View original document

The full text on this page is automatically extracted from the file linked above and may contain errors and inconsistencies.

UNITED STATES D EPARTM EN T OF LABO R
Frances Perkins, Secretary
B U R E A U O F L A B O R ST A T IS T IC S
Isador Lubin, Commissioner

+

T he Massachusetts System o f
Savings-Bank Life Insurance
By
EDW ARD BERM AN
U n iversity o f Illinois

Bulletin

?s£o. 615

U N IT E D S T A T E S
G O V E R N M E N T P R IN T IN G OFFICE
W A S H IN G T O N : 1935

For sale by the Superintendent o f Documents, Washington, D . C.




Price 10 cents




Contents
Preface____________________________________________________________
Chapter 1.—Introduction___________________________________________
Basis of life insurance___________________________________________
Chapter 2.—Origin and growth of savings-bank life insurance_________
Enactment of savings-bank insurance law________________________
Growth of savings-bank life insurance____________________________
Chapter 3.—Administration of the system______________________________
Policies available and their terms__________________________________
Administrative organization_______________________________________
Operation of insurance banks and their agencies___________________
Publicity and promotion features of the system_____________________
Regulation_______________________________________________________
Chapter 4.—Financial operations of the system_________________________
Dividends________________________________________________________
Expenses_________________________________________________________
Taxation_________________________________________________________
Investments-_____________________________________________________
Chapter 5.—Savings-bank insurance and company insurance: Selling
methods, policy terms, and policy maintenance________________________
Administrative organization_____________________________________
Payment of insurance agents_______________________________________
Comparison of policy provisions__________________________________
Maintenance of insurance by policyholder___________________________
Chapter 6.—Savings-bank insurance and company insurance: Costs to
policyholder______________________________________________________
Cost to the policyholder_________________________________________
Expenses of operation___________________________________________
Taxation_________________________________________________________
Earnings on invested assets______________________________________
Mortality experience____________________________________________
Chapter 7.—Factors affecting growth of savings-bank life insurance___
Public support_________________________________________________
Activities of employers and of Associated Industries of MassachusettsAttitude of the savings banks____________________________________
Chapter 8.—Criticism of savings-bank life insurance__________________
The original purpose____________________________________________
Services to policyholders________________________________________
“ Subsidies” ____________________________________________________
Chapter 9.—Summary and conclusions______________________________
Appendixes:
Appendix A.—Statistical tables__________________________________
A ppendix B.—Insurance guaranty funds_________________________
A ppendix C.—Insurance reserves and surplus_____________________
A ppendix D.— Mortality ratios and unification of mortality________
A ppendix E.—Basic dividend scale______________________________
A ppendix F.—Comparison of surpluses of insurance companies and
of insurance departments of banks_____________________________
A ppendix G.—Costs to policyholder_____________________________
A ppendix H.—Comparison of taxes paid to State by insurance com­
panies and savings-bank life-insurance system____________________
A ppendix I.—Illustration of method of classifying applicants for
savings-bank life insurance______________________________________
Appendix J.—Comparison of rents and salaries paid by insurance
departments of savings banks in 1933 and 1934___________________
A ppendix K .—Comparison of amounts of endowment insurance in
force with insurance companies and with the banks_______________
Appendix L.—Bibliography_______________________________________




in

Page
yii

1
2
5
7
7

13
13
15
17
20
22
24
24
25
26
27
29
29
30
32
38
43
43
48
51
54
55
60
60
61
62
65
66
70
71
85
88
89
91
93
95
97
98
102
103
105
107
109

IV

CO NTENTS

List of Tables
Table 1.—Order in which savings banks entered the insurance system and
dates of beginning of operations____________________________________
Table 2.—Growth of savings-bank life insurance, 1908 to 1934_________
Table 3.—Growth in number of policies and amount of insurance, 1908 to
1934_____________________________________________________________
Table 4.—Amount of ordinary savings-bank insurance, ordinary company
insurance, and industrial insurance in force in Massachusetts, 1920 to
1933_____________________________________________________________
Table 5.—Average amount of insurance per policy, 1908 to 1934________
Table 6.—Income and disbursements of the savings-bank life insurance
system, 1908 to 1934 (statement to Oct. 31, 1934)___________________
Table 7.— Number and types of establishments at which applications for
savings-bank life insurance might be made in August 1934___________
Table 8.—Disbursements of Division of Savings Bank Life Insurance,
1907 to 1933_____________________________________________________
Table 9.—Percent of total admitted assets of the system invested in
certain kinds of property, 1924 to 1933_____________________________
Table 10.—Terms of policies issued by the savings banks, 7 of the insur­
ance companies, and 3 industrial-insurance companies________________
Table 11.—Proportion of lapsed insurance to new insurance written, at
4-year intervals, 1911 to 1931______________________________________
Table 12.—Ratio between number of policies lapsed and number of new
policies written, 1926 to 1933______________________________________
Table 13.—Proportion of cash surrender to new insurance written, at
4-year intervals, 1911 to 1931______________________________________
Table 14.—Percent of assets invested in policy loans, 1920 to 1933______
Table 15.—Annual net costs of a $1,000 straight life policy issued in 1924,
at age 35, based on actual dividends paid during following 10 years, and
assuming policy was surrendered in 1934____________________________
Table 16.—Annual net costs of a $1,000 ordinary 20-payment life policy
issued in 1924, at age 35, based on actual dividends during following
10 years, and assuming policy was surrendered in 1934_______________
Table 17.—Annual net costs of a $1,000 ordinary 20-year endowment
policy issued in 1924, at age 35, based on actual dividends during follow­
ing 10 years, and assuming policy was surrendered in 1934___________
Table 18.'—Net costs of $276 of straight life insurance policies issued in
form of industrial policy by two companies, and in form of ordinary
policy by savings banks, based on dividends paid in 1934____________
Table 19.—Net costs of $200 of 20-year endowment insurance issued at
age 35 in form of industrial policy by two companies, and in form of
ordinary policy by savings banks, based on dividends paid in 1934___
Table 20.—Per.cent total expenses are of premium income in savings-bank
insurance, ordinary insurance, and industrial insurance, 1920 to 1933 __
Table 21.—Savings-bank insurance expenses and ratios to premium
income, including net expenditures by State_________________________
Table 22.—Ratio of salaries and commissions to total income of 4 insur­
ance companies selling both ordinary and industrial insurance, compared
with ratio of salaries to total income of savings banks, 1915 to 1931___
Table 23.—Total taxes and fees, and premium income, of savings-bank
insurance system, Massachusetts companies, and all companies, each
year 1923 to 1932_________________________________________________
Table 24.—Federal income taxes paid by Massachusetts companies, their
premium income, and ratio of Federal income taxes to premium income,
1926 to 1932_____________________________________________________
Table 25.—Net rate of income earned on investments by banks and by all
insurance organizations including banks, 1920 to 1933----------------------Table 26.—Ratios of actual to expected mortality losses for savings-bank,
all ordinary, and industrial insurance, 1910 to 1933--------------------------Table 27.—Number of applicants for savings-bank life insurance in
certain groups, and their proportion to all applicants, November 1,
1927, to June 30, 1934____________________________________________
Table 28.—Number of persons applying for insurance in amounts of
$5,000 or more in April, May, and June 1934_______________________




P age

8
9
9
10
12
12
20
26
28
36
38
39
40
41
44
45
45
47
47
48
49
50
52
53
54
56
68
69

CONTENTS

Table 29.—Process of finding “proper” basis of distributing rents and
salaries between savings and insurance departments of banks, “proper”
rents and salaries of each department, and amounts by which actual
salaries and rents are above or below what they should have been,
1933_____________________________________________________________
Table 30.—Actual and theoretically proper ratios of expenses to premium
income for the savings-insurance banks, 1933_______________________
Table 31.—Amounts less than “ proper” share of rents and salaries
which certain insurance departments paid, and amounts each put
aside from net profits to surplus in excess of legal minimum, 1933___
Table 32.—Total income, salaries, and rent in 9 insurance departments,
paying “proper” share of salaries and rent, 1933____________________
Table 33.—Total income, actual salaries, “ proper” salaries, actual rents,
and “ proper” rents in 12 insurance departments, 1933_______________
Table 34.—Possible changes in payments of interest to depositors if
insurance departments paying too little in rents and salaries had paid
their “proper” share, 1933________________________________________
Appendix Tables
Table 1.—Amounts of group insurance in force-in Massachusetts, with
insurance companies and with savings banks, 1923 to 1933___________
Table 2.—Total premium income received and total taxes, salaries, and
rent paid by insurance departments of savings banks since their estab­
lishment to 1934, and ratios of taxes, salaries, and rent to premium
income___________________________________________________________
Table 3.-—Proportion of surplus to reserves in each insurance bank, 1932
and 1933_________________________________________________________
Table 4.—Ordinary insurance—unification of mortality—savings-bank life
insurance, 1933___________________________________________________
Table 5.—Mortality ratios, savings-bank life insurance, 1917 to 1933__
Table 6.—Dividends on a $1,000 policy in 1934 (assumed interest rate
of 5.5 percent) and in 1935 (assumed interest rate of 4.6 percent)___
Table 7.—Surplus and reserves, and proportion of surplus to reserves,
in savings-bank insurance system and in insurance companies, 1923 to
1932 ___________________________________________________________
Table 8.—Comparative net costs of a $1,000 policy issued in 1924, at
age 35, based on actual dividend history during following 10 years___
Table 9.—Comparative net costs of a $1,000 policy issued at age 35,
based on dividends payable in 1934________________________________
Table 10.—Comparative net costs of $1,000 straight life policy, based on
dividends payable in 1935_________________________________________
Table 11.—Taxes paid on Massachusetts business to the State by in­
surance departments of banks and by insurance companies, 1930 to
1933 ___________________________________________________________
Table 12.—Rents and salaries paid by insurance departments of savings
banks, 1933 and 1934_____________________________________________
Table 13.—Amounts of ordinary whole-life and of ordinary endowment
insurance in force with the 7 largest insurance companies, 1932 and
1933_____________________________________________________________
Table 14.—Proportions whole-life and endowment insurance are of all
insurance in force with 3 largest industrial companies and with savings
banks____________________________________________________________




V
Page

78
80
80
81
82
83
88
88
92
93
94
96
97
98
100
101
102
105
107
108




Preface
Long before the present depression, the uncertainty of the wage
earner's income gave rise to movements designed to protect workers
from economic insecurity. The modem trade-union movement
with its emphasis upon increased wages and the attainment of job
security, minimum-wage legislation designed to increase the incomes
of the lowest paid workers, and programs of social insurance starting
in Europe in the 1880's and spreading rapidly over the western
world, were all attempts to meet the problem of the insecurity that
continually threatens the wage earner.
At the present moment all but two American States have workmen's
compensation laws to provide the worker with some means of support
when he is unable to work because of industrial accidents. Systems
of old-age pensions have been enacted in 35 States. Under the
recently enacted social security bill, protection against old age will
be assured to the vast majority of wage and salaried workers through
old-age annuities. This legislation should lead also to the develop­
ment of unemployment-insurance systems in the various States of
the Union. Insurance designed to protect the wage earner from
economic suffering due to illness has been adopted in various European
countries, though as yet it is not required by law in the United
States. Each of these forms of social insurance is receiving increasing
attention from workers, industrialists, and legislators.
Although the ordinary person has some familiarity with life
insurance and is likely to possess or to have possessed, at some time
or other, some kind of insurance policy, this form of protection has
not been related, in popular thinking, to the general problem of
economic security. The fact that life insurance has generally been
conducted as a private business, while other kinds of insurance
designed to protect workers have required the initiative of govern­
mental action or have been carried on as a public enterprise, may
account in part for this attitude.
Life insurance is designed to protect the family of the insured
against economic losses. It is often designed, as in the case of endow­
ment and annuity policies, to provide an income during old age. In
the case of industrial life insurance, purchased in great amounts by
workers' families, the insurance is usually bought for the purpose of
providing money to meet the expenses incurred in the last illness of
the insured and in burying the deceased. To the extent that workers
carry industrial insurance more than sufficient for these purposes, it
is to enable the family to establish some security against further
economic stress.
The relationship of life insurance to the economic security of wage
earners has been given relatively little recognition by those concerned
with the welfare of labor. This volume deals with the experience of




VII

VIII

PREFACE

the State of Massachusetts in its attempt to provide low-cost life
insurance to its residents under a system by which the mutual savings
banks of the State are empowered to establish insurance departments,
under public supervision. It depicts the growth of the Massachusetts
system of savings-bank life insurance, its method of operation, and
the service it renders to its policyholders.
The study, which is the work of Dr. Edward Berman, of the depart­
ment of economics of the University of Illinois, is based on an investi­
gation which began in 1934. In the preparation of this report Dr.
Berman received assistance from many sources. He is indebted to the
numerous persons who helped him, particularly for the assistance
rendered him by Prof. Robert Riegel, director of the bureau of busi­
ness and social research of the University of Buffalo; Prof. Frank
Greene Dickinson, of the department of economics, University of
Illinois; Mr. Gardner F. Knight, formerly assistant actuary, Division
of Insurance of the Massachusetts Department of Banking and
Insurance; Mr. Maurice H. Saval, of Boston; Dr. Maurice Taylor,
director of the Jewish Family Welfare Association of Boston; Mr.
David K. Niles, of Boston; Prof. George Washington Goble, of the
College of Law, University of Illinois; and Prof. Clarence A. Berdahl,
of the department of political science, University of Illinois. The
author and the Bureau, however, are alone responsible for the presen­
tation and conclusions of this report.
I sador L u b in ,
Commissioner of Labor Statistics .
A ug ust 30, 1935.




UNITED

STATES

DEPARTMENT

OF

LABOR

Bulletin o f the

Bureau o f Labor Statistics
Number 615

W ASH IN GTO N

August 1935

T h e Massachusetts System o f Savings-Bank
Life Insurance

Chapter 1.—Introduction
The close relationship of the life-insurance business to the problem
of economic security is such as to justify much greater concern
on the part of those interested in social well-being than the subject
has^ heretofore received. The companies authorized to carry on
business in the single State of Massachusetts underwrite all but a
very small proportion of the life insurance carried in the United States.
On December 31, 1932, these companies had in force in all countries
an amount of life insurance totaling $87,002,000,000. Of this sum,
$63,754,000,000 was^ ordinary insurance, carried by 47 companies;1
$14,837,000,000 was industrial insurance, carried by 7 companies; and
$8,411,000,000 was group life insurance, carried by 20 companies.2
This amount of insurance was represented by 25,890,000 ordinary
policies, 69,517,000 industrial policies, and 15,216 group policies repre­
senting as many industrial establishments. Even in the depression
year 1932, though the amounts of insurance terminated exceeded the
new amounts bought, there were issued 3,371,000 new ordinary pol­
icies, covering $6,842,000,000 of insurance; 11,649,000 industrial
policies, amounting to $3,356,000,000; and 1,277 group policies to the
amount of $1,901,000,000.3 In the year 1932 these insurance com­
panies (excluding the savings banks) received a total of $2,027,024,000
1 The mutual savings banks in Massachusetts are here counted as a single company.
2 Ordinary insurance is that sold in amounts of $1,000 or above, on which the premiums are paid by the
insured himself to the office of the insurance company at quarterly, semiannual, or annual intervals (in some
instances, provision is made for monthly payments), the insurance usually being issued only after the appli­
cant passes a medical examination. Industrial insurance, on the other hand, is issued generally in amounts
of less than $500, is paid for in the form of weekly premiums of 5 cents or a multiple thereof, is collected at
the homes of the insured by insurance agents, and is usually issued without medical examination. Some
companies sell so-called “intermediate” insurance in amounts from $500 to $2,000. Group insurance is
usually carried on the workers in a business establishment as a group. It is generally introduced at the
initiative of the employer, paid for either by the employer, the workers, or both, and its gross premiums
depend upon the ages of all the workers in the group. The premiums change accordingly from year to year,
depending upon the ages of the individuals comprising the working group.
3 Annual Report of the Commissioner of Insurance of Massachusetts, for year ending Dec. 31,1932, pt. 2,
pp. 20-21.




1

2

M ASSACH USETTS SA V IN G S-B A N K L IFE IN SU R A N C E

in premium income,4 and possessed a combined surplus of $873,913,000.6 The importance of any business which has received, even in
the worst depression year to date, a premium income of over $2,000,000,000 when the total national income produced is estimated to be
$39,365,000,000,6 is so obvious as to need no emphasizing.
It is not generally recognized that a considerable share of the indus­
trial worker’s income is spent for life insurance. One group of esti­
mates shows a variation from about 1 percent of the wage earner’s
income for the decade 1910 to 1920 to about 6 percent in the depression
year, 1932.7 President Stanley King, of Amherst College, who was
chairman of the Massachusetts Employment Stabilization Commis­
sion, states that data uncovered by the commission show that an
amount equal to 7.4 percent of the weekly pay rolls in manufacturing
industries in Massachusetts was paid out by workers in industrialinsurance premiums in the year 1929. The proportion rose, partly
because of the absolute decline in pay rolls, to 9.5 percent in 1930, and
to 12.3 percent in 1931.8
At a time when the incomes of wage earners are very low and very
precarious, the fact that an increasing proportion of their wages is
being spent on life insurance is a matter of social importance. When
one learns further that three recent studies disclose that the proportion
of the amount of relief received by dependent families which is spent
on insurance varies from 11.00 to 17.39 percent, the fact becomes
even more significant in its implications.9
Basis of Life Insurance
Life insurance is based on the fact that it is possible to estimate,
with some degree of accuracy, the number of deaths that will occur
among a large group of individuals of the same age in a given period.
Mortality tables, based upon recorded experience, show the ratios
of the number of persons of a given age dying or surviving to the
number attaining that age. From these data and from the rate of
interest assumed to be earned on the invested assets, an estimate
may be made of the annual cost of any desired insurance benefit.
This estimate is called the “ net premium.” Net premiums include
allowance for current death losses and contributions to the insurance
reserves. To the net premium is added a “ loading charge” to cover
the expenses of the business, and the resulting total, or “ gross pre­
mium”, is the amount charged the insured.
Since, in general, the probability of dying increases with age; since,
on the average, a young man taking out a policy may be expected to
pay a larger number of premiums than one who buys a policy at a
more advanced age; and since, finally, the accumulated interest over
4 Annual Report of the Commissioner of Insurance of Massachusetts, for year ending Dec. 31, 1932,
pt. 2, pp. 8, 9.
s Idem, pp. 6, 7.
6 United States Senate. Document No. 124 (73d Cong.,.2d sess.): National Income, 1929-32. Wash­
ington, 1934, p. 10.
7 Taylor, Maurice. Social Cost of Industrial Insurance. New York, 1933,pp. 194,195. The following are
the proportions of workers’ income spent on insurance as described in a series of important investigations:
Booth’s Study of the London Working Class, 1886-89, 3.5 percent; United States Commissioner of Labor,
1903, 2.53 percent; Massachusetts Commission on the Cost of Living, 1910, 2.5 percent and 2.7 percent:
Scott Nearing, 1913, 2.2 to 2.6 percent; New York City Board of Estimate and Apportionment, 1917, 2.3
percent and 2.7 percent; Bureau of Municipal Research of Philadelphia, 1919, 3.2 percent; Bureau of Labor
Statistics, Federal Employees, 1929, 5.0 percent for incomes under $1,500 per year; Lynd, Middletown, 1929,
4 percent. For more complete data on these and other investigations, see Taylor, Maurice, Social Cost of
Industrial Insurance, New York, 1933, pp. 395-414.
8 Industry (a weekly publication of the Associated Industries of Massachusetts), Sept. 24, 1932, p. 4»Taylor, Maurice. Social Cost of Industrial Insurance. New York, 1933, pp. 249-253.




IN TR O DU CTIO N

3

the longer period will be greater—it follows that a young man is charged
a much smaller annual premium than an old man. For example, the
annual premium charged for $1,000 of straight life insurance in 1934
might be $18.12 for a person insuring at age 25, and $43.74 for one
insuring at age 50.10 Because life insurance premiums for a given
kind and amount of insurance usually vary in size with the age of the
insured when the policy is taken out and remain unchanged through­
out the premium-paying period, such insurance is often called “ levelpremium” insurance.
The charges set for ordinary insurance in the United States are for
the most part based upon the American Experience Mortality Table,
which was devised by Sheppard Homans in 1868.11 Industrialinsurance premiums are based on the Standard Industrial Mortality
Table, calculated from the mortality experience of an important
insurance company with respect to working-class insured persons for
the years 1898-1906.12 It is important to point out that since 1868,
when the American table was calculated, and even since 1906, the
last year of the period upon the experience of which the standard
table was calculated, there has been a great advance in the conquest
of certain diseases, especially those of childhood. To this advance
the progress of medical science and public health have both contrib­
uted. As a consequence, the tables used in calculating the size of
insurance premiums lead to premium charges higher than those which
would be required if the mortality experience of very recent years
were used as a basis. Since the improvement in the conquest of
diseases has been much more marked among diseases of children than
among those of grown-ups, it is to be expected that in the premiums
charged for the insurance of minors there is an even greater excess
over what would be required if premiums were based on present
mortality experience than in those paid by adults.
The premiums charged for insurance do not, however, represent
a net cost to the insured. Practically all mutual life insurance
companies (and some stock companies on “participating” policies)
turn back to the insured what are called “ dividends” after a certain
short period has elapsed. These dividends should not be confused
with the dividends to stockholders in business corporations, which
are in the nature of interest returned on investment and profit in
business enterprise. Insurance dividends are the return to policy­
holders of the excess in premiums charged over what has proved neces­
sary by the experience of the operation of the preceding period, minus
a sum put into surplus to provide against unforeseen contingencies.
As stated above, insurance premiums are made up of allowance for
current death losses and contributions to the insurance reserves, i. e.,
net premiums, and the estimated expenses of carrying on the business,
i. e., loading on premiums. The amount returned to policyholders
in the form of dividends generally consists of three items: (1) The
interest in excess of what was calculated to be earned by the invested
reserves; (2) the amounts by which “ actual mortality losses” are less
10 These were the premiums charged by the savings banks in that year.
11 Huebner, S. S. Principles of Life Insurance. New York, 1925, p. 149.
12 Taylor, Maurice. Social Cost of Industrial Insurance, New York, 1933, pp. 161-162.




4

M A SSACH USETTS S A V IN G S-B A N K L IF E IN SU R A N C E

than “ expected mortality losses ” ; and (3) the amount by which actual
expenses of operation are less than those estimated in advance.13
The importance of the life-insurance business and of its relation
to the problem of economic security justifies a study of any important
phase of the insurance system. If a single State has on its statute
books a law designed to reduce the costs of life insurance and to
eliminate its principal shortcomings, such a law is worthy of careful
scrutiny. Since 1907 the State of Massachusetts has permitted its
mutual savings banks to write life insurance under conditions which
are intended to reduce its cost. ^Although only a small proportion
of the total amount of insurance in force in Massachusetts is carried
by the savings banks, the system has grown very rapidly. In 1908,
there was a total of $115,000 of life insurance in force in the banks.
The amount had risen in 1913 to $3,151,000; in 1918, to $9,811,000;
in 1923, to $25,678,000; in 1928, to $57,837,000; and in 1933, to
$93,187,000. Late in the year 1934 the amount of insurance in
force with the savings banks was in excess of $1003000,000.14
13 For extended discussion of the principles of life insurance see Huebner, S. S., The Principles of Life
Insurance, New York, 1925; Ackerman, S. B., Industrial Life Insurance, New York, 1926; Taylor, Maurice,
Social Cost of Industrial Insurance, New York, 1933; Maclean, J. B., Life Insurance, New York, 1932.
14 Growth of Savings Bank Life Insurance (a leaflet published by the Division of Savings Bank Life
Insurance in 1934) and information from the division.




Chapter 2.—Origin and Growth of Savings-Bank Life
Insurance
The idea of combining the functions of savings banking and life
insurance was suggested in this country by Elizur Wright, an impor­
tant actuary who became the first insurance commissioner of Massa­
chusetts. Wright, in 1874, proposed the establishment of the “ Ameri­
can family bank” as a stock company which should receive savings
deposits and sell life insurance without employing insurance agents.
Nothing, however, came of this proposal.
More than 30 years later the idea was again brought to public
attention as a result of an investigation into the mismanagement of
the life-insurance business. The waste of the funds of policyholders
and the failure to protect their interests had become so great and so
wide-spread by the turn of the century that the directors of the
Equitable Life Assurance Society of New York considered it desirable,
in April 1905, to appoint a committee to investigate the management
and administration of the company. The situation in the Equitable
and in other large insurance companies attracted so much attention
that the Assembly of the State of New York appointed a committee,
with Senator Armstrong as chairman, to investigate the affairs of
the life-insurance companies operating in New York, and especially
the operation of the “ Big Three”, i. e., the Equitable Life Assurance
Society of New York, the Mutual Life Insurance Co. of New York,
and the New York Life Insurance Co. The committee, which
has come down in history as the Armstrong Committee, engaged
Mr. Charles Evans Hughes, now Chief Justice of the United States
Supreme Court, as its chief counsel. It began its hearings on Septem­
ber 5, 1905, concluded them on December 30, 1905, and 2 months
later made a report to the assembly suggesting reforms designed to
eliminate the evils which had grown up in the life-insurance business.1
During the same month in which the directors of the Equitable
appointed their investigating committee, the New England policy­
holders of the company organized themselves into a “ Policyholders
Protective Committee. ” The committee engaged as counsel
Mr. Louis D. Brandeis, who began a study of the life-insurance
business in general and that of the Equitable in particular. As a
result of this study he called attention, in October 1905, to the abuses
of life insurance, and suggested a series of remedies, many of which
were similar to those offered later by the Armstrong Committee.
In contrast to what he considered the wastefulness of the manage­
ment of the insurance companies, he described the highly efficient
1 New York State Assembly Document No. 41, 1906: Beport of the “ Armstrong Committee” ; Graham
William, Komance of Life Insurance, Chicago, 1919; Noyes, Alexander H., Insurance Investigation, Forum,
vol. 37, pp. 343-352, January 1906; Casady, Clyde, A Study of Savings Bank Life Insurance in Massachu­
setts (an unpublished thesis submitted for the M. A. degree in economics in Tuft’s College), 1931, pp. 1-18,
and Massachusetts Savings Bank Life Insurance, Springfield, 1934. See also Wright, Elizur: Politics and
Mysteries of Life Insurance, Boston, 1873, and Elements of Life Insurance for the Use of Family Banks,
Boston, 1876,




5

6

M ASSACH USETTS SA V IN G S-B A N K L IF E IN S U R A N C E

and economical management of the mutual savings banks of Massa­
chusetts.2
By the. autumn of 1905 he had worked out tentative proposals for
a system of life insurance to be sold by the mutual savings banks of
Massachusetts. These proposals were submitted for criticism to
an independent actuary, Mr. Walter C. Wright, who, interestingly
enough, was the son of Elizur Wright. They were later incorporated
in an article which was published under the title, “ Wage Earner’s
Life Insurance”, in Collier’s Weekly of September 15, 1906. The
philosophy behind the idea was expressed as follows:

[The] sacrifice incident to the present industrial insurance system [could] be
avoided only by providing an institution for insurance which [would] recognize
that its function is not to induce working people to take insurance regardless
of whether they really want it or can afford to carry it, but rather to supply
insurance upon proper terms to those who do want it and can carry it—an insti­
tution which [would] recognize that the best method of increasing the demand
for life insurance is not eloquent, persistent persuasion, but, as in the case of
other necessaries of life, is to furnish a good article at a low price.

It was pointed out that “ Massachusetts in its 189 savings banks,
and the other States with savings banks similarly conducted, have
institutions which, with a slight enlargement of their powers, can at
a mimimum of expense fill the great need of life insurance for working­
men.” 3
2 See an address printed by the Policyholders Protective Committee entitled “ Life Insurance: The
Abuses and the Remedies.’' This also appeared in Brandeis, Louis D., Business—a Profession, Boston,
1914, 1932.
s The following reasons were given for the belief that savings banks could well perform the functions
required:

“ First. The insurance department of savings banks would be managed by experienced trustees and
had been trained to recognize that the business of investing the savings o f persons of small
means is a quasi-public trust which should be conducted as a beneficent and not as a selfish money-making
institution.
“ Second. The insurance department of savings banks would be managed by trustees and officers who in
their administration of the savings of persons of small means had already been trained to the practice of the
strictest economy.
“ Third. The insurance business of the savings banks, although kept entirely distinct as a matter of
investment and accounting, would be conducted with the same plant and the same officials, without any
large increase of clerical force or incidental expense, except such as would be required if the bank’s deposits
were increased. Until the insurance business attained considerable dimensions, probably the addition of
even a single clerk might not be necessary. The business of life insurance could thus be established as an
adjunct of a savings bank without incurring that heavy expense which has ordinarily proved such a burden
in the establishment of a new insurance company. * * *
“ Fourth. The insurance department of savings banks would open with an extensive and potent good
will, and with the most favorable conditions for teaching, at slight expense, the value of life insurance.
The safety of the institution would be unquestioned. For instance, in Massachusetts the holders of the
1,829,487 savings-bank accounts, a number equal to three-fifths of the whole population of the State, would
at once become potential policyholders; and a small amount of advertising would soon suffice to secure a
reasonably large business without solicitors.
“ Fifth. With an insurance clientele composed largely of thrifty savings-bank depositors, house-to-house
collection of premiums could be dispensed with. The more economical monthly payments of premiums
could also probably be substituted for weekly payments.
“ Sixth. A small initiation fee could be charged, as in assessment and fraternal associations, to cover
necessary initial expenses of medical examination and issue of policy. This would serve both as a deterrent
to the insured against allowing policies to lapse and a protection to persisting policyholders from unjust
burdens which the lapse of policies casts upon them.
“ Seventh. The safety of savings banks would, of course, be in no way imperilled by extending their
functions to life insurance. Life insurance rests upon substantial certainty, differing in this respect radi­
cally from fire, accident, and other kinds of insurance. * * *
*‘ The theoretical risk of a mortality loss in a single institution greater than that provided for in the insur­
ance reserve could be absolutely guarded against, however, by providing a general guaranty fund, to which
all savings-insurance banks within a State would make small pro rata contributions—a provision similar
to that prevailing in other countries, where all banks of issue contribute to a common fund which guarantees
all outstanding bank notes.
“ Eighth. In other respects, also, cooperation between the several savings-insurance banks within a
State would doubtless, under appropriate legislation, be adopted; for instance, by providing that each
institution could act as an agent for the others to receive and forward premium payments.
“ Ninth. The law authorizing the establishment of an insurance department in connection with savings
banks should, obviously, be permissive merely. No savings bank should be required to extend its functions
to industrial insurance until a majority of its trustees are convinced of the wisdon of so doing. ” (Brandeis,
Louis D: Wage Earners’ Life Insurance, in Collier’s Weekly, September 15, 1906. Reprinted by the
Massachusetts Savings Insurance League in a pamphlet entitled “ Massachusetts Savings Bank Insurance
and Pension System ”, 1910; also reprinted in Brandeis, Louis D., Business—a Profession, Boston, 1914,
officers who




O RIG IN AND GROW TH

7

Enactment of Savings-Bank Insurance Law
A joint special committee on insurance was appointed by the
Massachusetts Legislature in 1906 and the Brandeis proposals were
presented to it in September of that year.^ The opinion of the com­
mittee was at first overwhelmingly against them. Realizing the
need for educating the public and the legislature concerning the
advantages of the proposed legislation, its supporters organized, on
November 26, 1906, the Massachusetts Savings Insurance League,
with former Gov. W. L. Douglas as president.4
The league’s first purpose was to win public support to the idea of
savings-bank life insurance. It carriea on a very active publicity
campaign, which was doubtless partly responsible for the fact that
the legislative committee, in its report to the legislature on January 9,
1907, heartily endorsed the plan.5 Six days earlier, Gov. Curtis
Guild, Jr., in his address to the legislature, had urged the members to
give the plan careful consideration.6 From then until June a bill
incorporating these proposals was strenuously opposed by representa­
tives of the insurance companies as well as by a group of 34 treasurers
of mutual savings banks. It was as strenuously supported by the
league, by its author, and by many other well-known citizens and
organizations, among whom were the presidents of the Massachusetts
State Federation of Labor, the Boston Central Labor Union, and other
labor organizations, and also the Boston Chamber of Commerce and
the Massachusetts Civic League.7 In May the bill received the
approval of the house committees on insurance and on ways and
means, and in June it passed both houses. On June 26, 1907, it
received the signature of Governor Guild.
Growth of Savings-Bank Life Insurance
A month after the enactment of the law the governor appointed
the board of seven unpaid trustees of the General Insurance Guaranty
Fund, who were charged with the administration of the system.8
Although the law was on the statute books, there was much to be
done before savings-bank life insurance was to become a reality.
The savings banks, although now possessed of power to enter the
life-insurance business, were very slow to take advantage of it. Due
to the naturally conservative attitude of savings-bank trustees toward
such an untried venture, and also perhaps to the influence of insurance
agents and executives, often themselves members of the boards, it
was fully a year before the pioneer institution, the small Whitman
Savings Bank, opened its insurance department. The bank was
enabled to do this because of the generosity of several important shoe
manufacturers, with plants in Whitman, who advanced part of the
guaranty funds necessary under the law before the bank could start
4 Among the early officers of the league were former Gov. John L. Bates, Bishop William Lawrence,
Judge-F. C. Lowell, Archbishop W. H. O’Connell, James J. Storrow, and Prof. F. W. Taussig. The
complete list is given in an article entitled, “ The Massachusetts Scheme of Savings Bank Insurance”,
by Shelby M. Harrison, in the Survey, May 7,1910.
6
Masschusetts Legislature. House Document No. 1085: Report of the Joint Special Committee on
Insurance, 1907.
6 Idem, Senate Document No. 1, p. 14: Governor’s address to the legislature, January 3, 1907.
7 Harrison, Shelby M.: The Massachusetts Scheme of Savings Bank Insurance, in the Survey, May 7,
1910.
8 The president of the board was Judge Warren A. Reed, vice president of the People’s Savings Bank
of Brockton. The board appointed Mr. R. G. Hunter as the first State actuary. Dr. Horace D. Arnold
was appointed the first State medical director.




M A SSACH USETTS SA V IN G S-B A N K L IF E IN SU R A N C E

8

selling insurance. In November 1908, with the aid of funds similarly
advanced by ex-Govemor Douglas, the People’s Savings Bank of
Brockton opened its insurance department. In August 1911 the
Berkshire County Savings Bank of Pittsfield began operations as a
savings-insurance bank and it was followed by the City Savings Bank
of the same city in July 1912.9
The order in which the 23 banks now underwriting life insurance
entered the system and the dates upon which they started insurance
operations are given in table 1. References to the various banks
hereafter in this report will usually be made by the numbers shown
in the table.
T a b l e 1 . —Order
No.

in which savings hanks entered the insurance system and dates of
beginning of operations
Name of bank

Whitman. _ ____
People’s Savings Bank
__
__
______ Brockton _ _ _ _ _ _
Pittsfield_________ __
Berkshire County Savings Bank
City Savings B a n k .-.____ _ _ _ _ _ _ __ __ ____do______________
Lynn __
Lynn Five Cents Savings Bank
Lynn Institution for Savings ______ _ _ _ _____ ___ _ __ do_ _____
North Adams Savings Bank _
_ _ __ ____ ___ North Adams_ _____ _
Cambridgeport Savings Bank _ __ __ _ _ _______ Cambridge__________
Boston ______ _
Massachusetts Savings Bank1
_ _
Waltham Savings Bank____ _ _ __ _ ___ Waltham. _ _____ _
Lowell Institution for Savings ____ __ _ ____ _ Lowell. ____ ____ _
Boston Five Cents Savings Bank _ _____ _ __ ___ Boston______ _____
Grove Hall Savings Bank __ _ _ _
_ _ _ ___ ___d o ___ _________ _
Cambridge Savings Bank _ __ ___ ___________ Cambridge__ _____
New BedfordNew Bedford Institution for Savings
Arlington Five Cents Savings Bank.
_ ____
_ Arlington._ ______
Uxbridge Savings Bank ____ _ _ _ _ ____ Uxbridge—_ _
Beverly Savings Bank._ _ __ __ _ _ _____ _
Beverly _____ _ _
Wildey Savings Bank2 ______ __ _ _ __ __ __ Boston. _ ______
Leominster Savings Bank- _ _ _
Leominster. _
Fall River Five Cents Savings Bank- __ __ _ _ _ _
Fall River__ _______
Canton Institution for Savings _ _ _ __ _ _
Canton_______ __ _
Plymouth Five Cents Savings Bank_
Plymouth... _ _

1 Whitman Savings Bank-

2

3
4
5
6
7
8
9

10
11

12

13
14
15
16
17
18
19

20
21
22

23

Location

Date
June 22,1908
Nov. 2,1908
Aug. 1,1911
July 15,1912
Nov. 1,1922
Do.
Feb. 29,1924
Nov. 1,1924
Nov. 1,1925
Do.
Nov. 1,1929
Do.
Do.
Mar. 1,1930
July 15,1930
Nov. 1,1930
Mar. 10,1931
June 1,1931
Apr. 14,1931
June 1,1931
Nov. 1,1931
Nov. 1,1934

1 Called the North End Savings Bank until 1928.
2 Although the Wildey Savings Bank commenced operations before the Beverly bank, they both estab­
lished the departments at about the same time.

It will be observed that the first 4 banks entered the system between
1908 and 1912; that 6 more were added between the years 1922 and
1928; that from November 1, 1929, to November 1, 1931, 11 addi­
tional banks opened insurance departments; and that on November
1, 1934, 2 other banks joined the system.
During the early years, the amount of insurance sold by the banks
grew very slowly, the total amount in force in 1918 being less than
10 million dollars. After that year the amount in force showed a
marked increase, reaching the sum of more than 20 million dollars
in 1922 and over 67 % million dollars in 1929. During the years of
depression following, the growth of insurance in force was particularly
great, rising to more than 93 million dollars in 1933 and to over
9 For further information regarding the enactment of the savings-bank insurance law and the early history
of the system see Brandeis, Louis D., Business—a Profession (section on Successes of Savings Bank Insur­
ance) ; Grady, Alice H., the Romance and Development of Savings Bank Life Insurance in Massachusetts,
an address delivered on Nov. 29, 1932, published by the Savings Bank Life Insurance Division, Boston,
and Savings Bank Life Insurance and Old Age Annuities, in Savings Banks and Savings Department
Management, by W. G. Sutcliffe and L. A. Bond, New York, 1930; Massachusetts Savings Bank Life
Insurance Division, Brief Survey of the Massachusetts System of Savings Bank Life Insurance and Old
Age Annuities, Boston, 1934; Powers, James H., Massachusetts’ Great Insurance War, in the New Re­
public, Jan. 8, 1930; Casady, Clyde S., A Study in Savings Bank Life Insurance in Massachusetts (an
unpublished thesis submitted for M. A. degree in economics in Tufts College), 1931, ch. 1.




9

ORIGIN AND GROWTH

100 million dollars by the end of 1934. At the end of May 1935
savings-bank life insurance in force in Massachusetts amounted to
more than $106,500,000. (See table 2.)
T able 2 .

—Growth of savings-bank life insurance, 1908 to 1934 1
Premium Number Amount of
income of policies insurance
received in force in force

Number
of banks

Y ear
1908
1909__________
1910__________
1911__________
1912__________
1913__________
1914__________
19/15__________
1916__________
1917__________
1918__________
1919__________
1920__________
1921__________
1922__________
1923__________
1924__________
1925__________
1926__________
1927__________
1928__________
1929__________
1930__________
1931__________
1932__________
1933__________
1934__________

1
2
2
3
4
4
4
4
4
4
4
4
4
4
4
6
7
8
10
10
10
10
15
20
21
21
21

$368. 21
25,377. 29
58; 890. 68
76, 348. 92
102,832. 27
124,205. 08
139, 757. 35
164,058.96
212, 885. 24
261, 562. 27
317, 475. 73
352,104.12
424, 901. 24
463,792. 59
553,006. 99
714, 773. 56
898, 747. 79
1,148, 267.07
1, 365, 726. 35
1,583, 746. 25
1,899,176. 57
2, 369,176. 34
2,644,733. 31
3, 095, 271. 43
2,979, 581.14
3, 256,410. 37
4, 075, 775. 32

282
2, 521
3,318
5,063
6,652
8,054
9,439
10,892
14,030
17,850
20,925
28,148
30,834
31,705
35, 687
41,283
45,892
50,953
55,822
61, 543
70, 212
81,440
90,239
101,002
101,390
103,763
112,294

Matured
endowments Total paid to Admitted
and death policyholders assets
claims paid

$114, 953
992, 761
1, 367, 363
1,956,038
2,528,809
3,150,806
3, 566, 778
4,341,205
6,041,754
8,161,144
9,811, 259
12,373,090
15,050, 271
16,670,103
20,020, 294
25, 677, 730
31,759,883
38,105, 250
43, 293, 286
49,171, 745
57,836,763
67, 588, 398
77,324, 800
90,960, 522
90,606, 283
93,186,980
99,960,943

$500.00
3, 622.00
3,638.00
6, 513.00
10,679. 00
9, 706. 36
12,477. 01
27,984. 75
24, 385. 65
58,314. 20
97,100. 91
93, 710. 99
57,712. 00
82, 553. 44
112,385. 40
141, 236. 47
167, 672.85
199, 964. 94
238, 213. 40
223,990. 37
495,977.98
499,084.87
626,426. 75
597, 745. 76
608, 277. 85
584,882. 55

$878. 06
8,879. 86
12,149. 74
21,877. 67
28,796.99
35,335. 32
56,790. 27
73,458. 28
72,870. 00
132,243. 51
176,331. 81
197,214. 28
212, 635. 56
281,080.16
347, 569. 98
437,662. 33
523,062. 98
644, 507. 63
770,873. 45
849,359. 70
1,304,982. 34
1,458,410. 69
1,756, 711. 49
2,024,936. 28
2,057,691. 77
2, 042, 616. 29

$26,048.91
82,137.17
130,516. 97
223,130.83
331, 726. 51
430,428.89
542,900. 68
666,750.00
779,071. 74
990,844. 55
1,202,937. 52
1,418, 642. 71
1, 703,858.19
2,000,393.19
2,348,945. 70
2,833, 605. 04
3,446,955. 99
4, 246, 265. 34
5,160, 814. 94
6,221,049. 09
7, 579, 708. 72
9,074,805. 35
10, 566,034.39
12,313,623. 34
13, 681,358.92
15,171,273. 58
17, 634,808. 89

i From a leaflet entitled “ Growth of Savings Bank Life Insurance”, published by the Division of Sav­
ings Bank Life Insurance in 1935.

