THE INSURANCE COMPANIES AS INSTITUTIONAL INVESTORS

A slight diversion here is well worth while to take a quick look at the importance of the insurance companies as institutional investors. Investors are people who save part of their incomes and lend the savings to firms who are in need of capital. The money invested is used by the firms, either in primary, secondary, or tertiary production. It is converted into fixed assets of every kind, which are then used to produce more and more consumer goods. In short this is the capitalist system of production. Whether you live in a Communist, Socialist, or Capitalist society the use of the invested funds is the same. The difference between these systems is purely one ownership.

An institutional investor is an organization which collects savings from people and invests the savings in the same way as the private investor. The banks are an obvious example of institutional investors, but it is probably true to say that the insurance companies are at least equal in importance to the banks. This is particularly so today, because a change in the distribution of wealth since the Second World War has put more and more wealth into the hands of the poorer sections of our population. Heavy taxation of the rich has reduced the share of investment they are able to make, yet it has not put vast fortunes at the disposal of the poor. The increase in wealth has been so distributed that it has meant only a small increase for each family, and much of the increase is in better pension schemes, welfare facilities, etc. In other words personal and social insurance has played a large part in the increased standard of living of the mass of the people. The industrial life societies, with their countrywide network of agents, have been entrusted by many ordinary people with the small savings they can now afford, in the form of insurance and assurance policies. This represents a very valuable contribution to the capital requirements of industrialists, transport and shipping firms, farmers, forestry and other extractive industries, and wholesale and retail traders. It may fairly be said that through the medium of the insurance companies we have become a property-owning democracy.

By taking care of the ‘pool’ , investing it wisely in a balanced portfolio, keeping away from the involvement in the industries and concentrating on safe investments yielding a reasonable return the insurance companies have increased the reserves available to the insured members of the general public in times of distress or natural disaster.