Mr. IRVINE:

These are the total lapses for the two main divisions of insurance, namely ordinary and industrial, for the years 1930, 1931 and 1932. These figures, I believe, tell a really tragic story when we stop to consider the hundreds of thousands of Canadians who, perhaps for years, have been trying to protect their families but during the past few years have had to release their hold and lose all that they had paid.

Let me now compare the only state insurance scheme concering which I have been able to get figures, with the companies with which I have been dealing. The ratio of expenses to gross premiums for the first year policies in the Massachusetts system in 1929 amounted to only 9-17 per cent, whereas the average for all companies doing business in that state was 49-21 per cent. It ran as high as 78 per cent in the case of one company. Private companies doing business in Massachusetts had an expense ratio to all those premiums of 18-32 per cent for ordinary policies and 26-34 per cent for industrial policies. These were the figures based on all business done in 1929. In the case of the Massachusetts savings bank system, this ratio was only 4-63 per cent. According to the annual report for 1929 of the Massachusetts commissioner of insurance, by eliminating selling costs, advertising and high salaries, the Massachusetts savings bank life insurance system was able to sell insurance 26 per cent below private companies and more than 50 per cent below the commercial rates on the weekly premium plan. Detailed figures show that in some cases two years' protection in a private insurance company cost the insured five times as much as it would have done under the state scheme. Another instance is that of a holder of a twenty-year endowment policy, aged 30 at entry. In the case of a S250 policy, the net result at the end of two years showed a cost of $2.50 under the savings bank life insurance scheme as compared with a cost of $31.20 in the case of a private company. In this instance the policy holder paid more than twelve times as much for $250 protection in an industrial insurance company as he would have had to pay for insurance under state control.

I see that my time in running short and I must turn from these figures to urge an argument based thereon. I urge that the whole life insurance business of this country should be taken over by the government. It is obvious that in a forty minute speech one cannot give a detailed plan for the taking over of insurance companies, but I do not know of anything that could be taken over more easily. The entire paid-up capital of all insurance companies in Canada amounts to only $10,000,000, and this is S10,000,000 that they have no business to have. Insurance companies do not need capital of that sort; $10,000,000 of unneeded capital is only an added charge upon the policyholders. It serves no other function. If the government took over the business now done by private companies it would be in an even better position to meet the requirements of the policyholders than private companies are. If the will was present, I do not anticipate any difficulty in the government finding a proper, efficient and effective way of putting this scheme into effect.

Perhaps one of the greatest advantages in favour of a state scheme is the wider distribution of risk which is made possible. The wider spread that can be given to the risk, the lesser risk there is and the cost of insurance accordingly becomes less. We have but to take the idea which is exemplified so well in group insurance and apply it to a still larger group, say to seven million Canadian citizens. As the group is enlarged, the cost is decreased. Under the group insurance plan an insurance company can go into a factory and sign up a group of fifty men without medical examination. They know from their actuarial experience that it is quite safe. They are able to give insurance to the oldest man as cheaply as the youngest. If that can be done with a group of fifty, it can be done much more easily with a group of seven million. By making this a national business and spreading the risk out to seven million people we can reduce the cost of insurance to a fraction of what it is now costing under the competitive system, figures in regard to which I have just given.

The next point in favour of nationalization is the compulsory feature. I suggest that our national insurance should be compulsory, it should apply to every person in the state who reaches a certain age. This age can be fixed at fifteen, eighteen, or twenty, that is a matter of detail. The maximum and minimum of the policies is another detail which could be arranged. The compulsory feature would reduce greatly the cost of insurance. At present

Li]e Insurance-Mr. Gershaw

we have forty-three companies in Canada, each with a network of agencies across the dominion; there are forty-three head offices and branch offices of each company in almost every city, town and village. There is an enormous cost in getting business under these conditions. A compulsory system under state control would permit this business being obtained for practically nothing. With a national compulsory scheme permitting the spreading out of risks there would be a material reduction in the cost of insurance and it would be brought within the reach of millions of our people who are now unable to obtain protection in a private company.

