is there that a good management for the present will not be replaced in later years by an inefficient or even dishonest one?

When such conditions arise the stock plan, so the supporters of the mutual plan assert, gives the policyholders no opportunity to express their disapproval effectively; nor may even the larger number of stockholders be able to effect a change since the controlling interest in the stock may be lodged in the hands of one or a few individuals whose interests are furthered by the practices to which the policyholders and minority stockholders are opposed. Under the mutual plan, however, if the company's affairs become so bad as to arouse general dissatisfaction, it is possible to oppose the management with independent nominations. To accomplish this purpose various states have enacted laws which aim to give policyholders every possible facility for exercising their voting power if they so desire. The mere knowledge that the body of policyholders possesses this final voting power, it is felt, will restrain a management from going to the extremes that it might have no hesitancy in doing if it were in a posi'tion to perpetuate itself by virtue of a majority control of the company's stock.

The Control of Mixed Companies.- Mixed companies, or those which are organized as stock companies but which allow the insured to participate to some extent in the surplus and grant them some measure of voting power, do not possess any great advantage over pure stock companies as regards control by policyholders. An examination of the various plans now in existence gives abundant evidence of this fact. A few permit stockholders only to vote for directors; while a considerable number, although allowing stockholders to vote in person or by proxy, require policyholders to vote in person, and in various instances still further limit control by the insured by restricting the voting power to those who carry a certain amount of insurance, like $5,000, or pay a certain annual premium, like $75 or $100. Such restrictions will amply safeguard the management against a loss of control

through the action of the company's policyholders, since it is practically certain that the number carrying $5,000 of insurance who will appear to vote in person will never even approximate the number of shares, to each of which a vote is given. Various other restrictions, sometimes used in conjunction with those already mentioned but at other times constituting the only restrictions, may also be mentioned. Thus, it may be provided that one-half of the directors shall be elected by the stockholders and the other half by the members, or that the stockholders shall elect, say two-thirds of the directors, and the policyholders one-third. Again it is quite common to provide that only stockholders owning a designated number of shares may be directors, while in a limited number of instances only may directors be either stockholders or members. Under such restrictions only half the board with the president is needed for control on the part of the management, while if the stockholders are entitled to elect more than half of the directors, the voting privilege extended. to policyholders is apt to be worthless.

The methods adopted by mixed companies for allowing the insured to participate in the profits of the company also differ greatly in their details. Usually the dividend on the stock is limited to 7 or 10 per cent. per annum, or to this rate plus a certain proportion of the remaining surplus, such as one-fifth or one-eighth. In at least one instance the interest of the policyholders in the profits of the company shall be "as hereafter provided, unless otherwise expressly agreed between the company and the insured." Another company limits the return on the stock to 7 per cent. plus the profits on non-participating business; while a few others place no limit upon the stock dividends, yet have been paying large dividends to policyholders. Provision for retiring the stock seldom exists, and where such provision has been made it is usually stated that the retirement shall occur only when it is voted by the members and that a certain proportion of the surplus, like one-fourth, may be applied for that purpose.

66

BIBLIOGRAPHY

CRAIG, JAMES M., Stock Life Insurance," in Howard P. Dunham's The Business of Insurance, i, 503–512.

DAWSON, MILES M., The Business of Life Insurance, 113-146. DEXTER, GEORGE T., "Mutual Life Insurance," in Howard P. Dunham's The Business of Insurance, i, 489–502.

Zartman, Lester W., “Control of Life Insurance Companies." Yale Readings in Insurance, Life, i, 299–311.

CHAPTER XXV

ORGANIZATION OF COMPANIES

HOME OFFICE ORGANIZATION

In many respects the organization of a life-insurance company is similar to that of other corporations which are concerned with the collection, investment, and disbursement of funds. It is the purpose of this chapter to outline the more important official positions, committees, and departments of the average large life-insurance company, and to describe briefly their respective functions and duties. In doing this it is recognized that the various companies present many differences in their organization. Generally speaking, the average large life-insurance company, aside from the numerous office

In his excellent lecture on "Office Organization in Life Insurance (Yale Insurance Lectures, i, 112-125), Mr. John B. Lunger presents in schedule form the organization of the average large lifeinsurance company. His schedule is herewith reproduced. Since this chapter aims to discuss only the more important official positions, committees and departments, Mr. Lunger's description of the duties of the other departments and committees is given briefly under the respective headings. Mr. Lunger's schedule is the following: (Board of Directors

departments and special committees which handle the routine and technical work of the company, is managed by four groups of officials: those who compose the deliberative bodies, those who exercise executive functions, those who are intrusted

Agency
Financial

OFFICE DEPARTMENTS:

Actuarial

Medical

Legal

Bookkeeping

Auditing

Claims

Where all of the company's financial operations are summarized and classified.

Where the company's receipts and disbursements are checked and passed upon by competent accountants.

Where all proofs of death are examined and passed upon, also all papers relating to maturing endowment policies and other contract obligations.

Real-estate Loans ... Where all applications for mortgages are considered, the value of property appraised, and if the loan is made, records are kept of all payments of principal and interest.

Policy-writing ......Which takes the applications which have been approved by the medical department and prepares and registers the policies applied for. Which looks after the requests of policyholders for cash advances on the security of their policies.

Policy Loans

Inspection

......

Policyholders' Bu

reau

Editorial and Advertising

. Which supplements the work of the medical department by making inquiry concerning the habits and financial standing of applicants.

Which looks after all communications and queries from policyholders, formulates ways and means of keeping them posted, and looks after delinquent policyholders.

Which is charged with the company's periodicals, circulars, all printed matter for the use of agents, and the company's general and special advertising.