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interest were divided by the funds at the end of the year the converse would hold. For measuring the interest earned by life-assurance companies a middle course is usually followed, and the following formula has been suggested as a good basis, namely:

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In which I represents the total interest earned during the year; A the funds at the beginning of the year; and

B the funds at the end of the year.

BIBLIOGRAPHY

DAWSON, MILES M., "Investment of Funds," in The Business of Life Insurance, chap. 27.

DUNHAM, SYLVESTER C., "Investments by Life Insurance Companies." A lecture delivered before Yale University on December 4, 1905.

HAMER, J. W., "Life Insurance Investments," published by the American Academy of Political and Social Science in its volume on "Insurance," pp. 76-88.

LUNGER, JOHN B., "Investment of Insurance Funds." Yale Insurance Lectures, i, 144-161.

Proceedings of the Sixth Annual Meeting of the Association of Life Insurance Presidents, New York, 1912.

Report of the New York Legislative Insurance Investigating Committee, x, 382–392.

ZARTMAN, LESTER W., The Investments of Life Insurance Companies. New York, 1906.

CHAPTER XXVII

GOVERNMENT SUPERVISION OF LIFE INSURANCE

Few business institutions, if any, have been subjected to such strict and detailed government supervision as life insurance. The reasons for this become clear when we consider the vital relation which life insurance bears to the family and the community. We have seen that its mission is a sacred. one, that the trust funds it holds run into the billions, and that millions of people rely upon it as the principal means of protecting the home against the deprivations occasioned by premature death. The great majority of contracts, as already noted, run for many years before maturing and frequently involve an obligation on the part of the company extending over fifty or seventy-five years.

Yet despite the almost universal use of life insurance and its vital importance to those who purchase it, very few persons, as we have noted, take a direct interest in acquainting themselves with the management and business policy of the companies in which they are insured. In practically all cases the companies are controlled by a limited number of persons who have little or no difficulty in securing the necessary proxies to perpetuate their control. Even assuming that any considerable portion of the vast number of policyholders could be induced to take an interest in the condition of the company in which they are insured, it is clear that very few are sufficiently posted in life-insurance matters to ascertain intelligently the true state of affairs. Life insurance is necessarily a technical and complicated subject and the real condition of a company can only be determined by laborious and expert examination. In view of conditions like those just recounted, it will readily be admitted that life insurance

is a fit subject for some sort of government regulation designed to protect the public adequately against mismanagement and unjust practices.

State Versus Federal Jurisdiction.-In the United States the general supervision of all forms of insurance is undertaken solely by the several state governments, and since many of the larger life-insurance companies transact business in all, or nearly all, of the states, there has long existed a strong movement in favor of supervision by the federal government under its powers to regulate interstate commerce. The United States Supreme Court, however, beginning with the famous case of Paul v. Virginia,1 has repeatedly refused to declare an insurance contract an instrumentality of commerce, and has asserted the doctrine that "there is no doubt of the power of the state (using that term as contrasted with the federal government) to prohibit foreign insurance companies from doing business within its limits. The state can impose such conditions as it pleases upon the doing of any business by those companies within its borders, and unless the conditions be complied with the prohibition may be absolute." In the absence of national supervision the entire oversight of the insurance business is relegated to the several state governments, and this situation, according to leading authorities, can only be changed by enabling Congress to legislate on the subject through an amendment of the federal Constitution. Under existing conditions, therefore, the several states can prohibit non-resident companies from making contracts within their borders, except upon such conditions as the states may prescribe, and it follows that a company doing business in many states will be subject to the supervisory control of numerous separate governments.

Officials Intrusted with Supervisory Control and Their Duties and Powers. In the great majority of states supervisory control over insurance companies has been intrusted to an insurance official, usually called the superintendent or

1 Paul v. Virginia, 8 Wall. 168 (1868).

commissioner of insurance, who is either appointed by the governor or elected by popular suffrage, and who is placed in charge of a separate department of the government. Uniformity among the states in this respect, however, does not exist, and a considerable number attach the responsibility of supervising insurance companies to some other department of the government. At the close of 1913, seven states still intrusted such supervisory control to the state auditor, four left it to the secretary of state, one made the state treasurer the supervising officer, and one divided the control between the secretary of state and the treasurer.

Many of the states have enacted a large body of statute law governing insurance, while others are still very backward in this respect. Although the legislatures and courts of the several states play a prominent part in the enactment and interpretation of insurance legislation, the actual supervision of the companies and the enforcement of the laws is performed by the insurance commissioners. These officials. are usually vested with large discretionary powers. It is the duty of the commissioner to see that all insurance laws are properly complied with and that all the companies transacting business in the state are solvent according to some prescribed standard. His permission must be obtained before a foreign company can enter the state, or before an agent of such company can solicit business. Every company is obliged to render an annual statement of its condition and business in the form and manner prescribed by the commissioner, and he has also the power to require at any time statements from the officers or agents of any company operating within his state on any matters on which he may desire to be informed. To facilitate examinations he is empowered to require free access to all books and papers of any company or agent operating in the state, to summon and examine any persons under oath relative to the affairs and condition of any such company, or, for probable cause, to visit the company at its principal office for the purpose of investigating its affairs. Failure or refusal to render any statement required within the time and

manner prescribed by the commissioner, or to permit any examination requested, subjects the company to heavy money fines or to the danger of having its license revoked. His other important duties, as summarized on another occasion 2 may be stated as follows:

Power is given the commissioner to suspend the entire business of any company by revoking or suspending its license if in his opinion the company does not comply with any provision of the law, or whenever its assets appear to him insufficient. He must see that the company has made the proper deposits of approved securities; that it makes a correct return of the taxes which are imposed by law; and that a resident of his state is appointed the attorney of the company so that in the event of litigation legal process may be served without the citizens being obliged to go outside of the state to serve the papers. It is also his duty to see that the assets of all companies organized in the state are properly invested in the form prescribed by law. He has supervisory power over the organization of all companies from the time that the articles of agreement are arranged until the company is ready to begin the writing of policies, and in every stage of the organization and in all matters pertaining thereto, it is necessary for the organizers of the company to have his approval. Finally, he owes it to the public as well as the companies to do all in his power to exterminate improper or unlawful insurance schemes. Numerous other duties and powers might be enumerated, but those mentioned will suffice to show that the insurance commissioner is clothed with extraordinary powers, and that consequently the personality of the commissioner is a factor the importance of which cannot be overestimated.

Subject Matter to Which State Legislation Especially Applies. Having outlined in a general way the duties and powers of the officials intrusted with the supervision of insurance companies, we may next outline in detail the particular functions which it is the purpose of government regulation to perform and the particular subjects and practices to which it is applied. While space forbids a detailed discussion

2 HUEBNER, S. S., Property Insurance, 245-246.

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