Evening star., 1939-02-19
Life Insurance Inquiry Shows
Soundness of the Industry
Study Provides Its Own Justification, Indicating
That Companies Are Safe and
Financially Powerful.
BY John C.. Henry.

the base of pyramid was the point
made through several days of reviewing
the election procedure of the largest
mutual companies.
Comprising the major part of the in
surance industry, the mutual companies
theoretically are owned by their policy
holders. Headquartered principally in
New York State, the companies, it was
shown, abide by the minimum legal re-
quirements of New York law for elec-
ton of directors. Actually, however, the
election provisions of this law place the
companies under no obligation to see
that policyholders are notified of their
right to nominate directors, or even to
furnish ballots or proxies.
Admittedly, a majority of policyholders
probably would not vote in any cir
cumstance. Furthermore, there are no
grounds for believing, and neither the
S, E. c. nor the committee implied,
that the policyholders would name any
better boards if they did exercise their
nebulous privileges as owners. The fact
remains, however, that the directors do
name the tickets for each new election
and in SO few cases as to be negligible
has there been even an effort by the
rank and file to exercise a direct voice
IN the control OF their own companies.
Control Self-Perpetuating.
I'm other words, it is a perpetual
ing control not even required to possess
any proprietary interest in the busi-
ness which it manages.
To this showing, the commission added
new ramiflcations in evidence pertain
ing to- the extent and effects of inter-
locking directorates involving the insur-
ance firms and other corporate enter
prises
Directing its early attention to Metro
politan Life, largest in the world, the
commission showed that members of
Metropolitan's 25-man board served also
as directors, officials or both in some
20 banks or trust companies, comparable
numbers of railroads, utilities and other
insurance companies, and in fewer in
stances in real estate, publishing and
other lines of business.
A like diversidcation of interests and
direct connections was shown between
others of the dominant insurance firms
and corporations of different nature.
Business Deals Exchanged"
To point up this line of inquiry, the
commission then developed the fact that
millions of dollars worth of business.
| sometimes in insurance, sometimes in
! Oil, sometimes in bank deposits, etc.
had been "exchanged' among the COM
panies involved in this interlocking re-
| lationship.
Some OF these exchanges unquestion-
ably were mere coincidence, others have
resulted from open solicitation by the
person serving two or more enterprises.
Most impressive, perhaps, is the close
relationship between the insurance COM
panies and the banks, as the former
make deposits IN the millions with banks
where officials also are insurance COM
pany directors.
OF course, these funds must 60 some
where and quite likely the banks so
favored not only are safe, but perhaps
the best. Furthermore, the direct in
terest which bank official may have
II
might logically result in increased safety
for the latter's funds.
Still, there is food for thought in the
observation of Assistant Attorney Gen
eral Thurman Arnold that through this
combination af directors of insurance
companies and directors OF banks IAN
enormous centralized power is actually
built up
Officially, there has been no deter
mination that this whole condition of
pyramided power is either an evil in
itself or an influence antagonistic to the
welfare of the Nation. That it is an
impressive display cannot be denied and
the question of what, if anything should
be done about it is one which is fairly
posed for the insurance industry itself,
as we'll as the State and Federal legls-
lative bodies.