appear to mean " how best to employ the funds so as to lose
none of the capital." That is a consideration of the highest im-
portance for the reserves that go to build up the life funds leave
no room for loss of capital; what is more they belong to the policy-
holders and are merely awaiting the calls to be made upon them
to honour the obligations of the company. That the Government
bonds would at all times represent the highest form of security
cannot be denied and in the public mind security of capital is
almost synonimous with government securities. That investing in

106 LIFE ASSURANCE

the shares of industrial and commercial corporations would involve
sharing in the risk of their business is also beyond dispute but even
if Government Securities were the only form of investments open
to an insurance company loss of some of the capital cannot be
totally avoided. For consider what happens in the case of a com-
pany purchasing 2/2% Government Loan in August 1946. The
purchase price was at par; that is for an outlay of Rs. 100 the
insurer obtained a bond valued at Rs. 100. If the insurer is forced
to sell it now when his Rs. 100 stock is worth but Rs. 97 and he
is prevented from reinvesting in other stock which would give him
Mock worth Rs. 100 at Rs. 97, the whole transaction would have
involved him in some loss of capital. In the case of well-establish-
ed and flourishing companies this loss potential would be greatly
minimised for two very good reasons : ( i ) constant flow of new
business and the steady income from business in force would pre-
clude any need for the sale of securities (2) at the time of re-
demption alternative stock would probably be offered or become
available for investment with but little loss of capital, if any. The
second factor is especially the case in India where Government
borrowings are not limited to the Central Government alone. Even
so loss of capital by sale or redemption is a contingency, though
remote and limited. Even otherwise changes in the price of
money (controlled chiefly by factors of supply and demand, by
variations in public confidence and by Government monetary
policy) may change their market values, sometimes very consider-
ably, requiring writing down of their book values, but not their
intrinsic values. In the case of non-gilt-edged Stock Exchange
Securities on the other hand changes may occur both in the market
value and in the intrinsic value to a far greater extent for indivi-
dual industries may flourish or decay, may expand or may contract,
may become easily able or totally unable to meet their financial
commitments. Further investments are never confined to Stock-
Exchange securities and there are other types that appreciate or
depreciate in value, for example properties, and investments whose
value may be reasonably controlled, for example mortgages. It
all goes to prove that security is a relative term and cannot always
be identified with " How best to employ the funds so as to lose
none of the capital " ; more to the purpose may be " How best
can the funds be employed so as to ensure absolute safety of
capital." Fluctuations in market values may or may not be tract-
able; in any case they can be protected by capitalising part of the
yield to form an ' Investment Reserve Fund ' : but fluctuations in
intrinsic values should not be a contingency to be provided for.

LIFE FUND AND INTEREST 107

In the quest for security therefore the intrinsic worth of any security
is much more to the point than any other consideration. Never-
theless there is much to be said in favour of diverting a reasonable
portion of the total assets for investments in non-gilt-edged securi-
ties such as the debentures and preference or ordinary shares of
well-managed and successful companies where the element of total
loss from the failure of the companies is considerably limited while
the advantages of a higher yield is a gain which no insurer can
lose sight of. This is particularly true of life assurance companies
which have the benefit of the most expert advice on investment
matters. But there is no room for speculation.

Yield

Theoretically it may be possible to construct tables of premium
rates without any consideration of the interest factor. However
it has always been the custom to invest the assets and to credit the
policyholders' funds with the interest earned on them. The prob-
lem of investment therefore cannot be entirely divorced from yield
and a restatement of the first proposition may be : " How best to
employ the funds so as to ensure absolute safety of capital and to
obtain the greatest possible yield."

In the prevailing conditions life offices have adopted a very
conservative view of future yield in their premium calculations
and reserve values. Before the war it was usual for the companies
to base their premiums at higher rates, but not so now; 1 all the
same insurers have in the past obtained the rate of interest re-
quired to maintain life funds from the best class of securities over
a long period, but when that was no longer possible premiums had
to be increased. Yield is affected by the expenses of investment,
by capital fluctuation and by taxation.

Security and yield will continue to be the most important factors
for consideration at all times in respect of life insurance funds, but
it is justifiable to adopt a reasonably liberal investment policy
without indulging in speculation and set off a large part of the
higher yield on less secured equities to meet any losses that might
arise in the future. Mr. A. H. Bailey, Actuary of the London
Assurance Corporation wrote in the middle of the last century
that "It may seem a bold assertion that English funds arc alto-
gether unsuited for life assurance investments. For income they
probably offer the best security the world has yet seen; but with
us that is a secondary consideration; the capital, the security of

i See Chapter VIII.

108 LIFE ASSURANCE

which is our first object, is subject to very inconvenient fluctuations
in value." The scope and range of investments have consider-
ably widened since then but not the basic principle of safety of
capital with the greatest possible yield. The Boards of Directors
of several companies hold different views upon what is the most
advantageous line to be taken from time to time and the resulting
yields consequently vary.

Distribution

An accepted principle of investing lilt* assurance funds has al-
ways been their distribution both geographically and among
different classes of investments in such a manner as to strengthen
the security, enhance the yield and aid life insurance business.
Funds limited to one single class or to different classes dependent
upon one another may often show violent fluctuations of values
or yields, may become sensitive to economic changes and may
prove unsuitable in the long run; a wise distribution does always
maintain stability, minimise fluctuations arising from changes in
normal economic factors or living conditions, widen the field of
prosperity and increase their national utility.

Convertibility

The need for liquidity of assets in well-managed and flourishing
companies may be negligible under normal conditions of business
for it is rarely that they will be forced to sell any considerable
portion of their investments to meet current claims. Income from
new and renewal premia, rents, cash receipts from other sources
such as maturities of past investments, sale of mortgages and the
like more than pay for current payments. Moreover even if the
unlikely were to happen a temporary period of depreciation could
be tided over by borrowing; nevertheless it may be desirable to
have a very limited portion of the assets in readily convertible in-
vestments against large-scale demands for cash surrenders or loans
as might be made sometimes in the life of a company. No invest-
ments can ordinarily be sold at any time in the open market with-
out incurring loss.

Suitable Investments

The Boards of individual companies follow different investment
policies and the actual choice of a particular type of investment
is largely a matter of personal preference. The post-war tendency
of almost all governments is to assume wide powers in the direction
and control of investments and in central planning of the mone-

tary structure; individual preference may therefore be largely sub-
servient to the larger national interests. Some of the suitable
securities available may now be discussed.

(i) Government Securities ^

Apart from the element of compulsion introduced by State
regulations three very good reasons make government securities the
most widely accepted investments for life assurance funds: ( i ) they
provide unimpeachable security of capital (2) they are the most
readily realisable of permanent securities and (3) they give a wide
variety of choice for satisfactory diversification. Here it may be
pertinent to cite the investment policy of the Oriental. The out-
standing feature of that policy has been its consistent preference
lor Government Securities. The original Articles of the Oriental
formulated certain definite and original rules to l remedy the de-
fects thought to exist in the methods of European companies
already at work in the country. Thus in addition to providing
policyholders with a controlling interest, provisions were made in
the constitution of the company, strictly prohibiting amalgamations
and furnishing the highest order of security for its engagements;
giving a fixed monetary value for every premium paid, by invest-
ing 80 per cent thereof in Government Securities in trust for
Policyholders as their sole property to meet payment of claims; by
Shareholders and Policyholders appointing their own Trustees,
Auditors and Consulting Actuary to protect their respective
interests; by Funds being invested in Government Securities only,
and remaining in India, so as to afford absolute safety to both
Shareholders and Policyholders.' 1 (Italics ours). By this policy
which remained unchanged for over 70 years ' the company has
not had to write off anything as bad debts out of its investments
nor has bevn in doubt about the regular receipt of interest at
stated intervals.'- In December 1946 a special resolution permit-
ted the Board to widen the scope of investments/*

1 Golden Jubilee Souvenir issued on 5 May, 1924.

- Diamond Jubilee Souvenir issued on 5 May, 1934.

'* Sir Purshotamdas Thakurdas, presiding over the Extraordinary General
Meeting of the Oriental on the i6th November 1949, said: "You will
remember that in December 1946 your Company altered its Articles of
Association, removing any restrictions imposed as regards investments of
its funds outside what is required to be invested in Government securities
only in terms of its Trust Deed. Your Company has lately commenced
taking advantage of the freedom thereby secured and has been investing
in high class mortgages and also shares and securities outside Government
security class which yield a higher rate of interest than Government secu-
rities. In making these investments, your Board has paid primary atten-
tion to security of capital as the first canon of a good investment policy.*'

110 LIFE ASSURANCE

Before the Insurance Act 1938 came into force the general pre-
ference (with the exception of the largest companies) was for
industrial shares as opposed to Government Securities because of
the comparatively lower yield on the latter: nevertheless as the
larger companies which controlled nearly 85 per cent of the invest-
able funds preferred government securities, the overall percentage
of investments in this class was the highest. Insurance Act 1938
directed the investment of 55 per cent of policy liabilities less
deposits and policy loans, in Government and approved securities
with the result that companies had to revise their investment pro-
gramme hastily. Since then largely due to the reduced scope for good
and safe c non-speculative J non-gilt-edged securities Government
securities have formed nearly 65 per cent of the total investments
in spite of their low yield. It is almost axiomatic to say that the
better the security the lower the yield: as a corollary it might be
said that the greater the yield the more the demand and conversely
the larger the demand from institutional investors the lower the
yield.

Loans are issued by the Central, Provincial and State Govern-
ments. Government of India securities are of two types: termin-
able and non-terminable. The current rate of non-terminable loan
is 3% having been reduced from 3^2% in 1946. Terminable loans
may be long-dated or medium-dated. Loans floated by Provincial
and State Governments provide greater variety and increased
yields.

A great drawback of all government securities is their liability
to fluctuations; this may result in a certain amount of capital
losses requiring adjustments from the Investment Reserve Fund.
The extent of this fluctuation may be gauged from the following
table:

4 per cent 1960-70 loan.

Market price during 1932 1938 1949 1 95

Rs. i oo face value Rs. 59-4 Rs. 107-10 Rs. no-6 Rs. 110-4

British Colonial and Foreign Securities offer a limited scope for
investments. Apart from the primary objection of sending capital
outside India most of them are subject to conditions which are
unsuited to Indian companies. The volume of foreign business
written by Indian companies is still small although it is on the
increase and, for some time, except to the extent of compulsory

LIFE FUND AND INTEREST 111

investments under government regulations in those countries, secu-
rities of foreign countries may not be very attractive to Indian
companies.

Whilst on the subject of investments in Government securities
it is pertinent to review the trend of yields in the principal coun-
tries of the world during the last decade. There was a general
decline in yields especially in th? United Kingdom, the United
States, Canada, France and India. This decline continued during
and immediately after the war as shown in the accompanying
table. The cheap money policy adopted by these countries before,
during and after the war has kept down the yields on Gov-
ernment bonds. 1

"Before the war cheap money policy was adopted by several
countries in order to raise the levels of employment. During the
war the high cost of financing the war compelled the governments
of these countries to pursue the policy more intensively so that
they could borrow at a relatively lower cost. There were also
attempts to stabilise the low yields and, if possible, to lower them
still.

As will be seen from the said table, the yield on Government
bonds in the United Kingdom had gone down from 3.46, the
average of 1937, 38 and 39 to 2.60 in 1946 and in the United
States from 2.59 to 2.19. In the latter country, there was a sudden
rise in the yields during the years 1942, 43 and 44, but thereafter,
the trend was downward again. In Canada, the decline continued
upto 1947. The trend in Australia also was similar. In India,
France and Switzerland the yields had gone down from 3.34, 4.09
and 3.47 in pre-war days to 2.79, 3.17 and 3.10 respectively in
1946.

The year 1947 saw a gradual rise in yields in all the countries
named above except in Australia where the level of yield seems to
have been almost stabilised. In other countries, the upward trend
continued right up to the end of 1948. But the first quarter of
1949 witnessed a revival of the downward trend in the yields in
the United Kingdom, the United States, Canada and Switzerland.
In India, however, the rate of yield continued to remain practically
at the level registered in December 1948, though a shade higher
than the rate that prevailed during the earlier part of 1948. In
France, the yield prevailed at a higher level in 1948 than in 1947,
but recorded an appreciable decrease in the first two months of
1949 only to rise again in March.

1 The accompanying resume and Table are reproduced with the kind
permission of the Editor of the Commerce.

112

LIFE ASSURANCE

Table No. 26.

TABLE SHOWING YIELDS OF GOVERNMENT SECURITIES.

(Per cent.)

Date

U K.

U S.A.

Australia

Canada

Fiance

India

Switzerlan

Average for :

1937

3.28

2.74

3-86

3-17

4.27

3.86

3-41

1938

3.38

2.61

3.76

3-09

4.04

3-20

3-24

1939

3-72

2.41

3.92

3.16

3-9 6

3-56

3.76

1945

March

3.01

2.40

3-25

3.OO

2.96

2.85

3-35

June

3.00

2.35

3-25

2-99

3.00

2.82

3-3 *

September

2.82

2.37

3-25

2.97

3.00

2.74

3-27

December

2-75

2.33

3-25

2.86

3-03

2.68

3.26

Average *

3-92

2.37

3-25

2.93

2-99

3.10

3-22

1946

March

2.67

2.09

3-24

2.60

3-65

2.58

3-13

June

2-57

2.16

3 25

2.60

3.18

3-34

3.04

September

2.56

2.28

3-25

2.60

3-25

2.13

3-04

December

2-54

2.24

3.21

2.60

3-35

2-15

3-20

Average *

2.6o

2.19

3 24

2 6l

3-i7

2.79

3.10

1947

March

2.64

2.19

3.18

2-59

3.61

2.44

3.1 I

June

2.68

2.22

3-15

2.59

3-89

2.36

3.05

September

2-99

2.24

3-17

2-55

2.86

3.22

December

3.01

2-39

3-77

2.56

4.48

2.86

3.35

Average *

2.76

2.25

3-17

2-57

3-91

2.86

3.16

1948

March

3-22

2-45

3.16

2.98

4-69

2-95

3-55

June

3-27

2.41

3.16

2.96

4.84

3.00

3-44

September

3-22

2-45

3-15

2-95

4.67

2-95

3-33

December

3-14

2.44

3.16

2-93

4.69

3.00

3-3*

Average *

3.21

2.44

3.16

2.94

4.62

2-97

3.4i

January

3.12

2.42

3-15

2.91

4.01

3.00

3-20

February

3-09

2-39

3.16

2.90

3-95

3.01

3.18

March

3- II

2.38

3.15

2.88

4-74

3.00

3.05

April

3.10

2.38

2.91

4.82

3.00

2.90

* Average for the respective years.

The general reversal of the trend in 1947 and its continuation
into 1948 reflects the difficulty that was experienced by most of
the countries in stabilising and consolidating the gains made in the
cheap money front in the earlier years. The difficulty was due to
increased demand for funds in the face of diminishing supply. In
India, in particular. Government spending, which was responsible
for the creation of large sums of money during the war years and

LIFE FUND AND INTEREST J13

in the immediate post-war year, stopped and with it the creation
of fresh purchasing power also. As against this, the demand for
funds from private trade and industry expanded. There was also
heavy liquidation of Government loans by investors whose confi-
dence had been undermined by the momentous political changes
and disturbances as well as by doubts about the Government's
ability to maintain cheap money policy. However, a marked rise
in yields was averted by the sustained support extended by the
Reserve Bank of India. The task was rendered needlessly diffi-
cult by the hasty manner in which the last British Finance Minister
in India, Sir Archibald Rowlands, forced the yields down by putting
through the conversion of the 3/2 per cent undated loan into 3 per
cent, undated and 2.3/4 per cent long dated loans. This step
resulted in the cheap money policy being carried too far. Subse-
quent developments in the country necessitated a certain amount
of retreat and this was carried out in a tactful and judicious
manner by the Reserve Bank authorities.

India was not the only country in the world to make such a
tactical retreat. Other countries also had to do so, though in
varying degrees. The United Kingdom recognised the need for
a gentle hardening of interest rates last year by issuing to share-
holders of nationalised concerns long-dated stocks carrying interest
at 3 pei cent as against the previously established long-term rate
of 2/2 per cent. The United States Government also allowed an
upward movement in its bond yields with a view to discouraging
monetisation of the public debt. To this end short-term rates
were deliberately allowed to rise but this had its inevitable effect
on long-term yields also in spite of the Federal Reserve Board's sup-
port to Jong-term loans. Canada too fostered a rise in bond yields
as an anti-inflationary measure. This was done by the Bank of
Canada lowering its support to prices for Government bonds."

The retreat from the cheap money policy (or shall we say ultra-
cheap money policy?) has been slow but steady, and the current
trend of interest rates in the long-term capital market is on the
increase.

Othet Approved Securities

Municipal, Port Trust and Improvement Trust securities of the
three principal cities of Bombay, Calcutta and Madras constitute
the principal forms of investments classified as * approved securi-
ties '. They are a miscellaneous group of acceptable investments
secured by the respective Governments. The most attractive of
these issues do not offer a high yieJd because of the keen demand

114 LIFE ASSURANCE

from institutional and private investors but offer a high level of
security and diversification. A consideration of the highest im-
portance with regard to these loans is that most of them have
been issued for the financing of specific- welfare projects and aid
in raising the standards of living in the respective cities which
in turn aid life assurance business.

Public Corporations

Many worthwhile schemes of the Government have been held
up by the paucity of funds and the Government had to go to out-
side agencies like .the International Monetary Fund to get the much
needed finances for others. The relatively smaller schemes are
being directly financed by the Treasury. Life Assurance com-
panies have among them nearly Rs. 150 crores for investment and
this amount is being increased annually at present by about Rs. 15
or Rs. 1 6 crores. It is therefore pertinent to pose the question:
" How far is it possible to mobilise these funds directly in the
financing of national projects?"

The Telephone Industries is a case in point; the nationalised
transport systems are another; the various projects for nationalising
electricity companies constitute a third. They need capital, expert
direction, technical aid, absolute freedom from political control;
and they make profits. They hardly fit in with the general ad-
ministrative machinery but stand as indepedent industrial units.
Why not then run them through Public Corporations with capital
subscribed by the Government and institutional investors?

The Government of the United Kingdom run some of their
nationalised enterprises through Public Corporations. Corporate
Bonds like bonds of railways, public-utility companies (gas, electric,
transit and other public-service corporations) and miscellaneous
industrial corporations are normally the backbone of the bond
investments of life insurance companies in the United States; so
also in Canada. In India on the other hand Railways and other
Public Utilities have either been or may soon be nationalised thus
limiting the range of acceptable, guaranteed, stock which give full
security, good yield and reasonable scope for diversification. The
Industrial Finance Corporation was started as a Government enter-
prise with capital subscribed by the Government, Reserve Bank,
Joint Stock Banks and institutional investors; it is a success and
renders useful service to deserving industries by granting loans.
The success of any other Public Corporation that may be started
in the future would naturally depend upon a variety of factors
such as stable economic conditions, efficient administration and

LIFE FUND AND INTEREST 115

reasonable profits; but the beneficial results would include early
realisation of centrally planned national schemes and a certain
amount of check on speculative investment of life funds.

Real Estate

The modern tendency is to limit the possession of house property
to such buildings as may actually be needed for the use of the
insurers and to such estates as may be acquired in the course of
mortgage transactions. The high rates of depreciation on build-
ings and the greater incidence of fluctuations in value partly
account for this while the difficulty of finding suitable tenants
particularly in times of economic depression is an important con-
sideration. The Hindustan Co-operative had shown particular
preference for investments in real estate before the war; said a
booklet issued by them sometime ago " A special feature is the
investment policy of the Society which has contributed so greatly
to its prosperity. It did not slavishly adopt the system 'of invest-
ing its funds in gilt-edged securities alone a system so greatly
over-rated, but in consonance with security, sought to utilise those
funds directly in civic and industrial developments. Hindustan
can rightly claim to be pioneer in the field of facilitating the pro-
vision of homes for people with small means. The success of the
policy both from the point of view of security and returns is amply
justified by the working of the Society." The policy was altered
later to conform to the provisions of the Insurance Act 1938
and in 1948 about 65-70 per cent of the assets were held in Gov-
ernment securities.

Mortgage Loans

Loans on the first mortgages of immovable properties completely
meet the requirements of security and yield and offer adequate
opportunities for distribution of holdings. They are therefore
eminently suitable for investments, provided the properties are kept
under close observation and an adequate margin is maintained
between the loan and the appraised value at all times. 1 Mortgage
loans repayable by annual instalments which wipe them off in a
period of fifteen or twenty years are perfectly satisfactory, as the
cash so realised annually may be available for reinvestment and
the margin between the loan and the value of the property is
increased. Depreciation on a mortgaged estate is borne by the
owner and the interest is a net yield.

1 See also later paragraphs dealing with Government Provisions.

116 LIFE ASSURANCE

House purchase schemes provide an excellent method of invest-
ment in mortgages. The usual procedure is to grant a loan on
the joint security of (usually an endowment) policy and the first
mortgage on a building to be erected or to be purchased; such
a loan bears a definite relation to the amount of the policy and
the cost of the building and is allowed to be repaid, with interest,
in easy instalments. On the policy becoming a claim, any out-
standing loan is deducted from the amount payable. At least one
office issues a specific form of insurance to facilitate house purchase
whereby the instalments to be repaid are included in the premiums
on the policy and a monthly premium of Rs. 90 at age 25 payable
for 15 years secures a Rs. 10,000 loan towards a house costing
Rs. 15,000 on which Rs. 5,000 has been paid by the policyholder.
These schemes are eminently attractive to the policyholder, for in
addition to providing an easy method of raising a loan for house
purchase, the terms of issue free the dependents of all liability on
the loan in the event of the insured's early death. The permanency
of the arrangement, attractive yield (which is fixed by the com-
pany) and unimpeachable security benefit the insurer and the
scheme merits more vigorous pursuit than has hitherto been evinced.
For example the numerous housing schemes sponsored recently by
co-operative building societies provided opportunities for the issue
of insurance cover against the instalments due on them; the instal-
ments are either annual or monthly, payable for twenty or twenty-
five years and a suitable endowment policy on the life of a member
would take care of any outstanding instalments in the event of his
death before all the payments have been made. *

There are two opinions on the advisability of insurance coin-*
panies investing in residential buildings, but no difference of opinion
whatever in promoting housing schemes, especially where policies
are issued on the lives of the members to provide, together with
a mortgage on the building, sufficient security for the issue of a
specific loan, if needed, or to guarantee payment of any outstand-
ing instalments when a member died. In England individual
housing schemes are very popular; in the United States under the
National Housing Act, the Federal Housing Commissioner is autho-
rised to insure first-mortgage loans of various types which are made
by financial institutions including life insurance companies approved
by the Federal Housing Administration; the mortgages are issued
and insured under the * mutual mortgage ' plan, which among
other requirements, provides for monthly payments of c premium '
by the mortgagor to the Federal Housing Administration*

LIFE FUND AND INTEREST 117

Farm Mortgages

In a country of the size of India, with a predominantly agricul-
tural population, insurance funds would, on a superficial consider-
ation, seem to provide excellent sources to finance agricultural
loans. But unfortunately it has not been possible to use them in
this manner so far. Frequent fragmentation of land has reduced
individual holdings to pitiable levels and the owner is hardly able
to eke out a bare living on the land. Where the holdings are large
and output satisfactory finance is hardly needed; where finance is
needed security is absent. Commercial farming is rare enough
and the development of cash crops has still not emerged out of the
blue-print stage. Indebtedness can generally be traced to the need
for short-term finances of very small amounts; the amounts
required are so small and the security so inadequate that organised
institutions like banks can rarely meet the need. The period of
the loan is generally more than what a bank would normally care
to lend for but much shorter than what an insurance company
would desire. If commercial farms were developed and the loans
required for longer periods for example fifteen or twenty years,
insurance companies can meet quite an appreciable demand, pro-
vided the security is good and safe.

Company Shares

Prior to 1939 ordinary and preference shares of Joint Stock
Companies formed the most important outlet for several com-
panies, although in view of the limited investments made by the
larger companies, the overall percentage of the investments in
shares did not, at any time, constitute more than 8 except in quite
recent times.

Speculation is inherent in the holding of shares, and, unbridled,
may lead to serious repercussions. That apart, where the holdings
are small, the investment is at the mercy of the holders of majority
shares; where they are large, the temptation to obtain full control
and eventually active participation in fields of business foreign to
the purpose of insurance may be too strong. Nevertheless 'the
advantages of higher yields are real, and speculative tendency is
capable of arrest. Highly speculative shares are, in any case,
objectionable if only because of the large-scale capital fluctuation
inherent in them. The Insurance Act 1938 did not place any
quantitative restriction on the amount of shares held by a com-
pany within the limits of the 45% liabilities at its disposal; yet life
offices which had any controlling interest in subsidiary institutions

118 ' LIFE ASSURANCE

were very few but abuses of the limited freedom at their disposal
were numerous. Of the abuses the inter-locking of funds with
industrial and banking companies was the most general, and
threatened, at one stage, to shake the very foundation of private
financial structure. That Act as amended in 1950 severely restricts
freedom to invest in shares.

Government Restrictions

Government control on the investment of the policyholders*
funds arises out of four considerations ( i ) to ensure absolute safety
of capital by preventing speculation; this is achieved by restrictions
on the types of investments permitted, (2) to eliminate mal-
practices: this is achieved by the rules regarding periodical sub-
mission of returns of investments and the right for the Government
to de-invest the funds from undesirable securities, (3) to confine
the operation of life offices to their particular fields of activity: this
is achieved by the restraint on the acquisition of more than a small
percentage of the shares of other companies and by the strictures
on the directors and other officers of the companies, and (4) to
prevent misappropriation: this is achieved by various restrictions
in the Act.

The current provisions of the Insurance (Amendment) Act 1950
may now be analysed. Restrictions include compulsory invest-
ment of 50 per cent of the Reserves in Government and Approved
Securities, and directions to invest the ' controlled ' fund in securi-
ties enumerated in the Act.

i. Government and approved Securities (Section 27). Compul-
sory investment in Government and Approved Securities relates to
50 per cent of the mean liability for matured claims and on ma-
turing policies less outstanding premiums (within their days of
grace) and policy loans 25 per cent in Government Securities
and 25 per cent in Government or Approved Securities. Statutory
deposits under Section 7 (or 98 )* are treated as investments in
Government Securities. The previous section 27 of the Insurance
Act 1938 had stipulated 25 per cent and 30 per cent as the res-
pective proportion of investments in Government and in Govern-
ment or Approved Securities; it was amended in April 1950 to
25 per cent and 25 per cent. Securities of the United Kingdom
were treated as approved securities under the previous provisions,
but, under the Amendment, they will cease to be so after four

1 Section 7 relates to Proprietary companies and 98 to Mutual and
Co-operative Societies.

LIFE FUND AND INTEREST 119

years. The chief forms of approved securities are Municipal and
Port Trust Loans, and other Securities Guaranteed by the Gov-
ernment.

iL Controlled Fund (Section 2;A). The Act as amended in 1950
stipulates the investment of the balance of the Reserves and other
insurance funds in certain well-defined channels: Approved Secu-
rities; Securities of, or guaranteed by the Government of the United
Kingdom; Debentures and Securities issued by Provincial Govern-
ments and Municipalities; Securities of Housing Societies consti-
tuted by the Government; Debentures secured by the assets of any
company which has paid interest in full for at least five out of the
seven years immediately preceding the issue of the debentures;
Debentures or Preference Shares of a company which has paid
dividends on ordinary shares for at least five out of the seven years
immediately preceding; Shares of a company guaranteed by another
company provided the latter has paid dividends on its ordinary
shares for at least five out of seven years immediately preceding
and the guaranteed shares are not in excess of 50 per cent of the
total shares (preference and ordinary) of the guaranteeing com-
pany; Shares of any company which has paid dividends (including
bonus) of at least 4 per cent for seven out of the nine years im-
mediately preceding; First mortgages on immovable property pro-
vided it is not lease-hold with an outstanding term of less than
30 years and its value exceeds by one-third, or if consisting of
buildings, by one-half the amount of the mortgage; immovable
property free of all encumbrances; Policy Loans within their sur-
render value: Fixed deposits with scheduled banks; Debentures,
shares or fixed deposits in Co-operative Societies; such other
investments declared approved from time to time by the Govern-
ment.

A sum not exceeding 15 per cent of the Reserves may be invest-
ed at the discretion of the insurer in ( i ) Banking or investment
company shares, provided the shares so invested in any one com-
pany do not exceed 2*4 per cent of the Reserves or 2 per cent
of the total subscribed capital of the company whichever is less,
with the exclusion of shares in the Imperial Bank, and (2) Shares
and Debentures of Joint Stock Companies, provided the investment
in any one company does not exceed 2 54 per cent of the Reserves
or 10 per cent of the subscribed share capital, including debenture
issues, whichever is less, with the exception of shares in a subsidiary
company carrying on insurance business. These investments
require the unanimous consent of the directors present at a meeting

120 LIFE ASSURANCE

and eligible to vote, special notice of which has been given to all
the directors then in India and require immediate notification to
the Controller of Insurance. Where the investment is on partly
paid-up shares the uncalled liability of the shares will be added on
to the amount invested to arrive at the stipulated percentages. Not
over 3 per cent of the total funds may be deposited with any one
bank, excluding any premium collected by the bank on behalf of
the insurer during the preceding thirty days; and not over one-
tenth of the total funds may be offered as security for any loan
raised for investment purposes, the balance of the investments
being held free of encumbrances, charge or hypothecation or lien.
All the funds pertaining to the life assurance business has been
classed as "Controlled Fund."

The 1950 Amendment has invested the Central Government
with powers to de-invest any of the investments made, if, in the
Government's opinion, they are unsuitable or undesirable. The
Act further requires submission of returns in prescribed forms, with
full details of all current investments (and certified as to their free
holdings) as on the last day of March, June, September and
December every year within thirty days.

General Observations

Such then arc the general provisions for the control of invest-
ments. The objectives of State control are commendable; the
Government's right to restrict investments in well-defined channels
is beyond dispute, but the exercise of that right in a manner that
would curtail freedom to formulate individual investment policies
may be open to question. Viewed thus the Indian law is em-
barrassing and the vigorous protest against section 27 of the Insur-
ance Act 1938 was the result.

There is another angle. In exercising the freedom to invest, if
security of capital is made subservient to other considerations the
interests of the policyholders may demand active State interven-
tion, no matter how small the number of companies that overstep
their freedom, for the Government's responsibility to the public
is far more important than any question of upholding the inherent
freedom of the companies. That was what happened in 1938.
How the firm refusal of the Government to amend section 27 even
in the face of an almost unanimous demand turned out to be for
the good of insurance will be discussed in Chapter XVIII.

But the issue was all along confused. Ostensibly to aid national
uplift a section of the public sought to divert a major share of the

LIFE FUND AND INTEREST 121

funds to Government controlled securities. Such a step will be
ill-advised. Democracy thrives where private capital and indivi-
dual initiative arc encouraged. The increasing tendency of post-
war democratic governments is to assume increasing control over
the investment of private capital and over the whole field of in-
dustry; so long as that control encourages rather than throttles
individual initiative, centralised planning is good and may even
be essential for the balanced growth of national wealth. A point
that is very easily lost sight of is that the wealth itself originates
from individual enterprise and initiative, and a policy which curbs
initiative may soon degenerate into a negation of democracy.
National wealth in America grew under a system of democracy
which never interfered with private enterprise; Britain became a
nation of traders because of Government encouragement and not
interference. If central planning is confined to broad outlines of
policy and private capital is given ample freedom to choose invest-
ments which do not run counter to that policy, there can be no
question of conflict. In the investment of life assurance funds if
the restrictions are limited to directions for the development of an
investment policy along generally accepted lines, the provisions,
though irksome, may have to be endured for the common good;
but if those restrictions are motivated by considerations which have
no connection with insurance, they will have to be resisted. There
is no justification to assume that the Government policy has so far
been actuated by any motive but the protection of policyholders*
funds. And the future would show the effects of these restrictive
provisions.

There is a parallel. The abuses in the investment policy of
several companies in the United States which resulted in the
appointment of the Armstrong Enquiry Commission in 1905 will be
detailed in Chapter XV. The recommendations of that Com-
mission were adopted as the Insurance law in the State of New
York and later followed by many other States. These laws were
severely restrictive. Investments in both common and preferred
stocks were prohibited in New York; mining stocks were forbidden
in Connecticut; stocks of oil or canning companies were banned in
Idaho. Later amendments partially removed some of the restric-
tions in some States, intensified them in others. Thus the New
York law was amended in 1928 to permit investments in preferred
and guaranteed stocks of corporations under certain conditions and
limitations. The Robertson Law of Texas directed the investment
of three-fourths of the reserves on policies on Texas residents in

122 LIFE ASSURANCE

Texas securities. The net result is that every State law regulates
investment policy, and the net effect has been to make the com-
panies stronger. American offices today write the highest per
capita insurance of all countries; their ability to do so lies in the
policy that made them strong. Perhaps the severe restrictions of
the new Indian law may strengthen the companies in a like
manner.

Distribution of Assets

The growth of the life assurance fund and the assets that protect
it is given in the following table.

Table No. 27.

Total Life Funds and Total Assets of Indian Companies.

(Assets include the assets of composite companies writing

life business)

(lakhs of rupees)

Total Assets at Total Funds at D^^**^

Year end of the the end of the !?? IJl g

year year ol (J ' on ^'

(1) (2) (3) (4)

1913 6,00.0 5,82.9 97.2

1914 6,78.0 6,36.2 93.9
'9'5 7,89-7 6,77.1 85.7
19*6 8,48.9 6,85.9 80.8

9,43-7 7,20.1 76.3

9,18.7 7,36.0 80.1

19*9 9,8i.8 7,87.1 80.2

1920 io,55-9 8,46.5 80.2

1921 10.87.8 8,62.4 79-3

1922 11,76.3 9>36.9 79-6
12,70.6 10,29.7 81.0
i3,74-i ",45-9 83.4

1925 14,85.6 12,57.1 84.6

1926 16,22.4 13J5-9 84.8

1927 i7,73-o IS,?*-* 88.6

1928 21,79.3 17,16.7 78.8

LIFE FUND AND INTEREST

123

Year

1929
193
1931
1932
'933
1934
1935
1936
'937
1938

1939
1940

1942
'943
^944
'945
1946

^947
1948

Total Assets at

end of the

year

(2)

25,48.6
28,36.5

40,19.9

43> 8 5-5
48,22.1

53.53-9

I *JJ I

81,72.8
93,62.1

1,01,94-7
1,17,00.0

1,31,98.9
i, 45> 6 5-2
1,60,26.4

1,83,73.3

Total Funds at

the end of the

year

(3)

18,73.2
20,52.9
22,44.1

25.07-7
28,71.8
31,87.1

35^9^
40,24.6

45,09-6
50,56.8

5 6 ,334

62,42-5,
68,81.9

75,97-9
84,24.7

' 94,53-9
1,07,48.7

1,16,58.8
1,29,68.9
1,50,50.2

Percentage
of (3)on (2)

(4)

78.8
80.5

79-0
804
80. 1

79-3
80.2

83.5
84.2

84-9

84.0
84.7
84.2
81.1
82.6
80.8
81.4
80.0
80.9
81.9

(All figures calculated from entries in the Indian Insurance
Year Books).

The accompanying graph illustrates the growth (see page 128).

There was no law regulating insurance prior to 1912 and the
earlier companies followed their own preference. Thus the
Oriental showed a marked preference for Government Securities;
the Bombay Mutual granted loans on the security of policies only
after 1898; the Bharat actively participated in the promotion of
joint stock companies in the early years. The 1912 Act left
investments alone. Government regulated investments for the first
time in 1939 and further amended the provisions in 1950. The
accompanying tables give the distribution of assets both by
amounts and by percentages from 1914.

124 LIFE ASSURANCE

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LIFE FUND AND INTEREST 125

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126

LIFE ASSVRANCE

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LIFE FUND AND INTEREST
5432

127

8 ? 88

sxassv IQ Nounai^isia

128

LIFE ASSURANCE

200
190
180
170
160
ISO

140

no

120

no

100
90
80
70

60
SO
40
30

.

ASSETS

tL

LIFE FUND

I9ir *92/ 925 9?9 1933
Chart No. 8: Growth of Assets and Life Funds.

Chart No. 9

Growth of Assets. Each square represents
Rs. 2J crores. The black portion repre-
sents investments in Govt. Securities.

Hil

I9I5

1 920

1 925

1 930

1 935

LIFE FUND AND INTEREST

129

The composition of the different classes of investments that go
to make up the assets shows but little change during the last thirty-
four years, for much as the investment policies of individual com-
panies have differed, established offices with their huge funds and
their consistent and distinctive character have exerted a balancing
influence over the composite percentages: in this the Oriental's
influence has been the most profound.

Take Stock Exchange Securities for instance. They have been
the backbone of life insurance investments here, as elsewhere, with
Government and semi-Government securities getting the pride of
place, but the overall percentage of investment in Government of
India Securities has hovered around 55 before 1939 directly due to
the Oriental:

Average
for years

Table No. 2 9.

1914-19 1920-29 1930-34' 1935-39 1940-45 1945-48

Government *

Securities 59.30% 55.55% 50 24" 5230",, 57.22% 60.3/%

Other approv-
ed Securities 15.50". 15. 59",, 1522% 10.20% 7.65% 6.49%

Company

Shares 1.89% 2.74 "o 4.23% 6.84% 8.21% 10.68';;

The six years 1914-19 showed an average investment of 59.30%
in Government of India Securities: the Oriental dominated the
period, its share of the total life funds standing at 75% in 1914
(Rs. 4.72 crores out of Rs. 6.36 crores for the whole of India) and
at just over 65% in 1919 (Rs. 5.16 crores out of Rs. 7.87 crores).
In the twenties the percentage in Government securities fell from
59.30% to 55.55; approved securities remained unchanged and
company shares had an increase but less than i%. The fall in
the Government securities seems to have been taken up by mort-
gages on real estates. At the height of the depression (1930-34)
Government Securities accounted for only 50% of the total assets
but the share of the equities rose to 4.23%. The next five years
saw a slight increase in Government securities, a proportionate in-
crease in equities but a fall of 5% in approved securities. This
was a time when some of the life offices floated indiscriminately
were equally indiscriminate in violating the best canons of sound
underwriting :

1 These averages are exclusive of the figures for 1930.

2 Include United Kingdom and Colonial securities.

130

LIFE ASSURANCE

Table No. 30.

( figures in lakhs of rupees )
1936

1938

Exclusive
of
Oriental

All-
Indk

Exclusive
of
Oriental

All-
India

2104

4025

2748

557

IOO4 1
35-63

2504
51-93

1326
37.22

3146
52.81

380
13.48

5*4
10.67

442
12.41

576

9-67

322
1 1 .43

3^7
6.78

411
n-54

422
6.47

Life Fund

Govt. Securities
% to total assets

Approved Securities
% to total assets

Company Shares
% to total assets

Figures taken from the Year Books for 1937 and 1939. United Kingdom
securities are included under Approved Securities

Four years later the restricted provisions of the Insurance Act
1938 altered the composition of investments in Stock Exchange
Securities thus:

Table No. 31.

( figures in lakhs of rupees )
1942

Life Fund

Govt. of India Securities
% to total assets

Approved Securities
% to total assets

Company shares
% to total assets

Exclusive

of
Oriental

4455

2512

43-29

5 6 9
9.81

12.60

All-
India

7598

527B
56.40

73
7.80

767

1945

Exclusive

of
Oriental

6747

4970
55-29

613
6.82

1180

All-
India

10749
8437

794

6.O2

1240
9-39

Investments in company shares have shown a steady and consistent
increase from under 2% in 1915 to one-eighth of the total thirty
years later.

1 Out of Rs. 1004. lakhs in Government Securities in 1936 Rs. 195 lakhs
related to Deposits under the 1912 Act. It is interesting to note that on
3ist December 1937 fifty-six companies were in arrears of deposit to the
extent of Rs. 7.5 lakhs.

LIFE FUND AND INTEREST 131

Mortgages

The composite percentage of investments in mortgages are like-
wise misleading for the Oriental did not include mortgages among
its investments until quite recent times. Thus in 1936 mortgages
formed 6.92% of the assets of the companies excluding the Oriental
as against 4.04 for all-India. In that year the Hindustan alone
accounted for nearly one-third of the total investments on mort-
gages of House, Property (Rs. 66.5 lakhs against Rs. 194.9 lakhs
for all the companies).

Land and House Property

With the growth of funds the investment in real estate has shown
a consistent increase every succeeding year; the composite percent-
age, however, remained stationary between 5 and 6 until after
1945 the inflated prices prevented acquisition of new buildings to
the same extent as the increase in assets, and brought down the
percentage to 4 and less. In 1936 the Hindustan and the Oriental
together accounted for over 36% of the total investments in Land
and House Property; in 1945 30%.

Policy Loans

These reflect the financial needs of the public and may be
influenced by the economic status of the policyholders. The com-
posite percentage shows but slight variation during the last 35 years
probably due to the absence of insurance for business reasons and
on the lives of farmers the two classes who are greatly sensitive
to economic changes; after 1945 there is a definite downward
trend. That policy loans did not increase appreciably during the
depression years of 1930-35 is a pointer: with their regular in-
comes, the bulk of the insuring public were comparatively free
from the crushing effect of the crash of prices, except that a few
of them were able to save more. In 1930 8.37% of the assets of
the companies and 10.5% of the total life funds were taken up by
loans as against 7.54% and 8.9% in 1925; 9.34% and 11.1% in
1939. Panicky conditions in 1940-42 had a greater influence, for,
whilst the loans formed only 9.8, 9.3 and 9.2 per cent of the assets
(respectively) in these years, they were 11.5, u.i and 11.3 per cent
of the life fund. In 1948 4.4% of the assets and 5.4% of the
life fund were loans.

Other Loans

Before the Insurance Act 1938 came into force a few offices
permitted the none too laudable practice of granting loans on

132 LIFE ASSURANCE

personal security: the Act prohibited it. Loans on collateral
security of selected stock may, with some justification, constitute
permissible investments, provided there is a comfortable margin
between the loan and the marketable value of the securities and
provided the stocks themselves are such that the companies can
hold them as part of their investments. Mortgages and deben-
tures are always preferable to such loans, which are, in any case,
not 4 approved ' for investments by the 1950 Amendment.

Of the other assets, deficits and preliminary expenses do not
figure in the accounts of established offices, as they are written off
as soon as valuation surpluses enable them to do so. Cash and
accrued interest depend upon business conditions.

Such are the intricacies and trends of investments; the percentage
of the gross income from all assets in relation to the life fund is
the gross rate of interest. This is subject to taxation and the ruling
rate of taxes has a profound influence on the net rate of interest
realised on the assets.

TAXATION

In conformity with all other business corporations life assurance
companies should bear their fair share of taxation. Such taxes
as those on land and house property, registration, insurance con-
tracts, licensing fees (of both agents and companies) and the like
are legitimate; nor may serious objection be raised against taxes
on true income. But on what constitutes true income there is
considerable, and in fact very serious, differences of opinion.

Life offices derive their income from premiums arid the returns
on investments. The basic principle of taxation of income con-
templates the levy of a tax on " Income, Profits and Gains " and
a tax on premiums is untenable for premiums stand in the same
category of investments as bank deposits. Interest income is
different and is taxable. However the basic conception of the
level premium does not regard interest as extra profit but anticipates
it and takes it into account in fixing the premiums charged.
Viewed thus the most equitable basis for taxation would be the
gross interest earnings less an amount needed to maintain the
reserve at the anticipated rate of interest; in computing the gross
earnings such items of capital gains as are derived from the sale
of real estate or securities must, in fairness, be excluded as they
arc merely additions to the fund. With modifications this is thr
basis of taxation in the United States.

This basis, though equitable, may not reflect the actual profits

LIFE FUND AND INTEREST 133

of trading for not all offices adopt the same rate of interest in,
nor even the same method of, premium calculations; and, even
if they did, various other factors like expenses would complicate
the issue. It also differs from the general conception of * income
less expense ' applicable to all trades and business. And so in
England where the instinct of trade is natural, tax is levied on
interest-income less expenses of management. The effect of this
basis is that the amount of taxes paid in relation to gross income
varies according to the expense ratio of the company and to the
relation between the premium and the interest incomes. A young
office with a small fund and a large new business would pay very
little, if at all, in taxes; an old office having a large fund but
transacting relatively small new business would pay heavily.

Two causes make it difficult to adopt this method in it" entirety
to India; firstly many companies arc comparatively now and have
a small interest income and secondly the expense ratio is high.
In 1947 for instance the total interest income of the companies
was Rs. 3.63 crores and expenses Rs. 8.83 crorcs and many offices
spent much more than their interest incomes. So, much as the
' claim that the entirety of the management expenses should be
allowed as a deduction is theoretically justifiable "/ it is not so
practically; even where this method could be applied it was felt
that the expenses of management deductible should have a bearing
on what is reasonable. For a number of years this deduction was
85% of the first year's premiums and 8*/2% of renewals which
was grossly unrealistic; 90% of the first year's premiums and 12%
of the renewals were allowed to be deducted from 1944 and even
this hardly represented actual expenses. The Income-tax Investi-
gation Commission in 1949 therefore recommended an allowance
of 90 per cent of the first year's premium where the premium-
paying period was 12 years or more and 7^/3 per cent of the first
year's premium multiplied by the number of years for which pre-
miums are payable where the premium-paying period is less than
12 years, and 15% of renewal premiums. Even so this method of
taxation is hardly suitable for all companies and even in England
another basis for computing profits was adopted years ago.

There is no denying the fact that the valuation surplus is profit,
but whether all that profit could be taxed has been the subject of
much litigation and more controversy. Authorities have differed
in deciding the question whether * income less expenses ' would
reflect the true, profit; difference likewise exists as to whether, and

1 Report of the Income-tax Investigation Commission.

134 LIFE ASSURANCE

to what extent, valuation surplus may be taken as a true basis for
assessment. The Royal Commission in England accepted the
contention that the bonus distributed to policyholders was in the
nature of return of excess premium (as it undoubtedly is) and was
not taxable; the English Finance Act, 1923 therefore gave this
exemption. That contention was not accepted in India and for
a considerable time 50% of the bonus allocation was taxed in
addition to the surplus allocated to shareholders (which, in any
case, is taxable) a practice which, shorn of all technicalities, is
tantamount to taxing the proceeds of life assurance. This is
paradoxical; while the State recognises the principle that proceeds
of life policies are free from income tax on the ground that they
are only returns of investments, it taxes the bonuses which are also
similar returns. Repeated protests and representations led to the
recognition of the principle of excluding all bonuses from assess-
ment but retained the tax for fear of repercussions on the revenue.
Viewing it from the angle of fairness and expediency, the Income-
tax Investigation Commission averred: "Taking the principle to
be that s>o much of the bonus as is in excess of the. load 1 is in the
nature of profit and taxable as such, we are of the opinion that
tax should be assessed on the aggregate of (i) the dividend paid
or reserved for shareholders and (ii) so much of the bonus allot-
ted to or allocated for the policyholders as is in excess of the sum
representing the load provided for in the premia paid by the parti-
cipating policyholders. Another form in which the method may
be defined is that the tax should be assessed on the total surplus
(actuarial surplus and tax deducted at source) minus the sum
representing the load." Even so the method is unfair to the large
body of policyholders taking out with-profit policies for the very
nature of the premiums they pay (vide next Chapter) contem-
plates a profit.

If the basis of assessment is inequitable, the rate of tax levied is
equally wrong. Until the fiscal year 1939-40 life offices paid
42 pies in the rupee; in 1940-41 it was raised to 45^/2 pies; in
1941-42 to 56 pies; 1942-43 to 63 pies; and in 1943-44 to 74 pies.
In the next year (1944-45) it was lowered to 63 pies with retros-
pective effect from 1943-44; in 1946-47 it was brought down to
60 pies and remains at that level ever since. There is much room
for relief in this regard.

The net result of an inequitable system of assessment and a
high rate of tax is to considerably lower the net rate of interest

iSec Chapter IX.

LIFE FUND AND INTEREST

135

136 LIFE ASSURANCE

earned by the companies. That is reflected directly in the high
rate of premiums charged. The policyholders themselves must
resist this high burden of taxation for lower taxes would be by far
the best method of lowering premium rates.

Trend of Interest Rates

The net rates of interest earned by the Indian Life Assurance
Companies is given in the following Table: l

Table No. 32.

'9*3

'9*5
1916

1918

Net rate

Net rate

ir

Net rate

Y Net rate

of interest

Year of interest

Iear of interest

i ear Q ^ m ^ erest

4-23

1922

5.96

^93'

542

1940

4-37

4.21

1923

6.26

1932

5.38

1941

4.17

4-29

1924

5-93

J 933

5.17

" '942

3-94

443

1925

5-7

1934

5.08

1943

3.88

4.78

1926

5-70

'935

4-93

1944

3-64

5-7

'927

5-56

1936

4.69

'945

348

5-27

1928

5-35

1937

4.76

1946

3.20

54i

1929

549

1938

5.15

1947

3-03

5.88

1 930

544

*939

4.68

1948

3.02

1920
1921

Note : In Chart No. 10, page 135 the yields on Government
Paper for the years 1915-1935 have been token from Modern
Banking, by Prof. S. K. Muranjan, and from 1935 onwards from
Reserve Bank Publications.

1 Insurance Year Books.

CHAPTER VIII

EXPENSES : PREMIUM RATES

The rates of mortality and interest determine net premiums to
whieh are added certain amounts called c loadings ' to provide,
chiefly, the expenses of management and commission. Net pre-
miums increased by the loadings are the ' gross ' or c office ' pre-
miums. The problem naturally revolves round the question:
6 How much or how little has to be added to the net premiums,
and why? '

c Every premium charged must be sufficient to covci the risk
and the expenses which are incurred in connection with the parti-
cular policy in question and also to provide a reasonable contri-
bution towards the general expenses and to leave a margin for
profit.' 1 In paraphrasing this concise statement on premium it is
pertinent to observe that the premiums payable on a particular
policy may not, except in the rarest of cases, exactly meet its own
claim; nevertheless all the premiums paid by all the policyholders
of an office must ultimately provide the means of meeting all the
claims made on them and of paying for the expenses of adminis-
tration as a whole, including and particularly, commission.

Conception of Expenses

Of the expenses of administration the new business organisation
spends a very large share. Besides the head office, a series of
branch offices spread over important provincial centres provide the
blood-streams of new business. A branch manager has a number
of inspectors under him each of whom in turn, with or without
the help of organisers, controls several part- or full-time agents.
Alternatively the new business department of provincial centres
may sometimes be entrusted to chief agents, (although they are
now few and far between and the Insurance Amendment Act 1950
contemplates their progressive elimination) who likewise may have
a number of special agents with several part-time agents. Both
systems work under the control of the new business department of
the head office and have a central and local medical organisation
closely collaborating with them; a proposal for insurance may have
to pass through the whole of this machinery before it is finally

1 Journal of the Institute of Actuaries' Students' Society, Vol. II, p. 119.

137

138 LIFE ASSURANCE

accepted. Thus the new business department is an extensive and
expensive organisation, the payment of commission to agents and
organisers, salaries to inspectors and to the other staff both at the
branch and at the agency department of the head office, medical
fees, Government stamp duty and advertising constituting the chief
items of expenditure on new business. Once on the books the
policies require servicing by the renewal, accounting, legal, actuarial
and investment departments. Some of these services, for example
renewal and accounting, may be, for the greater convenience of
the policyholders, entrusted to the branch offices and the. agency
force, in which case, they are compensated by the payment of
* renewal ' commission. The legal and administrative expenses of
settling claims complete the expenses of management.

Historical Note

This then is the general conception of the administrative
expenses of a modern office but it was not so before. When life
assurance was in its infancy most of the business was voluntarily
offered. The premiums originally charged by the Equitable
Society in I762 1 (which was the first society to introduce graduated
scales of premiums) were based on James Dodson's mortality
table; in 1782 the Society revised its rates to those derived from
the Northampton Table at 3% interest and with 15% loading.
Four years later the loading was removed as it was found that even
without it the premiums could pay not only the. claims but also
small bonuses. These premiums were gradually replaced by rates
derived from the Carlisle Table with 4% interest and 40% loading.

By 1850 the advent of many proprietary companies was heralded
by the division of the business into with- and without-profit
policies and by the payment of agency commission. It was
recognised that personal canvassing alone produced an even flow
of new business and the agency force became an integral part of
the offices; it was simultaneously realised that administrative
expenses could not entirely be satisfactorily met by a percentage
addition to the net premium and a loading for expenses propor-
tionate to the sum assured was also embodied. Commission in
those days were paid at the rate of 5% of every premium paid
including the first.

Then the first year's* commission was raised to 10% of the
premium, and later, was based on the sum assured instead of the
premium; subsequently the initial commission was further increas-

1 See page 14, Chapter I,

EXPENSES: PREMIUM RATES 139

ed and renewal commission reduced because it was realised that
powerful forces tended to discourage a man from lapsing his policy
and that the new basis of remuneration would stimulate new busi-
ness without encouraging lapses. To meet the new conditions Dr.
Sprague in 1869 used his Select Table H[ M ] with 4% interest
and a loading which consisted of (a) &i% of the sum assured for
initial commission (b) 2/2% of each premium for renewal com-
mission (c) 2s. 6d.% of the sum assured each year (including the
first) together with 2/2% of each premium for general expenses and
(d) 2j/2% of each premium for adverse fluctuations and profit.

Mr. H. J. Rothery introduced further changes in 1892. "The
commission payable, and some of the other charges are generally
calculated upon the sums assured rather than upon the amount of
premium," he wrote. 1 " The commission is frequently one per cent
upon the sum assured, the stamp duty and the medical fees partial-
ly depend upon the amount of the policy and the branch office
expenses are implicitly if not explicitly in the same manner. On
the other hand the amount of the first premium does have some
influence upon the expenditure." The loading he suggested was
(i) in respect of the first premium 2% of the sum assured for
initial commission instead of &i% plus 5% of the, gross premium
and (2) 8% of the gross premium including the first for expenses.
Thus the total loading became 2% of the sum assured, plus 13%
on the first premium and 8% upon renewals. Further develop-
ments introduced a continuous increase in the sum provided for
initial expenses, steadily lowered additions by percentage and
correspondingly increased additions by * a constant ' for the average
policy. The problem has not been exactly the same in India.

Indian Conditions

From very early days Indian offices made payment of commis-
sion by a percentage of the premium and this preference, despite
changes in Britain, remains to this day. Until about 1900 com-
mission was uniformly low; then it began to rise. The Oriental,
for instance, during the first fifteen months of its operation (till
3 ist August 1875) paid the ridiculously low amount of Rs. 29 as
commission on 95 policies assuring just over Rs. 3 lakhs, premium
income Rs. 16,825. A provision in the first Articles of the Indian
Life (constituted in 1892) limited expenses to 10% of the gross
premiums; increased medical fees and competition raised expenses
above this figure after 1907 but the excess was borne by the

1 Journal of the Institute of Actuaries, Vol. XXX, page 135.

140

LIFE ASSURANCE

direct6rs until 1917 when the Articles were altered to allow 35%
of the first year's premiums and 10% of the renewals for expenses.
For a number of years after its establishment the directors of the
Bombay Mutual voluntarily served the Society and brought down
expenses to insignificant levels. Today administrative expenses
of life offices have increased beyond all recognition; the apportion-
ment of those expanses between the new and the existing policy-
holders is increasingly difficult except for specific items like initial
and renewal commission, medical fees and stamp duty; and the
best way of analysing them is probably by treating them as those
which ( i ) arc dependent on the amount of premium paid and
(2) are. independent of the premiums.

For convenience and by custom initial and renewal commissions
haw always been paid as percentages of the premiums. Statutory
rules under the Insurance Act 1938 fixed the agent's initial com-
mission at 40% and renewal 5%, with relaxations for the
first ten years of a company's life when it was permitted to pay
upto 55% and >%. These, rules had little effect on expenses for
higher commissions were indirectly paid. 1 Largely to eliminate
payment of excess commission and generally to limit expenses the
Insurance (Amendment) Act 1950 prescribes the following scales
of initial and renewal commissions:

Table No. 33.

Class of insurance

Immediate annuities, sin-
gle premium deferred
annuities single pre-
mium policies

Deferred annuities with
more than one premium

Other insurance (older
offices)

Other insurance (young-
er offices during the
first ten years of their
life)

Intitial

2O/
/o

7i%
35%

40%

Agents

2nd 3rd
Year Year

Special Agents
(organisers)

Renewal

Renewal

74%

2% 2%
7J% 5%

2%

7J% 5% 17J%

Payment of renewal commission has, with limited exceptions, been
made perpetual.

See Chapter XVIII.

EXPENSES: PREMIUM RATES 141

So much for commission. All the other expenses are indepen-
dent of the premium but may be considered under two heads
(i) Government stamp duty and medical fees which are definite
and measurable but, unlike, commission which depends directly
upon the premium, depend upon the sum assured, though not
strictly proportionate to it, and (2) the remaining, and major,
share of the expenses of administration which cannot be identified
with particular policies, are not specific and do not depend upon
either the premium or the sum assured. In theory the latter class
of expenses must be borne by all the policies by equal contributions.

A strict system of loading would therefore be based on ( i )
a percentage of the premium for commission, (2) a varying rate
according to the sum assured and (3) a constant for every policy
irrespective of the amount of assurance; and an ideal would be a
different addition to the net premium of each policy on the basis
of the actual cost. Practical considerations however make, it im-
possible to vary the premium rate on every policy except to a very
limited extent and an eminently satisfactory method would be to
determine the load on the basis of the average policy.

Consider medical fees for instance. An average office with an
average sum assured of Rs. 3,000 may spend Rs. 9 on each policy
for medical examination in a year, and if this is accepted as a
basis of loading for medical examination an amount of nearly
Rs. 3 would be added on to the net premium on a Rs. 1,000 policy
and Rs. 90 on Rs. 30,000. In actual practice an assurance for
Rs. 1,000 would have to bear almost three times this amount for
medical examination whilst a Rs. 30,000 assurance much less than
Rs. 90; but a basic load of Rs. 3 on Rs. 1,000 would result in
sufficient amounts being received in the aggregate to pay for all
the expenses of medical examination. Any attempt to fix the
loading on a strictly accurate basis would itself involve greatly
increased expenditure and lead to needless complications; more-
over in many cases of insurances for larger amounts additional
expenses for detailed medical examination, comprehensive reports,
inspections and so on would increase the cost of selection. Mortal-
ity on policies for larger amounts may be higher than the average
if only because of the selection against the company inherent in
them, but it is almost impossible to increase, the net premium in
their case. These considerations would lend weight to the view
that a practical and equitable method would be to fix the, loadings
as that required for an average policy.

Similar arguments would make it illogical to make a constant
addition to every policy to meet the other administrative expenses

142 LIFE ASSURANCE

for to do so would be to vary the premium rate on every policy.
Thus the loading, from practical considerations, would be a per-
centage of the premium plus a constant amount for the average
sum assured. The percentage and the constant would not neces-
sarily be the same for all classes of insurances.

Expense Control

So much for the principle of loading. The actual amount of
loading would naturally depend upon the actual ratio of expenses
incurred by an office to its income and the need arises to keep
expenses under constant scrutiny and control so that the loading
may be low. Whatever may be the loading its accuracy loses much
of its adequacy if actual expenses are allowed to exceed the pro-
vision, as 5 unfortunately, some offices in India have done in the past.
Keen inter-office competition after the First World War increased
procuration costs; yet they remained within reasonable bounds
until about 1925. The following fifteen years saw the flotation
of a large number of new companies and the opening of many
foreign offices; competition then degenerated into unfair rivalry.
There was a virtual war of commissions on new business and a
considerable portion of those commissions were rebated to policy-
holders. A tactful proponent could, and often did, reimburse
himself with the entire cost of the first year's premium through
rebates, and a fifty per cent return of the first premium was quite
common. Then the Government intervened. The Insurance Act
1938 sought to end the unholy war of commissions by limiting
them, but rebating and heavy procuration costs remained as higher
commissions were continued to be, paid indirectly. Finally the
Second World War created inflationary trends which, among other
things, raised the general level of office expenses and when interest
rates also fell, premiums became much too inadequate to meet the
claims.

An attempt was made in 1944 to introduce statutory control
over expenses of management. The Select Committee on an
amending bill to the Insurance Act 1938 introduced provisions
limiting overall expenses. Companies themselves showed con-
siderable agreement on the equity of control although opinions
differed on the equitable basis for control. Proposals drawn up
at a meeting of actuaries and insurancemcn laid down numerical
percentages of premiums depending upon the ag^e of the insurer
and the amount of business in force. This was the first attempt
at fixing overall expenses by those with expert technical knowledge
and experience; had it been adopted then much of the criticisms

EXPENSES: PREMIUM RATES 143

later could have been avoided; as matters stood, the bill was
lapsed.

The question was subsequently raised when the Insurance
(Second) Amendment Bill 1946 was under discussion. That bill
contained provisions for expense control somewhat on the lines of
what was suggested by the previous Select Committee and fixed
rates of commission payable to agents, employers of agents and
chief agents. On the withdrawal of that amending bill in January
1948 the whole problem was discussed afresh in the light of the
changed conditions, and although the Insurance (Amendment)
Act 1950 refrains from fixing actual figures of expenses that may
be incurred, machinery has been evolved whereby expenses over
and above the loading would be effectively checked by the Con-
troller through the Life Insurance Council. An interesting feature
of the limitation is the check on the engagement of high salaried
personnel and part-time executives.

The justification for statutory control of expenses lies in the
tendency of some companies to overspend. An impartial analysis
of the conditions existing today would point to the need for effec-
tive control in two stages ( i ) limiting expenses to the existing
loadings and (2) further reduction so as to leave a surplus in the
loading. The growth of the big institutions that adorn the busi-
ness today is in a large measure due to the stringent economy
practised by those who founded them and wherever those traditions
have been kept up development has been steady. A system of
sound economy and rigid budgetary control is the surest way to
progress, and actuarial analysis, scrutiny and check constitute an
integral part of that control.

Trend of Expenses

The trend of administrative expenses of all the companies
together expressed as 'percentages of the total premium income
is given in the following table. 1 (See Table No. 34 overleaf.)

The overall expense ratio is dependent, among other things, upon
the composition of the premium income and if the new business
is large in relation to the existing business, the expense ratio rises,
as a considerable portion of the first year's premium income is spent
as initial commission. To illustrate how the proportion of new
to existing business would affect expense ratio, let us suppose that
in two consecutive years the same amount of premium was received.
If in the first year the proportion of first year's to renewal premium

1 From the Insurance Year Books.

144 LIFE ASSURANCE

Table No. 34.

Year Expense Ratio Year Expense Ratio Year Expense Ratio

1913 22.2 1925 28.0 1937 32.3

1914 21.5 1926 28.6 1938 31.7
W5 21. 1 1927 29.5 1939 33.2

1916 20.5 1928 30.6 1949 28.9

1917 20.1 *9 2 9 3-3 I 94 I 27.4

1918 21.9 1930 29.2 1942 26.7

1919 24.8 1931 28.6 1943 27.9

1920 26.1 1932 28.7 *944 3 1 - 2

1921 26.6 1933 30.3 1945 32.2

1922 27.2 1934 30.3 1946 31.2

1923 26.3 1935 31.0 1947 30.4

1924 28.4 1936 32.5 1948 29.3

was 50 : 50 and in the second 40 : 60 it is apparent that in the
first year the initial commission would be more, and, if the other
administrative expenses remained unaltered, the expense ratio
would be higher.

Thus the overall expense ratio is not a measure for comparing
the experience of one company and another or of one
year and another. A young office with a large new, and com-
paratively small existing, business would have a higher expense
ratio than an older office with a larger existing business and smaller
new business. The true basis of comparison between companies
or between consecutive years is the renewal expense ratio; unfor-
tunately a few companies incur very high expenses for renewals.

Other considerations affecting
loadings

Of the other considerations that affect loadings, mention may
be made of profits and fluctuations. Whether the office is pro-
prietary or mutual, and the policy participating or non-participat-
ing, it is natural and desirable to have, a small margin for profits.
' The premiums must be profitable, i.e. such as to render each class
and type of policy profitable. It is of course occasionally justifiable
to issue policies at cost price, for instance when the granting of
the policy will lead to further business, but a policy should never
be issued which will be a source of loss to the office.' 1 It follows
therefore that the question how much or how little should be the
margin for profits is largely determined by the requirements of

1 Journal of the Institute of Actuaries 9 Students' Society, Vol. Ill, p. 22.

EXPENSES: PREMIUM RATES 145

business exigency, including competition among offices. Not so
adverse fluctuations which may affect mortality and interest usually,
and expenses occasionally as when increased cost of living raises
salary levels. But what proportion of the loading for profits and
fluctuations should be borne by the non-participating policyholder
and what proportion the participating policyholder is a moot point
and will be discussed later in the Chapter, but before doing so let
us discuss a few points connected with premium calculations.

Considerations of premium

In the construction of premium tables mortality, interest and
expense loading form the raw materials. The actual selection of
a suitable mortality table, a reliable interest basis and an adequate
expense-loading is more difficult and complex than what has been
discussed in the preceding pages. Past experience may be a guide
to future mortality trends; past experience, present economic condi-
tions and the events that led up to them, and the opportunities
for and the policy underlying investments may form the basis for
a reasonable estimate of the future rate of interest on which the
premiums depend; equitable distribution of the expenses may
determine the loadings. The responsibility of deciding equitable
bases is on the actuary; upon his ability to do so successfully
depends the soundness of the company.

In any case the gross premiums should satisfy certain basic
requirements and adequacy is by far the most important of these.
Let the authoritative voice of Mr. L. S. Vaidyanathan explain
adequacy: l "An ordinary trader who manufactures the article
first and sells it later would hardly need any advice that he should
not sell below cost if he is anxious that his business should be kept
going. In insurance business, more so in life insurance business,
however, the process is reversed, for the commodity traded in is
sold first and the cost incurred later, so that it becomes necessary
to strike this note of warning that it would be unwise to sell at
a low price taking a very optimistic view of the cost of production.
When a policy is effected the life office makes a sale and the
premium is the sale price, whereas the cost is to be incurred in the
future and will be determined by the future experience of the
company as regards interest, mortality and expenses. It is possible
to take too optimistic a view of the future trend of these three
elements and quote rates of premium which on the average would
not provide even the sum assured, let alone bonuses to participat*
ing policyholders, when the policy becomes a claim. If that is so,

1 Indian Insurance Year Book, 1943, page 7,

10

146 LIFE ASSURANCE

the concern will sooner or later find itself in great difficulties."

Adequacy of premiums sometimes conflicts with the need for
competitive rates. In so far as competition encourages benefits to
policyholders mild rivalry may be encouraged, but when it tends
to imperil the safety of the office the temptation to lower the rates
may have to be resisted. Closely allied to this is the policyholders'
point of view that the rates of premium should be consistent with
the beriefits offered. This consistency extends to the premiums
for different classes of assurances and for different ages of the same
class. They should be fairly and reasonably graded from one age
to the next. But in all these considerations * actuarial soundness is
imperative/ and there is a fundamental difference between fixing
the premium for without-profit and with-profit assurances.

Non-Participating Policies

Competition has a greater bearing on the non-participating
policy than on the participating, for in the absence of any future
adjustment (by means of the bonus), the rates of premium consti-
tute the net cost of assurance. Nevertheless non-participating
policies have to bear their share of administrative expenses, but
what share of the provision for * profits ' and * contingencies ' should
be borne by them is a matter of personal preference and discretion.
It is evident at all events that a specific but small margin should
be included in their premiums either for profit, for contingencies
or for both. This margin may take two forms: either reasonably
accurate estimates of mortality, interest and expenses may be used
and a specific loading added, or the premiums may be calculated
on safe estimates of mortality, interest and expenses and the loading
omitted. In either case the resulting gross premiums have to
satisfy the requirements of equity, adequacy and competition.

Participating Policies

The emphasis here shifts from accuracy to safety and competi-
tion is focussed more on rates of bonus than on rates of premium.
The bases of mortality, interest and expenses assumed in the parti-
cipating policies therefore tend to be * safe ' estimates of what the
future conditions will be and a specific loading, depending upon
the rate of bonus which the office desires to maintain, is added for
bonus. As all offices in India use the simple reversionary l method
of distributing bonus, the specific loading for such a bonus of
Rs. 10 per thousand per annum would be the equivalent of the

1 Bonus distribution systems will be discussed in the next chapter.

EXPENSES: PREMIUM RATES 147

premium for an increasing assurance of Rs. 10 per annum. If a
specific margin for profits and fluctuations has been made in the
non-participating policy, that might provide additional profits, but
if without-profit policies have no provision for profits or fluctua-
tions, that provision may be included in the participating policies.
It is all a matter of personal preference.

Changing conditions may affect non-participating policies more
adversely than the participating. A substantial fall in the interest
rate may render the premiums inadequate, although this may be
offset, to a certain extent, by improved mortality. Nevertheless
premium rates may have to be altered to conform to actual rates
of interest earned if economic conditions show signs of continued
fall in interest, but existing policies remain unaffected since their
premiums are fixed by contract. An interest rate more favourable
than that assumed may justify reduced premiums. Thus increased
mortality or reduced rate of interest would work against the com-
pany in the case of non-participating policies; favourable condi-
tions against policyholders. When conditions of interest and
mortality remain fairly stable over a long period non-participating
policies work eminently satisfactorily.

Over a very long period Indian companies used to base their
premium and reserve calculations on the mortality experience of
British Offices, particularly H M and O M Tables with suitable
rating up of age, for in the absence of acceptable tables of Indian
experience, they gave a workable basis. When premiums were
revised during the last few years many offices arc understood to
have used the Oriental (1925-35) Table which is the best approxi-
mation to all-India experience. How changing rates of mortality
and interest affect premium rates is best illustrated by the follow-
ing table: (see Table No. 35, page 148).

Until about a few years ago premium rates were calculated on
3/2 to 4 (and sometimes over 4) per cent interest basis. In 1947
the Superintendent of Insurance instituted an enquiry into the
revision of premium rates recently made. 1 181 of the 216 com-
panies replied to the enquiry. Twenty offices which had worked
for less than five years either did not reply or had made no changes
in premium ; 1 1 2 offices or nearly 50 per cent of the total number
had recently altered the rates and a few were contemplating revi-
sion at that time. Of the 112 three Indian companies were unable
to give the interest base for the altered premiums, two non-Indian
companies ceased writing new business in India, five United

1 Details taken from Indian Insurance Year Book, 1948.

148 LIFE ASSURANCE

Table No. 35.

Comparative net annual premiums for Rs. 1000
assurance

Mortality Table
Mortality

Oriental
Select

(1925-35)
Ultimate

A (1924-39)
Select

Ultimate

Interest 2\%

3%

2%

3%

2J%

3%

2\

%

3%

Whole Life

Rs.

Rs.

Rs.

Rs.

Rs.

Rs.

Rs

Rs.

Age
Age
Age

20

35
50

14.70

24-34
46.01

13-45
22.95
44.62

14.73
24.40
46.29

13.49
23.01

44.91

10.97
17.81

32.50

9.77
16.41

30.9 6

I I.OI

17.88
32.79

1648

31.26

Endowment Assurance

Age 20. Term 40 18.59 17.08 18.63 17.13 16.49 14.94 16.54 M-99
Age 35. Term 25 34.71 32.88 34.77 32.95 31.30 29.42 31.39 29.51
Age 50. Term 10 98.49 96.21 98.94 96.66 91.32 88.97 91-85 89.50

Kingdom companies based premiums on 2*4 to 2 J/2 P er cent basis,
a Kenya company on 2.3/4 per cent and one Canadian company
on 3%. The following table gives the rates of interest assumed
by the rest of the 100 companies with the yeai in which premiums
were revised:

Latest Year

of
revision

1940

'94 1
1942
1943
^944

^945
1946

1947

Table No. 36.

Number of companies which used the following
revised rates of interest in their new premiums

for the principal classes of assurance.
21% 2J% 2?% 3% 3J% 3J% 3J% 4% &

above

i

3

4

10

I

T _

2

2

16

I

I

6

I

2

-

21 8

13

3

I

Total.

i

3

15

22
10

47

Total

23 8 25 6 35

100

EXPENSES: PREMIUM RATES

149

Nearly half of the one hundred offices revised their premiums in
1947 and nearly half of them used 2/2%. 'It would appear that
as many as 43 insurers out of the 100 included in the above analysis
have their premium rates still based on a rate of interest in excess
of 3% net which is perhaps more than the maximum that can be
earned on new money for a long time to come/ concludes the
Superintendent. * A large proportion of these 43 and of about
100 insurers not included in the above analysis, particularly those
old established companies which have not revised their premium
rates during the last five years or so, are presumably carrying on
business at unremunerative rates of premiums.'

An idea of the changes in the office premiums during the last
70 years may be had from the following table:

Table No. 37.

Comparative premium rates of a proprietary company.
Limited payment whole life, premium ceasing at age 70.

Age

18
20

22
24
25
27
28

30

18
20
22
24
25
2?
28

3

Premium for Rs. 1,000

assurance
1880 1939 1944

Rs. as. Rs. as. Rs. as.

Amount of assurance
purchaseable for Rs. 100

premium
1880 1939 1941

Rs.

Rs.

Rs.

With Profits

29 o

24 '3

26 12

3.448

4,030

3,738

3

26 o

27 13

3>333

3,846

3, 6 32

31 o

27 4

29 2

3,226

3,669

3,433

32 o

28 10

30 7

3>i25

3,493

3,285

33

29 5

3i 3

3.03

3,4"

3,206

34 o

30 14

32 13

2,94'

3,239

3,048

34 o

31 12

33 ii

2,841

3,150

2,968

36 o

33 I0

35 B

2,778

2,974

2,817

Without Profits

26 2

20 i

20 8

3,83'

4,984

4,878

27 o

21 I

21 9

3,704

4,748

4,638

27 14

22 3

22 10

3,584

4,57

4,420

28 13

23 6

23 14

3,472

4,278

4,188

29 ii

24 o

24 8

3,367

4,167

4,082

30 10

25 6

25 '5

3,267

3,94i

3,855

30 10

26 2

26 12

3,267

3,828

3,73 s

32 6

27 H

a8 7

3,086

3,587

3,5i 6

150

LIFE ASSURANCE

Endowment assurance, Maturing age at 60.

Age

20

25
30

35
40
45

20
25

3
35
40

45

Premium for Rs. 1,000
assurance

1880
Rs. as.

1939
Rs. as.

1944

Rs. as.

With Profits

Amount of assurance
purchaseable for Rs. 100

premium
1880 1939 1941

Rs.

Rs.

Rs.

23 5

29 7

3 H

27 8

33 '3

35 6

33 4

39 12

41 8

41 4

48 3

50 i

53

60 15

62 13

73 i

81 13

83 7

4.290

3,397

3,239

3,636

2,959

2,827

3,007

2,516

2,410

2,434

2,075

I, 9 l8

1,887

1,641

1,592

1,388

1,222

I,I 9 8

Without Profits

21 7

25 5

30 10

37 '3
48 12
66 5

23 8
27 6

32 15
40 15

53 4

73 '2

25 7
29 10

35 6

43 9

56 o

76 4

4,665
3,947
3,265
2,643
2,051
1,507

4,255
3,653
3,3 6

2,443
1,878

',356

3,376
2,827
2,296
1,786

Let us look at another table to sec how the rates of premium have
changed during the last twenty years; the figures give the combined
experience of all the companies and include all classes of assur-
ances, with separate average premiums for new business and total
business in force:

Table No. 38.

Year

1930
i93i
1932
'933
'934
'935
1936
'937
*938

Average premium per
Rs, 1,000 sum assured
(total business inclules
reversionary Bonuses)

New

Bus ness

Business
in force

Rs.

hs.

54-6

48,6

52-3

46.6

51.9

47.1

52.0

46.5

52-3

46.2

51.8

46.9

5^.6

48.8

52.1

53-o
50.7

Year

1940

'94'
1942
'943
'944
1945
1946

'947
1948

Average premium per
Rs. 1,000 sum assured
(total business includes
reversionary bonuses)

Business
Rs

Business
in force
Rs.

52.0

47.8

52.3
52.6

55-4

47-7

47-5
49.8

54-o

50.2

53-8
54-9

50.1

5-9
50.6

54-5

50.0

1. Q

EXPENSES: PREMIUM RATES 151

A few Fallacies

An unfortunate result of the revision of premium rates during
the war was to make the return on a policy less than the aggregate
premiums paid in some cases. Thus a 2O-year endowment policy
for Rs. 1,000 at age 35 may carry an annual premium of Rs. 52-15,
without profits, and a policyholder pays Rs. 1,058-12 on the aggre-
gate against which he receives Rs. 1,000. There is much dis-
contentment among the public on this score. A detailed illustra-
tion may help to dispel much of this discontentment.

