The evening times. [volume], February 28, 1906, Image 2

About The evening times. [volume] (Grand Forks, N.D.) 1906-1914

Image provided by: State Historical Society of North Dakota

                
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PAGE TWO
c.
4
The fraternal organization is han
dled by individuals who must and do
live there is no magic about the name
"fraternalism" which enables them to
•carry on the business of collecting aud
ilist.ribut.ing large sums without ex
pense and the money to pay ths samo
must come from the members.
The payment of "B's" premium \vi:li
the money contributed by "A" would
be a diversion of funds on the part of
the fraternal, precisely as it would
l»y an old line company. This leads
me to observe that the theory npo.i
which premiums are paid should be
looked into and understood by every
one who is interested either in the En
dowment rank or who carries insur
ance of any kind. Premium rates are
based upon the probability of the deaM
of the member or policy holder the
insurance company charges each man
according to the risk of loss by his
death that he imposes upon the com
pany by his membership. This is as
true in life insurance as it is in fire
insurance. The fire insurance com
pany charges a man with a frame
building much more than it does the
man with a fire-proof building because
of the increased risk and so the life
insurance company charges an age-l
man more than a young man propor
tionately because the risk of loss by
reason of carrying his insurance is
.'•nuch more. The money contributed
or paid to the company for fire insur
ance, we all understand, is paid out
the company during the year tj
I policy holders whose buildings hav?
been destroyed during that period (to
*j'% gether with the expense of handling
w' the business) and this is precisely the
fj condition with respect to life insur
lj •**$ ance companies which operate upon
J! the natuVal or step rate premlujn plan
"iamHW
Sy City Attorney Geo. Bangs in Response to a letter of Inquirg Re-
The Work of Fraternal Insurance and Salient Feature
o! the Same Intelligently Discussed tig Chair
man ofK. P. Investigation Comirattee
City Attorney Geo. A. Bangs, chair
man of the investigating committee of
the Endowment rank of the nights of
I^rthias, has made the following ex
haustive and intelligent written reply
to a communication received recently
from Fred E. Wheaton of the Minne
apolis Advocate. The reply is made in
response to certain pertinent questions
relative to fraternal insurance and will
lie of vital interest to readers of The
Kvening Times. The letter follows:
Feb. 19, 3906.
Hon. Fred E. Wheaton,
Editor Advocate, Minneapolis, Minn.
Dear Sir and Brother:
Your open letter of the 27th ult.,
published in January Advocate re
questing certain information on En
dowment ra matter is before me.
Twenty-five years of service in the
older twenty-Jive years of energy, en
thusiasm and ability given to its up
building entitles your request for in
formation to careful consideration.
Again, my friendship for you, ripenad
from an acquaintance begun with my
initiation would impel me to answer so
far as I might.
In answering, however, it must be
distinctly understood that I write
merely as tn individual. The commit
tee of which I have the honor to bo
chairman, will make its report to the
supreme lodge and it would not be
proper from either a business or
ethical standpoint for a me'iiber of
that committee to anticipate or fore
shadow its report.
I trust that your letter is an indica
tion of an increasing interest on the
part of the order at large in Endow
ment rank matters, for, to my mind,
the perpetuation of the Endowuien-:
rank depends upon an intelligent un
derstanding of the fundamental prin
ciples on which it is founded
There is nothing intricate in 'he
underlying principles of insurance
and there is absolutely no distinction
between the natural laws governing
"fraternalism." as applied to insurance
and what is commonly known as the
"old line" companies each, the fra
ternal and the old line, is but a dis
tributor of losses neither is a pro
ducer, nor does either increase in
trinsically the value of any substance
each but takes the contributions of its
members or policy holders, and pays
them to the beneficiaries thus the loss
occasioned by death is distributed qver
the entire membership or body of pol
icy holders.
