“Going Behind with that Fifteen Cent Policy”: Black-Owned Insurance Companies and the State

During the twentieth century, the way policymakers fashioned capitalism often aided white citizens at the expense of minorities. Government policies not only excluded African Americans but also created an economic framework that was enduringly hostile to black citizens and black business even after overt racial discrimination had ended.¹ White affirmative action, which Ira Katznelson describes as “policy decisions dealing with welfare, work, and war” that “excluded, or differentially treated, the vast majority of African Americans,” severely, although sometimes inadvertently, damaged black enterprise.² Government-financed corporate welfare provides one illustration of white affirmative action and, among a bevy of examples, included government contracts, favorable tax treatment for corporations, and subsidies to agribusiness. Although policymakers created such programs to aid the free enterprise system, they had unplanned structural ramifications: federal funding cemented into place the institutional frameworks that governed key economic sectors and, in the process, locked out African American citizens.³

The history of black-owned insurance companies provides a prime example of how white affirmative action shaped the commercial dimensions of private production. The federal government financed the mainstream insurance industry’s shift, particularly after World War II, from selling individual policies to selling employee group coverage. Tax guidelines granted write-offs to businesses that purchased fringe benefits for workers and, thus, indirectly subsidized the policies that they bought from white-operated insurance firms. Racial discrimination prevented black insurers from competing for these contracts. Moreover, state regulations required an employer-employee relationship and at least fifty workers to qualify as a group for the purposes of purchasing life insurance. These state guidelines prohibited African American insurers from underwriting group contracts for black-dominated organizations such as fraternal societies, churches, and small businesses. The result of exclusion from the group market was severe: by the 1960s, the entire black-owned insurance industry was in peril.

Uncovering how government policies bled through the institutional development of the most prestigious sector of African American enterprise challenges two arguments that have been advanced to explain the weakness of black business: first, that the African American community lacked the requisite sociocultural characteristics to develop a robust entrepreneurial tradition and, second, that integration, as an independent variable, destroyed black-owned business. Some scholars assert that because of racial discrimination, black business owners had difficulty acquiring capital, hired from a less educated pool of citizens, and were unlikely to encounter entrepreneurship among family members or in their social network. Yet black Americans had a deep-seated mutual aid tradition that spawned entrepreneurial activities ranging from banking to insurance. Indeed, the insurance business was more firmly established among the black community than other ethnic groups. Moreover, the assertion that integration forced black-owned companies into a losing competition with white-operated firms also fails to explain the decline in black business. During the early twentieth century, black-operated insurance firms experienced great success even as they competed vigorously alongside white-operated insurance companies for the business of African American consumers.⁴

This article uncovers a more significant though less visible factor that hindered the development of black insurance companies—government tax policies and regulatory regimes that privileged white-operated firms. Indeed, viewing the industry through a purely private market framework has led scholars and observers to label African American insurance products as “inferior,” thus obscuring the political processes that led black-owned firms into a noncompetitive position.

Government policies that favored the economic interests of white citizens had an additional effect—they conditioned the ideological evolution of black insurance leaders. For most of the twentieth century, African American insurance executives espoused a conservative philosophy—they aligned with the white business community on most political issues and opposed government intervention in the economy. Furthermore, although black insurance leaders participated in local civil rights campaigns, they often moderated the demands of activists in order to preserve alliances with white businessmen and government officials. At the end of the 1960s, however, insurance leaders seized upon black economic thought, which included a discussion about how government policies had traditionally favored white economic interests. Black insurers demanded...