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c h a p t e r 1 1 The Perils of Success during the Postbellum Years  In the fall of 1863, just as sales of life policies were on the verge of skyrocketing, the North American Review published a remarkable twenty-three-page article on life insurance. Presented as a neutral assessment of the current state of the industry, the piece was actually an extended defense of insurance as sold by the large, wellestablished mutual companies. It opened with a short (well-crafted but patently false) history of insuring in the United States, which it claimed could “hardly be said to have existed” before the incorporation of mutual companies in the 1840s. The article then went on to recite the main arguments traditionally offered for insuring and to address the critiques historically leveled against the industry. Among the points covered were • the quasi-public nature of life insurance (“it is not at all a commercial enterprise undertaken for the purpose of profit”); • the benefits of mutual companies over their stock competitors (“the insured constitute the company, its accumulations are theirs, its success is theirs, and the ostensible managers and directors are only their agents and trustees, empowered to invest and protect the funds for their benefit”); • the numerous advantages of life insurance over savings banks (“for those who can make but moderate savings each year, what security is there that they will live long enough to accumulate a sum sufficient for their purpose?”); • the scientific nature of the business model (“not only the most precise calculations , but actual experience . . . prove [that] there is really no element of uncertainty ” in companies’ operations); • the statistical foundations of the industry’s tables (“the question is so far settled , that it may be said to have ceased to be a problem of science, and to have become only a matter of book-keeping”); • the people who would most benefit from the product (“persons of fixed incomes , including those who depend upon salaries and wages”); • the hazards of not insuring (“the misery thus caused is incalculable”); • the compatibility of life insurance with religion (“it not only renders men provident, but it shares, though in a humble degree, with religion in extending this providence to a period beyond the life of the individual”); and • the benefits of life insurance to the economy as a whole (“the large funds accumulated for Life Insurance are in great part a positive addition, which would not otherwise be made, to the available capital of the country”).1 But by far the bulk of the article was an attempt to manipulate public opinion regarding the new competitors in the industry. In nine distinct sections, the author attacked newer, smaller firms as being less safe, less efficient, and more likely to engage in fraudulent business practices than the older, larger insurers. The writer warned that the statistical basis for life insurance was sound only “provided the company can obtain business enough.” When contracting with a smaller firm, an applicant ran the risk that the underwriter would be overwhelmed by death claims before it had spread its risks across a large enough pool of policyholders. Thus, “among equally well-managed Life Insurance Companies, that is the safest, the cheapest, and the most deserving of confidence, which has done, and is doing, the largest amount of business .” In their haste to expand their customer base, newer firms were not only forced to devote a much higher proportion of premium payments to expenses (therefore lowering future dividend payments) but were also more likely to endanger their fiscal soundness further by “endeavor[ing] to attract business by offering to insure at low premiums” and “accept[ing] undue risks, including some that have already been declined by the larger establishments.” In ominous tones the author concluded: “Beware what company you enter! Choose not the youngest, nor the one which is ostensibly and for the moment the cheapest, nor that which holds out the most flattering promises, and is pressed most persistently upon your notice.”2 While in other industries “competition is generally for the public good,” the insurance industry’s need to spread risks widely meant that too much competition was detrimental to both life insurers and policyholders. The author therefore praised the rigorous regulatory measures of the New York and Massachusetts insurance departments and called for much greater “oversight and restraint by the legislature” with regard to “the establishment and conduct of new companies for Life Insurance” (emphasis added). The...

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