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The question of expense is relative. It is emphatically to the policy-holder's interest that such vigor and skill in the management shall be employed as to produce a profitable result. Such a policy is oftentimes expensive at the outset. A reduction of expenses is frequently the precursor of depletion. The vital question is what the policy-holder is to get in strength and profit for his money. Unless the percentage of cost be so great as to endanger the company's ability to meet its part of the contract made with him, he has naturally no desire to intrude either his curiosity or his counsel, provided he is satisfied that the company is skillfully conducted. Details he is willing to leave to the wisdom of managers, who, by the suffrages of policy-holders, have assumed full responsibility. Should he sometimes think that certain salaries are too high, he recalls the fact that in many other cases small salaries have not saved a company from insolvency. The skill and care required for the management of life-insurance companies, the judicious investment of their accumulating funds, the watchful oversight over contracts covering protracted periods of time—all these, and a multitude of minor matters, call for talent of the very highest order. A man's labor is worth all that he can get for it. Large responsibilities imply large compensations. The men are few in any community who can judiciously manage millions. Whether the fortune be public or private, they are entitled to a fair income for personal needs. In managing his own, a man has more license for expenditure than in a trusteeship. But the doc
trine of proportion holds good, after all, as a law. A man who is a fair seaman or a superior skipper may safely sail his ship over the Atlantic while summer seas and skies outline his course. But the gales and hurricanes of winter can only be outridden by a stanch vessel, the skill and courage of whose commander are commensurate. Periods of peace in lifeinsurance may be and have been followed by crises most momentous. It is the reserve force of the man at the head of its affairs which alone can control the elements in such an emergency. His services for one such year of financial stress may be worth to the assured the gross amount of his salary during his entire connection with the company. A life-insurance company is an organization which, in its subdivision of responsibility and office, has no parallel but that of the government of a State. It employs a large corps of agents, scattered over a widely extended territory; skillful medical examiners to discriminate between good and bad risks, lest the mortality rate be ruinously increased ; cashiers, book-keepers, and clerks to receive and account for the premiums paid; scientific actuaries to guard against insufficiency of reserve, and to determine the proportion of surplus that may safely be returned; real estate experts to watch over its loans; a claim bureau to adjust without litigation the rightful demands made upon it; lawyers of wise counsel to examine the titles of property on which loans are made, and otherwise to represent the interests of its policy-holders; and men of executive ability in its chief offices, capable of guiding and conserving these manifold departments. How vast is the force needful for its continued success! The total amount paid by all the thirtyone companies reporting to New York in 1879, for the salaries, commissions, advertising, and all other expenditures of the business, including dividends to stockholders, was $10,893,197, while the total amount of money managed was over four hundred millions of dollars. What a difference to the policy-holders whether this vast sum was skillfully or unskillfully guarded ! Was this too much Take for ratio the three largest New York companies, in which the princely salaries are paid. It will be found that the salaries, medical fees, and wages of other employés were less than three per cent. of income. The total expenses of these companies in reference to income were 12.74 per cent. ; while those of all our active companies, young and old, great and small, during the same time and for the same purposes, have been only 14.3 per cent. of income. Let the ratio be either less than 13 or a little more than 14 per cent., will any practical business man say that this is excessive : Is either amount “an undue share of accruing profits” ” These institutions compare more than favorably, as to economy, with any other organizations actively seeking outside patronage. It is almost impossible to collate the reports of the banks to the Comptroller of the Currency so as to discover their ratio of expenses to income. A prominent officer in one of our largest corporations gives me as a guess 40 per cent.” But the Insurance Report for 1879 gives us the statistics of companies dealing in other than life-insurance. The comparison in the following table is between fire and marine on the one hand and life-insurance companies on the other, as to assets and expenditures, and the percentage of the latter to the former:
The percentage of expense in relation to income in fire and marine insurance is nearly three times that of the life companies of this State. Included in these amounts are the taxes throughout all the various States.
To the above statement I add that 188 insurance companies (other than life) in the State of New York received, during 1879, for premiums, $60,670,736 ; for interest, $7,919,924; making the gross income $68,590,660. Their expenses of management in the same year were $20,462,473. The ratio of expense to gross income was therefore 29.83 per cent. Whilst this is the average presented, it is true that in many cases the expenses of fire companies range between 50 and 60 per cent. Let the critics contrast these numerals with 14.3 per cent., being the average per cent. of expenses to income of all life-insurance companies.