The average number of policies in force for each year in the period
1928 to 1932 was more than 11 times as great as the average for the
first 10 3rears of the system’s history. The amount of insurance
increased to almost 24 times as much. By the year 1934 the increase
over the average year of the first 10-year period was more than 13
times the number of policies outstanding and about 31 times the
amount of insurance in force. (See table 3.)
T able

3.—Growth in number of policies and amount of insurance, 1908 to 1934
Number of policies in
force
Period

1908-17_______________________________________
1918-22_______________________________________
1923-27._ ____________________________________
1928-32_______________________________________
1933__________________________________________
1934__________________________________________

Average
number each
year
7,810
29,460
51, 099
88, 857
103,763
112, 294

Index
100
377
654
1138
1329
1438

Amount of insurance in
force
Average
amount each
year
$3,222,161
14, 785,003
37,601, 579
76,863, 353
93,186,980
99,960,943

Index
100
459
1167
2385
2892
3102

It is only in recent years, however, that savings-bank insurance has
represented an important share of all the life insurance in force in the
State of Massachusetts. Table 4 shows the amounts of ordinary
5736°—35----- 2




MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

10

savings-bank insurance, of ordinary company insurance, and of
industrial insurance in force in the State in recent years.10
4.— Amount of ordinary savings-bank insurance, ordinary company insurancey and industrial insurance in force in Massachusetts, 1920 to 1933

T able

[In thousands of dollars]
Year

Savingsbank or­
dinary
insurance

1920
1921
1922
1923
1924 ________
1925. ________
1926 _________

$8, 550
9,929
12,143
17,189
22,175
27,399
32,594

Ordinary
insurance, Indus­
excluding trial in­
Year
savingsbank in­ surance
surance
$1,348,173 $522,602 1927___________
1,465, 250 580,169 1928___________
1,604, 838 630, 492 1929 ________
1,789,298 720, 396 1930 ________
1,973,792 794, 782 1931___________
2,183, 758 868, 094 1932___________
2, 392, 794 943, 111 1933___________

Savingsbank or­
dinary
insurance
$38, 243
46,308
55, 228
64,940
75,354
80,173
83,017

Ordinary
insurance,
excluding
savingsbank in­
surance
$2, 587,804
2,789, 615
3,999, 360
3,143, 245
3,230,105
3,142,200
3,038, 566

Indus­
trial in­
surance
$1,012,500
1,063,085
1,136,174
1,153,724
1,171,951
1,109,754
1,091,128

The increasing importance of savings-bank life insurance is evident
from the fact that whereas it ranked twenty-second in amount of
insurance in force in Massachusetts among the 31 organizations selling
life insurance in Massachusetts in 1923, it was thirteenth among 47
organizations in 1933. Furthermore, while the amount of both
industrial insurance and of ordinary insurance sold by the companies
which was in force in the State declined between 1931 and 1933, the
amount of savings-bank insurance increased.
The data for ordinary insurance outstanding in the State in the
depression years 1932 and 1933 show clearly how savings-bank insur­
ance has grown in relative importance. Of the 11 companies char­
tered by the State of Massachusetts, all but 4 small companies showed
losses of insurance in force between 1932 and 1933. Of the 36 com­
panies chartered by other States, all but 11 reported declines in
insurance outstanding in Massachusetts during that year. Of all the
private companies operating in the State only 1 gained an amount of
insurance approaching that gained by the savings banks. This
company gained $2,457,000, as compared with the savings banks' gain
of $2,844,000. In contrast, the 15 companies losing the largest
amounts showed declines ranging from $11,700,000 to $2,849,000.
Although the banks had in force at the end of October 1934 a total
of all kinds of insurance equal to about $100,000,000, only $89,500,000
was ordinary insurance. Nearly all of the remainder, or over $10,394,000, was group insurance.11
Chart 1 shows at a glance the relative increase in the number of
policies, the amount of all kinds of insurance in force, the premium
income, and the total ledger assets of savings-bank insurance over a
period of 25 years. It will be noted that while, especially in the later
years, the last three items appear to increase in about the same pro­
portions, the rate of increase in the number of policies in force is not
so great, indicating that the average size of each policy has risen
during the period.
The table does not include group insurance. Fraternal insurance, with which this report is not con­
cerned, is also omitted.
ii See appendix A for a table showing the amounts of group insurance in force with the banks and the
companies. Appendix K contains data on endowment insurance. Information for all years up to 1933
comes from the Annual Reports of the Massachusetts Commissioner of Insurance, part 2, table 1. It should
be noted that while the fiscal year of the savings banks ends Oct. 31, that of the insurance companies ends
Dec. 31. Official published data for the companies is not yet available for the year 1934.




O RIG IN A N D GROW TH

11

Chart I

GROWTH OF MASSACHUSETTS
SAVINGS BANK LIFE INSURANCE
1 9 0 8 -1 9 3 4
Years

en d in g

O ct . 3 /

200,000,000 100,000,000

- w o,ooopoo

-

50,000,000 -

A
o p

M O UNI T

In s u r a n c e

- 20,000,000
L

5,000,000

>*

♦♦

■

_

_

tA d m i t t e d
i

i f\ A / i n ..
ijUUUjUUU

i

ssets

/A AAA A A A
iu,ooopoo

>

e /v i r t f ln n
'

' ♦ *♦

*•
•• •»

m*>
p-

♦

500,000 ~

r

'. ♦ * *

br#

O A O O /W )

••i■ 1
i

i

i

/ AAA AAA
f)V&
V,U(AJ

—

PREM IUM

ffA
AA
A
A
O
UU
/JV
O

IN C O M E

•*
♦
•

. 2 0 0 ,0 0 0 ~

••

iUUjOOO
50,000

■»*

**

*

A
o A /l/l /l/l/l
c^OOQfiOO

so p o o p o o

-

IN FORCE

20,000,000
10,000,000

200,000,000

-

. ^1
i
---- #_ T —
-

V

•

r
o4

R e c e iv e D

»•
*A
*

- 2

>••
-

■ ft?
i •

oopoo

100,000

- 50,000

j—

<v “

20000 -

N um ber

• —1
•

l
■•

&f\JW

20p00

OF 1^OLIC IES
IN FOR<: e

>

O

- 10,000
>f

-

5,000

• . ^

r

2,000 1,000

r
- 2^00

• jf
•
:i

r

- 1,000

EE
500 -

- 500

•f
1

2 00 WO

-2 0 0
- to o

-




1910,

1915

1920

1925

1930

1935

12

M A SSA C H U SETTS SA V IN G S-B A N K L IF E IN SU R A N C E

The rise in the average amount of each policy, which is secured by
dividing the amount of insurance in force for each year by the number
of policies, and the index numbers showing the proportionate increase
in the size of each policy, using the first year as a base, are shown in
table 5. Beginning with the year 1916, when the average amount of
each policy was over 5 percent more than in 1908, there is a fairly
steady increase until 1934, when the average size of each policy is more
than twice as large as it was in 1908.
T able 5 .

—Average amount of insurance per policy, 1908 to 1934

Year
1908 ___ ______________
1909
1910
.
. - _______
1911
1912________________________
1913
-1914
... ______________
1915________________________
1916
1917
_.
_ ____
1918_________________________
1919
1920______ _______________
1921________________________

Average
amount of Index
insurance
per policy
$408
394
412
386
380
391
378
399
431
457
469
440
488
526

100
97
101
95
93
96
93
98
106
112
115
108
120
129

Year

Average
amount of Index
insurance
per policy

1922________________________
1923________________________
1924________________________
1925__________ . - ____
1926________________________
1927_______________________
1928________________________
1929________________________
1930_______________ ____
1931________________________
1932________________________
1933_______________________
1934________________________

$561
622
692
748
776
799
824
830
857
901
894
898
890

137
152
170
183
190
196
202
203
210
221
219
220
218

During the first 26 years of it's existence the savings-bank life
insurance system received in premiums from policyholders over
29 million dollars. Its total income for the period was over 34 %million
dollars. It paid out nearly 17% millions, more than 15% millions of
which went to policyholders in the form of payments to settle claims,
endowments, annuities, cash surrender values, and dividends, and
slightly over 1% millions were paid out for the expenses of operating
the system.
T able

6.—Income and disbursements of the savings-bank life insurance system
1908 to 1934
[Statement to Oct. 31, 1934]
Item

Amount

$29, 308,952.44
5,140, 535.57
185, 000. 00
34, 634,488.01

Disbursements

Death and disability claims.
Matured endowments-----Payments to annuitants___
Cash surrender values____
Dividends to policyholders.
Total paid policyholders.
Special guaranty funds retired.
Expenses (see details)........... .
Total disbursements___
Income over disbursements___




Am ount

Expenses

Income

Premiums from policyholders.
Net income from investments _
Special guaranty funds______
Total income___________

Item

3,925,112.02
1,059, 644.48
1,392, 625.06
2, 500,407.92
6, 651,136.96
15, 528,926.44
185,000. 00
1, 777, 086. 63
17,491,013. 07
17,143,474.94

Salaries------- ------------------------------Advertising, postage, printing, tele­
phone, and express_____________
Medical fees-------------------------------Taxes___________________________
Collection fees___________________
Kent___________________________
Reimbursement to State__________
Other expenses__________________
Total expenses (6.06 percent of
premium income)_________

$720,490. 79
211, 339.17
204, 786.61
151, 763. 19
139, 285. 59
134, 662. 09
119,106.21
95, 652.98
1, 777, 086. 63

Chapter 3.—Administration of the System
Savings-bank life insurance may be purchased by residents of
Massachusetts or by persons who are regularly employed in the
State.1 The amount of insurance available to any individual at
each bank is limited to $1,000. The limit on the annual amount
which may be paid by any one bank on an annuity contract is $200.
Since there are 23 banks writing insurance, the limits available to
any one person are $23,000 in insurance and $4,600 in annuities.2
The banks do not sell industrial insurance, their business being
confined to ordinary and group insurance.
Policies Available and Their Terms
The savings-bank insurance law provides for the following types
of policies: Whole (or “ straight”) life, limited-payment life, limited
term, and endowment policies; annuity contracts; a combination of
life insurance policies and deferred annuity contracts; “ and such
others as may from time to time in the opinion of the commissioner
of insurance, be desirable”.3 In addition to the types of policies
named, there are also available infantile and group policies.
Whole life policies provide for the payment of premiums until the
death of the insured, when the beneficiary receives the face value of
the policy.
Policies for limited-payment life insurance protect the insured
throughout his life, but the premiums are set at such a rate that after
a certain period, for example, 20 years, no further premiums need be
paid. Whether death occurs before or after the expiration of this
period, the beneficiary is entitled to the face value of the policy.
Insurance may also be purchased for a limited term of 5 years.
Such insurance protects the policyholder only during the period
stated in the policy, and the premiums are payable, of course, only
while the insurance is in force. The policy may be renewed once
only—that is, at the end of the 5 years—the premium for the second
5 years being increased because of the more advanced age of the
insured at the time of renewal.
The banks sell endowment policies. A $1,000 20-year endowment
policy is one on which premiums are payable for 20 years, and which
entitles the beneficiary to $1,000 in case the insured dies during the
20-year period, or entitles the insured to $1,000 in cash if he survives
the 20 years.
Children under age 10 may be insured under straight life, 20payment life, 20-year endowment, or 15-year endowment policies.
Such policies are payable at face value only if death occurs at age
1 If policyholders leave the State permanently they may continue to carry their insurance in the savings
banks, but not to buy additional insurance.
2 Acts of 1915, ch. 32; Mass. Gen. Laws, ch. 178, sec. 10. Prior to 1915 the limits available to a single person
in any 1 bank was $500 of insurance and a $100 annuity.
3 Mass. Gen. Laws, ch. 178, sec. 15.




13

14

M ASSA C H U SETTS S A V IN G S -B A N K L IF E IN SU R A N C E

10 or later. If death occurs at an earlier age, the amount of insurance
paid, assuming a given face value, depends upon the age at which the
policy was taken out and the length of time it has been in force.
The banks also sell group insurance, which does not require medical
examinations. Such insurance is available only to groups of workers
in plants inspected by the State medical director. Premiums are
payable monthly by the employer, or by the employer and employees
jointly. The size of the premium varies in accordance with the ages
of the employees. The insurance is for a 1-year term only, being
renewable each year at premiums determined on the basis of the
ages of the workers. The bank issues a separate certificate of insur­
ance for delivery to each employee by the employer. If in any case
employment is terminated, the worker affected is entitled, without
medical examination and upon payment of premiums for his then
attained age, to a life or endowment insurance policy of the type he
desires and for an amount equal to that for which he was insured
under the group policy. If he desires an amount of insurance in
excess of his original policy he must undergo a medical examination.
Group insurance provides for total and permanent disability benefits.
The insurance banks sell four kinds of annuity contracts. Single­
premium immediate annuity contracts provide an income for life,
payable annually or at more frequent intervals, in return for a single
lump-sum payment at the time the contract is made. These are
intended especially for persons 50 years of age and over, though
available to younger persons. If the contract provides that the
payments of income cease in case of death of the annuitant, the rate
is lower than for a contract with provision for a cash refund to the
beneficiary. The cash-refund contract provides that if the annuitant
dies before he has received an amount of income equal to what he
paid in when purchasing his annuity, his beneficiary shall receive the
difference between the purchase price and the total amount received
by the annuitant.
Another type of annuity contract provides for an annuity to be
paid beginning at a specified future age, the annuity being purchasable
by the payment of a single premium. It is also available with or
without the cash-refund provision.
A third type of contract provides for a single-premium joint and
survivorship annuity. This may be bought by two or more persons—
man and wife, for example—by the payment of a single premium.
The annuity, which is payable so long as both or either of the two
survive, may become payable immediately or at a specified future
date.
The fourth and probably the most common type of annuity pur­
chased is the annual premium deferred annuity. This may be paid
for regularly, until the designated age at which an annuity for life
commences; for example, age 60. If the purchaser dies or surrenders
his contract before the annuity begins, the total amount of premiums
paid in, with interest compounded at a guaranteed rate of 3 y2 percent,
is refunded.
Premium payments on all policies and contracts may be made
monthly, quarterly, semiannually, or annually, as the applicant may
prefer, except in the case of group insurance.
The Division of Savings Bank Life Insurance has worked out a num­
ber of plans under which insurance and savings may be combined. If




A D M IN ISTR A TIO N OF SYSTEM

15

the policyholder is a depositor in the bank, he may arrange that his
deposits be used to pay premiums as they fall due. Such balance as
is left in his account remains at interest, subject to withdrawal at
will by the insured. If his deposit is sufficiently large, he may permit
the interest on it to be used to pay premiums on his insurance.
Policyholders may elect to have annual dividends due them paid
in cash on the anniversary date of their policies, to use them to reduce
premiums due or to purchase additional paid-up insurance, or to
leave them on deposit with the insurance department of the bank on
interest at a minimum rate of 3% percent.
On straight life, limited-payment life, and endowment policies, the
insured is entitled to borrow money on his policy at 5 percent interest
after his insurance has been in force for 1 year. He is also entitled
to a cash surrender value equal to the reserve on his policy, less a
small “surrender charge”, during the first 2 years, if he should cease
paying premiums and the policy has been in force at least 6 months.
Instead of taking the cash surrender value, the insured may take
a paid-up policy for an amount less than the original face value, the
amount depending upon the net value of his policy, minus loans, if
any, and minus the surrender charge referred to above; or he may
take a policy for the full original face value for whatever term the
net value of his policy would purchase (i.e., “paid-up term insurance ”) .4
If the insured, having failed to pay premiums and having been notified
by the bank, does not exercise his option respecting cash surrender,
term insurance, or paid-up insurance, he automatically receives a
policy of paid-up insurance.
The policyholder has a right to choose the method to be used in
paying the insurance to his beneficiary. Among the options available
are a single payment; payments of a given amount at regular intervals
as long as the beneficiary lives; payments for 10 years or for 20 years
to the beneficiary or the contingent beneficiary if the former should
die; and payments to the beneficiary or the contingent beneficiary
spread over a chosen number of years. Any other mode of settle­
ment desired by the insured can usually be arranged.
The premiums charged by all the insurance banks are required by
law to he uniform.6 The dividends differ according to the experience
of the various banks.
In accordance with the insurance laws of the State, policies contain
a statement of the amount which may be borrowed, of the cash
values, of the amount of paid-up insurance, and of the duration of
extended term insurance, which become available at the end of stated
periods after the policies have come into force. They also contain a
statement of the options respecting payments to beneficiaries.6
Administrative Organization
Ultimate responsibility for the administration of savings-bank life
insurance is lodged in an incorporated body known as the General
Insurance Guaranty Fund. This body consists of seven trustees,
one of whom is appointed each year for a term of 7 years by the
Governor of the State, acting with the advice and consent of the
Governor’s Council. The trustees must serve without compensation
4 Mass. Gen. Laws, ch. 178, sec. 11.
6 Idem, sec. 15.
6 Information respecting the nature of policies was obtained from leaflets published by the State Division
of Savings Bank Life Insurance.




16

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

and must be chosen from persons who are trustees of mutual savings
banks. The Governor designates one of the trustees of the General
Insurance Guaranty Fund as the commissioner of savings bank life
insurance for the length of his term as trustee. ^ His appointment
as commissioner (in which capacity he serves without pay) carries
with it the duty of acting as president of the board of trustees, and
of generally supervising and controlling the work of the Division of
Savings Bank Life Insurance.7 The division is one of three sections
of the Massachusetts Department of Banking and Insurance, the
other two being the Division of Banks and the Division of Insurance.
The administration of the Division of Savings Bank Life Insurance
is more immediately in charge of the deputy commissioner, a salaried
official appointed by the trustees of the General Insurance Guaranty
Fund, subject to the approval of the Governor and his council.
Although the law does not specifically extend jurisdiction of the
division over the insurance departments of the banks, the latter
operate along with the Division of Savings Bank Life Insurance and
the General Insurance Guaranty Fund as a unified insurance system,
and the deputy commissioner of savings bank life insurance may
properly be said to exercise actual supervision over this system.8
The trustees of the guaranty fund are authorized to appoint, with
the approval of the Governor and council, a State actuary. Such
clerks and assistants to the State actuary as may be required are also
appointed, under civil-service rules.9
A State medical director, appointed by the trustees of the General
Insurance Guaranty Fund with the consent of the Governor and
council, is charged, subject to the supervision and control of the
commissioner of insurance, with the duty of prescribing the rules
relating to the “health or acceptability of the applicant for insurance.”
He acts as the supervising and advising physician of the savings-bank
7Mass. Gen. Laws, ch. 178, sec. 14; Acts of 1919, ch. 26, sec. 9,10. The trustees are authorized to elect, from
among their number, a vice president of the board, a treasurer, and a clerk, for terms of 1 year.
8 The administration of the division was under the direction of Judge Warren A. Reed, of Brockton, who
was appointed president of the guaranty fund by Governor Guild in July 1907, for a period of 13 years.
Thereafter, Mr. George L. Barnes, of South Weymouth, was appointed president. He served in that
capacity and as commissioner up to December 1934, when he resigned as commissioner, but continued as a
trustee. Another trustee of the fund, Mr. Richard Bullock of Fitchburg, was then designated as com­
missioner. Miss Alice H. Grady, who had served as financial secretary of the Massachusetts Savings
Insurance League since its origin, was appointed deputy commissioner in 1920 and acted in that capacity
until her death on Apr. 17, 1934. Mr. Judd Dewey, who had acted without pay as counsel for the division
for many years, was appointed to succeed her on Apr. 25,1934. (Brief Survey of the Massachusetts System
of Savings Bank Insurance and Old Age Annuities, 1934, pp. 3, 4. See an article on Miss Grady by Eliza­
beth Glendower Evans, one of a series entitled, “Interesting People I have Known”, in Boston Jewish
Advocate, June 15, 1934.)
s The present State actuary is Eugene F. Caldwell. His duties may be summarized as follows: (1) To
prepare standard forms of life-insurance policies and life-annuity contracts, which “ shall be used as the
uniform and exclusive forms of policies by all savings and insurance banks” (the term “savings and insur­
ance banks” is the official designation of the banks authorized to underwrite insurance); (2) to prepare the
forms or blanks for application for life-insurance policies and life-annuity contracts, for proof of loss, “ and
all other forms necessary for the efficient prosecution of the business, also books of record and of account,
and all schedules and all reports, not otherwise provided for, required in the conduct of the business, all
such forms to be used uniformly and exclusively by the savings and insurance banks”; (3) to furnish all
blanks prepared by him to the banks and the General Insurance Guaranty Fund; (4) to determine and pre­
pare, consistently with the law governing domestic legal reserve life-insurance companies, the table of
premium rates for all kinds of life-insurance policies, the membership fees, the purchase rate for annuities,
the surrender value and any proof of death charges, “ and the premium rates for reinsurance, all such rates,
fees, and charges to be uniformly and exclusively used in the system”; (5) to determine and prepare tables
showing the amounts which may be loaned on insurance policies, and the guaranty charges to be made by
the General Insurance Guaranty Fund; (6) to prepare or procure tables for computing the legal reserve to be
held under insurance and annuity contracts; (7) to direct an annual valuation of all the policies of the banks,
and of the condition of the General Insurance Guaranty Fund; (8) to determine for each year the ratio of
actual to expected mortality claims for all the savings-insurance banks combined and for each one sepa­
rately; (9) to determine how much each bank shall pay to or shall be paid from the General Insurance
Guaranty Fund as the amounts due to or from it on account of the unification of mortality. (Acts of 1919,
ch. 26, sec. 11; Mass. Gen. Laws, ch. 178, sec. 15.)




A D M IN ISTR A TIO N OF SYSTEM

17

insurance system. The medical director is empowered to appoint
such assistants as may be required.10
Every application for savings-bank life insurance goes to the office
of the State medical director, where it is scrutinized by him or by
the physician who assists him. In June 1935 there were 320 phy­
sicians, all graduates of class A medical schools, empowered by the
State medical director to make the medical examination required of
applicants for savings-bank life insurance. The office of the State
medical director must approve every death claim before it is paid.11
Although the law requires that the savings banks may not employ
insurance “ solicitors”, the legislature in 1915 appropriated funds to
enable the trustees of the General Insurance Guaranty Fund to make
known “ to those in need of industrial insurance, the advantages
offered by the life-insurance departments of savings banks.” As a
consequence the Division of Savings Bank Life Insurance engaged two
“instructors”, whose efforts were directed to the purpose of educating
workers in the State as to the advantages of savings-bank life insur­
ance.12 They confine their activities to visiting industrial establish­
ments for the purpose of encouraging employees to buy savingsbank life insurance. On special occasions one of the actuarial clerks
does similar work. It is important to note that these instructors are
employed by and are responsible to the Division of Savings Bank Life
Insurance, and that they have no direct connection with any of the
savings-insurance banks.13
Operation of Insurance Banks and Their Agencies.
Any mutual savings bank, upon complying with the provisions of
the savings-bank life-insurance law, may establish an insurance
department if two-thirds of its board of trustees and a majority of its
incorporators so decide. It must first secure, however, the approval
of the commissioner of insurance and of the commissioner of banks.
These officials are empowered to issue a joint certificate declaring an
insurance department established when they are satisfied that a
special expense guaranty fund and a special insurance guaranty
fund, or a guaranty contract, have been provided.14
The special-expense guaranty fund consists of not less than $5,000
in cash, advanced to and placed at the risk of a bank’s insurance
department and earning interest, if profits are sufficient, at the rate
paid depositors, for the purpose of meeting such expenses as the
department may not be able to meet from its income in the early
10 Acts of 1919, ch. 26, sec. 12; Mass. Gen. Laws, ch. 178, sec. 16. The present State medical director is
Dr. Joseph H. Burnett.
11 Interview with Dr. Joseph H. Burnett, July 27, 1934; letter from Division of Savings Bank Life
Insurance, June 12, 1935.
12 Acts of 1915, ch. 168.
is In addition to the persons already mentioned, the office of the Division of Savings Bank Life Insurance
in the Statehouse employed in July 1934,1 principal actuarial clerk, 3 senior actuarial clerks, 1 senior clerk,
3 senior clerks and stenographers, and 3 junior clerks and stenographers. In the office of the State medical
director there are employed an assistant medical director, 1 senior cleri; and stenographer, and 1 junior
clerk and stenographer.
ii Mass. Gen. Laws, ch. 178, secs. 2, 3,




18

M A SSA C H U SE TT S S A V IN G S-B A N K L IF E IN SU R A N C E

years. The original amount of the expense guaranty fund is fixed by
the trustees of the bank, with the approval of the State actuary.16
In order that a bank newly entering the insurance system may be
able to meet any death losses which may arise before it has had time
to accumulate sufficient reserves, a special-insurance guaranty fund is
required. This consists of not less than $20,000 in cash, “ advanced
to and placed at the risk of the insurance department, which [is]
applicable to the payment and satisfaction of all losses or other obli­
gations arising out of policies or annuity contracts if and whenever
the liabilities of said department, including the insurance reserve, are
in excess of its assets.” The original amount of this fund is fixed by
the trustees of the bank, with the approval of the State actuary.16
The advances to the special-insurance guaranty fund are exchanged
for certificates of the par value of $100, which, if profits are sufficient,
yield interest at a rate equal to that paid the savings bank’s depositors.
The repayment of these advances may not be made until (1) the
special-expense guaranty fund has been retired; (2) the insurance
department has accumulated a surplus in excess of all its liabilities
equal to the amount of the special-insurance guaranty fund; (3) the
balance of the latter fund, including unpaid interest and surplus on
hand, is not less than the amount of the original-insurance guaranty
fund; and (4) the commissioner of insurance approves the retirement.
In addition to this obligation, every insurance department in the
system may be required to pay monthly to the General Insurance
Guaranty Fund an amount equal to 4 percent of all premiums and
deposits for annuities received in the preceding month. These sums
are held as a guaranty for the combined insurance and annuity obli­
gations of all the banks. In the event that losses incurred by the
insurance department of any bank are in excess of the reserve available
for the purpose, such a bank may receive from the fund the amount
necessary to meet its obligations. Amounts so received, with interest
at 5 percent, must be repaid by the bank to the fund out of its insur­
ance surplus as soon and so far as an adequate surplus exists. The
trustees of the fund must invest it in the same classes of securities and
in the same manner as the savings deposits of the banks are invested,
but they may deposit in any savings bank whatever funds they cannot
otherwise invest.17
For the purpose of sharing, among the banks as a whole, the espe­
cially favorable or unfavorable mortality losses of a particular bank,
the law provides for the equalization of the ratio of mortality claims
among all the banks. Thus the high death losses of a single insurance
department, caused by the temporary fluctuations of chance, would
15 Mass. Gen. Laws, ch. 178, sec. 4. In exchange for the amounts advanced to the expense guaranty fund
the lenders (generally the bank’s trustees) receive certificates with a par value of $100 each. The fund is
retired when the net profits permit and when, in the opinion of the commissioner of banks and the com­
missioner of insurance, it is no longer needed. Interest on the advances is paid when and if the condition
of the insurance department permits. By 1919 the first 4 banks entering the system had retired their
expense guaranty funds. The 6 banks entering between 1922 and 1925 had retired theirs by 1929. Nine
of the 11 banks entering the system between 1929 and 1931 had retired their expense funds by 1933. The
other 2 banks, one established in April 1931 and the other in September 1931, retired their expense funds
during the fiscal year 1934. All the banks apparently have paid interest regularly to those advancing the
funds up to the time of retirement. (Reports of Commissioner of Insurance and Commissioner of Banks
Relating to the Savings and Insurance Banks and General Insurance Guaranty Fund, 1914 to 1934.)
Idem, sec. 5.
17 The special guaranty funds are not to be considered liabilities in determining solvency. See appendix
B for a further discussion of the insurance guaranty funds. Appendix C is devoted to a discussion of insur­
ance reserves and surplus,




A D M IN ISTR A TIO N OF SYSTEM

19

not impose a heavy burden and a possible consequent discontinuance
of dividend payments to the policyholders of that department.18
Under the system of “unification of mortality ** in use, the heavy
losses of one bank are distributed proportionately among all the banks.
Those banks with mortality experience more favorable than the
average experience of all the banks pay to the General Insurance
Guaranty Fund sums which, in the aggregate, are then distributed
among those banks which have had less favorable mortality experience
than the average. Under the law unification is not extended to
matters other than mortality experience, because the other items are
within the control of a particular bank, while the mortality experience
is not.19
The law requires that the savings departments and the insurance
departments of the savings and insurance banks shall be operated
separately. The assets of one department of the bank are not liable
for or applicable to the payment and satisfaction of the liabilities,
obligations, and expenses of the other. The two departments must
also keep their accounts and their investments separate. The law
declares: “Expenses pertaining to the conduct of both the savings
department and the insurance department, such as office rent and the
salaries of general officers, shall be apportioned by the trustees equi­
tably between the two departments.”20
Though only 23 savings and insurance banks have the power to
underwrite insurance at present, the law authorizes the establishment
of agencies and means for the receipt of applications for insurance
and of premium payments upon such terms as the.commissioner of
banks and the commissioner of insurance may approve. Any savings
bank in the State may be authorized to receive payments due on
policies and annuity contracts, and savings and insurance banks may
act as agents for each other.21 All except employers* agencies are
permitted to deduct a transmission fee of 2 percent from the premiums
which they forward to the underwriting banks.
In August 1934, there were 334 agencies from which insurance
could be secured. Of these, 180 were employers* agencies, which
dealt primarily with the workers employed in their particular estab­
lishments. Fourteen were agencies operated by credit unions for
the benefit of their members. The remaining 140 dealt with the
general public. These agencies were widely scattered throughout
the State.
Table 7 shows the number of each kind of agency and the counties
in which they were located. The accompanying map of Massa­
chusetts shows the wide distribution of the agencies.
18Sec. 15 of the act provides that the State actuary shall “ for each year ending Oct. 31 determine the ratio
of actual to expected mortality claims for all of the savings and insurance banks combined, and shall deter­
mine a similar ratio for each of the savings and insurance banks separately. Both calculations shall be
based upon the mortality tables and the rate of interest used by the banks in the calculation of the premiums
or upon such other bases as shall be approved by the commissioner of insurance. If the calculation of the
ratio pertaining to any savings and insurance bank shows that the actual mortality experience is less than
the mortality expected to be experienced by all of the banks combined, the State actuary shall send to such
bank a certificate setting forth the amount of such difference, and thereupon such bank shall send to the
General Insurance Guaranty Fund in cash the amount of such certificate. The State actuary shall also fur­
nish to the trustees of the General Insurance Guaranty Fund a certificate in respect to any savings and
insurance bank in which the ratio of the actual to the expected mortality has exceeded the ratio of the
actual to the expected mortality for all of the banks combined, and thereupon the trustees of the General
Insurance Guaranty Fund shall pay to such bank the amount of such excess as evidenced by such certificate.’’
For an explanation of the ratio of actual to expected mortality claims (or losses) see the latter part of ch. 1.
19 See appendix D for an extended discussion of mortality ratios and the unification of mortality.
20 Mass. Gen. Laws, ch. 178, sec. 8. The controversy as to the proper allocation of expenses between
the 2 departments is dealt with in full in ch. 7.
21 Mass. Gen. Laws, ch. 178, sec. 13.




20
T able

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE
7.—Number and types of establishments at which applications for savingsbank life insurance might be made in August 1934
County

Berkshire
_ _ _ _ _
Pranklin
_ __
_____
Hampshire
Hampden
_ __ _ _
Worcester
_
_ ______
____ ___
Middlesex _
_
Norfolk __ _ _ _ _ _ _ _ _ _ _
Plymouth
_ __
Bristol_____
____ _ ____
Essex__ _ _ _ _ _ __________ _
Suffolk. ____ _ _____ ______ _ _
Barnstable- _ _ _ _ _ _____ ___ _
Duke’s
Nantucket
_ _ __
Total
_
__

Issuing Agency
Total in banks
Employ­ Credit
or banks or Public ers’
agen­ • unions ,
each
their agencies1 cies
their
county branches
branches
14
6
20
22
50
69
25
16
17
38
54
3
0
0
334

3
3
8
2
2
5
7
30

1
4
8
5
8
29
13
8
1
13
10
3
103

2
1
1
1
2

10
2
12
13
36
29
10
5
12
19
32

4
3
1
1
1
1
3

7

180

14

1 The so-called “public agencies” include settlement houses, boys’ clubs, schools, and private individuals.

A person applying for insurance at an underwriting bank is generally
sold a policy carried by the bank in question. In case he wishes
more insurance than the bank is permitted to sell him, he is asked
to name the bank or banks from which he wishes to buy the additional
amounts. If he has no preference, the bank official with whom he
talks is likely to make suggestions. When application is made
through other agencies and no preference as to bank is shown, the
common practice is to refer the applicant to those banks which have
the most favorable dividend record. Since dividends in 1935 were
equally high in 17 out of 21 banks, suggestions to applicants might
often be made for reasons of policy. ^Among such reasons might be
the desire to build up a newly established insurance department, or
to favor a bank with which the agency has some connection. The
important fact, however, is that every applicant has the right to
choose his insurance bank.
Publicity and Promotion Features of the System
The Division of Savings Bank Life Insurance carries on an active
program of publicity designed to promote the growth of savings-bank
life insurance. It publishes numerous pamphlets and leaflets giving
information about the insurance. It employs two “instructors '9
whose purpose it is to promote the sale of savings-bank insurance
among industrial workers. It carries on an active correspondence
with persons who seek information about the system. The fact that
the seal of the Commonwealth of Massachusetts is printed upon some
of its publicity material, that its correspondence is written on sta­
tionery bearing the name of the State and of a department of the
State government, and that there is general knowledge that its
offices are in the Statehouse on Beacon Hill, help to advance the
growth of savings-bank insurance.
The savings and insurance banks carry on various activities to
promote the sale of insurance. As a rule they employ a clerk to
whom a person seeking information is referred. Some of them have
set up tables in the lobbies of the banks, at which attendants are




ADMINISTRATION OF SYSTEM




22

M A SSA C H U SETTS SA V IN G S-B A N K LIFE IN SU R A N C E

ready to furnish such information. The banks make considerable
use of material published by the Division of Savings Bank Life Insur­
ance. In some cases one bank or a group of banks has published
pamphlets dealing with insurance. Placards are displayed frequently
in prominent places. On occasion one bank or several acting together
have published advertisements in the newspapers to promote the
sale of insurance. The various collecting agencies described above
have used similar methods in promoting the sale of savings-bank
insurance.
The activities of the Massachusetts Savings Bank Life Insurance
League and of the Associated Industries, as they relate to savingsbank insurance, are discussed fully in chapter 7. It is sufficient to
say, at this point, that the league has been active since 1907; that in
recent years it has published and distributed a number of pamphlets
and leaflets; and that since 1930 the Associated Industries has
employed a full-time secretary whose activities are devoted exclusively
to promoting the sale of savings-bank insurance in the industrial
establishments of the State.
Regulation
Savings-bank life insurance is subject to supervision by the com­
missioner of banks and the commissioner of insurance. The latter
has authority to enforce the insurance laws of the State. This
involves the enforcement of such laws as they apply to the insurance
departments of the savings banks. If, in his opinion, the insurance
departments are violating those sections of the insurance laws which
apply to them, he has authority to report the facts to the law enforce­
ment officers of the Commonwealth. He is authorized to require
the books and records to be kept in such a way that the annual state­
ments may be verified and so that it may be ascertained whether
there is compliance with the laws. He is authorized to investigate
charges that unwarranted and misleading statements and promises
are being made with respect to insurance, and he may also investigate
any complaint of a policyholder with respect to any claim under an
insurance or annuity contract.22
The commissioner of insurance also has certain regulatory duties
imposed upon him by the savings-bank insurance law:
1. He issues licenses to write policies and make annuity contracts which are
required before an insurance department may begin operations, and these licenses
may be revoked by him at his discretion under certain conditions.
2. He must approve the retirement of the special insurance guaranty fund.
3. He has authority to ask the State actuary to prepare new forms of insurance
policies and annuity contracts.
4. He is authorized to enforce the insurance laws with respect to the rates
charged for insurance and annuities, etc.
5. He must approve the use by the State actuary of tables of mortality which
may be thought more suitable than the American Experience Table for the
business of the insurance departments of the banks.
6. He has authority to supervise and control the operation of the rules in use
by the State medical director regarding the health and acceptability of the
applicants.

The commissioner of banks, through his power to supervise and
regulate the affairs of the savings banks, comes in contact with the
insurance departments of those banks. He may take steps to have
22

Mass. Gen. Laws, ch. 175, secs. 3A, 4.




A D M IN ISTR A TIO N OF SYSTEM

23

bank officers removed if they persist in carrying on improper prac­
tices. He may prescribe the manner and form in which the books
and accounts shall be kept, the extent to which they shall be audited,
and the manner of safeguarding their money and securities. He has
power to take control of a savings bank which is conducting its busi­
ness in an unsafe and unauthorized manner.23
Further regulatory duties are imposed jointly upon both the
commissioner of insurance and the commissioner of banks:

1. The decision of the trustees of a savings bank to establish an insurance
department must be filed with both commissioners, and if they find the decision
to be in conformity with law and are of the opinion that the special expense
guaranty fund and either the special insurance guaranty fund or the guaranty
contract has been provided, they may issue a joint certificate declaring the
insurance department established.
2. The expense guaranty fund may not be retired without the approval of
both commissioners.
3. They enforce the laws regulating the nature and the extent of the investments
of the insurance departments.
4. They must approve the reinsurance of all outstanding policies and annuity
contracts of such banks if the reinsurance is effected with any private lifeinsurance company.
5. They must examine, either personally or through their agents, the insurance
department of each bank and the General Insurance Guaranty Fund, at least once
every 3 years.
6. Reports of the financial condition of the insurance departments and of
the General Insurance Guaranty Fund must be made annually to both commis­
sioners. Other reports also may be required whenever the commissioners think
it desirable.
7. The commissioners themselves are required to prepare annually a joint
report on the condition of the insurance departments and the General Insurance
Guaranty Fund and to submit this report to the General Court of Massachusetts
(i. e., the legislature).
8. A vote to discontinue the insurance department of a bank must be filed
with them.
9. If they believe the insurance department of a bank to be insolvent or if they
think its continuance in business hazardous to the public or the policyholders,
they may apply jointly to the Supreme Judicial Court of Massachusetts for an
injunction to prevent the department from carrying on business.24
23 Mass. Gen. Laws, ch. 167, secs. 5, 6, 22,
24 Idem, ch. 178.




Chapter 4.—Financial Operations of the System
The financial operations of the savings-bank life insurance system
differ in some essential characteristics from those of private life insur­
ance companies. Thus the dividends distributed depend partly
upon the experience of the entire system and partly upon that of the
insurance departments of the individual bank. Similarly, the ex­
penses of operation of the system involve not only the expenses of the
banks themselves but also those of the Division of Savings Bank Life
Insurance. Furthermore, the insurance departments of the banks are
taxed on a different basis than are the insurance companies. And,
finally, the control over the investments of the insurance departments,
instead of being the same as that over insurance-company invest­
ments, is similar to the control exercised over the investment of the
deposits of the savings banks.
Dividends
After contributions to surplus have been set aside by the insurance
departments of the banks, the balance of net profits which remains
must be distributed equitably each year among the holders of policies
and annuity contracts. The sums so distributed are called “ divi­
dends ” and their size, as has been pointed out, is determined in general
by three factors: (1) Ratio of actual to anticipated expenses (or
“loading”); (2) ratio of actual to expected mortality losses; (3) the
excess of actual over required earnings on funds invested. For
example, in 1931 there were available total gains of $1,006,456, which
arose from the following sources: The anticipated ratio of expense to
premium income, that is, the ratio of “loading”, was 13.86 percent,
while the ratio of actual expense to premium income was only 4.97
percent. This gave rise to a gain of $275,051. The fact that the
actual mortality losses of the system were only 39.43 percent of the
expected losses resulted in a gain of $536,469. The funds earned 5.12
percent in interest, resulting in a gain of $194,936 above the 3 % per­
cent (4 percent on annuities) required to maintain reserves. Of the
total gain of $1,006,456, part was put aside to surplus, and $707,972
was paid out as dividends. The 1933 experience was as follows: Gain
from loading, $293,690; gain from mortality, $594,637; gain from
interest, $189,864; total gains, $1,078,191; paid out as dividends,
$709,644.1
Organizations selling insurance do not generally make frequent
changes in their scale of dividends. It is cotetomary to construct
dividend scales, as stable as possible, upon a consideration of past
experience with respect to mortality ratios, rates earned on invested
assets, and expense ratios. The dividend scale thus arrived at by the
Division of Savings Bank Life Insurance is called “ the basic scale.” If
1

Annual Reports of the Commissioner of Insurance of Massachusetts, 1931 and 1933, pt. 2, table M.