Another point to 'be considered is the amount of insurance investments in relation to the national economy. Perhaps I have time to put on record the figures in connection with the investments of Canadian insurance companies which I obtained from the Department of Insurance. These figures are the book value of the assets as at December 31, 1932. The Canadian real estate assets were valued at $55,034,238; the nomCanadian at $3,303,321, making a total of $58,337,559. I have not the time to give the details of other assets, so I shall give only the totals. The total Canadian assets of the Canadian companies were valued at $1,015,253,376; the nonCanadian at $528,182,242, making a total of $1,655,104,037. The total investments of these companies amount to well up to two billions of dollars.

I am one of those who believe that the time has come when this country will have to exercise some control over investments. If the Canadian government should make such a decision in the near future it would be necessary for them to obtain control of this tremendous sum which, is now at the mercy, if I may say so, of these private companies. It is not too much to say that these private companies collect money from the people of Canada and then invest that money to the detriment of those who subscribe. Sometimes the investment may be safe enough but I am sure that very often it is made in enterprises which do not need further capital. Over capitalization causes a rise in prices of the commodity produced to the very people who have furnished the money for the investment. Let me give an example. When binders were made by hand they could be bought by the farmers of Canada at about $100, but when the machine production made it possible to stamp out hundreds almost like biscuits, they cost about $300 apiece. The rise

in price was due very largely to overcapitalization, and insurance companies have done their share of over-capitalization among industries both in this and in other countries.

I contend that a government cannot afford to allow an investment of two billion dollars to be made by these sixty-two private companies if there is to be any control of investment with a view to national policy. I sincerely hope that the day is not far distant when the government of this country will insist on planning its investments with a view to the national economy, and thus taking hold of insurance from that point of view as well as from the point of view of giving insurance to all of the people of Canada at the lowest possible price. Let me also point out that the nation really is in the insurance business, whether it wants to be or not, for when an individual dies and leaves his dependents unprotected, their care falls upon the community. The community must 'take care of those who are not protected by insurance whether i-t is in the insurance business or not. I submit that it is bad business for the community to pick up only those who are entirely incapable of protecting themselves and to allow the cream to Ibe skimmed off 'by the private insurance companies who take as policyholders those who are well able to pay for insurance, and who perhaps scarcely need it at all.

Mr. F. W. GERSHAW (Medicine Hat):

I wish to make a few remarks on this very important subject, not because I feel at all competent to deal with it exhaustively, but because I believe that insurance is one of the weapons that can be used -in fighting poverty. We have poverty in this country from coast to coast. We have poverty that is an unsatisfied need for goods, side by side [DOT] with unemployment, which is an unused ability to produce goods. Every observer will admit that these are the two great tragedies of the present time. If we can get a system of social credits which will solve these problems, by all1 means we should do so, but if we cannot we should at least come to grips with these problems and not pass up any opportunity of making things a little better. The social consciousness of the people of this country has been deeply stirred by the distress which has been brought about.

Insurance should do three things: (1) It should encourage the non-thrifty to save; (2) it should make secure for the industrious the product of their thrift; (3) above all, it should give that sense of security, in

. COMMONS

Life Insurance-Mr. Gershaw

fact, that actual security which would bring satisfaction and freedom from worry to those who otherwise would view the future with fear and dread.

With most of the insurance schemes the agriculturist has nothing to do. He is excluded from the Workmen's Compensation Act. He would likely be excluded from an unemployment insurance act. But if insurance could be brought within reach of the agriculturist a great service would be done and he then would have the opportunity of sharing in its benefits.

We realize that the insurance companies have stood up reasonably well under the stress and strain of the last four years of depression. We realize that the insurance companies persuade most of the people to take out insurance. It may be true that they are taking a cut for themselves of 20 to 25 per cent, but if they are looking after our interests we perhaps would not begrudge them that percentage.

I wish to go into some detail and try to make clear just how safe our insurance is at the present time. Insurance has become a tremendous-a powerful-institution in Canada. It has been said there are some forty-three companies actively engaged in business, twenty-eight Canadian, six British and nine foreign. The life insurance in force in this country is around six and a half billion dollars, and the total assets of the insurance companies are $1,632,528,293. Out of ten million people in Canada there are in force ordinary policies to the number of 2,487,691 and industrial policies to the number of 4,097,592. The ordinary policy averages $2,143, and the average industrial policy, $201. Of course, Canadian companies do business in many other countries in the world besides [DOT] Canada.