The net annual premium on an ordinary Endowment Policy for
Rs. 1,000 at age 35 term 20 years is Rs. 43.18 using Oriental ( 1925-
35) Ultimate Table and interest 2/2%. If the reserve on such a
policy is calculated according to the method illustrated on page 105
it will be found that at the end of the tenth year it has a reserve
of Rs. 432 and at the end of the eleventh Rs. 481. Let us suppose
that the office had a thousand policies oh its books on the 3ist
December 1948 all of which were in force for exactly ten years.
According to the Table of Mortality the number of deaths during
1949 (i.e. at the age of 46) would be 12.87, say 13, and if the
actual experience corresponded with the table exactly, the com-
pany would have to pay Rs. 13,000 in death claims. There are
two sources of meeting these claims (i) the reserves on the thirteen
policies resulting in claims on 3ist December 1949 and (ii) the
accumulated reserves of all the policies during the previous years.
The reserve on each policy on 3ist December 1949 is Rs. 481 and
so the total amount available from the first source is Rs. 6,253
(Rs. 481 x 13) leaving a deficit of Rs. 6,747 (Rs. 13,000 minus
Rs. 6,253) which will have to be made up by the aggregate of
the contributions made by each policy for this purpose at the end
of this year. Each one of these thousand policies makes up this
deficit and the individual contribution by each policy to meet the
shortage of Rs. 6,747 will be Rs. 6.747. This is the actual cost
of insurance for that year. Whether the sum insured is claimed
by the policy during that year or not every policy has to make this
payment to meet the claims made in that year, for then alone, will
the difference between the sum assured and the amount of reserves
be met. The element of mutual co-operation in the modern form
of life assurance is thus brought home in its fullest perspective.
In the example just given the reserve on a policy which does not
materialise into a claim on 3ist December 1949 may be arrived
at in the manner illustrated overleaf.

A policy becoming a claim in 1949 would contribute the full value

152 LIFE ASSURANCE

Reserve on 3151 December 1948 . . Rs. 432.00

Add net premium for 1949 . . Rs. 43.18

Rs. 475.18

Reserve on 1st January 1949 . . Rs. 475.18

Add interest for 1949 at */*% Rs. 11.88

Rs. 487.06

Total fund on 3ist December 1949 , . Rs. 487.06
Less cost of insurance for 1949 . . Rs. 6.75

Rs. 480.31

of the reserve amounting to Rs. 480.31 (say Rs. 481) towards the
amount of Rs. 13,000 required to meet all the death claims of 1949;
one that is in force at the end of the year would have a reserve of
Rs. 480.31 to be carried forward to 1950, the cost of insurance
having been used up to meet death claims occurring in 1949. The
same process would hold good for fully paid-up policies (i.e.
policies on which premium payments have ceased but the sum
assured has not become payable) and those that have become
paid-up for reduced amounts, with the exception that the * net
premiums' may not figure in the calculations.

Insufficiency of this knowledge among those who sell insurance
have added to the popular discontentment against premium rates.
This discontentment is at the root of the plea, sometimes
advanced, that the reserves should be added on to the sum assured
when meeting claims, which is clearly untenable. It is also
wrongly supposed that current premiums on new and old policies
meet current claims and the balance is appropriated as profits,
a very popular misconception that originates from the application
of ordinary commercial practice to the business of life assurance.
If an office went on appropriating current premiums in excess of
whajt is needed for current claims and expenses as profits it would
become insolvent.

Three things are thus clear: (i) the cost of insurance is spent
by the company in meeting claims (ii) the reserves are scientifical-
ly accumulated and held in trust on behalf of the policyholders
and (iii) even if a policy is in force for a day it has to bear the
cost of insurance. Equity governs the premiums, builds up this
wonderful system of modern social science and provides immeasur-

EXPENSES: PREMIUM RATES 153

able benefits to the whole community without the tinge of deroga-
tion commonly associated with charity.

There is a belief that lower premium rates indicate better and
more economic management. This need not be so although
strictest economy alone can provide competitive rates. Safe rates
may be high and the net cost may be kept at reasonable levels
through systematic and regular distribution of bonuses even when
the premiums are high; offices may fix lower rates to attract business
and provide safety through other means. It is all a matter of
choice and discretion and every office strives to build individuality
and character which may be reflected in every phase of its working.

A common complaint is that compared with the ruling rates of
premiums in other countries Indian offices charge exhorbitant
rates. The bases of premiums are the same everywhere; even
assuming that the same rate of interest and loadings are used, the
higher mortality of Indian lives would make Indian rates
costlier. Statutory regulations in many countries control expenses;
adoption of scientific principles of operation totally eliminates
or considerably relaxes Government controls in others. Volun-
tary effort to effect economy is the ideal and Wisconsin in the
United States of America is perhaps the only State where the
loading itself is regulated by law.

Another fallacy is that premiums are calculated on the * expect-
ation of life ' at the age of entry. This assumes that on the average
policies would become payable at the end of the period of expect-
ation and that therefore the net premiums would accumulate, at
the rate of interest assumed, to pay for the claims at the end of
the period. This method of premium calculation would involve
the incorrect assumption that the present value of all future death
claims to be paid at the end of the expectancy period would be
the same as the total present value based on the death claims
distributed according to the mortality table. This is not so.
Premiums calculated on the basis of future expectation of life at
the age of entry would be inaccurate, misleading and inadequate,
and that method is never followed in life assurance.

CHAPTER IX
RESERVES, SURPLUS, BONUS

Before a business can declare dividends its financial structure
should be strong and life insurance is no exception. The financial
strength of an office depends, among other things, upon its funds
and how the reserves are built up. In considering the question
of life funds in Chapter VII, discussion was confined to broad
principles of building up reserves on the basis of the net pre-
miums; the subject may now be reconsidered in the light of other
matters, such as for example, loadings which may affect reserves.
In doing so, let us begin with the two assumptions implicit in the
method of calculating reserves described in that Chapter,

Further consideration of the Reserve

In the first place it was taken for granted that the whole of the
net premium was available throughout the currency of the policy,
including the first year, to meet current and future claims, but that
is not so. It was shown in the last chapter that an equitable share
of the whole of the administrative expenses is included in the
loading and that the initial cost of procuration is considerable.
Even in well-regulated offices acquisition together with the cost of
insurance in the first year may take up a considerable portion (if
not the whole) of the first year premium; in ill-regulated offices
they may exceed it. That would result in an office spending the
whole of the loading and most of the net premium of the first year
initially, and re-imbursing itself later from the loadings contained
in the second and subsequent premiums. " The cost of acquiring
a new policy," said the late Mr. S. G. Warner, F.I.A., in a paper
read before the Institute of Actuaries in 1902* " providing for the
first year's mortality, and setting up, under any table, the necessary
reserve at the end of the first year, must and will in such circum-
stances exceed the premium received for the policy. The deficit
so arising will naturally increase with the influx of new business;
and provided that influx be sufficiently great, the deficit may
attain such dimensions that even a company of considerable wealth
may be brought into a position of embarrassment. Here even

1 Journal of the Institute of Actuaries, Vol. 37 page 59. The passage
referred to has presumably been quoted by Mr. Warner from a pamphlet
by Dr. Zillmer, President of the German Life Insurance Institute.

154

RESERVES, SURPLUS, BONUS 155

a non-expert must see that a contradiction is involved. On the one
hand, an abundant accession of new business is desired; on the
other hand, we are thereby brought into financial trouble and that
without excessive payment of commission." To meet the anomal-
ous situation the * adjusted net premium valuation ' was evolved
whereby the first year's premium was used to cover the first year's
mortality risk and expenses, and the balance, if any, was added
on to the life fund; the policy was then assumed to be written at
an age one year greater than the actual age at entry and for a
term one year less than the actual term. From the second year
onwards the net premium was increased by providing for expenses
at a lower level. In addition a much lower rale of interest than
was contemplated in the premiums was used in deciding liability,
and as will be seen later, this resulted in higher reserve values;
the financial strength of the companies was thus kept at a very
high level. The usual net premium method with a very low
rate of interest is followed largely by life offices in Britain, while
in America special formulae known as the * preliminary term ' or
the ' modified preliminary term ' reserve systems are used.

The second assumption implicit in the calculation of the reserves
in Chapter VII was that nothing more and nothing less than the
net-level-premium was available to meet current and future
claims. -The loadings affect this assumption too. For being
merely * safe ' estimates of actual expenses, the whole of the load-
ing may not ordinarily be expended by an office, after the first
year's heavy expenses have been met, with the result that a part
of the loadings after the first year may also be available to meet
the claims, so long as the loadings are adequate and the expenses
under control. In taking cognizance of practical conditions as
regards expenses the l Gross Premium Method ' of valuation has
been evolved,

Gross Premium Method

This method differs but little from the net-premium method in
the actual process of calculating reserves but much in principle,.
Instead of the true net premium, a percentage of the gross
premium, depending upon the renewal expense ratio, is used
in the calculations. Thus in the illustration on page 105 of
Chapter VII, if the office premium is Rs. 224.75 and the renewal
expense ratio 11.5%, the actuary may decide to reserve 15% of
the premium (i.e. Rs. 224.75 x 15/100 z=: Rs. 33-7125) for future
expenses and calculate the reserves on the basis that Rs. 191.0375
(Rs. 224.75 minus Rs. 33.7125) is available as future annual net

156 LIFE ASSURANCE

premium. This would result in the alteration of the figures in
columns 6 and 7 of the illustration, the fifth line of which, for
instance, may be re-written as follows:

(1) (2) (3) (4) (5) (6) (7)

24 4 .9756 975.6 1000 191.0 785

Where the net premium so calculated is higher than the ' true '
net premium, the reserve in any particular year may be lower
than by the net-premium method, but if adequate provision is
made for actual office expenses, the gross premium method may
be more in conformity with realities. Barring a few rare instances
in the past, all Indian companies have followed the gross
premium method. The practical elaboration of this method and
the adjustments made are too technical for this volume, but a few
points of interest may be mentioned.

Special Reserves

In the v a arly years some of the policies may appear to be assets
although, in view of the higher ratio of initial expenses, they are
actually liabilities; the testing for and the elimination of all such
negative values form an important part of valuation, and a declara-
tion to that effect by the actuary is required by law.

Special contingencies and additional benefits need special and
additional reserves. Lapsed policies arc a case in point. The
liability of an office on a policy that has been lapsed beyond the
period of automatic non-forfeiture or extended term assurance l
ceases in the ordinary course as full consideration for the premiums
paid would have been allowed, but some of the lapsed policies are
usually revived and most of the offices permit revival within cer-
tain limitations. That would mean that the office retains some
liability on lapsed policies, and to meet it a lump sum, determined
in the light of past experience, is added on to the reserves.

The other special reserves may be easily disposed of. Govern-
ment regulations require guaranteed cash values to be paid on
policies which are surrendered after a definite period, but if the
reserves on any of the policies are less than the minimum guaran-
teed surrender values additional funds are reserved to meet the
deficit. Additional underwriting risks covered by extra premiums
would normally be met by reserving a portion of those extra pre-
miums; and those covered by rating up of age by valuing the poli-
cies on the basis of the rated up age. Special reserves may be

1 Sec Chapter XI for these two benefits.

RESERVES, SURPLUS, BONUS 157

built up to grant permanent disability benefits and reserves on
policies issued outside India provide for possible exchange fluc-
tuations. To sum up, full future liability for every kind of con-
tingency that could be reasonably anticipated, has to be covered
by an appropriate reserve; these, contingencies particularly include
changes in mortality, interest and expenses.

Bases of Valuation

In fixing the primary bases of mortality, interest and expenses
for premiums, future trends, so far as they could be forecast from
past and present experience guide, the actuary; in fixing those
bases for reserve values, actual experience so far as they affect the
immediate future is the guide. But there, is a difference. Premiums
once fixed cannot be altered for the duration of the contract;
reserve values determined at the time of one valuation merely show
the liabilities on existing policies at that date on the basis of mor-
tality, interest and expenses that may hold good in the future;
later, after another short period, a fresh valuation would determine
fresh reserve values in the light of the conditions and on the policies
existing at that time. The financial structure of a company can
be strengthened or weakened by the bases adopted for valuation.

Mortality

* No actuary should come to a final decision as regards the
mortality basis to be adopted in a valuation before he has made
an investigation into the mortality experience of the insurer con-
cerned.' l An estimate of the office's actual mortality experience
would enable the actuary to select the standard table to be used
as the basis for reserve values. In the past valuations of Indian
companies were on the basis of foreign experience of mortality,
particularly H M and O M Tables with several years rating up;
latterly most of the companies have adopted the Oriental (1925-
35) Ultimate Table. 2 The relative rapidity of the increase in the
rate of mortality from year to year determines the relative values
of reserves according to different tables.

Interest

Lower interest rates increase both net premiums and reserves,
higher rates of interest lower them but whatever rate of interest
is assumed, the total reserve on a single policy must finally equal

1 Mr. L. S. Vaidyanathan, Indian Insurance Year Book, 1944, page 22.

2 Mr. C. D. Sharp, F.I. A., is, as far as could be ascertained, the first
actuary to use this table officially when he conducted the valuation of the
Jupiter General Insurance Company in 1941.

158 LIFE ASSURANCE

the sum assured on the date of maturity or at the limiting
age according to the mortality table. Most of the companies
in recent times have had to strengthen their reserves con-
siderably on account of the general fall in the interest earned.
Companies are. currently earning around three per cent on their
new investments, and valuations are conducted at 3% or less.
The table opposite gives an idea of the fluctuations of the rate
of interest assumed for valuation purposes:

The adoption of a progressively lower rate of interest is evidenced
from the table.

Expenses

A higher percentage of the premium reserved for future expenses
would increase the reserve values and require the maintenance of
life funds at higher levels and a lower percentage would reduce
them; in any case the bonus-loading for participating policyholders
would have, to be reserved. But when the provision for expenses
falls below the renewal expense ratio experienced after valuation,
the financial strength of the office is affected and so an adequate
provision in the light of the current and anticipated renewal
expenses becomes imperative.

Thus the primary elements of mortality, interest and expenses
assumed in valuations differ from those in the premiums. A
valuation decides the office's liability in respect of the policies on
its books at that date; stringent bases of mortality, interest and
expenses would require higher reserves and life funds maintained
at the level of those higher reserve values would greatly strengthen
the financial structure of the office. Not all the offices, or even
any office, at all stages of its growth, may be able to maintain the
funds at the level of the full reserves emerging from very stringent
bases of mortality, interest and expenses; at the same time, there
can be. no two opinions about the necessity of guarding at all times
the solvency of all the institutions that sell insurance. The ques-
tion may therefore be asked on what does the safety of life offices
depend and how can their solvency be tested ?

Solvency Factor of Life Offices

The premium payable on a policy is the foundation upon which
is built the whole financial structure of an office, and upon the
adequacy of those premiums depend the strength of the structure.
Then come cautious underwriting, economical management, sound
investing, careful self-protection and lastly judicious strengthening
of the reserves in successive valuations. Of all the forces that com-

RESERVES, SURPLUS, BONUS 159

Table No. 39
Rate Per cent
Year 2 2J 2J 2} 3 3J 3J 3| 4 4J 4| 4} 5 5J

1914

2 ...

1 ...

1915

1 ...

1 1

3 ,..

1

1916

2 ...

7 ...

1917

1 ...

1 ...

7 ...

3

1918

7 2

?,

1919

5 ...

1

19?0

1 ...

2 ...

2

a

1Q1

3 1

3

3

1922

1 ...

1 ...

2 ...

3

2

1 Q 23

2 ...

4

2

1924

1

4 ...

3

2

1925

2 ...

?,

1 3

1926

3 1

R

2 2

1927

1

2 1

2 ...

2

1 1

128

1 1

3

2

1929

6 ...

6

1

1930

1

2 ...

4

3

1931

1 ...

tf

8

1

1932

3 ...

3 2

R

4

1933

1 1

3 ...

8

4

1

1934

1 ...

2 1

4 3

fl

1 ...

1935

2 . .

10 ..

s

1 2

1936

1

7 4

10

4

1937

1

2

13 4

13

8

1938

1

3 1

16 2

9

5

19391

2 ...

17 3

20 2

8

3

1940 2

1

12 9

22

3

1941

3

33 10

17

2

1942

8 ...

30 4

3 ...

1943

1 5

25 .

1

1944 ... 1

1 1 10 10

19 ...

*

1945

2 3 22 5

5

1946 * 2 2

4 6 26 7

5 ...

1947

3 4 26 1

1 ...

1 In addition one valuation was at 3.1/8%

* In addition one valuation was at 3.1/8% and another at 3.7/8%
s In addition one valuation was at 2.7/8% and another at 3.1/8%
In addition three valuations in 1934 were at 5J4%.

160 LIFE ASSURANCE

pelled the liquidation of life offices in the past, inadequacy of
premiums and extravagance in management were the most poig-
nant; premiums were inadequately loaded; actual expenses
(especially of acquisition) exceeded loadings and heavy initial
lapses disrupted the balance. The Insurance Act 1938 exercised
a modest control, not directly over premiums or expenses, but
indirectly through the right of the Government to question
valuation bases and failures have been few latterly: the Insurance
(Amendment) Act 1950 envisages stricter measures of control.
But all the same abnormal conditions may affect any or all of the
precautions normally taken to protect the financial structure of
an office and it then becomes imperative to test its solvency. When
a valuation is intended to strengthen an office stringent bases of
mortality, interest and expenses are employed, but though it is
right that the assumptions should not become inconsistent with
future experience, a test of solvency would be provided by deter-
mining future liabilities on actual conditions of mortality, interest
and expenses. If prospective office premiums are adequate and
sufficiently loaded, a sufficient margin of safety would be achieved;
in any case of all the elements that constitute the premiums,
expenses are the most controllable.

These then are the general considerations that go to build up the
reserves and strengthen the financial structure of an office; and
the. question of surplus and its distribution may now be considered.

Surplus and its Origin

Under practical conditions and in normal times of business the
reserves needed to meet the future liabilities of policies in force
may be expected to be less than the life fund on the books at the
date of valuation; if that is so, the difference between the arbit-
rarily accumulated life fund and the scientifically determined
reserves is a ' surplus ' and would represent the profits of the busi-
ness during the inter- valuation period; but if the life fund is less
than the reserves, the fund is in ' deficit '.

Before the problem of disposing the surplus can be satisfactorily
discussed, it is pertinent to ask the question ' How and from where
does it arise ? * The main source, and by far the largest share,
of the surplus is derived from the special and deliberately added
loading contained in the participating premiums. This bonus-
loading is charged to entitle the policyholder to a share in the
profits of the office.

Secondly the margin over the bare cost of mortality, interest
and expenses present in the premiums may prove to be a source of

RESERVES, SURPLUS, BONUS 161

profit. Whether a specific profit-fluctuation-loading has been
made in either the participating or the non-participating policies
or both (in which case the profits derived from the practical work-
ing of an office would in all probability differ from the amount
of the specific loading) or premiums have been fixed on * safe '
estimates of mortality,, interest and expenses, thrve factors would
contribute towards the profit: (i) stringent selection and lower
mortality trends would result in mortality surplus (2) increased
yield from excellent investments would give savings in interest
(3) economical management would result in expenditure surplus.

Thirdly appreciation of assets values would give profits from
realization through sales or revaluation of securities. Actual sales
would result in real profits or real losses, although revaluation
may not always give profits for companies deal with appreciation
and depreciation of securities in a very cautious way. For
instance, when prices arc falling and rates of interest are on the
increase, the securities are written down to their market values
(deducting enough to do so from the life assurance fund) or
a sum of money is transferred from the life assurance fund to
the ' investment reserve fund '. The life fund is artificially
depressed in this way and the apparent yield on the securities
maintained. When the interest rates fall and the securities
appreciate in value offices often fail to take credit for the appre-
ciation in values although it is justifiable to revalue the securities
and take credit for a proportion of the appreciation, provided
the amount so taken credit for is utilised towards meeting the
increase in the reserves required by using a lower interest rate
in valuation.

Fourthly the various operations of the business might produce
miscellaneous profits such as for example, lapses, alteration or
surrender of policies and the like; some of these sources may be
absent in some companies and in all companies at some, periods,
or if present, might give rise to losses instead of profits.

Further Considerations on Surplus

It may be desirable, though not prescribed by law, to determine
the net liability on the policies annually, especially in the case
of big companies with a large number of varied policies, so as
to maintain their financial strength unimpaired; but distribution
of profits need not be annual. In America determination of
liability annually (and in some of the States distribution of profits
too) is compulsory and most of the companies declare bonuses
(called dividends in America) every year, Canadian regulations
11

162 LIFE ASSURANCE

require the companies to apportion the surplus at least once every
five years though most of them credit bonuses annually. Many
British offices conduct quinquennial valuations and some triennial,
but annual valuation is still the exception. The Insurance
(Amendment) Act 1950 makes triennial valuations compulsory
except in exceptional cases and profits are allocated after
valuations.

Considerable fluctuation of the divisible profit may result from
annual valuations; quinquennial or triennial periods would help
to steady them. An equitable and a steady rate of bonus at least
to the extent contemplated in the premiums is a desirable
objective and a part of an unusually large surplus may be held
in reserve to augment the divisible profits of future lean years,
unless strong reasons exist to justify the continuation of large
profits at that level in future years. Occasionally shareholders
are known to have come to the rescue of policyholders by contri-
buting their share of the profits to maintain satisfactory bonus
rates.

Nevertheless it is reasonable to assume that operational losses
might occur at some time. Unfavourable conditions of business,
extravagance (or mismanagement) or adverse experiences of
mortality, yield or investments may very often create a depleted
surplus and sometimes a deficit; bonus is then the first casualty.
The bonus-loading is the first line of defence in guarding the
solvency of a company, for, as bonuses are not guaranteed, the
bonus-loading is used to cover up the loss with the result that
the bonus may be scaled down considerably or become absent
altogether. When a deficit is shown actuarially, and the paid-up
capital is insufficient to cover up the deficit, the guaranteed
liability on the share capital represented by the uncalled portion
of the paid-up capital comes into play, or fresh funds may be
introduced. If all possible avenues of meeting the deficit have
been exhausted, the company may have to be wound up, but
before such an extreme step is taken, a test of solvency is usually
applied on the basis of actual conditions of interest, mortality
and expenses. The stricter provisions of Insurance (Amendment)
Act 1950 which contains both preventive and punitive provisions
may tend to limit (if not completely eliminate) the need for the
application of extreme measures.

Before the Insurance Act 1938 came into force ' surpluses result-
ing from such weak valuations as 4, 4/2 and 5% rate of interest
have been distributed to the hilt to policyholders and shareholders
without making any provision in the shape of a reserve which

RESERVES, SURPLUS, BONUS 163

would stand by the company during periods of adversity.' * Gov-
ernment's cheap money policy combined with statutory invest-
ment control resulted in a steady fall of yield and when large-
scale inflationary trends raised the expenses of management to
abnormal levels nearly all the companies had very small surpluses,
a few even showing deficit valuations. The suggestion of Sir
Ramaswami Mudaliar to prohibit bonuses during the war was
never actually adopted, but few companies could or did pay
bonuses.

Equity in Taxation

The surplus belongs to the policyholders and (in proprietary
companies) to the shareholders. Here it is well to remember
the character of the surplus to understand an important aspect
of equity. A participating policy is for all practical purposes a
well-defined contract, but its terms cannot be regarded as finally
settled until a claim has arisen under the policy or the assurance
has been otherwise terminated; in particular the ultimate cost
would depend upon the size of the sum total of all the, bonuses
allocated. The premiums of non-participating policies are fixed
on ' close ' estimates of mortality, interest and expenses, con-
sistent with the actual cost of insurance to the policyholder; at
the same time it has been the practice, of most companies in
all parts of the world to charge fairly steady with-profit pre-
mium rates, and of achieving equity by making adjustments
in the rates of bonuses. Soundness of operation and equity of
cost are thereby largely achieved, but in effect the ultimate cost
to the policyholder is dependent upon the result of an office's
operation. The bonus is thus an instrument of adjusting the
ultimate cost and not the profit and the equity of levying tax
on such an instrument of cost may very well be questioned. The
income-tax on the whole or part of the bonus levied in India
can be justified only if the premium were the actual cost of
insurance plus the bonus-loading a cost structure which may very
easily destroy the very foundation of the long-term Jife assurance
contracts. There is therefore a strong plea for the exemption
of the whole of the surplus allotted to policyholders from income-
tax; for then only can the premiums on with-profit policies be
justified.

Distribution of Surplus

Indian offices used to distribute, 90 per cent of the surplus

1 Indian Insurance Year Book, 1943, page 9.

164 LIFE ASSURANCE

among participating policyholders except where the Articles of
a company provided for dividends before distribution of bonuses.
The Insurance (Amendment) Act 1950 limits dividends to 7^/2
per cent of the surplus regardless of any provision in the Articles,
allotting the balance to the policyholders.

Three guiding factors determine the method of distributing the
divisible surplus among individual policies: equity, simplicity of
operation and public appeal. Equity is achieved when the dis-
tribution of surplus is substantially fair as between one policy-
holder and another. Various factors influence equity in different
ways so that the only general principle that might at all hold
good is that one grou] > of policies should not be allotted profits
at the expense of another.

Simplicity of operation implies both an easily workable system
and a readily understandable plan. Public appeal, like public
opinion, is indefinite and rarely remains constant; any system of
distribution followed should keep in view equity, logic, simplicity
of operation and facility to understand.

Simple Reversionary Method

Here the bonus allocated to a policy is declared as a percentage
of the sum assured and paid on maturity or death or its present
1 value is paid to the policyholder if the policy is surrendered.
When the rate of bonus declared at a particular valuation is the
same for all classes of policies irrespective of age at entry or
term of assurance, it is a 'uniform' simple reversionary bonus:
Indian offices usually differentiate between whole life and endow-
ment assurances, the rate of bonus for the former being slightly
higher than that for the latter. Simplicity is the keynote of the
system simplicity in office work and in its appeal to the public.
Each of the bonuses declared at different valuations is annually
added on to the sum payable at death or maturity (hence the
use of the term * reversionary ') with the result that the sum
increases with the duration of the, policy. The cash value of
the bonus increases with every succeeding age.

A fifteen year endowment policy for Rs. 1,000 with a company
that adopts the quinquennial period of valuation and has declared
a bonus of Rs. 10 per thousand per annum at every valuation
would receive bonus as shown at the top of the opposite page.
Indian offices distribute bonuses only by this method.

Compound Reversionary Bonus
Vastly similar to the above plan, the Compound Reversionary

RESERVES, SURPLUS, BONUS 165

At the end of the first valuation . . Rs. 50.0

At the end of the second valuation . . Rs. 50.0

At the end of the third valuation . . Rs. 50.0

Rs. 150.0
Sum Assured . . . . . . . . Rs. 1,000.0

Total Rs. 1,150.0

system, which is very popular in the United Kingdom, expresses
the bonus not as a percentage of the sum assured alone, but as
a percentage of the sum assured and any bonus already attaching
to it. Thus in the foregoing illustration if a compound rever-
sionary bonus of one per cent is declared at the end of every
valuation :

Rs. as.

At the end of the first quinquennium . . . . 50 o

At the end of the second quinquennium .01x5x1050 52 8

At the end of the third quinquennium .01x5x1102.5 55 2

Total Bonus . . *57 *o

Sum Assured . . 1,000 o

Total Sum payable . . 1,157 10

It involves additional office work; otherwise it is eminently prac-
tical, readily understandable by the public and greatly popular
and produces a steadily increasing reversionary bonus at the end
of every valuation. A large policy remaining in force for a long
time may reap real benefits by this method.

In 1931 the United India declared, besides the usual simple
reversionary bonus, an additional bonus equal to one-eighth of
the existing bonus. This was the only time at which, so far as
can be ascertained, any Indian company has departed from the
strictly simple reversionary bonus system.

Bonuses in Cash or as Reductions
of Premium

Most of the offices are willing to pay the present value of the
reversionary bonuses in cash, or to use it to reduce future pre-
miums. Some offices (very rarely in India) reverse the process,
and declare bonuses in cash, which may be, usually at the option
of the policyholder, converted into a reversionary addition to the

166 LIFE ASSURANCE

sum assured, or utilised to make future reductions of premiums.
When the cash allocation is converted into reversionary bonus,
the additional sum payable at the termination of the policy is
higher in the case of a younger life than in an older, dissatisfying
those who fail to grasp the system thoroughly; hence its
unpopularity.

A few British offices have applied the Reversionary and Cash
Bonuses towards reduction of future premiums with conspicuous
success. No profits are allotted during the first few years. At
the end of the period a really substantial reduction is made in
the premium payable and thereafter small annual reductions until
no further premiums become payable. As soon as this happens
reversionary bonuses arc allotted by way of additions to the sum
assured.

The American system of bonus distribution is particularly
interesting, As early as 1868 the Equitable Life Assurance Society
of America originated a system of bonus distribution known as
the ' Tontine ' system, (from an Italian named Tonti who, in the
seventeenth century, organised a fund from among a certain
number of contributors and divided the interest on the fund each
year among the survivors, the last of whom got the whole fund
ultimately) . In the original contracts no bonuses were allotted
until the total premium paid, accumulated at 10 per cent com-
pound interest, equalled the sum assured and during that time
no surrender value was allowed. Thus an indirect inducement,
amounting almost to pressure, was held out to the policyholders
to keep their insurances in force and those who did so, received
handsome bonuses; those who died before that time received
merely the sum assured. A drawback, which incidentally made
distribution of larger bonuses possible, was the entire forfeiture of
all premiums paid in the initial period.

The plan which appealed only to the over-optimistic, gradually
became unpopular as altered circumstances made lapses inevitable.
Various alternatives were tried and the system very soon developed
into the * Deferred Bonus Plan ' under which definite amounts
were set aside from current surplus earnings to pay for deferred
bonuses at the end of 5, 10 or 15 years (although a 2O-year period
was the most popular) . Amounts thus set aside were not con-
sidered legal liabilities with the result that offices had in hand
large surpluses for which no adequate account had to be given.
Consequently the Armstrong Investigation Committee recom-
mended the abolition of the Deferred Bonus system which has since

RESERVES, SURPLUS, BONUS 167

disappeared from that country. 1

Since then American offices have evolved and perfected a
method of bonus distribution known as the ' Contribution ' system,
by which the surplus earnings are distributed among policies in
proportion to their individual contribution to the profits; in one
or other of its modifications the system is used by practically all
companies in the United States.

Protagonists argue that the Contribution System is the most
equitable; for, it is contended, were bonuses allocated on the basis
of the premiums paid, the sum insured or the reserve accumulated,
equity would not be achieved. Allocation of the bonus on a pre-
mium basis would result in a policy, for which is paid Rs. 100
premium,, receiving twice the amount of bonus that a Rs. 50
premium policy would receive; the former may be a short-term
endowment policy with a small amount at risk whilst the latter
an insurance for whole-life, and if a large part of the surplus
arose from savings on mortality, the second policy would suffer.
B6nuses dependent upon the sum assured may be, it is argued,
inequitable, if interest earnings and investment profits contributed
a major share of the profits, as they invariably do, for interest
depends on reserves and reserves may be little on a new policy
for a large amount. Similarly, bonuses allocated in proportion to
the reserves would ignore profits from mortality and loadings.
These considerations have influenced American companies to
divide the surplus according to the main sources from which it
was derived, and then to distribute each such portion among
various policies in the proportion in which they contributed to
the surplus.

The view, that this plan is the most equitable has been ques-
tioned, and the plan, as a whole, has only a few advocates among
British actuaries who argue that the equity under it is no greater
than under cither the simple or compound reversionary bonus
systems. One of its chief objections is its rigidity: for this, as
indeed most of the American plans have been reduced to ready-
made formulas which are not flexible enough, and, although suit-
able in the beginning, are too rigid for use over a long period;
it is contended that equity is never attained by resorting to rigid
formulas.

A considerable number of British offices adopted the method in
its early days of popularity and all but a few have reverted to

1 The system in a modified form is in limited use in Canada and
England. In Canada appropriations for deferred bonus plan are made
every five years, and carried forward as definite liabilities until paid.

168 LIFE ASSURANCE

the simpler reversionary bonus systems.

Vesting of Bonuses

All participating policies are allotted bonuses at the first valua-
tion after issue and immediately the bonus becomes a part of
the sum assured. Sometimes policies are issued with the stipula-
tion that the bonus vests after a definite number of years (usually
two or five) in which case, even though the bonus is allotted
at the first valuation after issue, it ' vests ' only after the period.
Meantime the policyholder cannot deal with the bonus in any
way and in case of death only the sum assured is paid. This
restriction recognises the fact that under practical conditions a
policy does not by its own receipts and payments produce any
surplus during the first few years generally not until it has
acquired a surrender value because of the high initial expenses.
Recent tendency is to let the bonus vest from the very first valua-
tion after issue. It is argued that the high initial expense in
the first year of a policy is largely offset by the mortality in the
first year due to selection and that, in any case, the initial expenses
are graded over a period of years. The continued progress of a
company is dependent upon its ability to write a certain volume
of new business every year and in fairness, a part of the initial
cost of writing new business may legitimately be borne by the old
policyholders, not directly but by the indirect method of allotting
a share of the profits to the new policies. Public opinion is cer-
tainly for vesting bonuses from the inception of the policy.

Because of the longer period of valuation adopted in India,
policies which materialise into claims between two valuations, are
allotted interim bonuses which may be equal to^ less than or even
more than the bonuses declared at the previous valuation.

CHAPTER X

SELECTION, SUBSTANDARD LIVES,
REINSURANCE

No company can possibly afford to insure every member of
a community at standard rates: to do so would be to charge
the same rate of premium to an exceptionally fit man, to one
who is not so fit and to a third who is definitely unfit. Selec-
tion is the process of weeding out the uninsurables from the appli-
cants for insurance and of dividing the insurable applicants into
those who can be insured at standard rates and those who can-
not. Selection is important, for a company's successful working
depends upon its mortality experience* being equal to or more
favourable than its assumptions, and, although unfavourable fluc-
tuations, such as are caused by epidemics or other natural causes,
cannot bo foreseen or guarded against, a very rigorous system of
selection is needed to show favourable results.

Four factors determine insurability health, habits, occupation
and finance. Three stages complete the process of selection: a
preliminary selection by the agent, doctor's medical examination
and the company's selection. Four documents determine the risk
and enable the directors to accept or reject a proposal: (i) state-
ments made by the proposer in the Proposal Form and to the
medical examiner, (2) report of the medical examiner, (3) agent's
confidential report, and (4) the report of an independent referee
fully acquainted with the living and habits of the applicant.

I The agent's selection

An agent's responsibility is great for he is practically the only
person connected with the company personally acquainted with
the proposer. The value of an agent's selection is, however,
dependent upon his honesty, reliability and integrity of character.
In practice, competition for new business has at present reduced
the stringency of an agent's selection for hardly can he afford
to ignore even a remote possibility of acceptance.

A set of detailed instructions enjoin him to canvass only eligible
cases. Three classes of people make up a society: the insurable,
the uninsurable and the doubtful. An intelligent agent is able
to distinguish an insurable from an uninsurable prospect; doubtful
cases are reported to the company with all relevant facts and

169

170 LIFE ASSURANCE

of the grounds for doubt. If the risk is great the company
takes no further action; but if it is seemingly acceptable, the
agent is instructed to proceed with medical examination.

Abnormally fat or thin people, the physically handicapped and
those with an unsatisfactory family history are all doubtful cases.
Minors, persons beyond the age of 55 or 60 and those whose
applications for insurance were rejected by other companies are
usually uninsurable. Not infrequently, however, an agent comes
across a desirable prospect whose insurance, was rejected by
another company but who, so the agent believes, is an insurablo
risk. He brings the matter to the notice of the company imme-
diately with a full report of all relevant facts and his reasons
for considering the proposal favourably. If the report is satis-
iactory he receives instructions to proceed: if the company is not
entirely satisfied, a deposit is demanded to cover the initial inci-
dental expenses, to be returned or adjusted later. There is an
excellent system of inter-office exchange of information on all
rejected cases, so that the reasons for reconsideration should be
really sound.

Proposal Form

Having made the selection, the agent proceeds to obtain a
written application for insurance in a printed ' Proposal Form.'
This is compulsory and the proposal form constitutes the first
part of an offer to the company to take, out insurance on its
terms (the second part being the medical examiner's report).
The acceptance of this offer, followed by the payment of the
first instalment of premium and the fulfilment of other condi-
tions, is the basis for the formal and the legal contract of
insurance.

The Proposal Form is fairly comprehensive. When the insur-
ance is subject to medical examination, questions included in the
Medical Report arc excluded from the Proposal Form: in fact,
the form in which the medical report is framed determines the
questions included in the Proposal Form. One supplements the
other to give, a clear, complete and lucid elucidation of all the
facts needed. There is a wholesome tendency in recent times
to combine the proposal form and the medical report so as to
incorporate all the statements in one document. To avoid ambi-
guity and unnecessary correspondence in the. future the questions
are couched in the most simple and direct language.

The principle of uberrima fides (superabounding faith) which
applies to all contracts of insurance makes it obligatory for the

SELECTION 171

proposer to answer all questions to the best of his knowledge and
ability and to make a true and complete statement of all the
material facts which would influence the company in arriving at
a decision as to the acceptance of the proposal and assessment
of premium: at the same time the proposer is not obliged to
volunteer information not asked for in the Proposal Form, unless
it is of such a nature as to make its concealment a matter of bad
faith, liable to vitiate acceptance.

The non-medical information required includes : (i) identifica-
tion, (2) occupation, (3) insurance history, and (4) plan of
insurance,. Identification includes name, father's name and
address, present and permanent residence and place and date
of birth. Since age determines the amount of premium charge-
able, the date of birth is important, and at this stage, the appli-
cant's statement is accepted in good faith, without proof, as any
considerable misstatement is liable to be detected on medical
examination. It is legitimate and desirable to demand accept-
able proofs of age at the outset but it is not customary to do
so, for many of the proponents may be unable to furnish proofs
readily and delay might possibly lead to postponement or even
abandonment of insurance. If proof is available it is advantageous
to the proposer and to tho company to submit it with the appli-
cation.

Next in importance is the occupation. Details of the employer,
nature of the specific duties assigned to the applicant and any
recent or contemplated change of occupation are all matters bear-
ing on selection. Particulars of aviation activities both past and
prospective, except flying as a passenger in a scheduled airline,
are indispensable, as also future plans of military or naval service.

Past insurance history includes details of all policies in force
or pending on the life, whether with the same or other compa-
nies, any refusal for insurance and any demand for special terms.
Particulars of the amount of insurance required, the plan selected
and the optional mode of payment of premium virtually complete
the first or non-medical part of the application. He has also
to give the name of an intimate friend who has known him for
at least two years, but who is neither interested in his insurance
nor related to him.

II Medical report

The medical report is in two parts: (i) statements in the
form of answers to questions put by the medical examiner (which
constitute the second part of the application for insurance) and

172 LIFE ASSURANCE

(2) the findings of the doctor on a physical examination. Per-
sonal statements made to the doctor cover (a) personal history
and (b) family history.

( i ) Personal Statement

(a) Personal history. The history of personal health does not
demand a detailed enumeration of every trivial complaint but
certainly calls for a complete report of all recent illnesses and
injuries, whether trivial or not, with the names of the physician
consulted. If the disclosed facts raise doubts of impairment, a
reference is made to the proposer's medical attendant for the
elucidation of any further point beyond the knowledge of the
proposer if it has a bearing on insurability. A wide field of
physical ailments is covered in order to get a complete idea of
his health history, as quite frequently, past .illnesses might have
led to an impairment not easily discernible during the usual
medical examination, but which, nevertheless, affects health. This
history supplements the findings of the doctor. It is usual to
defer or totally reject a proposal if the applicant is convalescing
or under treatment. Recent illnesses, change of occupation or
residence for reasons of health or severe injuries are all grounds
for doubt.

(h) Family history. Designed mainly to enable the chief
medical officer to decide whether the. applicant's family is long
or short-lived, the questions on family history include detailed
information concerning parents, brothers, sisters and wife (or
husband) their age and state of health, if living, or the causes
of death, duration of illnesses and the ages at death. Undesirable
features arr mainly (i) parents' death before sixty, (2) tuber-
culosis in the family, especially if the applicant himself is under-
weight, (3) insanity and (4) mortal diseases. An isolated case
of tuberculosis, cancer, diabetes or some other serious disease is
generally ignored, but more than one death from the same cause
is bad. Not infrequently an unfavourable family history is deli-
berately concealed for fear of the possibility of rejection, but
this amounts to bad faith, and if discovered later, may lead to
cancellation of the contract on grounds of fraud.

Difficulty arose over the settlement of a recent claim. The
personal and family history as reported were above suspicion,
habits were good and the proposer belonged to a high social
circle. The weight was slightly below average but this was over-
looked in the face of the. otherwise excellent reports. Within
two years he died of tuberculosis and a claim was lodged, but

SELECTION 173

as the circumstances of the death were suspicious, a thorough
investigation was made which brought out the startling facts that

(1) the family was notoriously underweight and short-lived, (2)
one of his uncles had suffered from tuberculosis and had died
in his thirtieth year, (3) his father was under observation and
treatment in a sanatorium and lived in a health resort throughout
his life and though he. lived upto sixty, he was never in the best
of health. In the circumstances the company suspected wilful
concealment of the facts but on behalf of the deceased it was
contended that he lived with a maternal uncle throughout his
life and was unaware of the lamily health history. The company
had to decide whether (a) the assured knew of the damaging
family history, in which casr it could invalidate the policy or
(b) the non-disclosure was unintentional. The company resolved
a difficult situation by repudiating the contract, but by meeting
the claim in full on compassion.

Insufficient details and deliberate concealment of the family
history might lead to complications, resulting in a bad risk being
insured. Personal habits and social life are important, especially
the use of alcohol and narcotics, drugs and tobacco. Most of
the social habits are, however, better brought out from the
referee's report.

(2) Doctor's Fi tidings

Then comes the actual physical examination. This is as
thorough as is necessary, with a complete check on all important
organs, so that, with the personal and family history, the doctor
is enabled to appraise the health of the applicant. Much depends
upon the ability of the doctor to detect those hidden causes
which affect a proposer's longevity. Details of identity prevent
any fraudulent substitution of a healthy individual for an un-
healthy applicant. Besides the general appearance, the examina-
tion covers:

(a) Build. Build is probably the most important consideration
in selection. Available statistics show that a considerable varia-
tion from the average build affects mortality. The doctor records
the height and weight from personal observation. For a given
height at a specified age there is a maximum and a minimum
weight for both males and females: both underweight and over-
weight call for more detailed investigation. Extenuating circum-
stances may, in some cases, make it possible to ignore a slight
deviation from the maximum or minimum. An active and healthy
farmer, for instance, spending long hours in strenuous labour out

174

LIFE ASSURANCE

of doors all the year round, may be heavier than the maximum
weight for his age and height and insurance may not be rejected
on this score alone. A short, heavy man, on the other hand,
given to sedentary habits and inactive life, may be rated as a
bad risk at ordinary rates of premium. Every company has a
standard table of maximum and minimum weights for specified
heights and ages, both for males and females. This table is not
necessarily the best combination to give the most favourable
mortality but the average measurement of a large group. The
following is a typical table used by Indian companies, but any
deviation does not necessarily constitute a low standard of selec-
tion:

Table No. 40
Average Weight and Chest Measurements

Height

Si.

5 ft.
m

5 ft.
2 in.

5 ft.
4 in.

5 ft.

6 in.

5 ft,
8 in.

5 ft.
10 in.

6 ft.

in.

6 ft.
2 in.

Average weight

20

IOO

I 06

I I I

H7

124

132

140

148

157

25

105

IO9

H3

"9

125

133

142

152

162

30

1 08

H3

H9

125

132

139

148

158

I6 7

35

1 1 1

116

122

128

134

142

150

l6o

171

40

114

I2O

126

133

141

149

159

169

180

45

118

124

130

137

143

151

I 60

171

182

50

I2O

125

130

138

H5

154

164

174

184

Normal chest

20

29.50

30.00

30-50

31-00

31-75

32.50

33.25

33-75

34-75

25

30.00

30.50

31.00

31.75

32.25

33-00

33-75

34-50

35.25

30

30.50

31.00

31.5

32.25

33.oo

33-75

34.25

35-00

36.00

35

31.00

3L50

32.00

32.25

33-25

34-00

34.75

35-00

36.00

40

3I-50

32.00

32.50

33-00

33-75

34-25

35-00

36.00

36.75

45

31-50

32.00

32.75

33-25

33-75

34-25

35-25

36.00

37.25

50

32.00

32.50

33.25

33.75

34.25

35-00

35-75

36.50

37-75

A slight overweight at younger ages is not unfavourable, but
suspicious at higher ages. Underweight at younger ages is bad
but a favourable factor at older ages. Distribution of excess
weight over the different parts of the body is often revealing in
the case of overweights: an abdomen thinner than the expanded
chest is more favourable than the reverse.

(b) Circulatory and respiratory systems are next in importance.
An enlargement of the heart is serious and organic heart murmurs
are bad. The pulse rate is noted. The tension, the rhythm

SELECTION 175

and the rate of pulse are all factors which would influence insur-
ability.

Most offices insist upon the determination of blood pressure
for insurances of larger amounts, say over Rs. 5,000, whilst others
desire that both the systolic (the pressure when the heart is in
the act of pumping blood) and diastolic (that when the heart
is at rest) blood pressure should be recorded. It is generally
desirable to record blood pressure for all ages over 40 or where
there was indication of albuminaria, nephritis or heart diseases
in the past. It is generally held that higher blood pressure is
unfavourable but a low pressure is seldom regarded as serious.

Table No. 41

Average Blood Pressure of Indian Assured Lives
based on Oriental experience.

A Systolic * Diastolic Pulse

A 9 e Pressure Pressure Rate

20 118 78 40

25 1 20 80 40

30 122 82 40

35 ..124 84 40
40 . . 127 86 41
45 ..130 88 42

50 .-133 9 43

55 '3 8 * 92 46

Dr. Charles A. R. Conner, medical director of the American
Heart Association, affirms: "It would be desirable for insurance
companies to re-examine their position in the matter of granting
policies to individuals with uncomplicated hypertension." The
Columbia' Presbyterian Hypertension Clinics examined over 2,000
case histories of hypertension patients from hospitals, clinics, pri-
vate physicians and industrial sources, of all ages, with an average
duration of 13 years, and after subjecting them to intense investi-
gation, concluded that high blood pressure patients had years of
normally good health and unimpaired life before them. The
Metropolitan Life Insurance Co. of New York which conducts
periodical field surveys of mortality from specific causes, after a
ten-year survey of 241 of its employees who had high blood pres-
sure, found that the majority of them had normal electroradio-
grams and that all were alive and working from ten to twenty-

176 LIFE ASSURANCE

five years. Their conclusion was " It seems timely to re-emphasize
the fact that many people with hypertension disease may have
a long and symptom-free life." (The reader is referred to Reader's
Digest, Canadian Edition, August 1949, pages 25-29 for a fuller
exposition of this view point.)

It is interesting to compare this with an actual investigation
conducted hy the New York Life Insurance Company on the
mortality of lives accepted as ' standard risks ' covering the new
policies issued from 1925 to 1936 inclusive observed from entry
until the anniversaries of the polities in 1937. Writing on this
investigation in a technical paper contributed to the Journal of
the Institute of Actuaries, London, (Volume LXX, 1939) Dr.
Arthur Hunter observes: "The investigation was by policies and
was divided into two groups (a) those in which there was no
impairment and (b) those in which there appeared minor impair-
merit but not of sufficient amount to place the policy-holders in
a substandard group. The expected deaths were obtained accord-
ing to the company's standard experience for the same years of
issue and exposure. The total number of policies emerging by
death was 9552." After a thorough analysis of the results of the
investigation, Dr. Hunter concludes: "(i) that the favourable
mortality among persons with systolic pressure below the average
is confirmed, while the evidence indicates that it is favourable
at points as much as 15-20 mm. below the average, (2) that
the favourable effect of low blood pressure increases with advanc-
ing age and that readings approximating to the average also shows
a slightly more favourable relative mortality as the age advances,
(3) that evidence has accumulated until it is now beyond doubt
that a blood pressure of 15-19 points above the average for the
age results in a distinctly higher mortality than normal and that
cases from 20 to 25 mm. above the average have a decidedly
substandard mortality, (4) that minor impairments which would
not in themselves warrant treating the applicant for insurance as
a substandard risk, add appreciably to the relative mortality."
There does not seem to be any conclusive evidence therefore to
depart from the current practice of emphasizing the importance
of blood pressure in selection.

(c) Urine. The doctor conducts a chemical examination of
the urine for the presence of albumin or sugar and determines
the specific gravity. An examination under the microscope is
sometimes necessary to decide whether it contains pus, casts or
blood.

(d) Other organs. The other organs are carefully checked for

SELECTION 177

any impairment, functional disturbance, abnormalities or diseases,
with particular emphasis on the defects indicated by the pro-
poser's health and family histories. Special instructions issued to
the doctors include specific guidance on all matters and direct
him to get concise, clear and precise replies to all questions. He
may be asked to classify lives as ' good,' ' invalid ' and * undesir-
able ' and to give an opinion, in case he concludes that the risk
is more than average, as to the addition to be made to the age
to cover the extra risk. 1

III. Company's Selection

The final selection is made after a full consideration of the
facts disclosed in the Proposal Form, the Agent's Report, and
the Medical Report supplemented by the Private Referee's Report.
Health, occupation and to a large extent finances will be covered
by the Proposal Form and the Medical Report, while the Agent's
Report and the Private Referee's Report cover the habits (moral
hazard) and finances (financial hazard).

(a) Standards of Insurability. The question is sometimes asked
as to what constitutes the minimum standard of physical fitness
in a proposer. The more severe the selection the lower the
mortality experience, but a very stringent selection will reduce
the number of people eligible for insurance. This is especially
true in India where the average person is constitutionally weak.
The effect of medical selection on mortality is an important consi-
deration. " Medical selection by itself docs not persist for more
than one year and any persistence of the forces of selection beyond
one year and upto two years in certain age groups may be due
to the effect of the other forces " concludes Mr. Vaidyanathan
after a masterly analysis of the forces of selection in the Oriental
Investigation into the Mortality of Indian Insured Lives. This
statement is amplified in the Indian Insurance Year Book, 1944
" there is no reason to suppose that the experience of other insurers
in this respect should be different from that of the c Oriental '
and this may be assumed as a feature, at least for the pre-
sent, of medical selection for assurances in India." Mr. S. * C.
Thompson emphasises the same point. Mr. C. D. Sharp,
with his long experience of Indian lives as the Actuary of the
Gresham Life Assurance Co. Ltd., Indian Branch, writes: 2
" The force of this argument (for non-medical business) is
increased if, as is true in tropical regions, medical selection affects

1 See also the section entitled " Rating up of age " later in this Chapter.

2 Journal of the Students' Society, Vol. IX, Part I, July 1949.

12

178 LIFE ASSURANCE

only a comparatively short period because of the rapid onset of
tropical diseases and because of the rapid deterioration in health
which can occur from comparatively minor causes." These
deductions from actual experience of Indian conditions do not
call for any relaxation of the severity of medical selection: on
the contrary they emphasise the need for the introduction of
stricter selection whereby all impairments and constitutional weak-
nesses which may invite the rapid onset of diseases are detected.
Tropical conditions and the absence of prompt diagnosis and
treatment among the middle classes who constitute by far the
largest group of the insured people, reduce the effect of selection
considerably. A rigorous selection may make it possible for the
companies to get those lives which are exceptionally good, and
have, consequently, a high degree of resistance to future illnesses.
As has been emphasised by succeeding Presidents of the Indian
Life Offices' Association, there is much room for concerted action
in this regard.

(b) Occupation. Occupational hazards may be extra deaths
from ( i ) greater exposure to accidents as for instance electricians
and construction engineers, (2) adverse effect of occupation on
health, e.g., employees of the chemical industries, (3) a combi-
nation of these two, e.g., mining engineers. Both the present
and the previous occupations are important since bad health
might have induced the applicant to change his occupation from
a hazardous to a non-hazardous one. An economic and social
factor may also be introduced by the nature of the occupation
for there is a possibility of a poorly paid worker drifting into a
poorer and less healthy occupation by reason of his inability to
purchase proper medical aid. Lives involving hazardous occupa-
tions arc charged extra premiums to cover the extra risks.

Aviation stands on a different footing. Fare-paying passengers
on regular air routes of scheduled air lines are subject to no greater
risk than passengers on rails, but pilots and persons engaged in
the industry with varying degrees of liability to go up in the air
are charged extra premiums. The modern tendency is to class
the pilots of scheduled air lines and most of the other commer-
cial pilots as safer risks than private pilots on account of the
greater safety recorded by the former. Aviation personnel other
than pilots are usually charged extra rates at least for the first
few years depending upon the frequency of flying required in
the normal discharge of their duties. Where the hazard is consi-
dered severe or the intention of the proponent with regard to
flying is indefinite it is customary to insert an exclusion clause

SELECTION 179

whereby aviation risks are excluded.

During times of peace, when there is no immediate prospect
of war, naval and military personnel are subject to a small extra
premium to cover war risks which is removed on retirement.
Insurances at ordinary rates may be issued without this cover.

(c) Residence. Offices generally issue policies free from all
restrictions on travel and residence as far as possible, but where,
from available information, a company is satisfied that an undue
or unusual hazard attaches to a proposal insurance at standard
rates cannot be granted. Not all parts of the Country can be
considered healthy but the problem of residential hazard has been
of little importance so far. Insurance is generally confined to
the cities and towns where reasonable medical care and sanitation
keep mortality what it is, but if insurance is extended to the
rural and srmi-urban areas, sanitation or the lack of it and avail-
ability of medical aid may be two factors for consideration. Some
of the rural areas are notoriously insanitary, and polluted water
in wells and tanks with no facilities for chlorination breed malarial
mosquitoes and help the spread of water-borne diseases such as
cholera. Inadequate facilities for the collection and disposal of
night-soil spread infection with the greatest of ease. And lack
of proper medical aid adds to the risk. Superstition aggravates
it. On the other hand natural surroundings, active life, whole-
some food and fresh air offset the extra mortality to a considerable
extent.

(d) Moral Hazard. Habits, mode of life, reputation and
social environments form the basis of moral hazard. Habitual
use of alcohol (which thanks to prohibition may not be a serious
problem), narcotics and drugs is bad. Where insurance is effected
for business purposes the financial standing and reputa-
tion have a definite bearing on insurability. Persons habituated
to a social circle notorious for violent quarrels naturally consti-
tute extra hazards. More often than not the reports of the referee
and the personal inspection of the agent provide very valuable
data on the health and habits of the proposer.

(e) Financial hazard. The question whether an applicant's
finances warrant the amount of insurance applied for is of para*
mount importance; where the insurance already in force and that
proposed amount to more than what the proposer can reasonably
pay out of his income, detailed enquiries have to be made to
determine whether there is wilful concealment of any of the
sources of income or there is present any mortal disease. If the
medical examination also reveals a doubtful case, it may indicate

180 LIFE ASSURANCE

an intention to cash in as much as possible. Even the severe
need for new business does not warrant ovcrinsurance, which may
be one of the contributory factors of the high lapse ratios.

Time was when it was considered equitable to let a man carry
the amount of insurance he wanted and could pay for, but recent
trends in socio-economics tend to fix a definitely close relation-
ship between a man's income and the amount of insurance he
should be allowed to have. It is hardly possible to decide what
constitutes such an equitable relationship, and different theories
have been propounded on the subject. The problem is especially
difficult in India where a large class of people live on the border-
line of economic sufficiency. In recent times the increasing spiral
of prices has made it all the more difficult to fix a proportion
between income and the amount of insurance a man could carry.
Barring the highest income groups both the upper and lower
middle classes who form the bulk of the insuring public, are faced
with the problem of effecting any insurance at all rather than
the amount of insurance that could be effected.

Financial hazard plays an important part in the policies issued
on the lives of debtors. A creditor is within his rights to insure
the life of a debtor in case the debt can reasonably be expected
to be repaid but if the chances of repayment are remote or none,
the insurance is mala fide and amounts to speculation.

Insurances at extreme ages. Insurance is issued to persons who
have attained the legal age of maturity, and who are below a
maximum age limit, either 55 or 60. The bulk of the policies
are issued on persons between the ages of 25 and 40. Being a
legal contract, a policy issued to a minor is not enforceable in
a court of law, but a proponent may be able to repudiate the
contract and successfully contest a claim for repayment of all
premiums paid after the insurance has been in force for some
years on the ground of legal inability to enter into the contract.
Insurances, if effected at very low ages, will be subject to
attractively low premiums and whilst mortality in the first year
of a child's life is severe, it is really very low for the many
years following, so that both from the company's and the insured'*
points of view there is a definite case for lowering the age at
which a policy may be legally entered into. In the case of
children's policies, the risk against death commences only after
the child attains majority.

All offices refuse to entertain proposals for insurance from
persons of advanced ages, say over 55 or 60. The higher cost
of insurance at those ages, the much higher percentage of people

SELECTION 181

who are ineligible for insurance due to physical impairments and
the existing insurances on many of those who are eligible, leave
only a small number of people with any genuine need for insur-
ance at higher ages. Applications from older people for larger
amounts are suspicious for it might be an indication of a desire
to provide a fortune for younger people on whom they might
be financially dependent. If that is so, it amounts to specu-
lative insurance and the company has to satisfy itself as to the
legitimate reasons for covering the risk.

Insurance on Female Lives

Insurances on women will have to be reconsidered in the near
future, due largely to the higher percentage of women, who,
after the war, have begun to earn their living. With marriage
compulsory among girls of practically all communities and societies
and with usage and custom keeping women financially dependent
upon men, the need for insurance did not arise in pre-war days,
except in unusual circuma ;ances. Four factors may tend to alter
this state of affairs in the future (i) increase in the number of
ladies with independent incomes due to the equality of oppor-
tunities guaranteed by the constitution, (2) the recent social evo-
lution Brought on by political consciousness and the teachings of
Mahatma Gandhi, wiping out, among other things, compulsory
pre-puberty marriages, the odium attached to unmarried women
and their inferior social status, (3) the incrcasiig emphasis on
female education which will tend to eradicate, much earlier than
was thought possible, the low literacy among them and (4) econ-
omic distress compelling women to supplement family incomes
by gainful employment.

The fundamental problem in this connection is the need for
a reliable mortality table of Indian insured women. In this, as
in every other problem of mortality, the experience of other coun-
tries is hardly a standard for Indian conditions. Nevertheless,
that experience has been that the average longevity of women
is higher than that of men, and the reason is not far to seek.
Few women lead bad or intemperate lives; insurance for business
reasons is practically absent and large policies are rarely needed.
The diagnosis and treatment of diseases peculiar to women have
improved considerably, and child-birth is not attended with the
grave dangers of the past. In advanced countries like America
insurance is therefore given to single women, with independent
incomes on the same basis as men.

The position is different in India. Girls of tender age and

182 LIFE ASSURANCE

feeble constitutions marry early, become mothers before they have
built up a mature physique and undermine their vitality and con-
stitution by frequent child-bearing; the result is a high rate of
female mortality, as is evident from the following comparative
table of mortality for males and females: l

Table No. 42
Death rate per 1,000
Age 1933 1939

males females males females
15-20 8.0 10.0 8.0 9.8
20-30 9.0 n.o 9.4 1 1. 8

30-40 12.0 12.0 11.9 12.6

The census reports of 1931 gives the following expectation of life
for males and females at different ages:

Table No. 43
Life Table, 1931

Age Males Females

o r 26.91 26.56

10 36.38 33.61

20 28.67 27.08

30 23.60 22.30

40 18.60 18.23

50 14.31 14.65

Whilst the female expectation of life in other countries is higher
than the male, the expectation of life in India is higher for males
than for females except at the age of 50. An investigation carried
out in Madras about 20 years ago by Dr. lakshmanaswami
Mudaliar gives the following figures of maternal mortality: (See
Table No. 44, opposite page)

The higher risk of death at lower ages is a direct result of physi-
cally weak children becoming mothers : death is only, very often, the
final release from a period of suffering and incapacitation. The
higher death rate of girl mothers is accompanied by a large pro~

1 Our Economic Problem, Wadia and Merchant, page 79.

SELECTION 183

Table No. 44

a^ P^rinH Maternal death rate per

Age Period l>000 con finemenUi

under 15 46.51

15-19 23.74

20-24 iy-9 1

portion of cases suffering from varying degrees of discomfort and
disablement in comparison with child bearing mothers at later
ages.

Another factor of considerable importance is the effect of purdah
on health. Dr. Rose A. Riste, Director of Tuberculosis and
X-Ray Departments of the Women's Christian Medical College,
Ludhiana, has opined: (Indian Medical Gazette, September
1938) " the earlier seclusion, including burqa, of the Mahomedan
girls shows its effect in the earlier rise of her tuberculosis death
rate to 44.46 in the 10-14 age group as against her Hindu sister's
1 8.8 1. Their brothers' rises were slight; to only 6.88 for the
Mahomedan youth and to 12.70 for the Hindu. A few years
later, during the universally critical period of child-bearing,
practically all members of these purdah families get the full effect
of their seclusion, and their death ratio increases." Although Drs.
Butt, Shuffi Tyabji and M. A. Hameed of the Bhore Committee
have contended that this increase in mortality is not exclusively
due to purdah, there is no doubt as to the deleterious effect of
purdah on the health of those women who observe it. 1

Superstition and lack of adequate clinical attention and illiteracy
add to the evil effects of child marriage and purdah and the cumu-
lative effect of all these is to limit insurance to those women who
are literate, have completed the age of 21 and do not observe
purdah. The risk of first confinement is almost generally excluded
and among other restrictive conditions may be mentioned the need
for an independent income. Special questions like the age, num-
ber and health of children and details of confinements have to be
answered, and the insurance is subject to an extra premium which
is at present Rs. 5 per thousand per annum, including Joint 'Life
Policies where one of the parties is a lady. A few companies
remove the extra after the age of 45 or 50. Restrictive conditions
differ as between companies.

There is a case for reconsideration of the whole question, though
not immediately, at least in the very near future, in the light of

1 Report of the Health Survey and Development Committee, Govern-
ment of India, Vol. I, page 18.

;184 LIFE ASSURANCE

changing social outlook. Child marriage, for instance, is fast dis-
appearing. The proportion of single women with independent
incomes is rapidly increasing. Economic distress is forcing more
women to take up more lucrative jobs and to view the series of
child bearing in successive years as unfashionable. In the urban
areas at least medical aid for women is improving. It is there-
fore pertinent to pose the question whether, if all conditions are
favourable, any valid reason exists to treat educated, single, econo-
mically independent women on a different footing from men.

The case of the married women is different and restrictive
conditions on their lives seem reasonable. Practically all of them
are dependent upon their husbands for living and should there-
fore show a valid reason for insurance, and to minimise the finan-
cial hazard, insurance for an equal or higher amount on the life
of the husband is a reasonable demand.

Non-Medical Insurance

The absence of any prolonged persistence of selection has raised
the pertinent question whether medical examination may not
altogether be dispensed with. Mr. Vaidyanathan writes: 2 "One
direction in which insurers can practise economy is by the issue
without medical examination of policies of which the sum assured
does not exceed Rs. 1,000. Insurers would not be taking any
great risk if they transact non-medical business subject, inter alia,
to the following conditions: (a) the sum assured does not exceed
Rs. 1,000 (b) declaration of good health is taken in every case
and properly scrutinised (c) in case of death in the first year
a part of the premium paid alone is returned according to a
sliding scale (d) the papers relating to the personal and family
history of the proposer are subject to a very careful scrutiny and
the insurers reserve the right, in case where these are not entirely
satisfactory, to call for medical examination. This would call for
concerted action on the part of all insurers. After investigating
the experience acquired by the issue of non-medical policies for
Rs. 1,000 over a period of, say five years, and finding it satisfac-
tory, insurers may extend the principle to policies not exceeding
Rs. 2,000 for a considerable time." The considerable saving in
medical fees thereby effected will cover any increased mortality
experienced by the absence of mdical examination. Before the
Insurance Act 1938 placed a lower limit of Rs. 1,000 on the sum
assured under a single policy a limited amount of insurance was

1 Indian Insurance 'Year Book, 1944.

SELECTION 185

issued for small sums without medical examination. These
schemes were almost completely withdrawn when the Act placed
a lower limit on the amount of insurance on a single policy. Mr.
Vaidyanathan's remarks gave a spurt to this scheme and many
companies now issue non-medical policies, thus opening up possi-
bilities of extending insurance to districts where lack of proper
facilities make medical inspection practically impossible.

The agent's report is of paramount importance in the selection
of lives for non-medical insurance. It has to be fairly comprehen-
sive and, besides the usual personal and family history, should
call for detailed investigation by personal enquiries. This report
may be supplemented by the report of a field officer or some other
responsible representative of the company to ensure better results.
Full risk of death is rarely assumed from the commencement, only
a proportionate amount being paid in the case of death from blood
pressure, syphillis, cancer, diabetes, tuberculosis etc. during the
first two years. Insurance is rarely issued above the age of 40,
and the contract carries a proviso giving the right to the com-
pany to enforce medical examination in case of doubt.

Much progress can be made in writing non-medical business
especially in pursuance of a programme of rural insurance deve-
lopment. The policies should be limited to such sums as the
company is able to underwrite without undue risk in the event of
unfavourable overall mortality experience. An upper age limit,
say 40, should strictly be enforced as the mortality of higher age
groups on such insurance plans has been unfavourable in coun-
tries where the scheme has been successfully operated. Two
factors tend to increase the mortality on non-medical schemes:
firstly a certain amount of unavoidable adverse selection against
the company by the wilful concealment of known impairments
and secondly ignorance of the presence of organic defects. This
increased mortality will be offset considerably, at any rate in any
broad basis of operation, by. the. savings from medical fees, for in
rural areas where the scheme has particular use, the absence of
qualified doctors would render the medical system of selection
considerably costly if travelling expenses for the usually I6nger
distances to be covered are taken into account. In adjudging the
effect of the relatively better physique of rural lives on mortality
as a favourable factor for this class of business, an important con-
sideration is the locale, for certain districts like the Wyyanad of
Malabar arc known to be unhealthy. Sanitation and available
medical facilities also have an important bearing. In any case
rural prospects are generally initially known to the agents and

186 LIFE ASSURANCE

considerable reliance may be placed on the intelligent appraisal
of an honest agent.

The scheme has been successfully operated in America in pur-
suance of a systematic programme of insuance development. Rural
districts were covered in the beginning with considerable success
and insignificant loss. It was then extended to small border towns
where a greater degree of scrutiny was needed, and finally it was
extended to larger cities where the utmost care was required in
selection as the prospects were practically unknown to the agents.
This care was exercised by a careful scrutiny of the personal and
family history of the applicant, the questions asked covering the
whole range of information elicited from him both in the Proposal
Form and the Medical Report. This, together with the report
of a reliable agent and a referee reduced the risk considerably.

Apart from rural and selected city lives, non-medical schemes
arc applied in three directions: (i) group insurance (2) savings
bank insurance and (3) additional insurances on the lives of pre-
viously medically selected persons. Group insurance is small but
growing. Savings Bank Insurance is operated only by two offices
and the experience of one of them which is exclusively engaged
in this class of business has been extremely satisfactory as will be
seen from the following extract from its latest valuation report: l

Bases of valuation: Oriental (1925-35) Ultimate Table, 2.^4%
interest, reserving 7.68% of premium for expenses.

Renewal expense ratio: Nil.

Business in force: 14,328 policies for Rs. 1,35,32,000 (including
bonuses).

Life Fund: Rs. 35,71,000.

Surplus: Rs. 2,07,000.

Allocation: Policyholders Rs. 1,72,000: Shareholders Rs. 17,000:
Reserve Rs. 18,000.

Bonus: Simple reversionary bonus of Rs. 4 per thousand per
annum on policies issued before 1-9-44 and Rs. 7 per thousand
per annum for those issued after 1-9-44 plus Tontine Bonus at
same rates.

SUB-STANDARD LIVES

If a group of people, insured by a company, shows a mortality
greater than what is anticipated normally in accordance with the
table adopted by it, that group is substandard or under-average.
Occupation, impaired physical conditions, lack of vitality, bad

1 The Depositors' Benefit Insurance Go. Ltd. Particulars from Insurance
Year Book, 1948.

SUBSTANDARD LIVES 187

habits, heredity, previous illnesses, residence in unhealthy sur-
roundings or under unfavourable conditions of climate all these
individually or collectively contribute towards the extra hazard,
which is covered by an extra premium.

Barring persons with proved mortal diseases such as cancer or
tuberculosis, no person is uninsurable in theory, but large numbers
of people are unable to obtain insurance chiefly due to the magni-
tude of the extra risk on their lives. The hazard can, however,
be so great that a prohibitive rate of premium alone can cover it:
in that case the demand for insurance may be practically absent.

The need for sufficiently large numbers to ensure average
results is important. In practice, most of the small and medium
sized offices may find it difficult to get sufficiently large numbers
of substandard lives: the risks are then either declined or reinsur-
ed. If a company is financially strong it may also accept the risk
in the hope of getting more proposals in the future. A complaint
that is not infrequently voiced is that a proposer had to pay
a higher premium and then lived to a ripe old age. If experience
showed that twelve out of every 1,000 assured, suffering from high
blood pressure, died at the age of 40 against the normal rate of
eight, the mortality rate is higher, the risk greater and the pre-
mium payable consequently more, but it is beyond the power of
man to select the particular individuals contributing towards the
extra mortality. In the circumstances it is hardly correct to argue
that a person classed as substandard should not have been subject
to extra premiums if he lived to a ripe old age.

Extra Rates

The extra mortality from a given cause has been fairly accu-
rately determined in foreign countries in a large number of cases,
but no such investigation has been made in India, although a few
individual offices have roughly -assessed their experiences. Extra
premiums are therefore, arbitrary or based on foreign experience.

The number of additional deaths due to a specific cause or a
combination of causes during a given period is a measure of the
degree of the extra risk during that period. From the financial
point of view the chief consideration will be whether the extra
deaths occur in early life, middle age or at older ages, or whether
they are equally likely to occur throughout the currency of the
policy. Occupational hazards exposed to greater accidental deaths
persist throughout the period of exposure whilst occupational im-
pairment of health may increase mortality only at a later age as
in the case of slow poisoning. Again an unhealthy climate may

188 LIFE ASSURANCE

produce an increased mortality only during the early stages, for,
later, the system usually builds up strong resistance within itself.
On the other hand impairment due to overweight generally pro-
duces an increasing rate of mortality with duration.

These considerations point to the necessity of classifying all
substandard risks in accordance with the degree of extra hazard
due to specific causes in a given period. For purposes of com-
puting the extra hazard all substandard lives fall under one of
three broad groups: (i) where the additional hazard is fairly
constant at all ages, as in the case of many occupational hazards
(2) where the extra risk increases with age, as for instance over-
weight, and (3) where the risk of additional mortality decreases
with age, as for example most cases of previous illnesses. A fourth
type is the risk which increases for a time and then decreases but
this may safely be ignored as too abstract theoretical considerations
are neither practical nor necessary. Four methods of granting
insurances are in force : ( i ) rating up of age, ( 2 ) flat extra
premium, (3) liens and (4) percentage basis.

I. Rating up of age: Here, in theory, a policy is issued at
a rate of premium applicable to a higher age than the applicant's
true age, the assumption being that the proposer Ls equivalent to
a person of the. higher age. In endowment policies, particularly
those issued at lower ages, and maturing at short durations, the
extra premium, even by a substantial rating up of age is very
small, as may be seen from the following table:

Table No. 45

Table of annual premiums for Rs. 1,000 endowment
assurance at normal risks and additional premium
for extra risks of mortality provided by five years
rating up of age Oriental Table of Premium Rates.

(Without Profits)

10-year endowment 20-year endowment

Age at

issue Normal pre- Extra premium Normal pre- Extra premium
mium provided mium provided

20 104 9 02 5 4 6

25 104 ii 06 50 i o o 13

30 105 i o 12 51 7 i 10

35 I0 5 '3 -i 11 53 r 2 15

40 roy 8 2 15 56 o 4 n

SUBSTANDARD LIVES 189

Thus the extra premiums, except in the case of long term poli-
cies or at higher ages, are small. In practice, therefore, in the case
of an endowment policy, an extra premium that would have been
charged if the proposed policy had been a whole life assurance is
added on to the endowment assurance premium calculated at
ordinary rates. A point to be remembered is that a change in
the premium for a whole life policy for one year's difference in
age is quite small at the young ages at entry, but is appreciable
at the old ages. Simplicity is the keynote of the system. For all
practical considerations such as surrender values, reserves, etc.
the policies are treated as a separate group of standard policies.
It is also easily understood by the insuring public.

2. Flat Rate Premium: This method is practically similar to
the rating up method except that the extra mortality is covered
by a flat addition to the premium irrespective of age at entry.
The best illustration of this method is the extra premium for
female insurance: most of the occupational hazards are also met
by flat extra rates.

To a policyholder there is not much of a difference whether
the method adopted is the rating up of age or flat extra premiums,
for in cither case, he pays an additional premium for the same
amount of insurance. Both methods are used in India and often
by the same company.

3. Liens: The risk on impairments such as the presence of
tuberculosis in the family decreases with every succeeding year
for if the assured passed the middle age without any symptom
of the disease, he might be considered immune from it for the
rest of his life. The usual practice is therefore to create a lien
against the policy for such an amount and for such a period
as would offset the extra risk. The policy is normally issued at
the standard rates, but if death occurs during the term specified,
the amount of the lien is deducted from the sum assured: when
the period has passed without any untoward incident the full
sum assured becomes payable. In many cases the method is
applied in a modified form by which the amount of the lien is
gradually decreased until it is finally wiped out in a few years'
time.

Many applicants may question the decision of an office if the
risk is classified as substandard, for they may be unconvinced
of the reasons. In the case of a tuberculosis in the family, for
instance, the proposer would contend with all the force at his
command that as he had taken adequate precautions against in-
fection, he should not be charged extra premiums and all the

190 LIFE ASSURANCE

logic and statistical data would be futile. To substantiate him-
self, he would be quite prepared to create a lien on his policy for
a time and the office can accept the offer for the extra mortality
will be confined to the first few years. A drawback of the lien
system is the relatively large liens needed to meet the small degree
of extra mortality during the earlier years: it is also liable to be
misunderstood by the large body of policyholders who are gene-
rally ignorant of the refinements of modern medical selection. As
the policyholder will not be there to attest the correctness of the
deduction when the claim is met, it may be construed as an
attempt on the part of the company to cheat the beneficiary of
his legitimate dues.

4. Numerical Basis: A system that is not current in India
chiefly due to lack of adequate statistics is to classify each risk
as a fixed percentage of the average mortality of the insuring office
and to charge an extra premium which bears the same propor-
tion to the normal rate at the age of issue. In practice each pro-
posal is allotted a basic rating of some figure around 100 usually
depending upon the height and weight. Points are, added to this
figure called debits for adverse features and points arc deducted
from this figure called credits for favourable features. The result-
ing figure represents the percentage of the normal mortality to be
charged for in the contract. Usually three to six sub-
standard classes are established after investigating the effect of
all substandard hazards on mortality and every risk is assigned
to its appropriate class within which it falls and rated up accord-
ingly. This system of numerical classification has great advan-
tages even if some other basis is adopted by the office. The
extra rating up of age, for instance, may be made on the basis
of the numerical value assigned to the particular risk. When a
joint investigation of substandard lives is undertaken a system of
classifying risks into broadly allied groups may be attempted.

Removal of Extra Premiums

A question that often arises is whether, if a person who had
an impairment, reports and provides proof that he is normal,
the extra premium may be removed. Theoretically it is not pos-
sible to do so for all the substandard lives belong to an extra
mortality group and whilst a few among them might have re-
verted to normal it is highly probable that most of the others
would have deteriorated to a point where they are no more in-
surable risks. Those uninsurable people cannot be charged extra
premiums and so the office cannot afford to remove the extra

SUBSTANDARD LIVES 191

premiums charged to safe cases too. In practice, however, many
companies are willing to remove the extra rate if a subsequent
medical examination reveals the absence of any impairment: care
is taken that the return to standard conditions and therefore to
normal rating is permanent and not temporary.

Importance of Substandard Insurance

Insurance on substandard lives has distinct advantages espe-
cially in India where the average man has a poor standard of
physical fitness. This poor standard of health, due largely to mal-
nutrition and the absence of adequate medical facilities, makes a
large number of people stay on the borderline of insurability and
it will be unfortunate if they are unable to enjoy the wholesome
benefits of modern life assurance on the grounds of health alone.
Besides, it is only fair to let the institution of insurance provide
benefits and adequate cover to all those who are willing and able
to pay for it at the rates corresponding to the rates of mortality
applicable to them, however bad or hazardous their condition
might be. The absence of adequate data on the extent of risk
in particular cases should not be a bar to the issue of this insurance,
for the matter is so important that a rate of premium, albeit
arbitrary, that commonsense suggests and safety demands should
be charged until the time when co-ordinated action can supply
the required statistics. A case for a thorough investigation into
the whole field of substandard insurance with particular emphasis
on extra mortality from various causes is nevertheless urgent.

