Page 28 - Insurance Times Octoberr 2022

IT'S TONTINE

TIME AGAIN!

lthough this concept may seem alien today, Europe as a financing tool. The European monarchs
A tontines have a long creditable history that borrowed, via tontines, to fund their wars.
reaches back half a millennium. The name
"Tontine" comes from a 17th-century Italian
financier, Lorenzo de Tonti. In those days, Tonti pitched for At the height of its popularity in the 1900s, tontines
represented two-thirds of the insurance market in the
a tontine scheme to the French government in the 17th United States and accounted for more than 7.5% of the
century as a way for King Louis XIV to raise money. nation's wealth. By 1905, there were an estimated nine
million active tontine policies in the U.S., with only 18 million
A Tontine is organization of individuals who enters into an
households! In 19th century tontines were a popular vehicle
agreement to pool sums of money permitting the last for increasing life insurance sales in America. History credits
survivor of the group to take everything. It can also be said
tontines for the insurance industry's ascendance in America.
that Tontine is a rare agreement among several persons,
who agree that each will invest in an annuity and the last
The modern culture served to amplify the fashionability and
to die will receive the remaining assets and profits.
the dark side of tontines. Popular writers like Agatha
Christie, Robert Louis Stevenson, and P.G. Wodehouse wrote
The holders of tontine life insurance contracts pay premiums
stories about tontine participants conspiring to kill one
for a certain amount of time before they gain the right to
another to claim the big payoff!
acquire dividends. In the event that a policyholder dies
during the tontine policy, his or her beneficiary will be
Today growing number of financial advisors, academics, and
entitled to benefits, but no dividends. The earnings that
Fintech firms think that it is the right time to take a serious
ordinarily would be used to pay dividends are accumulated
look at these financial instruments. They would like to see
during the tontine period and subsequently given only to
tontines make a comeback. Tontines are attractive because
policyholders who are still alive at the end of the term. This
they provide regular income of an annuity - more income
type of policy is known as a dividend-deferred policy.
for living members - and because of tontines' structure and
relatively low costs, they produce higher yield than annuities.
During late Middle Ages tontines became very popular in
Tontines also offer a solution to longevity risk-the danger of
About the author outliving money. With automation and developments like
blockchain technology, today's tontines could boast of
Dr. K Raja Gopal Reddy
something that was missing earlier: transparency. With
PhD, FIII, FCII(UK), FLMI (US),
transparency there is less possibility of fraud. The market
Chartered Insurance Practitioner
Principal Officer for tontines is as large as for life insurance, especially with
Topspot Insurance Broking Private Limited the Baby Boomers, Gen X and Millennials began looking for
(Commercially known as insurancepe) an alternative to low yielding pensions.

28 The Insurance Times, October 2022