The report of the Superintendent of Insurance gives these interesting figures. It states that out of each $100 of income received by an insurance company, $61.32 goes in disbursements in assurance and annuity contracts; $14.50 in general expenses; $1.51 in taxes; 33 cents in dividends to shareholders; $7.06 in other expenses, and $15.28 carried to reserve.

We must also realize that insurance is largely based on three things-the mortality tables, investments, and premium income. The mortality tables are compiled with great care. They give exact information that can be obtained by the insurance companies who can thereby tell just what calls are likely to be made upon them within any given period of

time. The companies have perhaps been getting the breaks in this regard lately because people are living longer than they formerly did, and it must be said that the insurance companies are doing their part to help prolong life. They are paying for periodical medical examinations and are broadcasting health knowledge in very many ways, as well as supporting hospitals and similar institutions.

When we turn to their investments, we find that the funds of Canadian companies are widely diversified. They have invested in dominion, provincial, municipal, foreign and industrial bonds, also in preferred and common stocks. They have gone in for such things as power, apartment blocks, railways, real estate, farm mortgages and so forth. Anyone looking over a list of these investments will realize that the securities of life insurance companies have in some cases depreciated very largely in recent years. Of course they have only a certain percentage of their funds in any one type of investment, but summing up the investment program we must conclude that the companies are reasonably well managed and can carry on so long as the normal growth of the nation continues. And it is on that assumption that the security of the policyholder rests.

Insurance companies have a continuous stream of money coming in as premium income. This is a very substantial amount. In 1932 for the ordinary life industrial policies in Canada there was received in premiums $137,029,051, with perhaps another $4,000,000 for group insurance. This has increased rapidly in recent years. In 1931 it amounted to $144,000,000. But in 1922 it was just $67,000,000; in 1912, $23,000,000; in- 1902, $10,000,000; in 1892, $4,750,000 in 1882, only $1,500,000.

This income has increased and it can continue to increase just so long as the volume of business increases, the population increases, the popularity of the insurance keeps up and the ability of policyholders to pay continues. From these sources insurance companies receive their returns and upon this security they are able to make their payments to policyholders. Therefore we must recognize these factors in estimating the strength of insurance companies.

During times past insurance was written on many different plans such as term insurance, endowment insurance, twenty pay life and so on, but recently I understand that the popular policies are life income, or refund annuity, and that our chartered companies are selling a great deal of insurance on this basis. It must be remembered that in years long gone

Lije Insurance-Mr. Rhodes

by the Dominion government established a system of government annuities and in so doing they provided for Canadian funds a place for investment which stands high to-day. My reason for rising now is to try to put forward the idea that by the use of this scheme as a framework, a policy could be worked out which would go a long way toward providing unemployment benefits and perhaps looking after the requirements of old age pensions. I know it is stated that rates for these annuities are too low; that they are based upon out-of-date mortality figures and that the government is paying all expenses of administration; but the fact remains that this stands out as one of the premium investments at the present time.

Let us take a few examples. Persons taking out annuities can start paying at any age; they can pay monthly or quarterly or yearly or, if they so desire, they can purchase their policy with a single payment, a single premium. If a man aged twenty wishes to have an income of $100 per annum after he

has reached a certain age, the yearly premiums

are as follows: Years of age- Yearly premium $ 4 64

7 08

10 61

15 71

After 50 23 14

Supposing he does not wish to involve himself with these payments over a long term of years and desires to settle the matter at once; if he starts at twenty years of age with the idea of having an annuity of $100 after he has reached seventy years, he will pay a single premium of $102.55. That is a surprisingly small sum of money which would accumulate sufficiently in fifty years to pay him $100 a year as long as he lives.

Mr. SPENCER:

Does the hon. member

mean $100 a year or $100 a month?

Mr. GERSHAW:

It would be $100 a year. At other ages the single premium would be:

Single

Years of age- premium

After 65 $150 98After 60

216 22After 55

301 89After 50 - .. [DOT] [DOT] 412 13

For women similar rates are given in the table. These policies are flexible. If a man wished to have his annuity start at seventy and then later on desired to have it start at sixty or some other age, that could be arranged. Supposing he takes out an annuity and dies before he reaches the age at which

the annuity was to start, then all he has paid in plus four per cent compound interest is paid to his estate. These figures are under plan A. If he wishes to haVe the annuity guaranteed for any term of years, that may be obtained by the payment of a slightly higher premium.