24




FINANCIAL OPERATIONS OF SYSTEM

25

the particular experience of any single insurance department is such
that it can afford to pay dividends on this scale, it is said to be paying
100 percent of the basic scale. If its experience is not sufficiently
favorable, it may be compelled to reduce its dividends to less than
100 percent of the scale.
Mortality experience, as has been shown, is shared by all the banks
through the operation of the system of unification of mortality. The
principle underlying this sharing is that, since the^ acceptance of
applicants for insurance is the responsibility of the Division of Savings
Bank Life Insurance and not of any particular insurance department,
the latter should not bear the entire burden of a heavy mortality
loss among its own policyholders. Each bank, however, does have
control within broad limits over its investments and its efficiency of
operation. When a particular bank is unable to pay dividends at the
100 percent level, it is clear that its experience with investments and
expenses of operation alone, and not with mortality, is the cause.
The mortality experience of the system as a whole, however, enters
into the establishment of the basic scale when it is formulated by the
Division of Savings Bank Life Insurance.
In 1932,100 percent of the basic scale was paid by 7 banks, 1 paid 80
percent of the scale, 6 paid 75 percent, 2 paid 70 percent, 2 paid 60
percent, and 2 paid 50 percent. In 1934, 100 percent of the basic
scale was paid by 16 banks; 1 paid 90, 1 paid 70, 1 paid 60, and 2 paid
50 percent. A new basic scale was adopted in 1934. Of the 21 banks,
17 were paying dividends in 1935 at the rate of 100 percent of this new
scale, 1 bank was paying 70 percent, and 3 were paying 60 percent.2
Expenses
The expenses of operating the savings-bank life insurance system
may be considered under two heads: (1) The expenses of operating the
State Division of Savings Bank Life Insurance and (2) the expenses
of operating the insurance departments of the various banks.
From the beginning, in 1907, through the year 1926, the expenses of
operating the State division were met from appropriations made
annually by the legislature. In 1907 the sum of $1,202 was spent
for this purpose. From 1910 on, the expenses increased with consider­
able regularity until, in 1926, the operation of the division cost the
State $31,112. In 1927, the legislature, acting on the recommenda­
tion of the commissioner and the deputy commissioner of the division,
passed a measure providing that the insurance banks should reimburse
the State for the costs of the stationery furnished the banks by the
division.3 In 1927 the State spent a total of $32,818.50 on operating
expenses of the division and, under the new law, $2,313 of that amount
was reimbursed to the State by the banks.
Again at the request of the commissioner and the deputy commis­
sioner of the division, the legislature, in 1929, passed a measure pro­
viding for progressive reimbursement, year by year, until by 1934 all
operating expenses of the division would be met by the banks. The
law required that 25 percent of the State’s expenditures should be
reimbursed in 1929, 40 percent in 1930, 55 percent in 1931, 70 per2 For further discussion of the basic dividend scale see ch. 7 and appendix E.
3 Acts of 1927, ch. 188.
5736°—35----3




MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

26

cent in 1932, 85 percent in 1933, and 100 percent in each year there­
after.4 The largest expenditure by the division to date has been
$42,317 (in 1931) and $23,318 of that amount was reimbursed to the
State. In 1933 the expenditure was $40,740, of which $36,718 was
reimbursed. Of the total expenditure in the latter year $32,630 was
for salaries.
Table 8 shows the actual expenditures of the Division of Savings
Bank Life Insurance from 1907 to 1933 inclusive, the reimburse­
ments to the State, and the net expenditures met by the State.
T able

8.—Disbursements of Division of Savings Bank Life Insurance, 1907 to 1938

Year
1907__ _____
1908___________
1909-__
___
1910___________
1911
1912
1913.__ ______
1914___________
1915___________
1916
___
1917
1918-__ _____
1919
1920- _ ____
1921___________

Reim­
Actual
burse­
expendi­ ment
to
tures
State

Net ex­
pendi­
tures of
State

$1,202.13
7,132. 53
15,733. 40
11,438. 09
14, 222. 57
14,997. 33
15,805. 33
16, 873. 35
19,153. 92
18, 335. 98
20, 366. 45
19, 271. 35
21, 640. 32
23, 295. 55
26, 527.12

$1,202.13
7,132. 53
15,733. 40
11,438. 09
14, 222. 57
14,997. 33
15, 805. 33
16,873. 35
19,153. 92
18,335. 98
20, 366. 45
19, 271.35
21,640.32
23, 295. 55
26, 527.12

Year

Reim­
Actual
burse­
expendi­ ment
to
tures
State

1922__________ _ $28,082.42
1923___________ 32,128.89
1924
32.615.97
1925._
_
32,475. 24
1926________ __ 31, 111. 93
1927
____ 32,818. 50
35,122. 61
1928
_
1929___________ 37.359.98
1930___________ 38, 290. 41
1931___________ 42, 316. 98
1932 _ ____
41,189. 69
1933___________ 40,740. 39
Total - __ 670,248.43

$2,312.80
3,722.32
9,339. 54
15,279. 94
23,317. 75
28,412. 20
36,717.66
119,102.21

Net ex­
pendi­
tures of
State
$28,082.42
32,128.89
32,615.97
32,475. 24
31,111.93
30,505. 70
31,400. 29
28,020.44
23,010.47
18,999. 23
12,777.49
4,022.73
551,146. 22

The total expenses of $670,248 of the division for the period 1907-33
is 2.66 percent of the total premium income of $25,233,177 for the
period. The actual cost of $551,146 to the State was 2.18 percent
of the total premium income.5 In the year 1934 the division expended
$44,096.97, all of which was paid by the banks.
The expenses common to the operation of both departments of the
insurance and savings banks, as has been pointed out, must be appor­
tioned equitably between the two departments. So much discussion
has arisen as to whether such an equitable allocation has in fact been
made that the matter will be dealt with fully in chapter 7.6
Taxation
Savings-bank life insurance funds and the General Insurance Guar­
anty Fund are taxed at the same rate, in the same manner, and to the
same extent as are deposits in the savings banks. The insurance
departments of the banks are exempt from any taxes or fees levied on
life-insurance companies.
The savings banks are required to pay an annual tax of one-half of
1 percent of their average deposits, the tax to be levied twice a year
* See sec. 17 of the savings-bank insurance law.
s The measure providing for gradual reimbursement to the State prohibits the levying upon any insur­
ance department of its share of the total reimbursement until the department shall have amassed a surplus
of not less than $20,000, or until it has been established 5 years, whichever event takes plaee first. Until
such time the share of the exempted bank is to be paid to the State by the trustees of the General Insurance
Guaranty Fund from interest income on the fund. In 1933, 11 of the banks were paying nothing in reim­
bursement. None of them were as much as 5 years old and at the end of the preceding year none of them
had acquired a surplus of $20,000 or more. (Annual reports of the Commissioner of Insurance and Com­
missioner of Banks, 1932 and 1933, pt. 2, table M.)
c Expenses of operation are also discussed in ch. 5.




FINANCIAL OPERATIONS OF SYSTEM

27

in such a way that the banks pay one-fourth of 1 percent on their
average deposits of the preceding 6 months.7 The amount of the tax
on savings-bank deposits is determined by averaging the deposits
in the bank for each business day of the 6-month period. In cal­
culating the amount of the tax to be levied on savings-bank life
insurance it was not feasible to determine the average daily reserve
and surplus. Before the year 1921 the tax was levied upon the reserve
and surplus of each insurance department at the end of the year.
This proved to be unfair for the new banks, the business of which
had grown rapidly toward the end of the year, but which might have
sold comparatively little insurance in the early part of the year. As
a result of this consideration, the method was changed so that the
reserves and surplus of the insurance departments were averaged at
the beginning and at the end of each year and the result taken as the
basis for taxation. Neither all of the deposits of the savings banks,
nor all of the insurance funds of these insurance departments, however,
are subject to taxation by the State.8 Mutual savings banks are
exempt from taxation under the Federal income tax laws and this
exemption extends also to their insurance departments.9
Investments
The funds of the insurance departments of the banks must be
“ invested in the same classes of securities and in the same manner in
which the deposits of the savings departments are required by law
to be invested, except that [they] may make loans upon any policy
of insurance or annuity contract issued by [them].” Such invest­
ments are restricted to the following: (1) Mortgages of real estate in
Massachusetts not exceeding 60 percent of its value and, if the real
estate is unimproved or unproductive, 40 percent of its value; (2)
the public bonds of the United States, or of any State in the Union
which has not defaulted for the preceding 20 years in the payment of
either the principal or interest of its legal debt, the bonds or notes of
a county, city, or town in Massachusetts, the bonds or notes of an
incorporated district of the State whose net indebtedness does not
exceed 5 percent of the value of the property therein, or the bonds or
notes of any city in other States of the Union, under certain conditions;
(3) certain kinds of railway bonds; (4) certain kinds of street-railway
bonds; (5) certain kinds of bonds of telephone companies and other
public utilities; (6) bank stocks and bank deposits; (7) bankers’
7 General Laws Relating to Taxation, ch. 63, sec. 11.
s Sec. 12 of ch. 63, General Laws, exempts from taxes such deposits as are invested in (1) real estate
used for banking purposes; (2) loans secured by mortgage of real estate taxable in Massachusetts; (3) real
estate on which the title has been acquired by foreclosure, for 5 years after the title thereof is vested in the
bank; (4) bonds or certificates of indebtedness of the United States; (5) bonds or certificates of indebtedness
of Massachusetts issued after Jan. 1, 1906; (6) bonds, notes, or certificates of indebtedness of any govern­
mental unit in Massachusetts issued on or after May 1,1908, and stating on their face that they are exempt
from taxation in the State; (7) shares of stock of trust companies organized under thelaws of Massachusetts;
(8) (under ch. 362 of the Acts of 1934) bonds and certificates of indebtedness of the Home Owners’ Loan
Corporation if acquired in exchange for real estate under (3) above, or such bonds or certificates obtained
through conversion of the securities so acquired pursuant to the Home Owners’ Loan Corporation Act
passed by Congress in 1933. Similar exceptions apply to the investment of the assets of the insurance
departments of the banks.
9 For the year ending Nov. 30, 1930, the total amount taxable was $2,788,413, upon which the insurance
departments paid a tax of $13,943. In 1931 the analogous amounts were $3,184,247 and $15,925; in 1932,
$3,869,247 and $19,346; in 1933, $4,483,730 and $22,419. The data for the years 1930-32 are from the annual
reports of the commissioner of corporations and taxation for those years. The data for 1933 and the infor­
mation concerning the method of determining the tax base were obtained July 24, 1934, in an interview
with Miss Florence Tufts, in charge of insurance taxation in the Massachusetts Department of Corpora­
tions and Taxation. The questions as to whether savings-bank life insurance bears a smaller burden of
taxation than life-insurance companies will be dealt with in ch. 6.




28

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

acceptances; (8) personal notes secured by the endorsement of three
citizens of the State or by proper collateral, and the notes of certain
corporations, public utilities, and railroads; (9) farm loan bonds
issued by the Federal Land Banks; (10) bank buildings; (11) real
estate acquired by foreclosure; (12) securities acquired in settlement
of an indebtedness, provided they be sold within 5 years after acquisi­
tion. The law also requires that no more than a certain proportion
of the deposits of the savings banks shall be invested in some of the
classes of securities specified above.
The ratio of the amounts invested in certain classes of property to
the total admitted assets of the insurance departments in the year 1933
was as follows: (1) Mortgages, 47.83 percent; (2) bonds, 28.16 per­
cent; (3) collateral loans, 2.33 percent; (4) stocks, 2.12 percent; and
(5) real estate, 1.49 percent. In addition to these investments the
insurance departments of the banks had advanced, in the form of
loans on policies, an amount equal to 10.74 percent of their total
admitted assets. Table 9 shows the proportion of investments of
each type to the assets of the system as a whole.10
T able

9.—Percent of total admitted assets of the system invested in certain kinds of
property, 192% to 1983
Year

1924________________________
1925________________________
1926________________________
1927________________________
1928________________________
1929________________________
1930________________________
1931________________________
1932________________________
1933________________________

Mort­
gages
59.10
58. 27
59. 22
57. 63
56. 85
55. 03
54. 01
52. 66
49. 82
47. 03

Bonds
20.96
20. 71
20. 59
21.17
21.06
19. 40
19. 74
22.81
26. 08
28.16

Policy Collateral Stocks
loans
loans
6.86
6. 75
7.18
6.98
7.07
7.23
7.89
9.01
10. 60
10. 74

4.56
5.04
4.59
4.90
4. 79
6.80
6. 39
4. 21
2.10
2. 33

0. 91
1. 27
1. 56
2. 59
3. 52
4. 51
3. 82
3. 67
3.28
2.12

Real
estate
0
0
0
0
0
.19
0
.12
.36
1.49

All
others 1
7.61
7.96
6.86
6.73
<J5.71
7.84
8.15
7. 52
7. 76
8.13

1 “All others” includes cash in office and banks, interest and rents due and accrued, deferred and uncol
lected premiums, and several minor miscellaneous items.
10 Annual Reports of the Commissioner of Insurance, pt. 2, table D. The ratio of investments in stocks is
calculated on the basis of market values on the “ convention basis.” The ratio as to bonds is calculated on
the basis of the amortized value. The ratios given above take into consideration the investments and
assets of the General Insurance Guaranty Fund.




Chapter 5.—Savings-Bank Insurance and Company Insur­
ance: Selling Methods, Policy Terms, and Policy Main­
tenance
Until recent years savings-bank insurance has represented only a
small part of the total amount of insurance in force in Massachusetts.
Its importance, however, is to be found in its characteristics, its
potentialities, and in its recent rapid growth, rather than in its abso­
lute size.
Administrative Organization
The administration of savings-bank insurance differs markedly
from that of the private insurance companies. The executive direc­
tion of insurance companies is generally centered in a home office,
which handles financial, actuarial, and other activities for the com­
pany as a whole. Fully as important as the work of the home office,
however, is the work of the agents in the field, whose task it is to sell
life insurance, and to collect premiums, especially in the case of
industrial insurance. The field work of the companies may be organ­
ized in two ways— (1) under the general-agent plan, and (2) under
the branch-office plan.
O: Jinary insurance is usually sold under the general-agent plan.
General agents are given charge of writing insurance policies within
fairly large districts. They themselves engage subagents, with whom
they make agreements as to commissions and similar matters. The
subagents are responsible directly to the general agent, who in turn
is responsible for the business of his district to the home office.
Under the branch-office plan districts are set up, at the head of
each of which is a district manager or superintendent. Under him
is a corps of assistant managers or liassistants” responsible to him.
Each assistant is in turn responsible for the work of a number of
agents. The salary arrangements under which the field force works
under this plan are determined by the home office. Each agent is
responsible to an assistant, each assistant to the superintendent or
manager of the district, and the latter is responsible to the superin­
tendent of agencies at the home office.
Industrial insurance is usually administered under the branchoffice plan. There is very close supervision of the work from top to
bottom. As a rule an assistant manager has under him as many as
8 or 9 agents. ^Each industrial agent is assigned a so-called “ debit”,
which usually includes from 1,000 to 2,000 policies in a given closely
restricted area. One agent may not cross area lines to do business in
the territory assigned to another agent. Whereas in the case of
ordinary insurance the principal work of an agent consists in selling
insurance, industrial insurance agents must not only sell insurance
but collect weekly premiums as well.1
1 The administrative organization of the savings-bank life insurance system has been discussed in ch. 3.




29

30

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Payment of Insurance Agents
It has already been made clear that insurance solicitors and agents
are not employed by the savings banks, although two persons are
regularly employed on a salary basis by the Division of Savings Bank
Life Insurance for the purpose of instructing industrial workers, upon
request of their employers, respecting the advantages of this form of
insurance. Except to the extent that the work of these instructors
results in the buying of savings-bank insurance by industrial workers,
the banks sell insurance across the counter or in response to applica­
tions by mail, without the solicitation of prospective policyholders by
agents.2 Much of the insurance ultimately purchased even by indus­
trial workers is likely to be bought directly when they go to the
savings banks for the purpose.
The only payment connected with savings-bank insurance which
in any sense may be regarded as a commission is the 2 percent of
premiums which in the past authorized agencies have been permitted
to receive for collecting premiums and transmitting them to the
underwriting banks. Employer agencies are no longer permitted to
collect this fee but even when they had this privilege many of them
did not take advantage of it. Collection fees paid in 1932 were only
0.89 percent of premium income.
Private insurance companies generally pay commissions to their
agents for selling ordinary straight life insurance. These commis­
sions equal at least 50 percent of the first year's premium and 5 per­
cent of the annual premium for each of the next 9 years. In other
words, the ordinary-insurance agent receives in commissions, during
the first 10 years of the life of the policy, a sum equal to at least 95
percent of one annual premium. In addition to this, the general
agent, under whom the agent works, usually receives what is called
an “ overriding" commission of 15 percent of the first year's premium,
10 percent of the second year's premium, and 2% percent of all annual
premiums thereafter. Thus in a period of 10 years the commissions
of general agent and agent are likely to be equal to 140 percent of
one annual premium (95 percent to the agent plus 15 percent plus
10 percent plus 8 times 2 % percent)^
The compensation of agents selling industrial insurance for the
private companies is divided into two parts—that received for selling
new insurance and that received for collecting premiums. As a rule
there is a minimum collecting salary, which in one of the largest com­
panies is $18 per week when weekly collections are from $140 to $150,
and which increases as the collections rise. The commission for writ­
ing new business varies with the different companies. One pays the
agent outright, at the time the policy is sold, a sum equal to 20 weeks'
premium payments. Another pays 24 weeks' premiums. A third pays
a commission equaling premium payments of 17 to 25 weeks, depend­
ing upon the length of service of the agent. In addition to these
commission and collection payments, the income of the assistant
managers depends upon the business done by their agents, and that
of the managers depends upon the business which comes through
their offices.
2 It would be interesting to know what proportion of savings-bank life insurance has been bought because
of the work of the instructors, but data on this point are not available. Since there are never more than
three instructors, however, the proportion is probably small.




SELLING METHODS, POLICY TERMS, ETC.

31

If an ordinary-insurance policy is lapsed, the incomes of the general
agent and agent suffer only to the extent that they receive no further
commissions. ^In the case of industrial insurance, however, the situa­
tion is very different. The collection of weekly premiums, except in
one case,3 is regarded as the function of the industrial agent, and he
is held responsible for lapses. He receives, for example, a commission
of 24 weeks’ premiums when he writes new insurance. When a policy
is lapsed, however, he owes the company a sum equal to 24 weeks’
premiums. Similarly the assistant managers and the manager also
are penalized when a policy is lapsed. If the amount of insurance
lapsed exactly equals the amount of new insurance written in a given
month, and collections are maintained, the field staff neither loses nor
gains in income.
If there is a constant growth in the amount of industrial insurance
in force, as was usual over a period of many years preceding the
depression which began in 1929, the field staff benefits by the receipt
of commissions and by the increase in premium collections, and the
lapses are not sufficient to offset the gains made. On the other hand,
when the amount of insurance lapsed exceeds the amount of new
insurance written, payments to agents for new insurance are offset
by the lapses. This gives rise to debts owed to the companies by the
agents. Moreover, since the salary of the agent varies with the
amount collected in premiums, he suffers a further loss of income.
At such a time the pressure upon the field staff becomes enormous.
Agents, on finding their incomes falling off and their indebtedness to
the companies increasing, are tempted to resort to “ high pressure”
methods to maintain insurance in force and to write new insurance.
Frequently they pay premiums out of their own pockets, though com­
pany rules forbid it, rather than suffer the burden of the debt of
24 weeks’ premiums which a lapsed policy would cause.4 The assistant
manager, with his own income rapidly decreasing, finds himself simi­
larly tempted and brings pressure upon the agents under him, for not
only does his income suffer at such times, but he himself is the recipi­
ent of pressure from his manager. The latter, though his guaranteed
minimum salary might be regarded as high, nevertheless is judged at
the home office by his ability to “produce”, and his own income is
affected considerably by lapses in his district. The serious conse­
quences of the situation prevailing as a result of such conditions
constitute one of the major problems of industrial insurance. From
all such problems the savings-bank insurance system appears to have
been spared by the very nature of its method of operation.5
3 The Metropolitan Life Insurance Co. permits the holder of an industrial policy to transmit premiums
directly to the home office or the district office and returns annually a rebate of 10 percent of the premiums
so transmitted to the policyholder. In 1933 about 40 percent of the industrial premiums due on policies
in New England were paid by policyholders in this way. This information was obtained from the New
England office of the company.
4 It should be noted that the company pays an agent a minimum salary so long as he is employed despite
the amount of his debt on account of lapse penalties.
3 For an excellent treatment of these problems see Taylor, Maurice, The Social Cost of Industrial Insurance,
New York, 1933, pp. 119-124. The information in this and the preceding sections, concerning the admin­
istration of the insurance business and the method of paying commissions and salaries to agents for ordinary
and industrial insurance, may be found in any good treatise on life insurance. Taylor, Maurice, The
Social Cost of Industrial Insurance, New York, 1933, and Maclean, Joseph B., Life Insurance, New York,
1932, are recent and useful treatises.




32

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Comparison of Policy Provisions
The provisions of savings-bank insurance policies are in some re­
spects more advantageous to the policyholders than are those of
ordinary policies issued by the insurance companies. Ordinary poli­
cies, whether sold by the banks or the companies, usually contain
provisions respecting regular payment of dividends, obtaining of loans,
automatic loans for the payment of premiums, cash surrender values,
and other nonforfeiture privileges. In all of these matters the pro­
visions of savings-bank ordinary policies are more liberal than those
offered by the companies. Both the banks and the companies permit
the assignment of ordinary policies for payment of debt and provide
for the payment of insurance to the designated beneficiary or his
heirs. In all of these respects the holders of industrial policies are at
a disadvantage.
Industrial policyholders, however, have an advantage over the
holders of ordinary policies issued by private companies in that pro­
visions permitting the waiver of premiums in case of disability, clauses
providing for benefit in case of disability, and those granting double
indemnity in the event of accidental death are included without addi­
tional premium. The ordinary policies issued by the savings banks
contain none of these provisions.
Dividends.—In view of the fact that the cost of insurance to the
policyholder depends not only upon the amount he pays in premiums,
but also upon what he receives in the form of dividends, those pro­
visions in insurance policies which have to do with the payment of
dividends are of importance. The holders of savings-bank policies
and of ordinary participating policies issued by the insurance com­
panies are entitled to annual payment of dividends, if earnings permit.
Dividends are payable to policyholders of the banks after the insurance
has been in force for 1 year. The companies usually pay their
ordinary policyholders dividends after the policies have been in force
for 1 or 2 years, though some of them require, as a condition to
receiving these dividends, the payment of premiums for the second or
third year.
In the case of industrial insurance, dividends are not payable until
after 4 years. Even then they are rarely paid in cash. Only one
industrial company provides for cash payment of dividends to indus­
trial policyholders. A second company applies dividends to the
reduction of premium payments, and this is the usual practice of the
first company as well. A third company pays dividends neither in
the form of cash nor as premium deductions, but credits the industrial
policyholder with paid-up insurance purchasable by the dividends
due him.
^
#
Loans.—The ability to borrow money on an insurance policy is
often a valuable privilege. Savings-bank policyholders may obtain
loans after their insurance premiums have been paid for 1 year. The
holders of ordinary policies issued by the companies do not usually
have this privilege until after 2 or 3 years. Industrial policies do not
provide for the making of loans at any time.
Automatic premium loans.—A policyholder frequently finds himself
in the position of having permitted his policy to terminate without
intending to do so, merely because he has forgotten or has temporarily
been unable to pay premiums. The savings banks provide against




SELLING METHODS, POLICY TEEMS, ETC.

33

such a contingency by making loans on policies in order to credit the
insured with the payment of premiums when these are not received
from the policyholders. Such loans are made the banks after the
policy has been in force 1 year, provided the insured so requests.
Tim loans are made automatically, without waiting for directions from
the insured. The holders of ordinary policies issued by the companies
do not, as a rule, receive the privilege of automatic premium loans.
Only 2 of the 15 most important companies selling ordinary insurance
grant this privilege, and then only after the policy has been in force
for 2 years. None of the companies selling industrial insurance permit
automatic premium loans to their industrial policyholders.
Cash surrender.—The privilege of receiving cash for a policy instead
of maintaining the insurance in force by the payment of premiums is
also of great value to the policyholder. Holders of savings-bank
policies may obtain a cash value if they do not desire or are unable to
continue their insurance at any time after it has been in force for 6
months. The holders of ordinary policies issued by the private com­
panies usually do not receive any cash for their policies unless they
have been in force for 2 years, though some companies pay cash after
1 year. Industrial policyholders have not, as a rule, received cash
value until their policies have been in force 10 years. The companies
operating in Massachusetts, however, are now required to pay cash
surrender value to industrial policyholders after 5 years.6
Since April 1931, the three largest industrial insurance companies
have made exceptions to this practice. As a result of distress among
numerous policyholders, they established the life insurance adjustment
bureau, the function of which is to investigate cases of “ dire need”
and to give cash surrender values in such cases as are thought worthy
before the end of the period usually required.
Paid-up and extended term insurance.—If the holder of an insurance
policy discontinues the payment of premiums and does not desire to
surrender the policy for its cash value, he is entitled to receive a paidup insurance policy for a reduced amount of insurance, or a policy
providing for the original benefit for a certain limited (i. e., extended)
term. Savings-bank policyholders are entitled to these privileges,
which, together with that of obtaining cash surrender values, are
called “nonforfeiture privileges”, after premiums have been paid for
6 months. Holders of ordinary policies with the private companies
are entitled to them, for the most part, only after the insurance has
been in force 3 years, though in some cases they are available after
1 or 2 years.7 Industrial policyholders are not entitled to paid-up or
extended term insurance until after 3 years.
Assignment for debt.—The holder of a savings-bank policy, or of an
ordinary policy carried with the insurance companies, has the privilege
of assigning the proceeds of his policy as security for or in payment of
a debt. No such privilege is available to the holder of an industrial
policy.
e The amount of cash obtainable when a company policy is surrendered is equal to its full reserve value,
plus accrued dividends, and minus a surrender charge, which is limited by law to 2^ percent of the face
value of the policy. Surrender charges are not made if the policy has been in force for a certain period, the
length of which varies among the companies. The surrender charge made by the savings banks is limited to
1 percent of the face value of the policy. The banks pay cash value before 6 months have expired if the
reserve on the policy exceeds $2 per $1,000 of insurance. In such a case the entire reserve in excess of this
amount is paid.
7 It is common to make either paid-up or extended insurance “ automatic. ” In other words, if the policy­
holder does not himself express a preference for one or the other, he receives either paid-up insurance or
extended insurance, depending upon the terms of the policy.




34

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Payment of benefits to named beneficiaries.—Holders of bank policies
and of ordinary policies of the insurance companies are protected by a
provision that settlement of the insurance on maturity shall be accord­
ing to the terms contracted for in the policies. Payments are to be
made only to named beneficiaries, or, in case of death of the latter,
to the heirs of the insured, unless otherwise provided in the policy.
It is quite otherwise, however, as regards industrial insurance. In­
dustrial policies contain what is known as a “facility of payment”
clause. The following is substantially the wording of such clauses in
industrial policies:

The company may make any payment or grant any nonforfeiture privilege
provided herein to the insured, husband or wife, or any relative by blood or con­
nection by marriage of the insured, or to any other person appearing to said com­
pany to be equitably entitled to the same by reason of having incurred expense
on behalf of the insured, or for his or her burial; and the production of a receipt
signed by either of said persons, or of other proof of such payment or grant of
such privilege to either of them, shall be conclusive evidence that all such claims
under this policy have been satisfied.

The opportunities for abuses which may arise and have Arisen
because of this provision constitute a major shortcoming of industrial
insurance. It gives rise to instances of payments to persons who
should not receive the benefit of insurance payments. It assumes
that though the beneficiary of an ordinary policy is entitled to the
protection which the rigorous terms of the contract provide for him,
the beneficiary of an industrial policy has his interests amply safe­
guarded if the company uses its own judgment as to who is entitled
to receive benefits.8
Disability.—In recent years life-insurance policies containing socalled “ disability” clauses have assumed importance. In 1896 one
American company provided in its policies that in case the insured
was totally disabled further payment of premiums was to be waived,
and on maturity the beneficiary would be paid as though premium
payments had been met continuously. By the year 1910 such a pro­
vision had become general in ordinary policies sold by the insurance
companies. Thereafter, especially in the 1920’s, in order to compete
with those who had initiated a different disability provision, com­
panies generally began to pay to the insured, in case of total and
permanent disability, an income of $10 a month for each $1,000 of
insurance. The waiver of premium payments was also included in
the disability clause. The disability income provisions became
increasingly burdensome to the companies, and in 1932, as a result
of an agreement, 10 of the largest insurance companies, including the
most important in the country, discontinued the issuance of policies
containing provisions for the payment of disability incomes and con­
fined their disability clauses to the waiver of premium payments.
The companies generally charge a small „extra premium for this
privilege.
The usual industrial insurance policy contains a disability clause
which provides for the waiver of premiums under certain limited con­
ditions, without requiring extra premiums. Income payments at
regular intervals to totally disabled persons are not made. Some
companies not only waive further premiums when the insured becomes
totally and permanently disabled, but pay one-half or all of the face
8 See Taylor, Maurice, The Social Cost of Industrial Insurance, New York, 1933, pp. 80-84, for a wellconsidered treatment of this problem, and for a statement of the companies’ position on the matter




SELLING METHODS, POLICY TERMS, ETC.

35

value of the policy at once. The companies, despite this previous
payment, usually pay the whole face value on maturity.9
The savings-bank insurance policies contain no disability clauses of
any kind.
More precise details as to the terms of ordinary policies sold by the
banks and by seven of the most important mutual companies, and
of the industrial policies sold by the three most important industrial
companies, are presented in table 10.
9 Maclean, J. B., Life Insurance, New York, 1932, p. 365; Taylor, Maurice, The Social Cost of Industrial
Insurance, New York, 1933, pp. 206-209.




T able

Companies

10.— Terms of policies issued by the savings banks, 7 of the insurance companies, and 3 industrial-insurance companies 1
Dividends 2

Cash surrender

Surrender
charge

Loans

Paid-up insur­
ance

Extended-term
insurance

Disability

Extra premium.
Do.
None.
Extra premium.
Do.
None.
Extra premium.

MASSACHUSETTS SAVINGS-BANK LIFE INSUKANCE




Double indemnity
for accidental death

First year (nc.)___ After 6 months___ To second After first year Automatic after After 6 months___ None_______________ None.
6 months.
year.
(au to m a tic
premium loan
on request).

O r d in a r y companies:
Company 1____ Second year (nc.). After second year. T o te n th A fter second After se c o n d Automatic after Premium waiver (ex­
tra premium).
second year.
year.
year.
year.
Company 2
do
___do _____ __do____________ . ... do..................... .
Generally third . do To th ir d
year.
year (nc.).
Company 3____ First year (c.) (nc. After first year___ To second After first year.. After first year.. Automatic after Premium waiver ($10
pe*- $1,000 pe**month
first year.
thereafter).
year.
for men, $5 per $1,000
per moDth for
women) (extra pre­
mium).
Company 4 ___ ___do....................... After second year.. ____do_____ After second year Automatic after Automatic on re­ Premium waiver (ex­
second year.
quest after sec­ tra premium).
ond year.
Company 5____ Second year (nc.). After third year on To te n th After third year After third year Automatic after Premium waiver (ex­
straight life; af­ year.
on str a ig h t on str a ig h t third year on tra premium) $5 per
ter second year
life; after sec­ life; after sec­ str a ig h t life; $1,000 per month
on endowment.
ond year on ond year on automatic after (extra premium).
second year on
endowment.
endowment.
endowment.
Company 6____ First year (c.) (nc. After second year.. To n in th A fter secon d A fter second Automatic after Premium waiver (ex­
tra premium).
thereafter).
second year.
year.
year.
year.
Company 7____ Second year (nc.) . After third year ------do_____ After third year After third year Automatic after Premium waiver (no
third year on extra premium).
on straight life;
on str a ig h t on str a ig h t
after second year
life; after sec­ life; after sec­ str a ig h t life;
on endowment.
ond year on
automatic after
ond year on
second year on
endowment.
endowment.
endowment.

CO

Industrial com­
panies:
Company 1___ After 5 years (de­ After 10 years.
ductions from
premiums only).
.do.

After 5 years
(paid-up addi­
tional insurance
only).

Company 3.

After 5 years (cash After 5 years.
or d e d u c tio n
from premiums).

None.

None.

Premium waiver (pay­ Paid, no extra pre­
ment of half face mium required.
value of policy and
payment of full face
value on death).
After third year.. Automatic after Premium waiver (pay­
ment of face value
third year.
for half disability,
payment of full face
value for full dis­
ability, and payment
of full face value at
death).
Do.
Premium waiver (pay­
.do.
After fifth year
ment half face value
and payment full
face value at death).

Automatic after None.
third year.

1 The ordinary companies covered in this table include the 6 most important mutual insurance companies doing business in Massachusetts and a seventh company of very long
standing chartered by the State. Details as to policy terms for the ordinary-insurance companies have been taken from the 1934 editions of the Flitcraft Compend and of the Spec­
tator Co.’s “Handy Guide to Standard and Special Contracts.”
2 “ c.”, that is, “conditioned”, indicates that dividends are paid only after renewal premiums are paid; “nc.”, that is, “nonconditioned”, indicates that dividends are paid
whether or not renewal premiums are paid.




SELLING METHODS, POLICY TERMS, ETC

Company 2.

None.

CO

■<1

38

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Maintenance of Insurance by Policyholder
The fundamental purpose of buying an insurance policy is to secure
protection. It is a commonplace, however, that not all insurance is
maintained in force by the policyholder until it is terminated by
death, maturity, or expiry. Policies may lapse—that is, they may be
terminated by the failure to pay premiums—and the insured receives
in return for what he has paid in the past only the insurance protection
which was his while the policy was in force. Policies may be sur­
rendered for cash, and the insured gets in return for his past premiums
the insurance protection received while the policy was in force and a
sum in cash, in addition. It is clear that a policy which is terminated
by death, maturity, or expiry fulfills completely the purpose for which
it was bought, that a surrendered policy does so to a lesser extent, and
that a policy which is lapsed serves the policyholder or his beneficiary
least of all.
It might naturally be expected that if a policyholder is entitled
to receive cash surrender value on his policy or to obtain a loan on it
at a comparatively early date, he is unlikely to permit it to lapse.
The amount he may receive as a loan is about as much as he may
obtain in cash surrender value, except that in the first instance
interest is deducted in advance from the reserve to which he is en­
titled, while in the second instance the surrender charge is deducted
and the policy is canceled. If his insurance has been in force 1 year
and he is unable to continue his premium payments, the fact that he
may borrow on his policy or that he is entitled to surrender it for
cash would have the effect of preventing a lapse. If he has to wait 3
years for these privileges, the probability of lapse would be greater.
The savings-bank policies may be surrendered for cash after 6
months, and often even earlier. Loans may be obtained on the
policies after a year. These terms are more favorable than those
offered by the insurance companies. It would be reasonable to expect,
therefore, that the banks would have a smaller proportion of lapses.
The data show this to be the case. The proportion of lapsed insurance
to new insurance written for 27 ordinary companies, 4 industrial
companies, and the savings banks, all operating in Massachusetts
since 1908, at 4-year intervals from 1911 to 1931, is shown in table 11.
The data is given separately for savings-bank ordinary, company
ordinary, and industrial insurance.10
T able

11.—Proportion of lapsed insurance to new insurance written, at J+-year
intervals, 1911 to 1931

Year

Savings- Com­
bank
pany
ordinary ordinary

1911_____________
1915_____________
1 9 1 9 . ____

Percent

14.4
4.1
2.6

Percent

15.4
16.8
9.7

Indus­
trial

Year

Percent

1923_____________
1927
____ _
1931

57.5
56.4
39.6

Savings- Com­ Indus­
bank
pany
ordinary ordinary trial
Percent

1.9
.9
1.2

Percent

18.3
24.3
33.3

Percent

34.8
57.5
61.8

The 27 ordinary insurance companies and the 4 industrial insurance companies here covered include
all of the companies in the State which carried on business continuously in the period from 1908 to 1931.
The data for these companies have been borrowed from an unpublished thesis by D. Bradford Damon,
entitled “ The Economic Value of Savings Bank Life Insurance” (Boston, 1933), p. 51. This thesis is
available at the library of Northeastern University.




39

SE L L IN G M ETH O DS, POLICY T E R M S, ETC.

The table shows that the highest lapse ratio for the savings banks
in the years represented was reached in 1911, when it stood at 14.4
percent. The lowest lapse ratio was that of 1927, when it was 0.9
percent. The highest ratio for ordinary insurance sold by the com­
panies during the years covered was reached in 1931, when the figure
was 33.3 percent. The lowest ratio was that of 1919, when it stood
at 9.7 percent. The highest ratio for industrial insurance was that of
1931, when the figure was 61.8 percent, while the lowest ratio for the
years covered in the table was 34.8 percent, reached in the year 1923.
If one averages the experiences of all years during the entire period
from 1908 to 1931, for the companies included in the table above and
for the banks, the average proportion of lapsed insurance to new
insurance written each year was 2.6 percent for savings-bank in­
surance, 21.0 percent for ordinary insurance, and 54.5 percent for indus­
trial insurance.
If the experience of all the insurance organizations operating in
Massachusetts is considered, it is found that the proportions of insur­
ance lapsed to new insurance written were 2.6 percent for the savings
banks, 49.7 percent for all company ordinary insurance, and 105.4
percent for industrial insurance in the year 1932, and 2.8, 46.3, and
52.8 percent, respectively, in the year 1933.11 An analysis of the
proportion of insurance lapsed to all insurance in force is likewise
greatly to the advantage of the banks. Thus the rate of lapses in
1933 to insurance in force at the beginning of the year was 0.23 percent
for the banks, 3.88 percent for ordinary insurance, and 12.89 percent
for industrial insurance.
A comparison of the proportion of the number of policies lapsed,
rather than of the amount of insurance lapsed, to new policies issued
shows similar results. Table 12 shows the proportions for all insurance
organizations for the years 1926 to 1933, inclusive.12
T

able

12.—Ratio between number of 'policies lapsed and number of new policies

Year

written, 1926 to 1933

Savings- Company
bank
Industrial
ordinary ordinary

1926_____________
1927_____________
1928_____________
1929_____________

Percent

1.8
.9
1.0
1. 3

Percent

25. 2
27. 5
25. 1
26. 2

Percent

Year

52. 6 1930_____________
58. 3 1931_____________
59. 6 1932_____________
56.3 1933_____________

Savings- Company
bank
Industrial
ordinary ordinary
Percent

1.2
1.2
2.6
2.6

Percent

32.6
35.7
45.6
40.9

Percent

74.9
76.2
107.5
88.9

11 If the analysis is based not on the proportion of new insurance written in each year but on the amount
of insurance terminated, the experience of the years 1908 to 1931 indicates that on the average the proportion
of insurance lapsed to the face value of all insurance terminated (by death, maturity, expiry, surrender and
lapse combined) was 38.3 percent for ordinary, 73.5 percent for industrial and 12.9 percent for savings-bank
insurance. (Damon, D. Bradford. The Economic Value of Savings-Bank Life Insurance. Boston, North­
eastern University, 1933 (unpublished thesis), p. 51.)
12 Information concerning the ratio between the amount of insurance lapsed and the sum of the amount of
new insurance plus the amount of old insurance revived, yields similar results to that in the foregoing tables.
The proportion of lapses for 1924 on this basis was 20.7 percent for company ordinary. The lapse ratio had
risen to 46.6 percent by 1932. The lapse ratio for industrial insurance on this basis was 42.2 percent in 1924.
By 1932 it had mounted to 79.8 percent. On the other hand, the lapse ratio for the banks was 3.1 percent in
1924. By 1932 it had fallen to 2.6 percent. (Annual Reports of the Commissioner of Insurance of Massa­
chusetts, tables G and H.)