Substandard insurance would open up a wider field of activity
to the agents. It will enable the companies to underwrite the
lives of persons who would otherwise be declined. It will offer
the advantages and benefits of insurance on reasonable terms to
the maximum number of citizens and especially to those who,
due to causes largely not of their making, show an impairment
and therefore stand most in need of protection.

RETENTION AND RE-INSURANCE

Depending upon the total amount of insurance in force and
the amount of surplus funds, every company fixes a maximum
limit of insurance on a single life. The relationship between the
total assets and the aggregate liabilities has a definite bearing on
this limit and the considerations that chiefly weigh in fixing it
are:

I. the extent of all types of insurances on the books

192 LIFE ASSURANCE

2. the scale of resources possessed by the company in com-
parison with its obligations

3. the probable effect of retention upon the amount and rate
of profit and upon the maintenance of increasing bonuses

4. the extent of fluctuations in respect of all the above factors
which it will be prudent to incur in the interests of sound
and permanent business.

A young company retains a low amount of insurance but as the
resources increase, the maximum limit increases. After fixing an
upper limit, policies for amounts in excess of this figure are issued
and the excess reinsured with other companies. In India re-
insurance is offered and accepted on a reciprocal basis; most of
the companies have an upper limit of their own for accepting re-
insurance and one of the conditions usually attaching to the
transaction is that a reinsuring company has not itself issued a
policy to the proposer. The office placing the reinsurance risk
is the ' ceding company ' or ' Principal Office ' and that to which
the reinsurance is offered is the * Guaranteeing Office.'

Two Forms

There are two types of reinsurances: the Net Risk Plan and the
Coinsurance Plan. The former is not current in India but is
common in America and the Continent. In this exceptionally
advantageous plan, only the net amount of risk during every
policy year (i.e. the face value less the terminal reserve) is reinsur-
ed at the yearly-rencwable-term rate applicable to the attained
age. As the reserve on the policy at the end of succeeding policy
years automatically increases, the net amount at risk correspond-
ingly decreases, but with each succeeding age the yearly-renewable-
term rate increases slightly, so that under the plan an automatic
reinsurance is obtained, under any given policy, of a sum at risk
decreasing annually at a rate of premium which increases annually,
the result being a premium which increases slightly in the early
policy years, subsequently decreasing until the date of maturity.
By its very nature, surrender values or additional benefits are not
covered, for these benefits are, included in the reserves but the
ceding company is covered fully on just the amount at risk (or
mortality) and all profits from investments, surrenders and other
sources remain with the principal office. The advantages of the
net risk plan to a small or medium-sized office is therefore con-
siderable.

Coinsurance is the current plan in India, although one com-
pany at least places a certain amount of reinsurance under the

RE-INSURANCE 193

net risk plan. Under the coinsurance plan a part of the sum
is reinsured with the Guaranteeing Office which, in its turn,
receives a proportionate part of the office premium less commis-
sion, and is consequently liable for a corresponding part of all
payments made by the ceding company. The contract is thus in
effect a contract of insurance on the life of the assured between
the ceding company and the guaranteeing office, which issues a
policy or coinsurance certificate. The reinsurance company
should consequently be satisfied as to the insurability of the pro-
ponent in accordance with its own standards and copies of all
relevant papers which led to the consideration of the proposal
are filed with the guaranteeing office. In general practice the
policy terms and conditions of the ceding company apply equally
to the reinsurance contract. This is not wholly satisfactory, for
if the terms and conditions of the offices differ the reinsuring com-
pany may find it difficult to accept the terms of the ceding com-
pany. There seems to be room for concerted action for the
evolution of agreed terms and conditions applicable to all tran-
sactions of reinsurance as in other countries.

The net risk plan has certain decided advantages. Under the
plan profits from investments, expenses, surrenders and lapses are
retained by the ceding company. The Guaranteeing Office does
not have to pay any bonuses at all, retaining for itself the entire
mortality profits. A certain amount of adverse selection may be
inherent in insurances for larger amounts, but this may, often, be
offset by the higher economic status of the insured.

In the event of the ceding company not receiving sufficient
reciprocal business to make up for the loss in earnings on account
of ceding a part of the business to other companies, reinsurance
under the coinsurance plan is likely to lower the total business
on its books and the total funds available fpr investments. Not
so under the net risk plan, for, as only the net amount of insur-
ance is re-insured, the funds and assets are not affected in any
way. In a small or medium sized company the loss of profits is
a major factor and the net risk plan is on this score, distinctly
advantageous.

Two Systems of Reinsurance

Both the coinsurance and the net risk plan may be on the
automatic or facultative basis. On an automatic form of the
contract a guaranteeing office binds itself to accept uncondition-
ally the ceding company's first excess either on the net risk or co-
insurance plan, for specified amounts proportionate to the amounts

194 LIFE ASSURANCE

retained by the company in accordance with its own limit of
retention. Thus A, B.C. Co. may enter into an automatic re-
insurance contract with X.Y.Z. Co. by which the latter binds itself
to accept, without question, the first amount of insurance over
the maximum limit of the former company. If the respective
limits of the companies are Rs. 10,000 and Rs. 20,000 and if the
ceding company effects an insurance for a lakh on a single life,
Rs. 10,000 is retained by the A.B.C. Co. the next Rs. 20,000 is
automatically insured with X.Y.Z. Co. and the balance of
Rs. 70,000 with other companies. The, plan has its advantages
for it enables a company to accept and issue a large policy at once,
provided the sum insured docs not exceed the total of its own
retention plus the amount of automatic reinsurance. For larger
policies, as in the instance quoted above, any sum in excess of this
total may be reinsured on the facultative basis. All statements
and reports in connection with the policy are filed subsequent to
the issue of the policy in the automatic form of the contract.
Automatic contracts between two companies arc usually subject
to termination at the desire of either company but that does not
affect any reinsurance already granted which is allowed to run
to its natural course. In any case the policyholders receive a
contract direct from the Principal Office and do not even know
that a part of the insurance has been reinsured.

The facultative system is the oldest form of reinsurance. The
ceding company first submits copies of all relative papers to the
reinsuring company and awaits the latter' s acceptance of the risk
before completing the contract. This naturally creates delay, and
may, sometimes, be disadvantageous to the ceding company. On
the other hand, under the automatic plan a reinsuring company
may find itself with more insurance and possibly less desirable-
risks accepted under its contractual obligations than it can safely
carry; in most cases it may be willing to take the additional risk
if it is able to reinsure the excess itself elsewhere.

In general practice the amount of reinsurance that might be
accepted under a single policy depends upon the limit of reten-
tion fixed by the ceding company. As the limit of retention
increases with the passage of time and the strengthening of its
resources, the amount of reinsurance ceded decreases. Small
companies with an upper limit for retention of say Rs. 5,000 may
be able to effect reinsurance for Rs. 20,000 on one policy so that
it is possible for it to accept a contract of Rs. 25,000 but a large
office with an upper limit of say Rs. 50.000 may get reinsurance
for only one lakh.

RE-INSURANCE 195

Need for a Reinsurance Company

Specialised foreign reinsurance companies underwrite not only
the bulk of the reinsurance business in their own countries but
a large volume of foreign business too. Indeed reinsurance is the
bulwark of the international insurance market and the ramifi-
fications of some of the Continental and English Reinsurance
Companies extend to the whole of the 'civilized world, the Swiss
Reinsurance Company enjoying a unique position in this respect.
The bulk of reinsurance is written on business other than life.

The absence of a reinsurance company in India is a distinct
drawback. The bulk of reinsurance on life business was placed
abroad until quite recent times but with the growth of insurance
much of the business is shared by the companies themselves. The
larger companies reinsure with others of equal standing. A part
of the considerable expenses incurred by the ceding company in
the procuration, issue and maintenance of a policy is refunded
by the guaranteeing office by way of commission.

Promotion of a Reinsurance Pool of the member companies of
the Indian Life Assurance Offices' Association was mooted some
years ago when it was proposed that the pool should determine
the maximum retention limit of each insurer and distribute the
excess among the remaining offices in proportion to the retention
limit of each individual company. Several causes led to the
abandonment of the proposal : ( i ) the absence of any guarantee
on the amount of reciprocal reinsurance for the business ceded,
(2) the possibility of financially unsound companies joining the
pool, as any restricted membership was not possible and (3) the
divergence in the rates of premium, bonus and contractual terms
and conditions among the different companies. The resolving
of these difficulties and differences required time and considerable
labour which the sponsors of the move were unable to spare at
the time due to the insurance bill then before the Houses of the
Legislature. War prevented further pursuit of the subject.

Independently of these attempts, there was considerable acti-
vity to form a reinsurance corporation primarily for general busi-
ness. The first was a move on the part of the Indian Insurance
Companies' Association to start a Reinsurance Corporation with
a large capital, but the proposal was shelved on account of the
peculiar conditions created by war and the pre-occupations of the
sponsors with the problems connected with the Government move
to amend the Insuarnce Act, 1938. The Post-war Sub-committee
of the Insurance Advisory Committee which was constituted in

196 LIFE ASSURANCE

1946 considered, in its report to the Government, that the existing
reinsurance facilities were inadequate and emphasised the need
for a reinsurance corporation. Simultaneously with the publica-
tion of this report the, New Zealand Insurance Company made
an attempt to establish a reinsurance company with a large capital
contributed by the New Zealand and the Indian companies but
the move was abortive due primarily to the, lack of adequate
response. Early in 1948 the Superintendent of Insurance formu-
lated a scheme for the creation of a Reinsurance Corporation
under Government auspices but there was opposition to this move
on the ground that the facilities for reinsurance offered in the
foreign markets were adequate to meet Indian needs and the
terms fair^ and that the annual drain on the country's foreign
exchange under the present arrangements was largely illusory.
That seems to be the last word on the subject at present.

There appears to be difference of opinion not only on the ques-
tion of the need for a properly constituted Reinsurance Corpora-
tion but also on its composition, scope and activities, when esta-
blished. Thus whilst one section would like to see a purely state-
owned, monopolistic institution absorbing all the reinsurance
offered on a compulsory basis, others hold the view that a public
joint stock company should tackle the problem, with shares sub-
scribed exclusively by insurance companies. There is also a
minority view that a public corporation with capital subscribed
equally by the Government and the insurance companies should
afford reinsurance facilities in competition with private enterprise.
This question of a reinsurance corporation registered in India is
important. The strength of the Indian insurance market and its
place in the international sphere would largely depend upon it.

CHAPTER XI
CONDITIONS, BENEFITS, PRIVILEGES

Historical Aspect

Before the business of life assurance was run on scientific lines
policies were deplorably unfavourable to the insured. The under-
writers guaranteed to pay the sum assured in consideration of the
premiums and often imposed restrictive conditions such as prohi-
bition of travel outside prescribed limits. They contested
the claims on the most whimsical grounds and strained their nerves
to detect possible flaws and shortcomings in the meagre policy
conditions. A lapse in the payment of premium annulled the
contract irrevocably and made, the assured forfeit all the premiums
paid till then, the gains from forfeited policies constituting a
constant source of profits, sufficient, in many cases, to meet the
entire expenses of a company.

Then came the recognition of equity as the guiding principle
of life assurance. With that it was no longer considered fair to
forfeit all the premiums paid on a policy that was lapsed and
a portion of those premiums was paid in cash to the assured
on his surrendering the policy or was utilised to purchase paid-up
assurance of a reduced amount. The great public indignation
of 1870 at the failure of the Albert and the European 1 probably
encouraged this reform; the need for greater public enthusiasm
liberalised the conditions further. The evolution of liberal con-
ditions in England was thus the demand of business exigency;
subsequent technical progress aided the process. Still, for many
years thereafter, liberal conditions were the exception rather than
the rule for benefits and privileges were introduced gradually. Com-
petition was and still is a potent factor, and at one stage several
offices went to the other extreme and treated policies with undue,
and occasionally unsafe, liberality.

America is an excellent example of a country where State regu-
lations liberalised policy conditions. The first Non-forfeiture Act
was passed by the Legislature of Massachusetts in 1861 requiring
companies operating in that State to grant surrender values to
lapsing policies in the form of ' extended term assurance '. This
granted temporary assurance of the full amount to a defaulting

iSec Chapter XIII.

197

198 LIFE ASSURANCE

policyholder, limited to such a period as could be purchased by
the net surrender value.

Immediately afterwards the National Mutual Life Association
of Australasia founded by Colonel Templeton C.M.G., F.I.A.,
granted a completely new and attractive benefit under which a
contract on default was kept in force by advancing loans to pay
for the premiums out of the surrender value, so long as it lasted,
with the option of redeeming the policy after paying the premiums
so adjusted together with a nominal interest. This benefit is the
fore-runner of the present-day automatic non-forfeiture benefit
granted by almost all companies in the world.

In 1879 was enacted a non-forfeiture law in the State of New
York which granted paid-up assurance of a reduced amount in
the event of lapse but an escape clause which applied the benefit
only when demanded within a period of six months after default
enabled most of the companies to virtually neutralise it. Growing
competition led to a gradual liberalisation of policy conditions.

Indian offices copied most of the policy conditions from the
British, but while the established companies kept pace with the
developments in England, not until recent times were policy con-
ditions liberalised by many offices. The evolution of liberal terms
took place in three stages: ( i ) prior to the formation of the Indian
Life Assurance Offices' Association policy conditions were mostly
severe and restrictive (2) scramble for new business and keen com-
petition in the thirties determined the benefits and privileges and
the Association strove to make them uniform and liberal (3) the
Insurance Act 1938 introduced Government rules to liberalise
policy conditions to a limited extent.

POLICY FORM.

The Policy Form differs as between offices although it follows
certain well-defined principles. Printed privileges and conditions
have added to its length but a modern policy is shorter than
many other legal contracts such as sale deeds or fire and marine
policies. The use of plain language as opposed to technical or
legal phraseology is distinctly advantageous and a man of moderate
English education and average intelligence is able to follow the
provisions comparatively easily.

The policy commences with a decoratively displayed heading
setting forth the name of the company and the location of its
head office which issues the policy and pays out the sum assured
eventually. Each policy is serially numbered either immediately
after the displayed heading or in the * schedule ' referred to later.

CONDITIONS, BENEFITS, PRIVILEGES 199

The policy proper commences with a recital of the proposal made
by the applicant and his declarations to the medical examiner.
It expressly states that the proponent has agreed that the pro-
posal form he has filled in and signed, the declarations made by
him to the doctor and the statements contained in them will
form the basis of the insurance.

Age: The declaration of age in the proposal stands on a
different footing. A false assumption of age vitiates the contract,
yet practical considerations discourage the company from demand-
ing proofs of age before acceptance. Consequently the phrase
* whereas the assured has agreed that his age on the basis of which
the premium is payable shall be a material factor in this assur-
ance ' is included, although some companies omit it on the assump-
tion that the reference to the proposal and declaration includes
admission of age too.

Premium: The clause relating to age is closely followed by
the statement that the first premium has been paid. It is gene-
rally held in law that no binding contract, and therefore no liabi-
lity for the risk, exists before the first premium has been paid
and accepted, and this has the force of custom. The company
is entitled to get the elucidation of all material facts concerning
the assurance right upto the date of the acceptance of the first
premium and failure to disclose any fact which would have a
bearing on the condition of the risk, even after the acceptance
of the proposal and declaration, would render the insurance void.
The statement 4 the first premium has been paid ' assumes that
the policy has not been executed and actually delivered until after
the receipt of the first premium. It is therefore customary not
to issue the policy until the first premium is paid, as it may not
be always possible to enforce any claim for extra payment of
premium in case an extra risk is discovered after the delivery
of the policy.

The policy then states that if subsequent premiums are paid
as provided in the schedule that follows, the company will pay
the sum assured to the person or persons entitled to it, without
interest, at the head office of the company, upon the happening
of the contingency described in the schedule. This payment, as
is expressly stated, is dependent upon the production of proofs
satisfactory to the Board of Directors about ( i ) the happening
of the contingency (2) the title of the claimant to receive pay-
ment and (3) true age, unless it has been admitted previously.
A reference to the conditions and privileges attaching to the
policy is then made. They are usually printed at the back of

200 LIFE ASSURANCE

the policy and not over the signature and seal; a clause referring
to these conditions, therefore, becomes essential.

Schedule: Policies in general may be divided into two broad
groups: the schedule and the non-schedule. All particulars are
relegated in the former to a schedule and in the latter they are
written into the body of the policy. Modern preference is for
schedule policies as they avoid repetitions and give better facilities
for display. The schedule is a printed frame with blank space
for the insertion of relevant particulars. If the life of a person
is assured by another as sometimes happens, it is usual to describe
the person taking out the policy as the 'proposer ' and the person
whose life is assured as the ' assured '.

Conditions: Policy conditions in India are not standard in
the sense that they are uniform with all companies, although
Government rules under the Insurance, Act 1938 and general
agreement among the companies have combined to give the con-
ditions sufficient liberality, extend the scope of the privileges and
achieve a large measure of uniformity. There is another aspect
too. Liberal conditions and generous privileges are obviously not
enough; equally important is the lenient interpretation of the
benefits conferred. If the benefits are treated as baits to rope
in an increasing amount of new business, the cause of insurance
suffers. On the other hand, a catholic outlook pays dividends
in the long run through increased goodwill and prestige. Accord-
ing to Mr. Vaidyanathan: 1

" Policy conditions should be further liberalised. It has to be stated
that the requirements of section 1 1 3 are the barest minimum that
insurers arc required to give and the usual defect of statutory fixa-
tions of making the minimum the norm should have no play whatso-
ever. In the case of most insurers section 113 did not confer any
new benefit on the insured which insurers were not themselves giving
on perhaps a more liberal scale even before the Insurance Act 1938
came into force ".

The privileges and conditions may be classified under three broad
heads : ( i ) Provisions relating to payment of premium ( 2 ) those
relating to the payment of the sum assured and (3) miscellaneous
privileges and benefits.

I. PAYMENT OF PREMIUMS.

Liability for the risk of death commences from the date of
receipt of the first premium and is conditional upon its continued

CONDITIONS, BENEFITS, PRIVILEGES 201

payment over a prc-detcrmined period on due dates. Any break
in payment voids the contract. Nevertheless keen business com-
petition, public demand and equity have combined to provide
many privileges and considerable latitude in the payment of the
periodical premium which fall under three main heads : ( i )
reductions (2) non-forfeiture periods and (3) special privileges
for surrender and lapse.

i . Reductions

(a) Annual and Half-yearly Premiums: A company's table
of rates quotes premiums payable annually and in advance. To
afford greater convenience to the assured it is usual to allow pay-
ments to be made in half-yearly, quarterly or even monthly instal-
ments of proportionate amounts in lieu of the annual premium.
Until recently a small percentage of the annual premium used to be
charged extra for half-yearly or quarterly payments to make up
for the loss of interest, but currently proportionate amounts of
the annual premium are accepted half-yearly or quarterly,
although, mainly due to additional clerical work, monthly instal-
ments carry, in the case of many companies, a small addition.
The procedure in such cases is to add 5 to 6}4 per cent to the
annual premium and to divide the total by 12 to get the monthly
rate. This privilege is mainly confined to Indian companies,
most of the foreign offices still retaining the additional charge
applicable to half-yearly or quarterly premiums. An inducement
to pay premiums annually is provided by a concession of 2 to
2*/i per cent (or Rs. 0-12-0 per thousand sum assured per annum)
of the scheduled rates and a corresponding i to i*4 per cent (or
As. 8 per thousand sum assured) for half-yearly instalments.
These rebates are allowed by all companies, although the actual
rates differ.

b. Deposits. The customary practice is to get a deposit of the
first instalment of premium from the proposer before medical
examination, but if the first premium is below a minimum (usually
Rs. 12 to Rs. 15 per thousand) he may be asked to combine more
than one instalment to make up the deficit. This is intended to
cover the cost of medical examination and other incidental
expenses and is returned if the risk is not acceptable at the rate
and on the conditions specified in the proposal, but if, after
acceptance, the proposer fails to take it up it is forfeited and
adjusted against the actual expenses incurred. The principle
underlying this is that the proposal is an offer to the company
to enter into a contract, but if, after acceptance of the offer, the

202 , LIFE ASSURANCE

contract is not taken delivery of, the proposer has to compensate
for the loss incurred by the acceptor due to his failure to perform
his part of the obligation.

c. Dating back. Premiums are usually charged accord-
ing to age next birthday of the applicant for insurance to com-
mence at the date of acceptance. Occasionally a proposer has
just passed his birthday on the date of commencement of the
policy and wishes to have the contract * dated back J to the day
previous to his birthday in order to enable him to get the benefit
of the lower premium applicable to the younger age. All offices
are usually willing to do this for many classes of assurances,
provided the dating back is not required for a period of over two
or three months. By doing so, the companies lose the interest
for the period which has elapsed since the date of the contract,
but as they carried no risk for that period the loss of interest
is considerably offset by the gain in mortality cover. This would
not be the case, however, in the case of single premium policies
(due to the relatively large amount of interest involved), short-
term assurances and those with little or no risk of mortality:
it will not be possible therefore for the offices to date back such
policies without charging an extra for loss of interest.

d. Larger assurances. Except in the case of single premium
policies and children's assurances it is customary for all compa-
nies to grant rebates of premium for policies of larger amounts,
somewhat as follows :

per thousand
per annum

Above Rs. 5,000 but below Rs. 10,000 . . As. 8

Above Rs. 10,000 but below Rs. 20,000 . . As. 12

Above Rs. 20,000 . . Re. i

This is a return of the loadings for expenses which, in the case
of large policies, do not increase in proportion to the sum
assured.

e. Residence. Comparative statistics of mortality prove con-
clusively that the rates in tropical climates are higher than in
the temperate. If therefore an assured goes out of India and
resides in a temperate climate such as Europe, parts of America,
Australia or Japan (with the possible exception of countries
backward in medical facilities such as China) the saving in
mortality may be considerable. Indian companies therefore offer
reductions of premiums during travel or residence in Europe,
America or Japan, north of 33 North Latitude and South of

CONDITIONS, BENEFITS, PRIVILEGES 203

the Line of Capricorn; a few companies, however, exclude the
southern temperate regions from the scope of this concession. The
concession may be as high as 10 per cent.'. The minimum
period of residence for eligibility of the concession ranges from
two to three months from the date of leaving a port in India,
Burma or Ceylon to the date of return to such ports. It does
not apply to children's policies or other types of assurances in
which the mortality clement is either little or absent; full con-
cession is applied to Joint Life Policies only if both the lives pro-
ceed out of India, and when one of them goes the rebate is
reduced to half.

It is argued occasionally that as parts of India such as the
magnificent valleys of Kashmir, fall within the temperate zones
and are even otherwise salubrious, the concession should be
extended to travel or residence in those places, but as some other
parts are definitely unhealthy there is not much point in the
demand, especially as all of them contribute to make up the average
mortality.

Thus the savings in mortality, interest or expenses
effected under certain contingencies are passed on to the assured.

2. Non-forfeiture periods.

Days of Grace. The contract of insurance is primarily con-
ditional upon the payment of all renewal premiums strictly on
the due dates; failure to do bo would invalidate the contract.
The accumulation of reserves makes it possible for a company
to show certain indulgences in the event of failure to pay the
premiums strictly on the due dates and considerations of equity
suggest that it should be so. The days of grace constitute the
first of the benefits under the indulgences shown by companies
to keep the policies in force without payment of premium. The
usual provision is to grant a calendar month (or 31 days) from
the due date within which payment would be received without
any charge or interest, the policies being kept in force meantime
irrespective of the state of health of the assured. This period
applies equally to annual, half-yearly and quarterly payments
and for all types of policies, the period for monthly premiums
being usually reduced to fifteen days.

The contract generally implies payment of premiums at the
head offices, free of all cost to the companies. No bill collector
goes round for collection but power is given to the numerous
branches, sub-offices, chief agents and - authorised representatives
to collect premiums and issue valid receipts on forms printed

204 LIFE ASSURANCE

with the signature of the chief executive. Similar arrangements
are made with many banks with branches spread over most of
the towns in which policies are issued. The days of grace, there-
fore, give an added facility to send the premiums in time even
from the most remote districts. The premium notices which are
usually issued a month before the due date together with the
days of grace thus give the assured over eight weeks' time in
which to pay the renewal premiums, but these notices may usually
be overlooked unless followed by a second notice before the month
is over as is sometimes done.

The company fully covers the risk assumed under thr policy
within the days of grace and if death takes place then, the instal-
ment of premium due is deducted from the sum payable, but
for purposes of calculating interest the days of grace are ignored
and interest calculated from the date on which the premium
fell due. Premiums are payable annually and in advance, so if
a claim materialises before a full annual premium has been paid,
any balance to complete that year's premium is deducted from
the sum payable.

Before we discuss the second non-forfeiture period, let us pass
on to a consideration of surrenders and lapses as all three are
inseparable.

3. Surrenders and Lapses.

a. Cash Surrender Values. We have seen that it is inequitable
tor a company to forfeit ail the premiums paid if an instalment
due is not met. On the date of default a part of the premium
would have been used in procuring the policy, maintaining it
and meeting death claims, but the balance would have been
reserved against future liability. It is now recognised universally
that, after about two or three years of issue, during which time
premiums had been paid in full, the policy may be surrendered
to the company against payment of a sum of money in cash, except
in cases like term assurances which carry no reserves. The natural
question is: How much cash will a company pay for such a sur-
render? Equity would suggest the largest amount of money
which can legitimately be paid without disturbing the financial
position of the other policies in force; that amount should have
some relation to the net contribution made by the surrendering
policy towards the reserves, the net contribution being arrived at
after deducting the expenses and all other contingent payments.
No penalty is imposed solely because of surrender, but at the
same time, for obvious reasons, a policy that is surrendered should

CONDITIONS, BENEFITS. PRIVILEGES 205

not get better terms than a policy which is kept in force, for, to
do so, would be to provide an incentive to everyone to surrender
the assurance before the full term. The cash surrender value-
on any given date is generally the reserve on the policy on that
date less a varying amount which decreases with duration and
is finally wiped out so that a policy nearing maturity will get
almost the whole of the reserve. The cash value of a surrender-
ing policy will depend upon the plan of assurance, age
and duration.

State regulations or usages determine the actual form in which
the guaranteed surrender values are worded in different coun-
tries. In America, for instance, most of the States have pres-
cribed by law the minimum surrender values applicable to differ-
ent classes of assurances and made the endorsement of the values,
payable in successive years compulsory. In Canada government
laws arc vastly similar. No such laws govern the companies in
Great Britain. The usual procedure there (which has been
largely copied in India) is to indicate the payment of guaranteed
surrender values by a reference to it in the terms and condi-
tions of the policy. Prior to the passing of the Insurance Act
1938 inclusion of the clause in respect of surrender values was
left to individual discretion but in 1941 an amendment to
section 113 of the Insurance Act 1938 sought to include a sche-
dule of surrender values payable at different periods in the policy
itself, which, on the representation of the companies, was later
accepted by the Government as amounting to mean:

" A policy of life insurance under which the whole of the benefits
becomes payable either on the occurrence or at a fixed interval or
fixed intervals after the occurrence of a contingency which is bound
to happen, shall acquire a guaranteed surrender value after
all premiums have been paid for at least three consecutive years
and the (minimum) guaranteed surrender value shall be equal to
. . . per cent of all premiums paid under the policy excluding that
for the first year. The surrender value for any subsisting bonus
already attached to the policy shall be added to the guaranteed
surrender value calculated as above."

This form is now included in all policies with, sometimes, a rider
to the effect that ' the cash surrender value will be paid after
an application is made during the currency of the policy in the
form prescribed for the purpose if there is no legal impediment
and the policy bond duly discharged is surrendered to the
company '.
Endorsement of cash surrender values on every policy at each

206 LIFE ASSURANCE

attained age and duration has its own advantages, for it enables
an assured to know at any time the amount of money he is entitled
to receive on any particular date and to compare the relative
merits of surrendering the policy and keeping it in force. On
the other hand, it is hardly worthwhile to incur the additional
expenses in the laborious work of preparing tables of surrender
values on policies most of which may not be surrendered at all.
Offices quote the values on any policy immediately upon demand
and there docs not seem to be any difficulty for a man desiring
to surrender the policy. Loans and other indebtedness arc
deducted before payment of the surrender value, and it is usual
to demand satisfactory evidence of age if it has not been already
admitted, before considering payment.

In America following the temporary closure of the banks and
the resulting state-imposed moratorium on payment of cash sur-
render values and policy loans in 1934 a 'delay clause' was
adopted as the standard non-forfeiture law under which the com-
panies had a right to postpone payment for a period of six
months. 'That is the current law today and is peculiar to
America.

A large number of applications for surrender are from people
whose financial need outweighs considerations of protection
against death, but their interests would be served better if the
company suggests alternative methods of tiding over an accidental
need for ready cash such as temporary loans on the security of
the policy. A surrendered policy ends any further insurance
cover, unless the assured is prepared to take out a fresh policy
in which case he may probably have to pay a much higher rate
of premiums -in case he is an eligible risk then so, it is hardly
worthwhile to surrender a policy if the financial strain is only
temporary.

b. Lapses. Changes in the financial condition of the assured
may be either temporary or permanent. If the financial impair-
ment is permanent, he need not necessarily surrender the policy
for cash, but can keep the insurance in force by availing himself
of anyone of two options viz., ' extended term assurance ' or
' reduced paid-up policy J .

i. Extended Teim Assurance. Extended term assurance or
' continued insurance ' as it is sometimes called, provides Tor the
continuation of the policy on the basis of temporary term assur-
ance for the same amount as under the original policy and for
such a period as could be purchased by the net cash surrender
value. This option is not granted by all companies for very

CONDITIONS, BENEFITS, PRIVILEGES 207

good reasons. If a policy is encumbered by loans or other indeb-
tedness the granting of this option becomes complicated. A loan
may be viewed as an advance payment of part of the face value
of the policy. In the event of death, any outstanding loan and
interest is deducted from the sum assured even when the policy
is in force on a regular premium paying basis. It is therefore
unreasonable to expect the insurance to be anything but for the
reduced amount if premiums have been stopped. If that were
not so, a man with only a few days to live, may be tempted to
take out a substantial part of the surrender value as a loan,
keep the insurance in force under the 4 extended term ' plan with
the balance of the surrender value and leave the full amount of
insurance to his beneficiaries.

Let us take a concrete example. Suppose a man had a 2O-year
endowment assurance for Rs. 30,000 on which he has paid ten
annual premiums. His policy would have acquired a surrender
value of about Rs. 11,000 and he may be allowed a loan of
Rs. 10,000 at the time. If he is struck by some mortal disease
such as cancer and is given only a few weeks to live, he may
be tempted to take out a loan for Rs. 10,000, keep the policy in
force for the full amount of Rs. 30,000 on the extended term
plan by utilising the balance of the surrender value and bequeath
the insurance to his heirs. That would mean that on his death
a sum of Rs. 30,000 would have been payable in addition to
the Rs. 10,000 already paid to him unless there is some sort of
restriction. That restriction is applied by reducing the amount
of loan from the face value of the policy and by applying the
surrender value less the amount of the loan to calculate the period
for which the ' net surrender value * would purchase the reduced
assurance. The combined effect of deducting the loan from both
the sum assured and the surrender value will be to considerably
shorten the term in which insurance will be kept in force. Bene-
fits by adopting this course are therefore negligible unless the
policy is for a very large amount and the loan relatively small.

By deducting the loan from the face value of the policy ,and
the surrender value equity may be had but not the goodwill of
the insured, if, as so often happens, he is ill-informed. To circum-
vent this companies usually demand repayment of the loan with
interest together with any unpaid premium before granting the
option. This is hardly satisfactory in practice, for a man who
is already involved in financial difficulties may hardly find cash
to meet the dues. But there is little else that can be done. .

The privilege is worded thus: "After at least three annual

208 LIFE ASSURANCE

premiums have been paid, the life assured is entitled to a paid-up
term policy, without profits, in lieu of the surrender of the policy,
if in force and otherwise unencumbered, whereby the full sum
assured will be payable should death occur within the term
extended which will be stated on application ".

Despite these limitations the option is valuable in those cases
where the cash value is more than sufficient to pay for a term
assurance of the full sum for the balance of the period originally
contracted for. This option gives only simple insurance protec-
tion and no amount is payable when the full surrender value has
been used up. No man will get satisfaction from knowing that
the premiums he has already paid would get him temporary
protection for a few years or months a very intangible quantity
and nothing else, unless he has an incurable disease with a few
weeks to live. This option has therefore only a limited scope
for application, except in the case of many endowment assurances.

If the surrender value exceeds the amount required to pay for
a term assurance of the full sum terminating at the original
maturity date of an endowment assurance, the balance is utilised
to purchase a ' pure endowment ' payable to the assured on his
surviving the original date of maturity. This may be best illus-
trated by the following table for a 2O-year endowment which
shows for definite ages : ( i ) the amount of annual premiums
payable throughout the term (2) cash surrender value (3) the
period of extended term assurance and (4) pure endowment pay-
able at maturity after the policy has been in force for 5, 10 and
15 years:

TABLE No. 46.

After S years After 10 years After 15 vears

Age Pre- Q a3n Period Pure Cash Period Pure Cash Period Pure
mmm Value extend- Endow- Value extend- Endow- Value extend- Endow-
ed ment ed ment ed ment

Ra.

Rs.

y. m

Rs.

Rs.

y. m

Rs.

Rs.

y.

m.

Rs.

20

53-8

155

15

88

378

10

462

660

5

768

25

54-3

155

15 -

72

379

10

455

660

5

__

765

30

55-4

157

15

39

382

10

440

66!

5

760

35 56-15 158 13 9 383 10 405 660 5 749
40 60-10 160 10 10 384 10 348 658 S 732
45 65-15 160 8 2 383 10 252 653 5 702

In a 2O-year endowment assurance, therefore, the surrender value,
after five years pays for an extended term assurance for the
full period of the policy and for a pure endowment upto

CONDITIONS, BENEFITS, PRIVILEGES 209

the age of 33; after ten years it will not only meet an extended
term assurance for the full period remaining but will also pay
for a pure endowment. In all cases and types of policies the
benefits depend upon the surrender value.

2. Reduced Paid-up Assurance. The second option is to
grant on default an assurance of the same type and for the same
period but for a proportionately reduced amount. Section 1 1 3
of the Insurance Act 1938 makes it obligatory for the companies
to allot a guaranteed minimum surrender value to all policies
on which three years' premiums have been paid and,

Notwithstanding any contract to the contrary, a policy which has
acquired a surrender value shall not lapse by reason of the non-
payment of further premiums but shall be kept alive to the extent
of the paid-up sum insured, and the paid-up sum insured shall for
the pui poses of this sub-section include in full all subsisting rever-
sionary bonuses that have already attached to the policy, and shall
where the policy is one on which the maximum number of annual
premiums payable is fixed and the premiums are of uniform amount,
be before the inclusion of such bonuses not less than the amount
bearing to the total sum insured by the policy exclusive of bonuses
the same proportion as the total period for which premiums have
already been paid bears to the maximum period for which premiums
were originally payable.

These sub-sections shall not apply:

(a) where the paid-up sum insured by a policy, being a policy issued
by an insurer, is less than one hundred rupees inclusive of any
attached bonus, or takes the form of an annuity of less than
twenty-five rupees, or where the paid-up sum insured by a policy,
being a policy issued by a provident society as defined in
Part III, is less than fifty rupees inclusive of any attached bonus
or takes the form of an annuity of less than twenty-five rupees, or

(b) where the parties after the default has occurred in the payment
of the premium agree in writing to some other arrangement, or

(c) to policies in which the surrender value is automatically applied
under the terms of the contract to maintaining the policy in
force after its lapse through non-payment of premium.

Policies with a definite number of premiums such as limited
payment whole life, endowment, double endowment, etc., 'are
granted reduced paid-up assurances of proportionate amounts;
whole life and other assurances on which the number of premiums
is not fixed get the benefit on a different basis.

This is by far the best of the non-forfeiture provisions, espe-
cially if altered finances make it impossible for a man to continue
payment of periodical premiums. A few companies grant this
(and other non-forfeiture options) after two years a commend-

14

210 LIFE ASSURANCE

able practice if the basis of the reserve allows it. Prior to 1939
the minimum paid-up value of the assurance to make the option
operative was variously fixed by different companies, sometimes
as high as Rs. 300. By fixing it at Rs. 100, the Insurance Act
1938 made its application uniform and its scope wide.

So far as can be ascertained, with the exception of one company
life offices in India do not allow reduced paid-up policies to parti-
cipate in future bonuses. Conversion of a policy to a paid-up one
implies, it is held, the discontinuation of all benefits, privileges and
options allowed on the original policy, including the right to parti-
cipate in future profits especially as premiums arc not paid which
alone contain loadings for bonuses. Another view is that as they
also contribute towards profits from mortality and interest, they are
entitled to a proportionate bonus. -Competition may, in the
future, extend the benefit of bonus to paid-up policies too,
naturally of smaller amounts.

c. Automatic Non-forfeiture period. This is the second non-
forfeiture period referred to earlier. So far we have been consi-
dering the case of an assured who is unable to pay premiums
throughout the full term of the policy. Finances may not be
altered so dismally and often a setback is only temporary enabling
the insured to restart payment of premium at a later date. In
order to assist him, life offices automatically apply the sur-
render value towards the payment of premiums and keep the
policy in full force as long as the valur lasts. These advances
are treated as loans and are made in cases where the surrender
value less current indebtedness is sufficient to pay at least one
full month's premium. This creates a lien on the policy in favour
of the company and if death or maturity occur during the time,
immediately following the days of grace, during which time a
policy is thus kept in force, all advances are deducted with com-
pound interest. The policy can be freed of the lien any time
during the non-forfeiture period usually without the production
of any evidence of continued good health by paying all arrears
of premium with interest. Before the whole of the surrender
value is used up a series of attempts are made to induce the
defaulting policyholder to resume payment of the premium.

The provision is immensely beneficial, especially when non-
payment is due to inadvertence or temporary financial difficulty
and the assured has no intention of discontinuing the insurance
altogether, for it enables the assured to free his policy of all
encumbrances without the production of fresh proofs of continued
insurability, and unlike the other non-forfeiture benefits such as

CONDITIONS, BENEFITS, PRIVILEGES 211

the option to convert the policy into a reduced paid-up one or
extend it as a term assurance, does not reduce any of the other
benefits like bonuses, disability or double indemnity.

Yet it has distinct disadvantages and limitations. Where pre-
mium payments arc not resumed after a reasonable period due
to causes usually beyond the power of the assured, every instal-
ment of premium paid by means of an advance from the surren-
der value, together with interest, will reduce the amount
of money available for such advance and will continue to reduce
it, until finally it disappears altogether, if, in the meantime,
premium payments have not been resumed. The precise moment
at which this happens and the policy lapses will depend upon
the amount of the surrender value available at the time of the
first non-payment of premium and this, in its turn, is controlled
by age, duration and plan of insurance. It is obvious that the
period during which the policy is kept in force is less than under
the extended term plan, for the smaller amount of premium
payable on the ' term basis ' extends the period for which the
surrender value will last. For a time after the date of the first
non-payment of premium the proportionate paid-up assurance,
under that option of non-forfeiture, may be less than the amount
payable under the automatic non-forfeiture plan, but with time,
as the amount of the loan advanced increases, the sum payable
will decrease gradually, level up with the reduced paid-up assur-
ance, then continue to fall below it and eventually disappear
altogether. Where premium payments are not resumed, there-
fore, the plan operates against the interests of the assured.

In the case of endowment assurances, the surrender value may
be sufficient in some instances to keep the policy in force for
the full term and in addition provide a pure endowment payable
on the original date of maturity. That would depend upon the
plan, age and duration.

This option of non-forfeiture has a psychological drawback.
When the. provision is automatically applied, the incentive to
prompt payment of the overdue premiums is lost for it eliminates
the need to keep the policy in force through payment on the
part of the. assured. When once a payment of premium has been
discontinued there is a natural tendency to repeat the process,
so that, in theory at least, there is bound to be an increase in
the lapse ratio. A point of importance to the assured is: the
company cannot advance the premium indefinitely; at one stage
the surrender value may be completely eliminated and if and

212 LIFE ASSURANCE

when that happens there is no more liability on the contract.

To sum up, four options are available on default of premium
payment on a due date: (i) surrender of the policy for cash (2)
application of the surrender value to purchase a reduced paid-up
assurance (3) application of the surrender value to extend the
insurance on a term basis and (4) application of the surrender
value to keep the policy in force for the full sum for as long
as it will last. Discarding the first option as it is perfectly
straightforward the comparative advantages of the other options

Contingency

Extended term
assurance

Reduced paid-up
assurance

Automatic
non forfeiting

Loans outstanding

Considerably reduce
the extended period
and the amount
payable

Create a lien on the
reduced amount to
the extent of the
loan and interest, or,
altei natively a still
reduced paid-up
policy free from loans
and interest

Reduce the period of
non-forfeiture

Death

Full sum payable
during extended
period nothing
payable if it is after-
wards

Reduced sum payable
during original term
of the policy

Full sum during non-
forfeiture period :
nothing payable if it
is afterwards

Surv.val to date of
maturity [endow-
ment assurance]

Pure endowment
payable if surrender
value not fully used
up

Reduced hum only
payable

Pure endowment
payable it surrender
value not fully us^ed
up

Benefits like Bonu-
ses, disability, etc.

No benefits payable

No benefits payable

Full benefits payable
during non -forfeiture
period

Application. The option of the extended term assurance is
suitable in those cases where the net surrender value will be
equal to or more than what is needed to extend the insurance
to the original term. In the case of endowment assurance, as a
healthy man in the prime of life may use up the whole of the
surrender value within the original term, any indiscriminate use
of this option is bad unless the full implications are realised by
the assured. If no sum is received on the policy, as is bound to
happen in certain contingencies, the option should be used with
discretion, for the public judges a company not by what is right
or wrong, but in the light of what the assured gets out of it;
even the remote possibility of forfeiture of the premiums paid will
have serious repercussions.

CONDITIONS, BENEFITS, PRIVILEGES 213

No such considerations need weigh with the companies in
granting a proportionate reduced paid-up assurance. Even an
illiterate man will understand and appreciate the option, and
consider it fair and decent. When the inability to keep the policy
in force is permanent the benefit should be granted immediately
in order to give the fullest value for the premiums paid.

Where the insured is temporarily afflicted financially or
neglects to pay the premiums due to inadvertence, temporary
absence, illness or some other equally accidental cause, the non-
forfeiture clause which keeps the policy in full force temporarily
is eminently suitable. In point of fact this is the most popular
and advantageous non-forfeiture clause, suitable in a majority
of cases, but within limitations.

Discarding the extended term assurance which has its limited
application, the other two options, viz., the reduced paid-up
assurance and the automatic non-forfeiture clause are worded
thus:

A. It secures automatically to the policyholder and his dependents in
the event of cessation of payment of the premiums under his policy
a Paid-Up assurance bearing the same ratio to the original sum
assured as the total number of premiums actually paid bears to
the total number stipulated in the policy, subject to thq provision
that premiums have been paid under this policy for not less than
two years and that such proportionate paid-up assurance amounts
to not less than Rs. 100. In the case of policies entitled to parti-
cipation in the profits of the company all bonuses declared and
still attaching to the policy at the date of cessation of payment of
premiums remain attached to the reduced proportionate paid-up
policy but the policy is not entitled to participate in the profits
declared thereafter.

B. Should payment of the premiums be discontinued under the policy
after it has acquired a surrender value, the company will automa-
tically advance the premiums as they fall due and maintain the
policy in force so long as there is sufficient net surrender value
(after deduction of any indebtedness to the company with accrued
interest) to cover these advances together with interest thereon
at 6 per cent. Such advance together with interest may be
repaid either in whole or in part at any time while the rjolicy
is so kept in force. In the event of the policy becoming a claim
during this period the claim will be entertained subject to deduc-
tion from the policy moneys of the amount so advanced together
with interest thereon. If the surrender value is exhausted by reason
of such advance and no repayment of the advance with interest
is made before then, the policy will lapse and all liability of the
company will terminate.

The clauses explain themselves. It is a good rule to make the

214 LIFE ASSURANCE

assured elect one of the options at the time of the proposal, but
too often he refuses to do so, or having made it, forgets it later.
When an office keeps a policy in force automatically for as long
as it is possible to do so, it lapses after a time; to obviate this
defect the non-forfeiture clause is sometimes framed in such a
way as to give the assured only a reasonably long period to rectify
any accidental omission or overcome any temporary financial
stringency which resulted in the non-payment. With this res-
tricted object in view the non-forfeiture clause is re-wprded thus:

" After the policy has been in force for three years if any premium
due is not received in time, the policy does not lapse but will be
kept in force automatically for a period of six months from the due
date of the unpaid premium and if the premium along with interest
at 6 per cent is not paid within this period the policy will automa-
tically stand declared paid-up in accordance with the regulations
pertaining to paid-up policies as described hereafter. In the event
of death during the period of six months full claim will be payable
but the overdue premiums along with interest at 6 per cent and the
balance of the premium for the current year of the policy, if any,
will be deducted.

Indiscriminate use of non-forfeiture provisions can spell danger
unless the system applied to a particular policy is simple, easily
understood and is of such a nature as to eliminate even the
remote suggestion of loss to the policyholdcr. With a little
encouragement and personal contact anyone may be made to
realise the implications of each option. What may be suitable,
and even advantageous, in one case may haw a limited applica-
tion in another and individual needs determine individual course
of action. In the absence of any definite direction from the
policyholder, a wise course may perhaps be to apply the modified
non-forfeiture clause automatically whereby premiums arc
advanced for an initial period of six months, and to pay the
surrender value on application or use it to purchase a propor-
tionate paid-up assurance; such a course, accompanied by facili-
ties to restore the policy to its full value perfectly easily at the
convenience of the assured, may evoke less criticism.

Present state regulations give freedom of action to the insurer
to apply whatever method of non-forfeiture is suitable; in the
absence of any other system the contract will stand automatically
converted to a proportionately paid-up policy. In law the policy-
holder has no right to receive premium notices and this fact
is brought home to him every time he receives a notice (which
happens whenever premiums are due) but an insurer is obliged
to intimate the options available within three months of the first

CONDITIONS, BENEFITS, PRIVILEGES 215

default; impersonal notices of premium arc rarely as good, or as
effective, as personal contacts.

Revival of lapsed policies. /

The insured can usually revive a lapsed policy within
the original term irrespective of the time lapsed; a few companies
however limit the right to a reasonable time after lapse. Proof
of continued insurability is essential for, in its absence, those who
are no longer insurable would, in most cases, take advantage of
the right to reinstate while many of those in good health may
not do so. Even as it is restoration is accompanied by a certain
amount of selection against the company. No evidence of good
health would normally be demanded if an application for revival
is made within three months of lapse, a personal declaration of
continued good health may be accepted in good faith within six
months but a fresh medical examination at the expense of the
assured is necessary later.

Reinstatement is conditional upon all arrears of premium being
paid with compound interest. The right of reinstatement does
not exist on principle where the cash surrender value has been
exhausted either in buying a reduced paid-up assurance or in
extending the period of non-forfeiture, as full consideration would
have been given; frequently requests for revival in the face of
the need to pay all arrears of overdue premiums with interest
would be for reasons adverse to the interests of the company. In
practice, companies take a very liberal view of their right in
this matter and refuse to revive a policy only for very good reasons,
as for example, want of insurability.

If the premium is not paid within the days of grace, the policy, unless
protected by the Automatic Non-forfeiture Benefits described herein-
after, shall lapse to the company. It may, however, be revived at the
discretion of the Directors for the full sum assured at any time before
the expiry of its term provided the life assured is alive at the time
of revival and subject to the following conditions:

1. Payment must be made of all outstanding premiums, with com-
pound interest thereon with half-yearly rests at the rate of 6
per cent per annum or such other rate as the Directors may
determine from time to time subject to a minimum sum of
annas eight,

2. Production of proof of continued insurability of the life assured
to the satisfaction of the directors at his own expense.

The Directors will be prepared to consider the question of revival
without evidence of health if the period of lapse docs not exceed
three months, and thereafter on a personal declaration on the form
prescribed by the company, but in case the period of lapse exceeds

216 LIFE ASSURANCE

six months, in addition thereto, a medical examination report on the
form prescribed by the company by an approved doctor of the company.

Revival in the early period

Many companies have of late introduced a method of reinstating
a lapsed policy which has no surrender value, whereby a new
policy is issued advancing the date by the period during which the
policy stands lapsed. Full credit is given for all premiums paid on
the original policy, the new contract being subject to new rates
of premium corresponding to the age on the date of revival.

Subject to the proof of insurability being furnished at the cost of the
assured to the satisfaction of the directors, a new policy will be issued
in lieu of the original policy under the same plan, for the same
amount and for the same term of assurance as the original policy,
but antedated for exactly the same term of assurance as the original
policy was in force and having, therefore, the same unexpired term at
the date of revival as the policy had at the date of lapse. The premium
on the new policy will be the same as would be payable at the age
nearest birthday of the assured at the date of commencement of the
new policy. The assured will have to pay the difference of premium
under the new policy and the original one with interest at six per cent
compounded half-yearly with a minimum of Re. i/- and the premium
on the new policy on the date of revival. The old policy will have
to be surrendered for cancellation. This concession will be allowed
only once on an original policy and will be allowed in case of policies
which have stood lapsed for a period exceeding six months but not
exceeding two years and if the policy has been in force for less than
three years. It will not be applicable to cases where a new policy
cannot be issued at the age nearest birthday on the date of commence-
ment of the new policy.

One company has a slightly modified process. After one full
year's premium has been paid this office keeps the policy in force for
twelve more months on payment of a small monthly ' interim pre-
mium ' ; at the end of this period the assured is given the option
of ( i ) paying the outstanding premium for the year plus interest
or (2) having the policy postdated as explained above. The rates
of monthly interim premium quoted by this company range from
As. 14 at age 20 to Rs. 5-7 at the age of 60.

II. PAYMENT OF THE SUM ASSURED

When an assured dies or a policy matures, the amount of insur-
ance is paid at the head office, with or without interest, on the
production of satisfactory proofs relating to:
(a) the happening of the contingency,

CONDITIONS, BENEFITS, PRIVILEGES 217

(b) the title of -the claimant to receive the sum,

(c) the true age, if it has not already been admitted.

The office sends out an intimation when a policy matures. Claims
by death have to be preferred with the following proofs:

(a) certificate of the doctor who attended the deceased during his
last illness,

(b) certificate of identity from a responsible person of the locality
not interested in the assurance or related to the deceased,

(c) certified extract from the police, municipal or district board
death register,

(d) certificate of cremation or burial.

HvTe we may digress on an unusual feature in India. Many
deaths are not reported immediately, claims in consequence being
preferred several years later. This may he thr result of ignorance
in cases where the policies remained paid-up for a number of
years; sometimes it springs out of the fear that the relatives may
demand a share of the proceeds; often the policyholder himself
would haw kept it a secret. Rarely can an office keep track of
an assured, when payments of premium have ceased, especially if
he also changes residence.

A valid assignment or nomination, effected when the policy-
holder is living, notified when the policy is in force and endorsed
on the policy will establish title easily ; otherwise* a claimant may
have to produce :

In Presidency Towns: Probate of the Will from the High Court, if
a will has been left, or Letteis of Administration from the High
Court if no will has been left or where the total amount of the
estate left by the deceased does not exceed Rs. 2,000 a certificate
of title from the Administrator-General,

In Districts: Succession Certificate whether 01 not a will has been
left from the Court of the District Judge having jurisdiction where
the deceased resided or an Administrator-General's certificate as
mentioned above;

Outside India: Whenever a Succession Certificate or Letters of Ad-
ministration or a Probate of a Will is granted by a Court situated
outside India, such a Certificate of Ttitle is required to be attested
by any accredited representative of the Government of India* re-
siding in such a foreign country and having authority to attest
such certificates of title; or

Such other proofs that the directors may demand.

This question of title is often complicated and sometimes difficult,
especially when the claimant is poor and illiterate. Part of a
company's services may well extend to help in securing valid
documents of title.

218 LIFE ASSURANCE

Payment into court

Before the Insurance Art 1938 came into force no legal pro-
vision existed for the disposal of the proceeds if a conflicting claim
arose or if the title was not satisfactorily proved. The position is
better now. Under section 47 of the Act life offices can, and
often do, deposit the sum in Court if a satisfactory discharge is
not possible ; this has to be made after six months and before
nine months from the date of maturity or receipt of claim. The
1950 amendment dispenses with the nine month limitation so
that offices can now deposit the sum any time after six months.
A further provision made in 1950 is that disputes of policies for
less than Rs. 2,000 exclusive of bonuses may, at the option of
the assured, be referred to ttie Controller for disposal, whose
verdict will be final and enforceable by a Court, 1

Proof of Age

Satisfactory proof of age may be:

(a) certified extract from Municipal Register of Births and Deaths, or

(b) original horoscope rnadr at the. time of birth, or

(c) certificate of baptism giving date of birth, or

(d) certified extract from family record, or

(e) certified extract from school or college records or university
certificates or extracts from service books in each case contain-
ing the age or date of birth;

i ailing any of these,,

(f) a sworn affidavit by an elderly person in the family who knows
the assured right from the biith or who has knowledge as to the
probable date of birth or the headman, patel or some responsible
official of the village where the assured resides or some respectable
gentleman who knows the assured and his family for a long time
and has knowledge of the probable age of the assured, the affi-
davit being on the company's printed form.

Even this long list of acceptable documents may prove inade-
quate in some cases and a company may have to fix an arbitrary
age which, in its opinion and on the strength of the documents
in its possession, is considered correct.

As described earlier no proof is demanded before a policy is
issued, and so a number of falsifications arc detected every year.
Somr ages are underquoted, possibly to get the benefit of a lower
premium and probably through inadvertence ; if detected during
the currency of a policy the office either ( i ) charges the difference
(with interest) between the actual premiums for the true age

1 See amendment to section 47, relating to claims by maturity and new
section 47 A, Insurance (Amendment) Act 1950.

CONDITIONS, BENEFITS, PRIVILEGES 219

and those already paid,, or (2) adjusts the sum assured propor-
tionately:

If the true age is higher than the age stated, the sum assured and
the bonus addition thereto, if any, having been calculated on the
age stated shall stand reduced to the amount as would have been
secured for the true age by the premiums actually paid unless the
assured during the currency of the policy pays to the company
the accumulated difference between the premium for the true
age and the original premium from the date of commencement
of the policy to the date of making such payment with interest
thereon at six per cent per annum compounded half-yearly and
also pays the future premiums as for the true age.

Rarely is an older age quoted, but if that happens the excess
premiums paid may be refunded or adjusted towards future pre-
miums.

If the true age is lower than the age stated the assured will be
entitled to get back the difference between the amount of premium
paid "and the amount of premium payable on the basis of the true
age without interest.

In still rarer cases policies may have been issued to those who
were, on the date of acceptance, beyond the age at which insurance
is acceptable: that may bv a clear case of fraud and if so the office
reserves the right to void the policy and forfeit the premiums
paid :

Minors and persons above the age of fifty nearest birthday are not
eligible for assurance. The company, however, issues endowment
policies on first class male lives upto the age of 55 (or 60) nearest
birthday. If it is found later on that the actual age at the time
of insurance is above the maximum age or below the minimum
age for which an insurance can be accepted, the policy will become
null and void and the company shall cancel the policy and the
premiums paid thereon shall be forfeited.

or, if the office is averse to taking that extreme step, an uninten-
tional error may be rectified thus:

If the true age is higher than the age for which insurance under
the plan and j or term could be granted under the policy the policy
will stand converted to such plan or term for which assurance
could be granted under the rules of the company prevalent at
the time of the issue of this policy by the company.

Optional Modes of Settlement

On a private investigation an American company once reported
that over 85 per cent of the beneficiaries lost their policy moneys
within five years of settlement. That shows the imperative need
for making a suitable arrangement to invest the sums in some

220 LIFE ASSURANCE

suitable manner. Part of the services of life offices cover meeting
the needs of policyholders in this matter, and a claim may be
settled in various ways.

i. Fully Paid-up Policy. On the date of maturity of an en-
dowment policy the sum assured may be utilised to purchase a
single premium limited payment whole-life insurance. Such a
plan will usually bring a higher paid-up assurance than is ordi-
narily obtainable at regular tabular rates. Thus, to take the pub-
lished tables of a prominent company, every unit of Rs. 1,000
(including bonuses) of an endowment assurance maturing at
age 45, may be converted into a fresh, fully paid-up assurance of
Rs. 1,494, payable at the death of the assured. Compare this
with a non-participating, whole-life assurance of Rs. 1,335 only
at the -tabular rates at that age for a single premium of Rs. 1,000.
The amount of the paid-up policy that is issued in lieu of the
payment due on a maturing endowment varies as between c om-
panies, but generally the terms arc more favourable to the assured.
This is conditional upon the age attained upon maturity falling
within the insurable age of the assured ; some offices demand a
fresh medical examination while others do not, if the option is
availed of within two years of maturity. The following table
gives typical values for paid-up whole life assurance granted for
every thousand rupees due at different ages :

Table No. 47.

. , . , . Paid-up life assurance

A<*e next birthday , , in j

& - values for each Rs. i ,000 due.

Rs.

30 i,93 8

35 1,766

40 1,618

45

55 1-315

ii. Payment of interest. An office may arrange to retain the
sum assured and pay interest annually or as required at a fixed
rate during the lifetime of the assured, or make the interest
payable to a beneficiary or to his estate for a definite number
of years or till the death of the, beneficiary, with or without the
right to withdraw the whole or part of the principal during that
time. Some of the uses to which this highly beneficial option
may be put are ( i ) the insured desires that his estate or his
beneficiary should have an emergency fund but otherwise should

CONDITIONS, BENEFITS, PRIVILEGES 221

be free to utilise the interest (2) the prineipal should remain in-
taet for a definite use in the future (3) the principal should be
passed on to someone else upon the "death of the original bene-
fieiary who should, when living, make use of the interest. A
typieal case is that of a man who desires his wife to enjoy the
interest on the sum assured after his death so long as she lives,
the sum itself to be passed on to his children on the death of
his wife. This may be combined with a power for her to draw
part of the sum to meet an emergency or a contingency such
as the marriage of a daughter. Numerous childless widows
depend upon their fathers or brothers for maintenance and when
the latter die, are left to the mercies of other relations. An option
of this kind may be made to give a widow annual pensions equal
to the value of the interest as long as she lives, the principal
being retained in the family.

Hi. Annuity Settlements, a. The sum assured may be paid
by monthly, quarterly, half-yearly or annual instalments over a
pre-determined period, in which case the amount of the instal-
ment would depend upon the size of the original sum and the
number of years selected; ii desired, the amount of the instal-
ments may be fixed and the period adjusted accordingly.

b. Annuities may also be arranged for a definite number of
years certain and then continued during the life time of the
beneficiary if still living at the end of the term. In that case
the amount of the instalment will depend not only upon the
number of years selected but also on the age of the beneficiary
at the time of the commencement of the annuities.

iv. Combinations, Settlements may be made by a variety of
combinations of the above methods. One such would be for the
beneficiary to receive the interest for a time and a definite number
of annuities thereafter.

Any of the options made by an assured at any time during
the currency of a policy may be incorporated in it by endorsing
an ' irrevocable clause ' preventing the beneficiary from assigning,
anticipating or commuting any part or the whole of the income
unless such was specifically authorised by the assured during his
lifetime. The absence of such a clause may give freedom to the
beneficiary to claim immediate payment of the sum, thus defeat-
ing the original intentions of conserving the principal and of
preventing its dissipation through speculative investment or extra-
vagance ; consequently an irrevocable clause may become
imperative.

Individual needs determine individual settlements and a com-

222 LIFE ASSURANCE

pany's services should inelude competent advice on the
best methods of meeting those needs. Above all, the assured
should have the right to settle his assurance to suit his family
needs and to change the form, if needed, in the light of subse-
quent developments in his family. All the methods of settlement
are intended to aid those who are normally unaccustomed to
handling the investment of funds ; the options are therefore emi-
nently suitable in cases where the insurance is payable to the
wife, children or wife and children but not where the beneficiary
is a company or partnership firm ; in the latter case a single
sum payment may be the only way of settlement.

Most of the banks and trusteeship companies accept the pro-
ceeds of life assurance policies as executors under a deceased
person's will and administer them ; in such cases they are made
the beneficiaries. Where large sums are involved the method is
really advantageous, especially if the bank or trusteeship company
is able to offer services suitable to the requirements of the indivi-
dual, although the services offered by some of the companies
through one or the other of the optional modes of settlement
meet all normal requirements.

III. MISCELLANEOUS PRIVILEGES AND BENEFITS

Indisp utab ility.

The reader will recall that the principle of uberrima fides
(superabounding faith) as opposed to the principle of caveat
emptor (let the purchaser beware) applies to all contracts of
insurance. A policy is based on the statements in the proposal
form and the declarations made before the medical examiner
and the application of the principle of good faith makes it essen-
tial for the proponent to make a clear, true and complete dis-
closure of all material facts within his knowledge which have a
bearing on the risk assumed by the company. Misrepresentations,
non-disclosures or mistakes in the enumeration of any or all the
facts which would influence an office in assessing the actual cost
of assurance or in deciding the insurability of the individual,
should consequently render a contract void. The only exception
should be, ordinarily, omission to disclose a material fact which
is beyond the knowledge of the assured, as for example, a case
of illness as yet in an undetected stage.

To make this principle valid and to automatically discharge
an insurer from his obligations under the contract in case of
misrepresentations, non-disclosures or fraud, the proposal form and

CONDITIONS, BENEFITS, PRIVILEGES 223

that portion of the medical report which contains his statements
are usually given the force of ' warranties * by inserting a declara-
tion in the two documents reading :

the above answers and statements are true and that I have not
withheld or concealed any material information and I do hereby
agree that this declaration together with the proposal should be

the basis of the contract between me and the

Insurance Company and that if it shall hereafter appear that
any material information has been withheld, then the said con-
tract shall be void and all moneys which shall have been paid
on account of the assurance shall be forfeited.

The statements and the declarations should become a part ol the
policy to render the warranty effective either by complete recital
or by a reference to those documents. The documents are usually
accessible to the assured and certified copies an* supplied on
demand with or without the payment of a small fee ; a few
companies are willing to attach photostatic copies.

This is the usual practice, but it need not be so. The modern
tendency of many foreign offices is to consider the statements
and declarations not as warranties but as k representations ' in
which case the statements need be true merely substantially instead
of literally ; the contract in that case can be invalidated only if
the false statements are material to the risk and provide definite
inducements to issue the contract. A representation is not a part
of the contract but a statement made in a separate document
by one party to the contract to the other in order to induce
the latter to make it. In the case of warranties the statements
and declarations are incorporated as part of the policy either
by reference or by recital. Failing such incorporation in the
policy the statements and declarations will be representations only.

This principle of invalidating a policy on the ground that a
statement was false or a fact was suppressed would react against
the interests of a policyholder if some sort of restriction is not
imposed on the insurer.- For given absolute freedom of invalida-
tion, an insurer can deliberately induce a policyholder to make
a statement that may not be literally true and then forfeit all
the premiums paid at a later date. So, State regulations have
legalised what, in many countries, is a sound insurance practice.
Section 45 of the Insurance Act 1938 took away the right of an
insurer to call a policy in question after a period of two years
from the date of its issue on the ground that any statement
made in the proposal form or other documents leading to the
acceptance of the contract was false or inaccurate. The only

224 LIFE ASSURANCE

exception is when* an insurer could prove (i) a statement made
thus was on a material matter (2) such a false statement was
made fraudulently (3) the policyholder knew at the time of
making such a statement that it was false and was material to
the policy (4) if it was something suppressed, then it was material
to disclose it (5) the fact was suppressed with fraudulent inten-
tion and (6) the policyholder knew that it was material to disclose
the fact. A contract of insurance is, in consequence, indisputable
for all practical purposes, after two years.

This docs not affect a misrepresentation of age. If the age
were also indisputable (as happened in the short interval between
the enforcement of the Insurance Act 1938 and a subsequent
amendment in 1941) it would greatly inconvenience all the parties,
for in most cases a policy would have to be deferred until such
time as the true age was admitted, which is an obviously imprac-
tical proposition.

In many States of America the indisputability clause makes
no mention of fraud in obtaining a policy, a contract being indis-
putable after two years, except for non-payment of premium. It
would appear at first sight that such an exception is unnecessary
since any legal contract is voided ab initio if obtained by fraud;
nevertheless the weight of judicial opinion points to the conclusion
that, in the absence of such a clause, a policy obtained by fraud
may be enforced against a company provided the period of con-
testability was over. To cite an instance, a man with cancer
may, by suppressing it, obtain a policy fraudulently and die shortly
after. If the beneficiaries wait for two years before making a
claim the company may have to meet it in the absence of definite
provisions excluding fraud. The American indisputability clause
is therefore more stringent and the utmost care is exercised in
the scrutiny of the papers before a policy is issued.

Moral Hazard

In its bearing on a contract of life assurance any action which
lies within the power of the assured taken to bring about a total
loss or to increase the risk of loss is a moral hazard. Moral
hazards are either excluded from the scope of the contract or
restrictions are imposed either by definite provisions for extra
premiums in the event of the assured exposing himself to the
extra risk or otherwise. To those who are uninitiated to the
technical or legal implications of the provisions, the inclusion of
restrictive conditions on moral hazard might seem inconsistent
with indisputability. Arguments have not infrequently been ad-

CONDITIONS, BENEFITS, PRIVILEGES 225

vanced, for instance, questioning the validity of restrictions on
residence or occupation after the policy was in force for two
years. Actually the indisputability clause refers to any dispute
over misrepresentations or suppression of facts present at the time
of acceptance but where a policy was issued excluding certain
risks and if the assured exposed himself to those risks subsequently,
such an exposure to a risk not covered by the policy may very
well be contested. Two points may arise in considering the moral
hazard : ( i ) an insurance may operate as a direct motivating
factor to bring about loss or increase the risk (2) the insurance
is not a direct motive to increase the moral hazard.

i. Direct motive. If the existence of the insurance acts as a
direct motive or inducement for the moral hazard, no insurance
company can afford to underwrite the risk for no amount of pre-
mium can be adequate and no satisfactory basis for insurance
can be worked out. This risk is however negligible in life assur-
ance for the only manner in which an assured can bring about
a loss or an increase in the hazard is by committing murder or
suicide. It is against the principle of public policy for a person
to claim any material benefit arising directly out of a crime ; if
therefore an assured voluntarily takes his life while of sound
mind or dies at the gallows his beneficiary will not be able to
recover the sum assured, for both are crimes against society.
Likewise it is against the principle of justice to allow a man to
collect the amount of assurance if he insures the life of another
and subsequently murders him, although legal history is
interspersed with cases of callous husbands pushing over unsus-
pecting wives over precipices or drowning them in bath tubs in
order to collect insurance. When death occurs from felo de se
(his own felonious act) or by the hands of justice, or out of wilful
murder the policy is automatically voided irrespective of any res-
training clause. If the company elects to pay a claim in the
circumstances, as it can very well do on compassionate grounds
it does so voluntarily and not under legal obligation : where a
third party is put to pecuniary loss, as for instance, when the
policy has been assigned for a consideration received, the inteYest
of the third party is safeguarded. The position is different in
the case of suicides while of unsound mind, for then the person
is not accountable for his actions and the rule of public policy
does not arise ; a company is liable in that case unless there is
a restrictive clause. The coroner's verdict, though not conclusive
evidence, is usually accepted to determine liability.

The legal position being what it is, equity suggests that the

15

226 LIFE ASSURANCE

possibility of future suicide is one of the hazards of life and
should be included in any scheme of insurance for its entire
exclusion may well rob life insurance of much of its value. Deaths
from suicide are included in the mortality tables and there is
therefore no valid reason to exclude them altogether from liability.
The common practice is to combine both the principle of equity
and public policy by inserting a restrictive clause in the policies:

in the event of the death of the life assured by his own hands
whether sane or insane, or at the hands of justice,. within thirteen
months (or twelve months) from the date of commencement of
the risk on a policy or from the date of issue of the first premium
receipt whichever is later, or from the date of revival of the in-
surance, if any, the policy shall be voided and all payments made
to the company shall be forfeited, but the interests of a bona fide
assignee for valuable consideration will be protected to the extent
of his pecuniary interest (not exceeding the sum assured) provided
notice of the assignment has been given to the company at least
one month prior to the date of suicide or the date of the
offence for which the life assured meets with death at the hands
of justice, as the case may be.

2. Absence of direct motive. The second kind of moral
hazard is where the assured exposes himself to an increased risk
by changing his occupation into a more hazardous pursuit or pro-
ceeding to an unhealthy locality. These acts, perfectly legitimate
and sensible in a man's life, are usually prompted by considerations
of prolonging life rather than ending it and the existence of
insurance is not even a remotely contributing factor. The extra
risk is capable of being satisfactorily assessed in most cases of
increased hazard and when it is present or contemplated at the
time of making the proposal the risk is covered by an increased
premium. Even after a policy has been taken a man is apt to
expose himself to considerable risk in the pursuit of his livelihood
and not infrequently without the knowledge of the company.
If the condition is temporary and the assured goes back to a
healthy occupation or a salubrious climate without impairment
it may be difficult to enforce an extra premium after the event.
Restrictive conditions may be imposed to void a policy in such
an event but such restrictions may not be capable of being en-
forced in practice. On the other hand, if a man elects to incur
an extra risk and dies from causes which are directly attributable
to it the, policy may be voided : it is, however, difficult, if not
altogether impossible, to determine satisfactorily whether death
occurred exclusively from the extra risk except in perfectly obvious
cases. If an assured engages himself as an electrician and dies

CONDITIONS, BENEFITS, PRIVILEGES 227

as a result of contacting a live, wire the position is perfectly
obvious, but if he contracts pneumonia while out on a testing
job it will be almost impossible to establish the cause of death
as being directly due to the risk of occupation.

Companies do not have uniform rules in respect of an extra
risk incurred after a policy has been issued. Many offices restrict
any change to a more risky job and demand an immediate inti-
mation in writing if such a changr is effected with subsequent
liability to pay extra premiums ; failure to do so may lead to
cancellation of the contract, the company's liability being limited
to payment of the surrender value acquired on the date of the
change. If he subsequently reverts to a non-hazardous job with-
out impairment of health the extra premium is usually removed.

That used to be the practice. The modern tendency is to issue,
policies free from any restrictions on occupation, residence or
travel ; and where the life assured has no prospect or intention
of engaging in a hazardous occupation at the time of taking up
insurance, most offices will now grant a world-wide policy free
from any restrictions as to occupation, travel or residence. The
one general restrictive clause is the exclusion of the risk of war
or aviation. The evolution of the atom and hydrogen bombs has
made it absolutely impossible for companies to assess the extent
of destruction that may be wrought by a future war with resason-
able, accuracy. Methods of destruction develop so rapidly that
the experience of one war is hardly likely to indicate the possible
consequences of the next; at the same time, international political
events take such rapid turns that the possibility of a major war
occurring during the currency of a contract cannot be ruled out
entirely. If war risks are. covered there may be a catastrophic
drain on an office's resources in the event of a future major war,
but life assurance will lose much of its value if adequate cover
cannot be granted to every event of death from whatever cause
it might occur. The usual procedure is this: ordinarily war risk
is excluded but if the assured proceeds to, or finds himself in, a
danger zone of war-like operations that extra risk would be cover-
ed by the payment of an additional premium. If such an extra
premium is not paid the company reserves the right to ( r ) deduct
a proper amount of extra charge before the claim is paid or
(2) pay cash surrender value alone if death or maturity occur
soon after taking up the occupation. The extra premium is re-
moved on return to normal conditions. This applies to civilian
lives only as members of the defence services stand on a different
footing. War or war-like operations may be an unavoidable con-

228 LIFE ASSURANCE

tingency in their lives and the risk, in times of peace, is sometimes
covered by an extra occupational premium of (usually) Rs. 3 per
thousand per annum which is generally removed upon retirement;
if this is not done war risk is excluded from their policies, the
sum payable on death due to causes directly or indirectly connect-
ed with war being limited to the surrender value. In the latter
case companies aiv usually willing to cover the war risk also, for
the time the assured proceeds on active military service, at an
additional rate of premium considered suitable at the time. Non-
rornbatant personnel arc treated on a par with civilians but arc
required to pay an extra premium when they proceed to theatres
of war.

Aviation risk is treated in much the same manner i.e. either
excluded or accepted at a suitable extra premium except that full
cover is provided for travel as a fare-paying passenger in a licensed
passenger aircraft on a regularly scheduled air route or service.
Advanced technique in the design and construction of planes and
improved facilities and devices for taking-off, flight and landing
have undoubtedly reduced the risk of aviation considerably and
will reduce it further in the course of time; this may result in a
gradual reduction of the extra premium.

Loans

The usual privilege of granting a loan is not a ' condition ' of
the contract in the sense that it is impossible to issue a policy
without this clause: nevertheless that is never done for the simple
reason that the payment of regular level premiums creates an
asset which has an assessable monetary value immediately after
a policy has acquired a surrender value and if the company is not
prepared to lend on the security of that asset, the policyholder has
the, right to surrender the policy for cash or get a loan outside.
The granting of a loan is therefore a happy compromise.

The rate of interest chargeable is left to the discretion of the
offices; the most common rate is six per cent, sometimes more,
sometimes less, but never less than five. Once a rate is fixed it is
very unusual to alter it during the currency of a policy, irrespective
of its term or the size of the loan; some offices however vary the
rate from time to time and according to the amount of the loan,
although, even they, seldom alter it once a loan is granted and
before it is repaid.

The granting of a loan is greatly advantageous to the policy-
holder, less so to the company. He can, for instance, repay it in
small instalments at his pleasure but the company has no right

CONDITIONS, BENEFITS, PRIVILEGES 229

to enforce repayment so long as interest is paid regularly or there
is sufficient surrender value; consequently many of the loans arc
repaid only at the termination of the contract. This is grossly
unjust to the company and to the large body of policyholders who
do not borrow, for if the rak- of interest on private borrowings
is lower it tends to reduce the number of applications for loans
but if outside rate is higher than what is charged by the company
loan applications will increase. Unfortunately there is no way
out of it. There is also an unhappy aspect. The demand for
a loan is usually the first sign of the crumbling finances of the
insured and a total lapse may not be far off. It would therefore
be better if policy loans were discouraged or granted in exceptional
cases of temporary financial difficulty. 90 per cent of the sur-
render value is usually lent, but a few foreign companies offer to
grant loans of an equal amount. The loan clause reads thus:

The company, it there is no legal impediment, will grant loans on
the security of the policy within ninety per cent of the cash surrender
value less any amount which may otherwise he due to the company,
but not less than Rs. 50. No loan shall be granted on this policy
if this is lost Interest is payable in advance on 3Oth June and
3Oth December every yeai at 6 pel cent per annum or at such other
rate as the directors may determine from time to time. The interest
for the period between the date of loan and the date on which the
interest is payable will be deducted from the loan advanced. If
interest is not paid within 30 days of its falling due, compound interest
will be charged. In the event of non-payment of two consecutive
instalments of interest the company shall have the right to surrender
the policy and the assured will be entitled to difference, if any, be-
tween the cash surrender value and the amount due to the company.
The loan can be paid back by instalments. No instalment is to be
less than one-tenth of the original loan. The amount of the loan
and the interest thereon, if any, due at the time of maturity or
surrender will be deducted from the amount payable as claim or cash
surrender value under the policy.

Nominations and assignments

A policyholdcr can, at any time, nominate one. or more persons
to receive the policy moneys on death or maturity. A nomination
will not be effective against a company unless it is registered and
endorsed on the policy. A special clause may be inserted to make
a nomination irrevocable and unless this is done the policyholder
loses none of the rights, privileges, options and benefits under the
policy, including the right to alter the beneficiary: the latter is
entitled to receive policy moneys only. In the absence of an irre-
vocable nomination, the death of a beneficiary will render all the

230 LIFE ASSURANCE

rights under the policy revert to the assured.

An assignment is a transfer and being a personal property a life
assurance, policy is assignable and frequently assigned with or with-
out consideration. Assignments may be endorsed on a policy or
made out as a separate document; in either case no assignment
will be binding upon the company unless the endorsement or the
separate deed or a certified copy of it is registered at the head
office of the company, the, date of such registration determining
the priority of the claims under the assignment. An assignment
may be voluntary, conditional or absolute. Voluntary assignments
are made without valuable consideration and are effective provided
they are made in good faith and not for any evasion of law.
Conditional assignment is the usual form of commercial security
generally used for securing debts. The original rights under
conditional assignments revert to the assured in the event of a
future contingency; evidence that the secured debt has been dis-
charged will suffice to cancel a conditional assignment. An
absolute assignment is equivalent to a sale of the policy. It is
usual to include a clause, in the policy to the effect that the com-
pany assumes no responsibility as to the validity of the assignment.
This is hardly necessary for the office is bound to take, cognizance
of a notice of assignment but is in no way bound to examine the
deed or to give an opinion as to its legal effect until the time of
payment. If, at that time, there is a reasonable doubt as to title,
the proceeds of assurance may be paid into court.