I understand it would perhaps not be advisable for the government to assist an optional, noncompulsory form of protection like this, but some other scheme could be worked out. For instance, the officers of the income tax branch know what income almost every person in Canada is receiving from wages or dividends. They could ask those who are paying income tax to pay a little more and thus get this protection. They could ask those who are not paying income taxes to contribute some of these small amounts that I have mentioned and thus make sure that their old age would be provided for. With this as a basis the government would be justified in contributing certain amounts, probably asking the industries to contribute certain sums and thus work out a scheme which would provide protection in case of unemployment or sickness, and perhaps for old age pensions at a younger age than that at which they start at the present time.

I believe along these lines something could be done to evolve a workable plan that would banish the spectre of poverty and want and along these lines the government could very well nationalize insurance.

Hon. E. iN. RHODES (Minister of Finance): Mr. Speaker, I had rather thought a subject of this importance would have received at the hands of the house more attention than is apparently indicated by the limited number of speeches we have had upon the resolution introduced by the hon. member for Wetaski-win (Mr. Irvine). At the outset of his remarks he said that he had no intention of criticizing insurance business, nor had he reason to think the business in Canada was not conducted as effectively and efficiently as in any other part of the world, but he very shortly afterwards followed that by a citation from, I take it, a decision of Judge Brandeis of the United States, whether he was sitting as a judge or a commissioner, I am not at the moment aware. At all events, the citation which he gave and which I was not able to take down owing to the rapidity with which my hon. friend speaks, was a criticism of the manner in which insurance business had been conducted in the republic to the south. Then he proceeds to say he is not sure that the same criticism might not be levelled against

Lije Insurance-Mr. Rhodes

the insurance business in Canada. I submit that the hon. member's reference to the statement of Judge Brandeis was hardly in keeping with the statement he made at the outset of his remarks; and that, even assuming that the criticism of Judge Brandeis was true with respect to insurance in the United States, it by no means follows that it is true with respect to insurance in Canada. I think that, by and large, we have reason to feel proud of the stupendous insurance business which has been built up in Canada, and, on the whole, of the character of that business and the manner in which it has been conducted. I think it compares favourably with any similar business to be found in any country in the world. While I am not suggesting for a moment that it is not capable of improvement-no human institution is perfect-I do say that on the whole it has served the people' of this country extremely well, and I deprecate any suggestion, emanating either from the resolution or from discussion in the house, that we have not full confidence in and reason to be proud of the manner in which insurance has been conducted in Canada.

My hon. friend cited some figures as to salaries paid to insurance executives in the United States. I have never heard criticism levelled against high salaries paid to insurance executives in Canada. I am prepared to admit that my personal feeling is that we have gone too far in many instances in the high salary field-

Hear, hear.

Mr. RHODES:

I do not believe any man is worth the gigantic salaries paid to executives in some institutions, chiefly in other countries. On the whole we have been happily free from that tendency in Canada, with rare exceptions. But having said so much let me say this:

I have no doubt in the world you could get insurance executives for $1,000 a year. But they would be the most expensive men you could possibly get- It by no means follows that because you paj' an excessive salary to an executive, ipso facto the cost of insurance is going up. Even if salaries are excessive, the successful management of the business is of far more importance to those dependent upon it than the mere amount of the salary, which after all is but a trifling percentage of the amount involved in the business. It would be a mere fraction spread over the millions of policy-holders in a given company. If salaries of executives were eliminated altogether the effect on the dividends paid to

policy-holders or the premiums collected would represent but a fraction of a cent. So my reference to that is merely to indicate that it has practically no effect upon the main result.

Mr. IRVINE:

With sixty-two companies it would help some.

