The Life Insurance Industry

Staff present: Charles Bangert, general counsel; Dean E. Sharp, assistant counsel; Charles Kern, Minority counsel; Peter N. Chumbris, minority counsel; Stan Hackett, staff of Senator Strom Thurmond; Patricia Bario, editorial director; and Janice Williams, clerk.

Senator HART. The committee will be in order.

Senator Hruska has been delayed but will join us very soon. Our testimony begins this morning and I understand our first witnesses will testify together. In any event, we welcome and would suggest that they come forward together, the executive vice president of the Savings Bank Life Insurance Co. of Hartford, Conn., Mr. Walter E. Rapp, and the president of Savings Bank Life Insurance Fund of New York, Mr. Theodore Fuller.

Mr. Fuller, I think you are going to lead off.

STATEMENTS OF THEODORE FULLER, PRESIDENT, SAVINGS BANK LIFE INSURANCE FUND, NEW YORK, N.Y., AND WALTER E. RAPP, CO., HARTFORD, CONN.; ACCOMPANIED BY LOUIS H. NEVINS, DIRECTOR-COUNSEL, NATIONAL ASSOCIATION OF MUTUAL SAVINGS

BANKS

Mr. FULLER. Right. Thank you.

My name is Theodore Fuller and I am president of the Savings Bank Life Insurance Fund of New York. With me is Walter E. Rapp, executive vice president of Savings Bank Life Insurance Co. of Hartford who has a statement of his own which will follow mine. We are accompanied by Mr. Louis H. Nevins, the director-counsel of the Washington Office of the National Association of Mutual Savings Banks.

Before I start my formal remarks, I will say that we do appreciate the opportunity of coming down here and thank you for the invitation. Senator HART. Mr. Fuller, your prepared statement will be printed in full and you may summarize if you wish.

[Mr. Fuller's prepared statement follows. Testimony resumes on p. 804.]

PREPARED STATEMENT OF THEODORE FULLER, PRESIDENT, SAVINGS BANKS LIFE INSURANCE FUND, NEW YORK, N.Y.

My name is Theodore Fuller. I am President of the Savings Banks Life Insurance Fund in New York, New York. With me is Walter E. Rapp, the Executive Vice President of the Savings Bank Life Insurance Company of Hartford, Connecticut, who has a statement of his own which will follow mine. We are accompanied by Mr. Louis H. Nevins, the Director-Counsel of the Washington office of the National Association of Mutual Savings Banks.

I-WHAT IS SAVINGS BANK LIFE INSURANCE?

It is regular legal reserve life insurance issued by mutual savings banks. It is available at the present time only through mutual savings banks located in Connecticut, Massachusetts and New York. The chief distinguishing feature is its method of distribution: over the counter by regular salaried bank employees and by mail without the use of commissioned agents. In all three states SBLI has proved to be low in cost. Its other characteristics are that early cash and loan values are provided, dividends as earned begin the first year, and the banks offer local personal service at each banking office.

A. Massachusetts

II-HISTORICAL BACKGROUND

Savings bank life insurance had its beginning in the United States in Massachusetts. Although it was suggested in 1874 by the then insurance commissioner, Elizur Wright, the real "father" of savings bank life insurance was Louis D. Brandeis, who later became Associate Justice of the United States Supreme Court. Mr. Brandeis developed his plan as a result of his involvement in the 1905 investigation of life insurance and its abuses. His concern was principally for working men who could protect their families only at high cost on unfavorable terms through weekly premium industrial insurance. In the search for a solution, he conceived the idea of distributing life insurance through mutual savings bank.

With a slight enlargement of their powers Mr. Brandeis felt that mutual savings banks would be ideally suited to provide life insurance over the counter to thrifty buyers. Overhead expenses could be shared by the savings and life insurance departments of the bank. Earlier and larger cash and loan values would be possible and, because selling costs would be reduced, the working man could buy his life insurance protection at low cost.

To assist him in attaining his goal of savings bank life insurance Mr. Brandeis was instrumental in forming the Massachusetts Savings Bank Insurance League. Its membership consisted principally of leading industrialists, educators, social workers, business and labor leaders, many of whom were personal friends and associates of Mr. Brandeis. Their support was enlisted in behalf of the original proposal to permit mutual savings banks to write life insurance.

Thus it can be seen that the original impetus for savings bank life insurance came mainly from outside the savings bank industry from public spirited citizens interested in establishing a new and hopefully better method of making life insurance available to the public.