Married Women's Property Act, 1874

Section 6 of this Act provides that a policy effected by a man
on his own life and expressed to be for the benefit of his wife
and/or children or any of them shall create a trust in favour of
the objects named in the policy and shall not be subject to his
debts. Under this Act the proceeds of the policy are payable not
to the beneficiaries direct but to the official trustee of the Province
or to his executors, administrators and assignees. This does not
apply to nominations effected under Section 39 of the Insurance
Act 1938.

Income Tax Abatement

It has long since been recognised that it is in the best interests
of the nation as a whole to encourage taxpayers to insure their
lives. Section 15 of the Indian Income Tax Act 1922 provides
that an exemption from income tax will be allowed to a person
who has insured his own life or that of his wife or who has effect-

CONDITIONS, BENEFITS, PRIVILEGES 231

cd a deferred annuity contract on his own life or that of his wife
in respect of the annual premiums paid by him to the extent of

(a) one-sixth of the total income or Rs. 6,000 whichever is
less, and

(b) one-sixth of the total income or Rs. 12,000 whichever is
less in the case of a Hindu undivided family

subject to the limitation that if the premiums paid in a year on
a policy except a deferred annuity exceed 10 per cent of the capital
sum assured the rebate will be calculated as though the premiums
were exactly Rs. 100 for each Rs. 1,000 of the sum assured.

Since the exemption is a rebate of tax no sum can be obtained
in excess of the amount of tax actually paid by the claimant. '

Such then are the general terms on which a contract of life
assurance is issued. Much of its attraction is derived from the
privileges given and the indulgences shown. The policy is a
human contract, founded to meet human needs, based on mutual
co-operation and regulated by human laws. Every benefit that
is granted adds to the utility of the contract. To a large class of
people who insure the benefits are real; restrictions and limitations
prevent their application to the good of one individual at the
expense of a group, and the law penalises an insurer who tries
to deprive a man of his legitimate rights. This human contract
is thus a happy blending of legal rights, moral rights and rights
of equity, based fundamentally on good faith, astonishingly human
and largely beneficial to the society as a whole.

DISABILITY BENEFITS

Historical Note

The revolutionary system of travel and transport heralded by
the introduction of the railway locomotive in the early days of
the nineteenth century brought in its wake an increasing number
of fatal accidents. In 1830, for example, on the opening of the
Liverpool and Manchester line, Mr. William Huskisson, Leader
of the House of Commons, seeing the Duke of Wellington on the
opposite track, stepped in front of the oncoming engine to greet
him. Poor Huskisson, as a member of the ruling classes, had been
used to having things stop when he wanted to cross the road, but
he did not live to learn the lesson that Stephenson's new wonder
was not so tractable. Attention was naturally focussed on the
need for ' cover ' against the risk of accidents and the Fatal
Accidents Act of 1846 was passed to give the representatives of
a person who had been killed as a result of an accident (which

232 LIFE ASSURANCE

expression included an unlooked-for mishap or an untoward event
not expected or designed) the right to recover damages from those
negligently contributing towards the causes of death. Almost
immediately thereafter the first companies were registered to pro-
vide insurance protet tion against accidental deaths, and when an
Act of Parliament in 1889 niade it compulsory to notify cases of
smallpox and other infectious diseases to a Medical Officer of
Health, the Accident Insurance Policies were extended to cover
the risk of infection by certain diseases. The protection was
gradually extended to include all sicknesses and ' Accident, Sick-
ness and Disease Policies ' grew into one of the most popular classes
of insurance business.

American Developments

While these developments were taking place in England some
of the life offices in Europe and Fraternal Societies in America
wrote a new clause into their life assurance contracts providing
for indemnity against total and permanent disability in the shape
of waiving the assured's liability to pay future, premiums. In 1896
the Fidelity Mutual Life Assurance Company of Philadelphia
introduced the provision for waiver of premium, or, in the alter-
native, settlement by annuity in the event of total and permanent
disability: by 1910 American companies generally adopted the
clause in some form or other.

Gradually privileges under the disability clause were extended
to immediate payment of the sum assured in equal instalments
for a term of years with provision to pay the balance if death
occurred before all the instalments were paid. A little used alter-
native to the waiver of premium was a provision for immediate
settlement in the shape of equal instalments over a period of years,
unaffected by the death of the assured.

A further stage in the development of disability benefit was
reached with the introduction of an annual income payable till
death or maturity coupled with the waiver of premium, not as
an alternative to the sum assured but in addition to and supple-
menting the amount of assurance which was still payable at death
or maturity. The instalment usually commenced at the end of
the policy year in which the disability occurred and amounted to
at first 10 per cent of the face value and later to a standard
monthly payment of $10 for every $1,000 of life assurance.

Standaid Provisions

Simultaneously in 1921 many companies adopted a standard

CONDITIONS, BENEFITS, PRIVILEGES 233

clause by which a total disability was presumed permanent during
the period of its continuation if it continued for a period of three
months. This go-day clause led to serious complications especially
as it co-existed with an unsatisfactory basis for the extra premium
calculations. Losses were heavy and continuous. Investigations
into the combined experience of various companies and the deter-
mination of an equitable basis for premium rates followed, result-
ing in the adoption of standard provisions for total and permanent
disability benefit, which, with some modifications, came to be
accepted as the general conditions and benefits for this type of
contract. Briefly they are:

Benefits are applicable for total and permanent disablement. Total
disability is presumed permanent if it continued for six months after
occurrence, total disability being defined as that caused by bodily
injury or disease which prevents performance of any work, following
any occupation or engaging in any business for remuneration or
profit. Disability should begin before default of premium or in the
event of default not later than the last day of grace. Exceptions:
intentionally self-inflicted injury, military or naval service in times
of war, bodily injury or disease occurring before the insurance was
effected and known to the insured but not disclosed. Age limit:
55 and prior to maturity of the policy. Due notice of disability must
be icceivrd by the company during the life time of the assured and
the continuance of the disability, befoie the expiration of one year
after default and not later than one year from the anniversary of
the policy nearest to 55th birthday or maturity. The company may
demand proof of continued disablement but not oftencr than once
a year after two full years.

The types of benefit granted are ( i ) waiver of premium,
(2) waiver of premium combined with payment of the sum assur-
ed by a series of annual instalments, the first falling due six months
after occurrence, (3) waiver of premium and the immediate pay-
ment of the sum assured either in a lump sum or by a series of
instalments equivalent in value, (4) waiver of premium together
with the payment of a monthly income for life (or until maturity)
in addition to the sum assured.

In Britain

Meantime British companies with perhaps a solitary exception
did not include any disability benefits until the wide popularity
of American and Colonial experience induced many of them to
introduce the scheme with but partial success. Apparently due
to the highly popular ' Accident, Sickness and Disease ' policies
of the Accident Insurance Companies, contracts involving dis-
ability benefits did not prove more propular than the others. The

234 LIFE ASSURANCE

most popular form of the benefit was waiver of premiums coupled
with payment of an annual sum (generally 10 per cent of the sum
assured) for life, the sum assured itself being payable when a claim
arose. But, whereas the simple waiver of premium variety could
be operated at a very small cost the moral and financial hazards
involved in the additional benefits of annual payments supple-
mentary to the sum assured were large, necessitating prohibitive
rates of extra premiums. When therefore a few American com-
panies operating the clause reported unfavourable experience and
substantial and increasing losses (due probably to inadequate
premiums) the additional benefits were generally dispensed with,
companies retaining only the simple waiver of premium clause.

In India

The benefit is a recent innovation in India, largely modelled
on British lines, with the reservation that benefits have at no time
been extended beyond the waiver of premium. The insertion of a
disability clause is general but the actual benefits granted vary. The
most commoon of the conditions are -(a) scope and limitation. It
is customary to limit the benefit to disability occurring as a direct
result of an accident: no benefit is allowed unless it is total, is
proved permanent and such that neither then nor at any time
thereafter the assured can ever sufficiently engage himself in any
occupation or profession to earn or obtain wages, compensation
or profit. Accidental injuries which, independently of all other
causes and within ninety days of the occurrence, result in the
irrevocable loss of the entire sight of both eyes, in the amputation
of both hands above the wrist, or both feet above ankles, or one
hand and one foot are admissible as total disabilities. Total dis-
ability is presumed permanent if it is continued for ninety days.

(b) age. Benefits are confined to accidental disability occurring
before the age of sixty and during the currency of the policy.

(c) claim. Notice of disability should be furnished immediately;
proofs of continued disability upon the company's printed forms
should reach the office within 120 days after the occurrence. An
authorised medical representative or an agent of the company has
the right to examine the person of the assured to determine the
validity of the claim or to determine whether the disability is total
and permanent, The right for judicial action in connection with
the claim is limited to one year after the occurrence and before
two years, (d) benefits. It is customary to limit the benefits to
waiver of premiums alone and confined to the first Rs. 15,000 of
insurance (this amount varies with companies) either under one

CONDITIONS, BENEFITS, PRIVILEGES 235

policy or in combination. 1 Joint life assurances get full exemption
in case, of total and permanent disability to both lives, but only
waiver of half the premium if the disability is confined to one of
them.

In view of the small or practically negligible loss involved in
the limited benefits allowed no extra premiums are generally
charged: accidental disability as a direct result of a hazardous
occupation, unless intimation of a change in occupational risk
was communicated and extra premiums paid, is excluded from
the purview of the benefits. Total and permanent disability has
not been satisfactorily defined, except that a total disability should
be proved permanent to the satisfaction of the company. It is
difficult to assess the effect of this benefit on insurance as a whole
in the absence of published statistics.

Currently a few companies arc extending the benefit of waiver
of premium to include total and permanent disability as a result
of diseases also. Some of the offices that do so charge an extra
premium of 5% over tabular rates but others do not. All of them
limit the waiver of premium benefit to the first Rs. 5,000 of
assurance. Immediate settlement of the sum assured by equal
annual instalments spread over a definite number of years, although
rare, is followed by a few companies: additional benefits are not
granted.

Future of Disability Benefit

Such are the benefits of disability granted in India. Much re-
mains to be developed. The simple waiver of premium benefit is
good but not enough and the, scope of disability may be extended
to causes other than accidents. While the absence of extra pre-
miums, justifiable when the benefit is limited to waiver of pre-
miums and the disablement to accidental causes, may be a bar to
extending the benefits, there is no reason why those in need of
them should not pay additional premiums for extra benefits.

A survey of the causes which led to total and permanent dis-
ablement conducted by the Actuarial Society of America (1929)
on the experience of 29 American and Canadian companies re-

1 This is important in view of the fact that, as it is an indemnity against
the loss of income, benefits should not exceed the loss of earning capacity.
An indemnity is a contract for making good a loss and in general no
greater amount is payable than the amount of the loss, irrespective of the
amount of the policy. Life assurance stands on a different footing: not
only is it impossible to put a limit to the financial value of a man's life
but since a claim can arise only by death or maturity, there is no tempt-
ation for the insured to put in a claim under a policy unless one of these
two things happened. Not so under a permanent disability clause.

236 LIFE ASSURANCE

vealed that out of every 100 cases to which benefits were paid
34 were from tuberculosis, 1 1 from insanity, 7 from tumour or
cancer, 3 from non-mental diseases of the nervous system, 2 from
heart diseases, 34 from miscellaneous causes and only four from
accidents. And in America the accident rate, especially from
automobiles, leading to death or permanent disablement, is higher
than in any other country. There is no reason to suppose that
the ratio of accidental disability to total disablement in India
will be higher than in America, which only goes to prove that the
benefits from total and permanent disability should be extended
to disablement from other causes.

Yet extension of benefits is not an easy matter. Firstly the total
absence of personal accident and sickness insurance and therefore
of comparable data to base premiums is a real handicap. Second-
ly health and living conditions differ considerably in different parts
of the country and locale, as much as the lack of organised medical
and hospital facilities, increases the risk of total and permanent
disability much more than the rate of death. To cite only a
specific instance parts of the otherwise healthy Travaneore are the
home of that dreaded disease filariasis, which, though not mortal,
invariably causes permanent disability within the definition of the
term. Thirdly extension of disability benefits will be attended by
a certain amount of inadmissible claims some of them fraudulent,
others apparently genuine but nevertheless inadmissible so that
there might be a tendency towards litigation (so much dreaded
by companies) if payment of huge sums. in dishonest claims is not
countenanced. Fourthly economic distress makes it impossible for
a man to maintain a desirable standard of health and malnutrition
adds to the incidents of disablement. Fifthly expenses of super-
vision in determining the continuity of disablement, so essential
for successfully operating the scheme, may be much more than
what the company could bear on any economic basis of premium,
at least in the initial stages. Nevertheless the need is urgent to
extend the benefits to all cases of accidents, sicknesses and diseases.

If any attempt is made, to extend the benefits, some of the points
that deserve consideration may be:

(a) Selection of risks. The eligibility of the assured for dis-
ability benefits is directly dependent upon the degree of import-
ance attached to the different elements of medical selection. Per-
sonal and family history, age, habits, sex, economic and social
status, physique, occupation, residence, etc. have different signifi-
cance in selection for disability. A worker on a mechanised farm
for instance may be a very good risk at standard rates for life

CONDITIONS, BENEFITS, PRIVILEGES 237

assurance but may be refused disability benefits.

(b) Premium. In the absence of proper statistics, premiums
may have to be on an arbitrary basis and would necessarily be on
the safe side.

(c) Contract. In the initial stages a stricter definition of dis-
ability may have to be followed; a satisfactory limit to the amount
of insurance on which alone the benefit will apply may have to
be fixed; an initial waiting period of six months for the commence-
ment of instalment payments may have to be a precautionary
measure.

(d) Review of claims. The successful operation of disability
benefits will depend as much upon careful selection and admis-
sion of claims as upon the care with which claims are periodically
reviewed to determine the continuance of disability. Human
nature being what it is claims will be promptly notified, while re-
coveries may go unintimated.

(e) Benefits. The most ideal benefit may be a monthly income
payment during the remaining term of the contract together with
waiver of premiums supplementing the sum assured. If a satis-
lactory basis of premium rates cannot be evolved for that benefit,
the Canadian practice of ' decreasing ' income benefits may be
tried: it provides a disability income of $10 monthly per $1,000
of assurance for 50 months, followed by $5 monthly for 100 months
after which income payments cease and the sum assured is paid.
This scheme has successfully checkrd the American experience
viz., the rate of claim increases if the benefit is increased, and
recovery rate is reduced if it is to the assured'* financial advantage
to remain disabled.

Female Lives

Disability benefits to women arc very greatly limited. They do
have a much higher rate of disability; the age at which their
earning power ceases is lower while few women have real earned
income. Dependent married women are very rarely, if at all,
accepted for the benefits, while to independent unmarried women
benefits are limited to waiver of premiums. The question may
not arise in India for a considerable time.

DOUBLE INDEMNITY

For some years now Indian companies have been willing to pay
double the sum assured in case of death as a result of an accident.
The main considerations in the provision are:

(a) Scope and limitation. An accidental death may not leave
much room for doubt in the public mind, yet unfavourable legal

238 LIFE ASSURANCE

decisions in other countries have prompted the companies to define
the conditions of double indemnity payment in unmistakable terms.
Suicide is excluded for instance but a death from drowning may
not always be unintentional. An automobile accident may per-
haps be a clear case of suicide, yet a coroner may return a verdict
of accidental death. A case was reported some years ago where
a claim for double indemnity was paid on the death of a gentle-
man who fell down a precipice, on the strength of the coroner's
verdict, but two years later, his private letters established suicide.
Generally speaking the provision of double indemnity excludes
deaths resulting directly or indirectly from certain specific causes
such as:

(a) Suicide and attempted suicide

(b) Aviation and ballooning either as a passenger or as crew

(c) Riots, civil commotion, rebellion, insurrection

(d) War

(e) Breech of the Law

(f) Disease or bodily infirmity.

Participation in aeronautics as a fare-paying passenger on a regu-
lar airline route is sometimes included. A few companies exclude
other causes such as poisoning, injuries which show a visible con-
tusion or wound on the exterior of the body with the exception
of drowning or asphyxiation and injuries inflicted by a third party.
Among the limitations imposed on the payment of double indem-
nity mention may be made of the age over which no claim is
entertained; with most companies it is sixty, although 55 is also
common. A general condition is that death should take place
within three months of the occurrence and should be intimated
within fourteen days (sometimes seven days).

(b) Premiums. In the absence of reliable statistics on the
experience of companies premiums are arbitrary and range from
Re. 1-8 per thousand per annum to Rs. 3. A few offices offer
thrice the amount of insurance for the same extra rate of premium
for deaths from travel in a train, tram, omnibus or lift; with them
the extra premium is Rs. 3 per thousand per annum for all double
indemnity benefits as against the customary rate of Rs. 1-8, so that
there is relatively little extra risk.

(c) Female lives are usually excluded from the benefits.

It is customary for the companies to reinsure the excess sum to
be paid on accidental death with companies transacting personal
accident business so that the question of reserves do not arises:
where companies assume future liability themselves a lump sum
calculated from past experience is reserved.

CHAPTER XII
LEGAL ASPECTS: ORGANISATION

A life assurance policy meets the requisites of a legally enforce-
able agreement, and so is a legal contract. Yet the application
of the general rules of law to the particular rules of a contract
of life assurance raises many interesting and technical questions.

Requisites

In the absence of a specific legal definition, the definition of
a legal contract is applicable before the law to a life assurance
contract, viz., ' k an agreement made by the free consent of the
parties competent to contract, for a lawful consideration and with
a lawful object, and which is not hereby expressly declared void ".
Paraphrased, a valid contract of life assurance must be ( i ) an
agreement between parties based upon an offer and an accept-
ance, (2) with the free consent of the parties, (3) contracted by
parties legally competent to do so, (4) for a legal purpose, (5)
in accord with public policy, (6) in a legal form and (7) sup-
ported by a lawful consideration. In attempting to apply these
general rules of law to the particular rules of life insurance a
few broad principles arise which may now be considered.

i. Legal Capacity

The insurer and the insured constitute the two parties to the
contract. The competence of an insurer is determined by Part
II, Section 2C of the Insurance Act (as amended in 1950)
which specifics that a public company or a co-operative insurance
society (including those incorporated outside India) can alone
validly transact insurance business ; an individual, a private
limited company or a partnership firm cannot. Failure to com-
ply with any of the provisions of the Insurance Act may not
nullify a contract made by an insurer, which would remain bind-
ing between the company and the insured, the former rendering
itself liable to the statutory penalties for non-compliance. A
minor 1 , a lunatic, a convict and a drunkard (when under the

1 Under the Indian Law, a contract entered into by a minor is absolute-
ly void; there is thus no question of ratification after he or she comes of
age. In India a person attains majority when 18 years of age arc
completed.

239

240 LIFE ASSURANCE

influence of drink) are some of those who are legally debarred
from entering into valid contracts ; married women have restricted
powers. A contract with an alien friend is valid ; with an alien
enemy void ; with an alien friend who subsequently becomes an
alien enemy revivable (if it is possible to do so) when the former
status is regained.

ii. Insurable Interest

The law voids a wagering contract. That a contract of life
assurance gives a large financial gain upon the early death of an
individual does not make it a wagering contract (although death
itself is left to chance) so long as there is an insurable interest.
The question what constitutes an insurable interest is often intri-
guing and sometimes the subject of litigation. For instance, to
the extent that " a man can protect his estate from the loss of his
future gains or savings which might be the result of his premature
death " l he has an insurable interest in his own life almost to an
inestimable amount ; but if ho insures his life and makes an
assignment as a subterfuge to evade the rule of law requiring
on insurable interest, the contract becomes immediately void. A
doubt would frequently arise when the assignee is an unrelated
third party and the assignment without valuable consideration ;
an explanation would usually clear the doubt. Still a proposal
on the life of a person applying for insurance would raise the
question of insurable interest but raivly ; a policy on the life of
a third party very often. If a person, who proposes insurance
on another, reasonably expects to benefit financially by the con-
tinuance of the life of the latter or to lose financially upon the
latter's death, an insurable interest is created. Thus a husband
has an insurable interest on his wife, and the wife on her husband ;
a creditor on the lifr of his debtor (but not a debtor on that
of the creditor) ; a surety on the principal ; a commercial firm
on its keymen (but not on all employees) ; partners among them-
selves ; trustees on the, legal rights and interests of the trust pro-
perties and so on to a never-ending limit. But this question of
insurable interest has a few interesting phases. For instance, a
sister has an insurable interest on the life of her brother if he
supports her, but not otherwise ; a wife on the life of her husband
even if he does not. In the former case the absence of the legal
right of support is immaterial in the presence, of the moral right ;
in the latter the legal right supersedes the actual condition. In

1 Bunyon.

LEGAL ASPECTS 241

other classes of insurance the insurable interest should exist con-
tinuously from the beginning to the end of the contract ; in life
assurance merely at the time it is effected, largely because of
its long-term nature.

iii. Legal relationship

Before the law the insurer is a debtor (and not a trustee)
and the insured a creditor. Thus the former is not obliged to
render any accounting of the premiums received, nor may the
latter question any item of expenditure, investment or method of
operation, even when a vital question such as the equity of bonus
allocation worries a participating policyholder, for the law gives
no right to the insured to question a company's policy except to
the limited protection given by some, of the provisions of the
Insurance Act, such as the election of Policyholdcrs' Directors
and the right of collective petition to the Controller. So long
as the terms and conditions of the contract are carried out the
law gives absolute discretion to the insurer in all matters of
conduct and policy, subject only to State regulations.

An insurer may be sued on the contract and is frequently
faced with litigation. The ordinary rules of construction as are
applied to all written instruments apply equally to life assurance
policies. Words and phrases used in the contract and the docu-
ments leading to the contract will be construed in their ordinary
and popular sense, unless, through usage and custom, they have
acquired a recognised technical sense. Where ambiguity exists,
that interpretation is to be preferred which favours the policy-
holder and operates against the party which prepared the con-
tract, in this case, the company. In a Court of Law it is usual
to place such a construction as will enable poliryholders to feel
secure upon the ordinary common usages of language ; never-
theless, every endeavour will be made to protect the companies
against wilful fraud, for which the peculiar financial transac-
tions involved in life insurance offers excellent temptations. A
company usually prefers to avoid litigation because of bad publi-
city, unless strong grounds exist to resist payment in the larger
interests of the large body of honest policyholders.

iv. Nature of the contract

A distinguishing feature of the fire and other classes of insurance
is that they are contracts for indemnity. Not so a contract of
life assurance. A contract of indemnity makes good a loss and
is subject to the principle of ' subrogation ' whereby the insurer

16

242 LIFE ASSURANCE

has the right of recovery against a third party causing the loss.
The value of a life is inestimable, and its loss, except in a limited
sense, cannot be made good ; consequently the principle of subro-
gation has no application in life assurance.

The unlimited extent of the value existing on a life docs not
create a right to secure an unlimited amount of insurance, since
no company will accept a proposal for insurance larger than is
suitable to the circumstances and the means of the proposer.
Moreover, where the insurable interest arises from causes other
than natural affection or relationship, the insurance would have
to be limited to the risk involved. Thus a commercial firm can
insure the life of a technician to the extent of the expenses in-
volved in replacing him, but cannot insure a general employee
since no cost of replacement is incurred on his death 1 ; a creditor
can insure the life of a debtor to the extent of the debt, and is
entitled to recover merely the amount of the debt together with
interest and expenses ; if the debt is repaid the policy may be
assigned to and continued by the debtor. A friend can pay
the premiums on the policy of an insured out of friendship but
has no right to collect the insurance unless a valid assignment
exists.

Next to the law of contract, the law of agency has the most
significant application, since the business of life assurance is
transacted almost entirely through agents. An agent, in a legal
sense, is a person who, with or without remuneration, acts
for another, either with unlimited powers to do all lawful acts
that his principal could do (called a universal agent) such as
the directors or principal officers ; with authority limited to all
actions necessary to carry out his agency (called a general agent)
such as for example branch managers ; or with specific powers
to perform specific acts (called a special agent) such as soliciting
agents and medical examiners. A few considerations in this regard
may now be discussed.

i. Presumption

No one can presume before the law that a person acts for
another. Thus if a person represents himself as an agent of a

1 This should not be confused with the insurable interest in group life
and group annuity contracts which, though entered into by the employer,
insure the lives of individual employees, with "their consent, with their
contribution (either express or implicit) and for amounts payable to their
representatives.

LEGAL ASPECTS 243

company and absconds with the initial premium, the proposer
has no claim against the company ; on the other hand, if the
company had supplied him with receipt books, proposal forms,
prospectuses, etc. the presumption is there that the agency exists,
and the company's liability is established.

it. Apparent powers

If the status of an agent vests him with apparent powers,
the company may not divest itself of its liability to honour his
actions in pursuance of that power. Thus if a principal officer
accepts the insurance of an uninsurable life, the company may
not be able to repudiate liability on the ground that its bye-laws
gave the officer no authority to do so, since his status implied
unlimited powers. Further if a branch manager habitually
waived interest on payments of premium after the days of grace
and the company did not in the past question his authority to
do so, the presumption exists that he acts within his powers,
until a limitation of his powers is notified. But a waiver of
interest granted on one policy docs not create a presumption
that he has similar powers in regard to a similar action in the
case of another.

Hi. Limitation

The power of an agent soliciting insurance is limited to the
act of soliciting insurance from prospective applicants and col-
lecting initial premium. These limitations, usually communicated
to the public through the prospectuses, preclude pledging the
credit of the company, altering the terms and conditions, modi-
fying the rates of premium or collecting renewal premiums, but
do not exclude responsibility for ordinary and necessary actions
performed in the course of his agency and legal presumption
that the knowledge of the agent is the knowledge of the com-
pany. Thus if an agent promises to insure an impaired life
at ordinary rates he acts beyond his powers ; if he commits a
libel during the course of his business the company is responsible ;
if he promises a benefit which the company does not honour
the insured may demand cancellation of the contract and return
of the premium paid within a reasonable time, but may not
demand fulfilment of the illegal promise as, thereby, other policy-
holders will be adversely affected. The agent is the legal agent
of the company and not of the applicant ; and a doctor who
gains knowledge of an applicant's physique in the course of his

244 LIFE ASSURANCE

examination can be presumed to have communicated that
knowledge to his principal.

iv. Uberrima fides

It was mentioned in the last chapter that the principle of
of uberrima fides (abounding faith) applies to all contracts of
insurance. The onus of a high degree of good faith is applicable
to both the insured and the insurer. Thus the company must
rely, in an unusual degree, upon the truth and completeness of
the statements made by an applicant, and the latter, in an unusual
degree, upon the good faith of the company to ensure that all
the terms and conditions of the contract arc just and equitable.
A complete understanding between the insured on the one hand,
and the insurer and his various agents on the other is implicit
in the contract and will pay dividends in an increasing amount
of goodwill. Many questions would naturally arise which might
intrigue and sometimes confuse the issue, but coinmonsense and
mutual understanding would solve many of them.

STATE CONTROL

The essential importance of insurance in the social fabric of
a nation, and the complicated nature of the business, particularly
in its technical, financial and legal aspects, would at once raise
the question : How far should the statr intervene in the operations
of insurance to ensure justice and equity to the large body of
policyholders who are generally ignorant ol the complications in
its activity? The problem of equity and justice to individual
policyholders would place the question on a strictly social level
and suggest state supervision ; the growth of the business into
the, gargantuan proportions it is today in many countries, with
power to control unlimited funds in trust for the policyholders
and to exert great influence on the financial markets of the
nation, would place the question on the higher level of national
policy and introduce the much debatable problem of active state
participation in insurance.

At one time or other that question has been asked in all coun-
tries where insurance has outgrown its infancy. Different nations
have tackled the problem with different degrees of state control.
At one end stands the United Kingdom with its traditional
emphasis on minimum control of private trading with maximum
publicity and other nations like America and Canada where state

LEGAL ASPECTS 245

control is real but docs not amount to active state participation.
At the other end stands the U.S.S.R. and countries of the com-
munist group where insurance has for several years been conducted
as a monopolistic government institution. In between stood
several Central European countries before the last war and stanch
France after the war, where a system of fc open ' competition
between a Government insurance institution and private insurance
companies has been developed. What system of control would
give the greatest benefit to the nation is a problem that raises
important questions of political, social and economic theories
fundamentally involved in the greater controversy ol socialism
vs. capitalism which is hardly a subject for discussion in this
book,, especially as Indian insurance is just entering its adolescence.
More to the [joint is : uhat degree of control should the State
exercise.

Extent o[ .State Control

That again is a question which is as delicate as it is contro-
versial ; yvt the degree of control exercised by the Government
should have some relation to the degree of insurance develop-
ment and should meet the needs of the situation. In all coun-
tries where! insurance' has grown into a great social force its
origin was inseparable from sporadic, uncontrolled, unscientific'
gambles on human lives. The first legislative acts eliminated
the gambling element. Then came control on indiscriminate
company promotion by prescribing minimum financial standards.
Evolution within itself revolutionised the basis of its operations,
put it on a scientific basis and helped the state to curb the
activities of the unwary elements. Insurance gained in strength
as a consequence and unscrupulous financiers were lured into
it in quest of easy money, and state controls became stricter.
That was \\hat happened in America ; that is what is happening
in India.

Protection of the policyholders' funds is the primary function
of state control. This protection, under the Indian law. is
achieved, among other things by seven fundamental provisions.
Firstly it prescribes a capital structure which, whilst ensuring
equity, protects a company from the misconceived intentions ol
interested financiers. Secondly it provides for deposits and mini-
mum capital so as to check the entry of financially unsound
companies. Thirdly it prescribes wholesome rules for valuation
thereby ensuring minimum reserve values and continued solvent
operation. Fourthly it regulates the investment of assets in such

246 LIFE ASSURANCE

a way as to ensure the safety of the funds and to eliminate
interlocking with banks and other industrial institutions. Fifthly
it prohibits excessive remuneration to its executive officers in order
to conserve policyholders' funds. Sixthly it controls the expenses
of management so as to prohibit dissipation of the reserves. Lastly
it vests power with the Government to investigate into the affairs
of a company and to manage it through an administrator,
if necessary. The provision for the compulsory election of
policyholders' directors, the regulations regarding the directorate
and the power to appoint additional Government directors make
the policyholders' voice heard in the management. The cumula-
tive effect of all these provisions, regulations and rules is
to write SECURITY in capital letters into every policy of
insurance issued in India.

Policyholders' rights

The technical nature of life insurance involves many compli-
cated questions of law beyond the comprehension of a large
majority of the policyholders. The insuring public have no part
in the preparation of the contract, are usually unfamiliar with
both the principles of life insurance and the general rules of law
and arc, in many cases, too weak financially to fight the organised
institutions. Were life insurance contracts subject merely to the
general rules of legal contracts, technical questions of a compli-
cated nature would make the position of policyholders doubly
insecure. Special rules of law are therefore provided in
the Insurance Act which, whilst retaining equity and good faith
as the guiding principles of the contract, protect the rights of
policyholders. Such, for example, are the provisions relating to
indisputability, non-forfeiture, surrender values, assignments, nomi-
nations, paid-up policies, appeal to the controller, payment of
money into court and the like.

Agents

The regulations regarding the appointment, training, qualifi-
cations, service and remuneration of all classes of agents are
intended to foster sound practices in selling insurance to the
ultimate good of both the insured and the insurer. The aim of
these regulations is the rationalisation of the profession and much
would depend upon the practical application of the regulations.

National Rights

Certain of the regulations give economic protection to

LEGAL ASPECTS 247

the rights and liberties of Indian companies against their foreign
competitors. These take the form of the right of the Govern-
ment to take retaliatory action, differences in deposit and invest-
ment regulations and such other measures.

Life Insurance Council

An important departure from the laws existing in other countries
is the formation of a statutory Insurance Association of India,
with all Indian companies as members and all foreign companies
as associate members. The Association has two councils, the Life
Insurance Council and the General Insurance Council. We are
only concerned with the Life Insurance Council in this book.

The Life Insurance Council, consisting of all the members and
associate members of the Association, acts through its Executive
Committee, composed of one Chairman (an official nominated
by the Government), 15 members (of whom one is a nominated
official of the Government, 8 representatives of members elected
by life offices, a nominated non-official in public life and five
non-officials nominated by the Government to represent insurers
from unrepresented areas or groups) and an official secretary.
None of the officials are vested with voting rights. The Execu-
tive Committee has been given power to hold qualifying exami-
nations tor insurance agents subject to the approval of the
Central Government. The functions of the Executive Committee
include ( i ) evolution of decent standards of conduct and sound
practices of insurance to ensure efficient service to policyholders
(2) to bring to the notice of the Controller any prejudicial acts
of any insurer and (3) advice on the limitation of expenses of
insurance companies.

It is unfortunate that the original intentions of the Government
to vest statutory powers with the Executive Commitee to fix
maximum limits of expenditure were replaced by merely advisory
rights. Still this experiment is a step in the right direction and,
properly handled, should prove beneficial to the future of Indian
life insurance.

Functions of the Controller

Under the Insurance Act 1938 and its Amendment (1950) the
Controller has a wide range of duties, immense authority and
unlimited responsibility. He is responsible for the approval and
control of new companies and their organisation. He is required
to supervise the capital structure, investment of assets, expenses
of administration and other details of management of existing

248 LIFE ASSURANCE

companies. He has to check the periodical valuations, decide
whether policy reserves arc adequate and investigate the stability
and soundness of companies. The Controller also checks the
numerous detailed statements submitted under the rules, prepares
statistical details of the companies' operations every year and
publishes them under the authority of the Central Government.
By licensing and controlling the appointment, service and remu-
neration of the agents he ensures maintenance of proper profes-
sional standards. Frequently he has to settle disputes between
the companies and their policyholders.

INTERNAL ORGANISATION

The business of life insurance with its complicated mechanism
of technical, financial and legal controls is essentially technical in
its administration and requires a large, body of highly trained
personnel to man its various specialised departments. Its nerve-
centre is the Head Office. A series of branches in the territories
(and countries) in which a company may operate may deal with
many details of administration and procure most of the new busi-
ness. Whilst the delimitation of departments at the head office
and the qualifications and functions of the officers in charge
of them, as also the extent of the duties and responsibilities
delegated to the branches, would largely depend upon individual
discretion, a broad outline of the subject may be given.

Head Office

The supreme control of a life office* is exercised by the Board
of Directors elected by the shareholders and policyholders of a
proprietary company or by the policyholders of a mutual office.
The general policy is determined at the, periodical meetings of the
Board and is implemented by the Manager (or General Manager)
through his executive staff. The executive functions of a
Manager may be taken over by the Life Manager of a composite
company (so far as the life department is concerned) or by
the Managing Director of a company in which the Chief Executive
Officer has a seat on the Board, or, occasionally, the actuarial
and managerial functions may be combined. The internal
organisation of the head office is one of departmental
specialisation.

The passage of a policy

The passage of a contract for insurance from its rather nebulous
beginnings in the mind of a prospective policyholder to its final

ORGANISATION 249

emergence as a claim several years later, may provide an interest-
ing study into the intricate workings of a life office. First comes
the agent in quest of an ever-increasing volume of new business.
He is directly attached to the Agency Department (corresponding
to the sales organisation of -a commercial concern) whose chiel,
called the Agency Manager, is frequently an executive officer
of the company. The Agency Department has general charge
ol the company's branch offices and agencies and of the conduct
of the company's business transacted by them ; not infrequently
it is indistinguishable from the new business department. The
applicant, whenever possible, is * inspected ' by an inspector of
the company and examined by one of the several medical examiners
specially appointed for the purpose. The completed papers con-
nected with the proposal arc sent to thr new business department
where a staff of trained specialists including the chief medical
referee subjects them to the minutest scrutiny in all aspects of
the risk. A large part of the routine work of selection, especially
in the majority of cases involving moderate amounts of insurance,
may not call for any special skill; in other cases the chief
medical referee deals with all matters pertaining to medical selec-
tion, calls for additional details when necessary and may be instru-
mental for prescribing medical standards for selection. The non-
medical selection may occasionally call for expert advice from the
actuary. If the proposal for insurance is accepted by the Board
a letter of acceptance is despatched to the proposer usually through
the agent. The relative papers are then passed on to the ' first
premium collection ' department and, after the premium has been
received, to another section which prepares and issues policies.
From then on the Renewal and Accounts Departments deal with
most of the matters which arise until maturity or claim.

Various highly specialised sections may deal with many of the
incidental questions in connection with the policy such as loans,
surrenders, lapses, alterations, assignments, nominations, bonuses,
etc. requiring frequent references to the actuarial, accounting and
legal departments. An enormous amount of clerical work is done
consisting of multifarious recording of particulars of the new
business transacted, duplicated records of all dealings with existing
policyholders, statistical work peculiar to life insurance business
and the ordinary duties performed by the clerks and shorthand
typists of commercial firms. The claims department scrutinises
the relative papers, deals with all legal questions that may arise
and sanctions payment of the sum due. In this process some of

250 XIFE ASSURANCE

the numerous departments and most of the officers in charge
of them take on specialised functions.

Actuary

Next to the Chief Executive officer, variously designated as
General Manager, Manager, Managing Director or Life Manager,
is the actuary. Many offices are unable to maintain a full-time
actuary nor a full-fledged actuarial department, in which case
the services of a consulting actuary are requisitioned. Where an
actuary combines the actuarial and managerial functions he usually
retains only a supervisory interest in the purely actuarial side of
the business which is then handled by specialised staff assistants.

The professional attainments of an actuary qualify him to deal
with all questions affecting insurance and particularly life
assurance, from the mathematical, statistical, financial^ legal,
medical and economic points of view. The primary training of
an actuary is concerned with mathematico-statistical calculations
in connection with contingencies of life and fits him particularly
to specialise in certain departments of the business or, in some
cases of outstanding ability, to make valuable contributions to
actuarial science.

The primary function of an actuary is to see that the business
of his company is operated on a sound financial basis. In addi-
tion to such work of a purely technical nature, an actuary advises
the other officers of the company and the Board on various mat-
ters affecting the company's business. The actuarial department
deals chiefly with premium rates, valuations, reserves and bonuses,
keeps all records required for reserves and valuations, supervises
the statistical department, furnishes tables of cash and surrender
values and makes all necessary calculations when policies
are lapsed, surrendered, paid-up or altered. An important func-
tion is the preparation and maintenance of records of mortality
experience of the company and the conduct of any mortality or
statistical investigations which may be needed, for which his
training, equipment and knowledge are particularly suited.

Accountant

The chief accountant (or accountant) is usually a person of
proved ability during long years of service and has the big res-
ponsibility of managing the company's accounts ; frequently he
is a man with professional accountancy qualifications. He main-
tains the ledgers and other books of accounts, examines and audits
all the financial statements submitted by the branch offices and

ORGANISATION 251

is responsible for preparing the company's annual financial
statements.

Secretary

The secretary of an insurance company, when that designation
is not applied to the company's chief executive officer (as is
sometimes done), has duties similar to the one holding the post
in any other joint stock company. It i.s one of the most responsi-
ble offices in an insurance company, demanding the highest quali-
fications and his duties would include filing the numerous returns
required under the Companies' and the Insurance Acts, regis-
tration of the company's stocks arid shares, custody of the
investments and frequently keeping track of the legislative
enactments affecting life insurance.

Investments

A few companies have special investment managers, but gene-
rally the Board and the chief executive officer decide the invest-
ment policy. The investment of the immense funds of insurance
companies, at a reasonable rate of interest commensurate with
security, demands a profound knowledge of market conditions,
sound judgment and special study of the subject; the intense
training of an actuary makes him eminently suitable to tender
competent advice in this regard.

Mechanisation

The normal functions of many of the specialised departments
would generally require an immense amount of paper work usually
of a routine nature, much duplicating, large-scale recording and
elaborate calculations. Details of a proposal may have to be
recorded in several departments, and summarised statements of
a policy in as many, registers of the policies and the transactions
on them may have to be maintained by a variety of departments
including the accounting and the actuarial. In the circumstances
mechanisation is the only practical method of economising adminis-
trative expenses.

Mechanisation of work in an insurance company is a subject
for special study. The Adrema machines print off essential details
of the proposal form from specially embossed metal plates; the
same metal plates with alterations reprint loose-leaf sheets for the
policy register, card indexes (both at the head office and the
branch), the valuation cards, renewal cards and premium notices
and receipts. Arithmetical calculations in the actuarial and

252 LIFE ASSURANCE

accounting departments arc greatly simplified by the latest cal-
culating machines. The Hollerith or Powers machines handle
much of the routine work of the statistical department both at
normal times and during valuation and lor their wonderful quali-
ties of adaptation for a variety of individual requirements they
have not so far been excelled. Still they are too costly or too
elaborate for the smaller offices. Much of the, routine duplicating
fcf circulars and inter-office communications is done by stencilling
machines. This question of mechanisation is a subject of supreme
importance at the present time when economy in administration
is of the utmost concern.

THE FIELD

Agency Manage)

Production of new business is the main concern ol the Agency
Department., frequently under the control ol an executive ottic er
of the company, selected for his outstanding ability to produce a
large volume of new business. His administrative duties include
the management of the outside officials and their agencies., the
control of the branch offices and the busine.ss transacted by them,
the preparation of prospectuses and other canvassing literature.,
advertising and the selection and training ol field workers.

Inspectors

Production of new business at the head office is usually handled
by a number of inspectors salaried persons acting as a liaison with
the agents. In addition to producing a large volume of personal
business, the inspector has to organise the field force under him,
select and train the agents and stimulate them to produce increased
business. Indian offices usually limit the duties of an inspector
to production of new business, and therein lies much of the weak-
ness of the sales force.

For production of new business can, by no means, be the end
of an inspector's activities; service to the general insuring public
can, and should, form an equally important responsibility of this
worthy individual. By all appearances he is the only person with
any actual contact with the public who has, at the same time,
the real interests of the company at heart, for the agent, so long as
he remains a spare-time worker (as most of the ' pin-money ' agents
of the present day usually do) has only a limited interest in
the concern. Usually an inspector sees the proposer, has abundant
opportunities for promoting goodwill and should be the most com-
petent person to explain the implications of insurance, help the

ORGANISATION 253

proposer in selecting contracts to meet his needs, take steps to
keep the policy on the hooks and pave the way to write more
business from the contacts already established. He should., on the
one, hand, keep the interests of his company safe by judicious
selection of the risks, and on the other build up prestige and good-
will through competent service. He is the keyman in the Held
and his selection is of considerable importance. A presentable
personality is important; a sound knowledge of the business
imperative; a Hair for field work a necessity; and ability to get
along with people and influence them indispensable. The usual
practice in England is to promote capable men with several years'
outstanding service in various ' indoor ' departments, study in
connection with examinations of the Chartered Insurance Institute
and practical experience of actual field work, as inspectors and
the practice should serve as a model to build firm foundations
lor a sound sales force.

Special Agent*;

Several organisers (or special agents as the Insurance (Amend-
ment) Act 1950 calls them) may work for an inspector. The law
defines a special agent as w a person ' who, not being a salaried
employee of an insurer, in consideration of any commission, pro-
cures lile assurance business for the insurer whether wholly or in
part by employing or causing to be employed insurance agents on
behalf oi the insurer but does not include a chief agent'. His
remuneration has been slatutorily fixed at % per cent of single
premium policies, both insurances and annuities, 2 per cent of the
first year annual premiums of deferred annuities and 15% of the
first year annual premiums of other classes of insurance with no
commission on renewal premiums. To qualify for these commis-
sions a special agent has to employ at least two insurance agents
under him, and procure a minimum of Rs. 130,000 new business
in each calendar year. The employment of a special agent may
be justified if he becomes a real l under-study ' to the inspector;
but, on the other hand, if he turns out to be an agent who appoints
' dummy ' agents as a subterfuge to claim the combined remunera-
tions of both, he may become the weakest link in the field force.

Mofussil Organisation

In all countries where life assurance has made any material
progress, two systems are in vogue for securing new business from
the mofussil areas which may be called, for the sake of convenience,
the Chief-Agency and the Direct-Agency systems. In the former

254 LIFE ASSURANCE

a chief agent (who may be an individual, but usually is a firm)
may be given exclusive representation of the company in a specified
area. Insurance (Amendment) Act 1950 defines a chief agent
as * a person, not being a salaried employee of an insurer, in con-
sideration of any commission, (i) performs any administrative and
organising functions for the insurer and (ii) procures life insur-
ance business by employing or causing to be employed insurance
agents on behalf of the. insurer J and specifies other conditions for
his appointment.

The proper place of a special agent is under a Chief Agent;
he is largely out of place in the direct agency system of a company
where usually inspectors can efficiently perform all the functions.
A chief agent has to employ at least six insurance, agents in cases
where the total business in force of the insurer is less than Re. I
crore and at least 12 insurance agents in all other cases, and each
of such agent should procure at least Rs. 10,000 new business.
The Chief Agent is usually paid the maximum commission on all
business in his territory, both new and renewal. He is entirely
responsible for the organisation, appointment and remuneration of
the insurance agents under him who make their contracts with
him and not with the company. He is usually responsible for the
collection of renewal premium and for various other administrative
functions connected with the business in his territory. Generally
he is selected for his ability to influence and produce business and
not infrequently guarantees a minimum income from his territofy

Direct Agency System

Under the Direct Agency system a branch takes the place of the
chief agency and the manager in charge of the branch is a direct,
salaried representative of the, company, usually selected (from
among the company's experienced inspectors) for his outstanding
ability to produce a large volume of new business. His salary
occasionally consists of a basic sum independent of production,
with additional remuneration depending chiefly on the amount of
new business produced annually and on the persistency of such
business a very sound practice indeed. The contracts he enters
into with the agents are binding on the company and not infre-
quently he may be assisted by one or more inspectors with several
organisers.

His administrative functions may be as much or as little as the
head office decides but usually he, has powers to determine all
matters of a routine nature, not involving any important question
of policy, necessary for the efficient functioning of his branch and

ORGANISATION 255

for the effective rendering of service to the insuring public. In
this he is usually assisted by a branch secretary or other senior
assistant, to whose discretion he may leave much of the internal
administration.

The personal attributes of a branch manager are outstanding
ability to produce a large volume of new business personally, capa-
city to select, instruct and stimulate agents, a sound knowledge
of insurance principles and practice and a certain amount of
administrative ability. The agency manager or some other
superior officer at the head office is usually selected from the ranks
of successful branch managers.

It is usual for most of the larger companies to extend the juris-
diction of the provincial branches to territories beyond the imme-
diate municipal limits of the principal cities and to have inspec-
torates or sub-offices under the control of branch managers to
ensure effective coverage. Thus the Bombay branch, with head-
quarters in Bombay, may have inspectorates or sub-offices at Poona,
Hubli, Dharwar, Nasik, Ahmedabad, Surat, Baroda and a number
of other places.

The two systems compared

Whether the Direct Agency system or the Chief Agency system
is the most advantageous from the company's point of view is
debatable. Admittedly the Chief Agency system is cheaper at the
outset because of the commission method of remuneration, depend-
ing chiefly upon the turnover, but may prove costlier in the long
run when the business has increased considerably. A direct
agency system, on the other hand, gives the head office greater
and more effective control of individual agents, helps to manage
the sales force with greater efficiency, ensures uniformity of opera-
tions and keeps the control of the company's activities in the hands
of the officers at the head office where it belongs. An efficient
sales organisation can be built up only through a system of direct-
ly controlled branches.

Agents

It is regrettable but true that the agents are the weakest units
of the whole field force. Whoever that can introduce business,
irrespective of ability, qualifications or personal attributes get
selected as agents. A majority of them write a few policies from
near relations or friends, rebate part of their remunerations, and
cease to function as agents the moment any sales ability is required
of them. This is not intended as an indictment of a profession

256 LIFE ASSURANCE

which has helped to produce some capable gentlemen but the sad
review of a system which emphasises the production of new busi-
ness at any price much more than service to the public. The
whole basis of selection, appointment, service and remuneration
hardly helps to provide a sound foundation for the sales organisa-
tion, with the result that the quality of the business written is low.
How can the present position be improved ?

It is a wvll established maxim that the only way in which any
considerable volume of business can be secured is by the employ-
ment of active agents. The expense of their maintenance is in-
separable from the business of life insurance. To be able to
produce an increasing volume of healthy business, which will
remain on the books until maturity or claim, except in unavoid-
able circumstances, calls for certain attributes of personal ability,
personality and character without which an agent has no business
to remain in the field.

Some people are born business getters; with some that ability
can be cultivated; the rest have neither the natural aptitude nor
the basic qualities which may be developed. Upon the ability of
an office to differentiate the first two classes of people from the
third will depend the success of its personnel selection. A good
personality, intelligence, abundant common sense, absence of self-
consciousness, ability to talk and a good general education are the
essential qualities of an agent; but no less important are those
secondary qualities which can be achieved by diligent application
of one's own natural talents, viz., a burning desire to make good,
absolute faith in one's ability to succeed, creative ability through
the medium of auto-suggestions, organised planning and specialisa-
tion, vivid imagination, ability to make quick decisions, persistence
at the job and control of emotions. These qualities arr acquired
and come through the will to w r in.

Training

Next to .selection, training is the most important factor in the
success of a sales organisation. A good general education is essen-
tial for further specialised training in psychology, human relations,
salesmanship, the fundamentals of life insurance, elements of com-
mercial law, the contracts and practices of the company and
generally all matters in regard to which the agents will be called
upon to advise both prospective and existing policyholders. Such
ii training should equip the agents to protect the interests of their
eompany, aid the proposers to select suitable schemes of insurance,
create an abundance of goodwill through complete insurance ser-

ORGANISATION 257

vice, throughout the duration of the policy and build an ever-
increasing circle of clientele. Obviously the ability to compare
the premium rates of different companies alone do not, by any
means, constitute sufficient qualification to sell insurance, nor does
the vilification of other companies' practices.

Remuneration

The question of remuneration is vital. On it may depend the
entire success of the sales force, for no man can devote himself to
the difficult task of selling life insurance without adequate conv
pensation. By prescribing qualifications and licensing the Insur-
ance Act 1938 raised the professional status of agents; by limiting
the. maximum rates of commission payable to them it tried to
prevent the payment of exaggerated remuneration; by making
rebating a penal offence it tried to eliminate the unholy practice.
But the law was able to check neither the excessive commissions
nor the obnoxious system of rebating which, in actual practice,
curses him that gives and him that takes. The Insurance
(Amendment) Act 1950 has introduced new rules and new rates
of remuneration but will hardly attract capable men into the pro-
fession, unless the companies are prepared to view the matter from
an entirely different perspective.

Section 64 I is a healthy attempt at raising their professional
status. The redistribution of the commission payable in the first
year among the first three years is an obvious attempt at stimu-
lating the agents to ensure persistency of the business until the
policies have acquired a surrender value. To the extent that
their renewal commissions arc guaranteed throughout the dura-
tion of the contracts, the law gives them stability in the profession.
But unless the law recognises the fact that payment of commission
constitutes compensation for services rendered throughout the
duration of the policy and should be conditional upon rendering
that service as fully as possible, it can hardly solve the problem.

Any system of remuneration should recognise three broad prin-
ciples : ( i ) the agent is not merely a salesman for new business,
but must be a properly qualified life insurance adviser (2) com-
pensation should be related to the extent and quality of his
services, and (3) more of his total income on a policy should
depend upon keeping it on the books than placing. These three
basic factors alone can help to build up an efficient and creditable
sales force. If by convention, contract or practical application
of the new rules healthy trends are not built up fully recognising
these three fundamental factors, the present unhealthy state of

17

258 LIFE ASSURANCE

affairs will be perpetuated. The seeds of healthy growth are
there in the Act ; it remains to be seen how far the growth is
stimulated.

It would have been obviously a better course had the law
prescribed a system of conditional ' renewal service fees ' conti-
nuing throughout the duration of the policy, depending entirely
upon the amount and quality of service an agent is prepared to
render to existing policies and the companies played the game
in good faith. In its absence, the law may tacitly perpetuate the
principle that, the total commission payable is compensation for
introducing new business. If that happens the law will perpe-
tuate an unsound principle. The entire weakness of the whole
insurance business revolves upon one fact : the non-recognition
of the principle that the writing of new business is only the begin-
ning of service to a policyholder.

An adequate income during the training period of an agent,
when he is far from self-supporting, is a practical problem that
may have to be solved. The present tendency of making advances
against future earnings is, to a certain extent, defective, both
psychologically and financially. A burden of debt before entering
the field is hardly conducive to effective canvassing as every sales-
man knows to his rost. Any initial failure to make good in the
(ivld might result in his giving up the attempt with considerable
loss to the company. Careful selection and a system of remunera-
tion during the initial training period depending upon the work
done in the nvlcl, as opposed to insurance sold might meet the
situation to a very large extent. An agvmt has to feel that failure
Aas no place in his make-up ; it can be done.

So long as the agents do not follow insurance selling as a whole-
timr profession the problem of retirement allowance would hardly
arise ; when they do, the agent would certainly have merited
favoured treatment on a par with other employees of the
company.

Such then are the intricacies of the problem of selling insurance.
The. sales force is weak today with ' too many people for too
little business V To eradicate that weakness and build up a strong,
efficient, devoted, well-knit sales force, capable of enhancing the
goodwill, prestige, service and business of a company should be
the aim of every agency manager.

PART II

HOW INSURANCE
HAS WORKED

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CHAPTER XIII
BLUEPR INTS

Modern Life Assurance has a British origin. When or how
it started in India is still one of those mysteries which may never
be unravelled. The rise of the East India Company in the
beginning of the seventeenth century completed the political and
military dissolution that had set in after Akbar's regime, and
the vacuum thus created was extremely receptive to the western
social, religious and educational ideas which Britishers introduced.
The reaction to those ideas helped towards the political and spiri-
tual reintegration of a United India; and when the exposure of
her people to the full force of British industrial and commercial
strength led to the establishment of British commercial organisa-
tions, Indian institutions like banking and insurance were
founded, fundamentally changing her social, economic and
commercial outlook. We must therefore probe into the origin
of British power to look for the blueprints of Life Assurance in
India.

The East India Company

When several hundred London merchants, having successfully
met Spanish sea power, sought Crown approval for an eastern
venture, Queen Elizabeth granted them a Charter as the
ENGLISH EAST INDIA COMPANY on 31 December 1600.
Their vessels made directly for the East Indian centres of spice
trade, only to find the Dutch deeply entrenched there and deter-
mined to exclude all other powers from their chosen domain.
So the disappointed merchants turned to India, clearly their second
best, built factories along the coastal towns and protected them
by forts paid for, in part, from the revenues of adjoining terri-
tories which they rented from the Rulers.

The problem of defending the factories grew more urgent as
the power of Imperial Delhi over the provinces began to fail
and local rulers exerted more pressure on the traders. Bombay
and Madras built forts, early after settlement, but Bengal was
badly exposed. Sir Josia Child said in London: "We want to
found a large well-grounded sure English dominion in India",
and ordered Job Charnock, the agent in India to seize Chitta-
gong. Charnock failed, six of the Company's factories were lost,
the English sued for peace and were let off with a fine.

261

262 LIFE ASSURANCE

Growth of Calcutta

It was not long before Job Charnock selected a tiny village
called Sutanati by the mighty Hooghly to build a fort (Fort
William) to defend the Bengal factories, and Calcutta grew up
around that fort in all its eastern glory. For a long time Calcutta
was the best centre of India's flourishing trade in fine silks,
muslins, calicoes, textiles, yarn, handicrafts, spices, indigo,
saltpetre and sugar, which were bartered for English gold, silver,
luxury goods and wool. The days were prosperous, for trade
was good. Frequent battles changed the political map constantly,
traders of the East Company became rulers but organised life
was risky to the settlers. The heat and malaria took heavy toll,
incessant battles gave no rest, doctors were few and medical aid
poor; but lure of trade kept the British merchant to his post
and the fear of his bosses kept him a bachelor. There followed
a period of economic and political chaos for the people of India
and of prosperity and strength for the English.

When Life Offices were established in large numbers in Britain,
a few of the English companies ventured to issue sterling policies
to some of the English residents. Premiums collected here were
credited in England largely for English beneficiaries. Business
seems to have been brisk and profitable; inaccurate mortality
tables and insufficient mortality data of Englishmen in India
made premiums heavy heavier than at home for usually short-
term policies. Insurance was denied to the 'natives' even if they
wanted it which they never did, for their lives were always consi-
dered risky and sometimes valueless.

The Earliest Company

When General Ochterlony's men staggered back to Calcutta
after teaching the recalcitrant Gurkha a lesson in respect, they
were overwhelmed at the whole unholy business. Incessant
battles to expand unsafe frontiers had made their lives miserable;
dysentery, cholera, small-pox, malaria and unbearable heat had
made fatal inroads into the British community, bereaving a few of
the women who had braved the climate and risked the long journey
to join their menfolk out here. And sympathies were stirred up
among the helpless men and spurred them on to positive action.

1818 was memorable in more ways than one. In that year
were issued the first Indian-owned and edited newspaper in
English by a few Bengali gentlemen in Calcutta and a British-
owned and edited monthly and weekly in Bengali by the Baptist
missionaries of Serampore (the first periodicals to be pub-

BLUEPRINTS 263

lishcd in an Indian language) ; the notorious Regulation III
which provided for detention without trial and later figured
prominently as a political weapon, had its birth in that
year; and a few Englishmen of Calcutta gave practical
shape to their humane feelings of sympathy by starting the
ORIENTAL LIFE ASSURANCE CO. to afford monetary aid
to the relatives of those Europeans who died. (The Oriental has
no connection with the premier organisation of that name now
with us). Meanwhile the first echoes of the impact of western
ideas on Indian thought were beginning to be heard.

By this time a towering personality had risen up in Bengal
Raja Ram Mohan Roy. "Perhaps the first earnest-minded inves-
tigator of the science of Comparative Religion that the world
has produced ' wrote Monier-Williams, the Orientalist, describing
Ram Mohan Roy. Rising to the heights of scholarship in Indian
thought and philosophy, world cultures, literature and religion,
he was a reformer to the core and tried to reform the Hindu
faith and rid it of its abuses and evil practices through the
columns of the several newspapers with which he was associated.
Moved by the revolting practice of salt (his own brother's wife
had immolated herself on her husband's funeral pyre) which
Lord William Bcntinck eventually prohibited in 1829 m tne teeth
of orthodox opposition, and the sad plight of desperate widows
and helpless orphans, Ram Mohan Roy, in his crusade for Hindu
regeneration appealed to his wealthy friends through the Calcutta
Journal as early as 1822: "start an institution of your own to
maintain our poor widows and orphans." Babu Muttylal Seal
took up the cry and, realising the value of insurance to the desti-
tute women and children, prevailed upon his friends of the
Oriental to insure 'native' lives too. Oriental was essentially a
British company and catered merely for the Englishmen but
because of the pressure, insured some Indian lives too. Oriental
was however soon in difficulties, liquidated itself in 1834,
reappeared as the 'New Oriental', worked for a time under one
Mr. W. F. Ferguson and eventually merged with the Medical
Invalid and General in 1853, which later was amalgamated with
the Albert Life Assurance Company in 1860. But for these scanty
details nothing much is known of this company which may very
well be the first life assurance company to be started in India.

Bombay Life

How in 1 66 1 the Crown Prince of Portugal made over the beauti-
ful island-harbour of Bombay ' to the king of Great Britain, his

264 LIFE ASSURANCE

heirs and successors for ever ' as a bridal dowry on the occasion of
the marriage of King Charles II with the Infanta Catherine of
Braganza at Whitehall provides a historic interlude as romantic
as its subsequent 'sale' to the East India Company in 1667 by
the King of England for a sum of 10! Conspicuous zeal and
energy characterised the execution of the prolific ideas which Sir
John Oxcndcn the first Governor had for the development of
what Pepys called "the poor little Island of Bombaim"; sustained
'native* opposition marked the determined efforts of successive
governors to build and hold what has now become the symbolic
Bombay l fort'; corrupt practices and continuous strife retarded
early attempts at the commercial development of what then was
a pirates' paradise. But Bombay weathered the storm and,
despite the extremely unhealthy conditions, was ready to reap
the fruits of organised commercial enterprise and systematic
administration by the first quarter of the nineteenth century.

And Bombay did not lag behind long in starting insurance
either, i May 1823 saw ^e birth of the Bombay Life Assurance
Company (which, likewise, has no connection with the present
company of that name). The Insurance Cyclopaedia, compiled
by C. Walford, F.I.A., F.S.S., published in 1872-80 gives a few
details of the Bombay Life. It issued, so it is reported, no whole-
term life policies but confined itself to three classes of short-term
insurances :

i. For one year not renewable without certificate
of health:

Premium for age 30, assurance of Rs. 1,000 . . Rs. 34
ii. For three-year term assurance, renewable without
fresh certificate of health:

Annual premium for age 30, assurance of

Rs. 1,000 " . . Rs. 37

iii. For five-year term assurance, renewable without
fresh certificate of health:

Annual premium for age 30, assurance of

Rs. r,ooo . . Rs. 40

Like the Oriental, the Bombay Life liquidated itself soon^ but
unlike it there was no revival.

Madras Equitable

Madras, where the English had one of their earliest settlements
and had erected one of their earliest forts, seems to have been
the venue of the next two offices. The Madras Equitable was

BLUEPRINTS 265

established in 1829 an d functioned with indifferent success., for
nearly a century. For a long time it operated under a separate
Act of the Madras Legislature and was exempted from submitting
returns to the Government when the Indian Life Assurance
Companies' Act, 1912 made submission of returns compulsory.
Ceasing to write new policies in 1910, the Madras Equitable met
with financial difficulties when war depreciated the values of
its investments and ceased to function in 1921. A Society was
formed in Madras in 1834 called the 'Madras Widows and Orphans
Fund 5 to work as a mutual society and issue assurances to relieve
the acute financial distress of widows and orphans. The Society
rendered a limited but useful service for a long time under indif-
ferent and consequently inefficient management and eventually
closed down in 1926 because of defalcation of funds.

Advent of Missionaries (1813)

By this time the English had deeply entrenched themselves in
the Indian soil and had laid the foundations of a just, honest
and efficient system of administration. It was inevitable that
English ideas would exert a determining influence on people who
were subject to an English system of administration. The British
Parliament at the time was Reformist and in the vanguard of the
Reformers stood the Evangelicals under William Wilberforce.
Several of the 'Saints' as they were called, such as Charles Grant
and Edward Parry, to mention only two, had seats in the East
India Company's Court of Directors. William Wilberforce the
leader of these "chosen instruments of Almighty God," as they
called themselves cried ( 'Our Christian religion is sublime, pure
and beneficient. The Indian religious system is mean, licentious
and cruel. It is one grand abomination!" And an aroused
Parliament permitted the missionaries to go to India. Some of
the immediate results were wholly beneficial; some of the early
missionaries were infinitely kind, benevolent, respected and became
Indianised. They built churches, taught English, nursed, preached
good Christian faith, led the best Christian life and started Mutual
Aid Assessment Societies to aid the helpless widows and destitute
orphans of the parish. One such was the Christian Mutual of
Meerut started in 1847 (later shifted to Lahore) ; the Bengal
Christian Family Pension Fund 1 was another. As mutual help

1 These two societies are still in operation, the first with its head office
in Pakistan (Lahore). The second society was staited in 1852 and was
exempted from submitting returns under the Assurance Companies'
Act, 1912.

266 LIFE ASSURANCE

and not profit was their motive, and as they worked among those
who had a low rate of mortality, they flourish to this day. The
Church Missionary Society at Palamcottah started the TINNE-
VELLY WIDOWS' FUND in 1834 to help catechists and
teachers to make provisions for their widows by contributing to
the Fund. In 1849 new rules were framed to work the fund
on more efficient lines which continue with necessary modifications
to the present day. In 1925 the Tinnevelly Diocesan Council
took it over and admitted all Christians belonging to the Church
of India, Burma and Ceylon in the Diocese of Tinnevelly and all
mission workers of other Christian bodies working in and outside
Tinnevvlly to its benefits and in 1946 rules were amended to
enable ordinary life insurance business to be transacted. In
September 1949 the fund was registered under the Indian Corn-
panics' Act and is now operating in the name of the "Tinnevelly
Diocesan Mutual Insurance Co. Ltd."

Religious and Social Conflict

Elsewhere active Church Councils were fired by Christian mis-
sionary zeal, although in religious policy the Company itself acted
with the greatest caution. In London Charles Grant said "The
cure of darkness is light" and largely as an outcome of Wilber-
foree's work, the East India Company was authorised to spend
some 10,000 annually in spreading useful learning in India,
which, under the influence of the Company's servants of Warren
Hastings' generation, at first went to maintain Sanskrit and
Persian scholars and to translate useful text-books into those lan-
guages. But Thomas Babington Macaulay thundered " I have
never found one among the Orientalists who could deny that
a single shelf of a good European library was worth the whole
native literature of India and Arabia. ... I believe that all the
historical information which has been collected from all the books
in Sanskrit is less valuable than what may be found in the most
paltry abridgements used at preparatory schools in England. . . .
Medical doctrines which would disgrace an English farrier
. . . history abounding with kings thirty feet high and reigns thirty
thousand years long and geography made up of seas of treacle
and seas of butter." Written in February 1835 as part of his
famous Minute on Education incidentally produced within a few-
weeks of his arriving in Calcutta to take his seat as legal adviser
on the Governor-General's Council and when his first-hand
knowledge of India was slight this sneering report on Indian
culture unfortunately reflected the Company's own attitude. More-

BLUEPRINTS 267

over the English system of administration pursued for a long
time had produced the need for the training of an adequate number
of subordinate elerks able to read and write English. And confi-
dent that the spread of English education would undermine
Hinduism and extend Christianity, the Christian missionaries lost
no time in opening schools to impart general and vocational
learning on English lines. This teaching of English was welcomed
in Bombay, Calcutta and Madras; the language was readily
adopted by the people and two colleges were opened in Calcutta
before 1820. Thus by the middle of the nineteenth century the
huge administrative machinery of which the foundations were
well and truly laid by Cornwallis began to exert a profound influ-
ence not only in political but also in social and religious matters.
It attracted large numbers of Indians with suitable English certi-
ficates to the lower ranks of the Company's clerical services and
maintained a large army of British officers, clerks, subalterns,
soldiers and professional lawyers. But the seeds of conflict had
already been sown.

Great Indian Mutiny

Taught to question the validity of their own sacred books and
texts, by the Christian missionaries, Indian students of English
questioned also the stories of the Bible. Brahmo Samajists under
Ram Mohan Roy rejected the Christian frame of life, accepted
certain of their ideas and injected new blood into the Hindus.
Little of what the missionaries taught permeated the thick wall
of Indian society, for only professional clerks and a few aristocrats
learnt English, yet that aristocratic class sponsored an intellectual
and religious renascence, founded a powerful press and mobilised
public opinion against the Company.

With superabundance of manufactured goods (the industrial
era had already started in England) and backed by powerful
military strength, eager British traders seeped through the villages
into the heart of Indian life. Whereas powerful Indian merchants,
like Virji Vora of Surat, though famous for resources and ability,
had touched only the coastal towns, there was no barrier to stop
English penetration. The weaving industry, long the backbone
of Indian export trade, was broken, old trades and crafts crumbled
and India became a vast, dependent market for Britain. Political
and economic domination was closely followed by exceptional mis-
sionary activity. With characteristic fatalism Hindus had
accepted Muslim invasion; likewise Indians remained quiescent
when the British acquired political power; when economic con-

268 LIFE ASSURANCE

quest followed the aristocracy sat up and looked askance, but
when missionaries continued to undermine their religion the
country was up in arms.

In 1807 a stupid order affecting caste marks, dresses, turbans
and beards led to a minor military scuffle at Vellore. In 1857
persistent interference with Indian customs, religion, scriptures
and gods enraged the thoroughly aroused sepoys of the Ganges
Valley and set fire to a whole magazine of gun-powder. In this
they were actively supported by the Oudh landlords, angry over
their losing power. Fighting was ruthless, atrocities many and,
though within a year, the mutiny was quelled, a blind and hyste-
rical press took up a campaign of hate and revenge. The war of
independence was on the horizon.

The usually sober Englishman was shocked out of his wits for
the very foundation of his eastern empire shook. In 1858, taking
over the formal and direct responsibility for the Government of
India, Queen Victoria proclaimed to the Trinces, Chiefs and
Peoples of India' complete religious toleration and the mainte-
nance of 'ancient rights, usages and customs.' Peace was soon
restored, administration strengthened, reforms pushed through, but
the hard-working businessman lost confidence, albeit temporarily.

The Medical, Invalid and General

The immediate consequences of the mutiny were profound;
sober businessmen realised for the first time that wisdom and
progress lay in close co-operation and not in petty rivalry; most
of the individual businesses were greatly affected, and insurance
was no exception.

Aroused by stories of prosperity and profit, the Medical, Invalid
and General incorporated in London in 1841 had sent capable
men to work in the wake of conquering armies. As more areas
were annexed and a ruling power with vested interests in deve-
loping trade took charge, the Medical extended its areas of ope-
ration, established large connections, absorbed the Agra Life l and
took over the New Oriental in 1853. P. M. Tate, the then
manager of the Medical, was a keen businessman, widely liked,
influential and shrewd and with W. F. Ferguson who had been
the Manager of the New Oriental and who joined the Medical
when the New Oriental was amalgamated, commenced very active
operations which were temporarily affected by the mutiny.

1 There is very little information regarding the Agra Life. Probably
it was established in Agra, but the date of its establishment or of its
amalgamation with the Medical is unknown.

BLUEPRINTS 269

Albert Life

In this setting did Albert Life enter the field of Indian insurance
and rise to its dramatic height, to play a tragic role with devas-
tating and very profound consequences. And few insurers have
provided such an object lesson in financial jugglery as the Albert
Life. Founded in 1838 by a group of London financiers, the
Freemasons and General Life Assurance Loan Annuity Reversion
Interest Company, as Albert Life then was, had imposing city
offices, a wide network of flourishing branch offices, extensive
connections and a large number of supporters. Attractively-
worded advertisements eulogised the soundness of the company
and proclaimed the benefits offered; an army of capable men
offered insurance cover to unsuspecting Englishmen wherever they
were. It changed its name to Albert Life in 1849 and to Albert
and Times in 1857. A branch was opened in Calcutta in 1860
and a chummy, sociable, popular agent sold life assurance to who-
ever wanted it and annuities indiscriminately. Chroniclers fail
to record categorically whether Albert Life accepted business from
the 'contemptuous, irrational and primitive' Indians, (they might
have done so cautiously) but they do say that very soon it pene-
trated all the occupied land, the Presidency towns coming for
particular attention. The great amalgamation that took place
in 1860 between the powerful Albert and the influential Medical
may have been actuated by considerations of policy or by financial
expediency but, in any case, was a remarkable event and pro-
duced a very strong insurance combine. The newly-formed
Albert and Medical, under W. F. Ferguson and P. M. Tate
remained the most powerful and strongest force in Indian insur-
ance of the time. The expansionist tendencies of both companies
were carried a step further; the Indian business of the Family
Endowment (founded in England in 1835) was taken over in 1861
and the business of the Indian Laudable in 1865. It had no rival
for the next few years, obtained such a position as no other
British Company ever had or probably ever will, had its chief
operating office in Calcutta, with branches in Bombay and
Madras, made an estimated annual profit of 20,000 to
30,000 in that branch alone, prompted people to vie with
each other to become policyholders, published glorified actuarial
reports of its prosperity, but one fine day towards the end of
1870, crashed sending numerous people to widespread misery and
ruin. Bad selection of lives, low premium rates, costly and
unsound management, or even systematic swindling might have

270 LIFE ASSURANCE

contributed for so sudden an end of one of the greatest British
life assurance combines that flourished in India, but indiscriminate
amalgamations by paying high prices for unsound companies
certainly accelerated the pace.

Other Companies

Of the other English companies which operated at this time
nothing much is known but what is known is interesting.

The Universal Life Assurance Go. established in England in
1836 opened a branch in 1840 and enjoyed a long period of suc-
cessful operation until it was taken over by the North British
in May 1901; insurances exceeding Rs. 10 crores were issued in
India during the time. 1 The Colonial Life Assurance Company
started in 1846 under the auspices of the Standard Life Assurance
Co. " for the purpose of extending to the Colonies of Great Britain
and to India the full benefit of life assurance and for the purpose
of giving increased facilities to persons visiting or residing in
foreign countries," started operations in India almost immediately
and appointed agents with local boards in Calcutta, Bombay,
Madras and Colombo. Greatly increased business influenced the
Standard Life to take over the Colonial Life in 1866 and the
former continued operations for a considerable time, made valu-
able contributions to the progress of insurance, especially in investi-
gating the mortality experience of assured lives in India, but even-
tually ceased writing new life business in 1938.

The Royal Insurance Co. Ltd. established in the United King-
dom in 1845 commenced Indian business almost immediately and
agents were appointed to operate a fire department in Calcutta
in the first instance and in Bombay subsequently. Fifteen years
later, probably in 1860, the Royal commeneed life business too,
but did not issue its first life policy from Bombay until 1871.
Today its life department in India is being operated on a very
limited scale.

The Liverpool and London and Globe Insurance Co. Ltd.,
incorporated in 1836 appointed Sir Charles Forbes to operate the
Indian business in 1853; the agency was later taken over by
Forbes, Forbes, Campbell & Co. Ltd. Concentrating on general
business, the company transacted only nominal life business, mainly
to oblige valuable European clientele. Records go to show that
the extra risk of residence in India was covered by extra premiums
of i per cent for Whole-Life, los. for 10 years' endowment, 155.

1 Life Insurance in India by Dr. Ray, quoting a letter from North British
and Mercantile Insurance Co., Ltd., dated 23rd August 1939.

BLUEPRINTS 271

fqr 15 years' endowment and i for 20 years' endowment; a
limited number of Indian lives were insured from 1929, but it
ceased transacting new life business on the introduction of the
Insurance Act, 1938.

The North British and Mercantile Insurance Co. Ltd. opened
its fire department in 1861 and began to transact life business
in 1864; it is still with us. The London Assurance started a
limited life business in 1864, practically all on European lives and
closed down its life department when the Life Assurance Com-
panies' Act, 1912 made submission of returns compulsory.

Available information on the working of these companies tends
to make us believe that although the early missionary societies
followed the assessment principle in many cases, the system was
gradually undergoing a change and the British companies tran-
sacted business with tabular rates and on actuarial principles.
European lives in India were subject to extra premiums probably
on account of the heavy mortality experienced by the Army (which
was the only experience available at the time). Where Indian
lives were accepted, the extras charged were heavier, but the
number of Indians insured were comparatively few.

Institute of Actuaries

The establishment of the Institute of Actuaries in 1848 marked
the turning point in the history of life assurance. The main
object of the Institute was the "development and improvement
of the mathematical theories upon which the practice of life
assurance is based and the collection and arrangement of data
connected with the subjects of duration of life, health and finance."
The evolution of the scientific ideas on which the business of life
and other forms of insurance is based is largely due to the con-
tinuous study and research of the Fellows, Associates and
Members of the Institute. The advancement of the material
well-being of millions of people all over the world has been made
possible by the application of the theories and scientific principles
evolved by these giant brains. Today on the completion of a
century of useful existence, the Institute can look back with pricle
in having made a large contribution towards the advancement
of human knowledge, human progress and the material comfort
of countless millions in the civilized world. The Institute was
incorporated by Royal Charter on 29 July 1884.

Then came the Faculty of Actuaries in Scotland which was
founded in 1856 and incorporated by Royal Charter on 21 Sep-
tember 1 968. The Actuarial Society of America, New York, was

272 LIFE ASSURANCE

founded in April 1889 and the American Institute of Actuaries,
Chicago in 1909.

Acts of Parliament

The Albert was not the only one that failed either. The
European, always a close rival to the Albert likewise, impoverished
thousands of Indian and English policyholders when it foundered
in 1870. Out of 285 life offices established in England, 174
failed during a 44-year period. The dawn of the industrial era
in England had given the public material prosperity and a bene-
volent press encouraged them to insure in large numbers. A
helpful Parliament even exempted the investment in life insurance
from income-tax. Unsound mortality tables enabled unduly high
premiums to be charged for badly selected lives. Swindlers
thrived, cheats flourished, spurious companies were floated, adver-
tised, expanded and liquidated. The public went mad and
public opinion reached fever pitch. Ministers worried and
hastily summoned the Parliament.

