Evening star., 1941-02-27
Report Criticizes
Practices Of Life
Insurance Concerns
o'Mohoney Opposes U. S
Curbs; Declares Views
Are Not Committees
Ay the Associated Press.


Ay the Associated Press.
A statement by Chairman OMa.
honey of the Monopoly Committee
that he was opposed to Fedora
regulation of life insurance at this
time created speculation today a;
to what form forthcoming recon.
mendations with respect to the busi-
ness would take.
The committee will meet tomorrow
to receive from Summer T. Pike, Sc
curities and Exchange Commission
representative on the committee
recommendations based in part on a
report by staff members covering a
study of the life insurance business
The report said among other
things that fragrant cases Of con-
flict (of INTEREST," and breach OF
trust" on the part of some life
insurance directors put the funds
of many policyholders "in jeopardy
1t contained no recommendations
Authors of the report were Ger
hard A. Gesell and Ernest j. Howe
of the S. E. c. staff, who under
took the study by direction of the
committee.
Views Declared Personal.
In making the report public Sen
ator OMahoney said it represented
only the views of Mr.. Gesell and
Mr.. Howe and not those of the S.
e. c. or the committee.
The report asserted that prac-
tices of insurance companies con-
sidered at hearings of the Monopoly
Committee were not such as would
undermine the soundness of the
basic principles upon which the
institution of life insurance is
founded"
Senator O'Mahoney said the
Monopoly Committee was interested
in much more fundamental" OBJ
jectives than even apparent de-
fects in the insurance industry" and
was intent on developing a basis
for cooperative effort" between
business and Government to solve
economic problems.
Quickly following the release of the
investigators report, E. E. Rhodes,
vice president of the Mutual Benefit
Life Insurance Co. of Newark, N. j.,
protested that it ignored a statement
submitted to the Monopoly Commit
tee last year by 178 insurance COM
pany presidents presenting their side
OF the case.
In discussing conflicts of inter-
est" the report by Mr.. Gesell and
Mr. Howe said: Whenever a direc-
tors personal affairs are confused
with those of his company, or when
ever he is called upon to satisfy con-
f1icting obligations, he can no longer
act with complete independence.
An insurance company, for
example, owns securities of a cor
poration which are in default and
the president of that corporation is
on the board of the insurance COM
pany.
Impartial Advice Discounted.
ut is obvious that the president of
the corporation whose defaulted Sc
curities are involved cannot partici-
pate dispassionately in the delibera-
tions of his fellow directors and give
necessary impartial advice"
Turning to other subjects, the re-
port attributed to major companies
various "anti-competltive" arrange
ments with respect to rates and con-
ditions of insurance policies.
1T appears" the authors declared,
shat the principal life insurance
companies have for several years
petition by means of intercompany
agreements and 'gentlemen's UNDER
standings"
Because of interlocking director
ships, the report asserted, "it may be
said that single group of directors
has substantial voice in determin-
ing the policies of the two most
powerful financial enterprises in this
country, insurance and banking"
Discussing investment policies of
life insurance companies, the report
said:
OIllCSS lllc ulc lIlSul dIlCc GULF
panies can find methods by which
the funds flowing under their con-
troll will become available as equity
for the stimulation of new enter
prises and accessible to the small
and medium size businessmen and
by which investments in enterprise
may not become overburdened with
debt, consideration will have to be
given to the extent to which the
insurance companies may longer
monopolize and dictate the direction
OF the flow of savings of the people" :"
Powerful Lobby Charged.
The report described the Associa-
ton of Life Insurance Presidents,
composed of major companies, as
"a powerful lobby able to combat
successfully legislation intended to
regulate or affect life insurance COM
panies"
"Its influence" the report added.
extends from the initial election of
State representatives to the building
up Of propaganda through the
artificial stimulation of policy
holders.
mo justification exists for a lobby
carried on without adequate dis
closure and financed with the funds
of policyholders whose interests more
properly should be guarded by the
free judgments of their elected rep
resentatives.
In section devoted to industrial
Insurance, the authors asserted that
industrial insurance has failed to
fulfill its essential purpose"
Either" they said, industrial in
surance must be eliminated or the
traditional method of conducting 1t
must be drastically changed to
eradicate its inherent weaknesses"
Mr.. Gesell and Mr.. Howe con-
tended also that "as a result of
haphazard accounting methods,
much essential information is lack
ing"
$4,000, ,ooO, 900 Assets.
Tracing the development of the
life insurance industry, the authors
of the survey said that assets of the
approximately 365 legal reserve life
insurance companies in the United
States exceeded 5000, 900 900 and