Evening star., 1941-02-27

It referred to use of their posi-
tiOnS by some directors for personal
gains through the institution of
preferential transactions and loans,
or the initiation of changes in the
basic plan of company operation de-
signed to promote their private in
trests'
The authors spoke of emphasis
upon size for the sake of size alone
and "the resulting dislocation in
agency activity exemplifled by in
adequate training of agents, poor
selection of agents. high turnover,
and the seriously low compensation
Of agents"
Directors Self-Perpetuating."
Other comment:
"On the basis of the evidence
adduced, it cannot be said that the
policyholderS have any control over
the management of the mutual COM
panies. The putative rights of the
policyholders to select and elect di-
rectors are of no practical value.
The directors are completely self
perptuating."
There are strong indications that
even the relative size of deposits in
interlocking banks Is occasionally
affected by the number of directors
common to the bank and insurance
company in question"
Our necessarily incomplete study
Of some of these problems shows
that many directors and officers of
the largest mutual companies have
conducted themselves with pro-
priety and that relatively speaking
officers and directors of the largest
mutual companies have used their
| positions to initiate transactions for
their personal profit less often than
have the directors and officers of
numerous smaller companies"
insufficient training of agents.
high turnover in sales personnel,
poorly designed methods of COM
pensation of agents and managers,
high-pressure selling and other re-
lated matters contribute materially
to lapse and surrender and the
losses to policyholders incident
thereto. -
Selling Program Suggested.
Economic and management pres
sure on the agent to sell more and
more life insurance must be re-
duced and in substitution thereof
must come a willingness on the part
of life insurance company manage
ments to discard growth for
growth's sake alone in favor of a
selling program which has as its
primary objective the sale of insur-
ance in the manner which is most
suitable to the policyholders' needs
and their ability to pay"
ut is very difficult for a prospec-
tive policyholder to compare costs
as between policies or between COM
panies, or even to determine the
cost of any one particular policy.
The policyholder who attempts to
make the determination will quickly
find himself in maze of technical
terms and obliged to make numer-
| Gus adjustments for variable factors
which might affect the cost"
In taking exception to the report,
Mr. Rhodes declared the only thing
mentioned which was not covered
by the companies statement last
year was the reports recommended
ton that insurance funds be made
available to stimulate new industry.
Mr. Rhodes pointed to the hazards
of investments in new enterprises
and declared that many States bar
insurance companies from investing
in common stocks.
Mr.. Rhodes Statement.
The text of Mr.. Rhodes statement
/ follows:
The report submitted by the Sc
curitieS and Exchange Commission
to the Temporary National Economic
Committee on the subject OF life
insurance relates to only one major
subject which has not already been
covered by the statement on life
| insurance which was filed with the
committee on August 13, 1910, and
which bears the signature of 176
United States life insurance COM
panies.
THE suggestion that life insur-
ance funds be invested as venture
or risk capital in new enterprise
which is the only new subject of
Importance, has been matter OF
discussion for a great many years
Many States prohibit investment in
common stocks by life insurance
companies; in fact in 1906, the Arm
strong Committee of which the Hon
Charles Evans Hughes was counsel
said in it's report to the New York
Legislature:
Investments in stocks should be
prohibited They are fundamentally
Objectionable, as the corporation
instead of holding a secured obll-
CATION acquires proprietary inter-
est in another business, with rights
subject to all Indebtedness which
may be created in the conduct OF
it and often direct liabilities as
stockholders. This interest must be
nourished and supported. Instead
of being a creditor with adequate
security, to which upon default the
corporation may resort, it assumes
the responsibilities of proprietor
ship and must contribute from the
accumulations provided by the
policyholders in order to sustain the
enterprise
During the boom times of the
'2OS, there was renewed agitation,
but sober discussion served to pre-
serve to life insurance policyhold-
ers the prevailing strict investment
requirements and, happily, the dis
aster which might have then been
incurred was avoided Policyhold-
ers will have little patience with g
proposal that funds set aside fol
their widows and orphans or fol
their own security in old age, shall
be made available for the stimula-
ton of new enterprises which have
not proved their worth. 1t must not
bs overlooked that Life Insurance.