Over the decades, well meaning but often misinformed persons have decried what they have called "the high cost of weekly premium industrial insurance." Any offhand comparison with the cost of ordinary insurance or cheap homeowner insurance would be, of course, to the disadvantage of industrial.
There can be no escape from higher costs in view of the nature of the business. Three factors determine the cost of life insurance, whether it is ordinary or industrial-mortality, operating expense, and the interest earned on the invested funds of the company.
Of these, the first two operated to make industrial insurance cost more than ordinary. Because it was sold chiefly to the families of working men, industrial insurance had to provide for the higher mortality prevailing among this group. Despite marked improvement in the years following, the death rate of industrial policyholders still showed an excess of about 20% as compared with the holders of standard ordinary policies.
The second item, operating expense, was higher in the case of industrial insurance, not only because of the small units in which these policies were issued but also because it had to cover the cost of the additional services which industrial policyholders received.
The premiums were received in the homes weekly, and the agent often would have to call more than once to find the policyholder at home and in funds. His time was at the disposal of the people on his debit, and the policyholder was saved the trouble and expense of having to pay at the office of the company. The services of the agent had to be paid for, and they were well worth what they cost. No wonder that the operating cost of weekly premium insurance was higher than that of ordinary.
Nevertheless, progress was made consistently to reduce the difference between the cost of industrial and ordinary life insurance, and this reduction was in large measure the result of definite planning and conscious effort. Death rates of policyholders continued to decline throughout almost the entire span of life. At the younger ages they finally reached about one fifth of the former levels.
The company's broad program of welfare activities, including its extensive nursing service, undoubtedly reflected favorably on the longevity of the industrial policyholders. More and more their life expectation has come into line with that of the population as a whole. There was still a sizable difference, however, in favor of the ordinary policyholders.
Better management also reduced the expense ratio of the business. The employment of better qualified agents, their greater stability, the improved persistency of policies, the better control of details of the business, the new devices of recordkeeping, the extension of insurance without medical examination-all helped to bring the expense ratio down, although the services given were greatly extended.
In fact, the proportion of the industrial premium devoted to expenses at that point was only about one half what it was about 50 years before, and is smaller than that required by the majority of purely ordinary companies for conducting their business.
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