Quick, who is America’s “father of life insurance”? And why?
The immediate answer is Elizur Wright, a 19th century American who started out his career as a mathematician and inventor and earned an early reputation as an outspoken abolitionist. How he became the father of insurance can pretty much be traced to one event, according to his biographers.
It was a public auction of old, sick men in London in 1844. These men could no longer afford the premiums on their life insurance policies. Speculators were inspecting the men and bidding on the right to take over their premiums, become the beneficiary, and collect the proceeds when they died. Bidding was more active on those men who looked particularly ill.1
Wright’s outrage was two-fold. First was the obvious immorality of having a beneficiary invested in seeing someone die. The second was the notion that these men had up to that time been paying premiums, yet had nothing to show for that cash investment over the years.
The reason Wright was in London in the first place was to assess the math behind British life insurance practices for an American life insurance company. He found that wanting as well, with many companies failing to accurately estimate longevity and interest rates. This led many to insolvency. In fact, of the 300 British life insurance companies formed in the 25 years leading up to that time, 250 had already failed.2
So Wright resolved to do three things.
The first was to fix the math. After some study and work, in 1853 he published what’s credited as the first practical actuarial table reference for the insurance industry in the United States. (He also invented a mechanical calculator to help clerks with the associated calculations from the table numbers).
The second was to force insurance companies to follow the math. To that end he lobbied his home state legislators in Massachusetts to regulate insurance companies (including MassMutual, of course) and, while at it, make him one of the state’s insurance commissioners. That happened in 1858. The new law compelled insurance companies doing business in the state to reveal their financial standing and sufficient reserves under the aforementioned actuarial tables.
The third was to change the law so that policyholders benefited from the math as well. That meant changing the law to give policyholders more rights in terms of getting back at least some of the cash they turned over to life insurance companies. And so, after becoming an insurance commissioner, he lobbied the legislature to eliminate the common business practice of voiding a whole life policy when a policyholder didn’t pay a scheduled premium and instead provide a surrender value in cash or paid up life insurance; history remembers this as the 1861 non-forfeiture provision.
On this last point MassMutual and Wright had a difference of opinion … but only for about five months. At first the company was concerned the new law jeopardized its flexibility in crafting contracts on its own terms. But it quickly found that the non-forfeiture provision was actually a selling point for its life insurance policies that actually brought in more business, according to a history of the company. In fact, MassMutual made it a point to pay tribute to Wright and point out in its annual reports how in step the company was with his philosophy.
Indeed Wright’s zeal for making sure life insurance companies continually proved their financial solvency was making Massachusetts-based life insurance companies attractive to potential customers nationwide. Added to that appeal was Wright’s reputation for rooting out bad management, unfairness, and corruption at any company falling under his purview. During his time as a Massachusetts insurance commissioner, he drove 14 companies from the state.
In effect, operating under the regulatory rule of Elizur Wright was a seal of approval for a life insurance company in terms of its product, financial standing, and management.
In today’s political climate and the various debates about financial inequities and regulation, perhaps the history of the “father of life insurance” is something to keep in mind.
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