ADDRESS OF T. S. LAMBERT, M. D.,,

President of the American Popular Life Insurance Company.

OCTOBER 9, 1871.

GENTLEMEN OF THE CONVENTION:

I am much obliged for this invitation to address you at a moment when no particular question is before you, since I wish to make a few remarks upon several topics. You have already voted upon some, yet, as you have made your organization permament, with annual meetings, it is evident that you do not intend to have it understood that everything is fixed for all time. Remarks are, therefore, in order, if suggestive of future thoughts, corrections and improvements. Indeed, the great usefulness of the convention will consist, not so much in what it will settle, as in what it has unsettled, by opening for discussion important points which many had thought were unquestionable.

This, which to some seems discouraging, is, in fact, very encouraging. Doubt is most wholesome where certainty does not really exist. The conflicting character of the laws of New York and Massachusetts has been very useful, since they are wrong in both states, and would be equally so if those of either were uniform in both, while then they would not be so readily discerned.

This grand result of the discussions before the convention was not, of course, expected, but nevertheless it has done much to advance the true cause of life insurance, much to elucidate the want of a sound basis in life insurance, as usually transacted. I am one of those who believe that life insurance is conducted, usually, not as it should be, but very inequitably, and with great jeopardy to the assured, and that the insurance laws in any of the states, instead of being protective, actually encourage wrong, and discourage right-doing. The fact is, that the fundamental basis. principles upon which life insurance should and does rest, have not been sought, established, nor wrought by our state depart

ments, as they should have been. Certain traditions, assumptions, and inventions have been accepted and adopted, without sufficient examination.

The true basis of life insurance has scarcely attracted attention, even during the sessions of the convention, which have been occupied chiefly with actuarial matters of altogether secondary importance, and soon settled, when the "weightier matters of the law" are determined.

Often it seems to be forgotten that correct life insurance must be based upon the science of life, and that the doctrine of averages and chances can only be successfully applied to lives which are similar. To know when lives are similar, the scientist must be called in, not the mere mathematician; he has his place second. One actuary who addressed you, when asked if there was not a difference in the value of the risks who surrender their policies, replied, "that doubtless there was, but that was a physiological problem that he did not pretend to understand nor know how to work, and he should be obliged first to call in the doctor to inform him about the distinction." That is the exact point of consequence, although he did not appear to appreciate what he himself said.

It has sometimes been surprising to notice how very near to great, awakening, pregnant truths, the discussions before you have reached, without quite touching the very marrow of the subject. One gentleman for whom, in common with all who know him, I have the greatest respect, told you that the instincts of persons often selected a kind of policy which favored themselves, but would be against the interests of the company; the ratio of losses among "term-life" policies being twice as large as in case of" annual for life," in which again it was twice as large as among annuitants which caused the company of which he was the adviser to decline to make “term-life" or "annuity" policies. Was this a philosophical conclusion? Or did the company thus gain anything of account? Would not the same persons take" annual for life" policies in that case, paying a little more for "term-life,” but not enough to cover their risk? Would not, on the other hand, the holding out of the "term-life" policy be one method of entrapping the instincts of the applicant to betray themselves, when he could be asked why he wished a "term" policy? then if his answers were not explanatory, but

seemed to be related to the short-lived instincts, he could be rejected altogether, or made to pay a proper premium. Again, it has not been usual to examine a person for an "annuity," as if, in this case, a company would not wish to discard or vary the rates of the very long-lived as much as for a "life-policy," it would reject a very short-lived person unless a proper premium was made.

Another illustration is to be found in the thousands of inferior cases which, because inferior, have been insured under "tenpayment life" or under "endowment" policies, at premiums found against their actual age. E.g., a person of 30 years of age, is insured under an "endowment for 15 years," because he is not considered good enough for an "annual for life policy." But the premium at 30 is computed upon the number of the living and dying among those who will average to be superior to the case in hand, who may, in a few instances, to be sure, equal the best for those 15 years, but not generally. His chances of living and dying will usually be no better than those of persons who average to live only 15 years, i.e., who are 56 years of age, against which age his premium should be found.

By the above error the companies have lost, and will lose, millions of dollars upon "endowments" and "ten-payment life" policies made at too low premiums. Indeed, several of them, having learned the error of their ways in this respect, will not do business any more upon that plan.

By the same gentleman it has also been stated, that the lives of city merchants were superior, attributable to the excitements of a busy city life.

