Mutually Beneficial: The Guardian and Life Insurance in America (review)

Mutually Beneficial relates the history of the evolution of the Guardian Life Insurance Company of America (originally called the Germania Life Insurance Company) from the company's founding in 1860 until shortly after America's entry into World War I. The authors were given full access to the company's archives. The material is well documented, with about one-fifth of the volume devoted to the extensive footnotes, bibliography, and index. The history of the life insurance industry prior to the company's founding was covered in an unnumbered chapter that preceded chapter 1. Although that introduction was brief and overlooked some topics such as tontines (an oversight that was remedied in a later chapter), it did give the reader an understanding of the industry at the time the company was established. The authors note that life insurance is a business that combines strong emotion and pure mathematics and is, therefore, a much more intricate and difficult operation than banking, securities dealing, or even other types of insurance companies. The company traces its roots to a March 1860 meeting of prosperous German immigrants at Delmonico's Restaurant in Lower Manhattan. The objective was to establish a company that would supply German Americans with life insurance—a product that was well established in the United States within an industry with potential for growth.

Guardian Life Insurance Company is a mutual company, which means that the policyholders are the owners of the enterprise. The pros and cons of mutuality were discussed in the book's introduction: the primary advantage being that under mutuality the company is operated purely for the benefit of policyholders—not stockholders. Alternatively, mutuality can lead to management inefficiency since there are no stockholders lobbying for increased profits; with a mutual company, inefficiencies are simply passed on to the policyholders in the form of higher costs for insurance.

The authors did a nice job of linking the company's history to wider events within the industry. For example, there was extensive coverage of the 1905 Armstrong investigation, a New York State legislative inquiry that resulted in significant changes in the insurance industry. The results of the Armstrong investigation were compared to recent corporate malfeasance involving managerial self-dealing, corruption, creative accounting, and fraud. Other events of substantial magnitude discussed included the Great Depression, Mexican Revolution, and World War I, which, as mentioned above, prompted the company to change its name.

Guardian (Germania) was blessed with continuity in leadership. Its first president, Hugo Wesendonck, served from the founding in 1860 to 1897. Interestingly, Wesendonck was the company's leading sales agent during the first few years of business, and his brother initially owned about 12 percent of the company's stock. Thus, the company obviously owed much of its early existence to its first president. Wesendonck's successors also experienced longevity in office. All but one of the first five corporate presidents served sixteen years or longer. These first five presidents headed the company for its first ninety-six years in business. Despite the limited number of leaders, this book is not about the people who ran the company but about Guardian itself. In a sense, this volume represents the biography of a corporation and not the people involved. Although appropriate, this lack of emphasis on people is somewhat surprising, particularly given the fact that some noteworthy names were associated with the company, including financiers August Belmont and Joseph Seligman. Instead of emphasizing people, the authors illustrated their conclusions with scores of tables showing expense ratios, mortality rates, and various aspects of balance sheet items. An accountant would love all of the detail.

The final chapter covers Guardian's recent past and possible future obstacles. The authors also discuss the importance of the company's deeply rooted commitment to mutuality. Although most other mutual insurance companies have demutualized in the past couple of decades, Guardian has stayed the course...