There is nothing in fraternalism th it
extends life's expectancy, and when
death occurs the money to be paid out
by the fraternal is realized from iden
tically the same source as is the mom
•ol the old line company, i. e.,—prem
iums, and shouid be adjusted to he
premiums paid by the member in the
same proportion as it is in the "old
line" such adjustment, however, is
seldom made, but when a death oc
curs, the fraternal, iu nine cases out
of ten, pays a much larger amount, ir
proportion to the contributions of tli
member than does the "old line" com
pany.
premlujn
and all premiums have, for their basis
the natural or step rate plan there
are many methods of adjusting prem
iums, but they all come back to the
proposition: What is the risk of loss
imposed upon this company by carry
ing this insurance? And the moneys
paid to the compapy for carrying the
Insurance are paia out by the coir pan y.
e«ch year or are held in tnust.by it
.to defray the excess cost during the
later years of life if these truths
were uriderBtopd, appreciated and
acted upon there would be no prob
leoca confronting the Endowment rani
because of the hesitancy to fac
the disagreeable we have these so
ealted"4uestions.
rv
I pass now to explicit answers to
your questions in doing so I will re
fer for facts to the Endowment rank
reports to the Supreme lodge and to
the various commissioners of insur
ance thus any one may verify m.v
statements.
Question 1. Is it not fact that a'
the present time about twenty-eight
million dollars of insurance is carried
in the Endowment rank upon men who
are upwards of fifty years of age, and
is not this fact a menace to the En
dowment rank and to the order at
large?
Answer. In my judgment there ave
more than twenty-eight millions: in
the 33rd annual report of the Kansas in
surance commission at page 51G, is the
statement of the Endowment rank for
the year ending December 31, 1902, the
Stli taWe of whicU shows the certifi
cates in force on that date (you may
also refer fo pages 16 and 17 of the
1904 report of the Endowment rank to
the Supreme lodge.) On Dec. 31,1902,
(as shown by the Kansas statement)
there was $24,460,000,00 of such insur
ance, and there was $8,595,500.00 mi
lives aged 48, 49 and 50 during the
three years ending Dec. 31, 1905, the
former amount would lie increased by
the latter, making a total of $33,055,
C50.00 less depreciations by deaths,
lapses, forfeitures and surrenders
the annual death loss is approximately
$1,500,000.00 about 60 per cent of
which is on lives over fifty and taking
into consideration surrenders, forfeit
ures, lapses, etc., there must be be
tween twenty-eight and thirty million
of dollars of insurance on lives ove.1
fifty.
That this may or may not be a
"menace" to the rank and to the order
is dependant upon the premiums paid
by the men carrying such insurance
if the premiums paid are commensu
rate to the risk imposed, then it is a
normal condition if the premium*
paid by these men are insufficient to
the risk they impose, then it most
surely demands a remedy for the
money must be obtained. If these men
are not now paying, or have not on
deposit with the rank, the money
necessary to carry the current cost of
this insurance, it must be derived
from some other source. We all know
that these members have not now on
deposit with the rank an amount suf
ficient to carry their insurance if the
current premiums paid by them do not
equal the risk they impose upon the
institution, because four years ago this
institution had no funds on hand and
the men now over fifty years were ad
mitted more than four years ago
members admitted more than four
years ago were re-rated at the age of
admission and, not at attained ages ro
that their present premium rates are
not commensurate with the risk of
loss they impose upon the rank.
There is this further qualification
that must be distinctly understood and
always borne in mind the Supreme
lodge has power to adjust the rates
so that each member shall pay to the
rank premiums commensurate with
the risk he imposes and if this power
is exercised, then the condition is at
once remedied.
Question 2. In your judgment, what
is the ability of the Endowment ink
to meet death losses during the next
five and ten years, taking into accnum
the probable increasing mortality of
members who are now over fifty years
of age?
Answer. This is a question that can
be better answered by an actuary. An
opinion by me would be but an infer
ence deduced from facts accessible to
all. In this connection I will say the
Endowment rank is in better condition
today than any other fraternal organ
ization save one or two, of which
have knowledge and there are very
many of these institutions in some
particulars it is in better condition
than any other because of the
general high grade of membership.