Here an important fact is stated, and partly accounted for correctly. Hope is an exhilerating and sustaining life-continuing force, while depression of spirits is produced by derangement of the digestive organs, and also tends to derange them.

But we must also ask whence came the hope and the activity of the busy mercantile life of our cities? The inheritance from long-lived ancestry was essential to give them the enterprise to enter into the competitions of city life. It is doubted if that life, upon the whole, as it is, not as it may and should be, is favorable to long life. The natural great vitality and longevity of most of our business men enable them to outlive the naturally short-lived, yet their dark, unventilated offices, irregular habits, late dinners,

etc. (all unnecessary), do certainly shorten their lives, which, however superior, would be still longer if not thus curtailed.

The true philosophy, therefore, is, in all matters of life insurance, to come down to the scientific basis of life, and not depend upon superficial appearances merely, which may not have reality beneath them; and certainly not depend upon a doctrine of averages and chances, that do not at all apply to the cases in hand.

This is especially illustrated by much that has been said before you in regard to "Experience Tables of Mortality." I cannot see that there is any practical difference between those which have been championed with so much zeal, and must suppose that some reason other than a scientific one has actuated the debate. These different "experience tables" of companies also very nearly correspond with the "Farr tables of mortality;" indeed Mr. Barnes, when superintendent, recommended these as the best data upon which to compute premiums. But "Farr's tables" are based upon the statistics of mortality of all classes of persons outside, as well as in, the companies!

If the "experience" of the companies is no better than the mortality among lives generally, that remarkable fact should give you pause, and lead you to ask if there can be sound principles or correct methods where such unexpected and unscientific results are found.

The debate, then, upon the choice of "experience" tables is not "worth the candle." But the next step, about which no debate is made, is being taken for granted, is, in fact, the allimportant one, and it is exactly here that the divergence from truth to error commences in the averaging of dissimilar risks, and, therefore, in laying burdens where they do not belong.

I hold that the first deduction made from the statistical data is wrong, however correct the data may be. It is found that a certain number say 7 per 1,000 die at 25 years of age. Allowed. Therefore, it is said, each of the 1,000 has 7 chances in 1,000 of dying. Denied, for it is incorrect: First, because the 1,000 are not alike— not similar; and, second, because several — say 5 of the 7-will be sure to die before the year is out, and the particular five can be selected. This will leave but 2 chances of death per 995 to each of the rest. Again, the general idea carried out is, that each person's risk of dying increases pro rata with

increasing age. For, if he desires a "one-year term-life policy," he must pay more the older he is. Now it is not at all true that the risk does increase in each case with each year's advance in age. In some instances it actually diminishes during various periods; in some, it remains the same from year to year; in other cases it increases very rapidly with each year, until death.

There is the risk of death by accident, which remains nearly the same, in most cases of the long-lived, for many years; so does the risk from incidental disease. No system of averages nor doctrine of chances can be equitable or secure which is not made between lives which are similar in all respects regarding vitality and longevity. When this is done, it will be found that the cost of risk of insuring about two-fifths of the people will be very low; such persons having scarcely two chances in 1,000 of dying each year during the forty years from 20 to 60. If epidemics, plagues, etc., should prevail, they have very little more chance of dying, since those extraordinaries prevail fatally, to any great extent, only among the naturally short-lived, and more among them ir the death-rate has been low for a few favorable years; in the same manner as many old people die in a severe winter following a series of mild and favorable seasons.

If, then, the fundamental basis deduction, upon which all the computations are made, be wrong, as it is, i.e, if the idea that a certain risk pertains alike to each of a thousand dissimilar persons, it is absurd, as it is all the computations being based thereon they all fall to the ground, and some other scientific method must be adopted, for both equity and security. When we look at the premium tables, we are led to suppose that the chances of dying are very accurately graded from year to year, and when we are informed that care is taken to use seven decimal places in computing premiums, we might conclude that the utmost exactness exists throughout. But when we examine an ungraduated, or actual table of mortality, we are surprised to see that there is no such regularity in the mortality as we had been led to suppose from the regular gradations of premiums. Indeed, Mr. Barnes, in a note to such a table, says that it is remarkable that no one died at 11 nor at 16, and then explains the fact by supposing that the table was constructed upon a very few risks of the younger ages.

Another illustration that this ordinary method of computing