“Those who cannot remember the past are condemned to repeat it.”–George Santayana

It is, I believe, important not to be anchored to the past, but it is just as important to remember the lessons learned from past experience. Today we enjoy a great legacy, earned by the hard work and dedication of countless insurance people, many largely unknown today.

Writing in his book, “Marketing Life Insurance, Its History in America,” J. Owen Stalson said, “Historians have perhaps been too preoccupied with mortality tables, and the founding dates of companies to consider the astonishing influence that selling method, or lack of it, has had upon the development of life insurance in every age.”

When the sale of life insurance first began to take hold in the United States, there were no agents. Companies placed ads in newspapers and produced pamphlets to attract buyers. Very few came, and most of those early companies faded from the scene. In the mid-19th century, new companies were formed that realized life insurance is sold rather than bought. Agents were hired and the transition from “life insurance waiting to be bought to life insurance waiting to be sold” began.

But those next 50 years were tough. There were no standards and little or no regulation. Competition was cutthroat, with rampant rebating and twisting, which hurt the public, insurance companies and their agents. It was essentially a lose-lose situation and it is remarkable the system survived under those conditions.

Speaking of the business, Jacob L. Greene, president of Connecticut Mutual at the time, summarized the conditions and consequences of these unhealthy practices. “It has dishonored its own policies by offering them at less than their popular price, or else it has tried to get too high a price whenever it could. It has raised the question whether its premiums as published have any relation to the policy contract.”

“It has violated mutuality at the outset. It has charged different prices for the same thing to different men to whom it professes impartial mutuality.”

“By raising its commissions and other expenses for new business to the point that allows the present scale of rebating, it makes the new business so costly that there is no profit in it to the company.”

But we did survive, and largely because of the efforts of life underwriting associations who had managed to have anti-rebate laws enacted in their states. By 1890, 10 states had passed such laws. It is worth noting that there was no demand for these laws from either the public or the companies–but both benefited from their enactment.

In 1890, the National Association of Life Underwriters (now the National Association of Insurance and Financial Advisors) was formed, thereby pulling together the scattered local associations into a national organization. A reading of the minutes of that initial meeting in Boston revealed that the primary mission of the association was to bring order to a marketplace that was in chaos. In the ensuing years, NALU pursued initiatives that brought enlightenment to both the field force and the public at large and gradually the problems of marketing became manageable.

The companies, at the same time, were subjected to a level of chaos of their own. Accusations of the often too cozy relationship between insurance company officers and investment bankers and other Wall Street types threw an additional cloud over the business of life insurance, resulting in a dramatic loss of confidence in the marketplace. The Armstrong Investigation of 1905 put an end to many of the abuses in New York state, and other states soon followed with similar measures of their own.

The events highlighted in the Armstrong Investigation and the effects these were having in the marketplace came as no surprise to the leaders of NALU. Since its inception in 1890, NALU has been putting up storm warnings because any adverse attitude on the part of the public is always felt first by the people in the fieldon the front lines so to speak.

Well, what are the lessons learned? I believe it is important to recognize that the running of the life insurance business is a complicated affair requiring all kinds of regulation. However, by far the most important aspect is an orderly marketplace. If the environment for selling is pollutedthen what happens in the rest of the company operations is of little importance.


Reproduced from National Underwriter Life & Health/Financial Services Edition, March 19, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.