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has increased from 56 years to 69 years since 1929, why are not all insurance rates dropping? One reason, say insurance men, is that any possible reduction in long-term life insurance rates has been wiped out by the rise in administrative expenses and the decline in insurance-company earnings (i.e., from 5.18% in 1923 to 3.23%) with the overall decline in U.S. interest rates.
Another important reason for the high cost of insurance is that each insurance company works out its own mortality table, builds in one safeguard after another to pile up a massive reserve to protect itself against "catastrophes" and meet legal requirements. The mutual companies (i.e., policyholders participate in profits), which sell 70% of U.S. life insurance, pay out surplus earnings as "dividends" to policyholders. But to the policyholder, an insurance "dividend" is actually no earning. Says Northwestern Mutual Vice President Robert E. Dineen: "In our business a dividend is actually the return of an overcharge, and to that extent the term 'dividend' is somewhat of a misnomer." Although U.S. insurance companies have policy reserves of $71 billion, they will pay out less than $5 billion for death benefits, annuities, dividends, etc. in 1954. One insurance executive believes that the major hindrance to changing rates is simply inertia. Said he: "There was a feeling in the business that things were going along pretty good as they were, that a change would give rise to a whole new series of problems and why rock the boat?" For the nation's 93 million policyholders (who have $339 billion in life insurance in force), rocking the boat with the special policies means a wave of healthy competition in the industry.
Spread of such competition and rate-cutting all around could give the average man insurance he can afford.