40

M ASSA C H U SETTS SA V IN G S -B A N K L IF E IN SU R A N C E

There are several reasons for this favorable lapse experience of the
savings banks. One is to be found in the provisions of their policies
as described above. Of particular importance is the fact that insur­
ance carried with the banks can be surrendered for cash after it has
been in force only 6 months and even earlier, as contrasted with the
usual 2- or 3-year period on ordinary policies carried with the com­
panies and with the usual 10-year period on industrial policies. Fur­
ther factors are the nonforfeiture privileges, which are available after
6 months on savings-bank policies, as compared with 3 years on com­
pany policies, and the fact that loans are available at the end of a
year in contrast to the usual 2- or 3-year limit on ordinary insurance
and the absence of loan provisions in industrial policies. It is possible
also that the rapid growth of the system has some effect which might
be eliminated when the rate of growth declines. A final factor is
that savings-bank insurance is not likely to be oversold, and is accord­
ingly less likely to be given up by the policyholder.
The unusually small number of lapses of savings-bank policies might
appear to be due to the fact that policyholders terminate their insur­
ance by surrendering their policies for cash. The banks’ experience
with respect to cash surrender does not, however, disclose a very large
proportion of surrendered insurance. Table 13 presents the propor­
tion of cash surrender to new insurance written by the organizations
operating in Massachusetts since 1908, at 4-year intervals from 1911
to 1931, for savings-bank ordinary, company ordinary, and industrial
insurance.13
T able

13.—Proportion of cash surrender to new insurance written, at 4-year
intervals, 1911 to 1931

Year

Savings- Company
Industrial
bank
ordinary ordinary

1911_____________
____
1915
1919._

Percent

16.6
17.9
16.7

Percent

13.3
15.4
6.1

Percent

2.9
5.0
3.8

Year
1923_____________
1927 ___________
1931 _ .

Savings- Company
bank
Industrial
ordinary ordinary
Percent

5.0
12.8
13.2

Percent

12.2
12.9
28.0

Percent

3.9
8.6
23.1

Savings-bank ordinary insurance experienced its lowest cash sur­
render ratio in the 6 years covered by the table in 1923, wdien the pro­
portion of cash surrender values to new insurance written was 5 per­
cent. The highest ratio was that of 1915, when it stood at 17.9
percent. Company ordinary insurance experienced the lowest ratio
in 1919, when it stood at 6.1 percent. The highest ratio was that of
1931, when the proportion was 28 percent. The lowest proportion
for industrial insurance in the years covered by the table was 2.9
percent in the year 1911, and the highest, 23.1 percent, in the year
1931. It should be noted that in 3 of the 6 years covered by the
table—1911, 1915, and 1919—the cash surrender ratios of the banks
exceeded those of the ordinary companies. The differences in favor
of the latter during those 3 years were 3.3, 2.5, and 10.6 points, respec­
tively. During the years 1923, 1927, and 1931 the cash surrender
ratios of the ordinary insurance companies exceeded those of the
banks. The differences in favor of the banks were 7.2, 0.1, and 14.8
points respectively. For the period 1908 to 1931 as a whole the
13

The companies included are the same as those covered in table 11 on p. 38.




41

SELLING METHODS, POLICY TERMS, ETC.

ordinary companies show a higher cash surrender ratio than the banks.
Thus the average proportion of cash surrender values to new insur­
ance written each year of the period by the organizations covered in
the foregoing table was 10.9 percent for savings-bank insurance, 13.6
percent for ordinary insurance, and 9.2 percent for industrial insur­
ance.
During the years 1932 and 1933 the savings banks, in common with
the insurance companies, experienced a large increase in cash sur­
render ratios. In 1932 the ratios were 33 percent for savings-bank
ordinary insurance, 57.1 percent for the ordinary insurance of all
companies operating in the State, and 34.9 percent for all industrial
insurance. In 1933 the ratios had risen still further to 45.6, 68.4,
and 48 percent, respectively.14
A policyholder who is under financial pressure but who desires to
maintain insurance in force, rather than to surrender his policy for
cash, may prefer to borrow on it. He can thus pay premiums from
the proceeds of his loan and at the same time get financial relief.
The savings banks extend policy loans after the insurance has been
in force for 1 year. The insurance companies, on the other hand, do
not as a rule lend on ordinary policies until after 2 or 3 years. They
do not lend at all on industrial policies. Despite the fact that the
savings-bank experience with cash surrender shows that fewer policy­
holders resort to it than do those of the companies, and despite the
fact that the banks make loans on policies at an earlier date, savingsbank policyholders make less use of their borrowing privilege than
company policyholders. Table 14 shows the percentage of all assets
invested in policy loans by all insurance organizations doing business
in Massachusetts and by the savings banks considered separately.15
T able

14.—Percent of assets invested in policy loans, 1920 to 1933

Year

1920___ _________________
________ _ .
1921
1922 ______________________
1923__________________
1924_
___ ___ .
1925_ ____________________
1926_______________________

All insur­
ance, in­
cluding Savingssavings- bank
bank insurance
insur­
ance
Percent

11.5
12.4
12.2
11.9
11.6
11.4
11.4

Percent

4.8
5.8
6.2
6.5
6.9
6.8
7.2

Year

1927 .
1928
1929___ _______
1930
1931
1932__ _____
1933______________ __

All insur­
ance, in­
cluding Savingssavings- bank
bank insurance
insur­
ance
Percent

11.4
11.5
12.6
13.7
15.4
17.0
16.6

Percent

7.0
7.1
7.2
7.9
9.0
10.6
10.7

The evidence demonstrates that the lowest percentage of assets
invested in policy loans by all insurance organizations considered as
a whole was reached in the years 1925 to 1927, when it stood at 11.4.
The highest percentage was reached in 1932, when the figure was 17.
14 The data for ordinary-insurance surrender ratios prior to 1932 refer to the experiences of 27 ordinary
companies and 4 industrial companies, and come from Damon, D. Bradford, The Economic Value of Sav­
ings Bank Life Insurance, Boston, Northeastern University, 1933 (unpublished thesis). Information upon
which the percentages of cash surrender values to new insurance in 1932 and 1933 are based is for all com­
panies and comes from the Annual Reports of the Commissioner of Insurance of Massachusetts, pt. 2,
tables G and H.
18 Data on amounts and proportions invested in policy loans are contained in the Annual Reports of the
Insurance Commissioner of Massachusetts, pt. 2, table D.
5736°—35---- 4




42

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

In the case of savings-bank insurance, the lowest proportion of assets
invested in policy loans was that of 1920, when the ratio was 4.8 per­
cent. The proportion rose with some degree of regularity until it
reached its highest level of 10.7 percent in 1933.
Attention should be given to the fact that loans on insurance
policies are to a large extent not repaid. Consequently, if the loan
plus the accumulated interest exceeds the surrender value of the
policy, the insurance is in effect canceled. The final result of borrow­
ing on a policy may thus be the same as that of surrendering it for
cash, and the proportion of assets invested in loans has a direct
bearing upon the problem of maintaining insurance in force.
It is evident from the data on lapses, cash surrender, and policy
loans that savings-bank policies are more likely to be kept in force
than are those issued by the insurance companies. The terms of the
savings-bank policies themselves, which facilitate cash surrender and
borrowing, serve to explain in part why lapse ratios are unusually
low. The relatively small amount of surrendered insurance and
policy loans cannot, however, be explained to any great extent by the
favorable terms of the policies. It is probable, however, that
an important explanation of the relatively large number of sur­
rendered policies and policy loans experienced by the insurance
companies is the fact that the latter have outstanding a larger pro­
portion of old policies than the banks have. As a consequence, the
reserves on the company policies are likely to be larger, and the
surrender and loan values being likewise greater, the policyholder is
tempted to take advantage of them to a greater extent than he would
be if the policy were relatively new and the amounts available small.
How important this factor is can only be surmised. Though it is
probably of some consequence, its importance will obviously diminish
as the savings-bank insurance system grows older and its proportion
of old policies increases.
The fact that savings-bank policies are more likely to be maintained
in force than those of the insurance companies has another important
explanation, however. In the absence of a system of agents * com­
missions, savings-bank insurance is not so often oversold and the
persons who buy it are more likely to purchase only what they believe
they can afford. They are thus not so likely to permit their policies
to lapse, to surrender them, or to borrow on them as are persons who
have been sold more insurance than they can afford to carry.16
16 See appendix F for a comparison of the surpluses of the companies and of the insurance departments of
the banks.
The reserves required by law are the same for the insurance companies and the insurance departments
of the banks, though the interest rate assumed is not always the same. The banks and many of the insur­
ance companies assume that reserve funds on their ordinary insurance will earn interest at the rate of 3J-S
percent, and use the American Experience Table in calculating reserves. Many of thecompanies, however,
assume earnings of only 3 percent. The industrial-insurance reserves of the companies are based on the
Standard Industrial Mortality Table and an assumed interest rate of percent. This was also the case
prior to 1924 with the monthly premium business of the insurance banks. Annuity reserves in the case of
the companies and the banks are based on an interest rate of 4 percent, although some companies use a
lower rate.




Chapter 6•—Savings-Bank Insurance and Company
Insurance: Costs to Policyholder
We have seen that in general the terms of savings-bank life-insur­
ance policies are more advantageous to the policyholders than are
those of policies issued by the insurance companies, and that savingsbank insurance is more likely to be kept in force. These are matters
of much importance to policyholders, but they are probably of no
greater ”consequence than is the cost of carrying the insurance.
Does it cost more or less to buy savings-bank insurance than it does
to buy life insurance from the companies? If there is a considerable
difference in cost, what is the reason?
Cost to the Policyholder
The most effective and the fairest method of comparing the costs
of the insurance sold by different insurance organizations is to
determine what a policyholder of a given age, carrying a given type
of protection, would have actually paid out on the average for each
year if he had carried his policy during a certain period and then
surrendered it for cash. This amount would be made up of the
premiums paid each year, the size of which would depend on his age
on becoming insured as well as upon the amount and kind of insurance
carried. The size of the annual premium would of course not change
from year to year. At the end of each year the policyholder would
usually receive a dividend, which would tend to be greater with each
succeeding year as the reserves on his policy grew in size. If one
adds the total premiums paid during a given number of years and
subtracts from that sum the total amount received in dividends, the
result is the net amount he has paid to keep the insurance in force
during the period. If, however, a person surrenders his policy at the
end of a given period, he gets a cash value. In order to find what it
has cost to be protected during the period prior to surrendering the
policy, it is necessary to deduct from the net amount paid what is
received in cash surrender value. The result is the net cost for the
period, and dividing it by the number of years in the period gives
the average yearly net cost. (The net cost as thus computed does
not take into account the interest earned on premiums.)
A simple example will make the method clearer. Suppose that the
annual premium is $25 per year and that the policy is maintained for
10 years. The sum of the 10 years' premiums is $250. Assume that
in 10 years dividends to the amount of $50 have been returned to the
policyholders. The net payments for 10 years are therefore $200.
Suppose, further, that when the policy is surrendered for cash the
insured receives the sum of $140. The net cost of carrying his insur­
ance for the 10-year period is thus $200 minus $140, or $60. Dividing
this by 10 gives the average yearly net cost, or $6.




43

44

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

In the comparisons of net cost that follow it is assumed that the
insurance policy has a face value of $1,000; that it was taken out in
1924; that the policyholder was then 35 years old; that the premiums
were paid annually; that the dividends entering into the computa­
tion were those actually paid over the period 1925 to 1934; and that
the policy was carried for 10 years and then surrendered for cash.1
The policies to be considered are an ordinary straight life policy, an
ordinary 20-payment life policy, and an ordinary 20-year endowment
policy. The policies compared are those issued by 9 of the most
important life-insurance companies in the country, and by the 7
savings banks operating in 1924, considered as a whole.
Table 15 compares the net costs of an ordinary straight life policy.
15.— Annual net costs of a $1,000 straight life 'policy issued in 1924> al
age 85, based on actual dividends paid during following 10 years, and assum­
ing policy was surrendered in 1934

T able

Company or bank
Company:
No. 1
___
No. 2
_ __ _______ ___
No. 3_ ______________________
f
Nn 4
\
No. 5_ _____ _ -- -- __
No. 6
No. 7__________________________
No. 8 _____ ______________
No. 9__ ______ ____________
Average, 9 companies_____ __

Average
yearly net
cost
$7. 32
4. 76
6.83
i 3.82
2 5. 58
5.40
4.90
4. 57
5. 53
3. 75
5. 25

Company or bank
Bank:
No. 1__________________________
No. 2__________________________
No. 3__________________________
No. 4__________________________
No. 5 ..
No. 6__________________________
No. 7__________________________
Average, 7 banks 3_ _ _ _ _ _ _ _

Average
yearly net
cost
$1.72
2.55
2.05
2. 73
2.03
1.85
3.09
2.29

1 Company no. 4 issues a straight life policy only in amounts of $5,000 or more, but its costs are shown for
comparative purposes on a $1,000 basis.
2 Company no. 4 issues this policy in amounts of less than $5,000 in the form of endowment at age 85.
3 7 banks are here covered because only that number were operating in 1924.

As shown above, the annual net cost of policies issued by the com­
panies averaged $2.96, or 129 percent, more than the average annual
net costs of policies issued by the banks. The average annual cost of
the policy with the banks was $5.03 less than the cost of the policy
written by the company with the highest cost, and $1.46 below that
of the company with the lowest cost.2
The comparative average yearly net costs of a $1,000 20-payment
life policy issued at age 35 are shown in table 16.
1 Tables presenting the data entering into the comparisons here made in more complete form may be
found in appendix G, on comparative costs of insurance to the policyholders. The appendix also includes
tables of comparative costs based on the assumption that dividends paid in 1934 would continue to be
paid during the 10 years following.
.
.. „ .
2 It should be noted that the amounts recorded in the tables m this section and m appendix G do not
take into account the factor of compound interest. If costs recorded took this factor into account the results
would be different in actual amounts, but the costs with the banks would still be lower.




COSTS TO POLICYHOLDER
45
1 6 . —Annual net costs of a $1,000 ordinary 20-payment life policy issued in
1924, at age 35, based on actual dividends during following 10 years, and assuming
policy was surrendered in 1934

T able

Company or bank
Company:
No. 1_________________________
No. 2_ _ _ _ __
_ ______
No. 3-.- _ _ _ _ _ _ _
No. 4_________________________
No. 5____________________ __ _
No. 6___ ___ ____
No. 7_________________________
No. 8
No. 9_________________________
Average, 9 companies______ _

Average
yearly net
cost1
$5.73
2.52
5.07
4.27
2.86
3.09
2.64
3. 23
1.60
3. 45

Average
yearly net
cost1

Company or bank
Bank:
No. 1_________________________
No. 2_
__ _
No. 3______________ _____
No. 4_________________________
No. 5
_ _
No. 6___ ________ _____
No. 7________________________
Average, 7 banks. _ __

1 4 of the banks actually returned a net gain to the policyholder.

2$0.45

. 58
.80
2. 08
2.29
1.22
.25

2.004

2 Gain.

In the case of 20-payment life-insurance policies, the annual net
cost of those policies issued by the 9 companies averaged $3.20
higher than the net costs charged on the average by the savings banks.
The banks charged $5.48 less than the company with the highest cost
and $1.35 less than that with the lowest cost. Four of the banks
returned net gains above all costs, varying from 4 mills to 45 cents.
In other words, the insured was not only protected during the 10
years by these banks without cost to himself other than the interest
on his premiums, but he actually received, in dividends and cashsurrender value, a return in excess of all his premium payments.
The final comparison for ordinary insurance concerns the costs of a
$1,000 20-year endowment policy issued at age 35.
—Annual net costs of a $1,000 ordinary 20-year endowment policy issued
in 1924j at age 35, based on actual dividends during following 10 years, and assum­
ing policy was surrendered in 1934

T able 1 7 .

Company or bank
Company:
No. 1__________________________
No. 2__________________________
No. 3__________________________
No. 4__________________________
No. 5 _______ _____
No. 6_________________________
No. 7 _____
____
___
No 8
No. 9__ _______ _______ __
Average, 9 companies _________

Average
yearly net
cost 1
$2.50
2.71
1. 98
1. 42
2.84
.59
2. 15
2. 16
2 1. 36
.33

Company or bank
Bank:
No. 1_________________________
No. 2__________________________
No. 3__________________________
No. 4__________________________
No. 5______________ ______
No. 6__ ___ _____ __ ___
No. 7________________________
Average, 7 banks___ ___ ___

Average
yearly net
cost1
2 $5.77
2 4. 63
2 5. 20
2 4. 39
2 5. 40
2 5. 60
2 4.02
2 5.00

1 5 of the companies actually returned a net gain to the policyholder. This was also the case with the 7
banks.
2 Gain.

The annual net cost of the 10 companies for this type of policy was
33 cents, while all the banks, considered as a whole, returned to the
policyholders an average annual net gain of $5. Five of the companies
returned average annual net gains varying from 15 cents to $1.36, or
an average gain of 64 cents, while 4 charged net costs varying from
59 cents to $2.50. The net gains of the 7 banks varied from $4.02 to




46

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

$5.77. Thus all the banks and five of the companies not only fur­
nished the protection of the policies without cost, but returned to the
policyholders a sum in dividends and cash surrender values which
was greater than all the premiums paid.3
The comparative costs which are shown in the foregoing tables
represent only what it would have actually cost to carry the policies
in question with the different insurance organizations under the condi­
tions assumed. If other conditions had been assumed, the actual
costs to the policyholders would have been different. If a period of
5 or of 15 years, instead of a 10-year period, had been assumed, or if
the assumed age had been other than 35, or if the dividends entering
into the computation had been assumed throughout to be those paid
in the year 1934, or if the policies were assumed to have been issued
in 1925 instead of 1924 and the dividends payable in 1935 were there­
fore substituted for those paid in 1924, the results of the comparisons
would also have differed. In general, however, the comparisons,
whatever the basis upon which they might have been made, would
have shown similar results, namely, that the cost of savings-bank
ordinary insurance to the policyholders is in general considerably
below the cost of ordinary insurance sold by the companies.4
A comparison of the cost of savings-bank insurance and of industrial
insurance sold by the insurance companies is even more to the ad­
vantage of the banks. Before presenting such a comparison it should
be pointed out, however, that savings-bank insurance and industrial
insurance are not strictly comparable. Premiums on industrial
insurance are collected weekly by insurance agents, while premiums
on savings-bank insurance cannot be paid more frequently than once
a month. The cost of collecting premiums every week is obviously
greater than the cost of receiving them at the banks every month.
Furthermore, industrial straight life policies are regarded as paid up
at ages varying from 70 to 75, whereas straight life policies issued by
the banks provide for regular payment of premiums until the policy
is terminated. Finally, industrial policies of the straight life and
endowment variety include provisions for disability payments and
for double indemnity in case of accidental death which may prove to
be especially valuable. No extra premiums are charged for these
privileges. The banks do not include such provisions in their indi­
vidual policies at all.
Two of the three important industrial insurance companies charge
premiums of 20 cents per week ($10.40 over a year's period) for an
industrial straight life policy issued at age 35, with a face value of
$276.5 For the same amount of straight life insurance the savings
banks would charge a monthly premium of 58 cents, or $6.96 for a
year. Table 18 shows the net costs of carrying these policies for 10
years and surrendering them at the end of the period.
3 The data on premiums, dividends, and cash surrender values for the companies upon which the fore­
going tables are based come from the Flitcraft Compend for 1934. Data for the savings banks were obtained
from the Division of Savings Bank Life Insurance, Statehouse, Boston.
4 Appendix G, on comparative costs to the policyholders, presents tables based on other assumptions
than those used in the text.
s The third important industrial company does not sell precisely the same amount of insurance for a
weekly premium of 20 cents and for that reason is not included.




47

COSTS TO POLICYH O LDER

—Net costs of $276 of straight life insurance policies issued in form of
industrial policy hy 2 companies, and in form of ordinary policy by savings banks,
based on dividends paid in 1984

T able 1 8.

10 years’ 10 years’ 10 years’ Cash
premiums dividends payments value

Company or banks
Company no. 1_
- __ ________
Company no. 2
_ _____ _
Average of 21 banks C_ _____ . _____

$104.00
104. 00
69. 60

$11.40
10. 60
21.40

$92. 60
93.40
48. 20

$35. 88
35. 88
37.47

10 years’ Average
annual
net cost net
cost
$56. 72
57. 52
10. 73

$5. 67
5. 72
1.07

1 In 1934, 21 banks were operating, as compared with 7 in 1924. Since the dividends assumed were those
paid in 1934, all these banks are included.

The average annual net costs are thus $1.07 for the banks, as com­
pared with $5.67 and $5.75, respectively, for the two private companies
covered.
In view of the fact that a large proportion of industrial insurance
is sold in the form of endowment policies, a comparison of their
relative cost is pertinent. The two industrial companies compared
above charge weekly premiums of 25 cents ($13 over a year’s period)
for a 20-year endowment policy for $200 issued at age 35. For an
ordinary policy of a similar character the savings banks charge a
monthly premium of 79 cents ($9.48 for 12 months). The comparison
of net costs is presented in table 19.
1®.—Net costs of $200 of 20-year endowment insurance issued at age 85 in
form of industrial policy by 2 companies, and in form of ordinary policy by
savings banks, based on dividends paid in 1984

T able

10 years’ 10 years’ 10 years’
pay­
premiums dividends net
ments

Company or bank
Company no. 1 ___
Company no. 2___
Average of 21 banks __

__-

___
____

$130.00
130.00
94.80

$14. 25
13. 25
19.61

$115. 75
116. 75
75.19

Cash
value
$72. 75
72.75
79.20

10 years’ Average
annual
net cost net
cost
$43.00
44.00
14.01

$4. 30
4.40
1.40

1 Gain.

Whereas the banks returned a net average gain of 40 cents per
year, assuming the policy was surrendered in 10 years, the companies
charged net costs of $4.30 and $4.40.6 Here again the policyholder
of the banks not only paid nothing for his protection (except the
interest on his premiums) but received in dividends and cash value
an average yearly sum of 40 cents above all premium payments.
If the policies considered were to be surrendered before the expira­
tion of the 10-year period, the comparison of net costs would be still
more favorable to the savings bank. Cash surrender values may not
be obtained on most industrial policies before 10 years, although one
of the industrial companies whose policies have been considered is
chartered by the State of Massachusetts and is compelled by the
laws of the State to pay cash surrender values after 5 years. The
savings banks, as has been pointed out, pay cash surrender values
after 6 months, and even earlier. A cost comparison with most in6 Da ta in the tables are from the 1934 edition of the Handy Guide to Standard and Special Contracts and
from t he Division of Savings Bank Life Insurance.




48

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

dustrial policies based upon periods of less than 10 years would ac­
cordingly be to the greater advantage of the banks.7
The reasons for these relatively low costs must be sought in the
experience of the companies and of the insurance departments of the
savings banks with respect to expenses, the nature of the return on
their invested assets, and mortality losses.
Expenses of Operation
The expenses of the savings-bank insurance system are much lower
than those of the private companies.8 The proportion of expenses to
gross premiums for all the organizations operating in Massachusetts,
and for the savings-insurance banks alone, for the years from 1920 to
1932, is shown in table 20.
T able

20.—Percent total expenses are of premium income in savings-bank insurance,
ordinary insurance, and industrial insurance, 1920 to 1938

Year

Savingsordi­ Indus­
bank or­ All
in­ trial in­
dinary nary
surance
surance
insurance

1920_____________
1921_____________
1922_____________
1923_____________
1924_____________
1925_____________
1926_____________

Percent

6.80
6.84
7.73
6.54
6.10
4.45
4.47

Percent

22.72
20.60
19.88
20.20
20.43
19.63
19.40

Percent

35.84
34.24
32.33
31.78
30.99
30.91
29.92

Year
1927_____________
1928_____________
1929_____________
1930_____________
1931_____________
1932_____________
1933_____________

Savingsordi­ Indus­
bank or­ All
in­ trial in­
dinary nary
surance
surance
insurance
Percent

4.55
4.53
4.63
4.73
4.97
5.18
5.00

Percent

18.82
18.13
18. 32
17.96
16.19
15.44
14.14

Percent

27.64
26. 30
26. 34
24. 45
22. 92
22.02
22. 77

The highest ratio of total expenses to premium income for the sav­
ings banks during the period 1920 to 1933 was recorded for the year
1922, when the figure was 7.73 percent. The lowest ratio during the
period was reached in the year 1925, when it stood at 4.45 percent.
The highest ratio for all ordinary insurance was 22.72 percent, which
was the figure for 1920. The lowest ratio was that of 1933, when it
stood at 14.14 percent. The year 1920 also saw the highest ratio of
total expenses to premium income for industrial insurance—35.84
percent. The lowest ratio during the period was attained in 1932,
when it was 22.02 percent.
Although the expense ratios for both ordinary and industrial in­
surance show a decrease in recent years, in 1933 the expense ratio for
ordinary insurance was still nearly three times as high as that of the
savings banks, and the industrial insurance ratio, despite the high
original premiums for this insurance, was more than four and one-half
times as high.9
It has frequently been asserted that the actual expenses of the in­
surance departments of the banks are larger than those represented in
the published reports of the insurance commissioner, since the latter
have not taken into account the expenditures by the State in main7 Cost comparisons of other types of policies than those considered in this section show somewhat similar
results.
8 The question as to whether the savings-bank policyholder pays all the costs of his insurance is dealt
with in ch. 8.
8 Annual Reports of the Commissioner of Insurance of Massachusetts, pt. 2, tables M and N. The banks’
ratio in 1934 was 4.85 percent.




49

COSTS TO POLICYHOLDER

taming the Division of Savings Bank Life Insurance. In a preceding
chapter it has been explained that prior to 1927 all the expenses of the
division were paid by the State, but that beginning in that year the
insurance banks have each year reimbursed the State for an increasing
proportion of the expenses of the division, until, in 1934, all the ex­
penses of the division were being met by the banks. To the extent,
however, that the State has in the past incurred unreimbursed expend­
itures in maintaining the division, it is true that the reported ratios of
expenses to premiums of the banks in that period have not taken all
insurance expenses into account. During the earlier years of the
system, the premium income of the banks was much lower and the
expenditures of the State were proportionately greater than they have
been in the past decade. It is therefore true that the expense ratios
for the earlier years would, if the State’s expenditures were taken into
consideration, be in greater excess of the published ratios than they
have been in the past decade.
Table 21 shows the expense ratios of the savings-bank insurance
system as a whole, taking into account the unreimbursed expenditures
of the State, for the years 1923, 1925, 1927, 1931, and 1933. It
shows the insurance expenses of the banks, the expenditures not reim­
bursed to the State, the total expenses of the system, and the ratio of
total expense to premium income.
insurance expenses and ratios to premium income,
including net expenditures by State

T a b l e 2 1 . —Savings-bank

[Amounts in thousands of dollars]
Year
1923______________________________
__________
1925___________________ __ _________ _______
1927__________________________________ _____
1929 ____________ _____ __________________ _____
1931
_ _ ____ ________ ________ _
1933_____________________________________________

Banks’ ex­ Net State
penditures expendi­
tures
$49.3
51.1
72.2
109. 5
153. 5
162.8

$32.1
32. 5
30.5
28.0
19.0
4.0

Total
$81.4
83.6
102.7
137.5
172.5
166.8

Ratio of
total to
premium
income
Percent

11.39
7. 28
6.49
5.85
5. 57
5.12

Even if the unreimbursed expenditures of the State are taken into
consideration in formulating the expense ratios of recent years, the
expenses of the savings-bank insurance system are still proportion­
ately much smaller than those of the private companies. It should
also be noted that despite the fact that a larger part of the expenses of
the Division of Savings Bank Life Insurance has been met by the
banks, the expense ratio has been declining instead of increasing.
Probably the most important factors explaining the higher expense
ratios of the companies are their method of paying commissions for
writing insurance and the cost of collecting premiums. The proportion
of total income paid by four mutual companies selling both ordinary
and industrial insurance 10 in salaries and commissions, and by the
savings banks in salaries, for each of the years from 1915 to 1931 is
shown in table 22.
10 These were the only four companies selling both kinds of insurance in the State during the entire
period.




50

M A SSA C H U SE TT S SA V IN G S-B A N K L IF E IN SU R A N C E

T a b l e 2 2 . —Ratio

of salaries and commissions to total income x>f ^ insurance com­
panies selling both ordinary and industrial insurance, compared with ratio of
salaries to total income of savings banks, 1915 to 1931
Year

Savingsbank ordi­ Company
ordinary Industrial
nary in­ insurance
insurance
surance

1915_____________
1916_____________
1917_____________
1918_____________
1919_____________
1920_____________
1921_____________
1922_____________
1923_____________

Percent

5.12
5.01
4.06
3.47
3.26
3.07
3.74
4.16
3. 74

Percent

11.68
12.11
11.40
10.98
13.40
15.37
13.53
13.02
13. 26

Percent

23.98
23. 72
23.00
22.10
23.15
25. 78
24.80
23.12
22. 62

Year
1924_____________
1925_____________
1926_____________
1927_____________
1928_____________
1929_____________
1930_____________
1931_____________

Savingsbank ordi­ Company
ordinary Industrial
nary in­ insurance
insurance
surance
Percent

3. 32
2.88
2.81
2.80
2. 70
2.41
2.44
2. 32

Percent

12.83
11.90
11.39
11. 27
11.40
11.43
11.14
10. 72

Percent

22. 28
22. 50
21.62
19. 93
18.70
18. 26
17. 32
15. 76

The table shows that the highest ratio of salaries to total incomes
experienced by the insurance departments of the banks during the
period 1915 to 1931 was that for the year 1915, when the figure was
5.12 percent. The lowest ratio for the period was attained in 1931,
when it stood at 2.32 percent. The highest ratio of salaries and com­
missions to total income of the ordinary departments of the 4 com­
panies during the period was that for the* year 1920, when the figure
was 15.37 percent. The lowest ratio, 10.72 percent, was reached in
1931. In the case of the industrial departments of the 4 companies,
the highest ratio for the period was that for the year 1920, when the
figure was 25.78 percent, and the lowest that of 1931, when it stood at
15.76 percent.
The average ratio of salaries to total income of the insurance de­
partments of the banks during their entire history up to 1931 was 2.27
percent. The average ratio of the ordinary-insurance departments of
the 4 companies for the period 1915 to 1931 was 11.88 percent.
For their industrial departments it was, during the same period, 20.40
percent. Thus the ratio of salaries and commissions to total income
over the period considered was on the average somewhat more than 5
times as high for ordinary insurance and about 9 times as high for
industrial insurance as the ratio of salaries to total income of the in­
surance banks.
It has been pointed out that no commissions are paid in connection
with savings-bank insurance. The salaries which are included in the
above calculations are confined to those incurred directly by the in­
surance banks themselves, and do not include the salaries paid to the
staff of the Division of Savings Bank Life Insurance.11 The annual
salaries paid to the whole staff in 1934, assuming them to be based on
the salaries paid in July 1934, amounted to $32,213.33.12
Over the period from 1908, when the system first came into exist­
ence, to 1933, the total amount paid by the insurance departments of
the banks in salaries was $632,992. This was 2.51 percent of the total
11 It should be emphasized, however, that after 1933 all the expenses of the division, including the salaries,
were reimbursed to the State by the banks.
13 This amount included the salary of the deputy commissioner, the State medical director and his assist­
ant, the State actuary and 4 actuarial clerks, 1 senior clerk and 8 clerks and stenographers, and 2
field workers.




COSTS TO POLICYHOLDER

51

premium income received. The ratios were 2.92 percent in 1932 and
2.11 percent in 1933.13
Taxation
The proportionately high expenses of operation of the insurance
companies as compared with those of the banks may be explained to a
slight extent by the fact that the companies bear a somewhat heavier
burden of taxation. The basis upon which the savings-bank insurance
system is taxed has been explained in chapter 4. The banks, it will
be remembered, pay no Federal income taxes and no fees to the insur­
ance department of the State.
The Commonwealth levies upon the insurance companies an annual
excise tax of one-quarter of 1 percent of the net value of all policies
in force on citizens of Massachusetts at the end of the preceding year.
“ Net value” is defined as being equal to the combined aggregate of the
mean reserves of each policy or group of policies.14
The insurance companies are also required to pay Federal income
taxes. Under the Federal Revenue Act of 1932 American insurance
companies pay a tax of 13%percent of their net income. Foreign com­
panies pay a like tax on their income from American sources. The
taxable net income of the insurance companies is defined as their
“ gross income”, which includes all income received from interest,
dividends, and rent, minus certain items.15
13 Data on expense ratios may be found in the Annual Reports of the Commissioner of Insurance, pt. 2,
tables M and N. Data on income, on which these ratios are based, are contained in table B. Salaries of
principal officers of the companies in 1932 are contained in table N of the report for that year. Statistics
of amounts paid in salaries are to be found in table C of the reports. Information with respect to total
salaries and total premium income of the insurance departments of the banks may be found in the annual
joint reports of the commissioner of banks and the commissioner of insurance on the condition of the savingsbank insurance system. The calculation of the ratios of salaries and commissions to total income has been
taken from Damon, D . Bradford, The Economic Value of Savings Bank Life Insurance (unpublished
thesis), Boston, Northeastern University, 1933, pp. 24 and 25. Damon’s data concern the 4 companies
which sell both ordinary and industrial insurance in the State and include the companies selling all but a
very small part of the industrial insurance of the country.
14 The State also taxes foreign companies (i. e., those not incorporated in the State) on the same basis,
except that if the jurisdictions in which those companies reside levy taxes on a higher basis than those levied
by Massachusetts, the foreign companies must pay in addition a retaliatory tax which would bring their
tax up to the level which Massachusetts companies would have to pay in the foreign jurisdictions. Massa­
chusetts also taxes foreign companies 2 percent of the gross premiums collected on Massachusetts business,
minus the dividends returned to policyholders, or enough more to raise the total to the amount which
domestic companies are taxed in the home jurisdictions of foreign companies operating in Massachusetts.
The courts have interpreted the provisions of the law taxing premiums in such a way that it is levied only
to the extent necessary to bring the tax paid up to the level of the tax on net value of policies. If the gross
premium tax on foreign companies results in a higher tax than would be levied on the net value basis, the
foreign companies pay the former. In addition to the taxes already described, which are levied on insurance
business proper, insurance companies are taxed at the rate of 1 percent of the premium income on annuity
contracts, except where such taxes are already paid by the companies to other jurisdictions. (Mass. Gen.
Laws Relating to Taxation, ch. 63, secs. 18, 20, 21, and 22.)
is The exempted items include: (1) Interest received from the securities of any political jurisdiction within
the United States or its territories, from Federal farm-loan securities, and from obligations of the United
States itself or of its terr itories: (2) an amount equal to 4 percent of the legal insurance reserves, or, if the rate
assumed in setting up such reserves is less than 4 percent, an amount equal to 3H percent of the reserves;
(3) dividends received from corporations themselves subject to Federal income taxation; (4) 2 percent of the
sum held as reserve for deferred dividends to policyholders; (5) investment expenses, provided that if such
expenses are included in the general expenses the total deduction under this head should not exceed onequarter cf 1 percent of the book value of the mean invested assets; (6) taxes and other expenses paid on the
real estate held by the companies, not including special assessments and expenditures for new buildings
or permanent improvements; (7) a reasonable allowance for depreciation of property; and (8) interest paid or
accrued on the companies’ own debts. (United States Revenue Act of 1932, secs. 201, 202, 203, 22b; U. S.
Treasury Department, Bureau of Internal Revenue, Regulation 77, Income Tax, Revenue Act of 1932,
Washington, 1933, pp. 270-276.)
It should be noted that whereas there are a great variety of deductions permitted by the State laws taxing
savings banks and their insurance departments when assets are invested in certain kinds of securities, the
State taxes on insurance companies, being levied on net value of policies or on premium income, permit no
deductions from the tax base in computing the tax. As regards the Federal income tax, however, the range
of exemptions, as is clear from the foregoing discussion, is extensive. The only important difference in the
exemptions permitted the savings banks by the State laws and those permitted the insurance companies
under the Federal income tax law appears to be that, whereas income from mortgages held by the banks
is deducted from the tax base, such exemption is not permitted the insurance companies by the Federal law.




52

M ASSA C H U SETTS SA V IN G S-B A N K L IF E IN SU R A N C E

In addition to the taxes described, the insurance companies are
required to pay to the State department of insurance a wide variety
of fees.16
It is possible, fortunately, to measure the difference in the burdens
of taxes borne by the insurance companies and by the insurance
departments of the banks with a considerable degree of accuracy.
The reports of the Commissioner of Insurance of Massachusetts give
data on the amounts paid annually by the insurance departments of
the banks and by the insurance companies in the form of taxes and
fees. In the case of the companies these data include all amounts
so paid, whether to the State of Massachusetts, to other States, or to
the Federal Government. The data for the years 1923 to 1932 are
given in table 23.17 It shows the amounts paid in taxes and fees in
each year and the premium income in the case of the savings-bank
insurance system, the Massachusetts companies, and all insurance
companies.
Total taxes and fees, and premium income, of savings-bank insurance
system, Massachusetts companies, and all companies, each year 1923 to 1932

T a b l e 3 3 .—

Year
1923
1924
1925
1926
1927
1928
1929
1930
1931
1932

_____________
__________ ___
______________
______________
______________
__________ ___
______ _______
______________
______________
______________
Total___ ________

Savings-banks life Massachusetts companies
insurance
Taxes and
Taxes Premium
income
fees

Premium
income

$5,062 $714,773 $2,720,771 $142,784,902
898,788 3,612, 253 155,484, 570
3,733
3,859 1,148, 264 3, 413, 788 172,031, 790
3,972 1,365, 726 3, 719, 307 189, 830, 843
5, 513 1,583, 767 4,127,768 210, 481, 663
7,485 1,899,167 4,442,931 234,667,411
7,327 2,369,173 4,491,191 247,075, 521
15,162 2,644, 733 4, 762, 571 259,334,881
15, 996 3, 095, 236 4, 935, 366 276, 548,841
17, 217 2,979,423 5,330, 247 268,129, 665
85,326 18,699,050 41, 466,193 2,156,370,087

All companies
Taxes and
fees
$33,912,151
39,650,187
36,848, 354
47,719, 481
52, 8^3, 289
56, 262, 269
58,903,042
60,383,185
61, 828,340
62,725,045
511,075, 343

Premium
income
$1,538,241,842
1, 719, 757, 262
1,942, 063, 744
2,175, 685, 638
2,401,179, 876
2,656, 870, 858
2,830, 409,995
2,997, 508, 775
3,152,099,471
3,027, 024,051
24, 440,841,512

A comparison of the ratios of taxes and fees to premium income
shows that during the entire period 1923 to 1932 the savings-bank
insurance system paid 0.46 percent, the Massachusetts companies
1.92 percent, and ‘all companies taken together 2.09 percent of
premium income for the purpose. Over the whole period 1909 to
1934, the insurance departments of the banks paid in taxes a sum
equal to 0.47 percent of their total premium income for the period.18
During the 4 years 1930 to 1933 the proportion of premium income
paid to the State as taxes by the companies on their Massachusetts
business was 1.19 percent, or about twice the ratio paid by the banks,
which was 0.60 percent. The banks’ ratio, which for their whole
history was 0.47 percent, rose from 0.53 percent in 1930 to 0.69
16 Among others, these fees include the following: (1) $50 for an examination prior to the granting of a
license or certificate to do business in the State; (2) 2^ mills for each $1,000 of insurance for the service of
valuing the life policies of the domestic insurance companies; (3) $20 required from each foreign company
for filing the original financial statement necessary before it may do business in the State, and for each
financial statement which must be filed annually thereafter: (4) $2 annually, paid by the companies for
the license of each insurance agent employed by them; and (5) $2 for each certificate of the valuation of a
company’s policies, or of the examination, statement of the condition, or statement of the qualification of
the companies. (Mass. Gen. Laws, ch. 175, sec. 14.)
17 Annual Reports of the Commissioner of Insurance of Massachusetts, pt. 2, table O.
is See appendix A,




53

COSTS TO POLICYH O LDER

percent in 1933. The insurance companies’ ratio rose during the
same period from 1.13 percent to 1.24 percent.19
In view of the fact that the savings banks pay no Federal income
taxes it is interesting to observe what is paid in this form by the
insurance companies. The amounts paid as Federal income taxes
by the Massachusetts companies to the United States Bureau of
Internal Revenue are shown in table 24. The table also shows the
premium income of these companies, and the proportion of premium
income paid to the Federal Government.
T a b l e 3 4 . —Federal income

taxes paid by Massachusetts companies, their premium
income, and ratio of Federal income taxes to premium income, 1926 to 1982
Year

1926________________ __________________________________
1927_____________________________________________________
1928
______________________________________________
1929 ________________________________________________
1930-. _________________________________________________
1931
______________________________________________
1932 _ ________ ______________________ ________________
Total______________________ _ ______ __ ________

Amount of
tax
$1,205,447
1,178,601
745,821
929, 646
1,052, 085
758, 667
735, 263
6,605, 530

Premium
income
$189,830,843
210,481,663
234,667,411
247,075,521
259,334,881
276,548,841
268,129,665
1, 686,068,825

Ratio
Percent

0.64
.56
.32
.38
.41
.27
.27
.39

It will be observed that for the period as a whole the Massachusetts
companies paid 0.39 percent of their premium income in the form of
Federal income taxes.20
The results of this analysis may be summarized as follows: (1)
Over the whole period of their existence up to 1934 the savingsinsurance banks paid 0.47 percent of their premium income in taxes;
(2) this was also approximately the proportion they paid during
the years 1923 to 1932, although during the years 1930 to 1933 the
proportion had risen to 0.60 percent; (3) the private companies
chartered in Massachusetts paid to all the jurisdictions taxing them
or requiring the payment of fees during the period 1923 to 1932 an
amount equal to 1.92 percent of their premium incomes; (4) the
amount paid by all insurance companies operating within the State
was 2.09 percent of premium income; (5) the Massachusetts com­
panies paid 0.39 percent of their premium incomes during the period
1926 to 1932 in the form of Federal income taxes. It is not unreason­
able to suppose that approximately the same proportion was paid
to the Federal Government by all the insurance companies.
It may be concluded that the insurance companies pay roughly
about 2 percent of their premium income in taxes and fees, as com­
pared with about one-half of 1 percent, and in recent years somewhat
more, paid by the insurance departments of the banks. The differ­
ence in tax burden is thus approximately 1% percent of premium
19 Appendix H presents a table showing the amounts paid in taxes to the Commonwealth by the insurance
departments of the banks and by the companies and their premium income during the period 1930 to 1933.
The data on taxes paid to the State are from the annual reports of the Massachusetts commissioner of
corporations and taxation, 1930 (pp. 134-135), 1931 (p. 87), and 1932 (pp. 117 and 221). Data for 1933 were
obtained from the records in the commissioner’s office.
20 Data on Federal income taxes were obtained from the TJ. S. Bureau of Internal Revenue. Data for
the years preceding 1926 were not readily available.