Mr. RHODES:

My hon. friend gave a multiplicity of figures. I do not propose to follow him in detail even if it were desirable, but I will cite a few figures which I think have an important bearing upon the manner in which we should approach the consideration of a resolution of this kind. I think perhaps my hon. friend will agree that perhaps one of the main essentials of life insurance is security, both for the business and for the policy-holders. In that connection I may point out ithat during the eighty-five years that life insurance has been in force in Canada under government supervision there has never been a dollar lost to a policy-holder. Furthermore, during .the past fifty years, dm which there has been government sujpervision of foreign companies doing business in this country, and deposits have been required as security for the fulfillment of insurance contracts, there has never been a dollar lost to a policy-holder through effecting insurance in any foreign company. Our records are complete with respect to insurance companies back to the year 1875, a period of fifty-eight years. During that time the total income of Canadian insurance companies was ^ $4,235,746,206. This is composed as follows: *

Insurance premiums and consideration for annuities. .$3,153,611,819 Interest, dividends and rents. 876,143,383 Other receipts 205,991,004

During those fifty-eight years the total dividends paid to shareholders of insurance companies was $29,092,923, seven-tenths of one per cent of the income. On the other hand, during the same period there was paid in dividends to policy-holders the sum of $413,347,725.

Mr. MORAND:

That includes mutual

companies?

Mr. RHODES:

Yes, that includes mutual companies, Canadian companies of all kinds.

Mr. STEWART (Edmonton):

Canadian and foreign business?

Mr. RHODES:

I am speaking only of

Canadian companies but that includes the foreign business as well as Canadian business.

I propose in a moment to deal with the question of foreign business of Canadian com-

Ltje Insurance-Mr. Rhodes

panies. Now my hon. friend did not say so in words, but I assume he subscribes to the point of view of his leader the hon. member for Winnipeg North Centre (Mr. Woodsworth) who has stated that he does not advocate confiscation, that he believes that where the state acquires private undertakings it should compensate the owners. That being so we must look into the question of the liabilities involved in case the Dominion of Canada were to determine to take over the life insurance business of existing companies. My hon. friend gave the paid up capital of insurance companies as $10,000,000. I would not for one moment suggest that my hon. friend would deliberately mislead the house, but he altogether failed to take into consideration the premiums which were paid on subscriptions to stock in insurance companies, which represent several millions. He failed to take into account the accumulated earnings which appear to the credit of Shareholders, which represent many millions more.

Mr. IRVINE:

All stolen from the policyholders.

Mr. RHODES:

No, I do not subscribe to that point of view ait all.

Mr. IRVINE:

I do.

Mr. RHODES:

Not stolen from the policyholders at all. As a matter of fact under the law shareholders of insurance companies are entitled to take up to ten per cent of the earnings of the company. But voluntarily they have reduced that to five per cent, leaving the remaining ninety-five per cent available for the benefit of the policy-holders. Some companies have never taken full advantage of that five per cent; they have allowed substantial sums of money to appear as accumulated reserves for the policy-holders.

Assuming that it were desirable to take over the insurance business in Canada, what does it involve in the way of immediate commitment on the part of the dominion? As of December 31, 1928, the stocks of the Canadian insurance companies were selling at a market value of $94,000,000. I have no doubt that at once I will be met with the statement that those were boom times and that this was an inflated value. I am quite prepared to subscribe to that point of view. In this year of depression these same stocks represent a value of no less than $34,000,000; in other words the value of the stocks of the insurance companies held by the shareholders in Canada could be sold, on the present depressed market, for $34,000,000. I think it is fair to say that the main factor which determines the value of

a stock on the stock exchange is its earning power; there are other factors as well but the main factor is the earning power. As the stock was selling at too high a figure in 1928 I submit that it is selling at too low a figure to-day, because the earnings of the insurance companies are very small. Consequently the price has gone lower than the actual value. That price of $34,000,000 has no regard whatever to the equities behind these shares, so I will take an arbitrary figure of $50,000,000 as being certainly a fair figure though, probably too low, of the cost if we desired arbitrarily to take over the insurance companies in Canada.

At 4i per cent, which is the price we have to pay for money to-day, with that cost of $50,000,000, in order to break even we would require a revenue of $2,250,000 a year. As a matter of fact the total dividends paid to shareholders of Canadian companies last year was less than half that amount, so that upon the mere basis of dollars and cents we would be confronted immediately with two things. First we would be increasing the national debt by the sum I have indicated, and in addition we would be creating a yearly obligation in the form of interest which would require us to take more from the insurance policyholders than is being taken under private management.