Earlier in 1853 Parliament had appointed a Select Committee
to report on Assurance Companies, mainly due to the
social consciousness aroused by the national press. The commit-
tee's main recommendations included submission of a valuation
report on its risks and liabilities against its assets to its proprietors,
members and the Registrar at least once every five years, and
the filing of annual statements dealing with amounts of premiums
collected, expenses incurred, details of policies, particulars of capi-
tal and investment schedule and the table of mortality and rate
of interest used in the calculation of premiums. These recom-
mendations were shelved at the time but the public outcry on
the failure of the Albert and the European compelled immediate
action and Parliament passed the Life Assurance Companies' Acts
of 1870 and 1872. These Acts made it compulsory for new com-
panies to deposit 20,000 with the High Court, until life funds
reached double the figures with powers for the Board of Trade
to control the payment and repayment of these deposits. Com-
posite companies were required to keep separate accounts
of life business, with separate funds against the liabilities to life
assurance policyholders and annuitants. Annual statements
of accounts and periodical investigations by the company's actuary
were to be published and copies signed by the chairman, two
directors and the principal officer were to be furnished to the
Board of Trade, and every shareholder and policyholder, if desired.

The Acts gave the companies as great a freedom as possible to

BLUEPRINTS 273

transact their business on legitimate lin<es without official inter-
ference, but imposed a measure of control on their methods of
valuation. The publicity involved in the production of financial
statements, both annual and periodical,, checked illegal practices
and protected the interests of policyholders. The principle ol
minimum control and maximum publicity envisaged in the Acts
remains the basis of insurance law in the United Kingdom.

Nationalisation?

Prcssuiv seems to have been brought upon the Government
of India at about this time to operate a state-controlled lite asi>ur-
ancc department, but the Government deprecated thi move by
publishing certain arguments which may now provide an interest-
ing comment on the situation in the country at the time: 1

i. The Government of India is not in possession of any suffi-
cient statistics of the value ot Native Life, and a^ European
vital statistics cannot be adopted for the Natives of this
country, it will be long be-fore materials of the kind can be
compiled; meanwhile in the absence of this information it
would be impossible to construct the actuarial tables on
which a system of assurances must be based,
ii. Even with accurate statistics of Native Life, the data for
the ascertainment of the age ot Natives of the country are
generally uncertain.

iii. The people themselves are not prepared lor the practice of
assurance; so that it would be inoperative beyond the Presi-
dency towns and the comparatively small body of Native
gentlemen throughout the country who are accustomed to
European ideas. The number who would avail themselves
of the concession would therefore in all probability be infi-
nitesimally small as compared with the public at large, and
would not be such as to justify the constitution of an
insurance office.

iv. Unless the institution were largely patronised by the public
its cost of management would bear a large proportion to the
income, and to guard the Government from loss on this
account and also on account of the uncertainty as to the
value of Native Life, it would be necessary to fix upon a
low rate of interest. This would prove an additional dis-
couragement to assurance in a country where the people
are accustomed to a high return for their money.

1 The Jubilee Brochutt published by the Oriental Government Security
Life Assurance Co. Ltd., on 5 May 1924.

18

274 LIFE ASSURANCE

v. To start a scheme of the kind, which might either occasion
loss to the exchequer or become abortive from its being
unsuitcd to the state of the country, would cast discredit on
the Government.

vi. There would be special difficulties in the way of procuring
the necessary certificates of death and the inexpediency of
any system of assurance by which a motive should be given
for the shortening of life has been noticed by Native
gentlemen themselves.

Despite these discouraging arguments insurance companies were
floated and thrived.

Industrial Assurance

The middle of the nineteenth century also saw the birth of
Industrial Assurance, originally intended to meet the demands
of a large labour-class to provide a respectable funeral for their
families. Even as early as the days of the Roman Emperor
Hadrian, clubs existed to provide burial expenses of a deceased
member, with the provision that suicide repudiated liability and
arrears of subscription terminated membership. The origin of
industrial assurance in its modern form is rightly associated with
the establishment of the 'Prudential Assurance Company' in 1848
which is today the largest insurance company of the British Empire,
with its business extended to include all classses. The early pro-
gress of industrial assurance was marked by almost insuperable
administrative difficulties, complicated by the necessity of door-
to-door weekly collection of premiums and of instantaneous set-
tlement of claims without which funerals could not be carried
out in many cases. Today industrial assurance is one of the
major branches of life insurance in England, the 1946 premium
income reaching the neighbourhood of 105,000 on something
over 100,000,000 policies with funds amounting to 680,000,000,

These developments led to the strengthening of the English
companies transacting life business, which, as a consequence, began
to organise branches in India in larger numbers, helped in their
rapid growth by the systematic efforts of the Government to
spread English education. By 1870, the blueprints of Indian
insurance were on the draft board.

CHAPTER XIV
FOUNDATION (1870-1900)

The development of Bombay from what the Duke of
Maryborough called "a paltry island" when he took it over from
the Portuguese, to what official documents later described as the
'key of India 1 took many years in the making and relentless
human effort. The outstanding statesmanship of Mountstuart
Elphinstone, one of the earliest of governors, gave a great impetus
to education and the establishment of a University later consoli-
dated it. Frequent battles brought large areas under British
administration and opened up more trade centres; two railway
systems brought those centres nearer by 1855. The establishment
of the Bank of Bombay on 15 April 1840 was followed by six
more within twenty years; likewise, the first cotton mill in 1857
t/ave a lead to six more in three years and three in the next ten.
In 1855 regular P. & O. steamers carried mails between Bombay
and Aden; in 1868 all incoming and outgoing mails were regularly
cleared in Bombay. The phenomenal development of trade and
communications increased the heterogeneous population of Born-
bay from an estimated 10,000 before 1661 to nearly 6,45,000 in
1872 crowding the inadequate, insanitary residential areas; Govern-
ment vigilance mobilised engineering skill and open spaces to erect
architectural edifices. A deliberate attempt at town-planning
gave a delicate beauty to the growing city. Schools and colleges
were opened; hospitals were built; charitable institutions sprang up
with the munificence of countless merchant-philanthropists. In time
Bombay became the centre, of Indian trade and industry.

The Civil War in America (1861-65) gave an unprecedented
spurt to her export trade in cotton and enriched Bombay mer-
chants by over 80,000,000. An uncontrolled, speculative ' share
mania ' followed and caused a minor catastrophe. Banks crashed
in the crisis, panic spread and the usually cautious businessman
lost heavily. Hardly had the panic subsided before the ignominious
failure of the Albert and the European shook the unhappy
inhabitants.

Bombay Mutual

The adventurous Bombay businessman had taken to insurance
with the greatest of ease. The export boom had considerably

275

276 LIFE ASSURANCE

increased his investable capital and registered a profitable increase
in the insurance written. The operations of the two companies
in Bombay were wide; their ramifications in the Presidency were
widespread; the devastating consequences oi the crash weiv
widely felt. People literally went mad; passions were aroused and
panic spread with incredible speed. In clubs, gardens and lounges
the people talked of the widespread ruin and misery, deeply
moved by the catastrophe and cursed the unscrupulous men
behind them. And, George Agustus Summers, Registrar of the
Bombay High Court, took a decisive step uith his characteristic
zeal.

On 3 December 1870 Mr. Summers gathered six of his personal
friends around him. And " the seven earnest men, seven willing
pockets, just seven rupees for initial expense's " gave shape to a
plan of offering insurance without the risk of ruin. wt No share-
holders " they decided, " no paid management, no preponderance
of power, but insurance for mutual benefit, self-management, and
equality of power for all participating." The lofty ideals that
animated the seven and the selfless ideas \vhich distinguished their
efforts wrote thr first chapter in the history of Insurance by found-
ing the BOMBAY MUTUAL LIFE ASSURANCE SOCIETY
LTD., the first and the biggest mutual society in India. .

" All the affairs and every transac tion of the Society must be
open to the most minute inspection of every member " affirmed
the first Articles. wi Each member may take part in the manage-
ment. Business to be conducted with strictest economy. All
profits that may accrue must be awarded exclusively to those
whose contributions have caused them and to each in due pro-
portion of his contribution." Mr. George Gahagan, a Mechanical
Engineer, Mr. David Ebenzer Gostling, Architect, Mr. John
Felican Vaz of the Military Department, J. Rich and Mr. George
Summers constituted the first Board. kt If by March of the follow-
ing year " they resolved, "it was found impossible to obtain thr
co-operation of 25 others, the scheme would be allowed to pass
into oblivion." 40 enrolled in a few days. The Society started
\vorking on 21 March 1871 and received insurance for over a
lakh of rupees in sewn days. The first balance shoot on 22nd
July disclosed 19 policies for Rs. 66,500 and the first claim in
1874 found it prospering. Reasonable rates of premium and uni-
form rates for all the members European and Indian marked a
distinct departure from the practice then current.

The members of the Board agreed to reimburse the Society's
funds to the extent of Rs. 5,000 each to meet excessive claims

FOUNDATION 277

and followed a wry cautious and sound policy. New business
was limited to what was voluntarily offered until 1918; the first
Chief Agents were appointed then and started active operations
soon. Further expansion followed in 1927 and today thr Society
enjoys a unique position.

Table No. % 48.

Rates of Annual Premium charged by Bombay Mutual

on its inception

Age Premium A*c Piemium

20 29 10 45 55 2

23 33 6 5 6 4 2

3 () 37 2 55 76 2

35 41 i o 60 <)i 2
40 46 1 4

The Standard Life Assurance Co. in their Centenary volume
( 1825-1925) mention the formation of one v Indian LilV Assurance
Go.' in 1871 with Head Office at Meerut. Nothing much is
known of this company except that it was taken over by the
Standard Life in 1878 when it had 444 policies on its books for
a total sum assured of 172,265 and 29 Annuities for .1.264
in all.

The Oncutal

The Bombay Mutual heralded the dawn oi a new era and Bombay
witnessed hectic activity in evrry sphere o! administrative, civic
and economic life. The New Bank of Bomba\ had already started
functioning in 1869. The formation of the Bombay Port Trust
in 1870 was followed by the appointment of its first Board of
Trustees in 1873 and the laying of the ioundation stone of the
Prince's Dock by thr Prince* of Wales tv\o years later. Tram
lines were laid in the wake of the first municipal elections in
1873. Sanitary conditions improved; trade developed; industries
progressed; commercial houses sprang up; a prosperous, cosmo-
politan population swarmed the metropolis; and Mr. Duncan
McLauchlan Slater, with characteristic foresight and considerable
enterprise stepped into the limelight in 1874 to launch India's
first purrly national proprietary office, the Oriental Government
Security Life Assurance Co. Ltd., which, throughout its career of
nearly four score years, has stood four-square in the forefront of
Indian insurance to shape its future with unexampled and un-
challenged piosperity.

A distinguished Fellow of the Institute of Actuaries. Mr. Slater

278 LIFE ASSURANCE

brought to bear his considerable experience of Indian insurance,
as the repiesentativc of more than one company in Western India,
upon the task of organising the Oriental, a task in which he was
ably assisted by four eminent and influential gentlemen Mr.
Kamrudin Tyabji (Chairman), Mr. Raghunath Narayan Khote,
Mr. Jehangir Rustomjee Mody and Mr. (later Sir) Pherozeshah
Mehta who, with their high business attainments and outstand-
ing personalities, constituted the original Board. To give a dis-
tinctive character and lasting stability to the new institution, and
to instil confidence into those whose faith in insurance was badly
shaken, the Oriental formulated definite and original rules of con-
duct which fundamentally remain as the basis of the Company's
distinguished progress. 1

With an authorised capital of Rs. 10,00,000, three thousand
shares of Rs. 200 each were subscribed in 1874 with Rs. 50 paid
up and by 1933 the balance of the unpaid capital on the sub-
scribed shares had been allotted as bonuses to place the total paid-
up capital at Rs. 6,00,000. Opening for business on 5 May 1874
the Oriental wrote 1 7 policies for Rs. 54,000 in seven months,
1 6 more for Rs. 68,000 in the next three, a total of 95 policies
for Rs. 3,14,000 in the first fifteen months, and has issued more
insurance and carried more business on its books than any other
company in the whole of India in every succeeding year, so much
so that fifty years after its inauguration a gentleman remarked:
" The Oriental is Indian Insurance."

Mr. Slater died in harness in November 1899. Mr. Paterson
Brown took up the reins of office then and retired in 1922 to
be succeeded by Mr. H. Edwin Jone.s on whose retirement in
1945 Mr. L. S. Vaidyanathan, the great authority on Indian
insurance today holds the distinguished office of Manager of the
Oriental.

Political and Economic Grip

As an immediate result of the 1858 mutiny Britain tightened
her grip on India. Vast numbers of Englishmen swelled the
ranks of the government; and thousands of Indians served them
chiefly in clerical, sometimes in a few higher, posts. A unified
army maintained 60,000 British troops and numerous * tempo-
rary ' British units. Elaborate land revenue codes accompanied
extensive law reforms. Communications developed. With the
opening of the Suez Canal in 1869, 25 days separated England

1 These rules are given on page 109, Chapter VII.

FOUNDATION 279

from India. A cumbersome, unsatisfactory overland telegraph
route connected London with Calcutta in 1865: in 1870 sub-
marine cable reduced the time to thirty-six hours. Railways, tele-
graphs and postal services linked Calcutta with the provincial
towns and a road net- work rose to reach them. From summer
hills and winter palaces the Viceroy and his Governors ruled the
people through their trusted officers, wilted under the strain of
constant Whitehall pressure and sweltering Indian climate and
carried efficiency to the limits of injustice. An alien, aloof gov-
ernment, dictated by London financial interests, began, with
quicker communications, to exert real, immediate power.

Quicker communications also brought local Indian markets into
the. orbit of world markets. Indian wheat, rice, tea, coffee, jute,
cotton, hides, serds and minerals fetched higher prices, enriched
middlemen and built industries in England. Native enterprise
with rare exceptions confined itself to subtle intrigue lor favours
from the sahib and to bartering away valuable raw materials for
English-made luxuries and a London-made trade policy. Exports
rose from 23 million in 1855 to ov^er 75 million in 1900 and
imports from 13^/2 million to nearly 60 million, and the impact
of British economic domination made England the strongest indus-
trial power in the world and India the poorest country. 1

Brushing aside Indian capital, initiative, skill and enterprise,
British capital built large-scale industries too. Coal mining in
Bengal and Bihar, jute on the Hooghly. cotton textiles in Bom-
bay, leather and paper in Cawnpore, Nagpur and Madras all
were developed mainly by English capital and in a few excep-
tional eases by ' acceptable ' Indian capital. This ' acceptable '
and mostly unwanted capital, nevertheless, thrived. Parsis of
Bombay, Hindus of Ahmedabad and a few Muslims took up the
trend and entered business and industry, slowly, haltingly and
cautiously. In later years they were destined to play a decisive
role in Indian insurance. To give greater coherence to their
enterprise. Britain extended their system of modern banking and
commercial law to India and linked the silver rupee with pound
sterling.

Reasonable internal and external security quickened the repro-
ductive capacity of the Indian peasant. Population rose but pro-
duction did not. Pressure on the soil steadily increased; compe-
titive bidding for available productive land was, for the* first time.

1 These figures are taken from Handbook of Commercial Information
for India, Government of Indi<i (1937), and India, by C. H. Philips,
Hutchinson's University Library.

280 LIFE ASSURANCE

introduced and morals correspondingly diminished. Ousted from
the industrial field by vested capital, a large part of Indian capital
was invested in the only other productive channel, usury. The
kisan borrowed at ruinous rates, defaulted, sold his land, and
starved. Even nature did not help him. Already impoverished,
he wilted under disastrous famines in large parts of the land
between 1866 and 1878 and again between 1897 and 1908.

And the Government slept in the cool Simla Hills. Regard-
less of the needs of the country, out of a total revenue of over
Rs. 50 crores one-third was spent on the army, one-half on the
civil administration like law courts, police and collection of reve-
nues, and strikingly small amounts on education and health ser-
vices. Higher ranks were manned by Britons at fantastic salaries
and the national army was used for imperial purposes outside
India, at India's expense, (vide campaigns in Egypt and Sudan,
1882-85, 1896, Boer War 1899 an ^ i n China 1900). A famine
policy was evolved with elaborate plans and the system was proof
against any calamity but famine. Despite the large balances of
trade, India's public debt rose to 200 million in London alone
by 1900 and British capital invested in India to over 300
millions. 1

B'nth of Middle Class

%< Through every branch of government, through every facet of
policy, English influences played with increasing force in India." 2
This influence was more pronounced in education. More colleges
produced a larger number of graduates, yet literacy never exceeded
one in ten. Education produced a pool of cheap assistants for
government service and an increasing demand for English goods.
A poor government, saddled with top-heavy civil and defence
expenses, criminally neglected learning, cultivation and the masses.
What was taught in schools and rapidly growing colleges was of
low quality, academic, impractical. Undermining culture, it
encouraged unintelligent aping of British manners, customs, ways
and produced a strongly critical orthodoxy. All the same, it pro-
duced a large urban class with the same kind of training, common
ideas and interests and similar ambitions of government service.
A new middle class was born, a class with poverty as a back-
ground and government service as its goal, and which, in later

1 Public debt was primarily for the expansion of railways- private debt
was invested mainly in tea and jute. The budgetary position lefrrs
to 1 880.

2 India by C. H. Philips, Hutchinson's University Library.

FOUNDATION 281

y^ars. developed insurance to the present stage.

Higher civilian posts were theoretically open to Indians, but
practical difficulties squeezed them out. In 1863 Satyendra Nath
Tagore dared a hostile society, braved the London examination
and* entered the Indian Civil Service: six years later three others
followed. 1878 lowered the age of entry to 19 and virtually closed
the door to Indians. Frustrated and with lew chances of learn-
ing medicine, engineering or other professions, most of the Indians
of moderate means turned to law -a very congenial profession-
and filled the law courts with distinction then and political plat-
forms with opposition later.

In 1877 Bombay Presidency alone boasted 62 language papers.
Northern India the same number, Bengal 28 and the South about
a score, besides the influential British press. Journals grew in
numbers and journalists swelled the ranks of the new middle
class.

This class steadily aped the English ways of life and bought
improved medical aid. With most of them the love to hoard
gold and silver' lingered, and ihev bought them with much of
their savings, but the rapidly invading foreign influences made
insurance attractive. And British insurance did not remain idle.

Foreign (Companies

In the wake of the conquering British trade, industry and bank-
ing, a large number of British insurers started operations. They,
more or less, conformed to a set pattern, with a few notable
exceptions. The Commercial Union Assurance Co. Ltd. (estab-
lished in the United Kingdom in 1861) seems to have been one
ol the earliest companies to establish both general and life depart-
ments during the period. Concentrating mainly on general busi-
ness it achieved a large measure ot success right from its entry
in 1870 but was never unduly keen on expanding its life organisa-
tion; nevertheless it insured a few European lives but closed down
the lite branch in 1938 when 516 policies assuring nearly Rs. 38
lakhs and guaranteeing annuities for about Rs. 11.000 annuallv
were on its books. The company is still a force in general business.

Incorporated in 1865, the Sun Life Assurance Co. of Canada
actually began operations in 1871 and established an experimental
agency office in Bombay in 1892. Encouraged by splendid initial
success the company very soon expanded its Indian activities with
a chief organising office at Bombay. Aided by such wonderful
organisers like the late Sir Phiroze Sethnn (who joined it in 1901
jnd took ovrr charge in 1920 from Mr. J. A. D. McBain, C.I.E.)

282 LIFE ASSURANCE

the Sun Life built up extensive connections, and incidentally
writes the largest volume, of new business today of all foreign com-
panies in India.

The Gresham Life Assurance Society of England likewise com-
menced operations in 1893 with Croft Mody & Co. as agents
and achieved remarkable success. Greatly increased business made
the opening of a separate branch inevitable in 1937 and the
Society has latterly made splendid progress.

Of the other foreign offices that entered at this stage there is
little or no information; most of them, however, withdrew subse-
quently. Government exercised practically no control; no law
governed them except the regulations of their own country of
origin; no statutory deposits or returns were required; and *no bar
existed on the transfer of unlimited funds out of India. The
Commercial Union withdrew in the face of the restrictive provi-
sions of the Insurance Act 1938; the Sun Life of Canada and
the Gresham arc with us now; the others cither amalgamated or
withdrew. Nevertheless bare details of five more offices which
began operations at that time may be given although the methods
of their business or the extent of their organisation are shrouded
in mystery.

The City of Glasgow was the first of these and became also
the first of the foreign offices to charge uniform rates of premium
for European and Indian lives. Opening up a branch at Cal-
cutta in 1 88 1 the City of Glasgow built up extensive connections,
wrote a large volume of business on Indian (and European) lives
and finally amalgamated with the Scottish Union and National
in 1913.

The Equitable Life Assurance Society of New York, reputed to
have been the world's largest fife office of the time, decided to
extend its operations to India and the East, in the eighties of the
last century. With a wonderful organiser in the person of one
Mr. Dasborough in charge of their Indian and Eastern activities,
the Society began active operations in India about 1882, wrote a
substantial volume of business within a few months and was forced
to withdraw shortly in rather tragic circumstances. For during
an explorative tour of Burma and Ceylon after his short, successful
work in India, the indefatigable Dasborough had an attack of
cholera and met with an untimely end. Tragedy awaited three
successive agents who followed, and prevented others from ven-
turing out. The Indian obligations were dutifully met through
the agency of a British Fire office.

The New York Life Assurance Company followed the Equit-

FOUNDATION 283

able in 1885, and charged uniform premium rates to both Euro-
peans and Indians. Nevertheless it insured more British lives than
Indian till 1900, when the liberal terms offered by many British
offices partly induced many British residents to turn away and
enabled the company to write more business on Indian lives. The
New York Life eventually transferred its Indian liabilities to the
Sun Life of Canada and withdrew in 1922. Its experience of
mortality during 1885-1921 was investigated by Dr. Arthur Hunter
and published in I926. 1

The Sun Life Assurance Co. of India Ltd., an offshoot of the
Sun Life Assurance Society of London, was floated in London on
20 June 1891 precisely to operate Indian business but was taken
over by the parent office at the end of 1896; the Sun Life of
London continued operations upto January 1907.

The precise year in which the London and Lancashire Life
and General Assurance Association entered India is uncertain but
unsatisfactory mortality experience is believed to have influenced
its withdrawal in 1907 after about fifteen years.

Pattern of Development

The pattern of development remained the same. Demand for
general insurance cover, especially fire and marine, induced many
British offices to branch out, either under pressure from their
4 home connections ' or as a business adventure, obliged valuable
customers, their friends and dalals with suitable life policies and
strictly limited thrir field to the British community and selected,
Anglicised Indians with the exception, of course, of the purely
life offices like, the Sun Life of Canada and the Gresham. Fos-
tered by influential London business interests and encouraged by
a protective imperial power, the power of the general insurance
companies developed in later years to a near-monopoly which is
almost retained even today, even with the growth and strength
of Indian insurance. That the purely life offices had a good field
is illustrated by the striking success they achieved. " No statistics
obtainable, could give any guidance except in the most general
way possible as to thr prospects of life of the Indians " wrote one
Branch secretary " but as a rule their expectation would be much
better than the average of their respective castes. The mere fact
of an Indian seeking life assurance would indicate that he was in
a fairly comfortable position in life, likely to have inhibited more
or less European ideas as to sanitation and cleanliness, the

1 Journal of the Institute of Actuaries, Vol. LVII.

284 LIFE ASSURANCE

advantages of medical treatment and so forth. " Typical of thr
British mind at the time, it gives the reason why the percentage
of Indians among the policyholders of foreign companies was
extremely low. " A rigid system of selection will have to be
adopted. The expectation of life of a first class Parsi, Hindu
or Mohammedan is, I am convinced, quite as great as a Euro-
pean living in India." '

Largely due to insufficient statistics, or maybe, dictates of
considered policy, ' 10% extra ' on Indian lives was charged by
English companies but the practice was neither universal nor uni-
form. The City of Glasgow, for instance, applied uniform rates.
Another office accepted merely Parsi lives at European rates, and
the rest at increased premiums. No one knows which or how-
many companies operated at the time, nor how much insurance
was written and at what rates.

Mutual Aid Societies

But this much is certain: communal groups split up the new
middle class. Favouritism in the city offices, and separate reser-
vation of seats to groups for statutory civil services coincided with
a general religious revival. The torch oi renascent Hinduism lit
by Ram Mohan Roy was upheld by Dayanand (Arya Samaj
1875) and Swami Vivekananda (Ramkrishna Mission, 1879).
Sayyid Ahmed (Anglo-Oriental College, Aligarh, 1877) carried
the torch among the Muslims. 2 The ideas were timely, exciting
and spread. The enlightened urban class and disappointed gra-
duates took up the idea, deplored the alarming economic life of
the clerk and his family and founded mutual aid associations
small, useful, sectarian societies chiefly centred in Bombay and
Madras, which even in 1950 have not outgrown their utility.
The Hindu, the Christian, the Parsi and the Goan each had his
own society, \\ith honorary officers, low premiums and no agents. 3

Indian Life

When Lord Ellenborough, with little justification, annexed
Sind, he found a large Goan settlement in Karachi. They had

* Life Insmanee in India, by R. M. Ray.

- Sir Sayyid Ahmad also created a Muslim Patriotic Association in
1888 to focus Muslim opposition to the Congress, using a prominent
Allahabad English newspaper, as his mouthpiece.

3 The chief among them are: Bombay Widows' Pension Fund (1876),
Indian Ordnance (1883), Indian Christian (1884), Goanese Mutual
(1885), Mangalore Roman Catholic (1888), B. B. & C.I. Zoroastrian
(1888), Parsi Zoroastrian (1888), Bombay Zoroastrian (1889), Gujerat
Zoroastrian (1891) and Hindu Mutual (1891).

FOUNDATION 285

probably migrated from the small Portuguese port in Western
India and were ' thrifty, not particularly wealthy, but honest,
deeply religious and careful in the ways of life.' By 1892 their
leaders had recognised the need lor mutual aid; on 7 March
18912 the Indian Life Assurance 4 Co. Ltd. was registered in Karachi
with Mr. L. C. Duartc as Secretary and an enlightened Board oi
able men, deeply urged by a spirit of hard work and public ser-
vice as directors. As early as 1892 the Indian Life introduced
the novel idea of elei ting a Polic yholders' director to the Board.

"The formation ol the company v\as the outcome of a scheme
for organising a Mutual Aid Association, a lorm of insurance very
popular at the time. A < archil examination of the subject revealed
the very unsatisfactory nature ot the- assessment principle on which
such institutions were based and the idea was abandoned in favour
of an insurance company on an actuarial basis. The chiel diffi-
culty was thc^ absence of suitable tables for Indian lives. It was
finally decided to adopt the Northampton Mortality basis, but as
the various tables required to calculate the premiums, etc., were
not rvadily available, they were worked out, with an incredible
amount of labour, cheerfully undertaken by Mr. L. C. Duarte
with whom the idea of the formation of the company had origin-
ated and who so successfully developed it."

The early historv oi the Indian Life was a remarkable story of
incredible- labour, sacrifice and patience*, particularly on the part
of Mr. Duarte who held the office of secretary continuously for
25 years. An interesting sidelight on his spirit of sacrifice- is evi-
dent from the fact that the Articles provided 10 per cent of the
gross premiums lor expenses but the office spent Rs. 2,431 during
the first fifteen months including preliminary organisation. This
strictly economic management laid the foundation of future sta-
bility and steady progress.

Indian Life confined its operations to Karachi, Bombay, Goa
and East Africa for several years; opened other centivs of busi-
ness in 1934; registered remarkable progress as an all-India organ-
isation, and serve-s the insurance needs of all communities alike.
In 1947 partition removed its head offie-e to Pakistan, but in* no
way affected its service to the Indian public-, for Bombay has since
been developed as the Chief Operational Office for the whole of
India. It is perhaps the only office to grant future participation
in profits to paid-up polieyholders.

The Empire

The cold season of 1896-97 was marred by a severe outbreak

286 LIFE ASSURANCE

of plague in Western India. It raged virulently in Bombay and
Poona, dislocated trade and normal life, strained the resources
of companies writing life insurance and held up the commence-
ment of business of the Empire of India scheduled on i January,
1897. Coming out to India in 1888 in the service of an agency
firm of an English Life office, Ernest Frederick Allum saw great
possibilities for life insurance and in co-operation with Rustomji
Bharucha registered the Empire on 21 November 1896. On ist
March of the following year was held the first ordinary general
meeting with Mr. (later Sir) Pherozeshah Mehta (Chairman),
Abdulla Dharamsi, Chubildas Lalloobhoy, David Gostling and
Allum as directors. Renowned for his original contributions to
actuarial science in the application of higher mathematics to
problems in life contingencies, Sir George Hardy, the eminent
actuary, prepared, in his capacity of consulting actuary, rates of
premium to provide the largest possible immediate assurance, con-
sistent with safety, in return for a given outlay, in preference to
distributing large bonuses. " Large bonuses," he argued, " were
in fact necessarily precluded by the very moderate scale of pre-
miums adopted. The with-profit premiums of the company are
much lower than the non-profit premiums of most companies and
every policyholder may be said to receive at the outset a substan-
tial bonus in addition to his policy in the shape of a larger sum
assured obtainable for a given outlay."

With a small paid-up capital of just over Rs. 50,000 hard work
and conservative policy built up a large business and earned for
it a very high reputation among Indian companies. Concentrating
mainly on life insurance, the company, nevertheless, issued Fidelity
Guarantees, and paid shareholders' dividends out of the profit^
of this department, leaving life profits free for distribution to
policyholders.

Planned to issue 2000 shares of Rs. 500 each (Rs. 50 paid-up)
Allum and Bharucha limited the issue to 1030 shares. Subsequent
calls increased this capital to Rs. 3,09,000 in 1933, to Rs. 4,12,000
in 1935 and to 5,150 fully paid-up Rs. 100 shares in 1936.

Bharat

Right upto the end of the century, the conquering British trade
and industry held the upper hand. The small sectarian societies
merely scratched the surface of the problem and the Indian pro-
prietary companies were up against stiff opposition. Foreign
offices met most of the need for insurance and enjoyed a near
monopoly. The * 10% extra' was still common and enlightened

FOUNDATION 287

men like the late Lala Harkishanlal resented the invidious dis-
tinction. " Never in the Punjab," h^ said, " will we allow the
Britishers to treat Indians with a difference. When we 'take up
insurance we will do so on equal terms." And so in August 1896
determined to 4 beard the lion in his den * the late Lala
Harkishanlal, the patriotic ' Napoleon of Indian Finance ' as he
was then called, launched the Bharat Insurance Co. Ltd. at Lahore
with the patronage, co-operation and assistance of Rai Bahadur
Lala Pyare Lai, Bhagat Ishwar Dass, Lala Balmokand and Lala
Prabhu Dayal. With his pioneering zeal, undaunted courage and
unerring business acumen, Lala Harkishanlal worked and won.
The late Lala Cyan Chand (born 1867) known the world over
for his conspicuous ability and knowledge of insurance matters,
helped Bharat to lay firm foundations. Cyan Chand had earlier
started thv Punjab Mutual Hindu Relief Fund in 1893. Joining
thv Bharat in 1898, Cyan Chand was promoted as Manager in
1903, held the post till his death in 1906, and was the first Indian
to be elected as a member of the International Congress of Actu-
aries in New York, 1903.

Lala Harkishanlal was, if anything, original and Bharat made
insurance history in those early days. The Lala's preference for
investments in the shares and debentures of Public Utilities, espe-
cially Electric Supply Companies, gave power to many cities in
the Punjab and helped to dewlop them industrially. Bharat is
the first company to grant reduced premiums for assurances
donated to charities.

After an initially steady progress Bharat had a setback in busi-
ness with the onsvt of the economic depression in 1927. Within
a few years, Seth Ramkrishna Dalmia stepped in and when the
control of the Bharat passed over to him in August 1936 a new
era of prosperity dawned.

A Conspicuous Personality

Many outstanding personalities of the age gave their unstinted
support to insurance and made its influence felt far and wide.
The late Sir* Phcrozcshah Mehta for example was one of those
giant figures in Indian public life who with his uncanny foresight
and unerring business judgment gave this new experiment all the
support it needed. Most of those who were connected with the
foundation of insurance in India have been mentioned, but with-
out minimising the good work of all those great men, there is one
figure who needs special mention.
Conspicuous with his prominent ears, broad forehead and small

288 LIFE ASSURANCE

lean face adorned with fully grown moustaches and a neatly
trimmed beard, architect David Gostling designed more than
buildings. Interesting himself in aeronautics as a hobby, he started
designing and constructing an aeroplane in 1880. As a public
figure he helped George Summers in promoting Bombay Mutual
and Ernest Alluni the Empire, served both companies as a Founder
Director and was chairman of the former during 1890-1907. His
foresight and intellectual achievements arc manifest today in the
large hydro-electric' power schemes for providing Bombay with
electricity and on his death one of the lakes in the scheme was
named after him.

Thus, during a thirty-year period the firm foundations of life
insurance were well and truly laid in India. Three enlightened
Europeans, a iniddk* class Goan society and a patriotic Indian,
aided by the courage and faith of countless friends both among
Europeans and Indians, were the guiding spirits behind thr
wonderful experiment. Virtual lack of competition and an almost
unlimited field which was daily growing in extent, encouraged it,
fostered it and made it expand. Conservative and able manage-
ment made the solid foundations secure. And advanced scientific
principles consolidated the companies.

We acknowledge

a bouquet from a veteran Insurance writer

jo* 3 **^***^ 1 *

i -a* ^**/.'' Jl&f*'fr ** F*/<n-wn* Vtac arrlaim *A Tnrltart Tiff *. 9. V

M $**&*'/ '*? "Everyone has acclaimed Indian Life as

' J ''$*

"""N'"' offices Students of life assurance probl

this Company in their highest esteem for its record
'O', been a model and can be compared with any Lift

Office, Indian or non-Indian can challange

v o ' ; /"j 1 * aex.
V . \vA ^ *.'".*. any other company so far as solid, sound -

"_*'_.. T *'*, J

v -. .v v/> ' w;v /

as * p-Mr^N ly-

* "m\??

lems hold V*UV' C'

ta ^|-
ife ^v .*

and fir6t cla " business is concerned. M

THE INDIAN LIFE ASSURANCE CO LTD

FaktsUn with lureud Liabtttif

ESTD. I8W
t for h>4,<i ILACO Hou^ft, Sir Phironhfth MchU Road, BOM BAY.

CHAPTER XV
FRAMEWORK (1900-1912)

" Be fearless, be strong " reverberated through the large assem-
blies of people in the lowliest village of India to the largest city
of the United States and in Europe, Egypt, China and Japan,
who listened with rapt attention to the dynamic personality of
Swami Vivekananda. Wedded to a life of service and sacrifice,
this ' fine figure of a man, robust, simple, non-chalant, and self-
confident,' electrified v^hole nations^ taught a new conception of
life, infused courage into fearful hearts and revitalised the depres-
sed and frustrated middle classes of India with this eloquent tonic:
u what our country now wants are muscles of iron and nerves of
steel, gigantic wills which nothing can resist, which can penetrate
into the mysteries and the secrets of the universe and will accom-
plish their purpose in any fashion." For they had cause to become
desperate.

Ancient crafts and traditional avocations had long ago vanished
from the unfortunate Bengal and foreign rule had drained every
ounce of its wealth; diplomacy and superior military strategy
had subjugated the brave Mahratha warriors and their traditional
regal glory. The bulk of India's people steadily became poorer;
the aristocracy remained aloof and unconcerned; the orthodoxy
was strong and critical; religious renaissance gathered momen-
tum. The colleges produced more graduates than were absorbed
in government services; the government admitted qualified men of
superior calibre merely to the lower ranks of subordinate services,
leaving frustrated hopes and unfulfilled ambitions to seek retalia-
tion. And Bal Gangadhar Tilak rose in Poona to give them a
lead.

Political Consciousness

A political conference held in Bengal in 1883 was followed by,
another in 1885 and then passed into oblivion. Allan Octavian
Hume, son of a radical member of Parliament and himself a retired
civilian, said in Bombay: "Every nation secures precisely as good
a government as it merits. If you, the picked men, the most
highly educated of the nation, cannot, scorning personal ease and
selfish objects, make a resolute struggle to secure a large share in
the management of your affairs, then we, your friends, are wrong

19 289

290 LIFE ASSURANCE

and our adversaries right." With Sir William Wedderburn, 1
Robert Knight and a group of leading, progressive Indians, and
with the blessings of Viceroy Duffcrin, Hume founded the Indian
National Congress in 1885. It met year after year at different
centres, attracted the older middle class lawyers, doctors and
journalists from the cities and a few aristocratic groups from the
villages; passed resolutions affirming loyalty to the crown; prayed
for the election of 50 per cent members to the Legislative Coun-
cils; petitioned for holding Indian Civil Service examinations
simultaneously in India and England; and occasionally protested.
Ignoring these demands and the protests, yet largely due to them,
Viceroy Dufferin moved Whitehall in 1892 to increase Indian
representation on the Central and Provincial Councils and to
allow discussions on the, budget; and, to appease the reactionary
elements in England, declared " The changes denote nothing
revolutionary; in no sense could this be construed as an approach
to English Parliamentary Government and an English constitu-
tion." But Tilak retorted: "Swaraj is our Birthright." u Swaraj
is our birthright " rang through the hearts of thousands of young,
educated Indians, who were politically and economically frus-
trated and who had imbued the doctrines of Burke and Mill to
the full. " The cause of all our ills is foreign rule " they asserted.
Lord Curzon, energetic, powerful and purposeful, followed Duf-
ferin, despised the young Bengali intellectuals particularly and
taunted them with such ' reforms ' as the partition of Bengal.
Aggressive leaders rose up; a nation-wide protest denounced Bri-
tish rule, British institutions, and British personnel; a great poet
sang " Vande Mataram " which stirred up mass emotions then
and national movements later. Revolutionary slogans rent the
air; a wave of terrorism swept large parts of Bengal and Maha-
rashtra; people were arrested or deported; moderates like Gopal
Krishna Gokhale succeeded largely in curbing violence; and the
Congress emerged as a constitutional organisation. The heart of
the young people however remained with Tilak.

Progress

In such a setting did Indian insurance receive its first great
support from the public. The wave of violent political emotion
confined itself largely to the city intellectual middle class and
political movement became wedded to cultural revival. Peasants-
remained unconcerned and poor in the grip of orthodox tradi-

1 Sir William Wedderburn was himself a retired civilian and an in-
fluential M.P., Robert Knight was the owner-editor of the Statesman.

FRAMEWORK 291

tions and feudal domination. When economic boycott affected
British goods, the small but growing commercial community
prospered; and when the boycott was extended to British insti-
tutions^ insurance got its full support. Neither countrywide nor
deep-rooted, the movement exerted no permanent grip, but while
it lasted, gave the much- needed tonic to Indian life offices, ema-
ciated by the recent plague which had considerably strained their
resources. 1 The scientifically promoted, and economically man-
aged older offices fully deserved this support, which enabled them
to lay firm foundations for future strength and growth; thus:

Table No. 49

Name Year Business in force Funds

Rs. Rs.

Oriental 1904 8,88,02,223 2,37,58,377

Indian Life 1902 10,86,440 2,22,748

Bharat 1907 55>9 8 > 6 9 5>5;5

Empire of India 1907 1,28,90,157 16,51,107

Bombay Mutual: From 1871 to 1923 one per cent bonus was
declared. In 1895 fifteen per cent of the total premiums
paid were refunded.

(Source: Various publications issued by the respective companies.)
Yet they did not receive all the support they deserved.

Lack of Support : Rural India

Increasing pressure on land as a result of increased populations
and static productions made the poor peasant desperate. Drawn
from the old Vaishya caste of Hindus, the village trader and
banker met the simple needs of the farmer, his simple luxuries
and his frequent demands for loans for marriages and festivals.^
The rates of interest were high, the amounts of repayment low
and the periods infrequent. Poverty grew, so did rural indebted-
ness. Lands were mortgaged and eventually c sold ' ; land-owners

1 During the three years 1895, 1896 and 1897 when plague was most
virulent, the Oriental paid Rs. 30,91,709 in claims compared to
Rs. 19,31,439 during 1892, 1893 and 1894, trie difference being partly
due to the increasing liabilities of the company and also very materially
to the widespread sickness.

292 LIFE ASSURANCE

became tenant-farmers and frequently farm-labourers; and local
traders emerged as new landlords. Thus grew up the anomalous
sight of the enormously rich zamindars and the alarmingly poor
peasants. In any case, Rural India preferred the ancient secu-
rity of land to the modern security of insurance.

Support : City Middle Classes

But it assisted the development of insurance in another manner.
Drawn from the countryside, the city clerks, lawyers, doctors and
journalists had their roots still in the villages and had dreams of
owning lands there on retirement. Life insurance, and parti-
cularly endowment insurance, offered the easiest way of accu-
mulating money to realise those dreams, and presented an attrac-
tive form of investment, for fairly large interest earnings and low
overhead expenses gave fairly good returns. Provisions against
death remained, (and still largely remains) a minor consideration.

Growing social needs created a new social order and changing
economic needs made it anomalous. Thus the attractive govern-
ment service demanded a costly higher education, depleted family
fortunes and created fabulous dowries to rebuild those fortunes.
This upset the social equilibrium for a number of daughters
could usually impoverish a man. But when the deep-rooted cul-
ture that respected learning and regal associations came to respect
the educated young men in government service the dowries pro-
vided generous gifts to his large circle of friends and relations
who gathered around him at marriages. The father, beggared
by depletion of wealth either through daughters' marriages or
sons' education or both, went to live with the sons; the son,
burdened by a teen-age marriage and a very large family, lived
in daily desperation. Larger families at younger ages coincided
with higher dowries and lower incomes. Special schemes like
marriage endowments, upanayanam endowments and educational
endowments, met the special needs of the middle class and
earned a large measure of support; the first two are typically Indian
and with changing conditions are slowly losing ground. Unfortu-
nately educational policies did at no time reach the popularity
they deserve from a society which held sons' education secondary
to daughters' marriages.

Insurance as an institution was new. Ideas of group security
lingered through years of joint family and fought the onslaught
of individual security that insurance offered but although the joint
family system itself was fast disintegrating, age-old customs, in-
grained traditions and national traits died hard. About this time,

FRAMEWORK 293

it is recorded, fear of premature death tabooed both photography
and insurance.

Racial and religious differences influenced the commercial life
of the rapidly growing trade centres. Thus the socially-advanced
Parsis, whom a rigid caste system had kept away from the Hindus,
had more ready accession to British society, more easily adopted
western ideas and largely supported British offices and those of
the Indian offices with which members of their community had
close associations. Despite their increasing stake in trade and
industry, the Hindu mercantile class lent insignificant support to
insurance except where close business connections demanded it.
Individual Muslims like Kamruddin Tyebjee and Abdulla Dha-
rarnsi had taken considerable part in the promotion and progress
of individual insurance companies, yet Muslims as a whole kept
away from English education for a long time, took little interest
in the growth of Indian industry and generally avoided insurance,
partly due to their feudal modes of thought and partly to Islam's
prohibition against interest on money. The turn of the century
made a gradual but decisive change in this view. Life insurance
thus received a large measure of support at this time, spontane-
ously from the city middle classes, sporadically from the city com-
mercial circles but none at all from the poor rural India.

Swadeshi

Meantime industry progressed. Jute mills rose from about 30
in 1900 to 60 in 1910 (invested capital Rs. 10 crores). Cotton
mills registered over 100 per cent increase in loomss and rose
from 175 in 1900 to 250 in 1910 (Bombay Presidency alone
producing 75 per cent of the total cloth manufactured). The
Bengal Iron & Steel Go. was already operating from 1875. Coal
fields expanded in Bengal and Bihar. Leather works tanned the
hides and exported them. Sugar fields produced more canes for
export. But in all these undertakings foreign capital dominated
and foreign initiative held, with the exception of the Bombay
and Ahmedabad Textile Mills. Foreign trade registered a 40 per
cent increase; Britain had a near monopoly of foreign imports'
with Manchester textiles, iron and steel predominating and an
absolute control over Indian exports. More middlemen made
larger profits; the Indian bepari sold to the British merchant;
and foreign insurance monopolised the general field without a
rival. At this stage the swadeshi movement whipped up swadeshi
enterprise.

That Indian enterprise could successfully compete with foreign-

294 LIFE ASSURANCE

owned industries was amply demonstrated by the Hindu and
Parsi millowners of Western India. The age-old traditions of trade
and manufacture for which the enterprising peoples of Gujerat,
Kathiawar and Kutch were justly famous had at no time received
any serious set-back and changing times had merely changed the
methods and materials of business. When therefore the sporadic
outbursts of violence was followed by a spontaneous boycott of
British goods and national leaders stressed the need for national
industries and national financial houses, Western India gave the
lead. Small-scale industries grew up on a large .scale and success-
fully displaced foreign consumer goods partially; Indian-owned
commercial houses competed vehemently with established foreign
firms; and a number of banks rose to serve them. The enter-
prising Bombay businessmen under the guidance of Sir Man-
mohandas Ramji founded the Indian Merchants' Chamber in
August 1907 to give a lead to Indian business. And the pioneer-
ing zeal of Sir Jarnshedji Tata with uncanny vision and out-
standing business acumen, floated the Tata Iron & Stcql Co. Ltd.
in 1907 and opened the giant steel works at Jamshedpur four
years later, to bring Indian industry into the orbit of world
industries.

An Indian Fire Office

And Bombay broke the absolute monopoly of foreign general
insurance. In 1907 Sir Manmohandas Ramji, swith the support oi
the Native Piecegoods Merchants and imaginative Indian business-
men founded the Indian Mercantile Insurance Co. Ltd. and
made a modest but determined entry into the field of fire insur-
ance; steady progress in subsequent years enabled the Indian
Mercantile to open life business twenty-five years later.

United India

In 1906 seventeen Indian life offices wrote nearly Rs. 2 crores
of new business against very keen foreign competition; by 1912
fifty-four companies wrote a crore more. On I March 1906 a
few enthusiastic leaders of Madras decided 'to start thr . .United
India 'to place within the reach of persons, of small incdmes^the
manifold advantages pf life insurance and to afford them an
opportunity of insuring in a company which they could call tlwir
own'; in ten years the total assurance reached Us. 16 lakhs.
With rare foresight Chairman Sir M. Muthia Chettiar/had the
Official Trustee of Madras appointed as Trustee for the Com-
pany's funds. A unique feature of its subsequent splendid growth

FRAMEWORK 295

is the opening of Divisional Offices at Delhi and Calcutta to
function as miniature Head Offices.

National Indian

In Calcutta national leaders extolled the importance of insur-
ance in extricating India from the foreign economic grip and Sir
Rajendra Nath Mookerjee gave a practical shape to the idea.
With Martin & Co. as managing agents and a ' galaxy of knights,
prominent businessmen, eminent scholars and leading public
figures ' on the board, Sir Rajendra Nath founded the National
Indian in 1906, made remarkable progress in a very short time
and laid firm foundations for future prosperity through sound
underwriting, rigorous selection and efficient management. The
National Insurance Co. was established in the same year.

Hindustan Co-operative

A year later came the great Hindustan Co-operative. With
the first dawn of national consciousness, great leaders like Dr.
Rabindranath Tagore, Mr. Brojendranath Roy^Chowdhary and
Deshbandhu Chittaranjan Das rose to wrest the economic free-
dom of Bengal's frustrated people from the tight grip of foreign
domination through the Hindustan; a devoted and enlightened
directorate, scorning personal gains, .agreed to " regulate the
administration and investments of the company in such a way
that the interests of the policyholders would be predominant";
a zealous band of energetic workers took the message of the
Hindustan to an ever-widening circle, skillfully, enthusiastically
and persistently. To such lofty ideals and solid foundations does
the Hindustan owe much of its subsequent admirable progress.

General

While these developments gave a great impetus to life assur-
ance in the larger cities of Bombay, Calcutta and Madras the
rest of the country was comparatively unaffected 1 with the notable
exception of Ajmer, where with the establishment of the General
Assurance Society in 1907 insurance received an enthusiastic res-
ponse. Sound underwriting and scientific management enabled

1 The turn of the century saw the expansion of the existing .organisa-
tions of the old offices. The Bharat opened a few branches in the Punjab
soon after its inauguration, the Empire appointed Chief Agents in Cal-
cutta in July 1897 (it operated with chief agencies for a long time before
replacing them with branches), the Oriental opened a branch at Madras
in 1901, Colombo in 1903 (this was the first time an Indian office
extended its operations outside India), Calcutta in 1906, Rangoon in
1907 and at other centres later.

296 LIFE ASSURANCE

the General to make steady rather than spectacular progress in
the earlier years and by 1942 it commenced operating fire and
marine business.

Bombay Life

And Bombay did not lag behind. Responding to the national
call for nationalising commercial services Sir Lallubhai Samaldas,
Mr. C. V. Mchta, Mr. C. D. Suraiya and Mr. F. R. Joshi, four
distinguished men of business, with a fine record of outstanding
commercial attainments and great influence in the city financial
circles, entered the field of insurance, approved a tentative scheme
of starting a life office formulated by Mr. K. Subramania Iyer,
registered the Swadeshi Life Assurance Co. on 4th March 1908
and wrote the first policy on i November of the same year.
Five years later a political atmosphere surcharged with suspicion
and prejudice prompted the promoters to change the name to
Bombay Life from Swadeshi Life. In 1909 business in force stood
at Rs. 5/2 lakhs, trebled itself in two years, reached nearly a
crore by 1925 and today stands at over Rs. 15 crores. With a
fine record of economic management, Bombay Life was one of
the earliest companies to establish branches outside the shores
of India.

Asian Life

Two years later (in 1910) the Asian Life was promoted.
Founded by a group of influential businessmen, Asian made a
cautious but steady progress and built up extensive connections.
Originally constituted for the purpose of transacting life assur-
ance^ the Asian now transacts fire and accident business too.

But all was not well. Of the thirty-eight life offices floated
in quick succession over a ten year period (1903-12) only the
Co-operative Assurance of Lahore (established in 1906 now
shifted to Amritsar), the India Equitable of Calcutta (1908),
the Arya Insurance Co. (1910) and the Methodist Annuitant of
Madras (1911) besides the offices already mentioned remain
today; eleven of the sixteen offices started in Bengal, five of the
eight in Bombay, four of the six in Madras, and six of the seven
in Punjab were liquidated most of them within a year. And
the cause was fairly obvious, for the initiative rested mainly with
the middle class. Taught and trained merely for professions or
subordinate services, the new middle class proved unresourceful
managers. Inexperienced in the promotion, organisation or con-
duct of the business, devoid of natural aptitude and business

FRAMEWORK 297

acumen, they entered, influenced a few leaders of public opinion
to join the Board, sold a few shares, wrote a few policies and
closed down when their operations were put to the test of actu-
arial soundness. The process was widespread and menacing.
The less ambitious of them founded Provident Societies small,
uneconomic units based on the model of the Friendly Societies
of England and over 500 of them existed at the end of 1911.
Though small in scope and business, they nevertheless contained
seeds of incalculable harm in the hands of unscrupulous people,
and caused widespread alarm by their questionable conduct and
unsound management.

Bideshi

Despite the formation of so many life offices and an under-
current of anti-British sentiment pervading the country, foreign
offices established themselves in larger numbers and, in common
with those already in operation, received the largest support.
With the complete patronage of the entire European population
and the consistent support of the Europeanised Indian society,
who between them had the largest per capita income, they wrote
considerably more business than all the Indian companies put
together. The Scottish Amicable Life Assurance Society appointed
Balmer Lawrie as their agents in Calcutta, flourished for a short
period of seven years and ceased operations in the beginning of
1909. The Scottish Union and National Insurance Co. started
work in 1905, confined itself to Europeans only but in 1913, when
the City of Glasgow was amalgamated with it, admitted both
European and Indian lives at uniform rates. This company
works in India to this day. The Liverpool Victoria Insurance
Corporation operated in India from its inception in the United
Kingdom in 1906 and did a fair volume of business until it was
absorbed by the Commercial Union in 1913. The Norwich
Union commenced working in India in 1908 and is today very
popular.

Of the other foreign offices operating at the time nothing much
is known, but mention may be made of the English and Scottish
Law Life, Law Union and Crown (which was the combined
office of Law Union and Crown Life and which later took over
the Rock Life in 1909 before finally amalgamating with the
London and Lancashire in 1919), Northern Assurance Co., Provi-
dent Life, Phoenix, Royal Exchange, Star, Scottish Metropolitan,
Alliance, Atlas, China Mutual, London Assurance, National
Mutual of England, National Mutual Life Association of Australia

298 LIFE ASSURANCE

and Manufacturers Life of Canada, all of which arc known to
have established branches in India either at this stage, or earlier.
Most of them have now completely withdrawn from India, or
have limited their activities to the general field.

GOVERNMENT CONTROL

Foreign Developments

The enormous growth of insurance in the United States during
the last twenty years of the nineteenth century created feelings
of doubt in public qiinds regarding the financial condition and
management of the larger companies., especially as maladministra-
tion, unsound practices, negligence and common abuses were evi-
dent in the operation of many offices. In 1905, a legislative
enquiry into the conduct of life insurance companies in New York
State was instituted under the chairmanship of Senator Armstrong,
and as there is a strong parallel between the conditions in Ame-
rica then and those in India forty years later (vide the Cowasjee
Jehangir Enquiry Committee, 1945) the matter deserves more
than a passing reference.

" Whether the companies were solvent and whether their
affairs had been mismanaged and their funds squandered were
questions of vital concern, not only to their millions of policy-
holders, but to all men of affairs, in this country at least, whose
interests might be affected by an investigation of such financial
matters," writes G. A. Henderson in Histoiy of the Insurance
Investigation. Very exhaustive testimony was taken and the
fullest scope was given to the companies to present their case.
" The Armstrong Investigation revealed negligence of manage-
ment of many of the larger companies. It also found a financial
alliance with banks which used insurance funds in large amounts
for their own purposes. Insurance companies had acted as parti-
cipants in financial syndicates, thus diverting attention from the
business of insurance. Moreover, financial extravagance had
become widespread. Commissions and salaries were excessive and
large sums were spent in legislative lobbying. Remedial measures
(too extreme in some instances) for almost all of these abuses
were speedily enacted. Stocks were excluded from investments
of insurance funds in the future and those then held were
to be disposed of. The remedial legislation of 1906 in New York
established a standard codr which was widely copied by other
states. . Other states passed regulatory laws, establishing commis-
sion schedules for agents, controlling new business budgets, sur-

FRAMEWORK ' 299

plus, policy, dividends, publicity and the like. Standard policies
with limited amounts of insurance on individual lives have also
been prescribed by the insurance companies." 1 The very strict
control which the State Insurance Departments have exercised
since then has enabled American offices to expand considerably
on scientific lines and write the largest per capita insurance in
the world.

England

Conditions developed in the United Kingdom at this time,
especially in industrial assurance, which called for a revision of
the Life Assurance Companies Acts 1870-72 and the Assurance
Companies Act of 1909 was passed. Enlarging the scope of
Insurance Law to include all classes of insurance, the Act followed
the principles of the earlier Acts of 1870-1872 many of the provi-
sions of which were incorporated. The rigid control in America
and Canada was absent; regulations insisted on periodical and
wide publication of the volume of business, income, expense,
investment and all 'Other relevant matters to enable the public
to judge their soundness and solvency; and as public opinion was
enlightened and strong, little 4 room was left for outright 'fraud.
The deposit of 20,000 was made compulsory for any company
operating in the United Kingdom, not so much to meet the liabi-
lities, as to prevent flotation of uneconomic units. Returns sub-
mitted to the Board of Trade enabled the government ' to keep
a check upon the working of companies, but the policy of mini-
mum interference! was carried to extreme limits when the power
of the Board of Trade did not even extend to proper investiga-
tion into the conduct of a company and order its liquidation even
when it was known to be insolvent. The City Life and
National Benefit Assurance Co. took advantage of this defect,
transacted a large volume of business long after it was solvent
and when it failed, created widespread misery.

Indian Law

When the flotation of mushroom companies- in India assumed
menacing proportions, constitutional changes had given people

'* Principles of Investment by Kirshman as quoted in Indian Insur-
ant Year Book, 1945. This gives the best outline of the Investigation
and its recommendations. Some of the other provisions contained in
thc^New Yprk Law of 1906 such as the prohibition of Mutual companies
issuing non-participating insurance, and strictures against the Pcferred
Bonus System have been referred to elsewhere in this book. Dividend
in the above quotation- means bonus.

300 ' LIFE ASSURANCE

more, although ineffective, voice in the conduct of the govern-
ment. Lord Minto, the Viceroy, demanded and secured consider-
able powers to suppress terrorism in 1907 and used that power
indiscriminately. To encourage the moderate and vociferous
elements within the Indian National Congress he expanded his
Executive Council by admitting Indians, enlarged the scope and
strength of the Central and Provincial Legislative Councils so as
to allow discussions and pass resolutions on all matters including
the budget, (at the same time retaining official majority in the
centre but conceding elected non-official majority in the provinces)
and introduced, for the first time, the pernicious principle of
separate electorates. " A sop to impossible ambitions," said Lord
Minto describing the much advertised Minto-Morley Reforms of
1909. " I do not think it desirable or possible or even conceiv-
able to adopt English political institutions to the nations who
inhabit India," echoed Morley in Parliament. Two years earlier,
partly due to the donation of an American visitor, a small Depart-
ment of Agriculture had been started by the Central Govern-
ment, and was followed soon after by a Department of Com-
merce and Industry.

And amidst preparations for the Delhi Durbar in 1911, and
the opening of the giant steel works at Tatanagar, the Hon. Mr.
Clerk, Commerce Member, laid before the Imperial Legislative
Council, two bills (Provident Insurance Societies 5 Act, and the
Indian Life Assurance Companies' Act) which laid the founda-
tion for systematic insurance legislation in India for the first time.

First Insurance Act

Prior to this, companies like the Oriental were regulated by
the earlier Companies Act of 1866 or by the subsequent Act of
1882, and an Act in 1893 concerned itself with the assignment
of fire and marine policies. Insurance companies were therefore
under no specific, regulating law, except the provisions of the
Companies' Acts or minor provisions in the Stamp Act. Inade-
quate as they were to control or promote insurance operations in
a sound and healthy manner, they created a situation where
foreign companies, could work under the rules of the countries
of their origin, unhampered by any embarrassing Indian law.
Indian insurance grew unchecked, benefitting a large public, but,
nevertheless, ruining a small section. Companies, for instance,
paid but scant respect to sound growth, scientific principles or
financial stability; a few even distributed large dividends to share-
holders, out of excess of income over outgo, thus, violating the

FRAMEWORK 301

elementary principles of insurance. Dividing insurance 1 was
common and policies on the assessment principle were general.

Based largely on the English Assurance Companies' Act 1909,
the Life Assurance Companies' Act 1912 fell far short of popular
expectations or practical requirements. In confining itself merely
to life insurance, without any reference to the general, the Act
unduly favoured the foreign non-life offices and gave them an
unlimited scope for unchecked development in a field of business
which, till then, was their exclusive preserve and which, with
national consciousness and sporadic industrial expansion, was
steadily growing. A proposal in the original bill for an initial
deposit of one lakh of rupees to be raised to Rs. 2 lakhs by
subsequent instalments was whittled down by the Select Com-
mittee to Rs. 25,000 initially, followed by one-third of the gross
receipt of the life assurance business to reach a total of
Rs. 1,00,000 and thereafter one-third of the net profit until the
total reached Rs. 2 lakhs. Mr. Subba Rao who demanded cor-
responding deposits from foreign offices, as was envisaged by the
United Kingdom Assurance Companies' Act, was unsuccessful in
carrying through his proposition to the consternation of Indian
nationals, and was thus unable to prevent a situation which gave
an unfair and unequal initial advantage to the British and other
foreign companies. Lack of provision for any definite working
capital made even the small initial deposit meaningless for, as
was only too evident later, enterprising company promoters could
scrape together about Rs. 20,000 or less, (the market value of
Government securities being about 80% then and 55% later) pur-
chase Government bonds of the face value of Rs. 25,000, deposit
them with the Government, register a life office, operate it and
with the first premiums, meet the initial operational expenses
(including in some proved instances cost of furniture and fittings).
The net result was that the flotation of new companies remained
unchecked, foreign competition uncontrolled and initial operations
unsound.

Returns required to be submitted by the companies under the
Act were inadequate and incomplete, and were inoperative

1 Insurances under the dividing plan did not fix the sum assured, but
made it dependent upon the division of a portion of each year's premium
income amongst the claims arising in that year. In 1938 which is the
last year, for which figures are available, 4,182 policies were issued under
this plan and 1,21,005 policies were in force. It is a sad reflection on
the Government that though they banned assessment insurance in 1912,
they left dividing insurance alone, despite the annual strictures that the
Government Actuary made against it in successive year books.

302 LIFE ASSURANCE

against foreign offices. Statistical information which came to be
published by the Government Actuary from 1913 onwards' were
consequently incomplete and gave no indication of the extent or
nature of the business transacted by the foreign offices. Not
until 1928 did the Government have any power to demand full
details of operations.

While the New York law severely restricted investments, the
British law provided no controls at all but left the evolution of
an investment policy to the good judgment of life offices and to
the critical judgment of an enlightened public; the Indian law
of 1912 omitted investments completely from its provisions. Mr.
Mudholkar who tried to provide for investment of life insurance
funds in trustee securities under the Indian 'Trustees Act of 1882
was voted down. Financial manipulators were thus given a free
hand to tamper with the huge funds of insurance companies if
they were so inclined, and foreign offices unrestricted scope to
'export 5 all their surplus funds (for the most part belonging to
the policyholders residing in India) invisible exports which were
the despair of enlightened public opinion later.

In adopting the United Kingdom Assurance Companies Act
1909, the Indian Act severely limited the powers of the Govern-
ment Actuary in investigating the workings of companies even
when they were known to have transgressed the margin of sol-
vency. Similarly a separate department of insurance was not
created and power was relegated to the Governor-General to
exempt specified companies Irom the operation of the Act a.t his
discretion. The latter provision particularly was irritating to
Indian opinion, and, although companies so exempted were few
and operated among religious or professional sections of the
public, was severely criticised when applied to a few of the
foreign companies.

Bristling with opportunities for discrimination against Indian
Insurance companies, the Act had a mixed reception, but despite
its deficiencies and drawbacks, served Indian insurance in a small
way; in some respects it was even good. For example the obno-
xious assessment principle was uprooted out of the insurance
field; indiscriminate distribution of dividends gave way to actu-
arially ascertained profits at periodical valuations; submission of
annual returns was for the first time made compulsory; a limited
check (though largely ineffective) was placed on indiscriminate
flotation of companies; and financially unsound companies were
forced to go into liquidation.

But in one particular matter Indian offices had a legitimate

FRAMEWORK 303

grievance. Unfettered by any need to submit elaborate returns,
and actually favoured, foreign offices had a great advantage
over their Indian competitors and could use their higher financial
resources and greater organising ability to monopolise Indian busi-
ness. The absence of accurate and reliable mortality tables of
Indian assured lives which prevented extension of insurance to
communities and peoples with incomprehensible, and often un-
satisfactory, conditions of living enabled Indian companies to
prosper, apart, of course, from the mounting nationalist senti-
ment. This forced limitation of activities was, nevertheless, n6t
a real bar to the expansion of their business (for Indian offices
worked under much the same handicap). All the same, this
limitation combined with growing national consciousness prevented
real foreign domination in the field of life insurance. So far as
could be ascertained, foreign companies which received exemption
from the operation of the Act included English and Scottish Law
Life Assurance Association, London and Lancashire Life and
General Assurance Corporation, Scottish Metropolitan Assurance
Co., Star Assurance Co., and Sun Life Assurance of London,

ENSURE HAPPY, RESTFUL AGE

From your age 23, you pay us Rs. 416/14 a year for 30 years ( i.e., in
all Rs. 12,506/4)

From your age 35, we pay you Rs. l.OOO/- a year as long as you live
may be a Hundred !

In the event of death, we guarantee a minimum of Rs. l.OOO/- a year
13 times (i.e., in all Rs. 15.000/-).

Please contact the Branch Manager,

WESTERN INDIA HOUSE, SIR PHEROZESHAH MEHTA ROAD,
FORT, BOMBAY, 1.

Pl*on.e 269OB

WESTERN INDIA LIFE INS. CO. LTD.,
SA TA RA.

CHAPTER XVI

THE STRUCTURE

FIRST PHASE (1913-1920)

Simultaneously with the elimination of those indiscriminately
floated and financilly unsound Indian Life offices which so
readily sprang up prior to the enactment of the 1912 Act, foreign
offices like the London Assurance Corporation and National
Mutual withdrew from India, despite the extremely favourable
position they enjoyed under the new regulations, and a few,
notably the City of Glasgow, Liverpool Victoria, Pelican and
Scottish Metropolitan ceased to exist as separate entities when
they merged with other existing offices. Four new foreign offices,
viz., the Royal London Auxiliary and the Yorkshire (1915) and
the Shanghai and Great Eastern (1916) established branches
during 1913-1920 but of those only the Yorkshire operates new
life business in India now.

Provisions designed to restrict the indiscriminate formation of
new companies hardly curbed the enthusiasm of energetic com-
pany promoters. Thus seven new offices were started in 1913,
one each in 1914 and 1916, three in 1917, one in 1918 and
nine in 1919. A global war, series of bank failures, depreciation
of the securities, and an acute international outbreak of influ-
enza met the ambitious promoters, but scientific management and
commendable foresight enabled many of them to pilot the offices
creditably to the forefront of Indian insurance.

The Western India

When the Mahrattas were finally defeated in 1848, Satara in the
Deccan Plateau lost much of its regal glory, but Mr. W. G.
Chirmule raised its commercial importance through the Satara
Swadeshi Commercial Co. founded at the beginning of the cen-
tury. Shrewd and energetic, Mr. Chirmule acted as Satara's res-
pected Public Prosecutor for a long time, but when L. K. Joshi
(New York Insurance Co.'s agent in Satara) and V. V. Joshi
of the Oriental proposed the flotation of a new life office at
Satara, Mr. Chirmule abandoned law, threw all his energies into
the business and accepted its managing directorship. Thus was
born the Western India Life Assurance Co. on 13 August 1913.

304

THE STRUCTURE 305

Deeply alive to the supreme need for protecting the policyholders,
the Directors with characteristic foresight, voluntarily limited
investments to Government and Trust securities and Railway
shares, gave representations to the policyholders on the Board
and laid firm foundations for steady growth. Wrote Actuary
G. S. Marathe: <t% thc surplus of Rs. 12,000 at the very first
valuation in 1917 is a rare occurrence, on account of the heavy
preliminary expenses and the first year's expenses on new business
which forms a large part of the total business in the commencing
stage. The rate of lapses is less than fifteen per cent which
shows the good quality of the business secured. The expense rate
is very low; investments are made with an eye to safety and
stability." This in a nutshell has been the feature of Western
India's operations.

Industrial & Prudential

In the same year, almost simultaneously, the Industrial and
Prudential rose up in Bombay with a strong and influential
directorate and has since expanded considerably.

They bore the full brunt of the catastrophic consequences of
the First World War.

War Profits

Uncertain economic conditions immediately followed the out-
break of hostilities but trade and industry swiftly adjusted them-
selves. Commodities normally exported to belligerent countries
were sent to alternative markets; foreign consumer goods were
cither imported from neutral sources or produced locally. Cheap
Japanese cloth replaced costly Manchester textiles which never
again reached pre-war monopoly. Indian production of iron and
steel expanded rapidly under the impetus of military needs; pig
iron steadily rose up as an important export item. Industry
flourished. New factories sprang up, more goods were produced,
and higher dividends were paid, despite the taxes. War profits
were ploughed back into industry, swelled the huge war loans or
flew out of India.

Crisis

To insurance, the indirect consequences of the war were pro-
found. Earlier, in 1906, when renascent nationalism threatened
to spread violence, the Government made a swift move.
They arrested and sometimes deported violent leaders, banned

20

306

LIFE ASSURANCE

public agitations, suppressed violent demonstrations, enacted stern
measures and the nation receded to placid protests and consti-
tutional demands. Devoid of sustenance or permanent grip the
spirit of boycott spent itself soon, and when a few individuals
gave swadeshism a little selfish twist, the public came to distrust
swadeshi institutions.

The Government followed a policy of financing war by raising
loans at progressively higher rates of interest and comparatively
lower taxes. Industrial and business profits, not actually used
for immediate business needs, were invested in war loans;
national leaders organised nation-wide campaigns and collected
them. The war thus increased public debt- to burden the future
generation, but those who profited directly from it bore little of
it. In any case, war profits left insurance severely alone.

And insurance received a set-back in another direction, for
Government securities began to act queerly. The 3/2 9r Govern-
ment Paper proved the most intractable and unstable of invest-
ments for life offices. It stood at Rs. 96 in July 1914 when war
broke out, tumbled down to below Rs. 80 in July 1915, below
Rs. 75 in July 1916, Rs. 68 in July 1917 and after various con-
vulsive movements reached Rs. 68 in October 1918. In November
came Armistice which pushed it up temporarily to Rs. 82; and
then followed a steep descent. Reaching Rs. 75 in January 1919,
Rs. 68 in July and Rs. 60 in nrxt January, the paper touched

Chart No. u. Price fluctuations of 3/2% Government Paper
for the years 1914-1921.

80

60

19 H

THE STRUCTURE 307

its lowest level of Rs. 52 in June 1920. World economists stood
aghast; money markets went out of gear; credit collapsed; Indian
industries were pushed back to the 1913 level; and in short, the
aftermath of peace was worse than the upheaval of war.

Many Indian banking institutions received a violent jolt.
Indiscriminately floated in the first flush of renascent nation-
alism and (in many cases) fresh to western methods of banking,
a large number of banks were unable to stand up to the cata-
strophic strain; 55 of them closed down during 1913-19145 n in
I 9 I 5> J 3 m I 9 l & anc * 82 more before 1924^ Indeed the period
1913-24 proved to be the most disastrous to Indian banking.

Insurance reacted violently. The unprecedented bank failures
had their repercussions; the unpredictable Government securities
cast a gloom; and occurring as they did in the wake of large-
scale company failures they made the- public lose all faith in life
insurance and Indian insurers. 44 offices wrote Rs. 320 lakhs
of new business in 1914; 42 offices Rs. 224 lakhs in 1915 and
44 Rs. 175 lakhs in the next year. Never before had insurance
suffered such a severe set-baek; and in addition while business
in force rose from Rs. 22.4 crores in 1914 to Rs. 22.8 crores in
1915, it Ml down to Rs. 22.1 erores in 1916, registering thus a
loss in the total business in force unreplaeed by new business
a phenomenon never to be repeated. In 1917 both new busi-
ness and business in foree rose gradually and recaptured much
of the lost ground.

Influenza

Drawn from rural India where insurance had made no leeway,
the Indian martial classes constituting the Empire's biggest
' volunteer ' army contributed but little to the life offices' expe-
rience of mortality; but the world-wide outbreak of influenza in
1918 took heavy toll. Conservative estimates placed total world
deaths around 30,000,000 and Indian (despite absence of accu-
rate figures) at over 7 million in 1918 and a total of 8/ 2 million. 2
or 28 in 1000 and all classes of people especially those in the
cities, were severely affected. The financial implications Were
considerable and in the case of the Oriental "The valuation
report for the triennial period 1916-18 showed an increase in

1 See also pages 341-342, Indian Economics, Jethar and Beri, Oxford
University Press.

2 This figure is open to question. Messrs. Wadia and Merchant quote
7,089,695 as actual deaths in 1918 and 1,330,000 in 1919. (Our
Economic Problem, p. 60) and say " Messrs. Russell and Raja have esti-
mated the mortality at 14,000,000.*'

308 LIFE ASSURANCE

claims of nearly Rs. 23 lakhs over the claims of the previous
triennium." 1 Death claims paid by all the companies stood at:

^ar **$*** % to total income.

1917 34.59 24.0

1918 54.98 35.7

1919 51.25 30.3

1920 47.26 25.0

Nominal war risk extras applicable in normal times were consi-
derably enhanced at the outbreak of hostilities both on existing
and new policies. Patriotic motives induced many British offices
to waive extra premiums for those who joined up, and the prac-
tice was followed by a few Indian offices.

New Companies

When peace came, new offices sprang up. Perhaps it was a
bold venture for the Tatas to enter the field of insurance at the
time they did for the country was still in the throes of war-time
economic malaise. It was true their textile mills at Bombay
and Nagpur had made considerable progress; their new steel plant
at Tatanagar had rapidly developed into one of the world's big-
gest units; and war had given it considerable impetus; the power
companies at Bombay had largely increased their output; but
insurance stood on a different footing. Despite the progress of
many Indian life offices, foreign companies still held the lead
and the public showed but little belief in insurance and less confi-
dence in Indian companies. General business was virtually a
monopoly of the foreign companies and in 1919 the only posi-
tively encouraging factor for Indian interests to enter the general
field was the very slow industrialisation of the country, directly
assisted by the war. But Tatas went ahead with characteristic
zeal and energy and started the New India Assurance Co. in
1919 with almost prophetic insight.

The New India was an instant success. Realising with rare
judgment that sufficient capital was the sine qua rwn of firm
foundation, New India had an almost unheard of authorised
capital of Rs. 20 crorcs of which nearly Rs. 11.87 crores was sub-
scribed and Rs. 1.19 crores paid up, the, highest capital of any
insurance company in India. 2 Entering the very competitive field
of general insurance, New India made remarkable progress from
the start under the able guidance of the late Sir Dorab Tata

^Oriental Jubilee Brochure (1874-1924).

2 Subsequent reductions of capital in 1924 and 1927 brought it down
to Rs. 6 crores authorised and Rs. 71.2 lakhs paid-up (in June 1950).

THE STRUCTURE 309

(Chairman, 1919-29) and an influential Board of Directors, with
Mr. Duff, General Manager; the success was so great that New
India's business figures provided the standard to measure the pro-
gress of general insurance business in India. That lead is retained
today. On the retirement of Mr. Duff in 1938, Mr. Millard
succeeded him and on his retirement in 1946 Mr. B. K. Shah
assumed charge.

New India promoted life business ten years later. Extensive
organisation, enlightened management and sound underwriting
have characterised New India's life operations, and given it
remarkable success. Successive years have produced an increas-
ing volume of new business which passed the Rs. 1 1 crore mark
in 1949. A noteworthy feature noticeable in recent years is the
distribution of dividends almost wholly from the business profits
of the general departments.

In the same year was established the Jupiter. Founded by the
late Mr. LaljVc Naranjee and Mr. Manu Subedar, with Messrs.
Laljee Naranjee & Co. as Managing Agents, the Jupiter had a
galaxy of astute businessmen on the Board headed by Mr. N. N.
Wadia (Chairman), achieved remarkable success in the general
field in a very short time and built up extensive connections. Life
business was started in 1928.

Of the other companies which were formed at the time men-
tion may be made of the Vulcan and British India General
which made a determined entry into the general field and attained
conspicuous success, and the Universal Fire and General. The
British India has since commenced Life Business after taking over
the Zenith.

In 1919 the Crescent Insurance Co. Ltd. made a modest begin-
ning. Founded by the late Mr. Ramchandra M. Bhatt the
Crescent worked in the belief that sound security and
enlightened service stood for steady progress. In 1949 the Crescent
expanded its organisation, raised its paid-up capital to Rs. 1 1 .8
lakhs; acquired new buildings in Bombay and Madras and wrote
new business of over Rs. 42 lakhs.

The Mahatma

Meantime the political atmosphere became surcharged. The
Minto-Morley reforms and separate electorates gave the econo-
mically and educationally backward Muslims a temporary sense
of security and elation. A Muslim middle class gradually took
root and took to insurance with but little hesitation. With the
outbreak of hostilities in 1914 most sections of Indian opinion

310 LIFE ASSURANCE

hastened to promise full support to Britain 'in the fight for demo-
cracy and civilization', mobilised men and material to win the
war and helped India attain the status of a world power, inter-
nationally respected and nominally represented at war confer-
ences. Politics ebbed. Even the moderates of the Gokhale
school of thought realised the futility of the. constitution and began
to suspect British intentions. Open British disavowal of Dominion
Status as India's ultimate goal only strengthened the hands of
the extremists but police regulations and wartime restrictions
imposed an outward calm.

Then entered Mahatma Gandhi. Fresh from his successes in
South Africa, the Mahatma emerged as the personification of a
decade of religious revivalism and of political agitation. Essen-
tially Indian, with the simplicity and humanity of an Indian
peasant and with the infinite love and profound sincerity of a saint,
his impact on Indian life sent an immediate undercurrent of power-
ful forces into the hearts and souls of countless millions. Action,
based on truth and non-violence was the essence of Gandhiji's phi-
losophy action in challenging and resisting foreign rule and action
in fighting internal social evils and poverty. " I shall work for an
India in which the poorest shall feel it is their country, in whose
making they have an effective voiee; an India in which there
shall be no high class and low class" he proclaimed in his sweet,
gentle, persuasive way. Shedding fear and age-old lethargy the
teeming millions now rose in a mass, rolled into the Congress
organisation, swarmed its annual sessions and made it the strongest
and largest political party in the world. People changed the
whole structure of their lives, took to charka and khadi, defied
Rowlatt Acts, faced bullets at Jhallianwalla Baug and challenged
British power and rule. In such a setting did the Parliament
usher in a new constitution, announcing at the same time "the
policy of the Government is that of the increasing association of
Indians in every branch of the administration and the institution
of gradual development of self-governing institutions with a view
to progressive realisation of responsible government in India as
an integral part of the British Empire." Ten years ago, the
constitution would have been welcomed; in 1919 the masses, with
one voice, cried under Gandhiji's energetic leadership "Swaraj".

