Canadian and British Insurance
As the act now stands it is not necessary for the company to maintain the policy in force if the premium is not paid by the policyholder; the policy may be forfeited, and in that case the insured would lose his insurance; in other words the policy would lapse. It seems to me that every policy should be carried in force so long as the cash surrender value is sufficient to cover the premium. Most policies now in existence contain such a clause, but I feel that it should be compulsory for every company carrying on life insurance business to adopt this method. I am told that some companies have made a good deal of money out of this practice of allowing policies to lapse even where there was sufficient cash surrender value to have continued the policies in force. To-day all companies are in competition with each other in the selling of life insurance, and one of the strong talking points used by their agents is the profits earned by the companies. If one should make profits out of the cancellation or the lapsing of policies where there is sufficient cash surrender value to carry them on, no doubt other companies will feel compelled to adopt a similar method so that they will be able to compete in the matter of profits.
Subsection 5 of this bill is new; it is not taken from the old act. This subsection would limit the rate of interest which may be charged by any life insurance company against any advance or policy loan to a maximum of four per cent per annum. I think hon. members will be seized of the importance of this provision when I state the figures showing the money advanced as policy loans. In 1932, which is the last year for which I have the figures, the amount of advances against policies held by life insurance companies reporting to the dominion Department of Insurance was $244,000,000. In 1933 it was $218,000,000; in 1930 it was $188,000,000 and in 1929 it was $159,000,000. I think those figures show the importance of this matter.
I might say a word as to the necessity for this section. In 1921 I had the experience personally of being charged ten per cent per annum by an insurance company on a six months' note which I tendered in payment of a premium. I refused to sign the note and secured the money elsewhere with which to pay the premium. But that shows the rates which have been charged policyholders by certain insurance companies. Just last year I found that I was being charged eight per cent on money which was automatically advanced under the provisions of the policy itself; the premium was being advanced automatically from the cash surrender value of the
policy. That was carried as a loan against the policy and I was being charged a rate of eight per cent per annum. I found that by taking out a loan against the policy and turning it in as payment of the premium due and the premium previously charged against the cash surrender value, the rate was reduced to six per cent, but I think even that rate is excessive. I am told that some companies regularly charge a rate of seven per cent on loans against their policies.
The importance of this matter may be shown in another way. I have here the figures concerning four large companies doing business in Canada. The first company has twenty-four per cent of its interest earning investments in the form of policy loans. The next company has approximately twenty-five per cent, the third about twenty-four per cent and the last company about twenty per cent of its interest earning investments in the form of loans against policies. The investment folio of another company shows city mortgages amounting to $27,000,000, farm mortgages totalling $19,000,000, bonds and debentures amounting to $43,000,000 and policy loans of $28,000,000. So it will be seen that in this case the second largest investment is in policy loans.
I think the rate of even six per cent, which is the lowest of which I have heard, is much too high. The security for these loans is the best in the world; the companies are lending money to their own creditors. There cannot possibly be any loss; there is no risk connected with it. Another reason is that the next best investment of the life insurance companies would be dominion government bonds, and the rate they can now earn from those investments is considerably less than four per cent. I find that the average rate earned in 1923 by two of the largest companies was 4-08 per cent in one case and 4-09 per cent in the other, yet to my personal knowledge one of these companies was charging eight per cent on part of their loans against policies.
I think it advisable that parliament should incorporate in the insurance act a uniform rate that may be charged by these companies. As I said before they are in competition one with the other. They are all trying to make good profits, and if one company charges high rates of interest in order to increase its earnings the other companies naturally will feel that they must do the same in order to compete.
Life insurance surely is carried on for the good of the people, at least it should be carried on in the interests of the people.
Canadian and British Insurance
All our regulation is ostensibly for that purpose, and looking at the matter from that point of view there can be no doubt that this is something which should be regulated by parliament. I earnestly ask this house and the government to accept the bill, and if it is accepted I should be glad to move that it be sent to the banking and commerce committee for further consideration. I think the bill is a feasible one, and I hope it will receive the support of the house.