Insurance Rate Cut

In most industries, prices can usually be cut when costs decline. Not so in the life-insurance business. In the past half century, average life expectancy at birth has increased by 18 1/2 years (to 67.6). Since that gives people more time to pay their insurance premiums, hence cuts the risk-of loss, rates should have been dropping. But even though a new mortality table of longer life expectancy was drawn up three years ago, insurance companies did not cut rates. Reason: life-insurance companies make their money from income on their investments, and the rate of return on these investments had been dropping.

In Hartford, Conn, last week, Connecticut General Life Insurance Co., eleventh biggest in the U.S., cut its life-insurance rates on 85% of its new policies by as much as 7%. It was Connecticut General's first such rate cut since 1930. What made the move even more notable was that for the first time said the company, older people will get a better break on the new rates than the young. Sample saving: on a $10,000 policy for a 65-year-old, the annual premium is now $756.50, v. the old rate of $802.70. The cut was possible, said President Frazar B. Wilde, because of improved health, particularly among oldsters, plus the fact that the rate of return on the company's investments has started to turn up.

Other stock (i.e., publicly owned) insurance companies, not so sure that interest rates are turning permanently higher--or even that older people are now better risks--were not eager to follow Connecticut General's lead. Most mutual companies, e.g., Prudential and Metropolitan, would probably do nothing, since they have already been cutting rates, in effect, by increasing dividends to policyholders. But stock life-insurance companies, which generally, pay no dividends to their policyholders, will probably have to lower their rates soon, or lose business.

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