SECOND PHASE (1920-30)

Testing the efficacy of spiritual force against the full might
of the British Government, Gandhiji turned national agitation
into a mass revolution and released the inner springs of the

THE STRUCTURE 311

nation. This unified warring elements; the boycott of British
goods and British institutions was complete and widespread; the
Government was almost brought to its knees almost for
the Chauri-Chaura tragedy, occurring at the height of success,
compelled Gandhiji to withdraw. With him the end did not
justify the means.

In 1924 the moderates staged a gentle break. Powerful leaders
like Motilal Nehru, Lajpat Rai, C. R. Das and Vithalbhai Patel
contested and entered the Councils and Assemblies, carried
the national fight into the lion's own den, and forced the Viceroy
and Governors to ' veto ' the united voice of the nation on all
national affairs. They sustained debates, carried motions, defeated
the Government on every conceivable occasion, gave protection
to the rising Indian industries, drew public attention to the heavy
drain on the country's wealth and gave concrete shape to nation-
alism. Elsewhere active Congressmen brought constructive
thoughts to bear on the reconstruction of India's Chattered
economic life.

The Lakshmi

And Pandit Santanam rose in Lahore to give them a lead.
Called to the Bar in 1910 from the Inner Temple, Panditji, who
later came to be known as the father of modern insurance, left
a lucrative practice in November 1920, entered the thick of the
Congress fight in 1921 and started the Lakshmi in May 1924. In
this he was ably supported by those two stalwarts of Indian
nationalism Lala Lajpat Rai and Pandit Motilal Nehru. "Insu-
rance companies fulfil a highly useful economic function in
modern society", said Lala Lajpat Rai "though they do not
produce wealth they are one of the chief factors in conserving
the surplus wealth, making it available in emergencies, and above
all in cultivating habits of thrift and economy without which no
community can be prosperous." Further "insurance companies
collect a portion of the shattered surplus wealth and make it
available for business and industrial expansion." ]

Lakshmi was an instant success. Registered on 28 March
1924 with overwhelming public support, Lakshmi issued its first
policy on 10 May, wrote 454 policies for Rs. 9% lakhs in six
months, over a thousand for nearly Rs. 25 lakhs in the first
year and marched on to the front line of Indian insurance in
an incredibly short time, to be labelled 'the Infant Prodigy'. Its

1 This and the other quotations of Lala Lajpat Rai are from the Rise
and Growth of the Lakshmi issued in 1939.

312 LIFE ASSURANCE

outstanding position in later years is not a little due to a sound
all-India organisation, enlightened leadership and efficient service.
Wrote the Government Actuary in 1927 "it holds the highest
position in the table (of ratio of expenses)." To such firm
foundations does the Lakshmi owe much of its ability to over-
come the effects of partition in a very short time.

Check to Foreign Competition

Lakshmi achieved more than mere success in promoting insur-
ance, for its energetic pilots (with Pandit Santanam and Lala
Lajpat Rai at the head), with a zeal reminiscent of the Crusaders
rose to give a lead in extricating Indian insurance from foreign
domination. From political platforms and legislative committees
these masterful savants of Indian nationalism raised their eloquent
voices: "it is the duty of every Indian to support only Indian
insurance." The cry echoed from the four corners of the
country. Aggressive leaders raised the slogan with patriotic
fervour: "the keynote of all our Swaraj is in placing all our
insurance business with our Indian companies" spoke the
Mahatma; "I hope Indians will realise the importance of patron-
ising only Indian insurance institutions" added Pandit Jawaharlal
Nehru. The cause of Indian insurance came to be regarded as
a national cause.

Great Awakening

And not only against the intense foreign competition. "It
enables the small investor, even a working man, to save from his
income and make a provision for his wife and children" said
Lajpat Rai. "In India the disruption of the Joint Family system
often leaves our widows and orphans entirely unprovider for . . .
Insurance supplies the need." With forceful arguments such as
these national leaders encouraged thrift and saving, carried
insurance to the masses, created unparalleled enthusiasm and
forced the companies to offer better insurance service. The
structure of Indian insurance began to be erected.

New Flotations

In 1924 the Prudential of London extended its activities to
India, built up extensive connections in a short time, continues
to write a large volume of business annually and became the last
British life office to commence operations in India. The China
Underwriters also entered India in the same year.

Life offices began to spring up in larger numbers all over the

THE STRUCTURE 313

country. During the ten years from 1920 thirty-nine offices were
promoted, many of them with the active support of trusted Con-
gress leaders, of which twenty-one have since gone out of existence
either through mergers or liquidations. The Bengal Insurance &
Real Property, Nagpur Pioneer, Calcutta, Andhra, Indian Mutual,
Peoples, Tropical, Indian Life Benefit, Star of India, Common-
wealth and the Indian Globe were some of the companies which
were formd at the time and which have made substantial progress
subsequently.

Life Offices Association

Progress was made in another direction too. Realising the
efficacy of a united front to solve the problems that beset the
Indian companies, Pandit Santanam conceived the idea of pro-
moting a national association of Indian insurance companies and
received an enthusiastic response from Mr. Edwin Jones of the
Oriental. The idea crystallised itself at a private meeting of
Panditji and Mr. Jones at Lahore in 1926 and took a practical
shape in the next two years. A draft constitution of the proposed
association was circulated among the companies; bye-laws were
framed. Panditji, with his wonderful organising ability and
characteristic enthusiasm, did a considerable amount of spade work
in an incredibly short time, so that when on 2nd and 3rd April
1928 representatives of the leading Indian companies met at the
offices of the Oriental there was complete agreement among them
to make the association a success. The seeds for the healthy
growth of life assurance in India were sown; the Indian Life
Assurance Offices' Association was born. The first general meet-
ing at 4 P.M. on 3rd April 1928 elected Mr. Edwin Jones as the
first president, Mr. K. C. Vidyarthi of the Bharat as the Vice-
President, Pandit Santanam, Secretary, and Messrs. E. F. Allum
(Empire), B. Hormusjee (Zenith), W. Rae (National), P. C.
Ray (Hindu Mutual), K. C. Desai (Industrial & Prudential) and
S. B. Cardmaster (New India) as members. The birth of the
Association was a milestone in the progress of Indian insurance
for much of its later achievement is not a little due to the, con-
spicuous service the Association has rendered to the cause of
insurance.

Economic Malaise

A limited outside war-time demand had enabled the enterprising
Indian businessman to build up a sizeable export trade in finished
and semi-finished goods; prevailing world-shortages sustained this
trade for two more years, but when the gigantic plants in Britain,

314 LIFE ASSURANCE

Japan and America changed over to peace-time production^
Indian exports settled down to jute, cotton, seeds, grains, tea,
hides, ores and pig iron. Inflationary war profits had prompted
enthusiastic industrialists to promote large-scale factories with
indigenous capital; but with the collapse of commercial credit
soon after the armistice their plans went by the board before
production could commence. Sustained by an appreciated rupee,
foreign consumer goods were dumped into Indian bazaars but
after an initial boom (despite the boycott), the import of British
goods gradually slackened. Against 64.1 % of the total imports
in 1913, Britain's share fell to 47.8% in 1926-27, 44.7% two
years later, 42.8% in the next and then to 37.2%.

The trends of international affairs, (particularly the collapse of
democratic Germany), industrial strikes and troubled domestic
politics combined to reduce British trade generally and political
consciousness in India affected it still further. But the initial
boom in imports and active official indifference lost any oppor-
tunity India had to turn war profits to industrial expansion. Con-
tinuous monsoon failures affected the already difficult export trade.
Disturbed foreign markets made it worse. Values dropped, war
profits vanished and economic depression descended on India
much too quickly. But with country-wide national awakening
internal trade received but little setback and gradually expanded.
Slowly at first and then on a large scale the merchant took to
insurance and invested his capital in insurance shares. Declining
security values and the steady security of insurance business over-
came much of his earlier resistance, and when the structure of
insurance came to take shape, individual businessmen came into
the picture as a matter of course.

National Consciousness

Gandhiji shook the middle classes out of their lethargy. Sharing
the Mahatma's views on social, economic, political and ethical
problems, they felt new emotions surging in their hearts. Many
of them became his ardent disciples but millions could not, for
taught to look upon Government service as their ultimate goal,
the daily bread was their real problem. Competition for avail-
able jobs raised the admissible standards for service but
lowered scales of pay. Continued economic depression produced
more unemployment and even the governments were constrained
to retrench. But Gandhiji gave a new turn to their ideas, a
new shape to their thoughts and a new meaning to their life.

Acquitting themselves well, those who got jobs began to shine

THE STRUCTURE 315

in higher government posts, occupy executive positions in com-
mercial houses, lead the professions in law, medicine, engineering
and journalism and learn the urge to save. Reluctant to follow
Gandhiji openly this upper middle class nevertheless shared his
economic views; checked their love for gold and diamonds; even
abandoned silks and finery. Largely in Bombay, the Punjab,
United Provinces, Gujcrat and Central Provinces, but in a smaller
way in Madras and the Punjab, ladies scorned jewellery, snatched
off costly ornaments from their persons and helped him swell
the national fund. An increasingly larger number of those who
earned more conserved their savings through insurance, went back
to their villages in old age, bought lands and took to politics or
village uplift.

Art XX of 1928

Meantime the zealous guardians of Indian nationalism in the
legislatures studied Indian problems from every angle. Every
branch of administration and every facet of policy came under
their withering fire. No man dared to advance a questionable
policy or introduce an anti-national act without facing censure.
Their analytical approach to national and international affairs
focussed attention on the 'invisible exports' of the insurance
companies. "What are the actual figures" queried an irate mem-
ber. u ln the present state of the law no data is available for
arriving at an exact figure, but all the business people are agreed
that it is a huge sum" informed Lala Lajpat Rai. "Let us change
the law and get the figures" they agreed.

This cry for the immediate need of amending the insurance
law so as to disclose details of the business carried on by non-
Indian companies became persistent and strong. Public bodies
took it up; commercial associations passed resolutions demanding
immediate action; national leaders made it an important issue
in their campaign for independence and meetings were held all
over the country. At last Government moved.

In 1925 they had introduced a comprehensive bill in
the Assembly embracing all branches of insurance and circulated
it for public opinion. Complete data was collected enough to
enact the measure but the Government deferred further consi-
deration to await the outcome of a detailed investigation which
a committee under Mr. A. C. Clauson was conducting in England
under the auspices of the British Parliament to make the 1909
Act up-to-date. That Committee met, collected much data, pre-
pared a comprehensive report, made several recommendations and

316 LIFE ASSURANCE

appended a draft bill. But the British Parliament postponed fur-
ther consideration and the Government of India followed suit.

But the authorities felt the need to be ready with a bill imme-
diately after Parliament had considered the Clauson Committee
Report; and so passed a stop-gap legislation in 1928 (Act XX of
1928) which enabled them to collect full statistical information
regarding life and general insurance business of foreign and Indian
companies. From then on figures of business done in India by
foreign companies and outside India by Indian companies began
to appear in the Year Books.

The Act also contained a small but important clause dealing
with the distribution of surplus assets on the liquidation of a
company. The 1912 Act was defective in this respect for under
it the shareholders of a prosperous limited company, could wind
up a flourishing business, provide the minimum legal liabilities
of the policyholders and appropriate the balance of the assets.
This was hardly just, and the new Act stipulated that the surplus
of assets over liabilities should be distributed among the share-
holders and policyholders in the same proportion as the profits
were allocated between them during the ten years immediately
preceding liquidation. In the event of no such allocation, or if
the arrangement was inequitable by reason of special circumstances,
the Court was given discretionary powers to provide for just dis-
tribution of the surplus.

When fuller figures of foreign companies became available for
the first time, there was a huge shock. People had anticipated
a considerable volume of business in the books of foreign com-
panies and knew of their strong financial position and large-scale
organisation, but were unprepared for the very slight advantage
that alone awaited the Indian companies after sixty years of
vigorous development and intensive nationalist propaganda. In
1928, for instance, the first year for which all the figures were
made available foreign offices had a total business in force of
R S - 5 2 -595 crores on 1,51,925 policies, giving them an average
of Rs. 3,150 per policy, as against the Indian companies with a total
business of Rs. 71.11 crores on 4,12,446 policies for an average
of Rs. 1,696 per policy, the ratio of total business being i : 1.35
and amount per policy i : 0.54. There was, however a slightly
more favourable position with regard to new business, as foreign
companies had issued only 30,377 policies for Rs. 9.56 crores as
against 92,724 policies for Rs. 15.41 crores written by Indian
companies, the relative ratio being i : 1.6 1. New business
of foreign companies reached Rs. 12.22 crores in 1929, an,

THE STRUCTURE

317

increase of 27.9% over trie previous year, and this figure of
Rs. 12.22 crorcs remained the highest reached by them in India
for a number of years, as not until 1945, when post-war inflation
recorded a sharp increase,, was this figure surpassed.

Thus the war severely tested the mettle of Indian Insurance,
and nationalism built up its structure.

THE

INDUSTRIAL

&

PRUDENTIAL
ASSURANCE: c <x, LTIX

ESTD. 1913
j . C. SETALVAD, Esq.,

Chairman and Managing Director.

PERMANENT DISABILITY WITHOUT

ANY EXTRA.

EXTENDED INSURANCE BENEFITS.
PROMPT SETTLEMENT OF CLAIMS.
AUTOMATIC NONFORFEITURE.

For Particulars and Agencies write to :
HEAD OFFICE:

INDUSTRIAL ASSURANCE BUILDING,
FORT, BOMBAY

CHAPTER XVII
THE EDIFICE (1930-39)

Dramatic events followed in quick succession, and first came
the Nehru Report in 1928. Prepared under the aegis of the
Indian National Congress, it had the support of the enlightened
leaders of different political thought, expressed clear and posi-
tive views on the immediate grant of Dominion Status, demanded
the abolition of separate electorates and formulated a scheme for
the future of Indian States. A seven-man Enquiry Commission
under Lord Simon came out to India in the same year, faced
an intensive national boycott, carried out an investigation in the
face of severe opposition and reported (in 1930) on a future
constitution for India as conceived by Britain. The Congress in
the meantime had accepted the Nehru Report; placed a one-
year time-limit for its acceptance by the British; and, in the
absence of any response, demanded immediate independence. On
31 December 1929 it called upon the Mahatma to lead the
national fight for freedom. Millions of freedom-hungry people
took the oath of complete independence on 26th January next.
The historic march to Dandi was started on yth March and
the trumpets of freedom's battle reverberated throughout
the land.

Freedom's Battle

Tens of thousands of freedom-hungry people defied the
authorities openly, stood immobile before a charge of the police
and military, refused to pay taxes, made bonfires of British goods,
shunned British institutions and swelled the inadequate prisons.
Insurance contributed a very large quota of men. Many Congress-
men whom patriotic feelings had urged to strive for national
economic freedom through insurance, now rose to answer
the call of the fight for political freedom. They broke the laws,
courted the prisons and carried the battle to the countryside.
New business suffered in consequence and receded to just over
Rs. 15/2 crores in 1930 from Rs. 17*4 crores in the previous
year. The Gandhi- Irwin Pact followed soon after, released them
from the prisons -and enabled them to recover much of the lost
ground in 1931 when new business rose to over Rs. 17 crores.
When the fight was resumed in 1932, with Gandhiji and most

318

THE EDIFICE 319

of the known leaders in jail, the largely localised movement
attracted but few insurancemen and lost but little business.
Thereafter insurance forged ahead without interruption.

Depression in America

But not for the foreign companies. Facing the full might of
the national fight for Indian insurance, they now had to bear
a devastating economic depression which gave them no respite.
The spectacular crash of values in Wall Street in October 1929
had its repercussions in the financial world. Security values
tumbled in world markets, commodity prices reached their
lowest ebb, gigantic industrial plants were forced to close down
and businessmen lost heavily, lost their confidence and
occasionally committed suicide.

Depression hit America with all its devastating fury. Life offices
were slow to feel its full effects, for with investments limited
to well-secured preferred stocks Wall Street collapse affected their
funds but slightly. In the first year of depression (1930) there
was even a 5 billion dollar increase * in total business in force
and 1 1 /2 billion dollars in assets although new business went
down by $J/i billion. The next two years saw a sharp decrease
in new business, great increase in terminations and lapses and
for the first time in a generation, the total business in force went
down from $108.9 billion in 1931 to $103.2 billion (1932) and
to $98 billion (1933); then it gradually increased. By 1932
surplus earnings were substantially reduced; rates of interest fell;
mortality from suicides rose to 30 per cent above normal (most
of such excess mortality being on policies for larger amounts) ;
disability claims increased and forced companies to abandon, or
considerably modify, benefits; bonuses declined and premium rates
of non-participating policies rose.

Life offices felt the maximum intensity of the depression in
1933. President Roosevelt took charge on 4th March of that
year and immediately closed all the banks for a few days. Several
banks could not reopen after the holidays, savings banks limited
free withdrawals and people felt that money was safe only in
their hands and in cash. Tremendous demands for loans and
surrenders almost created a serious run on life offices and threat-
ened to force them to sell their securities on such a scale as to
affect their solvency. On 9th March the Superintendent of
Insurance prohibited loans and limited payment of cash surrenders

1 Figures from Life Insurance Year Books, the Spectator Company, and
Life Insurance, by J. B. Maclean.

320 LIFE ASSURANCE

to $100 in cases of extreme need. Several States followed New
York, but others did not and confusion lasted till the end of
April- when a uniform and liberalised set of rules permitted
unrestricted withdrawals for food, rent, mortgage payments,
medical expenses, funerals, payrolls and insurance premiums. In
a few months panic subsided, restrictions were removed and
insurance settled down to its normal course. Meantime policy
loans reached an all-time record of 17.9% of the total assets and
in a few individual cases as high as 20%. Defaults of mortgage
interest payments increased considerably, stepped up foreclosures
and led to new regulations. Twenty companies were placed in
the hands of receivers. '

United Kingdom

Conditions in the United Kingdom were equally bad but not
so confusing. 1930 witnessed a considerable reduction in pre-
mium income which receded still further in 1931; surrenders
recorded a figure of over 18 million in 1930, but showed a sharp
decline in 1931; in 1932 premium income increased to over the
1931 figure, but the reduction in surrenders was small. By 1933
business reverted to normal:

Table No. 50.
(millions of )

Year Premium Income Surrenders Percentage

1928 68.2 5.6 8.27

1929 69.8 6.8 9.70

1930 66.8 18.4 27.55

193 1 65.3 12.7 19.38

1932 67.9 12. i 17.83

1933 71-4 9-6 1349

1934 71.5 8.4 11.71

1935 74-3 8 - J 10.91

India

In India, at the beginning of the decade the small minority
of industrial and business people had little stake in insurance;
by 1932 Indian capital was seeking new avenues of investment
including insurance, and Indian life offices got good support. They
were thus able to steer clear of the economic depression without
much strain, for panic as such was absent and the demands for
surrender values and loans were within bounds:

THE EDIFICE 321

Table No. 51.
(in lakhs of rupees)

Prpminm Percen- Percentage of

Year iVuJmo Surrenders tage of loans to total

Income (3) to (2) assets

(1) (2) (3) (4) (5)

1928 334.8 1 1. 6 3.5 7.3

1929 389-7 is-7 4.5 7.7

1930 430-5 14-4 34 8.4
'93 1 467-5 2 1. 1 4.5 9.3

1932 518.2 24.0 4.5 9.8

1933 576.9 23.8 4.1 9.5
'934 6 58.3 28.1 4.3 9.3
1935 745- 1 33-8 4-5 9-2

Source: Insurance Year Books.

Foreign Trade l

From a record figure of over Rs. 355 croress in 1924.25, Indian
exports appreciably fell in the next two years, first due to reduced
shipments of food grains and tea, and then to heavy fall in the
world prices of cotton and jute. The fall was slightly made
up in the next two years, but the balance of trade declined
to Rs. 50 and Rs. 52 crores respectively. Then came depression.
Imports and exports fell by 5 and 6 per cent in 1929-30; and by
32 and 29 per cent in 1930-31. The next year showed a further
decline in foreign trade. 1932-33 registered a slight improve-
ment in imports but a 15 per cent decline in exports. 1933-34
saw a weakening of the demand for foreign textiles with corres-
ponding decline in the import trade, but exports increased by
10 per cent. By this time, the world had partially recovered
from the economic catastrophe, and the depression saw signs
of wearing off.

Meantime the British Government went off the gold standard
in 1931 and was followed by India soon after. The unanimous
demand of the elected members of the Central Legislature to
devalue the rupee in terms of sterling fell on deaf ears. Gold
prices rose in world markets and hoarded gold began to be dis-
gorged into the Indian markets for export. In 1931-32 gold
exports exceeded Rs. 60 crores, in 1932-33 Rs. 66 crores,

1 All figures and details in the first two paras under this heading
from the Handbook of Commercial Information (1937), Government 01
India.

21

322 LIFE ASSURANCE

in 1933-34 Rs. 58 crores and in 1934-35 Rs. 53 crores. A favour-
able balance of trade was thus maintained at the cost of the
country's gold reserves.

But the catastrophic fall in farm and commodity prices
Temaincd unchecked, and the purchasing power of the Indian
consumer steadily declined. The traditionally poor peasant
became distressingly poorer, the Indian economic structure,
founded mainly upon an agrarian economy, collapsed completely
and political unrest coalesced with economic unrest. The
Congress constructive programme, with its emphasis on the
entire boycott of foreign goods, now tried to reconstruct
the Indian economic struc ture by increasing insistence on self-
sufficiency. Foreign consumer goods were gradually replaced
by Indian manufactures, the textile industry received a
great impetus, (handlooms particularly), and, aided by a pro-
tective tariff system and encouraged by national consciousness,
Indian industries like sugar, paper, matches, paint and cement
gradually took root, despite the depressing economic position.

But the declining purchasing power of the Indian people hit
foreign commercial houses really hard. A lower price level, a
steadily decreasing turnover and an increasing antipathy of a
politically conscious people met the strenuous efforts of the astute
foreign trader and forced him to sell his goods at a considerably
less profit and sometimes loss. Individual businessmen earned less
in consequence, and could save little; individual foreign
life offices experienced a recession: (see Table No. 52 opposite).

Foreign Companies

Nevertheless three life offices from three different foreign
countries established branches in India. First came the Allianz
und Stuttgarter Life Insurance Bank in 1929 from Germany.
Established in 1889 it was the largest insurance company in
Europe before its entry into India, built up extensive connections
in a very short time and became one of the largest life offices here
when war broke out and brought its meritorious career to an
abrupt close. The business was thereafter operated as a closed
fund by Ferguspn & Co. under the direction of the CentraJ
Government.

..Established at Toronto in 1900 the Crown Life of Canada
entered India in 1930 and now writes nearly a crore of new
business annually. The Winterthur Swiss Life Assurance Co.
started its Indian operations in 1932 and became the last of the
foreign offices to enter India.

THE EDIFICE

323

Table No. 52.
NEW BUSINESS. (Crores of rupees and billions of dollars)

Year

1929
1930
'93 1
1932
1933
J 934
1935

Indian

companies

Foreign

American

companies

companies

In India

Outside India

in India

in America

Rs.

Rs.

RS.

$

17.29

.89

12.22

18.0

15.68

.81

u-75

17.6

17.09

.66

9-59

15.8

18.94

7i

8.75

12.8

24.08

74

8.89

12.2

27-97

94

10.14

12.5

3* -57

1.24

1 1.62

12.5

35-98

1.81

10.74

12.7

39-04

2.69 l

9-^5

13.0

43-^9

3-38

8.41

n.6

'937
I93B

Unfair competition

But foreign insurance had cause to be disturbed owr Indian
developments. The urge to direct the insurance on Indian lives
to Indian companies was no passing sentiment. Founded on pure
nationalism it was sustained by increasing public enthusiasm and
gathered momentum with the large-scale flotation of Indian
offices. The systematic ' pressure J from influential quarters for
legislative protection of Indian insurance carried nationalism a
step further. (Here it is well to recall the magnificent efforts of
the Federation of Indian Chambers of Commerce and Industry,
the Indian Merchants Chamber, the Indian Life Assurance
Offices' Association and the Indian Insurance Companies Asso-
ciation to get protection to Indian Insurance) . Business condi-
tions hardly offered opportunities for establishing those ' connec-
tions ' on which much of the business of foreign companies nor-
rnally depended. Competition was severe arid became unfair in
several directions. 2

In the first place, better conditions of service and higher scales
of commission were held out by foreign offices to influential field-
workers of proved ability attached to established Indian offices
in a systematic attempt to cut their moorings. Secondly benefits,

1 The sudden spurt is due to the partition of Burma which necessitated
treating business in Burma as foreign business.

2 Vide evidence tendered before the Advisory Committee appointed by
the Government in connection with the Insurance Act 1938.

324 LIFE ASSURANCE

temptingly attractive but hardly legitimate, were offered to policy-
holders to influence their business, for example offers of guaranteed
maturity bonuses which were withdrawn before maturity, lower
rates of premiums based on non-Indian tables of mortality,
attractive policy conditions with strings attached to them. Lastly
about this time started the pernicious system of rebating which,
in its turn, created an artificially swollen turnover and an
increased lapse ratio. And severe competition from foreign com-
panies was not the only trouble Indian companies had. 1

Cause for Alarm

A retrospective analysis of the conditions in the decade gives
little room for congratulations. In the first place the ten-year
period registered the birth of a very large number of new offices,
with, unfortunately correspondingly heavy deaths: (see Table
No. 53).

Of the sixty-one companies which were liquidated, seven went
out before one year of establishment, another seven before two
years, eight before three and all of them (with perhaps four or
five exceptions) before a valuation could be performed. The
amount of insurance on their books at the time of liquidation
was estimated at about a crore. Said Mr. Mukherjee, Govern-
ment Actuary as early as 1933 "it will be seen that with the

1 It is pertinent to recall at this stage an unfortunate condition which
existed at the time, though it affected life assurance but little. There
was a strong move on the part of exchange banks to withhold recogni-
tion of insurance effected with Indian Insurance Companies. Said the
majority report of the Indian Central Banking Enquiry Committee (1931):
"It has been stated that these (exchange) banks are literally forcing
Indian exporters to insure their goods with foreign insurance companies.
A concrete case was quoted where one of the leading firms in Bombay
which used to insure its exports with an Indian insurance company was
told by one exchange bank that a limit of Rs. 4 lakhs would be placed
as a maximum amount which could be insured with that company. It
was added that there were several such instances where Indian firms
were not permitted to insure their goods with Indian companies. As a
result, . . . every year India is making payments abroad in the form
of insurance premium to the extent of nearly Rs. 2 to Rs. 3 crores which
should properly go into the pockets of Indian insurance companies."
The Minute of Dissent appended by all Indian members of the Com-
mittee said : " The Committee were surprised at the manner in which
Exchange Banks have been resisting the insurance of goods both for
internal and foreign trade advances, with the Indian Insurance Com-
panies." Both Mr. Nalini Ranjan Sirkar and Mr. Manu Subedar
appended separate Minutes of Dissent strongly advocating legislative provi-
sions to protect Indian insurance companies. The late Sir Phiroze Sethna
asked a question in the Council of State if the Government knew that
a circular was issued by the Government of Bombay in the direction of
showing how dangerous it was to insure with Indian insurance com-
panies which * the Government of India could not deny.'

THE EDIFICE

325

Year

1929
1930
'93 1
'932
'933
1934
^935

Table No. 53.
New Flotations during 1929-1939

No. still in
operation (1949)

4

No
floated

'937
1938

12

'3
20

16

29
26

24
18

12
2

6
8

7
ii
1 1
10

12

6

No.
merged

6

2

4
5

4
7
6

i
i

No.
liquidated

2

5
8

8
8

5
5

2

172 75 36

(Source: Insurance Year Books.)

61

exception of the few oldest companies which have been transact-
ing business for over 25 years a large number of companies of
over 10 years standing have not yet been able to pay any dividend
to their shareholders. The advent of a large number of new
companies has resulted in intensifying the struggle for existence
and forcing up expenses to uneconomic levels. This certainly,
cannot be regarded as a healthy development." Flotations were
indiscriminate, and were actively assisted by the liberal statutory
regulations and the low value of Government Securities at the
worst period of the depression.

These decreased values of securities at once created a prob-
lem and suggested a solution. 4% Government Paper was
quoted at about Rs. 60 in 1932 but rose sharply until it reached
Rs. 107 by 1938, and the other Stock Exchange securities fluc-
tuated in sympathy. New investments at the beginning of the
decade thus brought in higher yields and the average net yield
was above 5% till 1935; then it gradually began to fall. This
enabled a few companies to show artificially swollen funds and
to declare higher bonuses without adequate provision for
depreciation of security values.

Indeed bonus mania was the bane of life assurance at that
period. Started by a few foreign offices who could afford to
pay higher bonuses because of their huge funds and international
operations, higher bonus declarations reached highly competitive

326 LIFE ASSURANCE

levels, undermining the financial strength of many offices. For
example with barely a lakh of rupees life fund and about Rs.
20,000 surplus one of the new offices declared a triennial bonus
of 3.6% at the very first valuation and carrie to temporary grief
within five years. 'In one instance the manager of a company
asked the actuary whether it would be prudent to distribute the
surplus resulting from a valuation made on such a weak basis
as 4/2% but was informed that in the interests of competition
he should distribute the surplus as otherwise he would secure
no new business \ l In a few years' the company was forced to
close down.

Other tempting offers held out to recalcitrant prospects
included generous cash rebates of premium, comfortable pleasure
trips to the hills and magnificent gifts in kind. Expenses conse-
quently rose and agents' commission reached giddy heights. The
Government Actuary condemned the tendency in unmistakable
terms; experienced insurancemen and actuaries were perturbed
by the high rates of rebates and lapses.

Competition pushed premium rates to ridiculously inadequate
levels, introduced such novel schemes as 'three-in-one-policy'
(which promised double the sum insured for accidental deaths
and treble for deaths from specified causes without increase of
premium) and conferred 'six-fold 5 benefits and ten-fold advan-
tages. Dividing insurance, which had become limited to a few
companies with the introduction of the 1912 Act, reappeared in
full force; non- medical schemes were indiscriminately applied,
selection became a farce and unscrupulous individuals in isolated
places made regular collections from credulous persons in the
name of insurance and disappeared.

Bright Spot

But all these left the older and established offices controlling
oycr 85% of the business entirely unaffected. The support they
received from the thoroughly enlightened public was good; con-
ditions of business were not altogether bad, despite the distressing
economic life; most of them were able to offer attractive bonuses
after providing for ample reserves. Businessmen in larger num-
bers took active part in the promotion and progress of companies.
Seth Dalrnia for example took charge of the Bharat and reorgan-
ised it in a short time. The New Asiatic and the Ruby General
were, promoted under the auspices of the House of Birlas and

1 Indian Insurance Year Book, 1943. See also last para, page 162,
Chapter IX.

THE EDIFICE 327

expanded considerably.

An important event was the entry of co-operative movement
into the field of insurance and the Bombay Co-operative Insu-
rance Co. made a cautious but significant beginning. 1 It has
since grown up magnificently. The Central Bank of India
started the Depositors' Benefit Insurance Co. in 1932 and made
history by introducing savings bank insurance to the benefit of
its depositors. In 1930 the Presidency Life was started in
Bombay and the United Karnatak in Dharwar. An influential
Board of astute businessmen headed by Mr. Amritlal Kalidas
started the Neptune in 1931. Attractive schemes made it imme-
diately popular; low premiums sustained its growth and a sound
investment policy strengthened its position. The Neptune now
transacts fire and accident business in addition to life. The
Great Social was started in 1933 anc ^ m ade steady progress. In
the same year was started the Long-Life in Poona by a band of
enthusiastic workers. An influential board of leading business*-
men floated the Warden at Ahmedabad in 1933 anc ^ achieved
remarkable progress. Its head office has since been shifted to
Bombay. In the next year the Sentinel was started in Bombay
with a very strong directorate; although its progress was never
spectacular, it writes sound business every year and now transacts
fire, marine and accident business too. In 1935 was started the
Kaiser-I-Hind with an influential directorate. The Indian Pro-
gressive and Trust of India (1935), the Goodwill, Sahyadri, and
New Swastik (1936) and the Vikrarn and Bombay Alliance
( ! 937) were the other companies founded in Bombay during
the. period.

A team of zealous selfless workers started the Metropolitan at
Calcutta in 1930 and, in an earnest desire to offer real insurance
service, began to break records for new business from the very
first year. Since then Metropolitan has established a net-work
of branches all over India with energetic field-workers and
despite the disquieting conditions that the country witnessed,
has written increasingly higher business every year. In 1947
new business stood at over Rs. 4 crores, in 1948 over 5 and in
1949 over 6/ 2 .

Founded by leading personalities of Bengal under the leader-
ship of the late Acharya Sir Prafulla Chandra Ray in 1933, the
progress of the Aryasthan has been consistently .steady
under the energetic control of Mr. S. C. Roy. The Dominion

1 Vide page 32, Chapter III.

328 LIFE ASSURANCE

( X 93)> the Bhagyalakshmi, Eastern National, Radical and Pra-
bartak in 1931, the Eastern Federal Union (which first started
as a general insurance company with a very influential director-
ate and active support from the Sassoons) in 1932, the Indian
Economic in 1934, the Mahabir in 1935, the Insurance of India,
the National Mercantile, Bangalakshmi and the Palladium
in 1936 were some of the other companies started in Bengal
during the period.

The South Indian Co-operative was started in Madras in 1932
to operate co-operative insurance, in that province and has since
made steady progress. In 1935 was started the Midland, Indian
Circar, and the Canara Mutual. In 1937 the Vanguard was
started at Madras by Mr. H. D. Rajah. Of the other companies
floated during the decade mention may be made of the Swadeshi
Bhima, Federal, Servants of India, Saraswati, the Behar United,
New Insurance^ Free India, Indian Insurance, Jwala,
Adarsha Bhima, Hindustan Mutual, Bhaskar, Tilak and
Policyholders.

Despite growing unemployment and lower scales of pay the
steady income groups among city middle classes gave increasing
support, but economic distress forced down the amount of
insurance per policy to lower levels. Policies for smaller amounts
were very widely issued and insurance expanded in consequence
to districts hitherto unexplored. Nevertheless neither the intense
nationalism nor the consistent expansion could help Indian insu-
rance against persistent foreign competition; national agitation
therefore became insistent on the need for legislative protection.

Government Intervenes

And Govrnment could refrain no longer. Early in 1935
Mr. Sushil K. Sen was appointed special officer to investigate
and report on insurance law reform. An outstanding legal
figure in Calcutta, Mr. Sen applied his immense knowledge of
commercial law to prepare the ground for a new insurance law
and used the great mass of literature at his disposal to submit
an admirable report in November. In a refreshingly analytical
approach the report reflected British traditions and ideals, advo-
cated minimum statutory interference with maximum publicity
and suggested a few modifications. The energetic Law Member
Sir Narendra Nath Sircar immediately summoned an Advisory
Committee of c a heterogeneous group of divergent ' British and
Indian interests to advise him, held consultations, invited sug-
gestions, covered an incredibly wide field in twelve months and

THE EDIFICE 329

submitted a draft bill on 27 January 1937 for the consideration
of the legislators. Commercial organisations submitted memo-
randa, the influential Life Offices' and the powerful Insurance
Companies' Associations made concrete and constructive sugges-
tions, a Lloyd's representative flew over to watch the proceedings,
the chief agents of Indian and foreign offices did much lobbying
and managing agents hastily held consultations. A select com-
mittee of prominent legislators pondered long and thoroughly
over the proposals, imbued with mixed feelings of responsibility
and awe and obsessed with genuine interest in the rights of
policyholdcrs. Over a thousand amendments were moved
some of them wild and fantastic; a few impractical and meaning-
less and some of them got through. Many of the anomalies
were removed by the Council of State and the rest were carried
over to the future. Bristling with drafting mistakes, contradic-
tions, controversial provisions and impractical clauses, the
Insurance Act 1938 was passed on 17 February 1938, received
Viceregal assent on 26th February and became the most con-
troversial law in the Statute Book. Said Pandit Santanam: "this
is all due to the fact that the Government and the Opposition
did not consult insurancemen as much as they should have done,
nor did they take advantage of the voluminous labour they had
put in and the many suggestions they had put forward." l

Cause for Controversy

Here it is pertinent to digress a little. Enlightened national-
ism sought removal of the obvious advantages that the
1912 Act gave to foreign insurance and at the same time insisted
upon the right of national interests for protection. In doing so
Indian insurance was deeply aware of the growing menace of
the unsavoury practices of many of the newly floated companies
but felt foreign competition much more deeply. In framing the
new Insurance Act, the. outstanding personalities of Sir Narendra
Nath and Sushil Sen emphasised the legal much more than the
insurance problems; public opinion, reflected by the elected
Congress majority, was perturbed by the 'mushroom' growth of
Indian insurance as much as foreign competition; but
whilst their strenuous efforts to protect national rights were
thwarted by the Government, many clauses were included to
provide complete protection to the policyholders. To the diffi-
culties that beset the legislators were added the confusion conse-
quent upon the attempts of vested interests to perpetuate their

1 Presidential speech, Indian Life Offices' Association, March 1938.

330

LIFE ASSURANCE

stake. A fundamentally defective approach was the inclusion of
all classes of insurance within the orbit of one consolidated act '
a defect -which was not removed by the. Insurance ( Amendment )-
Act, 1950.'

Departing at once from the principle of minimum control which
is the basis of the United Kingdom Insurance Laws and maxi-
mum control provided by the Canadian and American laws, the
Insurance Act 1938 embraced the whole field of insurance and
was the first comprehensive measure to control the business and
direct its growth on sound lines.

Scope

The Act applied to all classes of insurance and to all com*
panics irrespective of the country of incorporation. Separate
subsections dealt with Provident Companies, Mutual Offices and
Co-operative Societies. Replacing all earlier acts, it introduced
total prohibition of the assessment principle and dividing
insurance.

Company Formation

Deposits prescribed under Section 7 were:
i. Life assurance business only

[a) Fire, (b) Marine (c) Accident
and Miscellaneous insurance, including
Workmen's compensation and motor
insurance, for each class

3. . All classes

4. All classes excluding life

Rs. 2,00,000

Rs. 1,50,000
Rs. 4,50,000
Rs. 3,50,000

Power was given to the authorities to refuse registration of com-
panies if in addition to the statutory deposits and preliminary
expenses a minimum capital of Rs. 50,000 was not collected.
Deposit in respect of life business was prohibited from being made
available to meet any liabilities of the insurer other than those
under its life contracts. Deposits were allowed to be, made in
cash or 'approved securities' including securities of the British,
Central, or Provincial Governments, Municipalities or Port
Trusts, in annual instalments over a period of years, the number
of instalments being i, 2, 4, 7 or 10 years depending upon the
class of business written, country of origin and date of incorpora-
tion. The -Government consistently maintained that the deposits
faere primarily iritended to prevent insurers with inadequate
resources or .speculative motives from commencing business and

THE EDIFICE 331

not to provide security for policyholders; attempts to
impose scales of deposits from non-Indian companies in- excess
of those from the Indian failed. Government were not respon-
sive to proposals to return deposits to insurers of adequate
financial standing nor to proposals that subsidiary concerns whose
contracts were guaranteed by the parent company should be
exempt from making deposits.

Managing Agency system was totally abolished and existing
managing agents were required to vacate their offices on the
expiry of three years from the commencement of the Act, with-
out any compensation for the termination. Their expenses,
including commission and salaries were limited to Rs. 2,000 per
month during the three years.

Superintendent of Insurance

The Act renamed the Government Actuary as the Superinten-
dent of Insurance, set up a department under him and gave
him executive powers. All companies were required to submit
certified copies of annual balance sheets, revenue accounts and
classified summaries cf assets before the end of September every
year and valuation reports (at least quinquennially) in special
forms. Foreign companies, including the British, were required
to submit details of their Indian business, funds employed and
profits earned. In case the Superintendent of Insurance felt
that the returns submitted to him were inaccurate or defective,
he could (i) call for certified copies of further information, (2)
order re-examination of account books, registers or other docu-
ments (3) examine any executive on oath or (4) refuse to accept
any return he considered inaccurate in which case the insurer
would be deemed to have contravened the law. A fresh investi-
gation or valuation at the company's expense could be ordered if
the Superintendent thought that faulty bases were adopted for
any valuation. Aggrieved companies could move a court of law
within four months to set aside the Superintendent's order and
ask him to accept the returns. The Act gave the Superintendent
general powers of inspection in case an insurer was unable to
meet his obligations or did not comply with any of the provi-
sions of the Act. Such an inspection could also be ordered on
receipt of a requisition from one-tenth of the shareholders of
a company holding not less than one-tenth of the share capital
or from fifty policyholders who had life policies in force for
not less than three years and to the value of over Rs. 50,000.
Liquidation proceedings could be instituted- by no one other than

332 LIFE ASSURANCE

the Superintendent of Insurance without the previous sanction of
the provincial Advocate-General.

Investments

By far the most controversial of the provisions related to
investments. The various proposals made by the elected members
in the legislatures ranged from such impracticable measures like
investments of all assets in Government securities to the com-
plete absence of any control. Finally the Act imposed no restric-
tions on the investments in respect of insurance business other
than life and this applied equally to Indian and non-Indian
companies alike. Indian and United Kingdom companies were
required to invest:

(a) 25% in Government of India Rupee Securities 1

(b) not less than 30% in Indian Government Rupee or Ster-
ling Securities, Indian Provincial, Municipal or Port
Trust Securities, or securities of, or guaranteed as to
principal and interest by United Kingdom.

All other companies were required to invest

( a ) 33- l /3% i n Government of India Rupee Securities

(b) 66.2/3% as m (k) above.

Investment regulation was restricted to the amount of the net
liabilities after deducting ( i ) deposits with the Government in
respect of life business and (2) loans on life policies.

Existing companies were given four years to conform to the
new regulations. Loans or temporary advances to directors,
managers, managing agents, actuaries, auditors or other officers
were prohibited and existing loans were ordered to be repaid
within a year but advances to banks and subsidiary companies
were exempted. Statutory rules compelled the maintenance of
certain books including (i) register of policies issued (2) register
of claims (3) register of funds and investments and (4) ledger
and cash books showing income and expenditure under several
headings.

Intense nationalist feelings prompted members to suggest exten-
sion of the investment provisions applicable to foreign companies
to United Kingdom companies too, but the Law Member took
his stand on section 113 of the Government of India Act, 1935
to influence a negative vote as by that section all United King-
dom commercial undertakings were protected against discri-
mination.

1 The term * Rupee ' Securities was mentioned to distinguish them from
Indian * Sterling * Securities.

THE EDIFICE 333

Retaliatory Action

Nevertheless legislators were able to include a section providing
for retaliatory action (including refusal to permit business in
India) against any foreign company, if the country of its origin
imposed any special requirement on an Indian company operating
in that country. In the bill as first drafted the power to retaliate
was permissive but the intensely nationalist feeling of the legis-
lators was demonstrated by the Assembly in insisting upon making
the provision mandatory. It applied to the United Kingdom
as well as to other foreign countries, as section 1 1 3 permitted
reciprocal action if the United Kingdom were to pass legislation
which discriminated in any way against Indian companies wish-
ing to operate there. It was made abundantly clear by the
Law Member during the course of the debate that the power
of retaliation was limited to the insurance business alone.

But the legislators were unable to introduce another measure
which was widely advocated. The Select Committee had recom-
mended a provision for the compulsory placing of 10 per cent
reinsurance with Indian companies out of the general business
written by foreign companies, but the Law Member invoked
section 113 of the India Act, 1935 and threatened to withdraw
the bill in toto if the proposal was passed into law.

Standardisation of policy conditions: Prior to the passing of
the Act, policy conditions varied with companies and were
governed by practical considerations. A certain measure of
standardisation was achieved by giving policyholders definite
rights to safeguard their interests, so far as it was considered
practicable, leaving the rest to good faith and sound insurance
practices. The Act required all companies to file standard policy
forms and tables of prernia approved by an actuary. It enacted
that no policy could be called in question after two years of its
issue or after two years from the coming into force of the Act
in the case of existing policies, on the ground of inaccurate or
false statements or suppression of facts in the personal, medical,
or friends' reports or by anyone in any document leading to the
issue of the policy, unless the company could prove that
it was on a material matter and fraudulently made or inten-
tionally suppressed with the full knowledge that it was false,
or that it was material to have disclosed it. Any specific reference
to declaration of age was omitted from the provision as originally
enacted which, for a time, created serious complications but in
1941 an amendment was passed reading: "Nothing in this

334 LIFE ASSURANCE

section shall prevent the insurer from calling for proof of age
at any time it is entitled to do so and no policy shall be deemed
to be called in question merely because the terms of the policy
afe adjusted on subsequent proof that the age of the life insured
was incorrectly stated in the proposal."

Lapsed policies were covered by another provision. Unless
the options available were indicated on a policy, an insurer was
required to advise the policyholder of these options within three
months of the lapse. Surrender value was guaranteed after three
years; and after that period., a policy became automatically paid-
up for a proportionate amount (if no other non-forfeiture pro-
vision was applied) provided such paid-up value was not less
than a hundred rupees.

The policyholder was given absolute right, during his life time,
to nominate a beneficiary, and change the nomination at will.
Both conditional and absolute assignments were legalised. Under
previous laws the prior consent of an assignee was required before
any benefit could pass on to the policyholder after a policy was
conditionally assigned but by legalising conditional assign-
ment and regulating the order of priority both insurers
and policyholdcrs were protected.

Legal discharge of claims by depositing the sum payable in
a court of law in cases of dispute or of insufficient proofs of
title removed a major difficulty that insurers had. This was
made optional and was required to be made after six months
and before nine months of the date of maturity or notice of
claim. Costs incurred by the court arising out of this mode
of discharge were made a liability of the company.

The Act made the election of not less than one-fourth of the
total number of directors (of life or composite companies
transacting life business) from among life policyholdcrs obli-
gatory, and this gave them a voice in their control and
management.

AGENTS: The Act emphasised the professional status of
agents, licensed them, prescribed conditions for the issue
of licenses and limited their remuneration to 40 per cent of the
first year's premium and 5 per cent of renewals. Younger
companies were allowed an extra 15 per cent on first year's
premiums and one per cent on renewals upto ten years of their
career. Rebate of commission was made a penal offence.

Reactions

The bill had a mixed reception. Insurancemen welcomed the

THE EDIFICE

335

provisions relating to deposits and submission of returns, which
removed the invidious distinction between Indian and
foreign companies. Statutory limitation of investments was
generally resented by the trade but was thought inadequate by
some sections of the public. Limitation of commission met with
strong criticism from those who usvd to be lavish before, but
hardly affected most of the large companies. Absence of res-
trictions on the commissions payable to chief agents enabled
many companies to circumvent the Act and pay higher remu-
nerations indirectly.

Imperfect as the Act was, as subsequent events only too clearly
showed, it marked the culmination of two decades of strenuous
national agitation and secured a measure of uniform Government
control over insurance. Many of the British life offices ceased
their activities in India immediately; Indian offices altered policy
terms, conditions of insurance, prospectuses and office organisa-
tions to conform to the new Act; weaker elements merged with
stronger offices; insolvent or speculative concerns were placed
under receivers; and Indian insurance rose up as a magnificent
edifice.

SECURITY OF WEALTH, Protection to dependents and
consequent happiness these arc what a "NEPTUNE'S"
Policy offers you !

A. CompiTuit: C< mpany writing

LIFE, FIRE, MOTOR, ACCIDENT AND
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Rs.

Capital Subscribed ... 20,00,000

Capital Paid-up ... 10,00,000

Life Fund exceeds ... 80,00,000

Fire & Accident Reserve ... 3,40,000

Reserve Funds ... 1,47,000

Assets exceed ... 1,00,00,000

Claims paid exceed ... 25,00,000

For all your insurance needs writs to :

NEPTUNE ASSURANCE COMPANY, LIMITED

( Incorporated in India )

NEPTUNE BLD8., 166, HORNBY ROAD, - - - FORT, BOMBAY

CHAPTER XVIII

LAST DECADE
i. 1940-1943

Confusion and Contradiction

The Insurance Act 1938 wrote a fresh chapter into the history
of Indian Insurance in an atmosphere of outward calmness, but
internal reactions were profound. An enlightened public opinion,
which fifteen years of vigorous propaganda had fostered, was
shocked by the dark spots in the business which the discussions
on the bill had uncovered, and began to spotlight insurance from
a radically different angle. Prejudices rose in the public mind,
the activities of even the well-established offices were criticised
and insurance emerged as a much-suspected service. Engrossed
in the controversies and contradictions that the Act abounded
in, leaders in the business could pay but little attention to fight
public prejudice.

" Years of vacillation and endless controversy produced an
amateurish bill which even before it could be enforced, had to
be altered by a separate amending bill in 1939, so glaring were
the drafting mistakes/' wrote a prominent executive, summaris-
ing the reactions of the trade in eloquent terms, "it
directs insurance into difficult and dangerous channels." It was
felt that the bill created a mechanism of control that took the
initiative away from the offices, and that weak links in
the mechanism nullified the good that the concessions gave to
the smaller and younger offices. Confusion arose over differences
in interpretation; inadequate protection frustrated Indian inte-
rests; investment control added to their bitterness; and resent-
ment was writ large in the trade. "Mere limitation of commis-
sion to agents without any provision to limit the commission
to chief agents and employers of agents would nullify
whatever good could come out of it." These words of Pandit
Santanam were almost prophetic for the anomalies in the provi-
sions gave loopholes which later led to unhealthy trends.

Enforcement

Nevertheless the Insurance Act 1938 was a landmark. For
the first time in the history of insurance, the whole business

336

LAST DECADE 337

was consolidated under a unified system of control and its struc-
ture strengthened by statutory regulations. Weaker elements
were weeded out; indiscriminate promotion was checked and spe-
culative insurance was eliminated. The best proof of the sound-
ness of the law was provided by the effective check to the large-
scale liquidations which had marred the name, of insurance in
the thirties.

An atmosphere of suspense and anxiety met the new Super-
intendent of Insurance Mr. J. H. Thomas who took charge, in
June 1938, organised a Government Department of Insurance
and framed new rules for the enforcement of the Act. Over
thirty weaker offices were almost immediately amalgamated with
existing stronger companies; nearly twenty, with a total business
in force of about Rs. 2 crorcs, were placed in the hands of
receivers. Forty-three of the fifty that thus ceased to exist had
been started after 1928 but the actual loss to the public was
negligible. The Alliance, Liverpool London, Northern Assur-
rance, Royal Exchange, Royal London, Stardard, National
Mutual, Burma National, Manufacturers (Canada), the. Com-
mercial Union and the Great Eastern ceased to write new life
business in India in view of the stricter provisions of the Act.

Drafting mistakes in the Act were much too apparent. Almost
the first act of Mr. Thomas was to pilot the first of the many
amendments to which the Act was subjected. That happened
early in 1939 and removed a few of the drafting mistakes. The
Act came into force on i July 1939 and two months later came
Hitler to disturb the peace.

The War

The immediate repercussions of the war were political.
Engrossed as it was with the fight for freedom, the Indian
National Congress had paid but little attention to foreign deve-
lopments; yet, foreign affairs formed an integral part of its policy
ever since the khilajat days. Elimination of political and econo-
mic imperialism was the basis of this foreign policy; that in no
event would India join a war without the consent of her people
was its fundamental creed.

When Indian troops were despatched to the Middle
East in the middle of 1939 without the knowledge of Indian
leaders, the Congress asked its members to boycott the autumn
session of the Central Assembly. When therefore with no refer-
ence to Indian opinion, the Viceroy declared that India was
at war, nationalism registered its strongest protest. On 14
September 1939 * ne Working Committee declared its unequivocal

338 LIFE ASSURANCE

condemnation of Nazi aggression, invited the British Government
to treat India as a free nation and to declare her war aims and
offered full co-operation if a popular central apparatus could
be evolved for the war period to organise the war effort on an
efficient and popular basis. "If the war is to defend the status
quo imperialist possessions, colonies, vested interests and privileges,
India can have nothing to do with it. A free democratic India
will gladly associate itself with other free nations." The oiler
was declined and popular ministries resigned in consequence in
eight of the eleven provinces.

Further Amendments

Thus by the end of 1939 uneasy political conditions aggra-
vated the uncertainties of a global war; stringent statutory con-
trol threw the whole insurance machinery out of gear. But when
things looked really gloomy for insurance, there was a change for
the better, for six months of administration had shown the inhe-
rent defects of the Act in bolder relief and the second of the
numerous amendments was passed in April 1940. With that,
Commerce Member Sir Ramaswamy Mudaliar took charge of
insurance in his capable hands and brought about a change in
the attitude of the Government.

The co-operation which the Superintendent of Insurance had
sought from the trade was carried a step further by the new
Commerce Member. Realising the need for a compre-
hensive reform of the Act Sir Arcot, with characteristic
realism, invited suggestions from the various associations and the
Superintendent of Insurance in July 1940, analysed their sugges-
tions, formulated definite proposals, and resubmittcd those pro-
posals for comments and counter-suggestions. Thereupon he
speedily convened a conference of representative insurancemen
at Simla on 29 August 1940, under his chairmanship, discussed
the proposals in detail, presented a comprehensive bill to the
Assembly on 6 February 1941 and ensured its safe passage in
a very short time. "I hope the chapter of amending bills to
the Insurance Act is for the time being at an end" declared
Sir Arcot. And for the, first time since 1938 insurance had
sufficient cause for optimism.

The different stages of the amending bill gave tangible proof
of Government's response to the reasonable demands of Indian
insurance. For example when a representative deputation of
insurers pointed out how the original provision for a table of
surrender values to be endorsed on every policy would cause

LAST DECADE 339

unnecessary inconvenience, the Commerce Member readily assured
them that it would be sufficient for them to indicate the
minimum guaranteed surrender values on the policies. But the
Government was adamant in refusing to amend section 27 of the
Act, to the offices' own good, as it turned out later. And so
by 1941 the psychological change in the Government approach
enabled insurers to solve the, more pressing problems that arose
out of the war with increasing confidence and optimism.

Panic Psychology

The course of world events demanded vigorous action. The
short shrift that Hitler gave to the gallant Poles boded harder
tasks for the Allies. The rapid series of victories on the Continent
intensified the war of nerves. The Battle of Britain carried war
to every British home. Dunkirk and the capitulation of France
in May 1940 added a chapter of heroism, daring and strategy
to contemporary history in gruesome letters of blood and tears.
The world was profoundly shocked. A huge voluntary army rose
in America and Roosevelt pledged the solid American support
to the Allies' cause. But Dunkirk left people, beyond the actual
theatres of war gripped in a psychology of fear. In India the
political consequences of a possible Nazi victory added weight
to this fear, for much as nationalism had deplored British imperial-
ism, it despised fascism the more.

And insurance suffered in consequence. Trade and industry
ebbed. The huge machinery of war supplies which later changed
Indian economic life was slow in coming. Prices were lower than
pre-war levels; normal trade stood still; businessmen sold away
and hoarded gold and silver. The prices of precious metals rose
in consequence and, at that stage, rupee and other smaller silver
coins were hoarded. They too went underground, interfered with
the normal demand for currency and forced the Government to
reintroduce paper currency of small denominations withdrawn
after the first world war. The city middle classes withdrew
their savings and sought safety in keeping their wealth in their
hands in kind. Panicky conditions invaded the stock markets
for investments were thought risky and the future vague.

Life offices bore their share of the panic too. Policies were
surrendered in large numbers and loans were taken to the limit
as popular enthusiasm became drowned in uncertainty and panic
psychology invaded all phases of public life. Lapses were much
more than surrenders and policy loans. Thus Indian insurance
was left to fight internal panic in an effort to consolidate the

340 LIFE ASSURANCE

gains they had made in the last decade and the responsive atti-
tude of the Government did much to give them confidence,

Test Case

But yet, despite the psychological change, the. conflict between
the department of insurance and the companies was intense. And
section 27 provided a crucial test. The original rules for thr
administration of the Act directed life offices to invest 55% ot
a * sum arrived at after deducting policy loans and statutory
deposits from the mean liability on account of matured and
maturing policies in the proportion of 25% and 30% in Govern-
ment of India Securities and Government or approved securities
respectively.' This was far more than what was thought legitimate
for, although the clause was ambiguous, Sir N. N. Sircar's
explanation to the Assembly had given an impression that the
loans and statutory deposits could be deducted out of the 55%
of the total mean liability and the balance invested in Government
and approved securities in the proportion prescribed. The
ambiguous section 27(1) read as follows:

"Every insurer incorporated or domiciled in British India shall,
subject to the provisions of sub-section (3) at all times invest and
hold invested assets equivalent to not less than fifty-five per cent
of the sum of the amount of his liabilities to holders of life insur-
ance policies in India on account of matured claims and the amount
required to meet the liability on policies of life insurance maturing
for payment in India, less the amount of any deposit made under
section 7 (or section 98) by the insurer in respect of his life insur-
ance business and less any amount due to the insurer for loans
granted by him on policies of life insurance (maturing for payment
in India and within their surrender values) in the manner following,
namely, twenty-five per cent of the said sum in Government Secu-
rities and a further sum equal to not less than thiity per cent of
the said sum in Government Securities 01 other approved securities
or securities of or guaranteed as to principal and interest by the
government of the United Kingdom."

The department of insurance, while contesting the companies'
interpretation, allowed relaxation of the rules, pending final
decision. Eminent lawyers like the late Sir Tcj Bahadur Sapru
and Mr. Shri Prakasha gave their opinion against the department
of insurance; Bombay lawyers concurred. The Assembly raised
the question in April 1941 during the debates on the Select
Committee's report on the Amending Bill and the Commerce
Member, admitting that the Superintendent of Insurance followed
the Government's legal advisors, declared " if any insurance com-

LAST DECADE 341

pany is dissatisfied with the said interpretation, I would welcome
the matter being taken to a court of law in the form of a
test case. If the Government's interpretation was held wrong
and the companies' right, the section would not be amended to
conform to its interpretation but I will accept the contention and
allow deductions of the policy loans and statutory deposits out
of the 55% of the mean liabilities." This offer was fair and
satisfactory.

Sir Arcot repeated the assurance later and offered to
reimburse the taxed cost of the case up to a maximum of Rs. 2,000
and to bear their own costs. Arrangements were then made with
the Navabharat Insurance Co. to file a test case in the Bombay
High Court soon after the Summer Recess of 1941 and a Special
Bench of the High Court consisting of Chief Justice Sir John
Beaumont and Justice Kania decided the case on 30 September
1942, upheld the interpretation of the Superintendent of Insurance
and opined "under section 27(1) of the Insurance Act an insurer
incorporated or domiciled in British India should invest in
securities therein mentioned assets equivalent to not less than
fifty-five per cent of a ' sum ' arrived at by taking the liabilities
on the matured claims, plus the liabilities on claims maturing,
less any deposits made under section 7 and less the amount of
loans. In arriving at the fc sum ' all the four amounts mentioned
thereafter should first be worked out as mentioned therein." The
Government thus scored a decisive victory.

Small Insurers

Simultaneously insurers of recent origin set a difficult problem
for despite the elimination of weaker elements the financial
resources of many of the smaller offices could hardly stand a strict
scrutiny and the prevailing uncertain economic conditions added
to their distress. The Insurance Deposits (Temporary Reduction)
Act was therefore passed in March 1941 to assist small proprietary
offices of recent origin; subject to certain safeguards against abuse,
the Act halved their deposit requirements for the duration of
the war.

Insurance Advisory Committee

Immediately thereafter Sir Arcot with characteristic en-
thusiasm instituted an Insurance Advisory Committee in June
1941 to secure the active co-operation of the offices in ensuring
a smooth working of the Act. With the Commerce Member as
Chairman, the Superintendent of Insurance as Vice-Chairman and

342 LIFE ASSURANCE

representatives of Insurance "Associations (like the Indian Life
Assurance Offices' Association, the Indian Insurance Companies 1
Association, the Federation of Indian Insurance. Companies, the
Association of Life Offices in India, the Calcutta Insurance
Association, the Provident Insurance Companies' Associations in
Bombay and Bengal) as members, the Committee had powers to
co-opt one or more members for any particular meeting and had
as its primary function tendering advice to Government on matters
pertaining to the administration of the Act. Sir Arcot pre-
sided over its first meeting on 15 November 1941 and, at its
:onclusion, suggested firstly, an embargo on bonuses during the
kvar and one year thereafter and secondly, increase of premium
rates to meet lower interest rates.

Bonuses and Premiums

The prevailing low rate of interest and the possibility almost
certainty of its receding further had already set a problern. Life
offices felt the need for limiting bonuses and as early as 1940 a
leading office had declared a lower rate. Voluntary limitation,
it was feared, woufd create unfair competition. Total embargo
on private initiative was considered inequitable and statutory
prohibition ideal if it was permissive and not mandatory. Deterio-
rating business conditions, however, provided a solution auto-
matically for very low, and in some cases entire absence of,
surpluses after 1941 prevented many offices from declaring any
bonus.

But while the question of bonus gave room for divergent views,
there were no two opinions on the need for revising premium
rates. The uncertain course of interest rates however forced many
companies to revise them more than once. Over fifty per cent
of the companies controlling over 90 per cent of the business
introduced higher rates of premium at various stages.

Expense Control

Mr. Thomas reverted to his permanent office in the Government
Actuary's Department, London, on 23 June 1943 and, within
a few months, was succeeded by Mr. L. S. Vaidyanathan, M.A.,
F.I.A. The critical times that Indian insurance faced then
required the abilities of a person of Mr. Vaidyanathan's vigorous
personality and with his profound scholarship and mature wisdom
he set about his task of guiding it in a masterly manner.

And things moved in quick succession. An amendment to the
Act in March 1944 to regulate the election of Policyholders'

LAST DECADE 343

directors was followed by a series of discussions between repre-
sentative insurancemen and the Superintendent, and then by
meetings of the Insurance Advisory Committee. A further amend-
ment introduced in November 1944 related among other things
to fixing minimum limits for assurances and annuities of life
offices and maximum limits of Provident Societies, restriction of
commissions payable to employer of agents, power of revaluation
to the Government and modification in the forms of certain
returns. The Select Committee on the bill recommended import-
ant modifications, including limitation of expenses, and a con-
ference of actuaries and senior insurancemen meeting in Bombay
(March 1945) submitted alternative proposals, but as this raised
a controversy, the Government decided to elicit more opinion
before proceeding further.

Political Developments

Meanwhile the political stalemate continued. Selected congress-
men offered individual satyagraha in September 1940 to break
monotonous inaction. The German attack on Soviet Russia in
June 1941 stirred public sentiment; Pearl Harbour profoundly
shocked the nation. The gradual approach of hostilities gave a
new perspective to Congress politics, and an intense urge for an
active part in the fight for democracy. The rapid fall of the
Colonial Empire intensified the tension, but India's political
dependence prevented positive action. By the beginning of 1942
refugees began to arrive from Burma and Malaya with nothing
but the clothes they wore. This and the imminent danger of
aerial attacks led to a sudden exodus of women and children from
the larger coastal towns to the interior villages.

Then came Sir Stafford Cripps. Tension gave way to fervent
hopes for a week, and then open rebellion loomed large on the
horizon. The Japanese bombing of Vizagapatam and Cocanada
in May crystallised inner emotions into a grim determination
towards positive action. The soul-stirring words of Gandhiji gave
a lead to the nation. Late on 8 August 1942 the Congress, meet-
ing in Bombay, presented a cogent reason for the immediate
recognition of India's freedom and called upon the British to
Quit India; a few hours later national leaders were marched
away to prison.

Public reaction was spontaneous and profound. Suppressed
emotions were unleashed. Unarmed crowds braved bullets and
machine guns, burned police stations, attacked railways, cut tele-
graph wires, destroyed post offices and set up parallel govern-

344 LIFE ASSURANCE

ments. Factory workers struck work spontaneously. Government
lost control over large areas. Lacking leadership, the uprising
petered out soon, but not before the intensity of popular feelings
against foreign rule was fully demonstrated.

WAR RISK

War risk was a matter of concern as early as 1937. Extra
premiums 1 of Rs. 50 for combatants and Rs. 30 for non-com-
batants were in operation during the Sino-Japanese War which
broke out in October 1937. In September 1939 European
hostilities influenced Indian offices to introduce extra premiums:
(a) on existing policies: Rs. 50 for combatants and Rs. 25 for
non-combatants; employees of the mercantile marine impressed
by the Government for war purposes were treated as combatants
if the vessels were converted into cruisers or battleships and non-
combatants if used for transporting merchandise, and those in a
similar capacity without war liability were exempted from any
extras. Air force personnel were charged Rs. 80 extra, (b) New
policies: no proposals were accepted from combatants; non-com-
batants in war theatres were charged Rs. 50 extra.

This led to difficulties for new policyholders joined up as
combatants immediately after policies were issued. It was there-
fore decided to accept proposals from combatants on condition
that death from causes directly or indirectly attributable to war
(whether war was declared or not) limited the amount payable
to (a) return of all premiums paid exclusive of extra premiums,
less payments already made by way of bonus, loan, surrender
value or otherwise, or (b) surrender value, whichever was greater,
but not exceeding the sum assured and attaching bonuses. No
modification was made in the case of non-combatants or air force
personnel.

Japanese advance in the winter of 1941-42 complicated the
position of the policyholders in Malaya and Burma and aerial
attacks on Vizagapatam and Cocanada increased the risk in
coastal towns. At this stage the President of the Indian Life
Offices' Association issued this statement:

The feeling of the members of my Association is that member
companies will make payment of claims arising by deaths due to air
raids or enemy action to civilians in India. The committee of my
Association have already advised member companies that no extra
premium need be charged to policyholders who have joined the

1 All extra premiums in this section are for Rs. 1,000 sum assured per

annum.

LAST DECADE 345

A.R.P. Service.

In case of policyholders in Malaya and other enemy occupied
countries who arc insured with life insurance companies in India
the policy of Indian Life Insurance Companies is bound to be very
sympathetic. If their policies lapsed during the war through non-
payment of premium by application of war measures, I have reason
to believe that after the cessation of war members of my Association
would permit the restoration or revival of the policies by accepting
payment of premiums with interest at the usual rate. Where deaths
have occurred during the war the feeling of the members of my
Association is that they would also make payment of claims to legal
representatives of policyholders in enemy occupied countries after
the cessation of war, subject to deduction of the overdue premiums
with interest.

Further increases in extra premiums were made in July 1942 both
for combatants and non-combatants and an extra Rs. 10 was
charged on new policies issued to residents of areas actually
attacked by the enemy. Evacure policyholders were treated sym-
pathetically by all companies. Towards the end of the war com-
batants in officers' cadre were insured with suitable extra premiums
and in August 1945 all extras were rescinded.

Insurance was resumed in Burma and Malaya from the
beginning of 1946, and policies in those countries in force on
i February 1942 were allowed to be revived on payment of
arrears of premium with 3/2 per cent interest upto 30 April
1946 without proof of continued good health; claims were paid
in full after deducting unpaid premiums.

ii. 1943-1945

Mainly due to the elimination of financially weaker offices and
partly to uncertain internal conditions, new business receded from
Rs. 42/2 crores in 1939 to I GSS than ^ s - 3 2 /2 crores in 1940; but
what came in was sounder business^ written by stronger companies.
Nevertheless business in force increased at a normal rate. Wide-
spread panic did not actually reduce business in 1941 but largely
arrested its expansion. Political tension affected business activities
in the next year and the August revolution upset trade; yet 1942
witnessed a nominal increase of over Rs. 2 crores in new business.

By 1943 however the country had experienced a sudden but
thorough change in her economic life manifest more particularly
in five different directions.

i. Industrial Activity

Thr Ottawa Agreement of 1932 had strengthened the Imperial

346 LIFE ASSURANCE

Preference mooted in 1927 and introduced a tariff system that
aided British industry to sell its products in India in return for
Indian raw materials and semi-manufactures; yet many indus-
tries like cotton textiles, iron and steel, cement, jute, paper and
sugar had developed with protective tariffs but without co-
ordination or consistency. War hardly affected Government's
industrial policy but large orders were placed for sandbags, cloth-
ing, small ammunition, foodstuffs, tents and blankets. The course
of war compelled the Allies to develop India as a vast industrial
arsenal. 25% more pig iron was produced and over 60% more
steel; a four-crore programme expanded Kirkee armament works
and by the end of 1941, 250 trade and 23 railway workshops
produced 700 different munition items. 54 firms manufactured
machine tools; many more produced 280 engineering tools; drugs,
leather, hardware, glassware, cutlery, and optical goods began to
expand production to fill the gap left by the absence of imports.
Heavy chemical industry made a cautious start in 1941; the
Hindustan Aircraft Factory assembled planes at Bangalore in the
same year and Indian exports of manufactured goods rose from
Rs. 48 crores in 1938-39 to over Rs. 81 crores in 1940-41. Upto
October 1942 war contracts totalled Rs. 428 crores.

Table No. 54.
Index of Industrial Activity.

(Base 1939 = 100)

1939-40 110.3

1940-41 114.2

1941-42 123.2

1942-43 125.5

1943-44 126.8

1944-45 121.7

(Source: Eastern Economist.)

The Eastern Group Conference (1941) though held in India
included no Indians. The Grady Commission followed in March
1942 but its report was never published. A proposal for an
Indian automobile factory was turned down in December 1940
although the army needed automobiles; an offer to set up an
aircrafts factory without Government subsidy was discounted
because of Government refusal to buy planes; proposals for ship-
building were refused help by the Board of Trade. While the
Secretary of State told the House of Commons on 20 November
1940 that ' India will soon be self-sufficient in respect of some-

LAST DECADE 347

thing like 90% of her military supplies ', self-sufficiency extended
merely to clothing, small ammunition, tents and blankets. Despite
the tremendous opportunity, no attempt was made, to promote
basic industries, and industry as a whole registered but slight
expansion.

ii. Controls, Famine

The capitulation of Burma early in 1942, cut off the rice
imports on which depended much of India's food sufficiency.
This coincided with concentration of troops in India. Some-
time in May 1942 scarcity began to manifest itself; much official
bungling followed. Rationing was introduced in Bombay in
May 1943 and was followed in other cities. But in many parts
of India, particularly Bengal, inefficient administration of
the rationing machinery led to famine conditions, and millions
died of famine and the resultant epidemics during the twelve
months from August 1943. The Department of Anthropology
(Calcutta University) after an extensive survey of sample groups
computed 3,400,000 total deaths by famine in Bengal and 46%
of the people suffering from major diseases. The Official Famine
Enquiry Commission (Chairman: Sir John Woodhead) placed
the figure of deaths 'as a direct result of famine and the epidemics 5
at 1 5/2 millions. Many other areas besides Bengal suffered.
Rationing was accompanied by Government control on various
consumer goods in short supply which, in its turn, led to extensive
blackmarketing.

Hi. Government Policy

There was a marked difference in the Government policy
towards financing war. While in 1914 loans were floated at pro-
gressively higher rates of interest, an intensified cheap money
policy coupled with maximum taxation was vigorously pursued in
1940. War loans carried lower rates of interest; war profits went
back to the Government in taxes. In 1914 higher interest rates
swelled war loans and reduced insurance business: in 1940 higher
taxes led to tax-evasions; lower interest rates diverted the larger
war profits to other channels of investment and insurance was
the net gainer after 1943.

In 1940 panic psychology led to gold and silver hoarding, first
in bullion and then in coins. By 1941 strain on currency became
severe. Smaller coins were re-issued with lower silver content
and paper currency reappeared in larger quantities. This drove
'good money' out of circulation (Gresham's Law). Simulta-

348 LIFE ASSURANCE

neously prices rose. The basic needs of the country and of the
war such as iron and steel, cement, paper, metals, semi-manufac-
tures, foodstuffs and the like outran supply; essential imported
goods like medicines, textiles, tools and machines were driven
out of the free markets; casual luxuries like toiletries, silks, cars,
radios and the like became scarcer. Black markets flourished and
enriched more men considerably.

Rapidly increasing war purchases rapidly increased sterling
balances. To have on hand a ready means of obtaining war
supplies at continuously increasing prices, paper currency
was issued in continuously increasing volume. There was no
check on over-issue and v?ach successive issue of paper money
raised prices to higher levels until three ig45-rupee notes pur-
chased less than a pre-ig39 rupee coin.

iv. Inflation

Free issue, of inconvertible paper money raised the total effective

money supply:

Table No. 55.
(in crores of rupees)

Yea) Currency in circulation Deposits 1 Total

1939-4 339 145 484

i94 -4 * 335 l l 53 1

1941-42 492 234 726

1942-43 750 391 1141

1943-44 99 * 559 X 55

1 944-45 ^97 648 1845

1945-46 1342 745 2087

1946-47 1365 740 2105

1947-48 1417 796 2213

Thus is seven years the effective money supply more than quadru-
pled. Prices soared; cost of living rose to giddy heights; com-
mercial profits increased; the whole economic structure under-
went a rapid transformation. ' Business figures of insurance
reached very high levels.

v. Capital formation

If capital formation (by which is meant the volume of national
income not currently consumed but saved and then devoted to
investment) gives a measure of the economic progress of any

1 Demand deposits with commercial banks, plus deposits with Reserve
Bank minus banks' balances with Reserve Bank minus Government's
deposits with Reserve Bank.

LAST DECADE 349

country India fared but poorly:

Table No. 56.
(figures in crorcs of rupees)

With the inclusion Without the inclu-

Year of sterling sicn of sterling

balances balances

1939-40 180.4 176.4

1940-41 232.5 179.5

1941-42 429.2 235.2

1942-43 45-3 99-3

1943-44 585.6 207.6

1944.45 331.8 69.2

1945-46 239.3 10 7-7

1946.47 --I99-5 203.5

1947-48 43.8 -- 43.8

(Source: The Eastern Economist]

Large surplus capital sought investments during 1941-44. In
the early days of British rule foreign capital in the first place
developed national services like railways, irrigation, etc. through
sterling loans on reasonable terms raised in London markets anci
secondly developed Indian industries through private capital. By
1945 sterling balances had completely liquidated sterling loans.
A national government might have directed surplus capital
towards national reconstruction and industrialisation, but in the
prevailing conditions much of the excess capital was frittered
away in unproductive schemes and unco-ordinated plans.
Nevertheless the holdings in a few foreign firms were transferred
to Indian hands but at inflated prices.

Joint stock companies were, floated in larger numbers. * And-
inflationary measures of the Government included control of
capital issues introduced in May 1943. By the end of 1943, 687
applications for Rs. 25 crores were received for starting new
industries or expanding existing ones; out of 459 cases for Rs. 10.33
crores disposed of till the end of March 1944, 406 for Rs. 9.98
crores were approved, mainly for financing agricultural, trans-
port and allied schemes. Difficulty of importing machinery
limited the expansion of existing factories and very soon available
surplus capital outweighed the needs of new flotations. Then
that excess capital began to acquire control over existing well-
organised industries, trading houses and business organisations
at highly inflated prices.

350 LAST DECADE

Finance capitalism

- Here it is well to recall a typically Indian business institution.
An integral part of Indian trade and industry has been, for many
years, the Managing Agency system. A firm of managing agents
(usually a single person, or an association of a few individuals
either in partnership or with limited liability) controls, directs
and finances a group of several (often heterogeneous) public com-
panies, who are generally financially interdependent among them-
selves and look up to the controlling firm for normal credit and
necessary finance. This concentration of control and credit
enables a relatively few individuals of the managing agency firm
to control the shares of particularly desirable institutions. Indian
industry and trade had developed under that pattern and were
therefore particularly vulnerable to the influx of finance
capitalism.

Surplus capital seeking new avenues of investment enabled
finance capitalism to make rapid inroads into trade and industry,
which then began to maintain close relations with credit insti-
tutions like banks and insurance companies. The pattern
of developing these relations lay in acquiring controlling blocks
of bank and insurance shares and electing common directors.
It was thus sought to supply credit to the several companies
under the control of managing agents whose members were elected
directors of the financial institutions.

It started in 1943 and rapidly gathered momentum. Insurance
shares were quoted at highly inflated prices, and this at a time
when progressively decreasing interest rates held out little or no
hope for shareholders' dividends. They changed hands at fabu-
lous prices and were sought after by interested financiers. And
the impact of finance capitalism influenced life assurance in a
three-fold manner.

Firstly new flotations. But in this sphere the control
of capital issues and the stabilising influence of the department
of insurance had a decisive effect. Nevertheless over Rs. 3/2
crores came to be invested (see Table No. 57 given opposite).
Secondly acquisition of controlling blocks of insurance shares. Not
many companies were involved in the change but their size was
large enough to let considerable life and other funds to be passed
over to new owners. Thirdly interdependence with banks. Banks
which acquired full control over insurance companies were few
but those which had common directors were many.