But the answer made to all this is that life-insurance agents are overpaid. They are made the scapegoats. What are the facts? The commissions of life-insurance agents in all companies were, in 1879, $3,383,084. The whole amount of cash premium receipts was $50,522,484 12. This is collected in average small amounts by agents from their patrons all over the United States. The average commission was therefore 6% per cent. Is this an outrageous charge for the business of persuad
* Since writing the above, I have received, by the courtesy of the Hon. John Jay Knox, the Comptroller of the Currency, the following table, prepared in his office:
List of NATIONAL BANKS IN NEW YORK CITY AND BR00KLYN FoR The Six Months ENDING
Num- Ratio of Cities. ior Capital. Gross Earnings. | Tax..." Po |Eoto Banks. penses. Earnings. New York city ... . . . . . . . . . . . . . 47 $50,650,000 $8,268,056 $3,227,046 39.03 Brooklyn. . . . . . . . . . . . . . . . . . . . 4 1,152,000 198,814 74,173 37.30 Total. . . . . . . . . . . . . . . . 51 $51,802,000 $8,466,870 $3,301,219 38.98
From this it appears that the average ratio of expense in the national banks of this neighborhood is nearly
39 per cent.
The average of the whole country, for very manifest reasons, must exceed 40 per cent.
# The mortality among insurance companies other than life has been overlooked in the attempt to sow distrust in the minds of life-insurance policy-holders. The New York Daily Bulletin, in June, 1880, published the names of three hundred fire-insurance companies, representing assets aggregating $87,000,000, whose active life ended by failure or voluntary retirement during the period from January 1, 1870, to
December 31, 1879—only ten years.
† New York Insurance Report, 1880, p. xxi.
ing men to provide for themselves and those dependent upon them, and the other duties that pertain to this office : The agent who effects insurance on your clothes receives 15 per cent. year after year, and the average commission upon the assurance of your life is 64 per cent. The wonder is that the payment of commissions can, by life companies, be so graded as to retain in their employ men of high capacity and character, and at the same time hold the average ratio so low. But the final fact to be recognized in this connection is that the administration of existing life companies has not cost their policy-holders a single dollar. Not only have the thirty-six companies whose aggregate premiums and payments have been tabulated met all maturing claims, accumulated an adequate reserve, returned as dividends the excess of premiums paid, purchased many cancelled policies, and paid all expenses, but they have, over and above all this, saved as surplus more than $76,000,000, which they held on January 1, 1880, in trust for policy-holders. Their interest account shows this net excess after meeting all the cost of the business. By the use of money from which we might have derived no income had we retained it, these companies have not only accumulated a secure reserve for the payment of our policies when they fall due, but have covered every conceivable item of administrative expenditure. Let the fault-finder name any other business making even approximately as good a return for the investment of one thousand million dollars, being the amount of the premiums received since organization by all companies reporting to the State of New York.
The appeal in ancient times, whenever supposed difficulties were encountered, was to Hercules. And State or national legislation is now, and among life-insurance critics, substituted for the god of force. The panacea of all the ills to which the life-insurance system is heir must be sought at Albany or Washington—so they in substance say. Three things within the scope of the law-making power would have satisfied all policyholders. But many others have been added which work to their detriment. These three things are:
1. The fullest publicity in all the affairs of this system. This has been gained by
the compulsory deposit of sworn annual statements, which are open for comparison, and form the legal evidence for complaint. 2. The authoritative examination of the assets of each company, that the certificate of the State may endorse the assertion of the filed reports. This has been most needful in the past, and is a shield for the future. 3. The retention, within the reach of the courts of the State where the company is organized, of sufficient securities to meet the judgments which from time to time may be levied by the courts against the company on resisted policies. Every good measure which has been enforced by State authority was first suggested by the emergy of some ambitious company. It was only hastening a natural progress to make it by law a compulsory part of the system. The vagaries of the Legislatures of Massachusetts and other States in taxing premiums of companies from outside their limits, and retaliating for disadvantages which their own companies suffer elsewhere, are bringing this whole system of a paternal government into contempt. Before that class of objectors who seek a national bureau can succeed in their wishes, the people must consent to a constitutional amendment for the purpose. The fathers reserved all such rights. Their children will some day learn that these rights are safer when left to the defense of fundamental laws of political economy than to the shifting will of political parties. In view of all this discussion, and for its “improvement,” as the old divines used to say, I add
SOME FRIENDLY SUGGESTIONS TO POLICY-HOLDERS.
