has at least three meanings as ordinarily used: (1) as a legal term it refers to the formation and character of the contract between the parties; (2) as a commercial term it refers to the process by which the relations between the parties are established; and (3) as an economic term it refers to the effect of the institution upon the distribution of wealth. The courts have confined their attention chiefly to the first meaning and have failed to appreciate the importance of the second. From the standpoint of the company the commercial process of selling insurance is second in importance only to the actuarial basis upon which its security rests. There can be little doubt that when the Supreme Court is obliged to pass upon the constitutionality of an act of congress which declares that interstate insurance business is interstate commerce, and that policies are articles of commerce and instrumentalities thereof," it will consider from every point of view the terms commerce and insurance, and when it does so it will be obliged to recognize the fact that insurance involves commercial transactions if, indeed, it is not predominantly an integral part of commerce itself.

4. Certain other considerations are entitled to a hearing. James Wilson speaks of "bills of exchange, policies of insurance and other mercantile transactions; " 19 Hamilton in his opinion upon the constitutionality of the proposed United States Bank objected to the enumeration of the powers of congress as stated by the Attorney General, on the ground that among other powers he had failed to include "the regulation of policies of insurance." 20 Furthermore, insurance law had its origin in and is generally treated as an integral part of the law merchant or commercial law; and again, the regulation of insurance is in the most advanced commercial countries administered as a part of the department of commerce.

Fourth. When a responsible government has been provided for our various insurance companies, ensuring an administra

18 Dryden Bill, Sec. 16.

19 Wilson's Works, I, p. 335.

20 Hamilton's Work, Lodge's ed., III, p. 203.

tion at once representative and efficient, when an adequate system of publicity has been established through which the policyholders and the administration are kept in vital touch, when, further, the government which regulates is in economic harmony with the insurance institutions which it controls, then, and not till then, will it be possible to abandon the policy of restrictive legislation, which has been at once the necessary concomitant and the vital weakness of state regulation.

SOME OBSERVATIONS CONCERNING THE PRINCIPLES WHICH SHOULD GOVERN THE REGULATION OF LIFE INSURANCE

COMPANIES.

BY WILLIAM C. JOHNSON,

MANAGER AT NEW YORK OF THE PHOENIX MUTUAL LIFE INSURANCE COMPANY.

To the individual physical life there is no end more certain than death, and in turn nothing more uncertain than when that end may be reached. In a group of lives sufficiently large for the fair operation of the laws of average, it will be found, however, that, while no intelligent or safe prediction may be made concerning the length of any individual life, it can readily be told how many of the group will die each year. In other words, it will be found that there is a law of mortality, whose operations are so exact that, while they are subject to slight fluctuation from year to year, it is possible to predict in advance with practical certainty what will be the average lifetime of the group and the rate at which the lives will fail.

As with the advance of civilization the life of the individual became more complex, and his responsibility to those around him more marked, with an increasing necessity of adequately equipping dependents if they were to conquer in the struggles of life, men, subject to the same hazards and facing all an ultimate event, the only uncertainty affecting which was the moment of its occurrence, combined together for mutual protection, that from a fund created by the contributions of the many provision might be made for those dependent upon the few lives (their individual identity not known) which experience indicated might be expected to fail year by year. The principle underlying this form of co-operation was indemnity— to indemnify the families of those overtaken by death for the loss of a productive life, a life of money value to them. It may be said in passing, as applicable to all forms of insurance, that its sole legitimate purpose is to furnish protection against

some hazard, through the promise of indemnity-the promise to make good any loss which may occur upon the happening of the contingency insured against; as in fire insurance, the loss of one's house; in marine insurance, the loss of one's ship or goods; in life insurance, the loss, to those dependents to whom the benefit is payable, of the value of one's life. This principle underlies all insurance, that it furnishes indemnity (not profit)—the making good, in a measure at least, for a loss which has occurred. To make use of insurance for other ends is violative of its true principles and purposes.

When men entered upon the task of providing indemnity for the families of those who should die, by distributing the loss among those who survived, they necessarily, as the business, from its character, could not be carried on by a single person, but only by the co-operation of many individuals, formed associations or companies to provide the machinery through which the cost might be collected and the indemnity paid.

It was in 1762 that the first society to insure people for the whole of life and promising a determinate sum in return for a fixed premium was chartered in Great Britain, and now, as then, the business is conducted by associations, societies or companies chartered by the Government and possessing only such privileges, rights and powers as have been granted them by the people. It has been said that the one proper purpose of government is to keep the peace and do only those things which are essential to that end, and that legislation founded on any other principle is unsound. Those who hold this view have failed, it seems to me, to appreciate the real significance of the increasing complexity of our modern business life, and to differentiate between the control Government should exercise over individuals and the regulation to which it should subject its corporate citizens, chartered as they are by the State's authority, endowed with great powers and privileges which do not pertain to the individual, seeking to exchange their securities for the savings of the people, or to grant their facilities to those who are willing and able to pay for the service they may render. Creatures of the people, the State surely has the power to regulate their transactions for the pro

tection of its citizens. Even though one bear in mind the rule laid down by the United States Supreme Court in the oftquoted Dartmouth College case, the State clearly has the right to regulate the conduct of its corporate creatures, to such an extent at least as its restrictions are regulative and supervisory and do not extend to a denial to the corporations of the right to exercise their essential functions. Particularly is this necessary of insurance companies, since the growth of the business has been such that their operations now touch the interests of almost every family, and are of vital importance to the individual, the community and the State.

An insurance company, whether it be a stock corporation, the ownership of which is definitely vested in individuals, or a mutual company, conducted for the benefit of the policyholders alone by officers and trustees dependent upon the confidence and goodwill of the members for a continuance of their trusteeship, is conducted by a few individuals for the benefit of the large number of persons comprising the general membership. It might be said that a stock company is conducted, not for the members, but for its stockholders, yet this is true in only a very limited sense. Irrespective of the form of control, whether mutual or stock, and the slight tax put upon the earnings for the stockholders if it be a proprietary institution, the business of life insurance is essentially mutual in its character. Its conduct is possible only because men join together-cooperate to form an alliance against misfortune. Subject to mutual hazards, with similar interests to protect, men in life insurance mutually share the cost of furnishing protection to all, and indemnity, as it may be needed, to the dependents of each. In its essence the business is based on co-operation for a given purpose and mutuality in sharing the cost and the benefits, irrespective of whether it is conducted by the members, or by shareholders who possess a proprietary interest. The company is created, built up, maintained and enabled to fulfil its purpose of indemnifying the families of those of its members who die, solely because a large number of persons, in advance of any benefit paid, entrust the substantial sums represented by their premium payments to the small group who