It is doubtful whether finance capitalism would have made

LAST DECADE 351

Table No. 57.

Details of new flotations during 1942-45
(capital in lakhs of rupees)

Life offices Composite offices General offices

Year M Paid-up Mn Paid-up No Paid-up

No - capital No - capital No ' capital

1942 i 3-5 5 6 3-5 2 52.5

1943 4 81.6 4 17.3

1944 i 31.3 7 66.1

1945 i 1.3 2 12.4

Total 2 4.8 10 176.4 15 148.3

Source: Indian Insurance Year Books.

such significant entry into life assurance had the basis of sound
life office operations been realised sufficiently well. Its influx by
itself would have mattered but little and could even have bettered
insurance but for the quest for quick profits that the war had
caused to intensify. For example the funds of life offices which
thus changed control could have been left alone until stable busi-
ness conditions made investment of capital in industrial deve-
lopment safe and not speculative. But what really did happen
was that out of the huge funds of life offices payments of large
emoluments to nominees of new owners became general both
legitimately and otherwise; investments in sister concerns under
common management were engineered; and speculative transac-
tions became common. That no long-range plan for the con-
structive development of insurance business was attempted was
deplorable. When the funds were used to promote unsound,
speculative flotations, critics of section 27 thanked the Gov-
ernment for their consistent refusal to amend it. When the
abuses threatened to disrupt the financial structure of firstly the
companies and secondly business operations particularly because
of their alliance with banks, the Government made a quick move.

Cowasjee Jehangir Enquiry Committee

On 21 April 1945 a committee was appointed under the chair-
manship of Sir Cowasjee Jehangir; Messrs. Wajahat Hussain,
K. R. P. Shroff, A. H. Lloyd, L. S. Vaidyanathan, J. K. Mitter
and Sir George Morton served the committee as members and
the general terms of reference were * to enquire into the undesirable

'352 LIFE ASSURANCE

features in the management of Insurance companies in India and
to recommend measures that should be taken to check the evil '.
The committee entered into its momentous task on 27 April and,
after collecting a large volume, of evidence both oral and written,
official and unofficial from over 30 associations, supplemented
by the information (obtained in his official capacity) which the
Superintendent of Insurance was able to supply on the working
of several companies, produced a report within a few months
which revealed the disgraceful level to which some of the com-
panies had sunk. The darkest chapter of life assurance was painted
in all its stark reality.

Although the terms of reference were general, the committee
confined its investigation to life assurance, and, analysing the
evidence that was tendered, made specific recommendations to
amend the existing insurance law so as to rid life assurance of
those disturbing trends whieh had tried to debase its operations,
manifest more particularly in three different directions:

a. Acquisition of Control. The evidence tendered revealed
many cases of financiers having acquired control over existing,
progressive companies at prices far above the prevailing market
values, and the dividend paying capacity of the, shares. Frequent
changes in the management of established companies are bad
enough, but when those changes were invariably accompanied
by (i) the replacement of the permanent, qualified and expe-
rienced personnel by the inexperienced and unqualified nominees
of the new management, (2) payment of excessive remuneration
to the new incumbents, and (3) payment of large compensation
to the, erstwhile managerial staff for the termination of their
services, the position was alarming, for the interests and the funds
of the existing policyholders were thereby jeopardised.

The specific recommendations of the committee included intro-
duction of statutory provision so as to ( i ) make it obligatory for
every shareholder to disclose the interest, direct or indirect, he
has in the share standing in his name or in the names of others,
(2) compel a transferee to disclose his (or others') interest in
the proposed transfer of the share, (3) limit a single person's
holdings in a company (either for himself, for others, or for
himself and others) to 10% of the paid-up capital, and in the
case of a bank or investment company to 5%, (4) advertise the
changes in the directorate, (5) eliminate common directors among
life offices, (6) prohibit excessive remunerations for the new, and
compensations for the old, personnel. All the recommendations
with but a few alterations, have now been incorporated in the
Insurance (Amendment) Act 1950.

LAST DECADE 353

After a thorough analysis of the suitability of different classes
of shares for a life office, the committee recommended ' one class
of shares ' with face value and called-up amount the same for all
the shares issued and with voting rights strictly proportionate to
the paid-up value.

b. Manipulation of Funds. Acquisition of control was accom-
panied in a few cases by manipulation of the 45% o fthe funds
which was free from Government control. The committee ' found,
in one case, that an overdraft was taken on the pledge of the
approved securities representing 55% investment of the life fund '
and made specific recommendations to restrict the freedom of
investments. Most of the restrictions suggested now form part
of the new Insurance Act (vide pages 118 and 119, Chapter VII).

c. Inter-locking between Banks and Insurance Companies
threatened to disrupt the very foundation of credit and was con-
demned by the committee, in unmistakable terms. On the evidence
in its possession the committee was able to prove that banks
and insurance companies invested in each others' shares, presented
an c artificial appearance of strength ' but operated on a crumbling
financial structure. Thus the shares of the insurance company
' appear on the liabilities side as capital and on the assets side
as a deposit with the bank. The bank shows on its liabilities
side the amount of the insurance company's share capital under
deposits while on the assets side it shows the shares of the, insurance
company '. Again ' in a valuation year some of the investments
of the insurance company may be sold to the bank at
fictitious prices. . . . The valuation would thus show a
surplus. After the valuation the same securities would be re-
purchased from the bank thereby avoiding any loss to the bank '.
And * by having different dates for the balance sheets (of a bank
and an insurance company under common management) a transfer
and a retransfer of assets between the insurance company and
the bank in exchange for useless assets can go on from year
to year'. The remedial legislation recommended included (i)
limitation of a bank's or investment company's holdings to 5%
of the paid-up capital, (2) restriction of investment in the shares
of any one banking or investment company to 2% of the life
funds or 2% of the subscribed share capital of the bank or in-
vestment company and in current or fixed deposit account of a
bank to 2% of the funds, (3) statutory fixation of an identical
date for the balance sheets of all banks and insurance companies.

There were a few other recommendations too such as prohi*
bition of remuneration to the executives on a commission basis,

23

354 LIFE ASSURANCE

and power of investigation to the Central Government on recent
changes in ownership. That an enquiry such as the committee
conducted was urgently needed was never in dispute, for the
testimony that was taken and the documents submitted (most
of them of a confidential nature and therefore not subject to
public scrutiny) revealed the existence of a state of affairs in some
of the companies which called for drastic reform.

Public reaction to the report was profound. Many had but
little knowledge of insurance matters but what criticism was made
did no good for insurance. There was a persistent cry for
nationalisation and very stringent controls in the meantime.

Short-term Endowment Policies

Disquieting as the tendency to evade taxes was, the wilful use
of insurance to aid that evasion was a matter for concern. But
that was what happened at the height of inflation. Short-term
endowment policies for five years or less were issued with a
condition that 90 per cent of the premiums paid were loaned
to the policyholders. The loans together with the rebates on
income-tax gave considerable gains to the insured and the practice
was so widespread that the Government amended the Income-tax
law by enacting a provision (similar to the one existing in
England) by which such part of the premium as was in excess
of 10% of the sum assured was not eligible for tax relief. Short-
term endowment policies receded to normal requirements
subsequently.

States Legislation

Insurance Act 1938 was the signal for many Indian States to
enact parallel legislation to control the business within their
borders. The States which did so included Jammu and Kashmir,
Mysore, Baroda, Travancore, Pudukkottah, Indore, Porbandar,
Gooch-Behar and finally Hyderabad. The regulations in general
demanded initial deposits, compulsory investments in State
Securities, separate books of accounts and separate statements.
Private Representations by life office associations and direct nego-
tiations by the Government resulted in certain modifications and
reciprocal arrangements. For example a few States exempted
Indian offices from initial deposits and some gave other con-
cessions. In general 55% of the State liabilities were .required
to be kept in State assets, and copies of statements submitted to
the Superintendent of Insurance had to be filed with State
Insurance Departments, Constitutional changes may introduce

LAST DECADE 355

uniform laws in the future.

iii. 1945-1950

Business Trends

Inflation led to a phenomenal increase of new business from
1943, and every succeeding year registered a new record until
1946. With the loss of the highly developed territories in Paki-
stan business receded in 1947 and 1948 and simultaneously
trade depression set in.

Another feature may have far-reaching consequences in the
future. From 1942 agricultural and industrial labour got more
income than ever before; yet higher price levels kept real incomes
down to less than the pre-1939 figures. None of this excess
income however reached insurance. Caught between inadequate
wages and colossal prices lower middle classes ceased to have a
separate existence. Some of the higher income groups among
middle classes became richer and enriched insurance; others
became poorer and merged with the lower groups. Nevertheless
the setback to insurance from the elimination of middle classes
was real and may tend to become grave in the future.

Twenty-six purely life offices and fourteen composite companies
were started during the decade; 15 of the 26 life offices were
mutual and 1 1 proprietary. Two out of these forty have their
head offices in Pakistan. The fact that there have been no
failures of the offices which started operations after the* enforce-
ment of the Insurance Act is significant; much as the free flow
of money helped them to establish themselves soon, the stricter
control of the Governmnet did more to consolidate their position.

New Flotations

The House of Devkaran Nanjee floated their Insurance Depart-
ment in 1941 which now writes Life, Fire, Motor and Accident
business; in the life department it operates savings bank insurance
besides ordinary classes. The Eastern Life was started at Karachi
in the same year by a band of energetic workers who had con-
siderable experience with the Allianz und Stuttgarter; after p^irti-
tion its head office has been shifted to Bombay. The Deepak
was floated in 1943 with an influential Board and transacts all
classes of insurance business.

In ,1943 was started the Jayabharat. With leaders in business
and industry on its Board the Jayabharat was able to establish
itself soon, build up strong connections and make rapid stride?
in all classes of business. In the same year was floated the New

356 LIFE ASSURANCE

Great with well-known personalities in the business world on
its Board. With its chief operating office in Bombay, New Great
has built up a sound business in a remarkably short time. Another
well-known composite company that was started in 1943 is the
Prithvi of Madras.

The All-India General rose up at Bombay in 1944 with
Mr. Ramdeo Podar as chairman, and became the first office to
write over Rs. 'i crore of new business in the very first year of
its inception. Under the capable management of Mr. S. B.
Cardmaster, who brought his long experience to bear upon the
new institution, the All-India built up an extensive organisation.
The Sterling General was constituted in Delhi as a general office
and took over the life business of Sterling Life in 1944. The
British India General, one of the largest general offices in India,
entered the life field when it took over the management of the
Zenith in 1943; after transferring its existing business as at 31
December 1942 to the British India General, the Zenith itself
started new life business from 1st January 1943.

The other offices which were started in the decade include
the Advance, Union Life and General, Ajai Mutual, Anand,
Central Mercantile, Citizens of India, Digvijay, Famous Life,
Glory, Home Security, Howrah, New Metro, Pioneer Fire and
General, Supreme Mutual, Trinity Mutual, Vasant, Vishwabharati,
Habib and Yeshwant.

Interim Government

Politically 1945 was memorable. The release of congress leaders
was followed by renewed but fruitless attempts at compromise.
The formation of a labour government in Britain raised hopes
in India and led to the visit of three of its foremost ministers in
May 1946. They proposed both a long-range settlement and
an all-party Constituent Assembly and authorised Viceroy Lord
Wavell to negotiate a representative de facto interim government;
but as negotiations with Indian leaders proceeded, large-scale
communal riots broke out first in Calcutta and then in Naokhali,
surpassing in magnitude and destructive capacity any communal
disbrder previously known in modern Indian history. Reprisals
started in Bihar soon. The internecine war was still on when
on 2 September 1946 in the Council Room of the Viceroy's
House, Lord Wavell administered the oath of office to Pandit
Jawaharlal Nehru as the leader of the, first members of a wholly
representative cabinet composed of all parties but the Muslim
League; communal disturbances continued unabated even when

LAST DECADE 357

the League entered the cabinet a month later.

It was soon evident that the coalition cabinet was failing. The
Constituent Assembly met in Delhi in December 1946 under the
shadow of this failure (for the Muslim League refused to parti-
cipate) ; nevertheless it defined fundamental rights, formally
abolished untouchability and declared the future status of India
as an Independent, Sovereign Republic.

Meantime the cry for Pakistan became insistent. Passions ran
high. In January 1947 the Union Punjab Ministry banned
private armies and thus unleashed mass emotions in a province
which, despite its mixed communal character, had preserved long
and proud traditions of peace. A period of blood-letting, killing,
torture, abduction and rape followed on a large scale; the
flourishing towns of Amritsar and Multan went up in flames and
life in Lahore came to a standstill. Conservative estimates placed
casualties at over 5,000 men, women and children, but worse was
to follow.

Partition

Fresh from his successes as the Supreme, Commander of Allied
Forces in South-East Asia, Viscount Mountbatten of Burma
replaced Lord Wavell as Viceroy and the British Cabinet resorted
to shock tactics by declaring June 1948 as the dead line for the
complete transfer of power to India. A suggestion was made in
May to partition the Punjab and Bengal to solve the grim tragedy.
Squarely facing realities, the new Viceroy met the leaders, hustled
the British Cabinet to accept a tentative plan of immediate action
and finalised an agreed procedural scheme in an incredibly short
period of time: as announced on 3 June 1947 the plan partitioned
India into two dominions, with division of the Punjab and Bengal.
The announcement immediately abated communal warfare, albeit
temporarily.

The process of partition was completed with incredible speed.
The swift and solemn passage of the Indian Independence Act
marked the end of British domination which had begun in the
eighteenth century and had brought a measure of administrative
unity to the vast subcontinent. The title of the Emperor of. India
held by the British Crown since 1876 lapsed: the historic office
of the Secretary of State for India was abolished and the Secretary
of Commonwealth Relations took over the conduct of British
relations with India and Pakistan. India nominated Viscotint
Mountbatten as the first Governor-General and Pakistan chose
Mahommed Ali Jinnah and under them was carried out the

358 LIFE ASSURANCE

complicated process of dividing the rights, assets, powers, pro-
perties, liabilities and the defence services.

Independence

At midnight on I5th August 1947 India emerged as an inde-
pendent dominion. At the Durbar Hall of the Government House
the Chief Justice of India administered the oath of office to
Viscount Mountbatten of Burma as the first Governor-General
of the Dominion of India and Pandit Jawaharlal Nehru was sworn
in as Independent India's first Prime Minister. Suppressed emo-
tions were released and freedom was heralded with jubiliation
and cheer* And a fifty-year struggle was owr with Indian
Independence, but tragedy lurked around the corner.

Punjab Tragedy

The June 3 announcement of partition with its division of
Bengal and the Punjab had neither satisfied the aspirants of a
united India nor the advocates of an Islamic State. The dramatic
declaration of the plan had temporarily lulled communal riots
and the prospects of independence suppressed inborn antagonism;
but when partition was an accomplished fact and the appointed
day approached, antagonism turned into brutal hatred and hell
was let loose in Western Pakistan. Contemporary history pro-
vides no parallel for the sheer brutality of the carnage that
followed; the horrors of religious persecution in the Middle Ages
paled into insignificance before the hellish savagery of fanaticism
in the Punjab. That beautiful land was a closed chamber of
death and destruction for weeks; days later news of the tragedy
trickled through no-man's land to stun a civilised world. The
immediate repercussions were equally brutal. In the cities of
Amritsar and Delhi and in the villages of Eastern Punjab the
tragedy was repeated. By the middle of September there started
the tremendous task of evacuating the terrorisd survivors of the
massacre. Rough estimates put down 4/2 millions on either side
of the border as the number of persons evacuated; probably they
were much more. Nine million men and women were thus cut
off from their hearths and homes and set adrift.

The condition of the refugees were tragic beyond description.
Few carried anything but the clothes they wore. Most of them
were bereaved; all of them had come through a nightmare.
Women and children had been abducted, raped, maimed, thrown
to the gutter. Men had witnessed their womenfolk murdered or
maimed in front of them, powerless to retaliate. Crippled with

LAST t)ECAt) 359

abject terror, weak with the suppression of surging emotions,
refugees by the millions poured into the villages and towns of
India creating problems of tremendous magnitude to the Govern-
ment and the public. The material rehabilitation of the once
peace-loving folk was a heavy task upon the resources of the
Government and the people; but far more urgent and difficult
was their spiritual rehabilitation. The trouble soon spread to
Sind but there it was neither so widespread nor so intense, for
evacuation had started in time.

Life Office Problems

Life offices were greatly affected. Most of the larger companies
had successful branches in the worst affected areas of the
Punjab and had painstakingly built up a net-work of competent
organisations. Their employees and agents were at their posts
when the trouble started; they were there through almost three
weeks of hell before impoverished means carried them across the
border.

Some of the head offices and considerable assets were in Pakistan.
The tragedy gave no time for cogent thought and long before
its intensity was realised many offices had been looted, damaged,
burnt or destroyed with considerable loss to property.

Three problems arose immediately and confronted the offices.
The assets, records and other salvageable effects, had to be
removed; the evacuated personnel had to be settled and a way
found to dispose of the policies on the lives of those who were
affected. Whereas the co-operation of the two governments was
needed to remove the effects, resettlement of the personnel created
more complications because of the difficulties in restarting opera-
tions in Pakistan.

In the cause of the evacuated offices and their personnel the
late Pandit Santanam of the Lakshmi did yeomen service. He
formed an association of the displaced offices in October, organ-
ised relief, moved the authorities to afford facilities for removing
the records and properties from Pakistan and actively helped the
offices in resettlement. Where chaos prevailed, order was partially
restored by January 1948.

Refugee Policyholders

Many of the insured werr untraceable. Several had died but
their relatives became scattered. Where deaths could be attested,
legal difficulties prevented immediate settlement. A large number
of refugee policyholders had hardly any means of paying premiums.

360 LIFE ASSURANCE

And then life offices rose to the occasion magnificently. Where
premiums had been fully paid upto 3Oth June 1947 payments
for the succeeding eight months were accepted before 31 March
1948 without any proof of continued good health; all claims
on deaths occurring between i July 1947 and 31 March 1948
were met in full subject only to deduction of unpaid premiums
without interest; lost or mislaid policies were duplicated without
the customary charges; and various facilities and concessions were
freely given to deserving policyholders.

Premium Adjustments

By far the most intricate of the problems was the adjustment
of premiums paid into branch offices and banks, for as policy
numbers were rarely quoted and normal routine had been dis-
rupted no means existed to trace the relative policies but the
laborious method of going through the entire records in the head
office; meantime premiums had to be kept in deposit. Said
Sir Purshotamdas Thakurdas at the annual general meeting of
the Oriental on 18 August 1949: " most of the displaced policy-
holders had to leave, behind their policies and could not quote
the policy numbers. In a company of the size of the Oriental
with nearly seven and a half lakhs of policies on its books, the
difficulty of getting at the correct policy file from mere names
can be easily imagined because of identity of name amongst
several policyholders. To give only a few of the several instances
that can be quoted, there are as many as 515 policies under the
name of ' Kartar Singh ', 289 under name ' Gurbaksh Singh ' and
251 under name 'Amar Nath V

Legal Problems

With the creation of two dominions out of a single country
which had enjoyed a unified structure of civil and criminal laws,
the adaptation of existing laws became obligatory. Section 18(3)
of the Indian Independence Act 1947 provided "Save as other-
wise expressly provided in this Act, the law in British India, and
of the several parts thereof existing immediately before the
appointed day shall, so far as applicable and with the necessary
adaptations continue as the, law of each of the new dominions and
of the several parts thereof until other provision is made by laws
of the Legislatures of the dominion in question or by any other
legislatures or other authority having power in that behalf." The
Insurance Act 1938 and the Indian Companies' Act 1913 were
accordingly adapted by both the dominions under the India

LAST DECADE 361

(Adaptation of Existing Laws) Order 1947 and to avoid the
legal complications consequent upon their immediate enforcement
a " Standstill Agreement " was signed by both the dominions
providing for the maintenance of status quo till 31 March 1948.
Nevertheless, a feeling that Pakistan's future policy might conflict
with India's interests, existed and an influential deputation of
Indian offices met the Commerce Member at New Delhi on
20 October 1947 to represent, firstly, the need for initiating nego-
tiations for an Inter-Dominion reciprocal treaty covering regis-
tration, deposits, investments, accounts and valuations; secondly,
equality of treatment with United Kingdom companies, parti-
cularly in the matter of investments; and thirdly, extension of
the Standstill Agreement till 31 March 1949. But differences
in interpretation arose almost immediately to complicate an already
difficult issue.

Complications

The first of these differences related to reserves. An Inter-
Dominion Agreement on insurance concluded in December 1947
included a provision for treating 15% of the Statutory Deposits
with the Reserve Bank as reserves for Pakistan policyholders till
such time as their policy liabilities were more accurately determined.
Indian offices and the Government of India intended this clause
to apply only to those offices which had evacuated their head
offices from Pakistan, but Pakistan sought to extend its scope
to all companies which withdrew from that dominion.

Secondly, differences arose in the interpretation of the Stand-
still Agreement. Pakistan contended that all offices operating in
Pakistan should have complied with the statutory provisions of
the Insurance Act and the Indian Companies' Acts, as adapted,
including registration, deposits, statements, records, etc., imme-
diately after I5th August 1947, and that they had not been
insisted upon merely in the absence of adequate administrative
machinery. Section 277 of the Companies' Act, as adapted,
required all offices established outside Pakistan to register within
six months of I5th August if they had a^ place of business inside
Pakistan before that date or within one month of opening a
new office later. Indian offices felt that the Standstill Agreement
gave them immunity till 31 March 1948. On the representation
of the Government of India Pakktan showed an inclination to
extend the time for registration by three months.

Meantime, Pakistan introduced an Insurance Amending Bill
on 26th February 1948 requiring all companies operating there

362 L*FE ASSURANCE

to deposit Pakistan government securities equivalent to 50 per
cent of the deposits prescribed by section 7 of the Insurance Act
1938 before i5th April 1948, and further substituting the words
' Pakistan Government Securities ' for the words ' approved
securities ' wherever they occurred in the Insurance Act. Offices
which ceased to write new business after i5th April 1948 were
excluded.

Thus by April 1948 an unfair and, in some respects, paradoxical
situation was created, for thereafter Indian offices were liable to
be treated as foreign offices with consequent liability to invest
100 per cent of Pakistan policy liabilities in Pakistan Government
securities, to appoint trustees residing in Pakistan and approved
by that government, to maintain separate books of accounts, to
submit separate returns and to conduct separate valuations.
Whereas the Insurance Act gave preferential treatment to United
Kingdom companies in both dominions, Indian offices which
hitherto had op-crated without restrictions in Pakistan, came to
be treated as foreign offices. Indian omces protested and placed
their requirements before the Government of India which included
extension of the date of registration by one year, exemption from
the provision for th^ appointment of trustees, equality of treat-
ment with United Kingdom companies (particularly in the matter
of investments), facilities for the compliance of investment provi-
sions by stages and acceptance of Provincial, Municipal and Port
Trust Securities in the category of approved securities. These
provisions were vital to the Indian offices and their absence com-
pelled them to decide against registration in Pakistan.

Further Developments

An Inter-Dominion Gonference held in Karachi on 27 April 1948
discussed such questions as deposits, investments, statutory pro-
visions and facilities for conducting business and came to incon-
clusive decisions. Repeated attempts of the Government of India
to end the stalemate proved abortive. The strained relations on
thr Kashmir question confused an already complicated problem.
The cease-fire in Kashmir on i January 1949 cleared the way
for cordial discussions and an Inter- Dominion Conference was
held immediately when Pakistan, inter alia, offered such terms
as these:

(a) Indian offices transacting fresh business to invest 55% of their
liabilities in the proportion of 25% in Pakistan Government
securities, 15% in Government of India securities and 15% in
approved securities including United Kingdom securities. If

LAST DECADE 363

the United Kingdom companies were requhed to invest 25%
of their liabilities in Pakistan Central Government securities and
the balance in approved securities not including United Kingdom
securities, by the end of 1950, such a provision would extend
to Indian offices also.

(b) Indian offices could comply with the investment provisions under
section 27(3) within a period of four years.

(c) The State Bank of Pakistan may be the Trustee unless the
government and the offices mutually agree upon other trustees
resident in Pakistan. If the provision does not extend to
United Kingdom companies by the end of 1950, Indian officeb
would be put on the same footing.

(d) Pakistan would not be agreeable to let those offices which start
operations now to withdraw later free of all obligations. If
however statutory provisions more onerous than those existing
were introduced in the future sufficient notice would be given
to the Indian offices which would be exempted from the new
provisions if they withdrew at that stage.

Two difficulties still existed. Firstly, the offer providing for
investment of 15% liabilities in Government of India securities
operated only till 31 December 1950 and might be withdrawn
then, and secondly, the provision for trustees gave United Kingdom
companies preferential treatment. The decision not to resume
business was therefore not rescinded. The non-devaluation of
Pakistan currency in September 1949 complicated the problem
still further.

Further Amendments

Meantime change^ were made in the Act. In March 1946
Insurance Act 1938 was further amended to include the non-
controversial provisions of tfoc bill which had lapsed in
1944. The provisions of this Act (Insurance. Amendment Act VI
of 1946) fixed minimum amounts for insurance and annuity
payments on a single policy issued by life assurance companies l
and maximum by provident societies, separated life funds from
other assets, provided for adjustments in liabilities for reinsurance
accepted and ceded, allowed for payment of commission on revived
policies and simplified the amalgamation of provident societies.

Another bill was introduced on 3 April 1946, provided for the

1 Except under certain conditions, an insurer cannot issue policies for
less than Rs. i,poo, or annuities of less than Rs, 100; Provident Societies
can issue policies upto Rs. 900, or annuities upto Rs. 100. Another
important clause of this Act provides that in ascertaining solvency of an
insurer, the unpaid capital should not be taken into account.

364 LIFE ASSURANCE

control of expenses, capital structure, voting rights, excessive
remunerations, part-time and common executives and various
matters designed to direct insurance operations more scientifically
and passed through a very chequered career. A Select Committee
submitted its report on 5th March 1947 but momentous political
issues crowded it out during that session of the Assembly. Con-
ferences were held thereafter, representations made and consider-
able lobbying ensued but constitutional changes and tragical events
brought in the need for a complete revision of the entire law.
The bill was consequently withdrawn on 3Oth January 1948. An
Informal Committee consisting of Mr. S. Ranganathan (Ministry
of Commerce), Mr. M, A. Ansari (Superintendent of Insurance),
Mr. L. S. Vaidyanathan (Oriental), Mr. J. C. Setalvad (Vulcan),
Mr. B. K. Shah (New India), Mr. T. C. Kapur (Bombay
Mutual), Mr. N. Dutta (Hindustan), Mr. N. V. Naidu (United
India), Mr. S. C. Roy (Aryasthan) and Mr. N. J. Gor (Presi-
dency Life) subsequently examined the proposals, reviewed the
entire insurance law and suggested important modifications. The
Insurance Advisory Committee then considered the report and
the Government re-examined the whole issue. The net result
was the Insurance (Amendment) Act 1950 which has just become
law.

Thus the ten years from 1939 were packed with more incidents
in the insurance world than the whole period of over 100 years
since life offices began to issue policies in India. By controlling
the business of life assurance in a manner that left the companies
dissatisfied, the strict provisions of the Act left loopholes which
tended to develop a section of it on unhealthy lines but it seems
as though the Insurance (Amendment) Act 1950 has delivered
the business out of its * darkest chapter '.

That darkest chapter helped to intensify the public prejudice
that manifested itself at the beginning of the decade and invited
public demand for nationalisation; public prejudice is gradually
giving way to public confidence and the demand for nationalisation
is not now so insistent.

Economic forces tended to upset the even tenor of the business.
Panic psychology at the beginning of the decade brought the
business down to a low ebb; inflationary trends and surplus profits
then raised it to its highest pinnacle and subsequent reaction
has made it flexible. The elimination of the middle classes is

LAST DECADE 365

significant and might have serious repercussions later; meantime,
the evolution of a suitable machinery to direct the surplus earnings
of lower income groups is a matter of urgency.

Political conditions were equally uneven. The 1942 movement
was almost a revolution but hardly affected insurance business.
Communal riots threatened to disrupt business; the advent of
freedom raised hopes of lasting peace and prosperity but the
Punjab tragedy shattered them. Partition perhaps set the most
intricate problem during this period of constant ups and downs.

MOTOR

LIFE, FIRE, MARINE, ACCIDENT,
etc., INSURANCE

Insure with :

THE SENTINEL ASSURANCE CO. LTD.

Head Office:

Prospect Chambers, Hornby Road, Fort, BOMBAY
Branches and Agencies all over India.

CHAPTER XIX
ON TO THE FUTURE

This is the end of our story. Magnificently enacted, with
unlimited energy and zeal, by the groat pioneers of the industry,
the story of insurance has had its dramatic interludes, its full
share of prosperity and adversity, a wide range of experience and
opportunities for profiting by that experience. That, on the whole,
it tries to provide the people with the strength and the security
that make life worth living, is only one of its many attributes.

For instance,, one ol the first things that insurance does is to
replace the loss of income on the death ^of an earning member,
for that is its fundamental function. It may be that such a loss
can hardly be measured in terms of rupees, annas and pies, but,
all the same, it seems reasonable to say that every death of an
earning member results in a definite pecuniary loss to those who
depended on him. To the extent that insurance replaces the
loss of earnings by a definitely guaranteed sum, its service to the
family is unique, and no scheme has so far been devised so
scientifically and so unfailingly as insurance to replace that loss.

But modern insurance does much more than merely replace
the loss of income on death. It creates an estate a sort of trust
on the date of the contract, to ix: paid for later in small easy
instalments, which cost normally not much more than the ciga-
rettes a man buys or the pictures he sees. And with that estate
he is able to meet his needs whatever they arc, and whenever
they occur, needs such as the education of his children, the build-
ing of his house, a pension for his old age, a provision for his
dependents, in fact, a variety of financial arrangements. In the
manner in which modern insurance, is able to meet the different
financial needs of a man, from the cradle to the grave, its won-
derful qualities have never been equalled.

In the process of building up that estate, a man is very likely
to develop a magnanimity of outlook that is as wholesome as it
is profound. The thrill of accomplishment, the self-confidence of
financial independence, the courage of security, a new inspiration
and initiative, are merely some of the many manifestations of
that magnanimity. That by conserving the small savings of a
man, insurance is able to encourage his thrift, increase his credit,
organise his wealth and invest that wealth in sound, productive

366

ON TO THE FUTURE 367

channels, is merely incidental to its operation, but essentially
fundamental to his well-being.

Life assurance is as indispensable to a man in business as it
is to a man with a family. For it enhances his credit, enables
him to tide over a tight < orner without fuss or fear, strengthens
the financial structure of a partnership, replaces the loss on the
death of an able executive or an expert technician and builds
up his goodwill. The fabulous amount of compensation a
producer might get on the death of a star on the sets, or the
large sums, of money paid out to the dependents of the victims
of an aeroplane tragedy have all been made possible by the
application of life assurance. To the individual proprietor of a
business the legacy that a policy can leave may perhaps be the
only tangible goodwill that his dependents might inherit. And
wherever the financial structure of a business is related to the
contingencies of life, life assurance is the only factor that can
add strength to that structure.

To the Society

Next to the individual, the community. A community in which
most of the members arc adequately covered is richer, stronger
and more useful. An uninsured man is a weak link in its struc-
ture. In the days of the epics and the upanishads, our forefathers
gave to the world a wonderful system of joint security
in the family and thus conserved the wealth of the society; they
created charities to provide additional security. Individualism
rose up out of the ravages of time to destroy the security of
the joint family and threw the onus of supporting the weaker
elements on to the charities. So long as charity remained
the second line of defence in the community, it helped to develop
the nobler elements in a man's make-up, but when it became
the only means of soc ial security it tended to destroy the moral
structure of society. Witness the sturdy vagrants who flock to
the gates of the great temples on all auspicious days. Republican
India is trying to rebuild a strong and decent society, and there
can be no place in it for demoralising, misplaced charities; life
assurance is perhaps the only means of creating a nation of self-
reliant, independent, morally healthy men.

To the Nation

But this is not its only benefit to the nation. In the sphere
of national reconstruction, the policyholders* funds are gainfully
employed to construct roads and railways, to develop irrigation

368 LIFE ASSURANCE

and power, and to expand industry and agriculture. Twenty-
five years ago insurance funds in Government securities were less
than ten crores, today they are over Rs. no crores with prospects
of nearly Rs. 10 crore annual additions.

Technical Personnel

To those giant brains of the industry who look after the tech-
nical side of insurance operations, the nation owes a debt of
gratitude. "The evolution of the scientific ideas which provide
the bases for the activities of insurance in the various aspects
is due to several giant brains associated with institutions focussing
their attention upon ways and means of developing the business
and thereby making insurance capable of rendering social service
of a unique type," 1 wrote Mr. L. S. Vaidyanathan. Today the
actuarial profession in India is barely twenty-five years old; when
it grows older the actuaries, with their profound knowledge of
actuarial science and their analytical brains, might specialise in
other spheres of public activity during their career and make
valuable contributions to increase the amenities of life.

This then is a picture of the benefits of insurance. It may be
possible for a few individuals to make their own arrangements
to cover the risk they encounter in life, but those arrangements,
even in the case of those few, would largely remain speculative.
On the other hand life assurance is the greatest and the most
efficient system of providing for all contingencies of life and of
covering all risks to enable every one to obtain security at the
cheapest possible rate. Credit institutions like banks and insurance
companies stabilise internal economy and enhance the credit of
a nation. The principle of insurance is fundamentally bound up
in modern society for it is the one indispensable source
of strength to every man in the modern State.

Social Security Services

Much as the extension of adequate insurance cover is a desir-
able consummation, we cannot delude ourselves with the
expectation that a Utopian society can be created overnight where
every man, woman and child is protected. For our system is in
an appalling mess. What with falling incomes and soaring prices,
starvation wages and threats of growing unemployment, the task
ahead is by no means easy and calls for superabundance of
patriotism and courage. It may therefore be pertinent to make

1 Indian Insurance Year Book, 1945.

ON THE FUTURE 369

a rapid survey of the possible ways of developing insurance in
such a way as to serve society better.

First come the needs of industrial labour. And for this the
governments of the advanced countries of the west have perfected
three specific classes of insurance, collectively termed "Social
Security Services," comprising old age pensions, unemployment
relief and national health insurance. This social security is the
responsibility of the State and covers classes of people who are
normally unable to take up the ordinary classes of insurance.

i. Old age pensions

Except for the superannuation schemes of the Government and
allied services and the provident fund schemes of private and
public institutions, which, thanks to a proposed legislation, may
soon become compulsory for most classes of industrial labour, no
central agency exists to provide for the maintenance of the old
and feeble whose faculties of mind and body are not equal to the
strain of useful work. The costliest of all social security services,
old age pension is a life annuity and is the reward for years of
continuous and loyal service; its cost is tacitly included in the
wages of labour. The possibility of dissipation robs provident
fund of much of its attractiveness and a contributory pension
scheme is immensely preferable in its social aspect.

Much work has to be done in India before this scheme of social
security passes out of its present nebulous stage; even if it is
applied to all industrial labour it can merely cover a fraction of
the large army of people, with a reasonable claim on old age relief.
That may be a tough problem for posterity. But this much is
certain: an ill-regulated scheme of national endowment free of
any contributory obligations might easily debase the moral fabric
of man by discouraging his urge to earn and save.

. Unemployment relief

On a different footing stands unemployment relief. Unemploy-
ment is a very complex economic problem common to all com-
munities which have advanced beyond a self-subsistence economy.
Largely produced by modern industrial expansion, its origin may
be traced to a variety of forces such as personal defects, indus-
trial changes, economic malaise and political upheaval, which
affect its intensity differently. Systematic unemployment insur-
ance organised by the State is an indispensable provision to tide
over temporary periods of industrial dislocation, but misused, it
can, (and has often done so in the past) degenerate into a

24

370 LIFE ASSURANCE

system of 'doles' with accompanying evils far graver than
unemployment itself. Nevertheless it has been estimated that one
out of every 16 in Britain was on 'dole' in the pre-war days and
one out of every 10 American. The nebulous state of industrial
activity in India created an industrial labour which remained
largely ill-defined; the flexible character of that labour with its
roots firm in the villages helped to reduce the gravity of unemploy-
ment in the past. Industrial expansion may tend to complicate
it in the very near future.

Hi. Health Insurance

The Government has already made a move in this matter.
The formation of the State Insurance Corporation is perhaps
one of the finest acts of the present Government and if it is
able to develop in the manner in which its plans were formu-
lated it can regulate a fundamental aspect of social security.

Industrial Insurance

These three services, together with a few subsidiary ones, cover
what are technically termed 'Social Security Insurance' and arc
mainly administered by the State. Social security has already
made a beginning in India, but not industrial insurance.

Industrial insurance, as that term is usually understood, is the
business of insuring chiefly the industrial or wage-earning class,
for small sums under policies providing for weekly or sometimes
monthly premiums, which are normally received at the home of
the policyholders by an authorised collector. Collection is perhaps
the most intricate of the administrative difficulties of an indus-
trial office and is usually made by district managers and local
collectors who, besides being responsible for the collection and
transmission to the office of renewal premiums, act as agents
for all classes of business transacted by the office.

One of the main criticisms directed against the operation of
industrial insurance, which, incidentally, is one of the reasons
behind the demand for its nationalisation in England, is
the excessive lapsing which occurs after only one or a few weekly
premiums have been paid. To prevent this the usual system of
remunerating the collectors and district managers is such that
their incomes depend more upon the maintenance of business
than upon writing new business. Further, in England,
many companies provide for payment of one-quarter only of the
sum assured in the event of death otherwise than by accident
in the first three months,, one-half in the second three and the

ON THE FUTURE 371

full sum assured thereafter; then, in order to give the holder
additional inducement to maintain his policy, the sum assured
increases by about 5% after five years and an additional 2 J /z%
after 10.

Industrial assurance is written on all members of the family
from birth to age sixty-five or seventy. In England the amount
which may be paid on the death of a child has long been limited
to certain statutory maxima. Premium tables usually show the
varying amounts of insurance obtainable on each plan and at
each age for a given weekly or monthly premium. Premiums are
usually based on the mortality experience of the general popu-
lation (which includes a proportion of impaired lives) and are
in consequence higher. Medical examination is rarely required.
Proposals and policy forms arc much simpler. Letters of accept-
ance are dispensed with. Benefits and privileges depend upon
the company; but assignments and loans are usually prohibited.

This then is a rough picture of industrial insurance. Far from
replacing social security services, industrial insurance supplements
their benefits and provides perhaps the only practical way in
which many of the wage-earning classes may themselves secure
the benefits of life insurance for amounts they can afford and
on terms which are suitable to their circumstances. The Friendly
Societies of England probably originated the scheme to make
provision for funeral expenses; following their practice policies
were issued largely on the dividing and assessment principles by
over 1,200 Provident Societies which sprang up in various parts
of India about fifty years ago. The Provident Societies Act 1912
by enforcing a measure of control over their operations, drove
most of them out of business; still over 500 existed at the com-
mencement of the Insurance Act 1938. A majority of them
could not (in some cases would not) deposit even the modest
sum of Rs. 5,000 required under the Act and went out of busi-
ness. Of the in societies operating in 1946 (in which year
life assurance wrote the largest amount of business) 83 had an
income of less than Rs. 500 a month and only 9 averaged over
Rs. 1 5 ooo! They collectively wrote 24,031 policies for Rs, ij4
crores. It is just possible that they have a place in the country
but hardly for the handling of the highly organised plan of
industrial insurance.

The rapid growth of industrial insurance in England
and America is proof of its immense economic importance to
the community and to the State. In India, the shift of incomes
to the lower classes that was incidental to the war, brought its

372 LIFE ASSURANCE

need to the forefront; the present industrial expansion intensifies
that need. Social security plans might help the labour to obtain
security during their tenure of employment and a little sustenance
later, but industrial insurance alone can give them the financial
security he needs. Despite the collective strength the Trade Unions
have given to labour, an individual worker is often weak finan-
cially; industrial insurance can give him that strength too.
Nothing much remains today (for him or for the country) of
the over Rs. 80 crores that the nearly 14 lakhs of workers received
through wages in 1946 (vide First Census of Manufactures, 1946)
largely because of its absence. If a properly organised plan of
industrial insurance is initiated by those offices which are in a
position to do so, there is no excuse for the Government or for
the labour to withhold active support.

Group Insurance

From schemes for labour let us pass on to schemes for all
classes of employees. While industrial insurance for the work-
ing classes has made no entry at all in India, group insurance
has made a modest beginning. The group plan gives insurance
cover to groups of lives, usually composed of the employees of
a common employer, without medical examination, at a low cost
and enables an employer to assure payment of a certain sum at
the death of his employees. The group plan can be applied to
almost any kind of insurance, the yearly-renewable-term assurances
and annuities l being the most common.

Group insurance differs but little in its principles from ordinary
life insurance but much in its effects. The group is the unit of
selection instead of the individual. Normally at least three*
fourths of the eligible employees and a minimum number of 100
or 50 must elect and participate in the group. The policy is
issued to the employer, who applies for insurance, makes the
contract with the company, is responsible for the payment of
premium and is the policyholder. Premiums depend upon the
type of industry and on the distribution of the employees accord-
ing to age and may be paid either wholly or in part by the
employer; in the latter case it is usual for the employees to
contribute the same amount per month per Rs. 1,000 of insurance,

1 Latterly two major types of permanent group plans have been developed
in America: the unit-purchase type (where if an employee continues in
the employ of an employer an increasing part of his group life insurance
will be in the form of whole life paid-up assurance) and the level-
premium type (which provides for whole life, endowment or retirement-
income plans with level premiums payable for life or to age 65).

ON THE FUTURE 373

regardless of age, even though under the yearly-renewable-term
premiums increase annually, the excess being borne by the
employer. The amount of insurance may be based on an em-
ployee's salary, his position, the length of his service or
any other recognisable factor which precludes individual selection
against the company. Conditions of the contract include pro-
vision for granting ordinary permanent insurance cover to those
leaving service before a specified age and disability benefits.
That by reducing administrative expenses the company is in a
position to offer insurance at an actual cost which, in many
cases, is substantially below the rates for which the same insurance
could be individually secured is merely one of the many advan-
tages of group insurance to the employees. Stability of employ-
ment, better employer-employee relationship and relief from
moral liability for financial assistanc in certain circumstances make
group insurance attractive to the employer.

Closely similar to group insurance is the group annuity contract
providing for the payment of an annuity or pension to the
employees of a common employer, who enters into the contract.
It replaces the ordinary retirement plan that many offices have
instituted and provides, in many respects, a more satisfactory basis
for old-age pensions of employees than individual schemes which
are rarely financially sound. Various provisions such as payment of
increased annuity on retirement at an age later than the
normal, a reduced annuity for retirement before the normal age
and full annuity for early retirement due to ill-health, make a
group annuity contract immensely beneficial to the employee and
helps the employer to maintain better employer-employee rela-
tionship. Premiums, based on the circumstances existing at the
commencement, are paid to the company by the employer either
annually or quarterly usually on a contributing principle and are
very often influenced by the occupational factor.

The expansion of social security schemes in England and Amer-
ica has helped to stress the importance of group life and group
annuity plans and to open up fresh fields for their application.
Originally conceived in America, they have made rapid strides
in England, especially after the war, and recent reports indicate
an intensified demand. A few progressive industries in India
have made a beginning but the share of the Indian companies
has been insignificant. That the potential demand is large is
evident from the rapid expansion of commercial enterprises.

374 LIFE ASSURANCE

Rural Insurance

Such then are the most significant developments of modern
life assurance. In India great has been its expansion in recent
years, but small its coverage, for it has largely remained confined
to the urban middle and upper classes and to the ordinary classes
of insurance cover. Its extension to all classes in the city may
constitute an important aspect of its future development, but
no less important, and in fact, almost pressing, is the need for
penetrating rural India.

Here first comes the tenant farmer 1 . His problems are com-
plex, for he is reared in a tradition of poverty. He is poor
because his earnings are low. His earnings are low because his
poverty precludes individual ability to become proficient in his
work and because absence of any reserve makes him economi-
cally too weak to bargain. Economists have, at various times,
tried to tackle the problem of his poverty by different methods
and by diverse plans. Co-operative credit, co-operative farming,
co-operative marketing and co-operative banking constitute
one phase of this programme. Extensive land reforms, as are
envisaged in the latest legislative enactments, provide a second.
The Gandhian method of supplementing income from land, by
income from subsidiary trades, conceives a noble ideal. Exten-
sion of cheap rural credit is an admirable counterblast to the
throttling tactics of the usurious rural banker. But any scheme
that ignores the contingencies of life, which evades the question
of incentives for saving and which avoids conserving those savings
for future use, is fundamentally unsound. A new land tenure
might give more land to the landless peasant and co-operative
farming expand their production; supplementary trades might
increase his income and co-operative credit facilitate him to do
so; but insurance and insurance alone can urge him on to earn
and save, (almost on a compulsory level), conserve those savings
for his future and rid posterity of its poverty. He is poor partly
because he inherited debts; 2 if his debts at birth could be banished

1 Rural India is composed of heterogeneous economic groups. A rough
classification may be: (i) farm labourers (which constituted about 30
million in 1931) who cannot afford insurance, (2) tenant farmers and
cultivators with small holdings (roughly under 5 acres), and (3) the
rest of the land-owners who rarely do actual cultivation. The latter two
classes have been referred to in this section, as tenant farmers and
land-owners. *

2 A survey of some villages in the Guddalore Taluka conducted
Dr. Narayanaswami Naidu and Mr. P. Vaidyanathan reveals that 53.0
of the total debts of 50 families was inherited.

ON THE FUTURE 375

he has an even chance of fighting economic weakness.

The farmer works when there is work, ekes out a bare living
from the land and spends what little he can save, for his very
poverty eggs him on to spend. Insurance alone can compel him
to save, and thus prevent him from leaving a legacy of debt to
his heirs. His insurance needs are modest a couple of hundred,
may be, or Rs. 1,000 at the maximum. Time stands still in rural
India and premiums may have, to be collected, in small sums, at
regular intervals and kept low to make insurance popular. Not
many can read or write there and it is not an easy matter to
inspire confidence. Co-operative insurance, has a major role in
rural India.

The position of the land-owner is better. He can afford the
regular classes of insurance he has need for them and the
problem is more of supply than demand. Scattered as they are
in the villages of India, distance makes the question of supply
more difficult. Absence of qualified doctors makes medical selec-
tion rarely possible but sturdy constitutions, hard labour, and open
spaces make, it hardly necessary. Nevertheless residential hazard
may be a fundamental factor in selection for some rural areas
are notoriously unhealthy.

A systematic plan of expansion from the cities to the larger
towns, then to the smaller ones and subsequently to groups of
contiguous villages may be worthwhile; stress of competition may
very soon compel such a plan. This would entail detailed plan-
ning, complete knowledge of the distinguishing features of every
district, intensive educational propaganda, selfless workers, infinite
patience and large initial outlay. But the result will be worth the
effort. The real problem is this: rural India is very much
sceptical of the plans and programmes of the city salesman, and
so the selection of the agent may be the deciding factor in the
success of any plan for expansion beyond the cities.

The Question of Cost

These then are the important fields for the expansion of
insurance in India,, and an important aspect of its operation may
now be considered. Insurance is an economic need and its
progress is regulated by the economic forces of supply and demand.
Supply is almost unlimited. Demand will depend upon the
ability and willingness of the people to sacrifice present to future
satisfactions. The ability is regulated by forces (usually beyond
the control of the offices or the people) that arrest the power
to save. Not so willingness. Present goods are more valuable

376 LIFE ASSURANCE

than future goods; a present enjoyment is more highly esteemed
than the opportunities for the same enjoyment at a future date.
Therefore people, as a general rule, will only sacrifice a present
good in order to obtain a greater one in the future. A person
who invests a sum of money expects its return in full, together
with an addition, as a reward for waiting, at the end of a given
period. A man may put aside a supply of commodities or the
means of procuring them as a provision against old age or
unforeseen difficulties, and many would do so without the induce-
ment of interest, security of the investment (which now
happily insurance is able to offer) being the only cri-
terion for selecting the medium. The realisation of the future,
which is one of the results of advanced civilisation, manifests
itself in the willingness of the people to provide for future
emergencies, as well as an increased recognition of the duty of
making provision for dependents in case of death or disablement.
But how far these two forces (viz., realisation of future
emergencies and recognition of the duty to dependents) strong
enough to overcome the natural resistance to invest in a scheme
which, at the prcsent level of cost, entails a certain loss of capital?
Realisation of future emergencies and recognition of the duty
to dependents combine and provide the primary incentive in
insurance. Benefits provide a second and future enjoyment a
third. When the aggregate of the premiums paid is more than
the sum assured, the force of the first incentive has to be fairly
strong to overcome the resistance provided by the cost. If that
were not so three things would have happened: insurance would
have been purchased and not sold; assurances providing for more
equitable cost (such as limited payment whole of life) would have
been preferred; endowment assurances would have lost all their
glamour. That they do not happen proves that a man insures
primarily to enjoy the fruits of his savings. It is possible to
advance sound arguments for the present level of cost (and we
have tried to give some of them in the foregoing pages) but
very few may really be convinced, for no insurable man lives
who firmly believes that he stands in need of cover against pre-
mature, death. A man may earmark the amount of interest on
his savings against the price of protection but only one in a
thousand may willingly part with the entire interest and a part
of the capital to meet a possible, future emergency for his family.
That even a 5% reduction in the present level of prices may
induce a 25% increase in the total turnover may be a rough
guess but must provide food for thought.

ON THE FUTURE 377

Nationalisation

This question of cost is much more important than what is
suggested by the above discussion. For let us look at what an
important insurance journal has to say: l "one challenge against
present-day insurance in one country is that there have been but
few, if any, failures in recent years. The inference, presumably,
is that the public has been paying an excessive price for the
security provided, and that even were all business on a with-
profit basis, there was a danger of the excessive price being per-
petuated through lack of economy of cost. For that reason,
legislators in more than one country are working on the idea that
the function of State supervision is the dual one of testing both
the security of the. insurance undertaking and its social equity,
i.e., whether its cost is commensurate with the value the com-
munity attaches to the selling of insurance protection." The
needs of the times is evidently for company managements through
sound underwriting and investment policy to maintain an ade-
quate, but not grossly exaggerated policyholders* funds, and to
give protection at equitable cost. That way lies a continuation
of sound insurance as a private enterprise. The real challenge
to private insurance may come from its inability to pass on to
the public benefits from improved insurance hazards in an excess
of zeal for still more security.

The mention of that challenge is a warning for the future;
but as the challenge of nationalisation is there now as a result
of socialist trends, the question merits more than a passing
reference. At the same time this is not a discussion on the relative
merits of the wider aspect of socialism versus capitalism for that
is beyond the scope of this book but merely an attempt to probe
into the equity of the demand for nationalisation in the narrower
field of insurance. That insurance is a highly-developed social
service is an admitted fact; that equity and justice should govern
its 'operations is beyond dispute; that its profits should go to
benefit the people who contribute towards its prosperity is a
simple matter of equity; but what is open to question is the
equity of the demand on grounds which are far from equitable.

i. Moral Grounds

The moral grounds for nationalisation are perhaps the most
potent but the least equitable, for this question of equity has many
phases. For instance, the quest for equity in underwriting (like

1 Tht Review (London), 7-6-1946.

378 LIFE ASSURANCE

the elimination of undesirable lives) might conflict with the
question of equality of individual rights under the constitution;
the prohibition of private trading in insurance might run contrary
to the provision of the. fundamental right ' to practise any pro-
fession or to carry on any occupation, trade or business '
[Section 19 (i) (g) Part III, the Constitution of India]; equity
in State ownership of insurance without a parallel ownership of
co-operative credit, banking, education, private trusts, electric
power, fuel, medicine and a host of other trades, professions and
services, may very well be questioned. Added to all this is the
directive principle, of effectively providing for ' securing the right
to work, to education and to public assistance in cases of
unemployment, old age, sickness and disablement, and in other
cases of undeserved want' (Section 41, Part IV, The Constitution
of India). That, in equity, is the insurance that the State should
undertake; that, in essence, the protection that the State should
provide, for they stand most in need of it for no fault of their
own. Over 30% of the people of India thus demand social
security immediately; there is time enough later to take over the
security of the i% of the people whom the life offices serve.

ii. Technical Grounds

The regrettable lapses of a few of the. offices might have added
weight to the technical grounds for State ownership had national-
isation offered a blueprint for successful business operation. We
are led to believe that technical efficiency and economic manage-
ment are State monopolies; unscientific operation and extravagance
products of capitalism. The efficiency and strength of the larger
companies that control 85% of the business disprove the theory;
Parliamentary debates, periodic commissions and news reports
prove that technical blunders and extravagant management are
hardly private monopolies. In fact it is not a choice between an
imperfect system called private enterprise and a perfect system
called nationalised insurance. It is a choice between two human
systems, both of which will inevitably have their defects and
deficiencies because, they are human with perhaps one dis-
tinguishing feature. State ownership will control insurance through
a cold, impersonal, remote committee. The warmth of personal
contact which is the basis of healthy growth will be exchanged
for an impersonal approach that damps enthusiastic support.
Efficiency may have to be sacrificed at the altar of security tied
up with red tapes a security that is real in private insurance,
at least under present regulations, but which may prove to be

ON THE FUTURE 379

a mirage when it fails to meet a demand in time under Govern-
ment ownership. For no man or group of men, no matter how
brilliant, tied down by the red tapes of a bureaucratic set-up can
ever hope to realise the, needs and anxieties of a vast multitude
of people and instil security and confidence into them. No man
in Government service can make a decision on any matter on
the spot without an immense amount of paper work with the
inevitable red tape, that begins at the local office and moves at
a snail's space through various departmental heads, local boards,
regional councils, up to the final authority in Delhi and finally
back through the same successive channels. A father of a pros-
pective bride in the meantime may have, to defer her marriage
because of the inability of a local office to grant a loan; a widow
might have to remarry for subsistence by the time the authority
decides to sanction payment of an unassigncd insurance on the
life of her late husband; a minor son might have grown into a
major person before his rightful title is established. This question
of nationalisation is fraught with grave inequities to the policy-
holder. The. private insurer is a profit-making tough bargainer
but is too shrewd a businessman to deny custom through bad
management. A State insurance bureau may prove to be a
Dureaucratic creation that frightens much more than it protects.

iii. A Few Misconceptions

Here it may be pertinent to clear a few misconceptions. A
Post Office Savings Bank is often cited as an illustration of prompt
payment. That is hardly an apt comparison. A savings bank
account stands on the same footing as a bank account. Treasury
payments on any other account is always delayed by the need
for ensuring a vast amount of detail necessary to ensure justice
that usually calls for infinite waiting. Comparison of costs with
the Postal Insurance Fund is often misleading, for that fund is
operated among a select group of highly eligible lives (reducing
mortality rates) through a system of voluntary contributions
(practically eliminating the cost of procuration and loss through
lapses) and by a departmental policy that, theoretically at least,
has facilities for adjusting interest rates.

iv. Other Grounds

The political, economic and social grounds for nationalisation
often tend to coalesce and build a road that may lead to militant
socialism (such as what Hitler practised in Germany) that cen-
tralises all power in the. hands of a few political bosses unless

380 LIFE ASSURANCE

great vision and absolute discretion are applied. For success begets
success; control in one sphere inevitably leads to control over
wider spheres of national life which may end in the dispossession
of the citizens' fundamental right to own property, to carry on
the profession of his choice and to spend his income as he chooses,
out of sheer necessity. That the common man recoils from such
a system is proved by the voluntary brake that the Socialist Party
in Britain has had to apply to its programmes. That nationalised
insurance can place itself in an economic and political straight-
jacket is proved by what is happening in France. Let M- P.
Aubry tell that story: 1

" A very real anxiety has been manifested in informed circles con-
cerning the present situation, and even more, the future of French
insurance industry whose 34 nationalised firms account for 62% of
its business. Although less spectacular and carried to a lesser degree
than in the other nationalised sectors, * politicalization ' is very marked
here. Moreover, it seems to be an inevitable result of the system
itself. The appointment of the directors of these companies depends
either upon political men, the Ministers of Finance or of National
Economy, or upon the National Insurance Council which is in some
degree subject to their influence, or upon union organizations which
are for the most part closely bound up with political parties. The
Minister of Finance appoints the General Director. Thus directly,
or not, these essential appointments are influenced by political con-
siderations. The effects of this were immediately discernible in the
administrative offices of the companies, which have far too often
concerned themselves with problems that were foreign to the real
interests of the enterprise and the policyholders.

" The limited independence of the branch organisations which is
necessary if they are to show any initiative has, under these con-
ditions, been superseded by a bureaucratic centralization. Efficiency
and team spirit have disappeared in the central offices of these com-
panies where neither the managers nor the general directors have been
given the specific mandate to defend the interests of the company,
but rather the divergent interests of the policyholders, the employees
or the State.

" The financial condition of the companies has been seriously
affected by this situation and is, for the most part, deplorable. Nor
can these difficulties of the nationalized insurance companies be
explained by comparing their losses with those of a few minor com-

1 An extract from, a study on the nationalized industries and utilities
in France, which appeared as a series of articles in Les Monde (Paris)
and reproduced in Le Courrier Des Index (Bombay, May 1949) ; this
contains an interesting analysis of the technical aspects of the nationalized
industries.

ON THE FUTURE 381

panics in the free sector, because the nationalised companies occupy
a much more favoured position. The question of funds is a grave
one for all these companies. For a long time the State, which is
the only stockholder, refused to increase their capitalization, and
preferred that the companies, since they could not issue bonds them-
selves, should have recourse to bank loans which were inevitably
difficult to carry, and which only postponed the solution of the
problem to the date when they fell due. A few months ago, how-
ever, the State agreed to underwrite increase in capitalization, but
freed itself of the obligations involved by turning over to the com-
panies Treasury bonds which are negotiable only in cases of the
utmost urgent necessity. We cannot refrain from criticising these
methods which hamper the administration of enterprises that the
law makers wished to keep strictly within the framework of civil
and commercial law.

" This need for capital is so acute that some directors of the
nationalised insurance companies are afraid that a merger of -these
companies into one huge State-owned company may seem imperative.
Such a step might have the most dangerous consequences for the
entire nationalised insurance industry because of the topheaviness of
the agency thus created and the complete disappearance of the
spirit of enterprise which it would entail. Moreover, the reinsurance
companies, which bring foreign exchange into the country, would
certainly lose the greater part of their foreign business, since foreign
insurers would hardly care to have the French State reinsure them."

After this it would be a pity if nationalisation of the companies
which cater for the upper and middle classes is advocated.

Conclusion

That is not to mean that the industry is in a perfect state of
robust health. It is not. We can fill a whole book with the
many ills that the industry has had and maybe, still has, but in
a recognisable form, as for example lapses. But it is not necessary.
Wh^t is necessary is to see clearly the general principles that
should govern the operation of insurance to the greatest good
of the largest number; to arrest the destructive forces that sought
to lead it astray; to unite in strengthening its constructive forces
through an effective system of sound rationalization; and above
all to set its hands to the hard task of revivifying it and revitalising
its efforts. For the task ahead is clear. The immediate need
of India is wealth; the immediate problem poverty. The low
figure of national income is an index of the poverty of the people.
So let us bestir ourselves, united by a superabundance of patriotism,
to give more wealth to India. Let us unleash the energies of

382

LIFE ASSURANCE

free people to fight every move that tends to stifle the freedom
to produce more wealth. Let us start off an astonishing surge
of human errcrgy that creates an abundance of wealth. Let us
stop apologising for the past and uphold the noble ideals of thrift,
self-help, decency and co-operation. Let us unite to give strength
to life assurance in its magnificent effort to conserve the wealth
for posterity.

ST ABILITY

BALANCED WITH SERVICE

IS THE OUTSTANDING FEATURE OF
ASIAN'S PROGRESS

Assets exceed Rs. 2J crores

Claims paid nearly Rs. 1J crores

LIFE, FIRE, MOTOR, MISCELLANEOUS

ASIAN

ASSURANCE Co., LTD.

BALLARD ESTATE, BOMBAY

<

Branches all over India

APPENDIX
PROGRESS IN FIGURES

No picture of Indian insurance is complete without a record
of its growth. The first policy was issued in India about 150 years
ago probably on the life of an Englishman. Established in 1871
the Bombay Mutual is the first life office now in operation open
to all sections of the public but its activities were limited until
1918. The formation of the Oriental in 1874 signalled the begin-
ning of Indian insurance, and for many years the progress of life
assurance in India was identical with the growth of the Oriental.
The conservatism of the people, mass illiteracy, ignorance and
poverty arrested the progress in the early years; foreign competi-
tion then was a check on its expansion. The spread of English
education and the birth of the middle classes quickened its pulse;
nationalism in 1906 gave it an impetus; nationalism in the
twenties hastened its expansion; public enthusiasm ran wild in
the thirties and tended to import unhealthy trends which were
promptly curbed by the Insurance Act 1938; and war-time
destructive forces tried to mar its fair name later and are being
checked by Insurance (Amendment) Act 1950.

An accurate estimate of its progress till 1900 is difficult; never-
theless, a measure of that progress is afforded by the records of
the four major offices operating at that time:

Table No. 58

Progress of the four established
offices around the year 1900
Year Life Office New Business Business in force

Rs. Rs.

1899 Oriental 63,71,990 7,16,14,380

1897 Bharat 1365,500 1,65,500

1902 Indian Life 2,00,000 l 10,86,440

I902 2 Empire 1,80,320 12,89,015

The total business in force of the Indian offices may therefore
be taken as nearly Rs. 8 crores in 1900 of which the Oriental's
share was over Rs. 7 crores.

1 Estimated.

2 Average for the ten years 1897-1907.

383

384

LIFE ASSURANCE

Progress of Life Offices

Government publications give returns of Indian life offices from
1914 (although separate figures for their Indian and foreign
business were not available until 1928) and those of foreign offices
operating in India from 1928. The following figures and tables
worked out on the basis of the details published in the Govern-
ment Year Books, have been divided into three periods, viz.
1914-29, 1930-39 and 1940-48.

(In all the charts in the accompanying pages AB represents index
numbers of total business in force, CD index numbers of new business,
TT actuals of business in force and NN actuals of new business.

The word GAIN has been used to denote the increase of business in
force in two consecutive years: thus business in force in 1930 is Rs. 85
crorcs and in 1931 Rs. 94 crores and the GAIN in 1931 is therefore
Rs. 9 crores. The word LOSS has been used to denote the amount
of business withdrawn 'by death claims, maturities, surrenders and lapses.
The loss in 1931 is calculated by taking the difference between the new
business in 1931 (Rs. 17 crores) and the Gain for 1931 (Rs. 9 crorcs),
that is to say Rs. 8 crorcs )

First Period (1914-1929)

Fifty-two offices were in existence at the beginning of the
period of which ten have ceased to exist since; fifty-three offices
were started during 1914-1929 of which 29 have ceased to exist
now.

Table No. 59

New Business and business in force
of Indian companies for 1914-1929

No. of Index N-. Index No.

Year corn- No. of new New (Mew Busi- Business (New Busi-

panies policies Business ness 1914 in force ness 1914

base 100) base ICC)

Rs. Rs.

1914

44

Not available

3,19,99,952

100

22,44,.! 0,860

700

1915

42

do.

2,24,34,565

70

22,82,57,473

7^2

1916

44

do.

i,75,4i,i89

55

22,13,40,665

690

1917

41

do.

2,23,48,262

70

23,98,54,447

750

1918

43

do.

2,85,59,M4

90

25,11,77,126

779

1919

42

do.

4,49,06,170

141

28,23,19,175

88 1

1920

43

28,046

5,16,90,623

162

31,08,70,377

972

1921

45

28,677

5,46,81,849

170

33,51,87,576

1046

1922

48

29,34i

5,64,10,279

176

36,61,62,008

1144

1923

46

31,682

5,84,93,533

183

39,05,86,308

1221

1924

48

36,251

6,88,59,259

215

42,OO,OO,OOO

1312

1925

49

42,517

8,15,16,447

255

47,00,00,000

1469

1926

5i

52,754

io,34,9i,698

324

53,50,oo,ooo

l6 7 I

1927

56

66,680

'2,77,23,424

399

62,00,00,000

1937

1928

61

92,724

15,40,80,000

481

7l,II,I2,OuO

2221

1929

62

1,06,232

17,28,96,000

540

81,31,64,000

2540

75

the to

in the t of

...

for of our

to ;

THE

OUTSTANDING

Over forty years of conservative
management has given rugged
security to every Bombay Life
Policy. Continuous service has
made it strong. Steady public
confidence is its most valued
asset. There is a Bombay Life
Policy to meet your every insur-
ance need and to suit your
means.

Ambitious men find our agency
terms profitable and attractive

ASSURANCE COMPANY LIMITED.

ESTABLISHED 1908

WE.AD OFFICE:CHURCHGATE STREET, FOPT, BOMBAY.

PROGRESS IN FIGURES

385

2500
2400

*"VI

B

X

I

ilrtj

1

2300
2200
2,100
lOao
J<?00
1000

t-roo
tboo
tSOo
'4oo
f*co

1200

rioo
(000
9oo
800

700

OOO

T

000

40o
500

/

I

J/W

CHART No. 12

1

TO&

1914-1929

/

#&

Vertica Nos. 100 to 2500
refer to index Nos. AB and
CD. to 120 crores of rupees

/

/

5?n

/

. T

for TT and NN.

j

f

f

x

*-%

/

'A

/

>

/

/

^

6O

/

/<

t

X

X

/

/

fk">

y

X

(

X

r

X

/<

^

/

<lo

/

>

X

,

/

^/ (

/

K

)

,

K>

^

^

^

..-

u^

)

-"'

So

P*

M

^

/

D

/

f ...

N

Ifv

</-

^...,

s-

*$?

...e

...

I-"""

^- " ^

^^-

^-

'%

V"H

5 n

it fi

ITS

14

20

l!

2^

l<?

^^

14

Zt

H

21

9

Chart No. 12 shows index numbers and actual figures of both
new business and business in force. The curve NN (for new
business) shows a sharp upward trend from 1924 when the con-
gress began to take active interest in insurance; in 1929 new
business was nearly 5/2 times that in 1914. Business in force
increased \ l fa times during this period.

25

386 LIFE ASSURANCE

(all amounts in thousands of Rupees)

Total new business effected during 1914-1929 .. 1,09,76,33
Increase of business in force (business in force 1929

less business in force 1914) . 58,87,53
Total business lost through death claims, maturities,

surrenders and lapses . . . . . . 5<>>88,79

Average new business per year . . . . . . 6,86,02

Average loss per year . . . . . . . . 3> 18,05

Thus the average loss per year through death claims,
maturities, surrenders and lapses is half the new business
during the period.

Number of policies effected during 1920-1929 . . 5, 14,904
Average amount per policy during 1920-1929 . . Rs. 1,805

An abnormality

Business in force in 1916 was Rs. 69,16,808 less than in 1915,
despite Rs. 1,75,41,189 new business received in that year; in
other words Rs. 244 lakhs of business was lost in 1916 through
death claims, maturities, surrenders or lapses. This might have
been a direct result of the panicky conditions then prevailing, a
large number of company failures or to incorrect figures: the
published figures however do not show any appreciable increase
in the percentage of claims or surrenders paid in that year:

Percentage of the total outgo

Year Death Claims Maturities Surrenders Total

1915 25.2 10.4 2.9 38.5

19*6 26.3 9.9 3.2 39.4

1917 24.0 13.0 4.0 41.0

Curve PQ

In Chart No. 12 new business has been plotted horizontally and
business in force vertically, with the points of contact marked with
a cross. The result is more or less a straightline graph, the
points lying near about PQ where PQ has an inclination of 45
proving -that the progress of new business and business in folve
has been steady.

(I930-39)
(Business in India only)

62 offices were operating life business at the end of 1929 of
which eight went into liquidation during the period and nine
were amalgamated. 163 companies were floated during the
period of which 84 were either amalgamated or liquidated subse-
quently. 182 companies were in existence on i July fjy when

PROGRESS IN FIGURES

387

O O *- CO CO

co in o o<-o co co co
in 10 O o<o oo o e e Vj

l5

8,

Ja f

|

M (D to

111!

"" J2

5 9^ S

5 $ go

o

CO

co in i- 1 *& O) c* i*** o^ ** o^ H
oo Cftoo co^o o r^ o r> O

oo cr> o^ eo ^to^oq^ o^ ^ w
J* ** " T pT M oT cT <J

.>

o c*

moo cooo co o

co 01 ^to c< inco co oS >- -
-^ q^ *n co Th cooo^ en co co
in in ^to"* r^co" oS cT oT co i

jS

in in f o *< a " 1
cj co m ono n

c l c t^^?!'^^ r ^^ c D^ ~

3
JD

m coco co + o m o>
o to m coco co o>co ^ o

co r*- c^to^ c^ ^ *^^ o, &
co co ^ ^to* O> co in r r^

t-.~iH*,,-ieee0

2

J

I

X fe

w ^- TJ I

"S o 5J

.S

D

i .9

LJ CO

ir^ c/j

i2 ^

Q 3

Q) 0)

1

9 OT!-

C -< OtOOtOCO^Oi OiCO CO

^ to o r^co co ^ oo o to m

o
co"

oi co co o> co 13

:tCco"- c ^-" "*

jQ

c^ cuo ^ co t^oo to in co '
H -T " T?

to o^ M O co o^ o< i
into" co T? co -

JD
w

fi

' X

* in o
i cicQCQ -

(N <N ThtO (M m W *+ ^
^f CO CO COCO O> C4 CO f

Of O> ^00 ^ Ci 00 Oi ^<O

in -^co^ ojto^ in c^ in in cr>
CQ<CQCQ ei -T r^ in eo<o"

cT " "* ~" cT ^ in in in ^P

TJ

c
i

E

oo w "^oo in M to r^ c
to oo ^ o co into oo co oo ^

>-r^o oir^incoo o co
co to IN. r>to r^co co i^-to

13

a

o M c< co ^ in<o r>-co o>
coeo^cococococococo,

388

LIFE ASSURANCE

Insurance Act 1938 came into force; within a year they dropped
down to 159 (these figures do not include non-life companies).
26 non-Indian companies carried on life business immediately
before the Act came into force; ten of them withdrew on i July
1939; and the Allianz und Stuttgarter was taken over by the
Custodian of Enemy Property later.

1900

1200

HOC

1000

100

800

20

200

CHART No. 13
1930-1939

Vertical Nos. 100-
13tO refer to Index
Nos. AB and CD-
0-240 to crores of
rupees ior TT and
NN. Horizontal
Nos. 0-45 crores
ot rupees ior PQ.

120

too

100

400

500

C I**

PROGRESS IN FIGURES 389

Curve AB in Chart No. 13 indicates the index number of
business in force and curve CD new business, curve TT actual
amounts of business in force and NN of new business.

Total number of policies effected during

1930-39 19,47,666

Total new business effected .. .. .. Rs. 2,96,19,15,000

Average amount per policy .. .. Rs, 1,531

Total of the number of policies in force every

year 84,42,883

Total of the business in force every year .. Rs. 14,43,69,18,000

Average amount per policy in force .. Rs. 1,710

The amount per policy based on the above two calculations differ
primarily because of the large number of participating policies
on which higher bonuses were declared at the time and secondly
due to economic forces. The average amount per policy during
1914-1929 was Rs. 1,805, but the abnormal fall in prices around
the year 1928 which was a prelude to acute economic depres-
sion, raised the purchasing power of the rupee and lowered the
amount per policy during 1930-1939. Many new policies for
lower amounts such as Rs. 500 began to be issued at this time.
In the years 1930, 1938 and 1939 the amount per policy was
less than the average of Rs. 1,521 for the decade; it was almost
level in 1937. These years showed lower amounts per policy of
the business in force also.

The index numbers show the growth in new business from
100 in 1930 to 271 in 1939 and the business in force 'from
541 to 1372, taking a similar basis as for the period 1914-1929,
viz., new business of the first year of the period as 100, for both
new business and business in force.

Rs.

Increase of business in force for 1930-1939
-* (business in force for 1939 less that

for 1930) 1,30,30,32,000

Total new business effected during 1930-39 .. 2,96,19,15,000

Amount of business lost by death claims, matu-
rities, surrenders and lapses .. .. 1,65,88,83,000

Average new business per year .. .. 29,61,91,500

Average loss per year 16,58,88,300

During 1914-29 the loss per year was approximately half the
new business written. The position changed perceptibly after
1929, ** loss through deaths, maturities, surrenders and lapses
was more than the net gains, or in other words more than half

390 LIFE ASSURANCE

the new business written was lost. Indiscriminate company
flotations and higher lapse ratios as a direct result of ruinous rate
of rebates directly reflected on the quality of business. A refer-
ence to the Table on page 321 would show that depression by
itself did not significantly increase surrenders.

Around the year 1937-38 death claims began to fall below
maturity claims. It is quite probable that the business written
prior to 1910 was composed of more whole life policies than
endowment assurances.

The year 1931 provides an anomaly. 96,909 policies were stated
to have been issued for Rs. 17,09,20,000 (average amount per
policy Rs. 1,765) which, because of the, fact that 1931 was the
worst year of the depression,, may not be exactly correct. It is
probable that the number of policies given in the year book for
1931 was incorrect.

In Chart No. 13 MM is the curve of loss from 1930 to 1939;
mm is a straight line roughly showing half the new business.
Where the loss curve MM is above the line mm it indicates an
abnormal year when the loss due to death claims, maturities,
surrenders and lapses has not been replaced by new business, or
when the gain is less than the loss.

(1940-1948)

(Business in India only)

19^7 companies were registered under the Insurance Act 1938
of which 159 wrote life business only, 18 operated life in addition
to other classes and 20 were confined to general business. Of
the 197, 169 had been registered under the Indian Life Assurance
Companies' Act 1912, 15 which were in existence before 1912
had been given exemptions under the 1912 Act, and 13 com-
menced business after the 1938 Act came into force. 48 com-
panies registered under the 1912 Act did not register under Hhe
Insurance Act 1938 and were either amalgamated or placed under
receivers. 167 companies were writing life business on i January
1940; 41 companies were started during the period all of which
were working at the end of 1948. Thus no company started
after Insurance Act of 1938 came into operation has gone out of
business, which provides tangible proof of the good effects of
the Act.

Table No. 61, page 387, giving new business, business in force and
index numbers on the same basis as the other two -pt^iods, is
not absolutely correct for from 1944 onwards a few of the com-

PROGRESS IN FIGURES

391

panics did not submit returns in time and were left out from
the Year Books.

Amount in thousands of Rupees

New policies effected 34,31,863

Average per year .. .. .. 3,8 1,31 8

Total new business effected Rs. 7,37oi, 6 5

Average new business per year .. .. Rs. 81,89,07

Average amount per policy . . . . . . Rs. 2,147.5

Total of the number of policies in force every

l00
1200

noo

1000

900'

*oo
roo

600

A,

500

T
400

500
N

100'
IQJ

year 1,82,74,696
Average number of policies in force per year 20,30,522
Total of the business in force every year .. Rs. 34,61,14,91
Average business in force per year .. .. Rs. 3,84,57,21
Average amount per policy of business in force Rs. 1,894

,.. T

MO

iflO

s'

'^

B

^

CHART N
1940-194
Vertical No
to "1300 ref
Index Nos. T
. NN to 6
crores of rup
AB and CD.
zontal Numl
to 100 croi
rupees tor PC

Note: In this
Index Nos.
marked TT
NN and
figures AB ar

0.14
18
s. 100
er to
Tand
00 to
ses for '
Hori-
>ers
res of
I.
graph
are
and
actual
dCD.

/

/

/

L50

. /

/

/

K*0

'

/

S50

:\

'

J

t

/

^

^

6)

/

^

****^~

~^'

A

S

ffO

,'''

*"

-^.

* -

D

N

so

^^

^^^

5<

^

70

o

10

(0

D It

2

ft<

. ' r 4

392 LIFE ASSURANCE

Chart No. 14 gives the new business, business in force and their
index numbers.

1940, 1941 and 1942 were abnormal years due to the war when
the business receded; the increase in new business from 1943
was phenomenal, the 1943 figure being a third more of the 1942
figure and 1944 1/2 times the 1943. 1947 and 1948 were
abnormal when the curve shows a downward tendency firstly due
to partition and secondly to decreasing saving power.

TREND OF GROWTH

For a comparative study of the entire period 1914-1948 the
following table gives new business, business in force, loss and
gain in total business: (Table No. 62, page 393, Chart No. 15,
page 394).

In Chart No. 15 NN is new business curve, GG gain curve
and LL is loss curve.

Wherever the loss curve LL is above the gain curve GG, an
abnormality is indicated, and the abnormal years were 1916,

I9 1 , *923> J 924> 1930, 1932, 1935. '937, '93^ *939> '94, I 94 I ,
1942, 1947 and 1948.