In June, 1907, a savings bank life insurance bill was passed, despite opposition by the life insurance industry. Originally the Massachusetts law limited the amount of savings bank life insurance that one bank could issue on one life to $500. In 1915 this individual limitation was increased to $1,000. Then in 1951 the maximum amount of life insurance that could be issued by one bank on one life was increased to $5,000. However, the aggregate amount of savings bank life insurance that could be issued to one individual was maintained at $1,000 times the number of issuing banks in the system. The present number of issuing banks being 41, the legal limit is thus set in Massachusetts at the present time at $41,000.

B. New York

Although a bill was introduced in 1909 and 1910 to establish savings bank life insurance in New York, nothing came of this early attempt to follow Massachusetts. Another abortive attempt was made in 1934. In 1938, however, after

Justice Brandeis had given his personal support to the drive to extend the savings bank life insurance system to New York, it was finally successful. The bill to establish savings bank life insurance in New York was made a part of Governor Lehman's legislative program.

The original bill which was passed on March 16, 1938 provided for the banks to issue policies up to $1,000, with the proviso that no person be permitted more than $3,000 of face amount in all banks. In 1948 the limit was raised to $5,000 per individual and for the system; in 1958 the limit was raised to $10,000 and in 1967 to $30,000.

In the first year of operation $5.9 million of life insurance was issued, reaching $10 million in sales in 1944, and averaging in the mid $20 millions until 1958. The growth has accelerated rapidly since 1958.

C. Connecticut

In Connecticut the first bill we have knowledge of was introduced in 1937 but was never brought to a vote. In 1941, however, Governor Robert Hurley made it a part of his legislative program, and after the usual opposition and dedication to savings bank life insurance by people interested in obtaining low cost insurance, it was finally passed on May 8, 1941. The original law in Connecticut contained a $3,000 per bank limitation in the amount of insurance. In mid-1957 the legislature increased the limit to $5,000, where it remains at the present time

III. HOW DOES SAVINGS BANK LIFE INSURANCE WORK?

Although the exact forms of operation in the three state systems vary, the main features of savings bank life insurance are common to all three states. As Justice Brandeis envisioned the operation, the savings banks had the experience and know-how to make prudent investments of funds since they were doing it for the funds of the savings accounts. Accordingly, it was his proposal, which was adopted in all three states, that the reserves for each individual policy be kept by the banks and invested by them. Each individual bank also deals directly with the customers in its area. Therefore, the bank should be the institution whose name appears on the policy as the issuer of the life insurance. The customer who is purchasing a life insurance policy deals directly with the savings bank and receives a contract with the name of the savings bank that he chooses to deal with. His premium money is retained by that local bank and invested in accordance with the State rules and regulations which apply to the investment of savings account money. The funds are thus received locally and in most instances invested by the bank locally in accordance with its investment practices.

To insure efficient operations, a central organization was set up in each state with the responsibility for setting premium rates, designing the policies, and providing standards of acceptability of applicants through an underwriting system which is uniform throughout each state. The central organizations provide the life insurance experts for the system through actuaries, medical directors, and underwriters. In addition, it was felt that there ought to be a central guaranty fund as a further safeguard protecting policyholders. Accordingly, another function of the central office or offices is to provide this guaranty fund, which is made up of contributions by the banks of a small percentage of the premiums received.

A unique feature of savings bank life insurance is the provision for handling variations in mortality among various banks. If you have, as savings bank life insurance does, a large number of individual institutions with varying amounts of life insurance in force, it is quite possible that in any one year one of these institutions might be hit very hard with claims. Accordingly, it was important to adopt some means to even out there fluctuations among individual banks. This is done in Massachusetts and New York by a method of reallocating claims among banks so that all banks experience the average claims for any given year. This means that all banks have the same mortality experience. In the Connecticut system this is done through a method of reinsurance by the central organization. The effect is the same.

The system of savings bank life insurance in all three states is made up of issuing banks and banks called agency banks. The issuing banks, generally speaking, are the larger sized institutions which make an investment in their life insurance department. The department is set up as a distinct and separate department of the bank with separate accounting and separate investments. This department is responsible for the sales and administration of the life insurance

« Anterior Continuar »

Libros

The Life Insurance Industry: Hearings, Ninety-third Congress, First ..., Parte2