In concluding his remarks my hon. friend said that we must make this nationalization compulsory. It may be that his advocacy of that policy came at the end of his speech, when' he was a bit hurried for time, but I noticed that he did nothing more than merely assert that this was what we should do. There are several questions I should like to put to my hon. friend. Assuming that it were desirable to take over the whole of the insurance business and it were wise to make insurance compulsory what would he do in the case of the man who says, " I cannot pay." Would he insure every adult over the age of twenty-one, without medical inspection and without regard to health? If he did so his cost of insurance would be infinitely more than it is to-day, because one of the reasons why the cost of insurance is kept at a low figure is the very careful selection made by the life insurance companies.

Just on that point let me say that my hon. friend from Medicine Hat (Mr. Ger-shaw) put his finger upon one of the greatest services that is being rendered by the insurance companies. They do not by any means confine their activities to the endeavour to sell insurance in order to make a profit; they enter very largely into social service

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Lije Insurance-Mr. Rhodes

activities, which are of lasting benefit to the health of the people of the country, by their social service work, their support of public health institutions, public health education and control, especially with regard to maternal and infantile mortality and tuberculosis, and the provisions obtaining in many companies which call for medical inspection on the part of policyholders at stated periods.

To-day in Canada there are policies in effect, issued by Canadian life insurance companies, aggregating somewhere in the neighbourhood of seven thousand million dollars. That is the face value; I think I can find the exact figures here. The exact figure is $7,225,000,000; that is the face value of insurance policies issued by Canadian insurance companies, but of that sum only $4,300,000,000 is applicable to policies issued within the Dominion of Canada. The remainder, $2,900,000,000 represents the aggregate face value of policies issued in foreign countries. So I put this question to my hon. friend from Wetaskiwin: If he is going to nationalize

the insurance business in Canada what is to be done with respect to the insurance business in foreign countries? Are we to lose that business? Certainly we cannot retain it unless we allow reciprocal rights to those in other countries to insure in Canada, because I may point out to my hon. friend that one-third of the total insurance business in Canada is done by companies in foreign countries. If my hon. friend does restrict Canadian insurance companies to the Canadian field he cuts off that business, and in doing so he limits that spread of which he spoke a while ago when he said that the more insurance policies issued and the larger number of people insured, the cheaper the insurance would be for the individual.

In that connection, lest I forget, let me point out that if he is going to take over the insurance business in Canada as a national undertaking, what is he going to do with that amount of insurance now held in Canada by foreign companies? If he takes it over he has to compensate, and if he compensates he has to make a further commitment in addition to the figures which I gave a short time ago.

Mr. MARGIL:

Has the minister the value of the policies held in Canada by American or other foreign companies?

Mr. RHODES:

I am not sure that I have those figures under my hand. If I have them I will try to give them before I conclude. My hon. friend did not say so, in so many words, but he clearly left the im-(Mr. Rhodes.]

pression upon the house that if insurance were conducted by the country the matter of profit would be eliminated and that as a result insurance would be cheaper for the individual. In that respect we have before us experience in life insurance covering a period of a great many years and this experience does not bear out the assertion made by the hon. member for Wetaskiwin. On the contrary, may I explain that in Canada we have a scheme of insurance covering civil servants which has been in effect for some forty years. There are some 40,000 civil servants in Canada who would be entitled to the benefits of this insurance scheme; however, despite the fact that the scheme has been in effect for the period of time I have stated there are to-day only 6,731 civil servants who have embraced the opportunity of insuring their lives through this medium. That is the position, notwithstanding the fact that the premiums are so low that they do not allow anything whatsoever for overhead costs. Those costs are borne entirely by the taxpayers of Canada. And I should like hon. members to bear in mind that I am not complaining.

Mr. McKiENZIE (Assiniboia): Is that confined entirely to the civil servants?

Mr. RHODES:

Yes. It is estimated that the rates on that insurance are something like 75 per cent of those on ordinary non-participating insurance offered by the life companies. One of the reasons it was placed at such a low figure was to effect a compensating advantage in favour of the civil servants when in 1893 the Civil Service Superannuation Act was amended and larger contributions were called for.

Does that insurance actuarially carry itself?