1. Look before you leap. Choose for your investment a life-insurance company that is vigorously and honestly conducted in all its departments, and in which the relation of surplus to liabilities justifies the expectation of stability and security.
2. Do not overleap. Take no more insurance than your desponding anticipations of income make it more than probable that you can maintain.
3. Stick. When you have gained your footing, stand firm. For your family's sake, for your character's sake, for society's sake, for truth’s sake, do not break the contract. Let your motto be, “The Policy—it must and shall be preserved.” YOUNG MAN, Go WEST.
OT far from the Missouri River, in the northwestern corner of Iowa, is a colony of Englishmen who have undertaken, with moderate capital and infinite pluck, to build up their fortunes in this country. Their enterprise is new—just old enough, however, to furnish satisfactory evidence that agriculture is, when properly undertaken, one of the most profitable industries in this country. Their number at present is about three hundred, and many additional members are expected this spring. This colony, often called the Close Colony, owes its origin to three enterprising brothers, respectively James, William, and Fred Close. One of these came out here in 1876 to row in the Cambridge boat crew at the Centennial Regatta. Some of the crew fell sick, however, and they were forced to leave Philadelphia and retire to Cape May to recuperate. There the young Englishman met his destiny, and closed his boating career by an engagement to marry. About this time the young lady's father advised young Close to take a trip West before returning to England, assuring him that if he should do so, he would be satisfied that this country offered stronger inducements to a young man than any across the water. Accordingly, he went West, and made up his mind to go into farming. He immediately drew his two brothers into the enterprise, and together they began on a large scale. At the same time they took steps to induce their friends in England to join them. Though the enterprise is not three years old, they control at present some two hundred thousand acres of land. The young men who make up this community are, for the most part, graduates of Oxford or Cambridge. On one farm I met two tall and handsome young farmers whose uncle had been a distinguished member of Parliament. The last time I had seen them was in a London drawingroom. This time they tramped methrough the mud and manure of the barn-yard to show me some newly bought stock. They were boarding with a Dutch farmer at three dollars per week in order to learn practical farming. Both were thoroughly contented, and looking forward to the future with pleasure. Another young farmer whom I noticed on horseback with top-boots, flannel shirt,
sombrero, and belt-knife, was pointed out to me as the grandson of the author of Paley's Theology. He was attending a cattle auction at Lemars, Iowa. There, too, was a son of Thomas Bayley Potter, the distinguished honorary secretary of the Cobden Club, and M.P. for Rochdale, who had come out only to take a look at the place, but who so fell in love with the life that he decided to invest. One had been an admiral in the royal navy, another had been connected with a Shanghai bank. There was a brother to Lord Ducie, not to speak of future baronets, viscounts, and honorables. These young men had all been attracted here by their love of a free, active life, and the knowledge that they would enter a society congenial to their tastes and early associations. Although differing widely from “Tom” Hughes's Tennessee colony, this Iowa community has accomplished (without any special agreement between the members) an undertaking which combines the profits of farming with the out-door sports so dear to an Englishman. They have the very best ground for foxhunting in the world—a rolling prairie with a creek here and there. Every colonist makes it his chief care, after buying his farm, to breed a good hunter for the steeple-chases. They have regular meets for fox or “paper” hunts, as the case may be. They last year opened a racing track, and wound up the races with a grand ball. The event was a grand success, and partners were brought even from St. Paul, 270 miles to the north, to grace the occasion. Their relations with the Close Brothers are very simple, and entirely of a business nature. After a desire has been expressed to join the colony, and the firm have decided that they are worthy to be admitted, they are required to pay $250 as a species of initiation fee. This is about five per cent. on the first investment, and is a commission charged to each new colonist. In return, they contract for putting up houses, building wells, purchasing land and implements, etc., and furnishing advice whenever called upon. It is something in the nature of a lawyer's fee for future consultations. The tax is saved over and over again in the security the stranger obtains against all manner of exorbitant charges. Sharp as downEasters are reputed to be, they are mere beginners compared to a Western land agent.
