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To these charges, U. S. insurance men were quick to reply. Some charges (such as lack of competition, lapsation and surrender figures) they simply branded as false, others they said were based on insufficient evidence, misleading use of "meagre . . . trifling testimony." To all they opposed their own record: from 1929 to 1938, policyholders had lost only 6/10 of 1% through insurance company failures—a far better safety record than the banks'.
Although their rebuttal was not included in SEC's report, it must have had its effect. Said Senator O'Mahoney: "By and large the insurance companies have come through this study in pretty good shape." And last week SECommissioner Sumner Pike submitted his recommendations to TNEC. Compared with the SEC report, his advice was mild. Main items:
1) For regulation the policyholders should continue to rely mainly on strengthened State insurance commissions, 2) but the Federal Government should help by giving advice to the commissions, 3) and provide, if possible, insurance for the low-income group—perhaps through extension of social security benefits—thereby eliminating high-cost industrial insurance. He agreed with a 35-year-old opinion on industrial insurance: it must either stay as it is, with all its weaknesses, or be prohibited entirely.
But TNEC was not set up to cure abuses in the insurance business. Its job was to find out what makes the U. S. economy tick (or fail to)—a problem in applied economics. The economy, said SEC, suffers from a lack (or the timidity) of venture capital. The insurance companies, representing "by far our most dynamic savings institutions," invest mainly in bonds, thus causing capital-starvation among small, new or risky businesses. Even Commissioner Pike thought insurance portfolios should find "room for the . . . common stocks of substantial corporations."
To such an innovation, most insurance men are dead opposed. They remember the experience of Canada's Sun Life, which once held over 50% of its assets in common stocks. In the 1929-30 stockmarket Sun Life lost $44,000,000 on its investments. In 1932 the Canadian Government stepped in, limited common stock holdings to 15%. As long as life insurance is supposed to be safe, it can hardly be expected to take the economy's longer chances. Said Chairman O'Mahoney: "Such a plan [enforced stock-buying] would make the present situation worse." But he agreed that some venture-capital encouragement must be devised.
At week's end the Howe-Gesell bomb was sputtering its way into the archives, there to join the last previous over-all insurance investigation, the famed Armstrong Report of 1906 (which stimulated State regulation). It was not likely to get much attention in a Congress interested in just two things: defense and taxes.