Members join almost every other fra
ternal organization chiefly from what
may be termed commercial motives
they want cheap insurance and that is
the reason for joining this is not true
of the Endowment rank. The men who
join the Knights of Pythias do so from
higher motives and are little concern
ed with the Endowment rank or ques
tions of insurance the Endowment
rank comes as a secondary proposi
tion it is reached after one has put
into effect the motives inducing him
to join the order itself, which motives
as said before are of the highest rot
only is this so but the rates now
charged are much nearer safe rates
than those charged by any pther ia^
stitution save, as said before, one or
two.
Question 3. Can the Endowment
rank meet its probable death -losses
during the next ten years without re
adjusting and raising its present
premium rates?
Answer. This also 'is a actuarial
question it is dependant upon th'fe in
crease in membership if there is a
large increase of membership and if
the contributions of the new members
r.re used to defray the losses occa
sioned by the old ones who are not
paying premiums commensurate with
the risk imposed upon the institution,
then possibly the re-adjustment of the
rates may be postponed, but in the end
it must conie it will come just as
surely as night follows day.
Question 4. Is it hot imperative that
in order to filace the Endowment rank
upon a. sojnd basis, rates must be
I*?. 1^/1.,'
raised so as to require that all insured
members old and young, must pay an
amount per ,annum nearer the actual
cost of maintaining their liability?
Answer. Every member of every in
surance company, be it fraternal or
old line, must pay premium rates
commensurate to the risk imposed by
him upon the institution this is ab
solutely essential it the institution is
to be permanent for a time the in
stitution can divert the funds paid by
one man to defray the costs imposed
by another, but this must be merely
temporary sooner or later the true
situation will be exposed and become
intolerable.
Here let me call attention to Uie
fact that every man's membership Is
a source -of actual cost (mortality) to
the institution a,man need not die to
impose a mortality cost upon the in
surer. By the very fact of his mem
bership he imposes the risk of loss,
because the money that he contribute!
on account of this risk, is immediately
paid out to the beneficiaries of sonii
member who has died. Therefore,
every member imposes .for every day
Jhe is such member an actual mortal
ity cost upon the institution let me
illustrate: A thousand men are mem
bers at the beginning of the year and
five die before its expiration each of
the thousand men contribute $5.00 in'
order that the beneficiaries of each of
the five who died may be paid aJhou
sand dollars Jit the end of th"year
the mortality cost of the thousand
members, i. e., the loss imposed by the
death of the five, has been paid by the
institution and there is no money on
hand therefore, the mortality cost of
each man of the thousand, to the in
stitution is $5.00 now suppose that
one of the thousand members paid but
$3.00 if is self-evident that the balance
would have to be made up from among
the others this mortality cost differs
or varies with'the age of the members,
but it is an actual cost to the institu
tion for every hour he is such member.
Question 5. What, if any, is the act
ual profit in-the Endowment rank by
reason of lapses, and what relation
has such revenue to the true protec
tion of the insured?
Answer. There should be no "profit"
from lapses. The net premium is the
amount paid by the.insured to com
pensate the insurer for the risk im
posed during the period of the insur
ance which is usually fixed at one
year, to which sum (of the net prem
ium) there is an amount added or
"loaded for expense" if more than
this is charged or received by the in
surer it is done either by misleading
the insured or upon the theory that
the insurer will hold that amount to
the credit of the insured, the same to
be used during the later years of life
to defray the excess of cost (mortal
ity) above the amount of the premium
paid.
All payments made by the member
to the Endowment rank in excess of
the present mortality cost imposed by
him upon it, are, therefore, made by
him for the purpose of having such ex
cess, with the incriment thereto held
by the rank to his credit the mortal
ity cost increases with the age of the
member eventually such cost will ex
ceed the cash premium paid by him,
at which time the excess, with its ac
cumulations, will be drawn upon by
the rank to make up such deficiency. I
say, therefore, that all moneys paid
by the member to the rank, outside of
the amount specifically agreed upon
or expenses, is paid by him to defray
his mortality costs and the institution
has no more right to divert that money
to any other purpose than to divert or
misappropriate any other sum of
•vhich it was trustee. It is inequitable
and unjust to confiscate it or to qall it
"profit," or "to use it for any purpose
except to defray the mortality costs
imposed upon the institution by the
member. If he lapses, that sum should
be returned to him or he should be
credited with it as paid up insurance,
less an estimated amount to defray
cost of computation, handling, invest
ment, etc. so much for the moral
side of the question.
