Iowa state bystander. [volume] (Des Moines, Iowa) 1894-1916, 1906-01-12
The Governors Message

Following are the most important
portions of Governor, Cummins' message
to the legislatures:
State Auditor.
The auditor has filed with me not
only his regular biennial report, but
supplemental report directed solely to
our Insurance laws and needed legisla-
tion upon the subject Of insurance. l
recommend these reports and especially
the supplemental scport to your careful
consideration. heartily concur in all
his recommendations.
This state long ago adopted the policy
Of requiring all its own life insurance
companies doing business upon the ''le.
gal reserve" plan to deposit securities
less than the legal reserve, for the pro.
lection of policy holders. 1t cannot be
doubted that this is wise system. We
have seen that the possession of great
volumns of securities which can be
changed, manipulated, and used for in.
dvidual profit and Interior purposes,
presents temptation that most men
cannot resist, and constitutes menace
that ought not to be perpetuated. I be-
lieve, therefore, that from this time for
ward all 'old line" life insurance com
panies organized under the laws of the
other states and desiring to carry on
business in the state Of Iowa, should
be required to deposit with the auditor
securities equal in amount to tie le-
gal reserve upon the poncies issued upon
lives in this state, for the protection of
such policy holders: the deposits to con-
tinue until the state in which the COM
pany is organized shall require deposit
of the entire legal reserve with some
state officer, at which time our auditor
should transfer the securities so placed
with him to the officer of the state in
which the company is organized. If n
would result in every state having in
surance companies, requiring the deposit.
l earnestly recommend to you a careful
investigation Of this phase of the general
subject.
Another grave defect IN the methods
of life insurance developed by the recent
study of the subject. is the accumulation
of so-called surplus, which, in great
measure at least represents deferred div
idends; that is to say, the sum which
the company, in vague way, promises
to distribute at future time to its
policy holders, but concerning which
there IL no specific agreement fixing the
amount Of the distribution. The surplus
20 existing is not reckoned as liability.
for the reason that no policy, so far as
have been able to ascertain. contains
any more positive assurance Of distribu-
ton than that the policy holder shall be
entitled to- such share of, the surplus as
the directors of the company may de-
termine. The whole scheme of deferred
dividends has tendency to lead the bust
ness away from the field of indemnity
into the field of Investments tendency
Sr,I,y ot, 81 AIn~ AN~ .SsNnS
which should be checked by such reason.
able regulations as can be prescribed
without injuring the legitimate enter
prise Of insurance; but there is still
more potent objection to the practice.
As is we'll known, the premium charg-
ed BY legal reserve company is made
up of two parts: First, morality; sec
ond, the loading for expense. The actual
mortality is considerably less than the
theoretical mortality, and it might hap
pen that tie share allotted to expense is
not altogether consumed. From these
overcharges in the premium, together
with a portion of the interest earsed.
the surplus is created, and the general
policy holder in the form of dividends.
! am speaking now of mutual COM
pany, although it is likewise true Of a
company having capital stock, with the
one exception of the diminution in the
earnings caused by whatever claim the
capital stock may have upon them. No
company can safely make any definite
promise with respect to the surplus so
acquired, for the obvious reason that
its extent must always be uncertain.
One of the issues in the insurance bust
ness at the present time, therefore, is;
Shall this surplus be ascertained and
apportioned and disposed of in some
manner at short intervals, or shall it b,
allowed to accumulate during long per-.
DDS, and then be paid to the police
holders in such proportions as the board
of directors of the company may think
best! 1t seems to me that every
consideration of safety and fair dealing
requires that the surplus to be credited
or paid to participating policy holders
shall be ascertained and paid, or
otherwise disposed of every year. In SO
saying, l do not mean necessarily, that
the first or second years of a policy shall
be so treated because the expense of get
aing the business, with the mortality,
quite consumes the premium for those
years. If the dividends are deferred for
long period, the policy holder is alb
solutcly at the mercy of the company.
Even if he could override, by judicial
proceeding, the discretion of the board
Of directors in apportioning the surplus
then due him (and the courts have de.
cided that he cannot) the cost of pro.
curing the proof necessary to establish
his rights would far exceed any benefit
that he could derive from the litigation.
If, however, the law imposes upon the
company an imperative obligation to as
certain and apportion the amount of the
surplus due to each participating policy
holder at the end Of each year, then the
natural forces Of competition between
companies, together with the option on
the part OF the policy holder to surrend-
er his policy if the dividend be not fair
and satisfactory, will protect the pol
cy holder from any serious wrong.
therefore recommend that the law be
SO strengthened as to require an annual
accounting between each company and
its policy holders so that at the close
OF each year the policy holders will be
notified OF their respective shares in the
surplus of the preceding year. The
amendment should also provide for the
option which at that time may be exer-
cised by the policy holder, namely: to
withdraw the dividend in cash, or to use
1t for the purpose of purchasing fur
Their insurance.
1t Is believed by many thoughtful men
that there should be limit to the ag-
gregate amount of insurance which a
company should have outstanding; or, in
other words, that the amount at risk
should be restricted to some large, but
reasonable sum. have not been able
to reach satisfactory conclusion upon
this subject, and therefore make no re-
commendation upon it. It is, however,
so important-indeed, so fundamental
that comply with many requests, and
invoke for it your careful consideration.
This state has, with great wisdom.
pursued the policy Of narrowly restrict
ing the manner in which the legal re-
serve Of company may be invested.
1t Is to be hoped that an enIightaned