A point of the utmost importance is that slightly more than half
the new business is lost in death claims, maturities, surrenders and
lapses, and the net gain to the toal business is less than half
the new business. When the loss and gain are equal or gain
is more than the loss it shows progress. When the loss is more
than, the gain the business shows retrocession: such a condition
may be due to bad economic conditions, political or communal
uphealvals, or abnormal death claims due to epidemics or other
natural causes. The fifteen years which have not shown progress
may be classified roughly as under the basis of the causes that
led to abnormality (this is a purely personal view).

1916, 1940, 1941, 1942 Panicky conditions due to war. %

!9 2 3i ! 924> 1930, 1932 Bad economic conditions.

1947, 1948 Partition and communal disturbances plus

loss of saving power.

1918 Influenza epidemic.

1935 Earthquakes.

*937> '938, 1939 Higher lapses due to rebating and bad

quality of business.

Part of the retrocession in 1937 was due to the partition of Burma: like-
wise, 1947 and 1948 were seriously affected by partition. ****-^
The best year relatively was 1946: the worst 1916.

PROGRESS IN FIGURES
Table No. 62

New Business, Business in force, Loss, and gain
in business in force in crores of rupees during 1914-18

393

Year

Business
(NN)

Index
No.

Business
in lorce

Loss Index
No.

(LL)

Gain
100)

1914

3

23

i

i

1915

2

IOO

23

i

50

i

50

1916

2

IOO

22

3*

150

i*

50

1917

2

IOO

24

o

2

IOO

1918

3

150

25

2*

IOO

I

50

1919

4

200

28

I

50

3

150

1920

5

250

31

2

IOO

3

150

1921

5

250

34

2

IOO

3

150

1922

6

300

37

3

150

3

150

1923

6

300

39

4*

2OO

2

IOO

1924

7

35

42

4*

2OO

3

150

1925

8

400

47

3

150

5

250

1926

10

500

54

3

150

7

350

1927

13

650

62

5

250

8

400

1928

15

750

71

6

300

9

450

1929

17

850

81

7

350

10

500

193

16

800

85

12*

boo

4

2OO

1931

17

850

94

8

400

9

450

1932

19

950

1 02

u*

550

8

400

1933

24

1 200

114

12

600

12

600

1934

28

1400

132

10

500

18

900

1935

32

1600

146

1 8*

900

14

*70o

1936

36

1800

1 68

14

700

22

1 1 00

1937

39

1950

184

23*

1150

16

800

1938

43

2150

204

23*

1150

20

IOOO

1939

43

2150

215

32*

1600

I I

550

1940

32

1600

226

21*

1050

II

550

1941

34

1700

237

23*

1150

II

550

1942

36

1800

25 1

22*

I IOO

14

700

1943

63

3150

294

20

IOOO

43

2150

1944

95

4750

366

23

1150

72

3600

1945

123

6150

459

3

1500

93

4650

1946

131

6550

514

76*

3800

55

2750

'947

114

5700

547

81*

4050

33

1650

1948

1 08

5400

566

89*

4450

19

950

Total

1141

594

544

Average

33-5

17-5

16

(excluding

.C^ A

the year

i

1914)

* Abnormal years.

394

LIFE ASSURANCE

CHART No, 15

Progress of Business.
NN-New Business
GG-Gain

LL-Loss

(Corresponding to table
No. 62, page 393)

PROGRESS IN FIGURES

395

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396

LIFE ASSURANCE

Analysis of Growth'

An analytical study of the progress of the Indian companies'
business in India for the 18 years ending 1948 (1930-1948) has
been attempted. The following two tables were prepared for
the purpose:

(I) Table BP giving all amounts in thousands and the number

of policies in actual numbers (page 395).

(II) Table bp giving all the above figures reduced to one-ten-
thousandth of those in table BP corrected so that more
than 5,000 is taken as ten thousand and less than 5,000
is omitted (table below).

The following abbreviations have been used:
i. b New business effected
B Business in force

Bg Progress of B in consecutive years (gain)
B (b Bg) business lost
Pn, New number of policies effected
PT Total number of policies in force
Pg Progress of PT in consecutive years
PI (Pn Pg) Policies lost

11.
iii.
iv.

v.
vi.
vii.
viii.

Table No.

64 bp.

b

B

Bg

Bl

Pn

PT

Pg

PI

17

94

9

8

10

50

i

n

19

IO2

8

1 1

1 1

55

5

6

24

114

12.5

"-5

i5

64

8

7

28

132

17

1 1

18

74

10.5

7-5

32

146

14-5

17.5

20

84

9

1 1

3 6

1 68

22

H

24

99

15

9

39

184

16.5

22.5

26

no *

11

J5

43

204

19

24

30

124

14

16

43

215

12

3i

29

i33

9

20

32

226

10

22

20

137

4

16

34

237

12

22

19

i43

5-5

13-5

36

251

13

23

17

146

4

13,

63

294

43

2O

28

163

16

12

95

366

72

23

43

i94

3i

12

123

459

93

30

58

238

44

U

131

514

55

76

59

257

19

40

114

547

33

81

52

271

13-5

38.5

1 08

566

19-5

88.5

46

279

8

38

Year

1931*

1932

1933

1931

1935

1936

1937

1938

1939

1940

1941
1942

1943*

1944*

1945*

1946

1947*

1948*

Totals 1,017 48i9 481 536

(0 520 2,326 269.5 250.5

(2) 497 2,493 211.5 285.5

1 i ) totals of abnormal years marked

(2) totals excluding abnormal years.

525 2,621 225.5 299.5

237 1,187 111.5 J25-5

288 1,434 114.0 174.0

:*>

PROGRESS IN FIGURES

397

I

1

.5
to

|

CD

.

H

a
s

a.

.

s-s
1:1

is,

2 2
-S a

Srt ' "

i

398 LIFE ASSURANCE

To represent all the above figures in a graph, they have been
plotted in a logarithmic scale of graph (taking the figures given
in table bp) wherein the scale increases by o, 10, 20, 40, 80, 160,
320, 640, that is to say double at each step, as this scale would
show the rate of growth more perceptibly.

In the accompanying graph the area between curve BB for
business in force and zero line oo shows the volume of business
in force from 1931 to 1948. The figure for 1930 gets eliminated
because Bg, Bl and Pg and PI arc taken basing on the figures
for 1930 and 1931. In the graph the total area indicated by
the shaded portions shows the business (in rupees) in force and
the area covered by base line oo and loss curve Bl shows business
lost (Bl) in rupees.

The loss curve Bl shows a depression between 1939 and 1945
but there is no corresponding off-shoot in the graph BB during
this period,, showing that the policies lost in 1939-1945 were of
lower denomination. This period coincides with the time when
the lower middle classes cracked up.

The curves BB and PT-PT follow up closely showing that
the total number of policies and total business have a uniform
rate of growth: in other words, the composition of policies of
various denominations that make up the total business in force
was of uniform proportion throughout. This is indicated by the
area covered by curves BB and PT-PT.

Similarly the curves Bl and PI show the same rate of growth
or fall. This means that the loss in policies of various denomi-
naticftis was also of uniform proportion. This is indicated by
the area covered by curves PI-PI and B1-B1.

In the table BP, the relation between new business, business
in force, business lost and gained have been shown in a ratio and
also for Pn, PT, Pg and PL
Amount per policy:

Rs.

New Business .. .. .. .. 1,719

Business in force . . . . . . . . 1,748

Business gained . . . . . . . . 1,834

Business lost . . . . . . . . 1,643

In calculating the above figures the abnormal years of 1931,
r 943> r 944> ! 945) *947 an d ! 94^ nave been eliminated: in 1931
the number of policies decreased but the total business increased.
In 1943-45 and 47 and 48 the range between Be and Bl was
abnormal.

PROGRESS IN FIGURES 399

The amount per policy of business in force is more than that
on new business, indicating partly bonus additions (which was
negligible during the war years) and partly a tendency for policies
of higher denominations to stay and not get lost. The value for
the business gained is higher still indicating that policies of higher
denominations go to add up to the business in force. The amount
per policy lost was the least showing that more policies of lower
denominations get lost.

Generally speaking more than half the business lost is due to
surrenders and lapses. An analysis of the business on the books
of a company every year and similar analyses of the business
introduced by the branches and then of inspectors of each branch
would give sufficient data for a comprehensive sales programme
so as to eliminate much of the avoidable losses through surrenders
and lapses. A comparison with all-India figures would indicate
the relative position of the company and a departure from the
average for an office would show the comparative sales ability,
of the branches and inspectorates. In many cases the figures
might give an indication of the extent of financial selection
necessary for the future of the business.

INDIAN BUSINESS OUTSIDE INDIA

The branch that the Oriental opened in Colombo in 1903 is,
so far as records go to show, the first to operate life business
outside India. The business written or the total volume of busi-
ness on the books prior to 1928 is not available, for the law did
not provide for the submission of separate returns upto
that time: the figures during 1930-48 are given on page 400.

No chart has been prepared for this as various factors have
contributed to show abnormal variations: 1930, 1931, 1932,
1933 showed losses more than gains, obviously on account of the
world economic depression in fact, we are inclined to believe
that these figures . show its intensity more accurately than the
corresponding figures for India 1937 figures were distorted
because of the separation of Burma from India; the figures for
1940-45 were affected because of war when most of the overseas
business had to be kept in suspense; 1947 and 1948 were similarly
affected by partition. Excluding these years, the trend of foreign
business is as indicated by Table No. 66, page 400.

In normal years therefore losses are only a third of the new busi-
ness, showing that the business of the foreign branches of Indian
offices is of better quality than that of the Indian; that contention
gets adciecf weight when it is remembered that the average sum

400

LIFE ASSURANCE

Table No. 65

New Business, Business in force, gains and losses

of Indian life offices outside India (thousands

of rupees gain and loss in lakhs)

No. of New No. of
Year New Business Policies

Policies effected in force

'934
'935

'939
1946

om

Gain Losses
(lakhs) (lakhs)

1930

2,977

8i,97

14,369

3,77,45

33 49

1931

2,528

66,39

15,295

4,06,54

30 36

1932

2,655

71,69

16,151

4,20,76

14 58

1933

2,922

74,41

17,036

4,42,55

22 52

1934

3,879

94,47

19,036

4,95,39

52 42

1935

4,867

1,24,09

21,464

5,61,28

66 58

1936

7,410

1,81,98

26,672

6,89,39

1,28 54

1937

11,656

2,69,13

48,202

12,44,55

5,56 287

1938

15,218

3,38,53

61,302

I 5> 1 4>7 1

2,70 69

*939

15,733

3>45 5 io

70,854

17,22,75

2,08 137

1940

I 2,6 I I

2,9i,39

18,40,23

1,17 174

1941

10,425

2,54,44

77^40

19,18,84

79 175

1942

3,825

1,42,17

64,084

15,92,35

3,27 469

1943

6,251

2,29,68

64,599

16,86,99

95 135

1944

9,152

3,05,91

68,903

18,72,67

1,86 120

1945

12,729

4,22,24

77,434

21,79,03

3,06 116

1946

16,199

5,73,48

85,665

24,90,44

3,20 253

1947

16,506

5,51,29

84,515

25,35,13

45 506

1948

21,137

7,04,14

2,02,198

45,29,68

19,951289

Year New Business

Table No. 66

(amounts in lakhs of rupees)

Business
in force

Gain

94
1,24
1,82
3>39
3.45
5>73

495
561
689

1515
1723
2490

52
66
128
270
208
320

Loss

42

58

54

69

'37

258

Total 16,57 74,73 10,44 6,13

Average 2,76 12,46 1,74 1,02

per policy is much more than the corresponding figure for India.

FOREIGN COMPANIES IN INDIA

Figures of the foreign offices operating in India are available
from 1928 only since before Act XX of 1928 came into force no
separate returns of their business had to be $ubrnitted.* P ~Nd con-

Over

of
to

a
and

:
M.A.

;

"

*-' ' CA E.

Policies to suit all pockets

Plans to serve all needs

Write today.

INSURE THE LIFE
OF YOUR CAR

(

You love your car, naturally. And so you take great care in its
use and in its up-keep. Even so, periodical replacements of essen-
tial parts and accessories cannot wholly be avoided. But what you
can avoid are misfits in your car with substandard parts that are
handy.

Dependable spare parts, chosen by experts and tested for
reliability are the best insurance you can give to your car. The
thousands of satisfied car-owners who regularly call upon us. for
the spares they need have benefitted by that kind of insurance.
You too can ensure greater driving pleasure, over a longer mileage,
and incidentally, longer life to your car. Call upon us today.

J. V. MEHTA & CO.

AUTOMOBILE & RADIO SPECIALISTS

OPERA HOUSE TRAM TERMINUS, BOMBAY 4.

Phones: 70225, 70226.

Cable: "JEVIMEMTA,"

PROGRESS IN FIGURES

401

siderable study of the following table is possible as (i) some of
the policies get transferred annually on the transfer of the policy-
holders outside India (this might be one of the reasons why
despite the new business of Rs. 8.9 crores written in 1933,
business in force receded from Rs. 79.2 crores in 1932 to Rs. 76.7
crores in 1933, showing a loss of Rs. 11.4 crores), (2) many offices
ceased to write new business from 1939 (3) returns are insuffi-
cient, as for example four British offices' returns were either
incomplete, or not available in 1941, distorting the figures for both
1941 and 1942.

Table No. 67

New Business, Business in force, gains and losses
of foreign companies in India. (Thousands of rupees)

Year

1929
1930
1931
1932
1933
1934
1935
1936
1937
1938

1939
1940

1941
1942

1943
i 944

1945
1946

1947
1948

GROWTH OF POLICIES

A study of the trend of the policies issued and in force has
been attempted in order to show the incidence of insurance cover
among the people. These are tabulated on the next page.

Over 55% of the policies issued in India are thus withdrawn by
death, maturity, lapse or surrender and 45% are carried forward.

Taking the numbers in ten thousands vertically and the years
horizontally, Chart No. 17 shows curves Pn, PI and Pg. The
area Jietv^cn the base line and Pn-Pn shows the number of policies
issued each year and the shaded portion the number of policies

26

New Business

Business
in force

Gain

Loss

Rs.

Rs. '

Rs.

Rs,

12,22,14

64,08,14

1,14,863

73,5i

n,75,82

69,76,48

56,834

6,07,48

9,59,48

74,19,38

4,42,90

5,16,58

8,75,04

79,22,15

5,02,77

3,72,27

8,89,80

76,69,76

2,52,39

11,42,19

10,14,01

83,23,54

6,53,78

3,60,23

1 1,62,20

88,77,57

5,54,03

6,08,17

10,74,65

93,07,74

4,30,17

6,44,48

9,65,53

92,60,43

47,31

10,12,84

8,41,95

94,3i,02

i,7o,59

6,71,36

4,10,99

56,60,35

37,70,67

41,81,66

3,79,77

60,11,71

3,51,36

28,41

5,36,89

62,55,10

2,43,39

2,93*o

6,35,6o

72,25,34

9,70,24

9,18,13

74,64,87

2,39,53

6,78,60

1 1,96,98

8i,57,35

6,92,48

5,04,50

12,60,15

91,85,45

10,28,10

2,32,05

12,83,82

1,00,84,91

9,01,46

3,82,36

12,34,64

1,01,90,06

1,05,15

u,29,49

11,96,82

1,01,08,30

8,17,6

12,78,58

402

LIFE ASSURANCE

Table No. 68.

New policies, policies in force, gains and losses each year
during 1930-1948.

(Indian Companies in India.)
New policies Pn.
Total policies in force Pt.
Grain in total policies Pg. (Pt 2 minus Pti)
Loss in policies PI. (Pn minus Pg)

Year

Pn.

Pt.

PI.

Pg.

1930

105,686

513,955

1931

96,909

502,144

108,720

11,811

1932

554,282

61,075

52,138

*933

154*920

636,080

73,122

8i,798

1934

183,063

742,250

76,893

106,170

1935

204,799

835,782

111,267

93,532

1936

239,272

988,734

86,320

152,952

1937

262,997

1098,784

152,947

1 10,050

1938

298,478

1239,567

157,695

140,783

1939

288,529

1331,305

196,791

91,738

1940

196,490

1371,963

155,832

40,658

188,843

1426,758

134,048

54,795

1942

168,989

1464,133

131,614

37,375

1943

282,642

1628,482

118,293

1 04 349

'944

431,52 1

1940,432

119,571

<2 I I Q K.Q

1945

577,280

2376,294

141,418

435,862

1946

595,590

2569,180

402,704

192,886

1947

523,545

2706,945

385,780

137,765

1948

466,963

2790,509

383,399

83,564

Total

5,379,729

2,997,489

2,276,554

Average

Le3s 1930

293,002

166,527

126,475

Index Nos.

100

56.8

43-2

(Chart on page 403, No. 17)

withdrawn due to death, maturity, lapse or surrender. Where
curve Pg goes below the curve PI, the year is abnormal. Abnormal
years during 1930-1948 were 1931, 1932, 1935, 1937, I93 8
I94 1 * '946, 1947 d 1948.

Indian Companies 3 business outside India

(Table No. 69, page 404)

In 1937 and 1948 the total number of policies advanced much
more than the new policies written, as the business in Burma
and Pakistan were treated as foreign business, and these two
years have been excluded from the average; yet the figures of
gains and losses can hardly indicate the real trend of the busi-
ness, as: (i) a number of policies are transferred every "year

PROGRESS IN FIGURES

403

CHART No. 17

Growth of Policies in India
1930-1948

PN-Nuraber Issued
Pg-Gains
Pi-Loss
(See Table No. 68, page 402)

/H31 33 35

37

43 45

P 9

404 LIFE ASSURANCE

Table No, 69,

Indian Companies outside India.
References on page 402.

Year Pn. Pt. PI. Pg.

1930 2977 14,369

1931 2528 15*295 1602 926

1932 2655 16,151 1799 8 5 6

1933 2922 17,036 2037 885

1934 3879 19,036 1879 2000

1935 4867 21,464 2439 2428

1936 74 IQ 26,672 22O2 52O8

1937 11656 48,202 -9874 21530

1938 15218 61,302 2118 13100

1939 15733 70,854 6181 9552

1940 12611 75,171 8294 4317

1941 10425 77,840 7756 2669

1942 3825 64,084 17581 -13756

1943 6251 64,599 5736 515

1944 9152 68,903 4848 4304

1945 12729 77,434 4198 8531

1946 16199 85,665 7968 8231

1947 16506 84,515 17656 -1150

1948 21137 202,198 -96546 117683

1 Average 8931 5893 3038

Index No. 100 66 34

to India (2) of the eighteen years for which figures have been
given, six were war years, two were taken up by partition

problems, five witnessed economic depression, and only the years

! 93^ I 93 0> , r 939 an< ^ X 94^ could possibly have shown normal
trends. The following table gives the totals of the years 1931,

and

Table No. 70.

New Policies Loss Gain

Totals 94,447 44,275 50,172

Average 8,586 4,025 4,561

Index No. 100 46.9 53.1 .

If these years may be taken to have shown normal trends, the
gain is 6.2 per cent more than the loss, which is another proof
of the fact that the foreign business of Indian companies
is superior to business within India.

Foreign companies in India

A similar table of policies issued by foreign companies in India
is given on the following page (No. 71).

1 Excluding 1930, 1937 and 1948.

PROGRESS IN FIGURES 405

Table No. 71.

References on page 402.

Year Pn. Pt. Pg. PI.

1930 39,523 202,703

1931 28,229 211,769 9,66 19^63

1932 25,920 231,003 19,234 6,686

1933 28,463 219,767 -11,236 39,699

1934 3i,555 244,483 24,716 6,839

1935 33,997 259,159 U,676 19,321

1936 34,!33 272,238 13,079 21,054

1937 31,049 272,310 72 30,979

1938 25,952 276,143 3,833 22,119

1939 11,058 165,646 -110,497 121,555

1940 9,584 181,247 15,601

1941 11,229 179,122 -2,125 13,354

1942 9,363 196,431 17,309

1943 13,604 192,7^4 -3,647 17,251

1944 18,727 186,585 -6,199 24,926

1945 22,259 216,371 29,786

1946 20,669 227,526 n,i55 9,5^4

1947 20,076 228,526 1,000 19,076

1948 18,776 234,489 5,963 12,813

Omitting 1933, 1939, 1941, 1943 and 1944 when pg is a nega-
tive figure, and 1940, 1942 and 1945 when Pg is more than Pn 3
we have the following totals:

PI

167,562
16,756
62.0

9

Omitting the year 1937 also when the transfer of Burma dis-
torted these figures too,

Table No. 73.

Total 239,307 102,722 136,585

Average 26,590 11,4*4 I5,*76

Index Nos. too 42.5 57.5

Even these figures* may not represent the correct position as a
number of policies are transferred out of India every year.

AMOUNT PER POLICY

Table No. 74, page 406.

The index numbers given in columns 5, 6 and 7 have been
plotted in Chart No. 18 and will give an indication of the
relative variation of the amount insured per policy in successive
years. * * '

Table

No. 72.

Pn

Pg

Total
Average

Index No.

270,356
27,036

IOO

102,794
10,279
38-0

406

Year

(1)

LIFE ASSURANCE

Table No. 74.

Average sum assured per policy New business

Indian offices
Inside Outside

(2)

(3)

Foreign
offices

(4)

Corresponding index numbers
( taking actuals in hundreds
and the figure for business of
Indian companies in India for
1929 as base 100 )

(5)

(6)

1920

1 92 I

1922
1923
1924
1945

1926
1927

1,843
1,907
1,923
1,846
1,899

1,917
1,962

^915

1928

1,662

1929

1,794

2,848

3,092

100

156

172

1930

i,974

2,753

2,975

i ii

156

167

1931

1,764

2,626

3,399

100

144

189

1932

1,674

2,700

3,376

94

150

189

! 93$

i,555

2,547

3,126

89

139

172

1934

',528

2,435

3,213

83

133

178

1935

i,542

2,550

3,4*9

83

144

189

1936

1,504

2,456

S,^ 8

83

139

172

1937

1,485

2,309

3, 110

83

128

172

1938

1,460

2,225

3,244

83

122

178

1939

1,473

2,i93

3,7i6

83

122

206

1940

1,645

2,3U

3,963

88

128

222

194*

i, 808

2,441

4,78i

IOO

133

26 7

1942

2,158

3,717

6,788

122

206

378

1943

2,227

3,674

6,749

122

2O6

372

1944

2,206

3,343

5,874

122

183

328

1945

2,128

3,317

5,727

117

I8 3

211

1946

2,205

3,5^0

6,U4

122

'94

321

947

2,i77

3,340

6,170

122

18*

326

1948

2,306

3,331

6,300

128

183

332

PROGRESS IN FIGURES

407

400
3<?0
380
370
360
350
340
330
320
3'0
300
290
2&0
270
260
250
240
250
220
2IO
200
f<?0
ISO
170'

CHART No. 18

Index Nos. of the
average sum assur-
ed new business.

ll-Indian Compa-
nies in India.

lO-Indian compa-
nies outside India.

IF-Foreign compa-
nies in India.

(Columns 5, 6 and
7 on page 406.)

^

\

\

^.

< i .

^

s

[F

10

II
41

1

/

/

/

/

/

\

/

v

/

\

/

^

/

V

s

/

\

^/

\

- _.

/

(fo 3

p'v,

150-

o

f40

\

/

\

s

/

130

^

/

\

^

170

^v

/-

s'

I/O

/

^

100,

/

\

1

qo

I

\

s^~

i

80

s

^

1929 31 33 35 37 39 4 43 4

* 47

408

LIFE ASSURANCE
INCOME

Table No. 75.

Details of Income received by Indian insurance
companies in thousands of rupees, break-down
under each head as percentage of the total
income and variation of premium income in
successive years.

1913-29 19*3
Base for variations and Index Numbers: Period 1930-39 1929

1940-481939

Year

Premium
for life
assurances
and

Interest,
dividend
less tax

Other
receipts

I

^elativ

ndex No

m Varia-
tions

annuities

(1)

(2)

(3)

(4)

(5)

(6)

w

1913

1,02,99

23,23

47

Q~

i8.5

0.4

IOO

1,09,17

25,13

50

80.9

18.7

0.4

901

6

1915

1,06,83

27,54

6,35

76.2

19-5

4-3

104

2

1916

1,06,79

29,54

80

77-9

21.6

0.5

104

O

1917

1,10,45

32,83

91

76.7

22.7

0.6

107

3

1918

35,98

3,58

74-3

23-4

2.3

1 1 1

4

1919

i, '28,^2 1

39,07

1,72

75-9

23.1

I.O

124

13

1920

1,46.24

43,07

1,09

76.8

22.6

0.6

142

18

1921

i,6o,27

48,78

9,78

73-2

22.3

4-5

156

14

1922

1,74,06

51,82

io,57

73-6

21-9

4-5

169

13

1923

i,85,79

59,59

3,59

74.6

23-9

1 80

ii

1924

2,04,39

62,63

23,00

70.5

21.6

7-9

198

18

1925

2,25,19

66,64

6,64

75-4

22.4

2,2

219

21

1926

2,52,89

73,10

6,51

76.0

22.0

2.0

246

27

1927

2,91,76

79,69

57,38

68.0

18.6

13-4

283

37

3,34,78

85,69

2,72

79-2

20. 2

0.6

325

42

1929

3,89,68

95,89

6,12

79-3

19-5

1.2

378

53

I Q^IO

4,30,47

,03,86

5,34

79-8

19.2

I.O

I IO

IO

I Q*^ I

4,67,48

,13,40

6,34

79-6

19-3

I.I

120

IO

1932

5,18,20

,24,52

45,74

75-3

18.1

6.6

133

13

1933

5,76,93

,35,53

103,06

70.7

16.6

12.7

148

15

6,58,27

,50,29

25,87

78.9

1 8.0

3.1

170

22

1935

7,45,o6

,60,97

27,36

79-8

17.2

3.0

191

21

1936

8,43,8i

,72,78

118,33

74-4

15-2

10.4

217

26,

1937

9,81,67

,98,53

21,32

81.7

16.5

1.8

252

. 35

1938

11,49,61

2,40,14

23,95

81.4

17.0

1.6

295

43

1939

12,18,00

2,46,00

19,00

82.1

16.6

*-3

313

18

1940

11,73,17

2,53,84

40,16

80.0

17-3

2.7

96

~4

12,28,13

2,67,87

72,92

78.3

17.1

4.6

101

5

1942

12,74,46

2,79,68

99,82

77-1

16.9

6.0

105

4

1943

15,90,59

3,03,6i

70,28

81.0

15-5

3-5

131

26

1944

19,31,57

3,20,09

48,55

84.0

13-9

2.1

159

28

'945

24,10,69

3,45,24

8 1, 86

84-9

12.2

2-9

198

39

1946

27,44,26

3,42,82

115,20

85.6

10.7

3-7

225

27

1947

28,99,69

3,63,46

49,73

87.5

I I.O

238

13

1948

30,76,75

4,22,88

249,8o

82.1

11.3

eii

253^

15

1 Index number 1929 base 100. 2 Index number 1939 base 100.

PROGRESS IN FIGURES

409

An interesting feature is that the percentage of receipts from
interest and dividends to total receipts shows a sudden decrease
from 1943 corresponding to the period when the pursuit of cheap
money policy was intensified.

OUTGO

Breakdown figures of outgo under different headings from 1913
and the percentage of each to the total outgo for the year are
given on pages 410, 411 and 412.

500

450

CHART No. 19

M M-Maturities
DD-Death claims
SS-Surrenders

(Lakhs of rupees)

PN-Total No. of poli
cies in force.

Chart No. 19 gives Death Claims, Maturities and Surrenders
from 1913-1948: Amounts paid by death and maturities show
the same Aslope in the curves. The abnormal increase in the
surrenders during 1940-43 is well brought out in this chart.

410 LIFE ASSURANCE

w tS

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u ^ ^ ^ ^ ^ ~ CD - M * ^ M * - ~ J cl co co co * 4 10

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PROGRESS IN FIGURES 411

w
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K/N UOi2 enCOCi (N^COCO

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d o> d cfi d d 4 1 -^ co <N -' -i 4- 4- TJ-UD n

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* oq oq

27 g ddddddddddddddddddddddciddd
O> <

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en -^ 10^5 inin^coincoc^ co4-

*i O S ^ ^ w . ^ . ^ ^ . ! 9 . ^ ^ ^ ^. ^ ? . 'O 9 ^ ^ c ! ^R * rr
?,. cd c< i^. incd -4"uSd iococ>'- d^o>cTi tn<r> UD r^<jo in co int>' co co co

^J <D eoeic*c<<Mcocociwci-^'--'--'^-^ > -,

C

I

TI -, eo -<h into t^co o O o* co rj ir>(D r*>-oo cTi o -" o< co tf inuD r^co

, (^

,^4 <U

j^J V^

I

412

LIFE ASSURANCE

OOO>--oi
-< o o r* o o

o>co_ m "
r>cxT oS cf

d qsoq cq co d co qscq co
' ** co co co m osco* co*

r 3 OCOOCOOsOsOsOS'

.98

O^OO
^O

coco co *"* o r^-oo

- -" d C*

05

< a

>-. O

co

&> .^.r

00 d r* m 10 "- 1 CO
^ o^co^ ^co^ o^co^^^

co m' co rC <?co*'oo' N cToo" -T gj

-e,oo g

o co - os coco o o m d ,2

d" in 10^00" Tpoo" mco" co **

o a

& ^.

(j) (d o *+

Q^ 66 6 6 6 6 6 6 6 6

w <

co

i

1

^

fferen

a

I

a

8

cq

j "fi q^ co qsco^ oj^ o^ co o^oo^ co

I $ x? cr>co* > o"s co co r^co" cf co &

\ ? ^ ^ ^ ^ ^ "I* 00 ,, 5 bb

| x? co co co ^f co" rZcQ&cQ rt

' G

%%

O

O^ 00^ 00^ 00^ d^ Ch COCO^ d^
I^CO CO CD I"- t^OO*^ C7> O*S O*

o - co cs d as

o^ ^co^ d^ in co * co ci^ c<

Thvo co co osco -^ ^ cod?

o co r^ Tt d d m mop

O^OO - 00 OS O 00

-^ *^ co m i>. rj<^co^co^ **
d^d^d^d^cfcocococom

cs o ^ d co

CO^^Th^

OSOSOSOSOS

mco t^co

'^TfTh'^

SCTsOSoSCT)

pe

<D
a>

expre

I

w

_ o moo ^coosas-f-io r^

53 q^ o^ ojsop^ t^ oj^ "^co^ co fH

% co" * O r^co" r^ co coco^ccT

<u CP> as o^ q^ d^co^ o^ -^ t Qo %

Q -T -T d" d" d" d" co co co co

03 Q)

o ^^ r^.co6dc6 r^co co co
\^GM dddddddddd

i
I

o o" o" 6 6 6666 6

d d cTscq co ^ *^ co co r^.

COCOCO^'^d M t-I * ~

CO

S ^ c? O) ^ coco crs co rxco

oJ

C 43

C3 d M oq co t cq cq r^cq r>. co
g co co d* d 6 as 6 6

Q ------- ~~

Os O - d CO ^ mco

asasasasasasasasasos

PROGRESS IN FIGURES
PER CAPITA INSURANCE

413

The growth of insurance in India may be illustrated by the
following figures of per capita insurance: (figures for 1901, 1911
and 1921 are estimated)

Table No. 79

Popula-

*Total busi-

% business written

Year

tion

ness in force Per capita

by Indian com-

(crores)

(crores)

insurance

panies to total

1901

294

24 l

As. 13

33%

1911

31-5

44 2

Rs. 1-6

45%

1921

31.8

76

Rs. 2-4

45%

I93 1

33-8

1 68

Rs. 5-0

56%

1936

3^3

261

Rs. 7-4

55%

I94 1

38.9

292

Rs. 7-8

80%

'944 s

39-8

446

Rs. n- o

82%

1945

40.1

55 i

Rs. 13-12

84%

1946

40.4

615

Rs. 15-12

82%

1947

40.7

649

Rs. 15-12

85%

1948

41.0

667

Rs. 16- o

87.5%

On the basis of the policies issued, the following table will show
the incidence of insurance among the people:

Table

No. 80.

T^*^1

Year

Indian
companies

Foreign
companies

Total population
(Millions)

I93 1

502,144

211,769

713,913

338

one in 475

1936

988,734

272,238

1,260,972

363

one in 290

i4i

1,426,758

179,122

1,605,880

389

one in 240

1945 .

2,376,294

216,371

2,785,551

4OI

one in 144

1946

2,569,180

227,526

2,796,706

404

one in 144

1948

2,790,509

234,489

3,024,998

350

one in 1 15

* This is the sum total of the business of Indian and foreign companies,
as many of the foreign companies in India had considerable business
on Indians.

1 The business of Indian companies alone was probably Rs. 8 crores:
Foreign companies at this time were doing more business on foreigners
in India.

2 These figures are estimated: the figures of Indian business for 1921
was 3^7 crones.

3 Population figures from 1944 onwards are estimated.

414 LIFE ASSURANCE

As a large number of policyholders have more than one policy
either with the same or different companies the above figures
may have to be slightly altered. It is almost impossible to esti-
mate the extent of this duplication of policies on a single indi-
vidual, and even if a very conservative view is taken, and it is
presumed that there are three policies for every two people
assured, the following would give a rough idea of the extent of
insurance in the country:

Table No. 81.

1931 one in 700

1936 one in 430

1941 one in 360

1945 one in 215

1946 one in 215

This would show that one person out of every 215 is insured.
Taking five members as the average size of a family, the above
figures may al>o be expressed as saying that one out of every
23 families is insured; if again we accept the assumption that
every two persons assured has three policies, the number
of families insured will be one out of every 35.

The extent of sales-concentration is obvious from the fact that
insurance is practically an urban business. The 1941 census
showed the urban population to be 13% of the total and even
on a generous estimate due to subsequent intensified urbanisation,
75% pf the population is untouched.

The Indian Census report of 1931 gives the following table:

Table No. 82.

Percentage of population aged
0-15 15-50 50 and over

39-9 5-5 9- 6

It has also been estimated that the 15-40 group represents the
working population and the composition of the age-groups on
this basis is:

Table No. 83.

Age Percentage

0-14 40

15-40 41

40 & over 19

PROGRESS IN FIGURES 415

Discarding for a moment children's policies and annuities,
insurance is issued almost wholly after the age of 20: it would
therefore be almost correct to estimate that 50% of the popu-
lation will be eligible for insurance. On the basis of this assump-
tion, it may be possible to work out the following table:

Total Urban population . . 100 million

People eligible for insurance . . 50 million

The composition of sexes has an important bearing on the selling
of insurance for insurance is principally issued to males:

Table No. 84.

Females per 1000 males, urban population

Madras . . 993

Bihar & Orissa . . 820

G.P. . . 886

Bengal . . 60 i

United Provinces . . 805

Bombay . . 773

Assam . . 577

Punjab . . 699

Average . . 770

(Source: Census Report, 1931.)

This would mean that 56.5 millions of the urban population are
males: may be a little more on account of the housing shortage.
If we take 50% of the male population as being eligible for
insurance, about 28 million people are eligible: 2.8 million policies
were issued during 1948, showing that one out of every 10 male
eligible for insurance in the urban areas is insured.

MERCHANTS: EXPORTERS: IMPORTERS

REMEMBER

FOR ALL YOUR

INSURANCE REQUIREMENTS

THE JAYABHARAT INSURANCE CO. LTD.

H.O.-22, APOLLO STREET, FORT, BOMBAY 1
Tel. Nos. 32513 & 26254

LIFE: FIRE: MARINE: ACCIDENT

A GREAT NATIONAL INSTITUTION AT
NATION'S SERVICE

THE CENTRAL BANK OF INDIA, LIMITED.

(Established December, 1911)
Head Office: Mahatma Gandhi Road, Fort, BOMBAY 1.

AUTHORISED CAPITAL
ISSUED CAPITAL
SUBSCRIBED CAPITAL
PAID-UP CAPITAL
RESERVE & OTHER FUNDS
DEPOSITS AS AT 30-6-1950

Rs. 6,30,00,000

Rs. 5,77,50,000

Rs. 5,76,66,125

Rs. 3,14,54,250

Rs. 3,94,68,633

Rs. 1,25,26,85,676

Branches and Pay Offices throughout India, Burma <& Pakistan*

DIRECTORS:

Dmshaw D. Romer, Esq. (Chairman) Cooverji Hormusji Bhabha, Esq.

Bapuji D. Lam, Esq. Manmohandas Madhavdas Amersey, Esq.

Dharamsey Mulraj Khatau, Esq. Maneklal Premchand, Esq.

Hormusji F. Commissariat, Esq. Cursetjee P. Wadia, Esq.

LONDON AGENTS:- Barclay's Bank Limited, Midland Bank Limited, The
Chase National Bank of the City of New York.

NEW YORK AGENTS :- The Guaranty Trust Co. of New York, The Chase
National Bank of the City of New York.

Banking business of every description transacted on terms which may be
ascertained on application

H. C. CA-PTAIN,

Managing Director*

BIBLIOGRAPHY

Agarwala, A. N., Social Insurance in India.

Beni Prasad, State in Ancient India.

Chandrasekhar, Dr., Food and People (UNESCO).

Grew, A., Economics for Commercial Students.

Cursetji, J. J., and Cursetji, K. J. J., Blood Pressure in Life

Assurance.

Cursetji, J. J., Pocket Guide to Medical Assurance.
Cursetji, J. J., Substandard Lives.
Davar, S. R., Elements of Mercantile Law.
Dodwell, H., Cambridge Shorter History of India.
Dougharty, H., Life Insurance Simplified.

Dougharty, H., The Advantages and Use of a Life Policy.
Fick, R., Social Organisation in Buddha's Time.
Gephart, W. F., Principles of Insurance.
Gunlake, J. H., Premiums for Life Assurances and Annuities.

Wood, C. F., Treatment of Extra Risks.
Jethar and Beri, Indian Economics.
Leigh, S. G., Guide to Life Assurance.
Lockhead, R. K., Valuation and Surplus.
Macleans, F. J., Human Side to Life Insurance.
Macleans, J. B. 5 Life Insurance.
Marrack, Food and Planning.
Mehta, Ratilal, Pre-Buddhist India.
Moir, H., Life Assurance Primer.
Muir, R., The Making of British India.
Muranjan, S. K., Modern Banking.
Nehru, Jawaharlal, Autobiography.
Ne^ru, Jawaharlal, Discovery of India.
O'Malley, Modern India and the West.
Philips, C. H.., East India Company.
Philips, C. H. ? India.
Ray, R. M., Life Insurance in India.
Richmond and Sheriff, Dictionary of Life Insurance.
Roychaudhry, K. R., The Agent's Guide to Life Insurance.
Sardul Singh Caveesheer, Successful Life Insurance Agent.
Shah, K. T., National Planning Series, Insurance.
Sharma, R. S., Insurance, Principles and Practice.
Sharp, C. "t>., Monetary Tables [Oriental (1925-35)]
Simmonds, R. C., Life Insurance Text Book.

27

418 LIFE ASSURANCE

Spurgeon, Life Contingencies.

Swatton, R. R., How Insurance Works.

Tarn, A. W., Student's Guide to Life Assurance.

Taylor, H. H., and Tyler, V. W. (5th Edn. by Freeman, H. N.),

Life Assurance from Proposal to Policy.
Trenerry, C. F., Origin and Early History of Insurance.
Underwood, R. F., Student's Book of Life Assurance.
Vakil, C. N., Economic Consequences of Partition.
Wadia, P. A., and Merchant, K. T., Our Economic Problem.
Walford, C., Insurance Cyclopaedia.
Young, T. E., Insurance.
Young, H. A., Principles and Practice of Life Assurance.

TECHNICAL PAPERS

Cammack, E. E., Group Insurance (Transactions of 8th Inter-
national Congress) .

Hunter, Arthur, Mortality in India (]. I. A., Vol. 57).

Hunter, Arthur, Blood Pressure among Standard Lives, (]. I. A.,
Vol. 70).

Pedoe, A., Disability Benefits (Transactions of loth International
Congress ) .

Ryan, G. H., Historical Survey (J. I. A., Vol. 38).

Sharp, C. D., British Insurance (J. S. S., Vol. 9).

Simmonds, R. C., Effect of Changing Conditions on Premiums
(J.L.I.I, Vol. 29).

Sturgeon, R. W., Indian Insurance Act, 1938 (J. I. A., Vol. 70).

Thompson, S. C., Notes on Mortality in India (T. F. A., Vol. I ) .

Vaidyanathan, L. S., Mortality of Indian Assured Lives ( J. I. A.,
Vol. 70).

Warner, S. G., Net Premium Method ( J. I. A., Vol. 37).

MISCELLANEOUS PUBLICATIONS AND PERIODICALS

Aykroyd, W. R., Nutrition, Oxford Pamphlet Series.

Capital, Commerce, Eastern Economist, Indian Finance, Indian

Insurance, Indian Medical Gazette, Policy (London), Post

Magazine (London), Review (London), Spectator (America)

several issues.

Census Reports 1931 and 1941.
Encyclopaedia Britannic a.
Government Reports:

Central Advisory Board of Health.

Central Banking Enquiry Committee.

Cowasjeo Jehangir Enquiry Committee.

BIBLIOGRAPHY 419

Health Survey and Development Committee (Bhorc Com-
mittee) .

Income-tax Investigation Commission.

Insurance Act 1938 and its amendments.

Insurance (Amendment) Act, 1950.

Nutrition Advisory Committee of the Indian Research Func[

Association.

Handbook of Commercial Information, Government of Indin.
tfomc University Encyclopaedia.

Indian Insurance Year Books, and Government Actuary's Reports.;
Indian Insurance Manual (Thacker Spink & Co.).
Readers 3 Digest.

Social Insurance (9, volumes) His Majesty's Stationery Office^
\ London.

Statistical Year Book of League of Nations.
Stone & Cox Insurance Tables.
Life Office Association, Presidential Speeches.
Prospectuses, Valuation Reports* Statements of Account and Re

ports, Brochures, Booklets, Agents' instructions and other lite*'
' rature issued by Life Offices in India.

THE

JUPITER GENERAL.
INSURANCE CO. LTD.

- Fii?e - JVEairine -

and all other classes of insurance

Assets Exceed ... ... Rs. 2,75,00,000

Head Office :

11, BANK STREET, FORT, BOMBAY.

Represented throughout

INDIA, PAKISTAN, CEYLON, BURMA
and B. E. AFRICA

JODHPUR COMMERCIAL BANK LTD.

( Incorporated in Jodhpur State. Liability pf the Members is Limited )

Head Office: JALORI GATE, JODHPUR

Chairman: NARAYANLAL BANSILAL, sq.

1 Authorised Capital . . Rs. 2,00,00,000

Subscribed Capital .. Rs. 1,00,00,000

Paid-up Capital .. Rs. 50,00,000

Reserve Fund . . Rs. 6,50,000

Bank's Offices

Marwar Jalon Gate, Jodhpur , Ghas Secunderabad : 6609, Kingsway.
Mandi. Jodhpur ; Khejarla House,

CUChaman ^^ ^ Madras : 26 ' ^mdappa Naick Street.

.. Ahmedabad- Maskati Market.
Kazi Syed Street, Mandvi , Muni-

cipal Bldg*. Bhiwandi (District Calcutta . 1 / 1-A, Mission Row and
Thana) ; Jambah Naka, Thana , 195 / 1, Harrison Road, Kalakar

and Gandhi CKowk, Kalyan. Street

Fully Equipped for Modern Banking
All types of Banking Business Transacted

C. H. DIVANJl,

Manager.

STILL HIGHER UP

THE METROPOLITAN INSURANCE CO. LTD.,

t (H.O. Calcutta)

HAVE CLOSED THE YEAR
1949

WITH A NEW BUSINESS OF
Over

SIX CRORES & FIFTY -FIVE LACS
Rs, 6,55,00,000

AS AGAINST
Rs. 5,31,22,191 of 1948

(Vacancies exist for ambitious field workers on
very decent terms )

For Particulars please contact :-

S. R. VADERA, B.A., LL.B.,

Telegrams: Bangalakhi. Agency Manager, Western Circle,

Telephone: 30835 METROPOLITAN INSURANCE^CO. L^D.,

371, Hornby Road, Fort, BOMBAY-1.

INDEX

PAGE

i A ( 1 924-29) " Table 81, 148

Absolute Assignment 230

Accidents, Disability 234

Double Indemnity 237
Accident, Sickness, Disease policy 232

Actuarial Society, America 235, 271

Actuarial Society, India 89

Actuarial Soundness 146

Actuary 77, 145, 250, 368
Adaptation of Existing Laws 361

Adarsha Bima 328

Adequacy, Life Fund 102, 377

Premium 145

Adjusted Net Premium 155

Advance Insurance Co. 356
Advisory Committee, Insurance 195,

341, 343, 364

Age 171, 199, 224, 333

Errors in 91, 218

limits of 1 80, 185

proofs of 218

rating up of 188

Agency Manager 252

Agents

chief 137, 254

classes of 242

commission 140, 334

knowledge of 243

need for 256

powers of 243

presumption 242

remuneration 257

selection by 169

selection of 256

special 253

status of 246, 257

training 256

Agents' Report 169

in non-medical scheme 185

Aggregate Table 80

Agra Life 268

Ajai ^lutual 356

Albert Life 197, 263, 269, 275

Aliens 240

Alliance Assurance Co. 297, 337

Allianz und Stuttgarter 322, 355, 388

All-India - 356

Allum, E. F. 286, 313

America

Bonus system 166

civil war 275

depression 3 1 9

disability benefits 232

housing schemes . 116

indisputabilfty 224

insurance origin 15

mortality tables 8 1

PAGE

non-medical insurance 186

organisation 39

reserve systems 104, 155

State control 244

taxation 132

yields 1 1 1

American Institute of Actuaries 272

Amicable Society 12, 18

Amount at Risk 23, 103

Anand Insurance Co. 356

Andhra Insurance Co. 313

Annual and half-yearly

reductions 201
Annuities

Apportionable 50

commission on 1 4

curtate 50

deferred 52

for income-tax 53

group 242, 373

immediate 50

joint life 51

mortality table 89

progress of 54

retirement 59
settlements 59, 221

survivorship 53

vs. life assurance 53

Ansari, M. A. 364

Approved Securities 113, 118, 129
Armstrong Investigation, 121, 166,298

Arya Insurance
Aryan Civilization
Aryasthan Insurance Co.
Asian Life
Assessment Plan

prohibition of
Assets

appreciation of values

composition of

growth of

investments of

returns

writing down
Assignments
Assurance Companies

Act, 1912

Assurance Companies Act,
English 40, 104,

Atlas Assurance Co.
Aubry, P.

Automatic Non-forfeiture
Automatic Reinsurance
Aviation 171*

Aykroyd, Dr.

124, 125,

230,

296
2

327
296

22
330

161

129
122
105
120

161
334

B

Babylonians
Bailey, A. H.

36, 300

4

272, 299
297
380

156, 2IO

193

178, 228
96

7
107

421

422

LIFE ASSURANCE

PAGE

Balmer Lawrie & Co. 297

Bangalakshmi Insurance 328
Banking Company

as shareholder 35

as trustees 222

collection by 204

failures 37

interlocking n8, 350, 353

investment in 119

Banking Enquiry, Central 324

Barcelona, Ordinance of 8

B.B. & C.I. Zoroastrian 284

Behar Earthquake 85

Behar United 328

Beneficial Owners 35

Beneficiaries 229

Bengal

Christian 265

Co-operative 33

Famine 34-6

Insurance and Real Property 313

Iron & Steel Co. 293

Partition 290

Benjamin, Dr. 95

Bhagyalakshmi Insurance Co. 328

Bharat Insurance Co. 123, 286,

291, 295, 326, 383

Bharucha, Mr. 286

Bhaskar Insurance Co. 328

Bhatt, Ramchandra 39

Bhore Committee 94, 9 6 , l8 3

Birla, House of 326

Blood Pressure i?5

Bombay Alliance 327

Bombay 4 Co-operative 33, 327

Bombay Life (1823) 264

Bombay Life 296

Bombay Mutual 123, 140, 275, 291

Bombay Widows 284

Bombay Zoroastrian 284

Bonus 34, 41, i34> i&3

interim 1 68

loading 134, 146, 160, 163

mania 325

prohibition of 163, 342

systems 1 64

vesting of 168

* Bottomry 7

Branch Manager 137, 254

British Empire Mutual 82

British India General 309, 356

Build 173

Bunyan 240

Burma National 337

Business Life Assurance 72, 367

Calcutta Insurance

Calcutta Insurance Association

313
342

PAGE

Canada,

State Control 244

yields in 1 1 1

Canara Mutual 328

capacity, legal 239

capital

formation 348

issues control 349

redemption policy 74

structure 35, 353

Cardmaster, S. B. 313, 356

Carlisle Table 19, 41, 138

V 'C. S. O." Table 81

caveat emptor 222

Ceding Company 192

Central Bank 327

Central Mercantile - 356

Chamber of Assurance, Bruges 8
Chandrasckhar, Dr. 92, 94, 99

Charnock, Job 261

Chartered Insurance Institute 253

Cheap money policy 1 1 1 , 113,

!63, 347

Chcttiar, Sir Muthiah 294

Chief Agents 137, 254

Child, Sir Josia 261

Childe Gordon I

Children's deferred 66

educational policies 68

endowments 67

China Mutual 297

China Underwriters 312

Chirmulc, W. G: 304

Christian Mutual 265

Circulatory system 174

Citizens of India 356
City of Glasgow 282, 284, 297, 304

Claims settlement 216

optional modes of 2ic)

Clauson, A. C. 315

Climatic Hazard 179, 185,

187, 202, 226, 236

Codes of Manu 4

Coinsurance 192

Colonial Life Assurance ' 270

Colonial Securities UO

Columbia Presbyterian 1 75

Commerce in

Commercial Union 281, 282,

297, 337

Commission 137, 140, 257, 334

Commonwealth Assurance Co. 313
Communal Riots 356, 358, 365

Company Shares 117, 119, 129

Competitive rates ' 146

Composite companies 32

Conditional Assignment l 230

Connecticut Law 121

Connor, Dr. C. A. R. 175

INDEX

423

PAGfc

Consistency of premiums 146

Contingency Reserve Fund 37, 102

Contingent Survivorship 65

Contract, nature of 241

Contribution system 167
Control, acquisition of 350, 352

Controlled Fund 1 1 9

Controller 35, 39, 103, 120

functions of 247

Conversion of 3/2% paper 113

Convertibility of assets 108

Convertible term 49

Co-operative Assurance 296
Co-operative Insurance Society 32

Co-operative societies 1 1 9

Cost 375
Cost of insurance 24, 42, 151

Court of Flanders 8

Court of Policies 9
Cowasjee Jehangir

Committee 298, 351

Creditor Policies 49, 73, 180

Crescent Insurance Co. 309

Croft Mody & Co. 282

Crown Life 322

D

Dalmia, Shri 287, 326

Das, C. R. 295, 311

Dasborough, Mr. 282

Dating back 202

Days of grace 203

Death Duties 45> 73

Death, proofs of 217

Death, specific causes of 93

Debentures H9> *3 2

Debenture Policies 63

Decreasing Term 49

Deepak General 355

Deferred Annuities 52, 140

Deferred Asscc. Children's 66

Deferred Bonus plan 166, 299

Deficit 35, 160, 162

Delay Clause 206

Depositors' Benefit 186, 327
Deposits, Statutory 36, 301, 330, 340

in Pakistan 3^1

in States 354

Premium 201

Temporary Reduction Act 341

Depreciation, Assets 161

Depression 129, 131, 3*9, 3&9

Desai, K. C. 3*3

Devaluation 363

Devkaran Nanjee 355

De Wit 14

Dharamsi, Abdulla 286, 293

Digvijay Insurance Co. 356

PAGE

Direct Agency System 254

Directors, Government 38, 246

Common 350

Policyholders 34, 241, 334, 342

Shareholders 38

Disability Benefits 231

in America 232

in Britain 233

for females 237

future of 235

reserves for 157

Distribution

of assets 122

investments 1 08

surplus i 63

Dividends, limitation of 34, 164

taxes on 134

Dividing Insurance 3i, 326

Dodspn, James 14, 138

Dominion Insurance Co. 327

Double Endowment 60

Double Indemnity, Accident 237

for females 238

Duarte, L. C. 285

Duff, Mr. 309

Dutta, N. 364

Easterlings 9

Eastern Federal Union 328

Eastern Life 355

Eastern National 328

East India Co. 16, 261

East India Covenanted Services 82

Economic Problem, Our 182, 307

Educational Policies i 68

Empire of India 285, 291, 295, 383

Endowment Assurance 46

annuities 59

children's 67

educational 68

for investment 46

premiums 28

marriage 67

short-term 47, 354

English & Scottish Law Life 297, 303

English Finance Act 134

Environmental Hygiene 96, 9^

179, 1 8?

Equity ... '97

in bonus distribution 164

in nationalisation 3 77

in premiums 146

in surrender values 204

in taxation 132, 163

Equitable Life, American 166, 282

Equitable Society, London 14, 138

Errors in age 91, 21$

European 197, 272, 275

424

LIFE ASSURANCE

Exchange Fluctuation
Expectation of Life 93,

Expenses

administrative 1 3 J,

commission

conception

control

effect on bonus

effect of reserves

effect on surplus

for taxation

loading

reserves for

trend of

Extended Term Assurance
Extra Premiums 183, 187,

removal of

reserves for

F

Facultative Reinsurance
Faculty of Actuaries
Family Endowment
Family History
Family Income Policy

Protection Policy
Famine
Famous Life
Farm Mortgages
Fatal Accidents Act
Federal India
Federation of Indian

Insurance Association
Females

Disability

Doubi* Indemnity

Expectation of life

Insurance

Maternal Mortality
Ferguson, W. F. 263,

Ferguson & Go.
Fidelity Mutual
Field Organisation
Finance Capitalism
Financial hazard
Financing war
Finlaison, A. J.
First Life Policy
t^lat Rate Premium
Forbes, Sir Charles
Foreign competition
Foreign securities
France

nationalisation

State control

yields in

Fraternal Societies
Fraud
Free India

PAGE

PAGE

157

Friendly Societies

297, 371

153, 162

G

1 60, 251

Gambling Act

14

140

General Agent

242

137

General Assurance Co.

295

142 3 342

General Average

7

42

General Council

247

*54

Generation Mortality

84

161

Glory Insurance

356

133

Goanese Mutual

284

142

Gold, love of

6, 3i5

158

export of

321

143

hoarding

339, 347

206

Goodwill Assurance

327

227, 344

Gor, N. J.

364

190

Gostling, David 276,

286, 288

156

Government Actuary

302, 312,

324, 326

Government Administrator

246

193

Government Control

1 1 8, 244

271

Government of India Act, 1935 333

269

Government Securities, India 118,

172

306, 325

58

Pakistan

362

58

Graduation

79

96

Great Eastern

304, 337

356

Great Social

327

117

Grcsham Life

177, 282

231

Gross Premium 31,

i37, 145

38

Valuation

155

Group Insurance 21

, 59, 74>

89, 342

1 86,

242, 372

Annuities

242, 373

237

Guaranteeing Office

192

238

Guilds

182

Aryan Craft

3

181

English Craft

1 1

182

Frith

10

268, 269

Merchant

10

322

Gujerat Zoroastrian

284

232

Cyan Chand, Lala

287

252

Gybbons, William

IO

350

H

.

179, 242

306, 347

"H" Table 80, 139,

'147, 157

81

Habib Insurance

35 6

; IO

Habits

179

189

Hadrian

17, 274

270

Halley, Dr.

14

3i6, 323

Handbook of Commercial

no

Information

279, 32i

Hansa Traders

8

380

Hardy, George

81, 286

245

Harkishanlal, Lala

287

in

Hazard

232

aviation

178, 228

224

climatic 179,

185, 187,

328

202,

226, 236

INDEX

425

PAGE

financial i?9, 242

Maternity 183

military 179, 227

moral i?9, 224

occupational 178, 187

war 179, 227, 308, 344

Health insurance 3 70

Height Weight Table 174

Henderson, G. A. 298

Hindu Mutual 284, 313

Hindustan Co-op. 115, 131, 295

Hindustan Mutual 328

Home Security 356

Hormusjee, B. 313

Housing Schemes 116, 119

Howrah Insurance 356

Hume, A. O. 289

Hunter, Dr. A. 82, 176, 283

Huskisson, W. 231

Hussain, Wajahat 351

Hyderabad Co-operative 33

I

Idaho Law 121

Ideal Option Benefit 61

Imperial Bank 119

Income Bonds 59
Income-tax 51, 53, 56, 70

Act, 1922 230

Evasion 354

Investigation Committee 133, 134

Rebate 75, 230

Independence Act, 1947 360

India 279, 280

India Equitable 296

Indian Christian 284

Indian Circar 328
Indian Companies Act 32, 360, 361

Indian Economic 328

Indian Economics 307

Indian Globe 313

Indian Insurance 328
Indian Insurance Companies

Association 195, 323, 329, 342

Indian Laudable 269

Indian Life 139, 284, 291, 383

Indian Life (Meerut) 277

Indian Life Benefit 313

Indian Medical Gazette 95, 183

Indian Mercantile 294

Indian Merchants Chamber 294, 323

Indian Mutual 313

Indian National Congress 290,

300, 318, 337

Indian Ordnance , 284

Indian Progressive 327

Indisputability Clause 222

Indo-Pakistan Relations 360

Indus Valley i

PAGE

Industrial Activity 345

Industrial and Prudential 305, 313

Industrial Assurance 274, 370

Industrial Era 272

Industrial Finance Corporation 114

Inflation 348

Influenza Epidemic 83, 85, 307

Inspectors I37> 2 52

Insurability, standards of 177

Insurable interest 15, 240, 242

Insurance 6

Advantages 366

Insurance Act, 1938 330

Test Case 34

Amendments 142, 143, 224,

333, 337, 338, 342, 343, 3^3

I nsurance ( Amendment )

Act, 1950 364

Administrator 246

Agents 137, MO, 255, 257

capital structure 35

commission 1 40

controlled fund 119

Controller 247

directors, Government 38

dividends 34, 164

expense control 143, 160, 247

Insurance Association 247

investments 118

legal capacity 239

Life Insurance Council 143, 247

mutualisation 38

payment into court 218

returns 120

security 245
valuation 103, #6p, 162

voting rights 34

Insurance Association of India 247

Insurance Companies' Act, 1928 316
Insurance Company of North

America 1 6

Insurance companies, types of 32

Insurance history 171

Insurance of India 328

Insurance Year Books 123, 321,

325, 384

1937 'SO

1939 I3*>

1943 145, 163, 326

1944 89, 157, 177, 184, 200

1945 299, 368

1948 147

Institute of Actuaries 27 1*

Interest, payment of 220

Interest Rate 24, 101

effect on bonus 42

effect on life fund 161

effect on premium 147

for premiums 145, 147

426

LIFE ASSURANCE

PAGE

for valuation 157

gross 132

on Government Bonds 1 1 1

on Life Funds 136

on Loans 228

Interim bonus 168

Interlocking 350, 353

Internal valuation 103

International Congress 287

International Monetary Fund 114

Investment,

1938 Act 332

element 47

manager 251

principles 1 05

restrictions 118

surplus 161

yields on 136

Investment Co. 35, 119

Investment Reserve

Fund 1 02, 1 06, no, 161

Irrevocable Clause 22 1

Irrevocable Nomination 229

J

J. I. A. Vol. 30 139

Vol. 37 154

Vol. 57 283

Vol. 70 176

J. S. S. Vol. 2 137

Vol. 3 144

Vol. 9 177

Jatakas 3

Jayabharat Insurance Co. 355

Jinnah,rM. A. 357

oint Family 4, 6, 312, 367

oint Life Annuity 51

oint Life Assurance 63, 73, 183, 203

Joint Mortality Investigation 89

Jones, Edwin 278, 313

Jupiter General 157, 309

Justinians, Digest of Roman Laws 7

Jwala Insurance 328

K

Kaiser-I-Hind Insurance Co. 327

Kalidas, Amritlal 327

Kania, Justice 341

Kapur, T. C. 364

^irshman 299

Krishnan, Dr. 96

Lajpat Rai, Lala 311, 312, 315
Lakshmi Insurance Co. 311* 359
Lalji Naranji 309

PAGE

Lapses 161, 206, 334, 339

mortality calculations 77

reserves for 156

levival 215

Larger Assce. reduction for 202

Last Survivor Policies 64

Law Union & Crown 297

Leasehold Policies 74

Legal

capacity 239

construction 241

contract 239

relationship 241

requisites 239

Legislature of Massachusetts 197

Level Premium plan 23

vs. yearly-renewal 29

Liabilities, determination of 103, 154

Liens 189

Life Fund 32, 101

adequacy 102

conception of 101

growth 122

manipulation 353

Life Insurance in India 270, 284

Life Insurance, Macleans 319

Life Insurance

business 72, 367

Council 143, 247

education 68

females 1 8 1

Investment 46

Income-tax rebate 230

married women 184

minors 1 80

standard forms 43

substandard 186

vs. annuities 53

vs. poverty 374

Life Offices' Association 89, 195,

198, 313, 323, 329, 342, 344

Life Table, All-India 20, 84, 91, 182

Limit of

age % I 80

agency powers t 243

amount of insurance i79> 242, 363

disability 234

expenses 143

Limited payment Whole Life 44

Liverpool London 270, 337

Liverpool Victoria 297, 304

Lloyd, A. H. 351

Lloyds, London 9, 329

Loading,

bonus 146, 158, 160, 162, 163

effect on reserves 154

expense gi, 141

profit-fluctuation 144, 146
Loans, Policy 73, 119, 131, 228, 339

INDEX

427

PAGE

Lombard Traders 8

London Assurance 13, 107, 271,

297, 34

London and Lancashire 283, 297, 303
Long-Life 327

M

Macleans, F. J. n

Madras Equitable 2^4

Madras Widows 265

Mahabir Insurance Co. 328

Mahatma Gandhi > 181, 3 IO >

3i'*> 3*4, 3i8 3 343

Malaria 94

Managing Agency 35, 33 ! > 35

Mangalore Roman Catholic 284

Manu Subedar S ^ 324

Manufacturers, Canada 298, 337

Marathe, G. S. 305

Marine Insurance 8

Marine type policy 10, 13

Marrack, Dr. 97

'Marriage Endowment 67

Married Women 184, 240

Property Act 230

Marshall, John i

Martin, Richard 10

McBain, J. A. D. 281

Mechanisation 251

Medical examination i73> 375

fees 138, 141

report 1 7 l

Medical, Invalid, General 263, 268

Mehta, Sir P. 278, 286, 287

Methodist Annuitant , 296

Metropolitan, (Indian) 327

Metropolitan, New York 175

Middle classes 280, 292, 296,

339, 355, 3 f) 4

Midland Insurance Co. 328

Military Risk 179, 227
Minor 170, 180, 239

Minto-Morley Reforms 300, 309

Misrepresentation 222

Missionarf Societies 265

Mitter, J. K. 35 1

Modern Banking 136

Modified Preliminary Term 155

Mofussil Organisation 253

Mohenjo-Daro i

Moral Hazard 179, 224
Mortality

conception of 19

effect on bonus 42

factors affecting 77

Generation, 84

Infant 93

investigation, joint 89

PAGE

maternal 1 83

non-medical schemes 185

ratio of actual to expected 90

Mortality Rate 19, 76

Mortality Table - 76

A (1924-29) . 81, 148

Aggregate 80

American 8 1

Carlisle ig 3 4 1 , >3 8

conception of *9

construction 7^

Dodsons 14* *3&

effect on premium 147

effect on surplus ibi

European 271

for annuities 89

for premiums ' I45 3 *47

for valuation 15)

Graduation 79

"H" 80, 139, 147

Northampton 19, 41, 138, 285

"O" 80, 147
Oriental (1925-35) 25, 27, 28,

30, 88, 147, i4, 151, 157, i8 ( >

Population 9

Select 79

Ultimate 79

Mortgages 115, 119, ! 3'

Farm 1 1 7

Morton, Sir George 351

Mountbattcn, Viscount 357
Mudaliar, Dr. Lakshmanaswami 182
Mudaliar, Sir

Ramaswami 163, 338, 341, 342

Mukerjec, Mr. 324

Muranjan, S. K. '136

Muslim League 356

Mutiny 267

Mutual Aid 17

Mutualisation 37

Mutual Offices 32, 330

control 38

organisation 34

preliminary expenses 36

preliminary operation 37

registration 35

N

Nagpur Pioneer 3^3

Naidu, N. V. 364

Naidu, Dr. Narayanaswami $74

National 295, 313*

Nationalisation ' 377

National Indian 295

National Mercantile 328
National Mutual,

Australasia 198, 297, 337

National Mutual, England 297, 304

428

LIFE ASSURANCE

PAGE

National rights 246

Navabharat Insurance 34 l

Negative Values 156

Nehru, Jawaharlal 312, 35&

Nehru, Motilal 31 1

Nehru Report 318

Neptune 327

Net Annual Premium 24, 28, 148

Net Premium 24, 137

valuation 103, 155

Net Risk Plan 21, 192

Net Single Premium 24, 27, 28

New Asiatic 326

New Great 35^

New India ?,o&, 313

New Insurance 328

New Metro 356

New Oriental 263, 268

New Swastik 327

New York Law 39, 121, 198, 298

New York Life 82, 176, 282, 304

New Zealand 196

Nominations 229, 334

Non-disclosure 222

Non-forfeiture Act 197

Period 203

Provisions 209, 334

Non-medical schemes 184, 326
Non-Participating policies 41, 138

advantages 41

premiums 146
Northampton Table 19, 41, 138, 285

North British 270, 271

Northern Assurance 297, 337

Norwich Union 15, 297

Notes dh Mortality 82

Numerical Basis 1 90

Nutrition 96

O

Occupation 171, 178, 186, 226

Old Age Pensions 369

O'Malley 96

Options, bonus 165

insurances with 49, 57, 58,

59, 61, 66

Non-forfeiture 2 1 2

settlement 219
Organisation

Field 252

Internal 248

Mofussil 253

New Business 137

Oriental Govt. Security Life 109,

123, 129, 131, 139, 175, 273,

277, 291, 295, 307, 383

Mortality Investigation 83, 177

PAGE

Mortality Table, Select 86

Ultimate 25, 27, 28, 30, 88,

105, 147, 148, 151, 157

Oriental Life 263

"O" Table 80, 147, 157

Paid-up assurance 152, 209, 220, 334

Pakistan 357

Insurance Act 361

Palladium 328

Paper currency 339, 34-8

Parliament Act of 1601 9

Parsi Zoroastrian 284

Participating Policies 41, 138

advantages of 4 1

premiums for 146

Partition of

Bengal 290

Burma 323, 399

India 357, 392

Partnership 63, 73

Patel, Vithalbhai 3 1 1

Paterson Brown 278

Payment

into Court 218, 334

of claims 216

of interest 220

of premium 199, 200

Pelican 304

Pennsylvania Co. 16

Peoples Insurance 313

Per capita insurance 122, 299, 413

Perfect Protection 59

Personal history 172

Personal statement 172

Phoenix 297

Physical examination 173

Pioneer Fire 356

Plague epidemic 84, 286, 291

Policy 2 1

Form 1 98

Passage of 248

classification of * 42

Policyholders

directors 34, 38, 241, 334, 343

Refugee 345, 359

Rights 246

Security 245

Policyholders' Assurance 328

Poor Relief Act 11

Post- War Sub-Committee 195

Prabartak Insurance 328

Prakasha, Shri 340

Preliminary Term system 155

Premium < 20

adequacy of 145, 158

calculations 20, 27, 28

INDEX

429

considerations for

deposits

disability

double indemnity

expense loading in

PAGE

145

20 1 ,

235
238
141

extra 183, 187, 344

fallacies in 151

flat rate 189

gross 3 1

increase of 147, 342

interest factor 145, 147

level 23, 29

mortality factor 145, 147

net 24, 137

net annual 24, 28
net single 24, 27, 28

non-participating 146

participating 146

payment of 199, 200

reductions 201

trend 1 49

waiver of 232

Presbyterian Ministers' Fund 15

Presidency Life 327

Prithvi Insurance 356
Profit-fluctuation loading 144, 146

Proof of age 171, 218

of death 217

of title 217

Proposal Form 170

Proprietary Company 32, 34

capital structure 35

control 38

dividends 34

mutualisation 37

organisation 34

operation 37

preliminary expenses 36

uncalled capital 35, 162

registration 35

Prospective method 1 04
Provident Companies Act 300, 371

Provident Life ' '297
Provident Societies 297, 330, 371

Prudential Assurance 2)4, 312

Public Corporation 114, 196

Pulse 1 74

Punjab Mutual 287

Purdah 183

Pure Endowment 60, 208

Quetta Earthquake
Quit India

85
343

PAOE

Raja, H. D. 328

Ram Mohan Roy 2^3, a07, 284

Ramji, Sir M. 294

Ranganathan S. 364

Rating and Valuation Act 12

Rating up of age 188

reserves for 156

Ray, P. C. 313

Readers Digest 176

Real Estate 115, 131

Rebating 142, 324
Reduced Early Premium

Policies 57

Reductions of premium 201

Referee's Report 177

Registration of companies 35

Reinsurance 21, 191

Removal of extras 190

Renewal commission 138, 140

Representation 223

Requisites, Legal 239

Reserves 23, 101, 102, 154

special 156

Reserve Bank 36, 113
Residence,

extra premiums for 226

for disability benefits 236

in selection 179, 185

reductions for 202

substandard lives 187

Respiratory System 1 74

Respodentia 7

Retaliatory Action 247, 333

Retention 191

Retrospective method 103

Returns, submission of 120

Revenue Account 102

Reversionary Bonuses 164

Review 377

Revival of Lapses 215

Rhodian Laws }

Robertson Law 121

Rock Life 297

Rose A. Riste, Dr. 183

Rothery, H. J. 139

Roy, S. C. 327, 364
Royal Commission, Income-tax 13*

Royal Exchange 13, 297, 337

Royal Insurance 270

Royal London Auxiliary 304, 337

Royal Society 14

Ruby General 326

Rural India, insurance in 185, 374

Radical
Rae, W.

328 Sahyadri Insurance
313 Samuel Brown

82

THE

INDIAN 6LOBE INSURANCE COMPANY LTD,

Head Office:
315/321 Hornby Road, Fort, BOMBAY.

Tel:- 27288-89 . Gram. GLOBINS BOMBAY,

A VETERAN NATIONAL INSTITUTION TRANSACTING

FIRE, LIFE, MARINE, MOTOR, ACCIDENT,

WORKMEN'S COMPENSATION AND ALL

OTHER MISCELLANEOUS INSURANCE

Branches :

AHMEDABAD, CALCUTTA, KAMPALA, MADRAS,
NAGPUR, NEW DELHf, POONA, PORBUNDER,
RANGOON, RATLAM & SECUNDERABAD (DN.)

INDIA'S OWN

fr ( LIFE * FIRE * MARINE * MOTOR
FOR

ACCIDENT and MISCELLANEOUS

INSURE WITH

EAST & WEST .'

INSURANCE CO., LTD.

ESTX>. 1913

EAST & WEST BUILDING

Apollo Street, Fort, BOMBAY

BRANCHES and CHIEF AGENCIES: THROUGHOUT INDIA

INDEX

431

Santanam, Pandit 311,

329,

Sapru, Sir Tej Bahadur
Saraswati Insurance
Savings Bank insurance 186,
Schedule policies
Scottish Amicable
Scottish Metropolitan 297,
Scottish Union
Scottish Widows
Security of Assets
Selection

agents'

company's

factors of

for disability benefits

importance of

in early days

in non-medical schemes

medical

persistence of
Select Table

Oriental (1925-35)
Sen, Sushil K.
Sentinel Insurance Co.
Servants of India
Setalvad, J. C.
Sethna, Sir P.
Settlement of Claims

optional modes of
Shah, B. K.
Shanghai
Shareholders'

Directors

uncalled liability
Sharp, C. D.
Short-term endowments

as investment

for education

for tax evasion
Shroff, K. R. P.
Sirnon Commission
Sinking Fund Policies
Sircar N. N. 328,

Sirkar, N. R.
Slater, D. M.
Social Security Services
Solvency factor

valuation

South Indian Co-operative
South Sea Bubble
Special Agents
Special Reserves
Sprague, Dr. T. B.
Stamp Duty
Standard Conditions
Standard Lift 82, 270,
Standard Mortality Table
Standstill Agreement

PAGE

PAGE

312, 313,

Star Assurance 297,

303

336, 359

Star of India

313

340

State Control

244

328

States Legislation

354

327, 355

Statute of Labourers

200

Sterling General

356

297

Stock Exchange

303, 304

Securities 106, 129,

325

282, 297

Subrogation

241

15

Substandard Lives

1 86

105

Classification

1 88

79, 169

extra premiums

188

169

factors affecting

187

177

importance of

191

169

reserves for

156

236

removal of extra

190

169

Suicide 225,

238

*3

Suitable Investments

1 08

185

Summers, George 276,

288

173

Sun Life of Canada 82, 281, 282,

283

86, 177

Sun Life of India

283

79

Sun Life of London 15, 283,

303

86

Superintendent of Insurance

147,

328, 329

196, 33i, 337, 338, 34^, 352,

354

327

Supreme Mutual

356

328

Surplus,

364

distribution 34,

163

281, 324

origin

1 60

216

Surrender Values 204, 334,

338

219

reserves for

156

39, 364

Swadeshi Bima

328

34

Swadeshi movement

294

Synod of Philadelphia

15

34

Syyid Ahmed, Sir

284

35, 162

157, 177

T

Tagore, Rabindranath 2,

295

47

Tata, Sir Dorab

308

69, 7i

Tata, Sir Jamshedji

294

354

Tata Iron & Steel Co

294

351

Tate, P. -M. 268,

269

318

Taxation, basis of

132

74

equity in

163

329, 340

in Britain

133

324

in America

132

277

Rates of

134

368

Telephone Industries

114

158

Templeton, Colonel

198

160, 162

Term Assurance 20,, 48, 73

, 74

33, 328

Convertible

49

14

decreasing

49

253

Joint Life

64

156

Test Case

80, 139

Texas Law

121

138, 141

T. F. A., No. 10, Vol. I

82

200, 333

Thakurdas, Sir P. 109,

360

277, 337

Thomas, J. H. 337,

342

79

Thompson, S C.

177

361

Tilak, B. G. 289,

290

432

LIFE ASSURANCE

PAGE
328
266
217

1 66

356

61

313

327

222
95

278, 293

Tilak Insurance

Tinneveliy Diocesan

Title

Tontine system of Bonus

Trinity Mutual

Triple Benefit Policies

Tropical

Trust of India

Trusteeship companies

Tuberculosis

Tyebjee Kamruddin

Tyebjee Dr. Shuffi 183

U

uberrima fides 170, 222, 244

Ulpian, A. D. 13

Ultimate Table 79
Uncalled Liability 35, 120, 162

Underwriter 9

Unemployment Relief 369
Uniform Simple Reversionary

system 1 64

United Karnataka 327

United India 165, 294

Universal Agent 242

Universal Fire 309

Universal Life 270
United Kingdom

control 244, 299

death duties 45

depression 320

educational policies 72

history of loading 138

inspectors 253

industrial assurance 3 7 1

Mortality Tables 80

organisation of companies 40

Securities 1 1 8

Taxation 133

Valuation 104, 155

Yields ' in

Union Life 356

Urine analysis 176

Vaidyanathan, L. S. 86, 89, 145,

157, 177, 184, 200,

278, 342, 35i, 364,
368

Vaidyanathan, P. 374

Valuation 102, 154

bases 157

American systems 104, 155

PAGE

gross premium 155

in United Kingdom 104, 155

net premium 103, 155

adjusted net premium 155

period 103, 162

solvency 160, 162

special reserves 156

stringent 158

weak 162

Vanguard Insurance Co. 328

Vasant Insurance Co. 356

Vesting of bonus 168

Vidyarthi, K. C. 313

Vikram General 327

Village Co-operatives, Aryan 3

Vishwabharati 356

Vivekananda 284, 289

Voluntary Assignment 230

Voidable Contracts 222, 226, 240

Vulcan Insurance Co. 309

Voting rights 34

W

Wadia, N. N. 309

Waif or d Cyclopedia 264

War Risk 179, 227, 308, 344

Warden Insurance 327

Warner, S. G. 154

Warranties 223

Wavcli Lord 356

Western India 304

Whole Life Policies 27, 43

Special 44

Limited payment 44

single premium 45

Winter, A. T. 82

Winterthur 322

Woolhouse 82
Working capital, Statutory 36, 330

World War, First 142, 305

World War, Second 142, 337

Yeshwant 356

Yearly Renewable Term 23

vs. level premium 29

Yield, as an investment factor 107

Yorkshire 304

"Z" Table 81

Zenith Assurance Co. 309, 313, 356
Zillmer, Dr. 154

W.P.P. 663