(b) I do not believe there is any actual
"profit" to the Endowment rank by
reason of lapses let me illustrate by
taking a new member aged twenty
one his rate is $10.34 per year there
must first be deducted thr. mortality
cost of $5.04 the organizer who ob
tains the business receives in the ag
gregate at least the full amount of
the first year's premium, but it is paid -j
to him in installments he receives one
half of the payments as they are made
until in the aggregate ttyey equal the
first year's premium or perhaps more, I
thus out of the first year's premium
he would receive $5.17 the law "al
lows 10 per cent for expenses but this
is over-run to about 12 per cent, which
would be $1.24 we have then out of
the
first
year business these pay­
ments to be made, mortality cosrs
$5.04, organizer, $5.17* management ex
penses, $1.24, makU»8*«t total of $11.45,
or an actual loss to the institution of
something more than a dollar this is
true also of the second year's busi
ness.* (I am not positive that manage
ment in addition to organizer's ex
penses should be added) the average
duration of membership of those who
lapse is about two years after the
expiration of the second year there
might be some "profit" until the time
when the mortality cost equals or ex
ceeds the premium, but (he profit can
Lot be very large because the N. F. C.
rates contemplate investment at 4 per
cent net, which amount it is very dif
ficult to realize from the investments
to which th? rank Is restricted by the
Supreme lodge.
On the whole I am inclined to ther.e
views: (a) A profit on "lapses'*
should not 'be tolerated, and (b) un
der the present systena^iy Vates there
iu no "profit" on Upse#
Question 6. Is it not a fact
that at the present time the
Endowment rank is confronted
with an actuarial deficit of several,
million dollars, and if so, coupled With
,the fact of the probably early increas
ing mortality in the old age class, yill
not th§ Endowment rank be placed !fi
an embarrassing position In meeting
lt liabilities?*
Answer. At the time of the special
convention Ih 1901,1 understood there
was an actual deficit the rates then
adopted Were the N. F. C.
.level life net
rates fot some reason tliere was no
loading 'of those' rates for expense
bence ^Uowanc? of 10 pet sent of
7f~
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4 2* »jJ-
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4
THE EVENING TIMES, GRAND FORKS, N. D.
the net rates was made for that pur
pose so that the rank receives for
mortality costs but 90 per cent
of the N. F. C. net rates
these rates contemplated a 4
per cent interest on the reserve and
this amount has not been realized to
this time so that there is a further
deficiency in the accumulation.
The then*membership was not rer
rated at the attained ages but on the
contrary the rates were applied there
to as of entry age so that the member
then aged fifty-five who had entered
a* the age of thirty was rated as the
latter age and paid premiums the
same as though he had joined the or
der in J901--at age thirty this, of It
self, shows that there is not an amount
on hand sufficient to maintain the
present ratps, hence additional funds
must be raised from some source or
the rates muBt be re-adjusted.
Question 7. Is not the Supreme lodge
and the order at large morally and
legally responsible for the obligations
of the Endowment rank, and if so, «n
the event of the inability of the En
dowment rank to meet its obligations,
will not the order be held liable?
Answer. The relationship between
the Endowment rank members and the
order is contractual the rank enters
into a contract with the member i:i
the name of the Supreme lodge to pay
his beneficiary a stipulated amount ii»
consideration of a premium he prom
ises to pay and upon this contract,
suits have been, can be now and will
be in the future, brought against the
Supreme lodge itself there is nothing
in the nature of charity here it'is a
purely business proposition entered
into between two persons competent
so to do and their rights are fixed by a
written contract the order at large,
meaning by that the organization or
corporation, is legally and morally re
sponsible to the beneficiaries of the
members of the Endowment rank.
