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The early life insurance Companies
The first life insurance company registered in England was the Life Insurance and Annuity Association founded by the reverend Dr Assheton on the 4th October 1699. Unfortunately this company folded 46 years later, going bankrupt because it had set the premiums lower than the cost of claims and administration.
During the 1700’s there were a number of mutual life insurance schemes set up, these did not offer a fixed sum insured to their members and with the exception of the Amicable Society for perpetual Insurance, they were short lived.
The Amicable Society for Perpetual Insurance was set up in 1706 and charged a fixed annual premium of £6 4s 0d to every member between the ages of 12 and 45 years of age. The sum insured varied year to year depending on the claims experience. The total premium was added up each year and the balance after expenses had been paid, was divided between the members relatives who had died that year. The Amicable Society for Perpetual Insurance traded for 150 years before being absorbed by the Norwich Union Life Insurance Society (later to become part of the Norwich Union group). By 1757 this Society was able to guarantee a minimum payment on death. Premiums were still charged in the same way and so were not related to risk as they did not increase with the age of the life insured.
In 1721 both the London Insurance and the Royal Exchange Insurance obtained a charter to provide life insurance, albeit that these polices were again only for short periods.
The first life society founded on actuarial principals was the equitable Society which started business in 1762 as a mutual society under a deed of settlement. This society issued whole life polices where an even premium was charged throughout the policy period based on Dodson’s principals and calculated from mortality tables graded according to the age of the life insured at entry to the scheme. By 1776 it was realised that the premiums were too high and the society actually reduced the premiums by 10%. Existing members received a cash rebate based on 10% of the premiums already paid to the society. This in its way was the first profits distribution. After another five years premiums were again reduced and a further distribution of the surplus made. This is similar to what we would now call a simple reversionary bonus such as a 1.5% added to the sum insured each year of the life policies existence.
The Westminster Society and the Pelican Life Office started in the 18 th century and also based their premiums on actuarial principals. The Westminster tried to gain an advantage by introducing commission to agents where as the equitable did not and still does not.
More life insurance offices opened in the 19 th century, some as mutual societies owned by their policy holders and others as proprietary companies owned by their shareholders. Many leading offices date from this period e.g. Prudential, Legal and General, Sun Life and Scottish Widows. Some sprang from religious movements e.g. Friends provident and Wesleyan & General, whilst others came from the different professions e.g. Clerical Medical. Some even came from temperance organisations such as United Kingdom Provident and Abstainers & General.
By the twentieth century there were large numbers of insurance offices doing business in the UK. As the market and demand grew so did the types of policy available leading to more complicated and sophisticated policies. These sophistications included variety options, conversions; add on benefits and critical illness cover.
Life policies can now be used for investment as well as protection and the 1960’ and 1970’s saw the development of the unit linked policy, a trend which now accounts for a high proportion of the whole life and endowment market.
Throughout the twentieth century life sums insured continued to rise and this increase lead to the development and practice of life reinsurance. Many foreign companies carry on life insurance business in the UK, either on a direct basis of by taking over a UK life company. EU life companies can now trade in the UK by pass-porting in as opposed to obtaining specific UK authorisation.
Large financial organisations such as banks and building societies have also formed life insurance subsidiaries. Others have also been involved with examples being Virgin and Marks and Spencer.
Another trend has been the demutualization of many mutual life companies such as Norwich Union. As compensation for giving up their mutual ownership rights, policy holders may be given extra life insurance policy benefits (e.g. increased bonus) or free shares in the new company. There has also been a number of mergers which has reduced the number of players in the market. Some offices have closed to new business such as Equitable Life.
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