54

M A SSA C H U SETTS S A V IN G S-B A N K L IF E IN SU R A N C E

income. It cannot, therefore, be held responsible in any significant
degree for the difference in the cost of insurance to the policyholders.
Earnings on Invested Assets
The relatively low cost of savings-bank insurance is partly due to
the fact that the insurance departments of the banks have usually
earned a higher rate of return on their invested assets than have the
insurance companies. The net rate of income earned by the savingsbank life-insurance system and by all insurance organizations during
the period 1920 to 1933 is shown in table 25.
T able 2 5.

—Net rate of income earned on investments by banks and by all insurance
organizations including banks, 1920 to 1933

Year

1920___________________
1921___________________
1922___________________
1923____ .
..
1924_________________
1925___________________
1926___________________

Savingsbank in­
surance
depart­
ments

All organi­
zations, in­
cluding
banks

Percent

Percent

5.58
5.65
5.62
5. 32
5.49
5. 21
5. 30

5.03
5. 22
5.29
5.34
5. 33
5.06
5. 06

Year

1927___________________
1928 - _ ________
1929 __________________
1930
1931
- - . . _
1932___________________
1933___________________

Savings- All organbank in­ zations,
in­
surance
cluding
depart­
banks
ments
Percent

5.25
5.18
5. 39
5.14
5.12
5.02
4. 67

Percent

5.02
5.04
5.02
5. 02
4.91
4. 65
4.25

The highest return during the period was earned by the banks in
the year 1921, when the interest earned was 5.65 percent of invested
assets. The lowest rate of return, 4.67 percent, was earned in 1933.
The best year for all the insurance organizations as a whole was
1923, when their assets earned 5.34 percent. The lowest rate, 4.25
percent, was earned in 1933. In only 1 year of the 14-year period
did the banks receive a smaller rate of return than the combined
insurance organizations. In 1923 the latter earned 5.34 percent, as
compared with 5.32 percent earned by the insurance departments
of the banks.
The more favorable earnings of the banks may be credited in part
to the difference in the types of investments which may be made
by the companies and by the savings-bank insurance departments.
As has been shown in chapter 4, investment of all the assets of the
insurance departments of the banks is closely restricted. The insur­
ance laws of Massachusetts and of some other States require that
100 percent of the paid-in capital of the companies and at least 75
percent of their reserve funds must be invested in the restricted range
of securities open to the savings banks. The exceptions to this
statement are as follows: (1) The companies may invest in the securi­
ties of any political jurisdiction in the Dominion of Canada, whereas
the savings banks may not do this; (2) the companies may invest
in real estate and mortgages on property anywhere in the United
States, whereas the banks may invest only in such items within the
State of Massachusetts; (3) the companies may not invest in bank
stock, as the savings banks are permitted to do. All of the funds
of insurance companies except the 75 percent of reserves and the
capital, may be invested in the securities open to the companies as




COSTS TO POLICYHOLDER

55

stated above, and also in bank and trust-company stock, shares of
cooperative banks, and deposits of savings banks and savings depart­
ments of trust companies in the State.
The fact that the banks may invest only in mortgages on real estate
in Massachusetts, while insurance-company mortgages may represent
property all over the country, is probably responsible in part for the
larger investment return of the banks in recent years. Most of the
bank mortgages are for small amounts and represent property in the
community in which the bank operates. In the case of the mortgage
investments of the insurance companies considerable funds have been
invested in large buildings, and in western and southern farm lands,
which have had an unfortunate earning experience in recent years.21
Mortality Experience
A further reason for the low costs of savings-bank life insurance is
to be found in the comparatively low ratios of actual to expected mor­
tality losses experienced by the banks. These ratios for the banks,
for all ordinary insurance, and for industrial insurance, during the
years from 1910 to 1933, are shown in table 26. The table indicates
that mortality ratios are generally lowest in the case of savings-bank
insurance and highest in the case of industrial insurance.22
The lowest ratio during the period for savings-bank insurance was
that of 1911, when the figure was 22.35 percent. The highest ratio was
that of 1918, the year of the influenza epidemic, when it reached 77.90
percent. Ordinary insurance enjoyed its lowest ratio in 1913, when
the figure was 35.96 percent, and its highest ratio in the epidemic
year, 1918, when it stood at 96.69 percent. The highest ratio for
industrial insurance, 142.78 percent, was experienced in the same
year, while the best year was 1932, when the industrial mortality
ratio was 55.72 percent. It should be noted that the mortality ratios
for savings-bank life insurance were lower than those for all ordinary
insurance and for industrial insurance in every year, and that in all
but the last 4 years of the period the mortality ratios for ordinary
insurance were lower than those for industrial insurance. It should
also be observed that the mortality ratios of savings-bank life insur­
ance have been lower during the last 4-year period as a whole than in
any of the preceding 4-year periods except the first. The ratios for
ordinary insurance show a fairly steady decline until 1925. Since
that year they have risen. On the other hand, the mortality ratios
for industrial insurance have shown a remarkable decline throughout
the period.23
21 Data on the net rate of income earned on investments may be found in the Annual Reports of the Com­
missioner of Insurance, pt. 2, tables M and N . The restrictions imposed by law on the insurance compa­
nies’ investments are contained in the General Laws of Massachusetts, ch. 175, secs. 63-68. For percentage
distribution of savings-bank insurance investments see ch. 4. table 9.
22 It should be noted that whereas savings-bank and, as a rule, ordinary ratios are based on the American
Experience Table, industrial insurance ratios were based on the Standard Industrial Mortality Table,
which assumes greater risks of mortality. If all ratios were based on the same table, the industrial ratios
would, of course, be relatively greater than those shown in the table.
23 Mortality ratios are published ip the Annual Reports of the Commissioner of Insurance, pt. 2, tables
M an d N .




56
T able

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE
2 6 . —Ratios of actual to expected mortality losses for savings-bank, all ordi­
nary, and industrial insurance, 1910 to 1933

Year

All ordi­
nary in­
Savings- surance Industrial
bank in­ including insurance
surance savingsbank life
insurance

1910.
1911.
1912.
1913.
1914.
1915.
1916.
1917.
1918.
1919.
1920.
1921.

Percent

30.84
22.35
24. 64
35. 42
28. 32
34. 94
53.05
30.19
77. 90
63. 57
57.90
32.12

Percent
70.63

70. 78
70. 57
35. 96
66. 58
68.35
68. 43
63. 05
96. 69
66.40
60.29
51.88

Percent

104.49
100.17
97. 69
98.76
96. 52
92.31
95.10
93.96
142. 78
83. 25
76.13
63. 52

Year

1922_____________
1923_____________
1924_____________
1925_____________
1926_____________
1927_____________
1928_____________
1929_____________
1930_____________
1931_____________
1932_____________
1933_____________

All ordi­
nary in­
Savings- surance Industrial
bank in­ including insurance
surance savingsbank life
insurance
Percent

45.36
51. 97
45. 57
44.98
43. 24
43. 74
36. 22
46.85
41. 55
39. 43
39.85
36. 77

Percent

53.68
55.10
53. 09
51. 51
53. 59
53.78
57. 91
60. 89
61. 80
63. 48
63.10
63. 31

Percent

65.42
66.69
65. 21
66.02
68. 07
63. 88
64. 23
66. 37
60.04
59.50
55. 72
56. 25

By and large, however, industrial mortality ratios have been
considerably above those for ordinary insurance. There is in general
a greater burden of mortality among wage earners than among the
rest of the population. This should not, however, cause industrial
insurance ratios to be higher, since the industrial companies base their
calculations of expected mortality losses upon the Standard Industrial
Mortality Table, which takes into account the higher mortality
among wage earners. Even though this higher mortality does not
affect the ratios of actual to expected mortality losses, it would ac­
count in part for relatively high industrial premiums, since larger
reserves would be necessary to meet the greater likelihood of paying
insurance benefits.
Generalizations based on mortality ratios must be used with great
care, and are especially unsafe when they result in comparisons be­
tween different insurance organizations.24 Though at first glance
they appear to demonstrate that the mortality ratios of the banks are
lower than those of the companies, they by no means prove conclusive­
ly that this is so for all ages and types of insurance. To do this it
would be necessary to examine the ratios of the banks and of the com­
panies at given ages and for similar policies. Official data on this
point are not available in the published reports. To procure them
from a sufficient number of companies has not seemed feasible. Un­
der the circumstances, therefore, it seems desirable to consider sav­
ings-bank mortality ratios by making an analysis of the factors which
are relevant to the question, and to refrain as much as possible from
relying on data concerning average mortality ratios. It is pertinent
to point out, however, that there is general agreement that savingsbank mortality ratios are relatively low.
Undoubtedly one important reason for the relatively high indus­
trial mortality ratios is that no medical examinations are required of
applicants for industrial insurance, as they usually are in ordinary
insurance issued by the companies and of savings-bank insurance.
24
On the dangers involved in making such comparisons see a paper by Edward W. Marshall entitled
“ The Interpretation of Mortality Statistics,” printed in vol. 33 of the Transactions of the Actuarial Soci­
ety of America, 1932 (pp. 74-91); and a memorandum by C. R. Fitzgerald, actuary of the State Mutual
Life Assurance Society of Worcester, Mass., prepared in 1931.




COSTS TO POLICYH O LDER

57

Some of the ordinary companies sell group insurance, the mortality
ratios for which, largely because medical examinations are not usually
required, are much higher than for straight life insurance. These
group-insurance ratios are included in the data for ordinary insurance.
The savings-bank mortality ratios also include losses due to group
insurance. Since the proportion between group insurance and ordi­
nary insurance carried by the banks and all the companies are similar,
the difference in ratios between the banks and the ordinary companies
cannot be explained on this ground.25
It has been commonly declared that, since savings-bank insurance
is relatively new, it would naturally experience a lower mortality
ratio than that of insurance companies which have operated over a
long period of years. This statement is based on the fact that since
a new insurance system is not so likely to have as many old people
among its policyholders as an old system, the great improvement
which has been made in the elimination of disease among younger
persons and their consequent increase in longevity since the time
when the American Experience Table was constructed result in a
mortality ratio favorable to the insurance system with the greater
proportion of young policyholders.26 Another item operating in favor
of a new insurance system is the fact that it is likely to have among
its policyholders a greater proportion of very recent entrants, in whose
case the effect of the preliminary medical examination has not yet
been dissipated.27 Since, as compared with long-established insurance
companies, the insurance departments of the savings banks probably
have a smaller proportion of aged policyholders, and since it is true
that the system has grown very rapidly of late, the fact that* savingsbank insurance is relatively new may property be given some of the
credit for the favorable mortality ratio which it enjoys.
Another factor which appears to be pertinent arises from the
method of selling insurance. In border-line cases, where the medical
examiner is in doubt as to what his decision should be, the influence
and persuasion of the insurance agent may occasionally be the de­
termining factor in the approval of the applicant. In this connection
it is important to note that the compensation of no individual is di­
rectly increased or decreased if a physician approves or fails to approve
an application for savings-bank insurance. As in the case of the
private companies the medical examiner's fee is the same whether or
not the applicant is approved; but whereas, in the case of the com­
panies, rejection by a physician will affect the income of the agent
and his immediate superiors, in the case of savings-bank insurance
there is no commission or other income lost to anyone if a doubtful
applicant is rejected. The only possible exception to this statement
is that agencies collecting premiums for the banks are entitled to
receive 2 percent of these collections as fees. It should be pointed
out, however, that the possibility of persuasion or influence being
brought to bear upon the medical examiners by collection agencies is
exceedingly small, as is obvious from the fact that in 1932 only 0.89
percent of premium income was actually paid in collection fees.
25 See Annual Reports of the Commissioner of Insurance of Massachusetts, pt. 2, table G.
26 See ch. 1 for a discussion bearing on this matter.
27 The medical examination tends to eliminate bad risks. After 3 or 4 years, however, the insured may
develop new ailments, and the effect of the examination may thus be said to have "worn off,"
0736°—31

-5




58

M ASSACH USETTS S A V IN G S -B A N K L IFE IN SU R A N C E

Another factor which probably operates in favor of the savings
banks is the relatively small amount of insurance carried by the
average policyholder in the system. As will be shown in chapter 8,
the great proportion of savings-bank policyholders are persons whose
incomes are not high. Experience indicates that persons who hold
policies of many thousands of dollars are poorer risks than are small
policyholders. Since some risks are always likely to prove unsound
in the end, a large risk falling in this category would occasion a heavier
mortality loss than a small one. In other words, the death of a person
carrying a $100,000 policy would result in mortality losses equal to
those due to the death of 100 persons of the same age, each carrying a
$1,000 policy of the same type. Furthermore, wealthy persons are
more likely to engage in irregular living, if for no other reason than
that they can afford it better than people with small or moderate
incomes. That insurance companies believe these facts of importance
is obvious, since they go over applications for large insurance policies
much more carefully than they examine those for small policies. They
usually make an examination, with the aid of a credit agency using
under-cover investigators, to find out whether the applicant for a
large policy is a man of good habits, and they often reject such appli­
cations on grounds which, though not usually stated to the applicant,
are as a rule not even considered worth investigating in the case of
applicants for small policies. Despite such investigations, however,
risks are often accepted which in the end turn out to have been
unsound. ^ Though the savings-bank insurance system also inquires
carefully into the living habits of large applicants and is likely to
accept small applicants merely if the latter are sound in health, the
fact that such a small proportion of their policyholders are well to do
probably operates in favor of a lower mortality ratio than that
experienced by the companies.
In later years large amounts of savings-bank insurance have been
sold, with the encouragement of employers, to workers in factories
throughout the States. Such establishments have usually been of the
modern type. Sanitary and safety conditions have been of a high
order. As a result the employees of such plants are likely to prove
good insurance risks. This also may account to some extent for the
lower mortality ratios of the banks.
To what extent may the admittedly low ratio of the banks be
expected to continue? As the system becomes older the proportion
of aged persons insured in it will become greater. This appears to
be the only important factor which might operate in the future in
the direction of a higher ratio. Operating in favor of maintaining
the existing favorable experience are the following factors: (1) The
system has attained a momentum which promises to bring in large
numbers of new policyholders every year, with the consequence that
the part played by the effect of recent medical examinations in pro­
moting a low ratio may actually become more important than it is;
(2) the very nature of the system, with its elimination of agents’
commissions and the part they play in encouraging the acceptance
of bad risks, will be effective in maintaining a lowered mortality ratio ;
(3) savings-bank life insurance is not likely to experience to any
considerable extent reduction in the proportion of small policy­
holders. There is every reason, therefore, to suppose that savingsbank insurance will continue to enjoy a relatively low mortality ratio.




COSTS TO PO LICYH O LDER

59

It should be observed in conclusion that it is not possible to account
with finality for the mortality ratio of the savings-bank life insurance
system by assigning definite and exact credit to any of the factors
discussed. Much of the discussion is admittedly based on a priori
reasoning. To the extent that such reasoning is sound the ratio may
be regarded as explained, at least in part. That some of the factors
above described actually do affect the mortality ratio does not seem
open to question. Others have been stated conjecturally and con­
ditionally. Complete accuracy and finality do not seem possible of
attainment in the solution of the problem.28
In the final analysis, however, the mortality ratios of the savingsbank insurance system are lower than those of the private companies
taken as a whole. This factor, together with relative expenses and
earnings on assets, plays an important part in accounting for the
lower cost of savings-bank life insurance.
28 Suggestions with respect to an explanation for the low ratio of the insurance departments of the banks
were obtained in numerous interviews. Those with Dr. Burnett, the State medical director, and with
Mr. Richard Harding of the Associated Industries were especially valuable in this respect. A memorandum
by Mr. Harding, entitled “ The low mortality of savings-bank life insurance” is particularly suggestive.




Chapter 7.—Factors Affecting Growth of Savings-Bank Life
Insurance
An important factor affecting the growth of savings-bank life insur­
ance is its advantage to the policy holders as compared with the in­
surance bought from insurance companies, whether of an industrial
or ordinary type. Its favorable cash surrender privileges, the greater
availability of loans on policies, the various other types of nonforfeiture
privileges, the fact that, because of paying no commissions to agents
and having a relatively favorable mortality experience, savings-bank
insurance may be obtained at comparatively low cost—all these
advantages make it a desirable type of insurance for the ordinary
person. Its rapid growth in recent years indicates that its advantages
are becoming more widely known among the citizens of Massachu­
setts.
In this connection it is significant that there are a number of inde­
pendent insurance brokers in Boston who recommend that their
clients buy savings-bank life insurance instead of ordinary insurance
with a private company. Their attitude is that they cannot hope to
sell insurance at a cost as favorable as that at which it may be bought
from the savings banks, and though, by recommending the latter
type, they obtain no commission, they hope that clients, in return
for the agents’ frankness, will purchase through them such insurance
in excess of the maximum of $23,000 as the clients may require. They
hope, further, that since holders of large amounts of insurance are
likely to be purchasers also of insurance other than life, such insurance
will be bought through them.1
Public Support
As in any important movement, the character of its leadership
has much to do with the growth of the system. From the beginning
of the campaign to enact the savings-bank insurance law until the
present moment, the system has been fortunate in the type of leaders
who have promoted its interests. Throughout its history it has had
among its advocates some of the leading business men, labor leaders,
and educators of the State.2 It has also had the advantage of the
1 A number of insurance brokers following this policy were interviewed by the author. The names of
others were given to him.
2 At the beginning of its career such important persons as Governors Bates and Douglas, and President
Eliot, of Harvard University, were its advocates, and it benefited from the unpaid services of Gen. S. H.
Wolfe, one of the leading independent insurance actuaries in the country, who served as consulting actu­
ary. In recent years it has had the active support of former Gov. David I. Walsh, now United States
Senator, of Mr. Lincoln Filene, of Mr. B. Preston Clark of the Plymouth Cordage Co., of Governor Ely,
and of Mr. Robert J. Watt, of the State Federation of Labor. For many years it has been greatly aided by
Mr. Judd Dewey, now deputy commissioner of the Division of Savings Bank Life Insurance, who served it
as unpaid counsel. The system of savings-bank life insurance benefited especially from the leadership of
Miss Alice H. Grady. She became the financial secretary of the Savings Bank Insurance League when it
was founded in 1906, and retained that position until Jan. 1, 1934, when she resigned because of ill health.
On Sept. 10,1917, she was elected clerk and secretary of the General Insurance Guaranty Fund, and served
as such until her death on Apr. 19,1934. The trustees of the fund appointed her executive secretary of sav­
ings-bank life insurance on June 12, 1919. When the law creating the position of deputy commissioner of
the Division of Savings Bank Life Insurance was passed on May 28,1920, the trustees appointed her to this
position and she remained deputy commissioner until her death. Both the friends and the opponents of
the savings-bank insurance system testify to Miss Grady’s loyalty and aggressiveness as the actual head of
the system. She seems to have been a redoubtable protagonist and to have defended savings-bank insur­
ance with great effectiveness.

60




FACTORS A FFE C TIN G GROW TH

61

active support and aid of the Massachusetts Savings Bank Insurance
League. The league was formed on November 26, 1906, with former
Gov. W. L. Douglas, a leading industrialist, as president, and an influ­
ential group of persons as its other officers. Its original name was
The Massachusetts Savings Insurance League. On February 3,
1930, the organization incorporated under the title of “ The Massa­
chusetts Savings Bank Insurance League.” 3
The earliest task of the league was to promote public support for
the enactment of the original bill. As soon as the bill became law
the league devoted its attention toward interesting the savings banks
in setting up insurance departments, an effort in which it was not
successful until 1908, when both the Whitman Savings Bank and the
People’s Savings Bank of Brockton came into the system. During
its entire history the league has carried on active publicity work to
promote savings bank insurance.4 It has cooperated closely with the
work of the State Division of Savings Bank Life insurance at all times
in fulfilling its aim, “ to acquaint the people of Massachusetts with
the opportunities offered by the savings banks for securing life
insurance and old-age annuities at cost. ”5
Numerous other organizations have joined with the league in pro­
moting savings-bank insurance. From the beginning the movement
has had the support of many of the trade unions of the State. The
Massachusetts State Federation of Labor, the Boston Central Labor
Union, and the American Federation of Labor have taken a position
in favor of savings-bank insurance. The Boston Chamber of Com­
merce, in early years the Massachusetts Civic League, and in recent
years the Associated Industries of Massachusetts, have been among
its supporters.6
Activities of Employers and of Associated Industries of Massachusetts
Savings-bank life insurance has at all times received the active
support of many employers. The savings-bank insurance law, by
permitting the setting up of agencies empowered to receive applica­
tions for insurance and to accept premiums as agents for the issuing
banks, makes possible the establishment of an employer’s agency by
any employer who wishes to promote the sale of the insurance among
his workers. When a worker buys savings-bank life insurance through
3 See ch. 2.
4 Early in the year 1934 it organized a course of eight lectures on savings-bank life insurance. This course,
which was offered by the division of university extension of the State department of education, was well
attended and was offered for the benefit of savings-bank employees, members of civic organizations, and
any others interested in the operation of the system. Among the lecturers were Miss Grady, Mr. Judd
Dewey, Mr. E. F. Caldwell, actuary of the system, and Mr. George L. Barnes, then Commissioner of Sav­
ings Bank Life Insurance. The league has actively defended the system against legislative attempts to
restrict its scope.
3 The activities of the league have been supported by contributions from a considerable number of per­
sons. Prominent among them have been Mr. Charles H. Jones, president of the Commonwealth Shoe
& Leather Co. and holder of the first policy issued under the law (policy no. 1 of the Whitman Bank), Mr.
Louis Kirstein, Mr. H. P. Kendall, Mr. J. E. McElwain, Mr. E. J. Bliss of the Regal Shoe Co., and Mr.
James L. Richards of the Boston Consolidated Gas Co. The present officers of the league include Mr.
Lincoln Filene, president, Mr. Judd Dewey, first vice president, United States Senator David I. Walsh,
second vice president, and Mr. Charles W. Rehor, third vice president. Its treasurer is Mr. J. William
Fellows, and its executive secretary Mr. Arthur W. Sampson.
e It is significant that at the beginning of 1934, when a measure was being considered by the legislature
which the officials of the Division of Savings Bank Life Insurance regarded as prejudicial to its interests,
representatives of both the State Federation of Labor and of the Associated Industries of Massachusetts,
two groups frequently in opposition to one another, appeared before a legislative committee to defend
savings-bank life insurance against what each organization regarded as an unwarranted attack upon it.




62

M A SSA C H U SETTS SA V IN G S -B A N K LIEE IN SU R A N C E

an agency set up by his employer, he frequently authorizes the agency
to make weekly or biweekly deductions from his wages and directs
that these deductions be deposited in some savings bank until such
time as a sum sufficient to pay the premium has been accumulated
to his credit. At that time the savings bank turns the premium over
to its own insurance department, or if it is not an issuing bank, to the
insurance department of the bank which issued the policy. The
function of the employer who acts as agent is not only to make wage
deductions and transfer them to the savings banks, but to do what he
can to educate his employees concerning the advantages of savingsbank insurance. The fact that the Division of Savings Bank Life
Insurance employs instructors whose function it is to carry on this
education is of importance in this connection.
For years numerous personnel managers in the State have urged
their workers to buy their insurance from the savings banks. As a
result of their effort and those of a number of important employers in
the State, the Associated Industries of Massachusetts, the most
important organization of manufacturers in the Commonwealth, be­
came interested in savings-bank life insurance. A secretary who
devotes his time exclusively to the promotion of savings-bank insur­
ance is employed by the organization.7 He has made numerous
surveys with the aim of giving employers an idea of the savings which
their workers would make if they carried savings-bank policies instead
of industrial policies. These surveys have usually succeeded in con­
vincing employers of the advantages of savings-bank life insurance.8
Attitude of the Savings Banks
Throughout the history of the system savings banks have hesitated
to enter the ranks of the issuing banks. In 1912 only four banks were
issuing policies and it took more than 10 years before other banks
joined them. Six banks joined the system between 1923 and 1925.
The greatest number came in from 1929 to 1931, when 11 new banks
began to issue policies. At present, in addition to the 23 issuing
banks themselves, other savings banks and their branches, to the
number of 103, act as agencies receiving applications and premiums
for savings-bank insurance. Despite the relatively rapid growth of
the system in recent years, its slow acceptance by savings banks as a
whole requires consideration.
Why have not more of the 193 mutual savings banks operating in
the State in 1933 become issuing banks? Undoubtedly the conserva­
tism of the trustees and officers of the banks is a factor of importance.
Their long tradition of carefulness and circumspection in the manage­
ment of their institutions was largely responsible in the early years
for their refusal to venture into the field of insurance. It is not
unlikely that the same factor still operates, in numerous instances, to
7 Mr. Richard B. Harding has held this post since its creation in 1930. The Associated Industries in
that year also established a subcommittee on savings-bank life insurance.
s It should be understood that neither the Associated Industries nor the employers who set up agencies
before that organization became interested in savings-bank life insurance are in this connection interested
in the sale of group insurance. Their concern is with the sale of ordinary life insurance among employees
as a substitute for the industrial insurance held so extensively by workers and their families. The material
upon which this section is based was obtained from interviews, in June and July 1934, with the following
persons: Mr. Richard B. Harding: Mr. B. Preston Clark; Mr. Royal Parkinson, personnel manager of the
American Optical Co.; Mr. A. M. Porton, personnel manager of Crompton & Knowles; Mr. H. Smith,
cost accountant of the Uxbridge-Worcester Co.; and Mr. Paul W. Viets, employment manager of the
Plymouth Cordage Co.




FACTORS A FFE C TIN G GROW TH

63

keep the banks exclusively in the savings-bank business. Another
hindrance to the establishment of insurance departments may be the
fact that officers of insurance companies and insurance agents are
often on the boards of trustees of the savings banks, and they are
not likely to encourage the establishment of insurance departments.
A further factor which operates to retard the entrance of banks into
the system is the fact that, though savings-bank insurance has been
sold for many years, many trustees of banks are still unacquainted
with its advantages and the nature of the system itself.
Despite these factors, the number of banks acting as underwriters
and the much greater number serving in the capacity of agencies
indicate that the system offers certain advantages to those banks
which are associated with it. One of these advantages has been sug­
gested by an opponent of the savings-bank insurance system as at
present operated. Wesley E. Monk, general counsel of the Massa­
chusetts Mutual Life Insurance Co. and a former insurance commis­
sioner of Massachusetts, described one motive of savings banks which
sell insurance as follows:

Savings banks and their trustees, as such, in my judgment, are not interested
in engaging in the life-insurance business except for one reason, and that reason
is a perfectly sound one, so far as the savings banks are concerned, if they desire
to complicate their business to that extent. That reason is^ based upon the
thought and belief that in obtaining policyholders in their life-insurance depart­
ments, they thereby encourage people to become depositors in the savings de­
partments of the savings banks. This thought is similar to that which exists in
connection with Christmas clubs, school deposits, and other means of inducing
people to open accounts, and the same reasoning applies to those savings banks
which have no savings-bank insurance departments, but who are acting as agents
for the collection of premiums.9

Undoubtedly, this is a fair statement of one of the motives of the
savings banks in associating themselves with the system. The officers
of the banks are convinced that such an association actually does
increase the number of their depositors. They point out that when
an employer is directed to make deductions from the wages of his
workers for the payment of premiums, he deposits the amounts so
deducted with the savings banks, where they remain on deposit until
such time as an amount sufficient to pay the regular premium has
accrued. Not only does this result in an increase in the deposits of
the banks, but it also increases the number of regular depositors.
Furthermore, these depositors are likely to become regular customers
of the savings banks. The savings departments may also benefit in
those instances where policyholders pay premiums directly to the
banks. Such persons are brought into regular contact with the banks.
If they have not been depositors before, they are more likely to
become depositors as a result of such contacts. Furthermore, the
fact that the banks encourage the deposit of small sums regularly
and the payment of insurance premiums from such deposits at quar­
terly, semiannual, or annual intervals, is likely to lead both to an
increase in deposits and in the number of regular deposits. It should
be remembered also that agency banks collect a transmission fee equal
to 2 percent of the premiums they receive and that this may often
amount to more than the cost of collection. Furthermore, the banks
which are connected with the system come into possession of funds
e Monk, Wesley E., Observations Relative to Savings Bank Life Insurance. Testimony before the joint
legislative committee on insurance, Feb. 12, 1930, p. 3.




64

M A SSA C H U SE TT S SA V IN G S -B A N K L IF E IN SU R A N C E

which are available, to a considerable extent, for investment in the
communities which they serve. Their prestige and importance are
thereby enhanced and their part in the business life of the community
assumes greater proportions.
It is significant that the Savings Bank Association of Massachusetts,
which represents the mutual savings banks of the State, and which
was indifferent to savings-bank life insurance over a period of many
years, appeared in 1934 before a committee of the legislature and
opposed the passage of legislation which might be conceived as being
directed against the system.10
The information upon which this section is based was obtained from interviews with officials of the
Division of Savings Bank Life Insurance; with Charles J. Bateman, Jr., director of the division of savings
banks in the department of banking; with G. Arthur Small, treasurer of the Uxbridge Savings Bank;
and from a number of mimeographed letters issued under the signatures of officers of various savings banks.
These letters are noted in appendix L.




Chapter 8.—Criticism of Savings-Bank Life Insurance
The savings-bank life insurance system has been subject to criticism
for many years. Its opponents have not asserted that the system is
unsound from an actuarial point of view. Their position has been
well expressed by an important life-insurance official as follows: “ No
objection can be made to savings-bank life insurance as insurance.
It is sound insurance actuarially. It can be bought at a low net cost.
Some of the methods used in the promoting and conduct of the busi­
ness, however, are objectionable.” 1 The purpose of the present
chapter is to describe the objections which have been commonly made
to the operation of the savings-bank life-insurance system, and to
attempt, where feasible, to evaluate them.
The significant criticisms of the system may be considered under
the following heads: (1) That savings-bank insurance is at present not
fulfilling the purposes for which it was originally intended; (2) that
savings-bank insurance does not give the service available to the
policyholder of the insurance companies; (3) that savings-bank
insurance can be sold at a low cost to the policyholder only because
part of its actual cost is met by subsidies from private sources and
from the depositors of the banks.2
1 Monk, Wesley E. Observations Relative to Savings Bank Life Insurance. Testimony before the
joint legislative committee on insurance, Eeb. 12, 1930, p. 1.
2 Another criticism is concerned with the fact that the insurance companies are compelled to pay a higher
tax than are the insurance departments of the banks. This matter has already been discussed in ch. 6, in
which it was shown that whereas the insurance departments of the banks pay about one-half of 1 percent
of their premium income in taxes, the insurance companies pay a proportion about four times as great.
Two other frequently reiterated criticisms are not considered in the text, since they appear not to be
pertinent to the merits of the Massachusetts system of savings-bank life insurance as an insurance or­
ganization. The first has to do with the fact that the savings-bank insurance enjoys certain advantages
not available to private companies. These consist of the State seal on stationery used and literature issued
by the Division of Savings Bank Life Insurance, the use of offices in the Statehouse, and the activities of em­
ployees paid by the State to promote the sale of insurance competing with that sold by the companies.
It is contended that these things create an impression among the citizens of the State that the Common­
wealth of Massachusetts itself guarantees the safety of savings-bank insurance, and that for the State to
promote actively the sale of such insurance and to permit false ideas as to the existence of a State guaranty
to continue, constitute a species of unfair competition with the companies. The objection has been ex­
pressed in the following terms:
“ It is carried on under the false belief, and practical misrepresentation to the public, that it is State
insurance. As a matter of law and as a matter of fact, it is not State insurance. Not one dollar of value of
the property of the Commonwealth is back of it, and not one obligation of the State guarantees it, and yet
purchasers of this insurance believe that if perchance contracts are in danger of not being carried out, the
Commonwealth in some way or other is a guarantor of their fulfillment.
“ It is a fact that this general belief that the Commonwealth is back of this insurance is encouraged, if
not by direct expression, certainly by the implication which arises when representatives of the Savings Bank
Insurance Division of the State request an entree to business concerns and request assistance from the heads
of business houses to instruct, educate, and solicit this insurance for the savings banks. Its needs no proof
that a representative of the State of Massachusetts, appearing with his credentials, will receive more atten­
tion and will obtain privileges and preferences that the representatives of a private concern will not receive.
This results in unfair competition * * * ” (Monk, Wesley E. Observations Relative to Savings Bank
Life Insurance. Testimony before the joint legislative committee on insurance Feb. 12, 1930, p. 1.)
Another critic asks, “ Could there have been found any group of 12 men financially equipped who would
not have been willing to pay actually in cash into the State $1,000,000 or even twice that sum for such an
exclusive charter, for the use of the statehouse as a home office, and for the right to use the State seal with
which to create and broadcast the impression that the State is guaranteeing a life insurance company so
constituted? ” (De Groat, Floyd E. Mutual Savings Banks and Mutual Life Insurance, Reprinted from
article in the Spectator (issues of Mar, 19 and 26 and Apr, 2,1931), p. 4.)
Footnote continued on p . 66.




65

66

M A SSA C H U SE TT S S A V IN G S-B A N K L IF E IN SU R A N C E

The Original Purpose
It has been asserted frequently that the intention of the savingsbank insurance law when passed was to meet the evils of industrial
insurance, that the law was sought because it was regarded as neces­
sary in order to enable workers to buy insurance at low cost and under
reasonable conditions, and that at present, with the maximum amount
which may be purchased in any one bank equal to $1,000 and the
possibility of buying savings-bank insurance in amounts as great as
$23,000, the system has departed from its original purpose and has
become a system of ordinary life insurance, catering to the needs of
persons in the higher income groups. One critic expresses this position
in the following words:
At the time the savings-bank life insurance came into being, the chief reason
back of it was that it provided a method by which the man of small means
could procure insurance cheaply. It was not admitted, and would have been
disputed and denied, that it was made for bank directors or others of equal
means.3

Continuation of footnote 2.
Some insurance company officials have suggested that as a means of eliminating these objections, all
connection between the savings-bank insurance system and the State be severed. It is proposed that the
banks themselves engage actuaries and medical directors, and operate their insurance departments without
the aid or supervision of the Division of Savings Bank Life Insurance and of the General Insurance Guar­
anty Fund, the officers and members of which are government appointees or employees of the State.
In 1930 these proposals were embodied in a bill which was considered by a legislative committee but was
not approved. (Monk, Wesley E. Observations Relative to Savings Bank Life Insurance. Testimony
before the joint legislative committee on insurance, Feb. 12, 1930, pp. 6-8.)
The advocates of the savings-bank life insurance do not, of course, deny the fact that the system is bene­
fited by the State’s connection with it. They point out, however, that the officials of the division and the
banks make every effort to explain that there is no State guaranty of savings-bank life insurance. They
assert that the State, in fostering the system, is doing something socially desirable, since the system has
the effect of offering insurance to the citizens ofthe State under conditions which are to their great advantage.
They believe that in order to promote socially desirable ends, the S tajte is j ustified in following such a course.
A second criticism which appears to have no relation to the merits of savings-bank insurance is to the
effect that the savings banks should not be in the insurance business. In the pamphlet already quoted
Mr. Wesley E . Monk says that ‘*The savings banks should not be in the insurance business any more than
insurance companies should be in thesavifUgs -bank business. It is just as logical to permit mutual insurance
companies to be in the savings-bank business as a motive by which more insurance could be sold, as it is to
permit savings banks to be in the insurance business in order to induce more savings accounts.” (Monk,
Wesley E. Observations Relative to Savings Bank Life Insurance. Testimony before the joint legisla­
tive committee on insurance, Feb. 12,1930, p. 6.)
Mr. F. E. De Groat puts the matter as follows:
‘‘Should mutual life insurance companies enter the savings-bank field? It is possibly one of the greatest
safeguards with which mutual life insurance is surrounded that either by charter provision or by choice,
it has confined itself to the making of contracts which involve the life risk. The charter of one of the most
famous life-insurance companies in America expressly provides the following: ‘No part of the funds of said
corporation shall be used for banking purposes.’
“ Mutual savings banks have naught to do with the making of contracts, nor of interest guaranties; they
are depositories only. The departure of mutual savings banks from the performance exclusively of those
functions which have made them what they are, may prove unwise; adding to their functions by making
contracts involving the life risk, is deplored by many persons of unquestioned financial acumen, including
some of those prominently identified as directors of the greatest savings institutions in America.” (De
Groat, Floyd E. Mutual Savings Banks and Mutual Life Insurance. Reprint from article in the Spec­
tator (issues of Mar. 19 and 26, and Apr. 2, 1931), pp. 13-14.)
Against this position the advocates of the savings-bank insurance system urge that if the banks are in the
insurance business when they operate a distinct insurance department within their establishments, the
insurance companies are no less in the banking business when they sell endowment insurance, which is a
combination of insurance protection and savings, and when they sell annuities, which is a form of savings.
They point out that endowment insurance has constituted, over the last few decades, an increasingly
important form of insurance sold by the private companies.
This attitude is expressed clearly in an open letter written by Mr. Elmer A. MacGowan, treasurer of
the New Bedford Institution for Savings, to a person who complained that the savings banks had no busi­
ness to enter the insurance field. The letter declares: “ A sa matter of fact, the life-insurance companies
have entered the banking field. That is to say, they are soliciting and receiving savings as such. You
know * * * that only a fraction of the premium on endowment policies represents or is claimed to
represent the insurance feature, and at the younger ages more than half of the premium is intended to
enable the company to pay the policy off at a stated time. A considerable part of the 3 billion dollars of
assets of [a certain company] is made up of moneys which it has received in this way, not as cost of life
insurance and not for the purpose of meeting any death claims, but for the purpose of repayment to the
policyholders in the form of accumulated savings under endowment policies. If that is not engaging, to
all intents and purposes, in the banking business, then I don’t know what is. Certainly you are doing in
that connection an important part of the banking business. That is, you are collecting and receiving
savings for investment as such.” (Elmer A. MacGowan, in an open letter to Mr. D . Howard Nolan of
New Bedford, June 7,1930, obtainable from the Division of Savings Bank Life Insurance.)
3 Monk, Wesley E. Observations Relative to Savings Bank Life Insurance. Testimony before the
joint legislative committee on insurance, Feb. 12, 1930, p. 6.




CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

67

Another puts the matter as follows:

It came into being as an instrumentality for the benefit of the working class.
In other words, it would furnish industrial insurance at a cost below that in
regular industrial companies. The limit of insurance on a single life was to be
$500, and in the beginning only four banks availed themselves of the permissive
law to enter into life-insurance transactions. The industrial field in due course
was abandoned for the reason that the plans were totally inadequate for the job
in hand. It embraced life insurance of the ordinary type, and makes today its
principal appeal to the well-to-do, so that, while originally set up by the State
for a charitable purpose—an insurance breadline, so to speak, for the poor and
needy—the line remains, but those who stand in it are more often the rich and
greedy.4

The critics propose that in order to put the system once more upon
the course which it was intended to run, the maximum which may be
carried by any one person should be limited to $5,000, regardless of
the number of banks authorized to write insurance.
The proponents of savings-bank insurance admit, in answer to the
foregoing objections, that one of the principal purposes in the mind
of the framers of the law was to eliminate the evils of industrial insur­
ance by proposing a sound substitute for such insurance. They point
out, however, that there 'were other purposes which the law was
intended to fulfill. The bill in its original form, and as finally enacted
in June 1907, permitted each insurance department to write policies
up to the maximum of $500 on a single life and placed no limit upon
the number of banks which might establish insurance departments.
When the bill was enacted there were 189 mutual savings banks
operating in the State. Thus it would have been possible at the
time, if all the banks had chosen to enter the system, for a single
person to carry policies totaling $94,500. The possibility of this was
present for all to read in the bill itself. Mr. Alfred A. Aikin, then
the treasurer of one of the large savings banks in Worcester and later
one of the vice-presidents of the New York Life Insurance Co., speak­
ing before the legislative committee in opposition to the enactment
of the savings-bank life-insurance bill on April 4, 1907, implied this
was a possibility if the bill were passed.5
The advocates of savings-bank insurance also point out that at the
time the law was enacted there was in effect a limit of $1,000 upon the
amount which anyone might have on deposit in a single savings bank.
A limit on the amount of insurance seemed equally desirable. Where­
as the limit on deposits in a bank has since been increased to $4,000,
the insurance maximum has only been doubled.
They assert further that the increase in the permissible maximum
of insurance sold to one person by a single bank was not put into
effect clandestinely. It was the result of the passage of a law by the
State legislature, and, as in all such cases, the measure was subject
to examination which might have resulted in its rejection if it was
regarded as undesirable by the legislators. Finally, they assert, if
savings-bank insurance^ is found to be a desirable type of insurance
for persons with larger incomes than those of the workers, and at the
same time is attractive to workers, there is no good reason why the
former should be denied the advantages which may accrue to them
by buying insurance from the banks.
De Groat,
E. 19Mutual
SavingsandBanks
Mutual Life Insurance. Reprint from article in
the4 Spectator
(issuesFloyd
of Mar.
and 26,1926,
Apr. and
2,1931), p. 4.
6 Wilmot R. Evans, president of the Boston Five Cents Savings Bank, in an open letter to Mr. Guy Cox,
June 4, 1930, a copy of which may be obtained from the Division of Savings Bank Life Insurance.




68

M A SSA C H U SETTS S A V IN G S-R A N R L IF E IN SU R A N C E

In investigating this aspect of the controversy it seemed desirable
first of all to find out, as far as possible, whether savings-bank insur­
ance was being bought primarily by persons with small incomes or
whether it was catering especially to the insurance needs of persons
who might otherwise be expected to buy large quantities of insurance
with the private companies. Fortunately for the purpose at hand,
the Division of Savings Bank Life Insurance, since November 1, 1927,
has kept monthly records of the occupations of those persons who
apply for savings-bank insurance. Table 27 shows the results of
bringing together these records from the time they were first made
through the month of June 1934. It was, unfortunately, not possible
to classify the applicants with finality. For purposes of simplicity
they were grouped under the heads of wage earners, clerical workers
and farmers, professional men, business men and executives, home­
makers and students, and doubtful cases. The greatest difficulty
was experienced in deciding whether a particular person should be
classed as a professional worker or business man, or as a wage earner
or clerical worker. For example, if an applicant gave his occupation
as an engineer, was he really a civil engineer or a mechanical engineer,
in which case he should be classed as a professional, or was he a
locomotive engineer or a stationary engineer, in which case he should
be classed as a wage earner? If his occupation was recorded as an
accountant, was he really a professional accountant, perhaps possessed
of the certificate of a certified public accountant, or was he a book­
keeper in a small establishment? In every case in which it seemed
impossible to say that an applicant belonged to a definite group, he
was put under the heading of “ doubtful”.6
—Number of applicants for savings-bank life insurance in certain groups
and their proportion to all applicants, November 1> 1927, to June 30, 1934

T able 2 7 .

Year or month

W age earn­ Professional,
ers, clerical
and Homemakers
workers and business,
executive and students
farmers

Doubtful

Total

Per­ Num­ Per­ Num­ Per­ Num­ Per­ Num­ Per­
Num­ cent
cent
cent
ber of total ber ofcent
total ber of total ber of total ber cent
Nov. 1,1927-0ct. 31,1928___
Nov. 1,1928-Oct. 31,1929____
Nov. 1,1929-Oct. 31,1930____
Nov. 1,1930-Oct. 31,1931___
Nov. 1 ,1931-Oct. 31,1932___
Nov. 1,1932-Oct. 31,1933___
November 1933-----------------December 1933____________
January 1934---------------------February 1934_____________
March 1934_________ - .........
April 1934_________________
May 1934_________________
June 1934_________________
Total_______________

2,169
1, 276
2,412
2,827
2,006
1, 986
190
182
320
262
297
273
411
184
14,795

55.46 511
58.32 249
49.03 685
48.27 687
45.55 579
45.82 516
48.97
34
53. 53
27
54. 33
36
53. 58
42
51.47
55
49. 46
63
55.84
53
37. 32
47
49. 69 3, 584

13.07
11.38
13.93
11.73
13.15
11.91
8. 76
7.94
6.11
8.59
9.53
11. 41
7.20
9.53
12.04

601
330
1,018
1,592
1,305
1,435
107
85
185
133
170
156
218
198
7, 533

15.37 630
15.08 333
20.70 804
27.18 751
29. 63 514
33.11 397
27. 58
57
25.00
46
31. 41
48
27.20
52
29.46
55
28.26
60
29. 62
54
40.16
64
25. 30 3, 865

16.11
15. 22
16. 34
12. 82
11.67
9.16
14.69
13. 53
8.15
10. 63
9.53
10.87
7. 34
12.98
12.98

3,911
2,188
4,919
5,857
4,404
4,334
388
340
589
489
577
552
736
493
29, 777

100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100.00
100. 00

In examining table 27, which gives the number of persons in each
group for the period from November 1, 1927, to the end of June 1934,
and their proportion to the total number of applicants, excluding
• Appendix I indicates, in the case of the records for the month of June 1934, the way in which applicants
were grouped under the various heads.




69

CRITICISM OF SA V IN G S -B A N K IN SU R A N C E

cases of applications for infantile insurance, it must be borne in mind
that the very nature of the records made it impossible to make a
precise classification. It is likely that many persons would not agree
to putting certain applicants in one group rather than another. De­
spite this, however, the results of the table indicate a preponderance
of testimony of a definite kind, and it does not seem improper to
reach conclusions on the basis of such results.
The table indicates that about 50 percent of all applicants belonged
under the head of clerical and other workers and farmers, that about 12
percent were definitely classifiable as professional and business men
and women, about 25 percent as homemakers and students, and about
13 percent as in the doubtful group. The implications of the data go
beyond the foregoing statement, however. It seems not unreasonable
to assume that a large number of those classified as homemakers or
students come from the low-income groups, and that the same is true
of those classified as doubtful. On the basis of these assumptions it
appears that well over half of all the applicants come from low-income
groups.7
Data of another kind are available to throw some light upon the
economic status of the persons who buy savings-bank policies. Since
April 1934, the Division of Savings Bank Life Insurance has kept a
record of the number of persons applying for insurance in the amount
of $5,000 or more among the several banks. These data for the months
of April, May, and June, 1934, are shown in table 28.
T able

28.—Number of persons applying for insurance in amounts of $5,000 or
more in April, May, and June 1934

Amount

April
1934

May
1934

June
1934

17
4
1
2
10

25
2

18
3
1
21
5

$5,000 ________
______
$6,000
$7,000 _______
$7,500 ________
________
$$8,000
q non
$10,000________

1
5

Total
60
9
1
1
51
20

Amount
$11,000 _______
$12,000 _______
$15,000________
$18,000________
$21,000________
Total____

April
1934
1
1
1
37

May
1934

June
1934

3
1
1
38

1
1
1
1
34

Total
4
2
3
1
2
109

It will be noted that during the period covered a total of 109 persons
applied for as much as $5,000 or more of insurance. Applicants for
policies of less than $5,000 aggregated 2,115. The 109 applicants for
policies of $5,000 or more constitute 4.90 percent of the whole number
of applicants. It will be noted further that the number of persons
applying for as much as $6,000 or more of insurance was 49, which was
only 2.20 percent of the number of all applicants during the period.
Whatever may have been in the mind of the framers of the savingsbank insurance law, or of the legislature which enacted it, it is persons
with low incomes and purchasers of relatively small amounts of insur­
ance who generally constitute the system’s policyholders.
7 The classification of farmers along with wage earners has no significance, even if the farmers are prosper­
ous ones, for in the year ending Oct. 31, 1928, only 14 persons out of a total of 2,169 in the wage-earning and
farming group were recorded as farmers, and some of these may have been agricultural wage earners. In
1929, the numbers were 4 and 1,276, respectively; in 1930, 16 and 2,412; in 1931,12 and 2,827; in 1932, 20 and
2,006; and in 1933, 10 and 1,986. Furthermore, it must be remembered that school teachers, whose incomes
generally are not large, are classed among the professional and business men and women. In 1928 there
were 132 teachers among the applicants out of a total in the group of 511; in 1929 there were 46 out of 249; in
1930, 154 out of 685; iu 1931, 152 out of 687; in 1932, 158 out of 579; and in 1933, 141 out of 516.




70

M ASSA C H U SETTS SA V IN G S-B A N K L IF E IN SU R A N C E

Critics of savings-bank life insurance declare that the system as at
present operated departs from the original intention of the law in a
second respect. According to them the idea of selling insurance across
the counter without the use of solicitors was abandoned when the law
was amended in 1915 to permit the employment of instructors.
It is clear that, regardless of the manner in which the instructors are
employed, they do work which is done for private insurance companies
by insurance agents. To the extent that the instructors' work leads
to the making of applications for savings-bank insurance, their func­
tion is similar to that of life-insurance agents. The advocates of the
savings-bank life insurance point out, however, that the idea of selling
insurance across the counter was not abandoned when instructors
were employed. In their view, the essential difference between the
employment of savings-bank insurance instructors and of solicitors by
the private insurance companies rests in the fact that whereas the
income of the latter closely depends upon the amount of insurance
they sell, the income of the instructors employed by the Division of
Savings Bank Life Insurance, who are on a straight salary basis, does
not vary directly with their success in getting prospects to apply for
insurance with the banks. The purpose of prohibiting the employ­
ment of solicitors by the banks was to prevent the development of a
system of agencies with its high costs in the way of agents' commis­
sions and “high-pressure" methods of insurance salesmanship.
Services to Policyholders
Critics of savings-bank life insurance have frequently declared that
the banks do not give their policyholders as much service as do the
companies. The latter are said to give superior service with respect
to (1) certain policy provisions, (2) persuading people to buy insurance
protection, (3) advice to policyholders, and (4) the collection of
premiums.
It was pointed out in chapter 5 that insurance policies may be
bought from the private companies which contain provisions for pre­
mium waiver (and in industrial policies for the payment of benefits in
case of disability), and for double indemnity in case of accidental
death. It is often asserted that the savings banks, since they sell no
policies containing such provisions, are therefore unable to give as
much service to policyholders as the companies. The assertion is,
of course, justifiable. In view of the fact that savings-bank policies
are held so largely by workingmen who are not likely to buy special
disability insurance, it might be desirable for the banks to sell insur­
ance providing at least for the waiver of premiums in case of disa­
bility, if the insured desires to pay the small extra cost which the com­
panies usually charge ordinary policyholders for such a provision.
It is also said that persons must be sold insurance or they will not
buy it, and that, though the banks get most of their insurance business
without the intervention of solicitors, their failure to employ salesmen
results in the restriction of the sale of savings-bank insurance. In­
surance companies, it is claimed, serve the individuals to whom they
sell policies when they persuade them to protect themselves and their
families by buying insurance. Advocates of savings-bank insurance
generally admit that more of it could be sold if agents and solicitors
were generally employed to sell it. To engage a large staff of agents




CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

71

for such purpose, however, would bring back the very agency system
which it was the intention of the law to eliminate. They assert that
the fact that over $100,000,000 of insurance is in force with the sav­
ings banks at present shows that people will buy insurance without
bein^ urged to do so by insurance agents.
It is often declared that insurance agents perform valuable services
by acting as insurance advisers for people who cannot afford the luxury
of engaging an independent insurance counselor. Furthermore, the
agents are often looked to by the holders of industrial insurance for
advice on matters not relating to insurance and are frequently regard­
ed as family friends and advisers. That insurance agents act in these
capacities cannot be denied. It is possible, however, that as an insur­
ance adviser an agent employed by a particular company is not al­
ways the best person to give impartial advice as to the most desirable
form of insurance to buy.
It is said, finally, that the collection of weekly premiums by indus­
trial insurance agents saves the insured time and trouble and helps
him to keep the insurance in operation. The answer made to this
point is that the costs of the agency system are much higher than are
justified by the services of collecting premiums and keeping insurance
in force. Those who support savings-bank life insurance declare
further that the relatively low rate of lapse and the relatively high
proportion of insurance which is carried to maturity in the savingsbank insurance system prove that an agency system like that of the
insurance companies is not necessary either to secure regular payment
of premiums or to maintain insurance in force.
“Subsidies”
In recent years critics of savings-bank insurance have emphasized
their belief that the policyholders of the savings banks do not them­
selves bear the entire cost of their insurance. The policyholders are
said to be able to obtain insurance at a relatively low cost because part
of the expense of operating the system is paid by the taxpayers, by
private persons who contribute to its support, and especially by the
depositors of the savings banks. It has been shown already that in
previous years the entire expense of operating the office of the Division
of Savings Bank Life Insurance was borne by the taxpayer, that
beginning in 1927 the insurance departments began to assume an
increasing part of this expense, and that by the year 1934 the tax­
payer was paying nothing to maintain the savings-bank insurance
system, the entire expense of operating the division being reimbursed
to^he State by the banks. It has been shown also that though in
earlier years the expenses of the division were borne entirely by the
State, and that this meant that the policyholder paid less than he
might otherwise have had to pay, in later years the expenditure of
the State constituted only a small fraction of the total expenses of
operation.8 It seems reasonable to say that the State’s expense in
connection with the savings-bank insurance system has at no time
been an important factor in the low cost of savings-bank insurance to
policyholders.
8 See chs. 4 and 6, sections on “Expenses of Operation”.




72

M A SSA C H U SETTS SA V IN G S -B A N K L IF E IN SU R A N C E

As to subsidies from private agencies, it has been frequently
asserted that large contributions, made through the Massachusetts
Savings Bank Insurance League, to the cause of savings-bank insur­
ance, have been used to promote its sale. The league has published
pamphlets and advertisements which have proved useful to the
savings-banks’ insurance business. The costs of this publicity, which
in the case of the insurance companies would have to be borne entirely
by the policyholders, have in the case of the banks been borne by
philanthropists interested in advancing the sale of savings-bank insur­
ance. Some critics believe that the total amount of these contribu­
tions has been so large as to play an important part in explaining the
low costs of savings-bank insurance.
An investigation was made of the books of the league from the
year 1908 to the year 1933. During this entire period meticulous
accounts were kept of every contribution received and of every ex­
penditure made by it. As a result of an examination of these accounts
it is possible to say that over the period as a whole contributions to
the work of the league have not amounted to as much as 1 percent
of the combined premium income of the savings-bank insurance
system.
Subsidies from savings-banks depositors, it has been stated, have
taken the form of new insurance departments of the banks paying
nothing either in rents or in salaries, over a period of years. It is
obvious that a new department uses clerks and requires the super­
vision of savings-bank officers. It is obvious also that even a new and
small insurance department requires space. When the department
pays neither salaries nor rents it is assumed that such expenses are
borne by the savings department of the bank and that the insurance
department is not bearing its proper share of the joint expenses. The
insurance policyholder, it is claimed, is therefore being subsidized by
the savings-bank depositor, who, because the savings department
pays more than its fair share of the bank’s expenses, must receive in
interest on his deposit account a smaller return than that which he
might otherwise get. Not only is this conclusion said to be deducible
from the undoubted records of the insurance departments of the banks
themselves, showing as they do that numerous banks in the early
years pay no rent or salaries or pay very small amounts for these
purposes, but it is said to follow also from the fact that whereas
insurance dividends of the banks are based on an assumed interest
return of 5% percent, savings depositors do not as a rule receive much
more than 4 percent on their deposits and at present are more likely
to be receiving only 3K or 3 percent.
The advocates of the savings-bank insurance system make the
following answer to this criticism. They assert that after an insur­
ance department gets started it should be expected to and generally
does pay its share of the joint expenses of the bank, and that it
frequently pays more than its fair share. ^ They maintain, however,
that it is just for a bank not to charge its insurance department with
rents and salaries until the latter gets reasonably well started in the
performance of its business. They point out that generally a new
insurance department requires no additional space and no additional
clerical help. The savings bank is thus at first put to no additional
expenditure for space and labor as a result of establishing a new
insurance department. Even if it could be shown that in its early




CRITICISM OF SA V IN G S-B A N K IN SU R A N C E

73

years an insurance department does not pay its proper share of the
joint expenses of the bank, the fact that the deposits of the bank
increase because of the new insurance business justifies the bank in
not charging the department with larger amounts for rent and
salaries.
As for the claim that the case against the insurance department is
proved by indicating the difference between the return going to the
policyholders and to the depositors, the protagonists of the savingsbank insurance system assert that a savings department, since it may
at any time be asked to pay its depositors on demand,9 must have on
hand a larger share of its funds than is the case with the insurance
department, which is thus able to invest a much greater proportion
of its assets. They point out that it is general for the rate of interest
on savings deposits to be less than the rate earned on insurance assets,
whether one compares the interest rate paid to the depositors of the
savings-insurance banks with that earned by their insurance depart­
ments, or whether one compares the interest rate paid by savings
banks the country over with the rate of interest earned on the assets
of private insurance companies.
To the statement that dividends have been paid by the insurance
departments upon the assumption that assets have earned 5K percent,
which is said to be more than has actually been earned in recent
years, and that, therefore, the dividends paid must have come from
the profits of the savings departments, the officers of the Division
of Savings Bank Life Insurance make a clear denial. They point out
that no insurance department has paid out in dividends more than
was available for the purpose. In each year the amount made
available for dividends has been less than the actual profits earned
in the preceding year, and a portion of these profits has been set
aside to surplus. For example, from the profits earned by the
system as a whole in 1931 the sum of $797,991 was made available
for dividends and $117,772 was added to surplus. The analogous
amounts for 1932 were $690,730 and $123,040. For 1933 they were
$722,384 and $126,972, respectively.10
The implication that the assumption of a percent rate of interest
has any necessary connection with a rate of interest earned on invested
assets is also denied by the officers of the division. They point out
that the assumed interest rate of 5V2 percent was used only as the
interest factor in the basic dividend formula. Other factors, such
as expense and mortality, also enter into the basic dividend formula.
The formula is used only for the purpose of determining the manner
in which the amounts set aside each year for the payment of dividends
shall be distributed among the various classes of policyholders. It
has no relationship to the amount of money which is available for
dividends as a whole. If the interest factor assumed in the formula
is relatively high, those policyholders with large reserves to their
credit will be paid a greater share of the total sum paid out as divi­
dends, and those policyholders with small reserves will receive a
lesser share. On the other hand, if the interest factor in the formula
is lowered from 5% to 4%0 percent, as it was in 1935, the dividends
9 Though the law entitles them to demand notice, insistence upon such notice would at once endanger the
confidence of the depositors.
10 Annual Reports of the Commissioner of Insurance of Massachusetts, pt. 2, table M.
5736°—35 '6




74

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

paid to the policyholders with large reserves to their credit would
decrease and those paid to the other policyholders would increase.11
The fundamental issue raised by the controversy is whether or not
the depositors of the savings banks pay a substantial part of the
expenses of the insurance carried by the bank’s policyholders. This
issue is so important and its implications so vital to the operation of
the savings-bank insurance system that it deserves the most thorough­
going examination possible. For if it be true that the depositors
subsidize the policyholders, there exists an obvious injustice not only
to the depositors but also to the insurance companies. Before pro­
ceeding with an investigation of the matter, it should be pointed
out that only the items of rents and salaries appear among those
which the insurance departments are said not to bear in proper
proportion. The expenses for such items as the fees of medical
examiners, taxes of the insurance departments, advertising, printing,
and postage give rise to no controversy, since they are in practically
all cases directly incurred by the insurance departments, definitely
allocable to them, and usually directly paid by them. ^ If attention is
confined to the problem of rents and salaries, the issue as to the
equitable distribution of joint expenses between the two departments
may be regarded as covered.
It should be pointed out further that the critics of the system are
not inaccurate in pointing to the fact that numerous insurance depart­
ments have paid neither salaries nor rents in their early years. Thus,
in the year 1932 only 1 of the 11 banks which came into existence
during the period from 1929 to 1931 paid anything either as salaries
or as rent. In 1933, 6 of these banks paid no salaries and 8 paid
no rents. In the latter year 1 of the insurance departments paid
only $12 under the head of salaries for the whole year. In 1934,
1 bank paid neither salaries nor rent and 6 others paid no rent.
At first glance the criticism stated in this section appears to be
valid.12
The problem of determining whether the savings-insurance banks
have paid their proper proportion of rents and salaries is essentially
a problem in cost accounting. The essential function of cost account­
ing is to find the most reasonable criteria upon which to base the
distribution of expenses between several departments of a business.
Cost accounting is in the nature of a process of approximation rather
than one of direct measurement. It seeks to apply good judgment
and common sense to the solution of the problem rather than some
universally applicable formula.13
Two preliminary assumptions should be stated before analyzing
the problem: (1) Each department should share equitably in the
joint expenses of the savings banks, as required by law. (2) If a
building, or an officer or worker of any kind, is exclusively used by
the insurance department, that department should bear the entire
cost incurred by such use.
Since a thorough investigation into the affairs of each savingsinsurance bank, in order to determine to what extent a building is
11 For an extended discussion of the basic dividend scale see appendix E.
12 Tables in appendix A contain data on the important items of expense for each insurance department
from the time it was established until Oct. 31, 1934.
is The immediate problem in hand is unique in the sense that it could arise in precisely this fashion only
when one business establishment engages at the same time in the business of savings banking and in the
quite different business of insurance.




CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

75

used only by the insurance department and the extent to which

officers and workers are employed exclusively in that department,
was not feasible, it was necessary to treat the problem of proper
distribution of expenses as though it were one entirely of the joint
expense incurred for space and staff.
The essence of the problem at hand is to find quantitative criteria
in both the savings department and the insurance department which
are available in the records and which are sufficiently comparable
to furnish a reasonable basis upon which the distribution of joint
expenses may be made.
The sets of criteria which suggested themselves are as follows:
(1) The amount of deposits in the savings department may be com­
pared with the amount of insurance in force in the insurance depart­
ment; (2) the deposits received in a given year by the savings depart­
ment may be compared with the premium income received by the
insurance department; (3) the ledger assets of the savings department
may be compared with the ledger assets of the insurance department.
Other possibilities, such as total income, receipts, and payments, and
the number of deposit accounts and of policies, were considered, but
in each case they were discarded as less satisfactory than any of those
mentioned.14
Amount of deposits and amount of insurance in force—the first set
of criteria—are obviously not comparable. All the deposits of a sav­
ings department are liabilities to the depositors, which they may
demand at any time. In contrast, the total amount of insurance in
force is not a liability to the policyholders. Only that portion of the
amount of insurance in force is a liability to the policyholders which
equals what the insurance departments have set aside as reserves,
plus accrued dividends, premiums paid in advance, undivided profits,
and surplus. Furthermore, neither the amount of insurance in force
nor the amount of deposit liability is an adequate measure of the
work which may be required of each department.
The second set of criteria, the amount of deposits received and the
premium income, is hardly more satisfactory than the first. The
premium income of an insurance department may possibly be, in
some respects, a fair measure of the day-by-day work which must be
done, as well as a rough indication of the amount of space which might
be required. Deposits received, however, are a poor indication of the'
amount of work in the savings department, for there is about as much
work required when a person withdraws a deposit as when he makes
one. The net deposit income of a given year might be almost a negli­
gible quantity, though the activity required because of large-deposit
income received and large deposits paid back to depositors might be
very considerable. Furthermore, neither the first nor the second set

14 An analysis based upon the use of receipts from and payments to depositors in the savings departments
and the receipts from and payments to policyholders in the insurance departments as criteria for distributing
rents and salaries was made. Their use resulted in increasing the share of salaries and rents to be allocated
to the savings departments as a whole above the amounts which would be allocated if the criteria of ledger
assets were used. The total receipts from and payments to policyholders in the insurance departments for
1933 amounted to $5,315,000. The total receipts from and payments to depositors in the savings departments
of the same banks equaled $162,447,000. The amount for the insurance departments was thus 3.27 percent
of that for the savings departments. The total ledger assets of the insurance departments equaled $14,502,000, while those of the savings departments came to $420,554,000. The ratio was thus 3.45 percent. If, there­
fore, receipts and payments were used as criteria, the insurance departments would have paid a smaller
proportion of total rents and salaries than if ledger assets were used as a basis. It is true, of course, that
receipts and payments in the savings departments were unusually high in 1933 because of bank runs followed
by redepositing. This consideration was one of the factors which led to the decision not to use receipts and
payments as criteria. (Data from Annual Report of Commissioner of Banks, 1933, pt. 1.)




76

M A SSA C H U SETTS S A V IN G S-B A N K L IF E IN SU R A N C E

of criteria properly takes into account the amount of work required
of each department in keeping records of business first done before
the current year. Such business requires the keeping of accounts and
the necessity of managing the investment of funds no less than does
current business. The premium income and the deposit income of a
bank in a given year might be small, but the work done in the current
period as a result of deposits made and premiums paid in previous
years might be great.
The most satisfactory set of criteria available for the purpose at
hand is the ledger assets of both departments. In the first place, both
the insurance and the savings departments of the banks have ledger
assets, and they are thus more strictly comparable in this respect
than the other criteria. Second, ledger assets take into account to
some extent the volume of present business as well as that of past
business. Third, ledger assets represent more adequately than the
other criteria the tasks involved in keeping accounts, filling out forms,
and similar work, and also the work of managing the investment of
assets.
Ledger assets are not a perfect measure, however. Large assets
are not likely to require much more care and work in investing than
smaller ones. Certain kinds of insurance, such as group insurance,
and that on which premiums are paid frequently, require more work
to handle than others. It is clear, furthermore, that ledger assets
are by no means a good measure of current business activity in each
department, for while savings accounts may be in a state of flux and
require much activity at a given time, ledger assets may show little
indication of this fact; and while a given year’s insurance business
may be relatively slight and therefore require less current work,
ledger assets are not directly indicative of the situation. For all that,
however, they give a better indication of current work than other
criteria which are available. Finally, it should be pointed out that,
dollar for dollar, the assets of the savings department probably
involve more work than those of the insurance department. The
receipt of insurance premiums and the payment of dividends to
policyholders are more regular and systematic than are the receipt
and payment of deposit^. It seems fair to say, therefore, that more
activity is required in the savings than in the insurance department.
This is a defect, but its result is to weight the conclusions in favor of
the depositors rather than against them.15
Using the ledger assets of each department as the criteria for
determining the proper basis for the distribution of salaries and rents
is The decision to use ledger assets as a criterion for distributing joint expenses between the two depart­
ments, and the reasoning upon which it was based, were submitted to a large number of skilled accountants.
Most of these persons were certified public accountants who had for years dealt with cost accounting. In
every instance there was agreement, after careful consideration, that the method here proposed was the
most feasible one for the purpose of determining whether joint expenses had been properly distributed in
the past.
For the future the banks might well distribute joint expenses on the basis of an analysis of the number of
transactions and the average time consumed by each class of transactions in each department. This
method is in common use by many banks which attempt to distribute properly the joint expenses among
their various departments, such as the trust department, the savings department, and the banking depart­
ment proper. To use this method would require an original analysis and timing of each class of trans­
actions arising out of each type of policy by a cost accountant, and periodical analyses at infrequent inter­
vals to make possible a modification in case the nature and the proportions of the transactions vary.
Though the procedure seems complicated, it has turned out not to be so in practice, especially when an
establishment uses bookkeeping machines which record the numbers of various kinds of transactions
automatically.
For the past, to the experience of which the present investigation has necessarily been confined, it has
obviously not been possible to depend on the analysis of the different classes of transactions, since no such
analysis had been made by the banks.




CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

77

between the departments, an investigation was made of the situation
for the year ending October 31, 1933. The first step was to record
the salaries and the rents of each department of the 21 savings insur­
ance banks. The salaries and rents of both the departments were then
added. The ledger assets^ of each department were next recorded,
and these added. Following this the combined salaries and rents of
both departments in each of the 21 banks were compared with their
combined ledger assets, and the ratios between these items discovered.
These ratios were regarded as the proper ratios upon which the
equitable distribution of rents and salaries between departments in
each bank might be based. The “ proper” ratio for each bank was
applied to the data for rents and salaries in each of the 21 banks, and
the proper amount which should have been paid by each department
determined accordingly. The final step was to find out the extent
to which each department was paying more or less than its proper
share.
Table 29 shows the process and the results of this method. The
headings are self-explanatory.
The table shows that for the savings-insurance banks as a whole
the ratio of combined rents and salaries of both departments to their
ledger assets was three-tenths of 1 percent. This is above the ratio
for all the savings banks in the State, whether or not they run insur­
ance departments. The ratios for all the mutual savings banks were
0.274 percent in 1933, 0.268 in 1932, 0.253 in 1931, 0.247 in 1930,
and 0.244 in 1929.16 The ratio for the insurance banks ranged from
0.17 percent in the case of bank no. 14 to 0.66 percent for bank no. 13.
Important for the purpose of the investigation is the fact that in
the year 1933, 13 of the 21 insurance departments paid more and 8
less than their theoretically proper share. Of those paying more than
their “ proper ” share of rents and salaries the excess ranged from $374
in bank no. 16 to $5,667 in bank no. 3. Bank no. 16 paid an excess
of $374 on its total actual expenditure of $680 for rent and salaries
in the insurance department. Its insurance department, therefore,
should theoretically have paid 55 percent less than it did in fact pay
for these items. The insurance department of bank no. 3 paid its
excess of $5,667 on its combined rent and salary item of $11,569. It
therefore paid 49 percent more than it should theoretically have paid.
Of those insurance departments paying too little in rents and salaries
the range was from $78 in bank no. 20 to $428 in bank no. 12. Bank
no. 20 paid nothing in salaries or rent.^ Bank no. 12 paid $912 instead
of the $1,340 which would have been its proper share; that is, it paid
32 percent less than it should have paid for these items.
The total aggregate payments in excess of their theoretically proper
share of rents and salaries made by all the insurance departments was
$38,391. Those insurance departments which paid less than they
should have paid expended $1,751 too little in rents and salaries.
The net excess paid by the insurance departments was thus $36,639.
i6 Report of the Commissioner of Banks of Massachusetts, 1933, pt. 1, p. xxi.




29.—Process of finding “proper” basis of distributing rents and salaries between savings and insurance departments of banks; “proper”
rents and salaries of each department, and amounts by which actual salaries and rents are above or below what they should have been, 1938

T able

Savings department

Bank
Salaries Total ledger Salaries and Total ledger
rents
assets
assets
and rents
$12,994.41
9,945.36
11, 569. 01
12, 375.10
5,812.06
7,461. 89
3,489.00
4.849.96
7, 500.00
5,367.42
237. 34
912.00
1.599.96
800.00
680.00

No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
No.
Total____
Net excess.




Katios of
total sal­
apportionment
aries and Proper
rents to of salaries and rents
total
ledger
assets
de­ Insurance
Total ledger (both
de­
part­ depart­ Savings
assets
partment
ments)
ment

Both departments
Total sal­
aries and
rents

138, 362. 21 $16,955. 22 $7,127,136.13 $29,949. 63
215, 732.01 31,964. 55 9,185,967.49 41,909.91
687, 507.18 56,797.47 17,858,928.82 68,366.48
337, 957. 30 49,656.10 9, 785, 794.00 62,031.20
117, 255. 26 48.762.00 21,825,851.81 54,574.06
196, 072.64 65,775. 42 34,623,991.99 73, 237. 31
448, 203.83 24,761. 76 7,362, 627. 26 28,250.76
827, 055. 55 51.167.82 22,189,296.86 56,017.78
651, 138.30 38,117. 75 8, 247,903.86 45, 617. 75
553, 138.45 35,823.88 10.964.550.11 41,191. 30
154, 939.73 40,254. 71 12,563, 246.85 40,492.05
424, 731.49 374,527. 96 118, 532, 682.42 375,439.96
106, 046. 60 20,148. 84 3,189,035. 28 21,748. 80
197, 355. 54 62.107.83 37,049,631.84 62,107.83
142, 770.75 82,933. 50 36,008,027.17 83,733. 50
91, t. 41 42,500. 74 12,817, 796. 53 43,180. 74
30, 404.64 10,800.25 3,525,176.35 10,800.25
53, 032.55 28,095.37 9,912,198.00 28,095. 37
74, 603. 77 68,026. 46 16.787.072.12 68,026.46
22, 190.80 29.412.00 8,348,765.48 29,412.00
32, 388. 65 45,804. 69 12, 648,362.17 45,804. 69
420,554,042. 54 1,309,987.83
14, 502,255. 66

$10, 265,498. 34
11,401,699. 50
19,546,436. 00
11,123, 751.30
22,943,107.07
35,820,064. 63
7,810, 831.09
23,016,352. 41
8,899, 042.16
11,517, 688. 56
12,718,186. 58
118,957,413.91
3,295,081.88
37,246,987.38
36,150,797.92
12,909,164.94
3,555,580.99
9,965,230.55
16,861, 675.89
8,370,956.28
12, 680, 750.82
435,056,298. 20

Percent

Difference between
actual and proper
totals of salaries
and rents of insur­
ance department
Excess

Defi­
ciency

). 29 $9,156.18 $20, 793.45 $3,838. 23
.37 8,144. 50 33,765. 41 1,800.86
.35 5,902. 30 62,464.18 5, 666. 71
.56 7,461.07 54,570.13 4,914. 03
.24 2,657.58 51,916.48 3,154. 48
.20 2,445.48 70,791. 83 5, 016. 41
.36 1,621.09 26, 629. 67 1,867.91
.24 2,012.91 54,004.87 2,837.05
.51 3,337.83 42,279.92 4,162.17
.36 1,978. 22 39,213.08 3,389. 20
.32
493. 30 39,998. 75
$255.96
.32 1,340.49 374,099. 47
428.49
900. 01
.66
699.95 21,048. 85
329.08 61,778. 75
329.08
.17
469. 31
.23
330. 69 83,402. 81
374. 38
.33
305. 62 42,875.12
.30
92. 36 10, 707.89
92.36
.28
149.52 27,945.85
149.52
300.98 67,725. 48
.40
300.98
.35
77.97 29,334.03
77.97
116.99
.36
116.99 45, 687.70
.30 48,954.11 1, 261,033. 72 38,390. 75 1, 751. 35
36, 639. 40

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Insurance department

oo

<r

CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

79

On the basis of the investigation so far, it seems fair to conclude
that the savings-bank depositors as a whole did not subsidize the
banks’ policyholders in the year 1933.17
It is of interest to determine how the ratio of expenses to premium,
income in the insurance departments would have been affected if
each insurance department had paid its theoretically proper share in
1933. The premium income of each insurance department, the total
expenditures with which it was charged, the ratio of these expendi­
tures to premium income, and the “proper” ratio of expense to
premium income if proper rents and salaries had been paid, are shown
in table 30. It is evident that while the expense ratio of the insurance
departments of all the banks combined was 5 percent in 1933, it
would have been reduced to 3.88 percent if rents and salaries had been
properly distributed.
17 The results of this analysis, even though the method appears to be the best one available if one is to
reach conclusions about the distribution of expenses in the past, have seemed faulty to several persons.
It has been pointed out that several of the insurance departments paid neither rents nor salaries in 1933.
One of these departments is operated by one of the largest savings banks in the country, which has assets
in its savings department which are more than three times as great as those of any other savings depart­
ment connected with the insurance system. Its insurance department paid only $12 in salaries and $900
in rent in the year 1933. A critic has pointed out that this insurance department ‘‘employs 9 or 10 full-time
clerks”, and “ occupies a floor in a separate building in down-town Boston.” In partial defense of the
small expense met by this department, other persons acquainted with the situation have pointed out (1)
that the building, one floor of which is used by the insurance department, is owned by the bank and adjoins
its main building, and that the insurance department was given space in it at a time when rentals were
in general low and the bank did not wish to confine itself by a long-term lease with a private tenant; and
(2) that whereas in most insurance banks the savings department receives deposits from policyholders,
keeps the records, and turns over the amount of such deposits due as premiums to the insurance depart­
ment as they become payable, the bank in question has its depositor-policyholders pay deposits to the
insurance department, which keeps the records and turns the deposits over to the savings department,
thus doing work which would usually be done by the latter department.
It is possible to question the business efficiency of a bank in which such practices as those just described
are commonly followed. It may even seem reasonable to concede to the critics of the bank in question that
the method used in the above analysis, showing as it does that the bank’s insurance department paid only
$428.49 less than its “ proper” share of rents and salaries, is on that account suspect, and that the results in
this one case throw doubt on the method in general. Before making any such concession, however, certain
considerations are pertinent: (1) No person consulted has been able to offer a better method for determining
what the proper distribution of expenses should have been in the past. The inadequacies of the method
used are admitted, but neither the accounting experts who have approved it nor the persons who have not
approved it have been able to suggest a better one, and both groups have frankly said so. (2) It has seemed
necessary to investigate the problem and to reach some conclusions on the matter, even though such con­
clusions might not be finally and definitely satisfactory in every respect, if for no other reason than because
the most emphatic criticism of savings-bank life insurance in recent years has been that it was being sub­
sidized by the depositors. (3) The results of the analysis have not been criticized to any considerable extent,
except as they apply to one bank. There are, however, 20 other banks which sell insurance. (4) In the
case of this one bank certain other factors exist which may account for the concentration of criticism upon
it. It is the largest savings bank in the State, with the largest total expenses of operation. Its operations
would therefore naturally give rise to more than ordinary interest. Yet its insurance department is by no
means important from the point of view of business done. In 1933, of the 20 other insurance departments,
10 had greater assets, 7 had greater premium income, 10 paid out greater amounts in death claims, and 10
had more insurance in force.
The fact appears to be that the bank in question assigned clerks and space to its insurance department
to an extent unwarranted by the actual business done in that department. Its purpose may have been to
expand its insurance department. In any case sound accounting procedure would probably have resulted
in the assigning of greater expenses to it. This fact, however, though it demonstrates that the method used
in the present analysis has its faults, does not seem to be sufficient justification for discarding it.
It should be pointed out that in 1934 the insurance department of this bank paid $2,705 for salaries and
$1,200 for rent. (See appendix J.)