Question 6. Is it right, just and
fraternal that members of this oi'der
who are not members of the Endow
ment rank should be considered as
collateral security for the protection
of the insured?
Answer. Yes. This insitution, cor
poration, order or call it what-you will,
has engaged in this business to at
tempt to evade the meeting of these
obligations is simply repudiation.
There can be no evasion no divorce
ment, until the institution is placed
upon a sound, scientific and perma
nent basis then, and not until tRen
can we consider ourselves relieved
lrom the obligation voluntarily as
sumed. In this connection it must be
remembered, that the Supreme lodce
representing not the Endowment rank,
but the entire order has the power to
so adjust the rates that the rank will
be absolutely safe and sound—and the
liability to the order at large reduced
to the minimum.
Question 9. If this order is to con
tinue", in the insurance business, why
should not its field be extended to
any and all classes of people as well
as Khights of Pythias?
Answer. have not considered this
question. The articles of incorpora
tion wpuld to a large extent control.
Question 10. Is it not true that
among the present certificate holde'S
in the Endowment rank there are
those who are not members of the or
der?
Answer. I do not know. It is pos
sible that some one member of the
rank may have been expelled from the
order and the fact not reported to the
office of the Insurance branch.
Question 11. Do you favor the di
vorcement of the Endowment ran!.-,
from the order and if so under what
conditions? HaVe you not had sug
gested to you a plan or theory to brin,*
about such divorcement?
Answer. When the Endowment rav.k
is placed on a sound finan
cial basis 1 shall be ready
to discuss the question of its
divorcement froril the order at
large until then the question is not
open. Divorcement prior to that time
is repudiation.
What is now desired is a sound aa-l,
permanent financial basis when that
result is attained, the divorcement of
the rank from the order may be dis
cussed but not until then. Like all
others who have given this matter
thought and attention I have had un
der serious consideration different
plans by which the rank might bo
placed upon the desired basis in this
letter it is impossible to outline them.
Question 12. Will your committee
report fully and in detail the true ac
tuarial condition of the Endowment
rank, and make unbiased recommenda
tions as to the future policy for thja
government or disposition of the rank'
Answer. The special committee ap
pointed by the Supreme lodge at the
1904 convention will report fully ami
in detail the true condition, both actu
arial and otherwise, of the Endowment
rank and will make unbiased recom
mendations, uncontrolled by fear, fav
-or or prejtfdice as to the future policy
for the government and disposition
of the' rank.
The very considerable length of this
communication urges me to a spee.ly
conclusion I realize its many insuf
ficiencies I earnestly hope your be
lief is well founded in a wide spread
desire throughout the order to learn
the' facts in connection with the En
dowment rank and its true relation
the order.
The Endowment rank is temporarily
in most excellent condition and now
while the stimulating effects of the
action of 1901 are still felt is the time
in which to take the steps necessary
to put this insltuilon upon a firm,
sound and permanent financial basis.
Every new member is but an addi
tional liability imposed upon the order
at large precisely to the extent that
the premiums pkid by hlm are inade
tfiate to the risk imposed there are
one hundred and seventeen million
dollars of certificates of membership
and this means there are one hundred
and seVenteeh mUllon dollars of bills
payable of the Supreme lodge out
standing which njust be met and paid
a benefit certificate is simply a prom
ise to .pay it does not differ at all
from an old Hne pqlicy it is precisely
of the nature of a bond and every new
certificate issued-is an additional bond
or liability^ of the' order whlch mist,
be some .day.
paid. every
K'. VV"
day's
delay*
but adds to the embarrassment to be
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Are Manufacturer's
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In large quantities at
wholesale prices and
thus save the middle
man's
We especially desire to fig-,
ure with hotel keepers who
contemplate furnishing their
houses with a complete new
outfit.
We Can
We will take our chances
in- securing'your order in
competition with anybody
anywhere.
After you have se
cured prices else
where,' come to
us, or write us
what you want,
end give us
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Complete House Furnisher
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Gr&nd Forks,.
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