Friday, April 12, 2013

The Investigation Into the Life Insurance Business

The marked depreciation of urban real estate, farm lands, and bond values called for the rearrangement of the investment portfolio of Metropolitan Life Insurance Company.

President Ecker, with his long and varied experience in this field, addressed himself to the solution of this problem, made particularly difficult by the continued decline in opportunities for the profitable investment of insurance funds. Money was accumulating in the treasury because it was almost impossible to find proper investment channels.

Under these conditions and with a consciousness of civic responsibility, Mr. Ecker turned his attention to the field of moderate rental housing. At the age of 70 he launched a building program unprecedented in social character and magnitude, to provide homes for persons of medium income in New York City.

He located a large tract in The Bronx, guided the planning of adequate buildings and services, and saw step by step the fulfillment of his hopes in the completion of a model community, Parkchester. By the early 1920's, 36,000 people lived there, a splendid contribution to the moderate priced housing program of the city and the Nation.

Similar housing developments were undertaken under Mr. Ecker's direction both in San Francisco and Los Angeles, and later in Alexandria, Va. Such building programs, without precedent in the United States for a private company, were recognized by national and private agencies as an important contribution to the housing problem in the period of war emergency.

At the same time, they served as an excellent investment field for the company. During the period of financial depression there were criticisms of every business; and the business of life insurance, homeowner's insurance, and even automobile insurance in general and the Metropolitan specifically were not exempt.

Notwithstanding the splendid record of the major companies, various movements for investigating the life insurance business and health insurance providers were initiated in Washington. In 1938 the Congress of the United States responded to a message from President Roosevelt and included among the subjects to be investigated by the Temporary National Economic Committee certain investment phases of the business of life insurance.

The investigation was assigned to the newly created Securities and Exchange Commission. Those responsible for gathering evidence to submit to the T.N.E.C. lost no opportunity to seek out material for criticism in the business and directed much of their attention to the Metropolitan. The company took a firm stand in behalf of its policyholders and presented voluminous documentary evidence to show that it had conducted its many activities in the public interest, and that its size had not involved any abuse of economic; that its position as investor of trustee funds as prescribed by Statute precluded such power.

Nor had its size interfered with its effectiveness as a social organization. In fact, the company had increased in initiative and in service as it had grown. After the conclusion of the hearings, the comment of the Chairman of the T.N.E.C. was that the life insurance business had come through with flying colors.

The failure of the effort to find serious fault with the administration of life insurance in general is best evidenced by the character of the recommendations which were made by the Temporary National Economic Committee. These, for the most part, had to do with a number of suggestions as to modifications in the practice of State supervision. The impression made on the public by these hearings is to be measured by the fact that, during their progress and after their close, the amount of new insurance written by the companies and the lapse rate were exceedingly satisfactory.

This was particularly marked in the case of the Metropolitan, which in 1941 reached the total of more than $25,000,000,000 of insurance in force, issued more business in both the Ordinary and Industrial Departments than in several years past, and achieved in both departments the lowest lapse rates on record.

But if the insurance companies came through this Federal and other investigations unscathed, it must not be supposed that this business has been without its trials and tribulations. No human institution has ever sprung into perfection, like Athena from the head of Zeus; and the life insurance business has had its growing pains.

Early last century, life insurance companies and private health insurance, including the Metropolitan, were launched as purely competitive business ventures with the profit motive well in the foreground, entirely in keeping with the aggressive, individualistic spirit of the times. Naturally, contracts at the beginning were not as liberal as they are today. Agents frequently were poorly trained and did not fully measure up to the responsibility of their calling. As a result, insurance was sometimes written in amounts disproportionate to the family income, haphazardly distributed, causing high lapse rates and excessive expense and loss.

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