More Competition Should Lower Rates
IN the life-insurance business, equality of rates has long been a carefully protected tradition. No matter what amount of insurance a man bought, he paid the same price per thousand as any other customer with the same age and health rating. But recently a wave of price-cutting has swept through the life-insurance business, a procedure as shocking to many insurance men as discount houses have been to most retailers. What has happened is that most big insurance companies have started giving quantity discounts on what they call "specials." New York Life Insurance Co. and Equitable Life Assurance Society, for example, cut rates some 15% on policies of $10,000 and up. Travelers Insurance Co., John Hancock Mutual Life Insurance Co.
and others are pushing their own specials to meet the competition. Says one Hartford insurance executive: "We are competing with General Motors and Westinghouse for the average man's dollar, and we admit the average man cannot afford the kind of insurance coverage that he needs." The trend has shaken the insurance business to its deep and respectable foundations. The Mutual Benefit Life Insurance Co. (No. 11 in the U.S.) has vigorously opposed the specials. In Life Insurance Courant, New York Underwriter Halsey D. Josephson complains: "The surrender . . . to the expedient of issuing specials . . . may very well be the beginning of the end of American life insurance as we have known it, [because it breaks] the tradition of equality for all." Special policies are not new (Metropolitan has had one since 1909). But until recently big companies hesitated to advertise discounts on big policies because they felt that small customers, or even the Federal Trade Commission, would accuse them of discrimination.
Most big companies have now found that the quantity discount and other special policies such as in group insurance bring in the business. Since New York Life began advertising special policies in March, total sales have climbed an astonishing 40%, will reach $1.4 billion in face value of policies written in 1954. Equitable reports that its total sales have increased "very substantially" because of lower prices and better talking points for salesmen.
At New England Mutual 30% of all life-insurance sales are now special policies. But while special policies cost less, they are harder to get. Most companies require stricter medical exams and one-year advance payment of premiums. One justification for lower rates is the lower cost of administration. The expense of handling an application and writing a policy, for example, is the same whether the policy is for $1,000 or $10,000. (One company has even started tacking on an extra handling charge for policies under $3,000.) Furthermore, says one Boston actuary: "Size alone is not the determining factor; mortality rates are higher among people who buy $1,000 and $2,000 policies than among those who buy big policies." Principal reason: those with a higher standard of living can afford to take better care of their health.
But since life expectancy in the U.S.