80
T able

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE
30.—Actual and theoretically proper ratios of expenses to premium income
for the savings-insurance hanks, 1933
Bank

No. 1______________________
No. 2 ___________________
No. 3______________________
No. 4 _____________ _____
No. 5 ________
_____
No. 6
______
No. 7
_
___
No. 8
________ ______
No. 9
_ _ __
___
No. 10
_
____
No. 11
_ __________
No. 12_____________________
No. 13
________________
No. 14
________________
No. 15 __________________
No. 16 __________________
No. 17_____________________
No. 18 _________________
No. 19_____________________
No. 20_____________________
No. 21 ____________________
General Insurance Guaranty
"Fund
Total _____ ____ _ __

Premium
income

Actual expense
paid by insur­
ance depart­
ment

$538, 202. 33
362, 530. 83
328, 705. 53
258,638. 71
270,043. 04
271,331. 38
103,398. 52
210,146.97
173,671. 71
144, 269. 44
62,024. 22
188,559. 71
38,648. 68
91,281. 62
64,650. 68
39,598.15
15,472.07
27,546. 01
38, 482.16
8, 700. 40
21, 395. 05
3, 257, 297. 21

$26,633.03
18, 111. 05
18,990. 86
20,387.90
11,946. 68
13,143. 28
5,870. 33
8,938. 68
11,009. 41
8,998. 32
1,007.06
4, 573. 55
1,996.91
525. 77
2,194. 74
1,490. 77
368. 91
644. 92
772. 67
194. 64
378. 00
4, 833. 21
163, 010. 69

Theoretical
expense of
Ratio of
Ratio of
insurance theoretical
actual ex­ department
expense
to
pense to
ac­ premium
premium adjusted
cording
to
income
income “ proper” dis­
tribution
Percent

4.95
5.00
5.78
7.88
4.42
4.84
5. 68
4. 25
6.34
6.24
1.62
2. 43
5.17
.58
3. 39
3. 76
2.38
2. 34
2. 01
2.24
1. 77
5. 00

$22, 794.80
16,310.19
13,324.15
15, 549. 53
8, 792. 20
8,126. 87
4. 002. 42
6,101. 63
6,847. 24
5,609.12
1,263. 02
5,002. 04
1,096.90
854. 85
1, 725.43
1,116. 39
461. 27
794. 44
1,073. 65
272. 61
494. 99
4, 833. 21
126, 446. 95

Percent

4.24
4. 50
4. 05
6. 01
3. 26
3. 00
3. 87
2. 90
3. 94
3. 89
2.04
2. 65
2.84
.94
2. 67
2.82
2.98
2. 88
2.79
3.13
2.31

3.88

It has been said by the critics of the savings-bank insurance system
that if the newer insurance departments paid their proper share of
salaries and rents they could not pay the large dividends which they
have distributed to policyholders. The following table shows the
results of an analysis of this point. It has been shown in preceding
chapters that each bank must, until it has accumulated a surplus
equal to 10 percent of its insurance reserves, or $20,000, whichever is
greater, put aside to surplus no less than 20 percent and no more than
75 percent of its annual net profits. Table 31 shows the extent to
which each insurance department paying less than its proper share
of rents and salaries does so, and the amounts by which it has put
aside net profits to surplus in excess of the 20 percent minimum
required by law.
31.—Amounts less than “proper” share of rents and salaries which certain ins
surance departments paid, and amounts each put aside from net profits to surpluin excess of legal minimum, 1933

T able

Bank

Excess
Defi­
ciency in above
legal
charges
for rent minimum
and sal­ put to
aries
surplus

No. 11____________________
No. 12 ________________
No. 14 _________________
No. 17 ________________

$255.96 $2,970.17
428.49 4,229.43
329.08 3,156.65
214.04
92.36




Defi­
ciency in
charges
for rent
and sal­
aries

Excess
above
legal
minimum
put to
surplus

No. 18____________________ $149.52
No. 19......................................... 300.98
No. 20____________________
77.97
No. 21_____________________ 116.99

$934. 42
1,278.86
444.50
233.08

Bank

CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

81

Before paying dividends the banks are compelled to put aside the
legal minimum of surplus. The banks considered actually put aside
this minimum, paid dividends, and in addition put into surplus the
amounts above the legal minimum which are shown in the table. It
is obvious, therefore, that the insurance departments could actually
have paid much more than their “proper” share in rents and salaries
without being compelled to lower dividends. The excess above the
legal minimum put aside to surplus ranged from about twice the defi­
ciency in rent and salaries in the case of bank no. 21 to more than 10
times as much in the case of bank no. 11.
After making the investigations described above it was thought
desirable to consult the director of the Division of Savings Banks in
the Massachusetts Department of Banking and Insurance. Since he,
as a State official, was in charge of the supervision of the savings
banks, it was thought that he would naturally consider it his function
to see that the depositors of the savings banks were not being injured
by the operation of the insurance departments. It was discovered
that the Division of Savings Banks had made an independent investi­
gation of the controversy discussed in this section and had reached
its own conclusions on the question. Since this investigation was
made independently of the one above described and some months
before it, and since its method is entirely different, it is worth present­
ing in detail. The investigation of the Division of Savings Banks was
based on the following methods: (1) The insurance departments con­
cerning which no criticism respecting improper distribution of joint
expenses had been made were separated from those which had been
criticised in this respect; *(2) the salaries and rents paid by the banks
which had not been criticized were set down; (3) the proportion of
salaries and of rents to the total income from all sources was then cal­
culated for each of these insurance departments and for all of them
combined; (4) the ratios between rents and total income and between
salaries and total income for all these departments combined was
assumed to be a criterion for determining what the remaining depart­
ments should have paid; (5) the actual salaries and rents of each of
the insurance departments which had been criticized were set down;
(6) the amount by which the criticized banks paid too little or too
much in rents and salaries on this basis was then determined.
Table 32 shows the results of this procedure with respect to the
insurance departments whose payments for rents and salaries had not
been criticized. It is seen that by this method of calculation the
proper ratio of salaries to total income in 1933 was 2.01 percent, while
the proper ratio of rents to total income was 0.40 percent.
T able 32 •— Total income, salaries, and rent, in 9 insurance departments, pay­
ing “ proper ” share of salaries and rent, 1933
Bank
Total income
No. 1_____________________________________________
$696, 718.46
No. 2_____________________________________________
468, 360. 25
No. 3_____________________________________________
415,644. 57
No. 4_____________________________________________
334,112.28
332,874.88
No. 5__ _ __ ___ _
_ _ _ _ _
No. 6_____________________________________________
332,877. 52
No. 8_____________________________________________
252, 201. 86
No. 9 __________ _ _______________ ____ _
207, 523. 98
No. 13______________ ____ ________________________
43, 736. 54
Total___________ ___ ______ _
3,084,050. 34
Percent of total income... . _ _ _ . __ ______ _ _




Salaries
$11, 436. 66
8,745. 36
9,224. 50
10,375.10
4,612. 06
6,342. 01
3,349. 96
6, 500. 00
1, 299. 96
61,885. 61
2. 01

Rent
$1,557. 75
1,200.00
2,344. 51
2,000.00
1,200.00
1,119. 88
1,500.00
1,000. 00
300. 00
12, 222.14
0.40

82

M A SSA C H U SETTS S A V IN G S-B A N K L IF E IN SU R A N C E

The procedure and the results of the investigation as they relate to
the banks whose insurance departments had been subject to criticism
are shown in table 33. Total income,salaries, and rents actually charged,
together with the proper salaries and rents that should have been
charged are shown for each of the insurance departments of these
banks. It will be seen that the actual ratio of salaries to total income
for all of these departments was 1.13 percent, and of rents to total
income, 0.12 percent.
T able

33.— Total income, actual salaries, “ proper ” salaries, actual rents, and
“ proper ” rents in 12 insurance departments, 1983
Salaries
Bank

Total income

No. 7 ____________________ $130,521.24
No. 10_______________________ 176,117. 85
No. 11_______________________
68,097.59
No. 12_______________________ 209,332. 21
No. 1 4 ______________________ 100,031.15
70,006. 55
No. 1 5 ______________________
43,412.40
No. 16_______________________
No. 1 7 ______________________
16,347. 26
31,693. 92
No. 18_____________________
No. 1 9 ______________________
43, 264. 51
10,009. 36
No. 20_____________________
No. 21_________ ____ ________
23,358.82
Total._ ___________ _ __ 922,192.86
Percent of total income__ ___

Actual
$3,489.00
5,367.42
237. 34
12.00
800.00
500.00

10,405. 76
1.13

Rents

Proper
(theoretical)
$2,623. 48
3,539. 97
1,368. 76
4, 207. 58
2,010. 63
1,407.13
872. 59
328. 58
637. 05
869. 62
201.19
469. 51
18,536.09
2.01

Actual

$900.00
180.00

1,080.00
0.12

Proper
(theoretical)
$522.08
704.47
272. 39
837. 33
400.12
280.03
173. 65
65.39
126. 78
173. 06
40.04
93.44
3, 688. 78
0.40

The total salaries paid by the insurance departments of these
banks was $10,405.76, whereas it should have been $8,130.33 more, or
a total of $18,536.09, on the present basis of calculating what was
proper. The total rents equaled $1,080.00, which was $2,608.78 less
than the $3,688.78 which it should have been. Of the 12 banks in
this group banks no. 7 and no. 10 paid more than their proper share
of salaries, while banks no. 12 and no. 16 paid more than their proper
rents. The combined deficiencies for both rents and salaries of the
insurance departments of the 12 banks was $10,739.11 ($2,608.78
plus $8,130.33). This amount was 1.16 percent of their combined
total income of $922,192.86.
Though the deficiencies discovered by the investigation of the
Division of Savings Banks appear to be relatively small and though
the director of the division, after the investigation was made, con­
cluded that the interests of the depositors of the savings banks were
not being injured, it would appear, in the absence of other facts,
that to the extent that an insurance department actually did pay less
in rents and salaries than it should have paid, the difference was paid
by the savings department. In no individual case was the difference
of importance, but in order to settle the issue definitely it was thought
best to carry the matter to its final conclusion. Accordingly, an
attempt was made to determine the extent to which the actual interest
received by savings-bank depositors would have been affected had
those banks whose insurance departments paid less than their “ prop­
er” share, according to the criterion used by the director of the Divi­
sion of Savings Banks, actually paid what they should have paid in
rents and salaries.



83

CRITICISM OF S A V IN G S-B A N K IN SU R A N C E

Table 34 shows the total deposits of the banks in question, the
interest rate paid to the depositors in the year 1933, the amount
which this interest rate meant to the depositors, the deficiency in the
sums paid in rents and salaries by the insurance departments of the
banks paying too little, the actual income which might have been
distributed to depositors if the proper share of expenses had been
borne by the insurance departments, and the resulting rate of interest
which might have been paid to depositors.
34.— Possible changes in 'payments of interest to depositors if insurance
departments paying too little in rents and salaries had paid their “ proper ” share,
1983

T able

Bank

Bank de­
posits

No. 7__________________ $6, 768,004
9, 930, 565
No. 10_________________
No. 11----- ------------------ 11,182, 405
No. 12_________________ 111, 433, 886
No. 14_________________ 33, 736, 042
32, 586, 829
No. 15---- ----- __ __
No. 16_________________ 11,668, 686
3,148, 743
No. 17_________________
9, 048, 820
No. 18_________________
No. 19_________________ 15, 291, 677
7, 540, 997
No. 20_________________
No. 21_________________ 11, 232, 788

Excess (-f)
Adjusted
sums sums which Adjusted
Actual or(—)deficiency
in rent Actual
distributed might have rate of
rate of and salaries
interest of insurance as interest
been dis­ interest
tributed
department
Percent

3.625
3.500
3.500
3.500
3.750
3.500
3. 750
3.750
3.500
3. 750
3.750
3.750

+$344
+1,123
-859
-4,133
-2,411
-887
-366
-394
-764
-1,043
-241
-563

$245,340
347,570
391, 384
3,900,186
1,265,102
1,140, 539
437,576
118,078
316, 709
573, 438
282, 787
421, 230

$244, 996
346,447
392,243
3,904, 319
1, 267, 513
1,141, 426
437, 942
118,472
317,473
574, 481
283,028
421, 793

Percent

3.620
3.489
3. 508
3. 504
3.757
3. 503
3. 753
3. 763
3.508
3. 757
3. 753
3. 755

The table shows conclusively that the fact that some of the banks
did not require their insurance departments to pay a proper amount
in rents and salaries had a negligible effect on the interest which might
conceivably have been available for distribution to depositors.18
It should further be borne in mind that the results indicated in the
foregoing table were derived from a procedure involving the use of
total income as a standard for determining the proper distribution
of rents and salaries between the savings and insurance departments.
At the beginning of this section it was shown that ledger assets is a
more desirable criterion to use for this purpose. The deficiencies in
rents and salaries of those insurance departments said to be paying
too little, as determined by the method of using ledger assets, were
in each instance either nonexistent or were much below those derived
by using total income as a criterion, as a reference to table 29 will
show. It is obvious, therefore, that if ledger assets were used, in­
terest payments to depositors would be affected to an even smaller
degree than that indicated in table 34.
The deficiencies in rent and salaries indicated by the use of the
method employed by the Division of Savings Banks are greater, as
has been shown, than those derived from the use of ledger assets as
a criterion. As a consequence, amounts actually set side to surplus
would have been reduced, and, in the case of two banks, amounts
is The interest rate for the year 1933 shown in the above table is the sum of the interest rates paid at various
intervals during the year. The deposits in each case are those at the end of business on Oct. 31,1933. Though
actual interest values computed in this way are not absolutely accurate, they are sufficiently accurate for
the purpose at hand. Short of examining the books of each bank to find its deposits on the days when
interest was distributed and recording the deposits upon which such interest was paid, no other method of
computation is possible.
It should be noted that according to the method used by the Division of Savings Banks there were 10
insurance departments which showed deficiencies in payments for rents and salaries, as compared with
8 insurance departments if the basis of distribution is ledger assets.




84

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

equal to $180 and $330 would have had to be taken from accumulated
surpluses of the past in order to maintain the scale of dividends
actually paid.19
The following conclusions seem reasonable: (1) Taking the savingsinsurance system as a whole, during the year 1933 the savings depart­
ments, instead of subsidizing the insurance departments, were, if the
word “subsidize” is to be used at all, actually being themselves
subsidized by the insurance departments. (2) The payment of a
proper share of rents and salaries by the insurance departments of
those banks paying too little would neither have lowered the dividends
to policyholders nor prevented the putting aside of the required sur­
pluses. ^ (3) If expenses for rents and salaries had been distributed on
the basis of ledger assets, the ratio of expense to premium income for
the system as a whole would have dropped from 5 percent, the actual
ratio, to 3.88 percent. (4) The rate of interest received by savings
depositors would not have been affected even if those banks whose
insurance departments paid less than their proper share had been
compelled to pay what they should have paid.
Savings-bank insurance, at least as far as the experience of 1933 is
concerned, has not been subsidized by the savings-bank depositors.
Its costs to the policyholders are low for reasons other than that the
depositors of savings banks pay part of such costs.20
is Bank no. 17 shows a deficiency of $394 according to the method used by the Division of Savings Banks, as
compared with the sum of $214 set aside to surplus in excess of the legal minimum. The difference was,
therefore, $180. Bank no. 21 showed a deficiency of $563 as compared with the sum of $233 in excess of the
legal minimum put to surplus, the difference, therefore, being $330. (See tables 29 and 34.)
20 In 1934 the number of insurance departments paying no rent, which was 10 in the preceding year, was
reduced to 7, while the number of those paying no salaries was reduced from 6 to 1. For a comparison of
rent and salaries paid in 1933 and 1934, see appendix J.
The data upon which the investigation in the foregoing section is based are contained in the Report of
the Commissioner of Insurance and the Commissioner of Banks Relating to the Savings and Insurance
Banks and the General Insurance Guaranty Fund, 1933; the Annual Report of the Commissioner of Banks
of Massachusetts, 1933, pt. 1; and the records of the Division of Savings Bank Life Insurance.




Chapter 9.—Summary and Conclusions
The Massachusetts system of savings-bank life insurance was
designed to provide dependable life insurance and annuities at low
cost.
Under the system, mutual savings banks in Massachusetts may
establish insurance departments. These are operated independently
of the savings departments of the banks, but generally under the
same executive direction. All insurance departments are under the
direction and guidance of the Division of Savings Bank Life Insurance,
a branch of the State government. They are subject to supervision
by the commissioner of insurance and the commissioner of banks of
the Commonwealth. (See ch. 3.)
The law establishing the system of savings-bank life insurance was
enacted in June 1907. The Whitman Savings Bank, in June 1908,
established the first insurance department. There are at present
23 issuing banks in the system. Four joined between 1908 and 1912,
6 between 1923 and 1925, 11 between 1929 and 1931, and 2 in 1934.
Including the savings banks which write insurance, there were, in
1934, 334 agencies of various kinds scattered throughout the State at
which application for savings-bank insurance might be made. (See
chs. 2 and 3.)
The banks sell all the usual types of ordinary insurance policies
and annuity contracts, life insurance, endowment insurance, infantile
insurance, and group insurance. Industrial insurance of the usual
type is not sold. A person may buy a maximum of $1,000 of insur­
ance and $200 in annuity from any one insurance bank. With 23
banks now in the system he is able to hold policies totaling $23,000
in amount, and annuity contracts yielding a total annuity of $4,600
per year. (See ch. 3.)
In 1923, there was $25,078,000 of insurance in force. It had risen
to $57,837,000 in 1928, to $93,187,000 in 1933, and to over $100,000,000 by the end of 1934. At that time there was nearly $11,000,000 of group insurance in force with the banks. (See ch. 2.)
Savings-bank life insurance is held to a great extent by workers and
others receiving low incomes. (See ch. 8.) No agents are employed
by the banks to sell insurance, and no commissions are paid for its
sale. (See ch. 3.)
Premiums may be paid monthly, quarterly, semiannually, or
annually. It is a common practice for a policyholder to make regu­
lar deposits with a savings bank and to authorize it to turn over an
amount equal to the regular premiums due from him to the insurance
department of the same bank or another bank as they become pay­
able. (See ch. 3.)
The cost of ordinary life insurance sold by the savings banks is
lower than that of ordinary insurance sold by the private companies.
Ordinary insurance in general costs much less than industrial insur­
ance. (See ch. 6.)




85

86

M ASSACH USETTS SA V IN G S-B A N K L IF E IN SU R A N C E

One important reason for this difference in cost is that the expenses
of operation of the savings-bank insurance system are relatively low.
The ratios of expense to premium income in the years 1923, 1928, and
1933 were, respectively, 20.20, 18.13, and 14.14 percent for private
ordinary insurance; 31.78, 26.30, and 22.77 percent for private indus­
trial insurance; and 6.54, 4.53, and 5.00 percent for savings-bank ordi­
nary insurance. This is due principally to the fact that savingsbank insurance is sold without the use of agents employed on a
commission basis. (See ch. 6.)
A second reason for the lower cost is that the savings-bank insur­
ance system has enjoyed a more favorable mortality experience than
that of the private insurance companies. The mortality ratios for
the years 1923, 1928, and 1933 were, respectively, 55.10, 57.91, and
63.31 percent for private ordinary insurance; 66.69, 64.23, and 56.25
percent for private industrial insurance; and 51.97, 36.22, and 36.77
percent for savings-bank life insurance. (See ch. 6.)
Still another reason for the lower cost of savings-bank insurance is
the fact that it has generally received a higher rate of return on its
invested assets than have all insurance organizations as a whole.
This rate of return in the years 1923,1928, and 1933 was, respectively,
5.34, 5.04, and 4.25 percent for all insurance organizations, and
5.32, 5.18, and 4.67 percent for the insurance departments of the
banks. (See ch. 6.)
The low cost of savings-bank insurance has sometimes been credited
to the existence of so-called “subsidies” which enable the policy­
holders to escape the full cost. One of these is said to be paid by the
taxpayers, who for many years paid the expenses of the State Division
of Savings Bank Life Insurance. Since 1927 these expenses have been
borne increasingly by the insurance departments of the banks, until
in 1934 the taxpayers paid nothing for the support of the division, its
entire expenditures being borne by the banks themselves. (See ch. 4.)
Another subsidy has consisted of the expenditures by the Massa­
chusetts Savings Bank Insurance League to promote the sale of
savings-bank insurance. During the period from 1908 to 1933 the
expenditures of the league in behalf of savings-bank insurance have
not equaled as much as 1 percent of the premium income of the
savings-bank insurance system. (See ch. 8.)
The depositors of the savings banks have often been said to subsidize
the bank's policyholders by paying a share of the salaries and rents
of the insurance departments. Investigation shows, however, that
in the year 1933 the insurance departments of the banks as a whole
paid more than their equitable share of the joint expenses of the
banks. (See ch. 8.)
Lower costs are also attributed in part to the fact that the insurance
companies, which pay both State and Federal taxes, have borne a
larger burden of taxes than have insurance departments of the
savings banks, which pay no Federal income tax. In recent years
the companies have paid approximately 2 percent of their premium
income in taxes and fees. The savings-bank insurance system has
paid approximately one-half of 1 percent in taxes to the State through­
out its existence, though in recent years it has paid about six-tenths
of 1 percent. (See ch. 5.)
The terms of the savings-bank insurance policies are in general
more favorable to the policyholders than are those of the insurance




SUM M ARY A ND CO NCLU SIO N S

87

companies. Cash surrender values are available in 6 months, and
loans on policies may be obtained at the end of 1 year. Other non­
forfeiture privileges, such as extended term insurance and paid-up
life insurance, are obtainable at the end of 6 months if cash premium
payments are discontinued. On the other hand, most of the com­
panies include provisions in their policies permitting the waiver of
premiums in case of total and permanent disability on payment of
extra premiums. The policies of the savings banks do not have such
provisions. (See ch. 5.)
The lapse ratios of savings-bank insurance are unusually low.
During the period 1908 to 1931 the average ratios of insurance lapsed
to new insurance written were 54.5 percent in the case of private
industrial insurance, 21.0 percent in the case of private ordinary
insurance, and 2.6 percent in the case of savings-bank insurance.
(See ch. 5.)




Appendixes
Appendix A.—Statistical Tables
T able 1.—Amounts of group insurance in force in Massachusetts with insurance
companies and with savings banks} 1923 to 1933 1
Years
1923____________________
1924____________________
1925____________________
1926____________________
1927-- ____
1928_______ _ _______
1929____________________
1930_________ _ ... _
1931 ______
1932__ _
____
1933--. -- ______ ___

Al- companies,
excluding
savings banks

Savings banks

$164,932,000
167.659.000
221.420.000
228,232, 000
223.548.000
249.335.000
288,224, 000
316.465.000
323.036.000
298.933.000
290.375.000

$8,569,000
9,584,000
10.706.000
10.699.000
10.928.000
11,529, Q00
12.361.000
12.385.000
15.607.000
10, 433,000
10.170.000

i Data from Annual Reports of Commissioner of Insurance, Massachusetts, pt. 2, table 1.

T able 2.— Total premium income received and total taxes, salaries, and rent paid
by insurance departments of savings banks since their establishment to 1934 and
ratios of taxes, salaries, and rent to premium income
Total amount of—
Bank

No. 1_____________________
No. 2_____________________
No. 3_____________________
No. 4 ------ ------- Total, nos. 1-4.
__
No. 5_____________________
No. 6_____________________
No. 7_____________________
No. 8_____________________
No. 9_____________________
No. 10____________________
Total, nos. 5-10---------No. 11 - __________
No. 12____________________
No. 13____________________
No. 14
_____
No. 15____________________
No. 16____________________
No. 17
. ______
No. 1 8 ____ . _______
No. 1 9 ____ ___________
No. 20____________________
No. 21____________________
Total, nos. 11-21-----Grand total -

88




Premium
income

Taxes

$6, 239, 292 $35,720
4, 680, 830 37,242
3, 776,606 23,599
3, 080,416 14, 219
17,777,144 110, 780
4,622
2,073,160
2,110,840
5,789
2,893
748,196
4,536
1, 550, 735
3,858
1, 226,165
1,048, 292
3,094
8, 757,388 24, 792
278, 538
914
895, 617
951
332
195, 697
394, 621
272
302,442
403
226
180,309
43
59,040
76
121,755
218,374
105
60, 559
33
40
66,068
2, 773,020
3,395
29,307,552 138,967

Salaries

Ratio to premium income of—
Rent

$161, 585 $30, 834
128,984 25, 300
109, 216 20,491
114,367 21,792
514,152 98,417
38,939
8,100
46,998
8,008
24,626
750
22,943 10,800
3,500
27,882
26,494
187,882 31,158
1,463
2, 719
2,700
3,867
900
3,100
600
1, 500
540
430
602
1,000
200
1,000
250
120
15,929
5,060
717,963 134,635

Taxes

Salaries

Rent

Percent

Percent

Percent

0. 57
.80
.62
.46
.62
.22
.27
.39
.29
.31
.30
.28
.33
.11
.17
.07
.13
.13
.07
.06
.05
.05
.06
.12
.47

2. 59
2. 76
2.89
3. 71
2. 89
1.88
2. 23
3. 29
1.48
2. 27
2. 53
2.15
.53
.30
1.98
1. 02
.83
.73
.49
.46
1.65
.38
.57
2.45

0.49
.54
.54
.71
.55
.39
.38
.10
.70
.29
.36
.30
.46
.20
.30
.33
.18
.18
.46

Appendix B.—Insurance Guaranty Funds
The savings-bank insurance law provides that the trustees of the
general insurance guaranty fund may reduce the percentage of
premiums payable to the fund by the banks, or may discontinue such
payments altogether, whenever the net assets of the fund are in
excess of $100,000 over all liabilities or whenever the net assets exceed
5 percent of the aggregate outstanding insurance reserve of all the
savings banks, whichever is the greater. The trustees may, however,
require further payments at any time.1
By October 31, 1921, the net assets had reached $116,224, which
was 7.4 percent of $1,568,840, the amount of the aggregate insurance
reserves. Thereafter, under the law, the trustees of the fund, with
the approval of the Commissioner of Insurance, could waive payments
by the banks, since the net assets of the fund were well above both
the $100,000 minimum and 5 percent of the reserves. Contributions
ceased in June 1921 and have not since been made. The net assets
of the fund, which were $122,159 in 1922, or 6.6 percent of the insur­
ance reserves, increased to $128,079 in 1923, to $133,852 in 1924, and
to $181,719 in 1933. The net assets of the fund in 1923 were 5.7
percent of reserves. By 1924, however, the proportion had fallen
to 4.9 percent and by 1933 was down to 1.4 percent. It might be
argued that section 23 of the savings-bank insurance law might have
been interpreted so that the trustees of the fund would have regarded
themselves as bound to require further payments from the banks as
soon as the proportion of net assets to reserves fell below 5 percent,
as it had by October 31, 1924, but this was not the interpretation
adopted. The section in question is as follows:

S e c t io n . 23. Reduction of contribution to General Insurance Guaranty Fund.—
Whenever the net assets of the General Insurance Guaranty Fund over allliabilities
exceed $100,000 or 5 percent of the aggregate outstanding insurance reserve of
all savings and insurance banks, whichever is the greater, the trustees of said
fund may, with the approval of the commissioner of insurance, reduce the per­
centage of premiums on insurance and annuities so payable to it or altogether
discontinue the same; but said trustees may require at any time thereafter said
contribution to be made at a rate not exceeding that provided for in section 18

The final clause seems to justify the interpretation of the trustees,
since it is reasonable to suppose that if they “may require at any time
thereafter said contribution to be made”, they have the right to
decide that it need not be made. It is significant, in this connection,
that at no time since the system came into existence has it been
necessary to use any part of the General Insurance Guaranty Fund.
The trustees of the General Insurance Guaranty Fund have author­
ity to waive the requirement that a new insurance bank must first
establish a special insurance guaranty fund before it may operate,
whenever in the opinion of the commissioner of insurance and the
commissioner of banks the funds of the General Insurance Guaranty
1 Mass. Gen. Laws, ch. 178, secs. 18, 19, 20, 23,
5736°—3$-----7




89

90

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Fund are sufficient, and on condition that the bank enter into a
contract with the General Insurance Guaranty Fund whereby the
latter guarantees all risks of the bank until such time as the bank
shall have a surplus of not less than $20,000 nor less than 10 percent
of the aggregate insurance reserve.2
The first four banks to open insurance departments set up special
insurance guaranty funds as required by section 5 of the law. They
paid interest on the advances made to them for the fund until they
were able to retire the amounts advanced. The Whitman Bank
retired its special guaranty fund of $20,000 in 1916, the People’s
Savings Bank of Brockton in the same year, and the Berkshire County
Savings-Bank of Pittsfield in 1921. The City Savings Bank of Pitts­
field retired $5,000 of its fund in 1920 and the remaining $15,000 in
1922. The other 17 banks which have come into the system, be­
ginning with November 1922, have not been required to establish
special insurance-guaranty funds.3
2 Mass. Gen. Laws, ch. 178, sec. 19.
3 The information in this appendix, apart from the provisions of the law, has been obtained from the
annual joint reports made to the legislature by the commissioner of insurance and the commissioner of
banks on the savings and insurance banks.




Appendix C.—Insurance Reserves and Surplus
One of the duties of the State actuary is to prepare and procure
tables computing the legal reserve to be held under insurance and
annuity contracts.4 The reserves set aside on the level-premium
life-insurance policies and on group-insurance policies sold by the
insurance banks are based on the American Experience Table, cal­
culated at an interest rate of 3K percent. The reserves set aside to
meet annuities issued since July 1931 are based on the combined
annuity tables, with interest at 4 percent on immediate annuities,
and at 3K^percent on deferred annuities. On October 31, 1931, the
aggregate insurance reserves of the savings and insurance banks was
$10,256,000 against $90,961,000 of insurance and annuities in force.
A year later the analogous amounts were $11,400,000 and $90,606,000,
and in October 1933 they were $12,737,000 and $93,187,000.5
Every insurance bank is required by section 21 of the savingsbank insurance law to set apart annually, as a surplus from net
profits,6 not less than 20 percent nor more than 75 percent of its
profits until such surplus equals 10 percent of its net insurance
reserve or the amount of its special insurance guaranty fund, which­
ever is greater. Thereafter it may add no more than 15 percent of
the annual net profits to surplus, provided that the surplus at no time
shall exceed 10 percent of the insurance department’s reserve. This
surplus is maintained in order to meet, as far as necessary, the losses
of the insurance department arising from an unexpectedly great
mortality, depreciation in its securities, or other losses, and for the
maintenance of a stable dividend scale.
Since none of the banks which have entered the system since 1922
have been required to set up a special insurance guaranty fund, only
the limit of 10 percent of the insurance reserve of those banks has
served as the maximum which its surplus might be permitted to
attain. On October 31, 1922, more than 10 years after the first four
banks had entered the system, their aggregate surplus was $125,239,
which was 6.7 percent of their combined insurance reserves of
$1,856,911.
In 1932 the net profits of the 21 insurance departments were
$823,929. Of this, $119,729, or 14.5 percent, was added to surplus.
The aggregate surplus in that year was $890,651, which was 7.8 per­
cent of the aggregate reserves of $11,399,856 and 1 percent of the
total of $90,606,283 insurance in force. In 1932 the proportion of
surplus to reserves was approximately 4 percent in one bank, 5 per­
cent in four, 6 percent in four, 7 percent in four, 8 percent in two,
* Mass. Gen. Laws, ch. 178, sec. 15. The reader is referred to the latter part of ch. 1, for a discussion of
the principle of insurance reserves.
c Annual Report of the Commissioner of Insurance, 1931, pt. 2, pp. 18,19; 1932, pt. 2, pp. 18, 19; report
of commissioner of insurance and commissioner of banks on savings and insurance banks and the general
insurance guaranty fund for 1933.
6 Net profits consist of gains on earnings, expenses, and mortality, accruing because premiums were set
higher than the year’s experience proved necessary.




91

92

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

9 percent in two, and 10 percent—the legal maximum—in four. A
year later the proportion was 6 percent in three, 7 percent in six,
8 percent in four, 9 percent in two, and 10 percent in six.
Table 3 gives the names of the banks and the approximate propor­
tion of surplus to reserves in each in 1932 and 1933.7
T able

3.—Proportion of surplus to reserves in each insurance hanky 1932 and 1933
Banks

Whitman________________
People’s _
__
________
Berkshire County____ _______
City______________________ Lynn Five Cents._
_ ____ _
Lynn Institution. ____ . . . _
North Adams _ .. ______
Cambridgeport— . ___ .
Massachusetts . . . ___ . . .
Waltham
__
Lowell. _______ ________

1932

1933

Percent Percent

10
7
7
6
6

8

10
10
10
7
6

Banks

10 Boston Five Cents_____________
7
Grove Hall________________ ___
7
Cambridge___________ . ______
New Bedford________________ _
6
7
Arlington___________ _______
8 Uxbridge_______ _ __ ______
9 Beverly______ ___ ___ ___ .
10 Wildey_______________________
10 Leominster_________ . . .
8 Fall River___________________
9

1932

1933

P ercent P ercent

6

8
5

9
5
9
7
4

5

5

7

10
6
10
7
8
8

n

10
6

7 Data in this section are taken from the annual reports of the commissioner of insurance and commissioner
of banks to the legislature on the savings and insurance banks and the General Insurance Guaranty Fund.
The figures for amounts of insurance are given in ch. 2, table 2.




Appendix D.—Mortality Ratios and Unification of Mortality
The calculations involved in the unification of mortality are based
not upon the tables used in arriving at net insurance premiums and
reserves, but upon a modification of these tables to bring them more
nearly in line with the experiences of the banks. Thus the mortality
ratio according to the tables used in calculating unification of mortal­
ity was 80.79651 percent in 1933, whereas according to the American
Experience Tables the system's ratio of actual to expected mortality
in the same year was 36.77 percent.8
Table 4, which is reproduced as prepared by the State actuary,
shows the result of unification of mortality for the year ending
October 31, 1933. It will be noted that a total of $17,746.52 was paid
into and paid out by the General Insurance Guaranty Fund. The
largest amount was received by bank no. 5, the Lynn Five Cents
Savings Bank, and the largest amount paid was paid by the Cambridgeport Bank (no. 8).
T able

4.—Ordinary insurance— Unification of mortality—savings-bank life insu­
rance , 1933 1
Bank 2

No. 1______
No. 2_____
No. 3______
No. 4______
No. 5______
No. 6______
No. 7______
No. 8______
No. 9______
No. 10_____
No. 11_____
No. 12_____
No. 13_____
No. 14_____
No. 15_____
No. 16_____
No. 17_____
No. 18_____
No. 19_____
No. 20_____
No. 21_____

Total.

Expected
Actual
Unified
mortality 3 mortality mortality
$50,091 $39,425.97 $40,471.78
41, 796 31, 361. 51 33, 769.71
33, 027 31,316.10 26,684. 66
30, 622 23, 683. 67 24, 741. 51
26, 768 27,148.56 21, 627. 61
26, 342 23,137.10 21,283. 42
12, 203 9,914.28 9,859. 60
19, 492 7, 718.29 15, 748. 86
16, 539 11,965. 61 13, 362. 93
14,885 11, 473.93 12, 026. 56
3,742
959.15 3, 023.41
7, 515 6, 951.18 6, 071. 86
2, 509 2,919.36 2,027.18
2, 763 4, 272.14 2, 232. 41
2,951 3,081.18 2,384. 30
1,811 1, 968.36 1,463. 22
801
647.18
1,003
993.55
810. 39
1, 278
985.96 1,032. 58
614
496.09
613
984.64
495. 28
297, 365 240, 260. 54 240,260. 54

Unification
Receive

Pay
$1, 045.81
2,408. 20
1, 057.84

$4, 631.44
5,520. 95
1,853. 68
54.68

8, 030. 57
1, 397. 32
552.63
2,064.26

879. 32
892.18
2, 039. 73
696. 88
505.14
183.16

647.18
46.62
496.09

489.38
17, 746.52

17, 746. 52

1 Ratio of actual to expected losses=80.79651 percent.
2 See ch. 2, table 1, for key to bank members.
s “ Expected mortality” here is adjusted as explained in footnote 8.
s The mathematical process of obtaining the sums (unification amounts) due to or from each bank is as
follows:
1. Total actual mortality losses (all banks)
X
Total expected adjusted mortality losses Expected mortality losses
(all banks)
of individual bank
2. X —(Actual mortality losses of individual = —(Unification amount of
bank)
individual bank)
The adjusted losses in the denominator of the first fraction in equation 1, for ordinary level-premium
insurance policies, are obtained by multiplying the expected losses under the American Experience Table
by 0.8915 and subtracting $5 for each $1,000 of risk. This is the method of adjustment applied only to policies
4 or more years old. Further adjustment is made for younger policies to take into account the fact that the
effect of the original medical examination as yet has not generally “ worn off.” The adjustment is not rigid,
but is changed from time to time as experience suggests.
The unification for annuities, group insurance, and other forms of policies is computed in a similar manner.
The several items then are added together and the bank pays or receives the net total unification for all
classes of business.




93

94

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

The savings-bank life insurance system has had an interesting
mortality experience during its existence; the highest ratio of actual
to expected mortality, according to the American Experience Table,
having been reached in 1918 at the time of the influenza epidemic,
when the ratio was 77.90 percent. After that year the lowest ratio
was 32.12 percent, attained in 1921. In 1932 the ratio was 39.85
percent and in 1933 it was 36.77 percent. The ratios are lower if
group insurance, under which risks are accepted without examination,
is excluded. Thus the ratios for ordinary insurance alone were 35.99
percent in 1932 and 30.77 percent in 1933. Table 5 gives the ratios
of actual to expected mortality losses for ordinary insurance, for
group insurance, and for ordinary and group insurance combined, for
each year from 1917 to 1933.9
T able
Year

5.—Mortality ratios, savings-bank life insurance, 1917 to 1933
Ordinary Group Ordinary
group
insurance insurance and
combined

Year

28.44
81.87
75.78
75.00
42. 51
55. 64
73.38
51. 35
65.59

1926_____________
1927_____________
1928_____________
1929_____________
1930_____________
1931_____________
1932_____________
1933_____________

1917
1918
1919.
1920
1921
1922.
1923.
1924.
1925.

29.76
71.34
52. 50
33. 79
20.35
25.84
25.03
34. 72
29.48

30.19
77.90
63. 57
57.90
32.12
45. 36
51.97
45. 57
44.98

Ordinary Group Ordinary
group
insurance insurance and
combined
31.98
36.88
27.43
39. 28
34. 55
33. 68
35. 99
30.77

65.72
60.00
59. 72
67. 70
61.47
57. 30
55.91
66. 76

43.24
43.74
36. 22
46.85
41. 55
39. 43
39.85
36. 77

9 Data for ordinary and group insurance for the whole period separately, and for ordinary and group
insurance combined for the year 1933, are from the records in the State actuary’s office. The ratios for all
losses combined may be found in pt. 2 of the annual reports of the commissioner of insurance for the years
1917 to 1932.




Appendix E.—Basic Dividend Scale
A basic dividend scale is used by numerous insurance organizations
as a method of apportioning dividends among various classes of policy­
holders. As explained in chapter 4, such a scale is drawn up with a
view of giving some degree of stability to the dividends paid from year
to year on policies of a given type in force for a given number of years.
In calculating the basic scale the insurance organization must take
into account the factors of expense, mortality, and earnings on assets.
The scale is as a rule drawn up on the basis of past experience with
these three items.
#The amount of profits on hand at the end of the fiscal year is a
given sum. An analysis of its origin discloses that it comes from three
sources: (1) Savings on expenses; (2) gains on mortality; and (3)
interest earnings in excess of the amount required to maintain reserves.
An equitable distribution of what remains of these profits among the
policyholders after a portion has been set aside to surplus requires
that each one receive substantially that portion which is fairly attrib­
utable to his policy from each of the three sources. In order to achieve
this equitable distribution the actuaries make up a dividend formula
containing a factor for each of the three elements. The expense
factor is fairly constant but is somewhat higher in the earlier years of
the policy than in the later, since it is assumed that the expense of
medical examination and the making of initial records in connection
with the policy will be incurred in the earlier years. The mortality
factor is usually considered constant at any given attained age of
the policyholder.
The interest factor which was used in the dividend formula for some
years by the savings-bank life-insurance system was 5.5 percent.
It is apparent that this interest factor is increasingly important as
the amount of assets earning interest in connection with any given
policy increases. In general, reserves would be larger in the case
of an endowment policy and a limited-payment policy than in the case
of a straight life policy. ^ They would also be larger in the case of
policies which have been in force for long periods of time.
A comparison of dividends paid by the insurance departments of
the savings banks according to their basic scale in the years 1934 and
1935, which is given in table 6, will indicate the effect of a decrease
in the assumed rate of interest entering into the basic dividend for­
mula. ^It will be recalled that for some years up to 1934 the assumed
rate of interest was 5.5 percent and that in 1935 the rate was decreased
to 4.6 percent.10 Though some adjustments in the basic scale were
made^ with respect to other factors, the essential difference between
the dividends paid in the 2 years is due to the lowering of the rate of
interest assumed in the dividend formula.
10 See ch. 4, section on “Dividends.5




95

96
T able

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

6.—Dividends on a $1,000 policy in 1934 (assumed interest rate of 5.5
percent) and in 1935 (assumed interest rate of 4-6 percent)
1934
Age at issue

1935

Fourth Seventh Tenth Fourth Seventh Tenth
year
year
year
year
year
year
dividend dividend dividend dividend dividend dividend

Straight life policy
10years---------------------- ___ _ --------- ___
25 years- --------- -----------------------------40 y ea rs.------------------------ ----------------

$5. 88
7. 20
8.68

$6.16
7.74
9.86

$6.48
8. 32
11.26

$6.48
7. 78
9.48

$6.80
8. 22
10.14

$6.89
8. 40
10. 51

20-payment life policy
10 y ea rs.---------. . . ________________
25 years-------------- ... ______________
40 years. _________________ _________

$6.94
8.16
10.44

$7.60
9.10
11.98

$8. 36
10.18
13.74

$6. 86
8.15
11.89

$7. 30
8. 71
12.74

$7. 53
9. 02
13. 23

20-year endowment policy
10 years_______ . _________________
25 years---------------------------------------------40 years... _ _ ____ ___ _ _ _ _

$8.00
8. 74
10. 42

$9. 90
10. 64
12.48

$12. 04
12. 78
14. 78

$5.97
7. 02
10.26

$6. 66
7. 76
11.16

$7. 29
8. 39
11. 82

Table 6 indicates that the general effect of a reduction in the
assumed rate of interest used in calculating the basic dividend formula
is to reduce the share of dividends available for distribution which is
paid to policyholders having large reserves to their credit, and to
increase the share of those with smaller reserves.11 It should be
borne in mind, however, that irrespective of the assumed rate of earn­
ings on assets, the amount of dividend that can be paid to policyholders
is in the last analysis determined by the actual profits on hand after
insurance reserves and the legal minimum of surplus have been put
aside and expenses of operation have been paid.
11 Data in the tables are taken from leaflets published by the Division of Savings Bank Life Insurance,
Boston. The dividends recorded in table 8 are those distributed only by those banks paying 100 percent
of the basic dividend scale. In 1934 there were 16 such banks and in 1935 there were 17.