Thus we have an example of co-operation on a large scale that works perfectly, and has grown up from the conditions of the colony without any previous theorizing on the subject. The head of the colony buys for all at wholesale with a large discount. He sells at retail without charging the colonists anything but a nominal commission for his service. Herein lies one secret of the power and prosperity of this colony. They can combine for purchase; they can combine for contracts in working their estates on a large scale; they can combine for special rates in the shipment of their produce to Chicago, St. Paul, or St. Louis. The single colonist has not these advantages so pronounced, and above all does not enjoy the social advantage of being among people of his own tastes and home associations.
Now, then, for the dollars and cents of the matter. First locate the place on the map, to see what facilities Lemars and the northwestern section of Iowa have as a railroad centre. Note the Sioux City and St. Paul Railroad to St. Paul; note the Chicago, Milwaukee, and St. Paul, the Chicago and Northwestern, and the Illinois Central competing for the traffic to Chicago; note the convenience to the Missouri and St. Louis; note that it is on the edge of the cattle country on the west, and the grain on the east, lying on the line of thoroughfare between the Atlantic and Pacific. The soil is rich and deep, and there are no stones or tree stumps. You can run your furrow from the Missouri to the Mississippi if you choose, and find few impediments, except a house, and now and then a stream. Then take into account that the population of the vicinity is thrifty and peaceable, the labor market reasonable, and the ordinary conveniences of life in every store.
Here is a practical example of what can be done to-day in this neighborhood. I shall take a high figure for the price of land, and average figures for yield per acre:
Permanent Erpenditure for Farm of 160 Acres, supposed to be started in 1880.
New land, 160 acres, at $5 per acre........ $800
This, then, is the first cost of equipping 160 acres of excellent prairie land, about five miles at the most from the railroad. I have seen just such a farm, and can vouch for the figures. The house that is put up for $300 is a small frame one, with two rooms on the ground-floor, and two low-ceiling rooms up stairs. It is painted, and has, of course, windows and a chimney. I have made no charge for breaking land, because a man can break 140 acres for himself between May and July, and no doubt will do so.
Now, then, for the first year's expenses and returns:
Seed for 40 acres put in flax............ $60 00 Seed for 20 acres put in corn ........... 2 50
Labor and expense for sowing and reaping above. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 00 Taxes on 160 acres . . . . . . . . . . . . . . . . . . . 18 00 $180 00
40 acres flax, yielding 7 bushels per acre, at $1 per bushel . . . . . . . . . . . . . . . . . . . $280 00
20 acres corn, yielding 35 bushels, at 18 cents per bushel. . . . . . . . . . . . . . . . . . . . 126 00 Returns in 1880. . . . . . . . . . . . $406 00 Expenditure in 1880. . . . . . . . 180 50 $225 50
Corn has yielded more than 100 bushels to the acre on older ground, and averages frequently sixty bushels to the acre. Flax has yielded as much as thirteen bushels to , the acre. It is an exhausting crop, as a rule, but does no harm to the soil when sown on new breaking. But to continue:
Second Year (say 1881)—Erpenditure. 174 bushels seed, for 100 acres wheat, at
85 cents per bushel................. $147 90 Seed for 20 acres corn. . . . . . . . . . . . . . . . . 2 50 50 bushels seed for 20 acres oats, at 25 cents per bushel. . . . . . . . . . . . . . . . . . . . 12 50 Labor . . . . . . . . . . . . .". . . . . . . . . . . . . . . . . 175 00 Harvesting and threshing expenses...... 170 00 Taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 00 $525 90 Returns.
100 acres wheat, yielding 17 bushels per acre, at 85 cents per bushel......... $1445 00
20 acres corn, yielding 60 bushels per acre, at 20 cents per bushel. . . . . . . . . 240 00
20 acres oats, yielding 40 bushels per acre, at 25 cents per bushel......... 200 00 $1885 00