Appendix F.—Comparison of Surpluses of Insurance Companies and
of Insurance Departments of Banks
The savings-bank insurance departments, as has been shown in
chapter 3, are required to set aside to surplus an annual sum of no
less than 20 percent nor more than 75 percent of their net profits,
until such time as the surplus equals 10 percent of the insurance re­
serve or the sum of $20,000, whichever is the greater. Thereafter
no more than 15 percent of the net profits may be put to surplus in
any one year, and the total surplus may at no time exceed 10 percent
of the reserves. In contrast the laws of Massachusetts permit the
insurance companies to establish surpluses or “ safety funds”, but
the companies may not add to surplus if the latter exceeds 12 percent
of the insurance reserve. They are required by the commissioner
of insurance to maintain “ adequate reserves” at all times.12 The
amounts of surplus and of reserves, and the proportions of the former
to the latter for the years 1923 to 1932 in the savings-bank insurance
departments and in the insurance companies, are shown in table 7.13
The table indicates that for the 10-year period covered, the proportion
of surplus to reserves was 10.3 percent in the case of the savingsbank insurance system and 7.0 percent in the case of the companies.
T able 7.—Surplus and reserves, and proportion of surplus to reserves, in savingsbank insurance system and in insurance companies, 1923 to 1932
Savings-bank life insurance
Year

Surplus

Ratio
Reserve (percent)

1923___________________ $294,209 $2, 255, 090
321,187 2,743, 206
1924___________________
382,989 3,381,175
1925___________________
462,608 4,142,050
1926___________________
556,490 5,017,902
1927___________________
657,900 6,142,176
1928___________________
779,739 7,413,438
1929___________________
830, 695 8, 733, 358
1930___________________
1931___________________
948, 467 10, 255,924
1932___________________ 1,071,507 11,399,856
Total____ ________ 6,305,791 61,484,175

13.1
11.7
11.3
11.2
11.1
10.7
10.5
9.5
9.3
9.4
10.3

All companies
Ratio
(percent)

Surplus

Reserve

$479,983,260
578, 097, 220
628,633,606
692,364, 590
772,067,917
849,878, 284
893,931, 267
884,442,898
947,014, 526
873,913,073
7, 600,326,641

$6, 893, 528, 704
7,507,940,475
8, 353, 425,038
9,367,893,547
10,356, 311,895
11, 446,925, 509
12,535, 391,559
13, 534,219,434
14,403,457,876
14, 687, 086,729
109,086,180,766

7.0
7.7
7.5
7.4
7.5
7.4
7.1
6.5
6.6
6.0
7.0

12 Mass. Gen. Laws, ch. 175, sec. 141; interview with Mr. Arthur B. Lines, actuary, Division of Insur­
ance, July 25, 1934.
13The General Insurance Guaranty Bund is included in the savings-bank data on surplus. (Annual
Reports of the Commissioner of Insurance, Massachusetts, pt. 2, table E.)




97

Appendix G.—Costs to Policyholder
This appendix contains a table showing comparative costs of sav­
ings-bank ordinary insurance and company ordinary insurance in
greater detail than do the tables in chapter 6, and two additional
tables showing comparative costs calculated on different bases than
the base used in the text.
The tables are presented in the following order:
1. Straight life policies, 20-payment life policies, and 20-year
endowment policies, issued at age 35 in 1924, based on actual divi­
dend history.
2. Straight life policies, 20-payment life policies, and 20-year
endowment policies, issued at age 35, based on dividends payable in
1934.
3. Straight life policies, issued at age 25, at age 35, and at age 45,
based on dividends payable in 1935.
Table 8 gives in detail the material covered in text tables 15, 16,
and 17. Data for insurance companies are taken from Flitcraft
Compend, 1934 edition; data for the seven banks which have been in
operation 10 years or more were obtained from the Division of Savings
Bank Life Insurance, Statehouse, Boston.
Table 8.—Comparative net costs of a $ lf000 policy issued in 1924y at age 85»
based on actual dividend history during following 10 years
Straight life policy

*

Company or bank

years1
Cash value 10
Annual 10 years’ 10 years’ 10 years’
cost
net
at end of ifnet
premium premium dividends payments
surren­
10 years
dered

Company:
No. 1_____ ______________ $24.89
No. 2____________________ 28.11
No. 3____________________ 25. 88
21.40
No. 4 i_________________ |
24.00
No. 5___________________
28.11
No. 6____________________ 26.35
27. 00
No. 7____________________
28.11
No. 8____________________
No. 9_._____ ____________
26.88
No. 10 2.................................
24.09
Average of 10 companies— 25.89
Bank:
23.90
No. 1____________________
No. 2____________________ 23.90
23.90
No. 3____________________
No. 4____________________ 23.90
23.90
No. 5____________________
No. 6____________________ 23. 90
No. 7____________________ S3.90
23. 90
Average of 7 banks_____
Footnotes at end of table.

98




$248.90
281.10
258.80
214. 00
240.00
281.10
263. 50
270. 00
281.10
268. 80
240.90
258.93

$50.74
87.49
54.49
40.21
47. 20
81.06
68.51
78.30
79.85
85.33
43.37
65.14

$198.16
193.61
204.31
173. 79
192.80
200.04
194. 99
191. 70
201. 25
183.47
197. 53
193. 79

$125. 00
146. 00
136. 00
135. 60
137. 00
146. 01
146. 01
146. 01
146. 00
146. 01
136. 00
140. 51

$73.16
47.61
68.31
38.19
55.80
54.03
48. 98
45.69
55.25
37.46
61. 53
53. 28

239.00
239.00
239.00
239. 00
239. 00
239.00
239. 00
239.00

86. 07
77.78
82.72
75.99
82,92
84.74
72.33
80. 36

152. 93
161. 22
156. 28
163. 01
156.08
154.26
166.67
158.64

135. 76
135. 76
135. 76
135.76
135.76
135. 76
135.76
135.76

17.17
25.46
20. 52
27.25
20.32
18.50
30.91
22.88

99

COSTS TO POLICYHOLDER

T a b l e 8 . —Comparative

net costs of $1,000 policy issued in 1924, at age 85,
based on actual dividend history during following 10 years—Continued
20-payment life policy

Company or bank
Company:
No. 1____________________
No. 2____________________
No. 3____________________
No. 4____________________
No. 5_____________________
No. 6____________________
No. 7____________________
No. 8____________________
No. 9____________________
No. 10 2__________________
Average of 10 companies Bank:
No. 1____________________
No. 2____________________
No. 3____________________
No. 4____________________
No. 5____________________
No. 6____________________
No. 7......................................
Average of 7 banks_____

10 years’
Cash 10 years’ return
years’ 10 years’ value
Annual 10 years’ 10divi­
at net cost over net
net
pay­
premium premium dends ments end of if surren­ payment
10 years dered if surren­
dered
$33.32
38.34
34.87
32.13
38.34
36. 22
36.70
38.34
36.85
32.36
35. 75

$333.20
383.40
348. 70
321.30
383.40
362.20
367. 00
383.40
368. 50
323.60
357.47

$56.88
103.19
66.04
46.62
99.07
75. 52
84. 80
96.12
96. 70
50.93
77.59

$276.32
280.21
282. 66
274. 68
284.33
286. 68
282. 20
287.28
271.80
272. 67
279.88

$219.00
255.00
232. 00
232. 00
255. 78
255. 78
255. 78
255. 00
255. 78
232. 00
244.81

33.20
33. 20
33. 20
33. 20
33. 20
33. 20
33. 20
33. 20

332. 00
332. 00
332. 00
332. 00
332.00
332.00
332. 00
332. 00

104.28
94. 01
99.85
91. 82
100. 58
102. 69
87.63
97. 27

227. 72
237.99
232.15
240.18
231. 42
229.31
244.37
234.73

232.19
232.19
232.19
232.19
232.19
232.19
232.19
232.19

$57.32
25.21
50.66
42.68
28. 55
30.90
26.42
32.28
16. 02
40. 67
35. 07
5.80
7.99
12.18
2.54

4.47
.04
.77
2. 88

20-year endowment policy
Company:
No. 1___________________
No. 2----------------------------No. 3___________________
No. 4___________________
No. 5___________________
No. 6___________________
No. 7___________________
No. 8___________________
No. 9______ ____________
No. 10 2.............................
Average of 10 companies .
Bank:
No. l._____________
No. 2______________
No. 3______________
No. 4--------------------No. 5______________
No. 6_____________
No. 7______________
Average of 7 banks.

$47.63
51.91
50.14
46.12
51.47
49. 85
50. 00
51.91
50.64
46.42
49.61

$476.30
519.10
501.40
461. 20
514.70
498.50
500.00
519.10
506.40
464. 20
496. 09

$67.34
119.16
85.62
51.04
115.62
85.13
94. 00
113.65
112. 56
66.07
91. 02

$408.96
399.94
415.78
410.16
399. 08
413. 37
406. 00
405.45
393.84
398.13
405. 07

$384. 00
407.00
396. 00
396. 00
407.45
407.45
407.45
407. 00
407.45
396. 00
401.58

44.72
44.72
44.72
44.72
44. 72
44.72
44. 72
44.72

447. 20
447.20
447. 20
447.20
447.20
447.20
447.20
447.20

108.86
97.46
103.17
95.11
105. 26
107.24
91.44
101.22

338. 34
349. 74
344. 03
352. 09
341.94
339.96
355. 76
345.98

395.99
395.99
395.99
395. 99
395.99
395.99
395.99
395.99

$24.96
19.78
14.16
5.92
2.13
3.49

$7.00
8.37
1.45
1. 55
13. 61
57. 65
46. 25
51. 96
43.90
54. 05
56.03
40.23
50.01

1 This company issues a straight life policy only in amounts of $5,000 or more, but its cost is shown for
comparative purposes on $1,000 (basis first line of figures); for amounts of less than $5,000 this company
issues a policy for endowments at age 35, which is covered here (second line of figures).
2 This company’s premium pays for a disability benefit (waiver of premiums and payment of proceeds
in installments, with interest, over period of 10 years).

The companies in table 9 are the same as those considered in
chapter 6. Data for companies in this table are taken from the
Flitcraft Compend for 1934; data for the banks were secured from the
Division of Savings Bank Life Insurance,




100

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Table 9.—Comparative net costs of a $1,000 policy issued at age 35, based on
dividends payable in 1934
Straight life policy

Company or bank
Company:
No. 1_____________________________
No. 2_____________________________
No. 3_____________________________
No. 4 i___________________________
No. 5_____________________________
No. 6_____________________________
No. 7_____________________________
No. 8_____________________________
No. 9_____________________________
No. 10____________________________
Average of 10 companies ----Average all banks-----------------

Cash
years' 10 years' value
Annual 10 years' 10divi­
net pay­ end of at10
premium premium dends
ments
years

10 years'
net cost
if surren­
dered

$207.24
208.95
213. 76
176.91
193.83
218.96
215.68
188.25
211. 61
203.84
199.55
203.51
167.36

$125.00
146.00
137.00
135.60
137.00
146.01
146.01
146.01
146.00
146.01
137.00
140.69
135.76

$82.84
62.95
76.76
41.31
56.83
72.95
69.67
42.24
65.61
57.83
62.55
62.82
31.60

$286.46
298.98
292.80
276.40
305.43
309. 54
278.80
302.13
295.21
276.25
292.20
238.12

$219.00
255. 00
232.00
232.00
255. 78
255.78
255. 78
255.00
255.78
232.00
244.81
232.19

$67.46
43.98
60.80
44.40
49.65
53.76
23.02
47.13
39.43
44.25
47.39
5.93

$420.91
423.31
428.90
412.85
422. 61
439.29
402.70
426.06
421. 51
408. 23
420. 64
349.15

$384.00
407.00
396.00
396.00
407.45
407.45
407.45
407.00
407.45
396.00
401.58
395.99

$36.91
16.31
32.90
16.85
15.16
31.84
34. 75
19.06
14.06
12.23
19.06
4 46.84

$24. 89
28.11
24.60
21.40
24.00
28.11
26.35
27.00
28.11
26.88
23.24
25.70
23.90

$248.90
281.10
246.00
214.00
240.00
281.10
263. 50
270.00
281.10
268.80
232.40
256.99
239.00

$41.66
72.15
32.24
37.09
46.17
62.14
47.82
81. 75
69.49
64.96
32.85
53.48
71.64

20-payment life policy
Company:
No. 1................................... .....................
No. 2______________________________
No. 3______________________________
No. 4______________________________
No. 5______________________________
No. 6______________________________
No. 7______________________________
No. 8______________________________
No. 9______________________________
No. 10 2____________________________
Average of 10 companies _ _____
Average all banks _ __ __ ------------

$33.22
38.34
32.95
32.13
38.34
36. 22
36. 70
38. 34
36.85
31. 51
35.47
33. 20

$333. 20
383.40
329.50
321. 30
383.40
362. 20
367.00
383.40
368. 50
315.10
354. 70
332.00

$46. 74
84.42
36. 70
44.90
77.97
52.66
88.20
81.27
73.29
38.85
62. 50
93.88

20-year endowment policy
Company:
No. 1_____________ ____ __________
No. 2_____________________________
No. 3_____________________________
No. 4_____________________________
No. 5_____________________________
No. 6_____________________________
No. 7_____________________________
No. 8_____________________________
No. 9_____________________________
No. 10 2_______________'___________
Average of 10 companies _____ _
Average all banks. ____________

$47.63
51.91
47.33
46.12
51.47
49.85
50.00
51.91
50.64
45.43
49.23
44. 72

$476.30
519.10
473. 30
461.20
514.70
498.50
500.00
519.10
506.40
454.30
492.30
447.20

$55.39
95.79
44.40
48.35
92.09
59.21
97.30
93.04
84.89
46.07
71.65
98.05

1 Company 4 issues a straight life ordinary policy only in amounts of $5,000 or more, but its cost is here
shown for comparative purposes on the $1,000 basis (first line of figures); this company issues insurance for
less than $5,000 on an endowment at age 85 policy (second line of figures). Companies 3 and 10 likewise
issue policies for endowment at age 85, and the data in the table for these companies refer to such policies.
2 Company 10’s premiums cover disability benefits, which include the waiver of premiums and the payment of proceeds in installments with interest over a period of 10 years.
3 Company 7 gave a cash surrender value on this type of policy which was $4.75 greater than the total net
premiums. There was thus a net surplus rather than a net cost for this company if the policy were sur­
rendered after 10 years. The average yearly net surplus was 47 cents.
4 The cash-surrender value for all of the banks was $46.84 in excess of the average total 10 years' net pre­
miums, resulting in an annual net surplus of $4.68.

The companies in table 10 are not in every case the ones considered
in chapter 6. They are numbered in order of net costs in this table.
Data for the companies are from Best Illustrations Revised (1935);
data for the banks come from the Division of Savings Bank Life
Insurance (1935).




101

COSTS TO POLICYHOLDER

Table 10.—Comparative net costs of a $1,000 straight life policy, based on dividends
payable in 1935
Policy issued at age 25

Cash 10 years’
Annual 10 years’ 10 years’ 10 years’
value at cost if
pay­ end
premium premium divi­ net
of 10 surren­
dends ments
years
dered

Company
No. 1________________________________
No. 2________________________________
No. 3________________________________
No. 4________________________________
No. 8 i . . . ____________________________
No. 6 2 _ _ _ _________________________________________________________
No. 7___ ____________________________
No. 8 2_______________________________
No. 9____ ___________________________
No. 10..............................................................
Average of 10 companies___ _
Average all banks______ _____

$20. 55
20.70
19. 61
20.14
19.04
19. 26
20.14
19. 89
21.49
21.49
20. 23
18.12

$205.50
207.00
196.10
201. 40
190. 40
192. 60
201.40
198.90
214.90
214.90
202. 31
181. 20

$66.96
57.16
45. 76
42. 51
39.58
38.71
39.01
32.98
59.71
56.71
47.91
69.89

$138.54
149.84
150. 34
158.89
150.82
153.89
162. 39
165.92
155.19
158.19
154.40
111.31

$98.94
98.94
98.00
98.94
89.00
92.00
98.94
100.00
88.00
88.00
95.08
89.42

$39.60
50.90
52. 34
59.95
61.82
61. 89
63.45
65.92
67.19
70.19
59. 33
21.89

$191.07
203.88
204.61
209.88
215.68
217.09
204.29
223. 60
213. 23
213.89
209.72
160.16

$146.01
146.01
146.00
142.00
146.01
146.01
132.00
148.00
131.00
131.00
141.40
135.76

$45.06
57.87
58. 61
67.88
69. 67
71.08
72.29
75. 60
82. 23
82.89
68.32
24.40

$286.94
300.40
301. 28
317.09
318.51
300.81
324. 22
313. 28
312.41
323. 63
309.86
245.35

$212.62
212.62
212.00
212. 62
212.62
193.00
216.00
201.00
191.00
191.00
205.45
202.47

$74.32
87. 78
89. 28
104. 47
105.89
107. 81
108. 22
112. 28
121.41
132. 63
104.41
42.88

Policy issued at age 35
No. 1________________________________
No. 2__________________________________
No. 3__________________________________
No. 4 2 _________________________________
No. 5__________________________________
No. 6__________________________________
No. 7 i ----------------------------------------------No. 8 2_________________________________
No. 9__________________________________
No. 10...................................................................
Average of 10 companies_________
Average all banks----___

$26.88
27.00
25.88
25.58
26.35
26.35
25.35
26.06
28.11
28.11
26.57
23.90

$268. 80
270.00
258.80
255.80
263. 50
263. 50
253. 50
260.60
281.10
281.10
265.67
239.00

$77.73
66.12
54.19
45.92
47.82
46.41
49. 21
37.00
67.87
67.21
55.95
78.84

Policy issued at age 45
No. 1 _________________________ ______
No. 2__________________________________
No. 3 ___ _____________________ __
No. 4______ __________________ ____
No. 5 ... ___ - _______________________
No. 6 1_________________________________
No. 7 2_________________________________
No. 8 2_________________________________
No. 9__________________________________
No. 10...................................................................
Average of 10 com panies_________
Average all banks__________ _____

$37.82
38.00
36.72
37.08
37.09
36. 33
36.77
36. 75
39. 55
39. 55
37.56
34.74

i This is a whole-life policy paid up at age 85.
a This is an endowment policy maturing at age 85.




$378. 20
380.00
367.20
370.80
370.90
363. 30
367. 70
367. 50
395. 50
395.50
375.66
347.40

$91.26
79.60
65.92
53.71
52.39
62.49
43.48
54.22
83.09
71.87
65.80
102.05

Appendix H.—Comparison of Taxes Paid to State by Insurance Com­
panies and Savings-Bank Life-Insurance System
Table 11 shows the amounts paid in taxes to the State of Massa­
chusetts by the savings-bank insurance system and the insurance
companies, their premium income, and the ratios of such taxes to
premium income, during the years 1930 to 1933.
T able

11.— Taxes paid on Massachusetts business to the State by insurance
departments of banks and by insurance companies, 1930 to 1933
Companies

Savings-bank life insurance
Year
1930
1931
1932
1933

__________ _
........................
____________
........................
T otal-.....................

Taxes
$14,063
15,925
19, 346
22,419
71, 753

Premium
income
$2, 644, 733
3,095, 236
2,979, 423
3,256, 372
11,975, 764

Ratio
(percent)
0.53
.51
.65
.69
.60

Taxes

Premium
income

$1,848,825 $162,900,074
1,967, 510 170,324,096
2,089,421 169,003,016
2, 111, 938 170,377,383
8,017,694 672, 604, 569

Ratio
(percent)
1.13
1.16
1.24
1.24
1.19

Dining these years, the banks paid 0.60 percent in taxes to the
State, while the insurance companies paid 1.19 percent of their pre­
mium income, about twice as much proportionately.14
14 The data on State taxes are obtained from the Annual Reports of the Massachusetts Commissioner of
Corporations and Taxation, 1930, pp. 134-135; 1931, p. 87; and 1932, pp. 117 and 221. Data for 1933 were
obtained from the records of the commissioner’s office. It will be noted that there is a discrepancy between
the amounts reported as paid in taxes by the insurance departments of the banks in the tables in the text
and the amounts given in this table. This is due to the fact that the fiscal year of the taxing department is
different from that of the savings banks, both of which differ from that of the State Division of Insurance,
and that data on fees, which are not paid to the commissioner of corporations and taxation, are not include d.

102




Appendix I.—Illustration of Method of Classifying Applicants for
Savings-Bank Life Insurance
The method by which applicants for savings-bank life insurance
were separated into the classes “ Wage earners, clerical workers, and
farmers”, “Business and professional people”, and “Doubtful
cases”, is shown below and illustrates, for the month of June 1934,
the method of classification which was used to reach the results
described in chapter 8 under the subject “ The original purpose.”
Wage earners, clerical workers, and farmers
Repairman
Greens keeper
Assembler
Hairdresser
Ropemaker
Auto mechanic
Housemaid
Rubber winder
Beamer
Sailmaker
Janitor
Axminster setter
Saleslady
Journeyman
Bell boy
Secretary
Laborer
Bench work
Sewing
Leather cutter
Blanking operator
Leather worker
Shearer
Bobbin boy
Letter carrier
Bookkeeper
Shipper
Loomfixer
Shoemaker
Boxing
Machine operator
Shoeworker
Braider
Speeder tender
Machinist
Buffer
Bus operator
Mail carrier
Spinner
Cabinetmaker
Meat cutter
Station employee
Carpenter
Mechanic
Stenographer
Case packing
Messenger
Stereotyper
Meter reader
Cashier
Steward
Moving-picture operator Stock clerk
C. C. C. worker
Chauffeur
Molder
Stock chaser
Clerk
Nurse
Storekeeper
Compositor
Oil refining
Tanner
Opening-room man
Comptometer operator
Telephone operator
Construction worker
Overseer
Tester
Crane operator
Painter
Textalite operator
Custodian
Paper finisher
Timekeeper
Patrolman
Domestic
Toolmaker
Drawing in
Patternmaker
Typesetter
Dye hand
Paymaster
Typist
Electrical inspector
Plater
Watchmaker
Electrician
Plumber
Watchman
Errand boy
Polker
Water inspector
Factory worker
Preparation-room work Weaver
Feeder
Pressman
Well driller
Finishing
Printer
Wire drawer
Fireman
Radio operator
Wire inspector
Radio service
Fruit grower
Wrapper
Professional and business people
Advertising writer
Deputy assessor
Professor
Architect
Executive
Research director
Army officer
Lawyer
Sales manager
Assistant manager
Manager
Shoe dealer
Auditor
Physician
Social worker
Candy manufacturer
Physicist
Statistician
Civil engineer
Physiologist
Superintendent
Clergyman
Pilot
Teacher
Dentist
Prison officer
Treasurer




103

104

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

Doubtful
Accountant
Artist
Assistant foreman
Assistant overseer
Assistant purchasing
agent
Banking
Chemist
Collector




Druggist
Engineer
Estimator
Field representative
Foreman
Inspector
Jeweler
Milk dealer

Newspaper

Pharmacist
Purchasing agent
Sales promotion
Supervisor
Tube manufacturing
Unemployed

Appendix J.—Comparison of Rents and Salaries Paid by Insurance
Departments of Savings Banks in 1933 and 1934
The insurance departments of the savings banks as a whole in­
creased considerably the amounts paid in rents and salaries in the
year 1934, as table 12 shows.
T able 12.—Rents and salaries paid by insurance departments of savings banks,
1983 and 1984
Rents

Salaries

Rents

Bank
1933
N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.

Salaries

Bank

1................. $1,558
2__________
1,200
3 . . .............
2,345
4__________
2,000
1, 200
5...................
6__________
1,120
7_........ .........
1, 500
8...............
1,000
9__________
10_________
11........ .........
900
12.......... .......

1934

1933

$1,558 $11,437
1,700
8, 745
2,919
9, 225
2,000 10, 375
1,200
4,612
1,154
6, 342
991
1, 500
3, 350
2,000
6,500
5, 637
237
1,200
12

1933

1934
$12,943
10,335
8,057
10, 501
5,160
6,869
3,091
4, 556
6, 500
5,189
1,226
2, 705

N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.
N o.

1934

1933

1934

13_________
14_________
15_________
16_________
17_________
18. ___
1 9 ___
20_________
21............... .

$300

$300

$1,300

$1, 267

180

600
360

800
500

2,300
1,000
430
602
1,000
1,000
250

T otal____

13, 303

70,063

84,981

200
120
16,811

Thus of the 10 departments which paid no rents in 1933, 3 paid
rents totaling $920 in 1934. Of the 6 which paid no salaries in 1933,
5 paid salaries totaling $3,282 in 1934. The eight insurance depart­
ments which, according to the criterion of ledger assets, paid $1,751
too little in salaries and rents in 1933, increased the amounts paid
for these purposes from $1,149 in 1933 to $8,733 in 1934. In the
system as a whole amounts paid by the insurance departments for
rents increased 26.4 percent or from $13,303 to $16,811, and salary
payments rose from $70,063 to $84,981, an increase of 21.3 percent.
Six of the departments increased rents and 11 increased salaries.
Reference to table 29 in chapter 8 will show that in 1933 the ratio
of total salaries and rents of all departments of the savings and insur­
ance banks to total ledger assets was 0.30 percent. # Assuming that
the ratio in 1934 was approximately the same, it is interesting to
observe the ratio of salaries and rents of the insurance departments
to their combined ledger assets in that year. The ratio was 0.60
percent. (Total salaries and rents paid by all the insurance depart­
ments came to $101,792 and their combined ledger assets equaled
$16,955,844.)

5736°—35---- 8




106

MASSACHUSETTS SAVINGS-BANK LIFE INSUKANCE

The statement below shows the total ledger assets of the insurance
departments of the 21 banks on October 13, 1934.15
Bank no. 1 ____
Bank no. 2___
Bank no. 3__
Bank no. 4 _
Bank no. 5 _
Bank no. 6_
Bank no. 7 _
Bank no. 8
Bank no. 9
Bank no. 10 _
Bank no. 11
Bank no. 12 _

Ledger assets

______$3,418,638
_____ 2, 363, 415
_____ 1, 821, 669
_____ 1, 426, 029
_____ 1, 295, 361
_____ 1, 392, 013
_____
505,932
_____ 1, 003, 877
_____
801, 375
______
655, 301
_____
214,856
_____
745, 412

Ledger assets

Bank no. 13____________ $141, 538
Bank no. 14____________
341, 039
Bank no. 15____________
223, 114
Bank no. 16____________
146, 638
Bank no. 17____________
44, 925
Bank no. 18____________
110, 340
195, 494
Bank no. 19____________
Bank no. 20____________
53, 349
Bank no. 21____________
55, 529
Total____________ 16,955,844

15
Data on salaries, rents, and ledger assets in 1934 are from the report of the commissioner of insurance
and the commissioner of banks relating to savings and insurance banks and the General Insurance Guaranty
Fund for 1934.




Appendix K.—Comparison of Amounts of Endowment Insurance in
Force with Insurance Companies and with the Banks
The sayings banks encourage the purchase of whole-life instead of
endowment insurance. The data on the relative amounts of both
kinds of insurance carried with the banks and with the insurance
companies is informative on this point. The amounts of whole-life
and endowment^ insurance carried in the seven largest companies
selling ordinary insurance which operate in Massachusetts are given
in table 13. The data cover all such insurance in force among the
companies both in and out of the State in the years 1932 and 1933.
T able 13 •—Amounts of ordinary whole-life and of ordinary endowment insurance
in force with the 7 largest insurance companies, 1982 and 1933
[In thousands of dollars]
Endowment

W hole life
Company
1932
N o.
N o.
N o.
N o.
N o.
N o.
No.

1_______________________ . . . . .
2______________________________________
3_______________________________________
4________________________________________
5_________________________________________
6________________________________________
7________________________________________
T otal.. . . .

___________ _ . _ ________

1933

1932

1933

$4,504,859
5, 621,975
3,536, 60!
6,046,869
3,480,296
5, 224, 278
1,931,179

$4,203,796
5, 523,490
3,251,627
5, 623,213
3,306, 235
5,079,973
1,810, 228

$269,038
3,896, 879
319,573
920, 575
263, 814
1, 565, 853
504, 505

$250,768
4,028, 365
296,954
876, 201
257,088
1,596, 207
485, 637

30,346, 057

28, 798, 562

7, 740, 237

7,791, 220

The amount of endowment insurance for all the seven companies in
1932 was 25.5 percent of the amount of whole-life insurance in force.
Whole-life insurance constituted 73.1 percent and endowment in­
surance 18.8 percent of all the ordinary insurance in force with the
companies. It should be noted that company no. 2 issues many en­
dowment policies maturing at age 85 instead of whole-life policies,
which these policies resemble, and that its amount of endowment in­
surance is accordingly much larger than it would otherwise be. If
one excludes data for company no. 2 it is found that the amount of
endowment insurance with the remaining six companies was 15.5 per­
cent of the amount of whole-life insurance in force. Among the six
companies whole-life constituted 79.2 percent and endowment 12.3
percent of all the ordinary insurance in force.
In 1933 the proportion of endowment insurance carried by the seven
companies was greater than in 1932. The amount of whole-life in­
surance had declined to $28,798,562,000, and the amount of endow­
ment insurance had increased to $7,791,220,000. In the case of
company no. 2, whole-life insurance declined to $5,523,490,000, and
endowment insurance rose to $4,028,365,000.
In the year 1932 whole-life insurance constituted 86 percent and
endowment insurance 7.3 percent of all ordinary insurance in force




107

108

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE

with the savings banks. In 1933 the proportions were 86.3 percent
and 6.7 percent respectively.
The proportions whole-life insurance and endowment insurance of
an industrial nature are of all industrial insurance in force with the
three largest industrial companies, and the proportions whole-life and
endowment insurance are of all ordinary insurance in force with the
savings banks, are shown in table 14.
T able 14.—Proportions whole-life and endowment insurance are of all insurance
in force with 8 largest industrial companies and with savings banks
Industrial insurance

Savings-bank ordinary
insurance

Year
Whole-life

Percent
1908_______________
1912_______________
1916_______________
1920_______________
1924_______________
1928_______________
1932_______________

67.9
73.3
73.7
70.9
59.3
50.2
47.4

Endowment

Whole-life

Endowm ent

Percent

Percent

Percent

31.4
25.1
23.6
25.9
36.4
43.7
40.3

14.0
27.2
44.3
52.2
74.6
82.8
86.0

78.7
68.3
52.6
44.9
23.1
13.1
7.3

The significance of the relative amounts of whole-life and of endow­
ment insurance is of less importance if the policies are carried many
years, especially in view of the fact that any whole-life policy may be
matured as an endowment at an advanced age by leaving the divi­
dends with the insurance organization. Many policies, however,
are lapsed after a relatively short period, and a relatively large amount
of endowment insurance is, therefore, not so likely to be desirable from
the policyholders’ point of view, since premiums for such insurance
are higher than they are for whole-fife insurance.16
16
Data on amounts of the various types of insurance in force are from the Annual Reports of the C om ­
missioner of Insurance of Massachusetts, pt. 2, table G.




Appendix L.—Bibliography
[Pamphlets and leaflets are indicated b y (P .) and (L.)

Government Publications
Massachusetts— Division of Savings Bank Life Insurance

Annuities in savings-bank life insurance. Boston, 1934. (L.)
Application for life insurance policy. Boston, 1934.
Basic dividend scale. (Premiums and dividends, straight life, 20-payment life,
20-year endowment.) Boston, 1934, 1935. (L.)
Brief survey of the Massachusetts system of savings-bank life insurance and
old-age annuities. Boston, 1934. (P.)
Comparison of annuity rates. Boston, 1934. (L.; mimeographed.)
Comparative net costs, straight life insurance, age 35, $1,000. Boston, 1934.
(L.; mimeographed.)
General Laws of Massachusetts, chapter 178: Savings Bank Insurance Law.
Boston, 1929. (P.)
Grady, Alice H.: The romance and development of savings-bank life insurance
in Massachusetts. (P.)
Address before N ew Century Club, Boston, Novem ber 29, 1932.

Growth of savings-bank life insurance. Boston, 1935. (L.)
Plans for savings and insurance. Boston, 1934. (L.)
Premium rates for annual premium policies. Boston, 1934. (L.)
Ten-year savings insurance plan, No. 1. Boston, 1932. (L.)
Ten-year savings insurance plan, No. 2. Boston, 1931. (L.)
Ten-year savings insurance plan, No. 3. Boston, 1933. (L.)
The twenty-year savings insurance plan. Boston, 1932. (L.)
Thirty double savings plan. Boston, 1934. (L.)
Other Government Publications

Commissioner of Banks.
Annual reports, 1907 to 1933, part I. Boston.
------------- Statutes. Savings banks and institutions for savings. Boston, 1933.
------Commissioner of Corporations and Taxation.
Annual reports, 1930, 1931, 1932. Boston.
------------- General laws relating to taxation and special assessments. Boston,
1934.
------Commissioner of Insurance.
Annual reports, 1907 to 1933, part II. Boston.
-------------- General laws relating to insurance. Boston, 1930.
Amendments passed in 1931, 1932, 1933. Boston, 1933.
------Commissioner of Insurance and Commissioner of Banks.
Annual reports relating to savings and insurance banks and the General
Insurance Guaranty Fund, 1908 to 1933. Boston.
------Special Committee for Investigation and Study of Banking Structure.
Report, January 1934. Boston. (S. 100.)
109
M a ssa c h u se tt s.




110

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE
N e w Y o r k . Joint Committee on Investigation of Life Insurance.
Report. 1906. (Assembly Document No. 41.)
U n it e d S t a t e s . Congress.
Board of Actuaries of the Civil Service Retirement and Disability Fund.
13th annual report. Washington, 1934. (73d Cong., 2d sess., Doc.
No. 215.)
-------------- National Income, 1929-1932. Washington, 1934. (73d Cong., 2d
sess., Senate Doc. No. 124.)
------Department of Labor. Bureau of Labor Statistics.
Monthly Labor Review. Washington, 1934.
------ Treasury Department. Bureau of Internal Revenue.
Regulations 77, Income tax, Revenue Act of 1932. Washington, 1933.
------Veterans1 Administration.
Information regarding United States Government life insurance. Wash­
ington, 1931.
Books, Pamphlets, and Leaflets
A c k e r m a n , S. B.
Industrial life insurance. New York, 1926.
B radon, J ack.

The truth about industrial weekly insurance. Chicago, 1932. (P.)
•------The truth about industrial weekly insurance. Book No. 2. Chicago,
1934. (P.)
B r a n d e is , L o u is D .
Business—A profession. Boston, 1914, 1932.
------ Life insurance: The abuses and the remedies. Boston, Policy-Holders
Protective Committee. Boston. (P.)
Address before Commercial Club, Boston, October 26,1905.
ness—A profession.

Reprinted in Brandeis, Louis D .:

Busi­

------ Successes of savings-bank insurance.
In Brandeis, Louis D.: Business—A profession. Reprinted by Massachusetts
Savings Insurance League. Boston, 1914. (P.)
C asad y, C ly de.
A study of savings-bank life insurance in Massachusetts.
A n unpublished thesis for master’s degree, Tufts College, M edford, 1932.
------Massachusetts savings-bank life insurance. Springfield, 1934. (P.)
Cox, G u y W.
The business of life insurance as conducted by Massachusetts savings
banks. Boston, Massachusetts Association of Life Underwriters [n. d.].
(P.)
A letter to the International Thrift Institute, Milan, Italy.

D

am on,

D . B radford.

The economic value of savings-bank life insurance.
An unpublished thesis for master’s degree, Northeastern University, Boston, 1933.

F l it c r a f t C o m p e n d ,
G r a d y , A l ic e H.

1934, 1935. Oak Park, 111.

The sacrifice of the thrifty. Boston, Massachusetts Savings Bank Insurance
League. (P.)
Address before the Massachusetts State Federation of Labor, August 1, 1932.

------ Savings-bank life insurance and old-age annuities. Boston, Massachusetts
Savings iBank Insurance League. (P.) (Reprinted from Savings Banks and
Savings Department Management, by W. G. Sutcliffe and L. A. Beard, New
York, 1930.)




111

BIBLIOGRAPHY
, W
J.
Romance of life insurance. New York, 1909.
, S. S.
Principles of life insurance. New York, 1925.
L
, J. B .
Life insurance. New York, 1932.
, H
.
Life assurance primer. New York, 1925.
, W
E.
Observations relative to savings-bank life insurance. (P.)

G

raham

H

uebner

M

ac

M

o ir

M

onk

il l ia m

ean

enry

esley

Testimony before Joint Legislative Committee on Insurance, Massachusetts, February 12, 1930.
T

aylor,

T

w enty

M

a u r ic e .

The social cost of industrial insurance. New York, 1933.
s a v in g s - b a n k

in s u r a n c e .

chusetts Savings Bank Insurance League, 1934. (L.)

W

q u e s t io n s

r ig h t ,

E

l iz u r

about

l if e

Boston, Massa­

.

Elements of life insurance for the use of family banks. Boston, 1876. (P.)
------Politics and mysteries of life insurance. Boston, 1873.
Articles in Periodicals
B

r a n d e is ,

L

D.

Massachusetts' substitute for old-age pensions.
Independent, July 16, 1908.
------Wage-earners' life insurance.
Collier’s Weekly, September 15, 1906. (Reprinted by the Massachusetts
Savings Bank Insurance League, 1910. Also in Business—A profession,
Boston, 1914, 1932.)
D
, H. J.
Can industrial insurance be cheapened?
Journal of Political Economy, November 1907.
o u is

avenport

De

G

roat,

F

E.

Mutual life insurance: the case for the agent.
Atlantic Monthly, April 1907.
------ Mutual savings banks and mutual life insurance.
The Spectator, March 19, 26, and April 2, 1931. (Reprinted.)
D
, J
.
Savings-bank life insurance.
United States Investor, October 22, 1932. (Reprinted.)
ew ey

loyd

udd

E

p s t e in

, A

G

arvey

G

rady

G

ro ssm an

.

The insurance racket.
American Mercury, September 1930.
,

braham

J o h n A.

Twenty-two years' experience with savings-bank life insurance.
Industry (organ of Associated Industries), November 29, 1930.
Abstract of an address before the Associated Industries of Massachusetts.

H.
Savings-bank insurance in Massachusetts.
Western New England Magazine, April 1913. (Reprinted by Massa­
chusetts Savings Insurance League, Boston.)
, W
L.
Honest life insurance.
The Nation, September 27, 1933. (Reprinted by Massachusetts
Savings Bank Insurance League, Boston.)
, A

l ic e

il l ia m




112

MASSACHUSETTS SAVINGS-BANK LIFE INSURANCE
H a r r is o n , S h e l b y M.
The Massachusetts scheme of savings-bank insurance.
The Survey, May 7, 1910. (Reprinted by Massachusetts Savings
•Insurance League, Boston.)
H o m ans, S h e ppa r d .
Remarks on the American Experience Tables.
Transactions of the Actuarial Society of America, April 25, 1889, vol. 1,
no. 1, p. 31.
L o w e l l , F r a n c is C .

Mutual life insurance.
Atlantic Monthly, January 1907.
M a r s h a l l , E d w a r d W.
The interpretation of mortality statistics.
Transactions of the Actuarial Society of America, 1932, vol. 33, pp.
74-91.
M it c h e l l , R. B.
Fallacies in reputed low-cost insurance of savings banks pointed out.
National Underwriter, May 4, 1934.
N o y e s , A. H.
Finance notes. On the Armstrong investigation.
Forum, January 1906.
P o w ers, J am es H .
Massachusetts’ great insurance war.
The New Republic, January 8, 1930.
S a v in g s

Letter, January 29, 1930. Reprinted by various savings banks in Lowell, Mass.

b a n k l if e in s u r a n c e a s a s t a b il iz in g f a c t o r .

Industry, September 24, 1931.

S c h n it m a n , L . S e t h .

Savings-bank life insurance.
American Conservationist, February 1934.
S m it h , E d w in S.
Cash and carry life insurance.
The Nation, February 5, 1930. (Reprinted by Grove Hall Savings
Bank, Boston.)
T a y l o r , M a u r ic e .
Does insurance insure?
Panorama, May 1934. (Reprinted in Congressional Record (73d Cong.,
2d sess.), May 22, 1934.
W il h e l m , D o n a l d .
Insurance across the counter.
Technical World Magazine, March 1914. (Reprinted by Massachu­
setts Savings Insurance League, Boston.)
Letters and Memoranda (Mimeographed)
C l a r k , B. P r e s t o n .
Letter to “ John Doe” of Boston, May 4, 1933. Boston, Associated Indus­
tries of Massachusetts.
------Savings-bank life insurance. Boston, Associated Industries of Massachu­
setts.
Abstract of an address before the Industrial Relations Conference, October 22, 1931.




BIB LIO G R A PH Y

113

D e G ro at, F loyd E .

Letter to William L. Grossman of New York, November 13, 1933. Boston.
R.
Letter to Guy W. Cox of Boston, June 4, 1930. Boston, Division of Sav­
ings Bank Life Insurance.
F it z g e r a l d , C. R.
Memorandum on mortality statistics. Worcester, Mass., 1931.
G r a d y , A l ic e H.
Letter to B. Preston Clark of Boston, January 29, 1931. Boston, Division
of Savings-Bank Life Insurance.
H a r d in g , R ic h a r d B.
Employee insurance survey data. Boston, Associated Industries of Mas­
sachusetts.
E v a n s , W il m o t

Abstract of an address before the Industrial Relations Conference, October 22, 1931.

------The low mortality of savings-bank life insurance. Boston, Associated In­
dustries of Massachusetts, 1934.
M a c G o w a n , E l m e r A.
Letter to D. Howard Nolan of New Bedford, June 7, 1930. Boston, Divi­
sion of Savings-Bank Life Insurance.
S t o d d a r d , W il l ia m L.
Successful methods of selling savings-bank life insurance. Boston, Massa­
chusetts Savings Bank Insurance League, 1934.