20

Communities of Risk

OF THE NEW statistical communities, none were more widespread or more potent than the communities of the insured. By the mid-twentieth century, insurance touched the lives of all Americans, was a major item in the family budget, and shaped the American’s vision of his future. In 1840 there was less than $5 million of life insurance (issued by a total of fifteen companies) in force in the whole United States. Within twenty years the face value of life policies exceeded $150 million; within another decade they reached $2 billion, and a century later totaled a staggering $1,284 billion. By 1970 there were 351 million life policies in force with an average coverage per family of $19,500. The assets of the fifty largest life insurance companies were valued at $164,555 million, and insurance companies had become a large factor in the investment and securities market and in the process of capital formation.

The prominence of insurance in American life, which historians seldom noted on paper, was starkly revealed on the American skyline. Insurance buildings rose in cathedral eminence. The history of the American skyscraper could have been illustrated by monuments to the growing insurance industry, from the Equitable Life Building (1868–70) in New York through the Home Insurance Building (1883–85) in Chicago (the first skeleton-frame tall building, sometimes called the first true skyscraper), and the New York Life Insurance Building (1890) in Kansas City, and many others. “The idea is to construct a building,” Prudential’s president explained of the structure which opened in 1892, “which shall typify and symbolize the character of the business of the Prudential, exemplify its all-pervading spirit of beneficence and its ingrained love of the golden rule.” The New York Life Building at 346 Broadway had an entrance which resembled “an ancient temple—and a temple it is—a Temple of Humanity.” The new building of the Metropolitan Life Insurance Company on Madison Square (the first part of which was opened in 1893) offered a main staircase imitating that of the Paris Opera and a tower which when completed in 1909 was reputedly the tallest in the world.

INSURANCE, OF COURSE, was no American invention. Even in ancient times the risks of merchants and mariners, the dangers from disaster at sea and fire on land induced people who had large stakes to lose to pay others to share their risks. But only in the United States after the mid-nineteenth century did insurance become a democratic, universal institution. Mass-produced, democratized insurance—insurance for everybody and against almost anything—came in the century after the Civil War and was a product of American civilization.

While not all citizens had property worth insuring, every citizen had a life. In one sense, of course, death was not a “risk,” for it was the one certainty in life and insurance could do nothing to prevent it. Though for any individual nothing was more uncertain or democratic than the time of his death, it was within human power, by accumulating funds, to cushion the shock of death for those who remained. Life insurance, then, if spread among those who were not wealthy, was actually a welfare institution: a way to help the needy, the widows, and the orphaned. And for this reason insurance on lives was one of the last forms to develop. Insurance against commercial risks had become a profitable enterprise long before life insurance was common.

In western Europe, life insurance was at first a form of gambling. Anyone could take out a policy on the life of any other person. Since this created incentives to murder, by the end of the eighteenth century English laws required that the person who took out the policy should have an “insurable interest”—a substantial interest in the insured person or event entirely apart from the insurance itself. The progress of mathematics (through the work of Pascal, Halley, and others) and the accumulation of statistics produced some crude life-expectancy tables. Religious sects and certain professions formed “mutual friendly” societies to pool their risks and help members in need. The first American life insurance enterprise, the Presbyterian Ministers’ Fund of Philadelphia, appeared in 1759, but not until a century later did life insurance become widely available.

When communities were local, friends and neighbors were nearby, ready and willing to help in disaster. The church tried to look after widows and orphans. Neighbors who had gathered for a barn raising were likely also to gather to rebuild the barn that had been burned. But the attentuation and the stretching of communities created new needs. People who could not confidently rely on their neighbors, people whose relatives had moved to remote parts of the continent, had to find other security. And insurance became a kind of substitute for family, for neighborhood, and for community. Again, insurance handled the problem by creating a centralized source of supply, on which an individual could draw as he needed. Just as with the growth of city plumbing, with electricity, and later with television, this opportunity to draw on a large central source tended to isolate the individual citizen. A man’s insurance was his own business. The well-insured man had less need of his neighbors, and received the benefits of his insurance without their consent or their knowledge.

By its very nature, insurance—a new kind of consumption community—was a large-scale institution with a democratic reach. “While nothing is more uncertain than the duration of a single life,” observed Elizur Wright, “nothing is more certain than the average duration of a thousand lives.” Since insurance would not work for small numbers, it was necessarily a democratic commodity. So it was not surprising that the first flourishing of insurance into a gargantuan institution, rivaled in economic power only by government itself, came in the first large-scale democratic nation.

THE “FATHER OF LIFE INSURANCE,” Elizur Wright, came to the enterprise not as a businessman, but as a reformer. We do not ordinarily think of life insurance as an outlet for the passionate crusader. But Wright was a passionate man, and the evangelical fervor which he at first directed against slavery he later turned to support insurance. He saw insurance as both a humanitarian institution to serve widows and orphans, and a social invention to multiply a man’s resources and extend them after his death. In 1810 his father had gone west from Connecticut to Ohio, where he cleared a farm and opened an academy, and there young Elizur prepared for college. Working his way through Yale, he graduated with distinction in mathematics in 1826. Fired by the antislavery evangelist Theodore Weld, Wright himself became an antislavery organizer and publicist, and edited the Massachusetts Abolitionist. To support his growing family (eventually his children numbered eighteen, of whom six died in infancy), he solicited subscriptions for an elegant and improbable project, an English verse translation of La Fontaine’s Fables, to be published in a de luxe illustrated two-volume edition. He paid for printing one thousand sets, which he went about peddling.

During a book-selling trip to England his translation of La Fontaine, together with his interest in statistics, gave him entrée to London literary circles. One morning in 1844 at breakfast with Elizabeth Barrett, Robert Browning, and their friends, he was asked which London sights had interested him most.

“The Thames Tunnel,” I replied, “is the largest, but the most interesting to me has been the Sun Life Office, where I have learned a good deal about life insurance that was new to me.” “Life insurance,” broke out Mr. Procter, “it’s the greatest humbug in Christendom.” I was quite thunderstruck, but managed, after a little hesitation, to say, “You surprise me, Mr. Procter. If I had not taken a policy from a life company just started in Boston, I should not have dared to cross the water, leaving a wife and five children on the other side.” “Go to the Royal Exchange,” said Mr. Procter, “Thursday afternoon at three o’clock, and you will see what I mean.” I assured him I would do so, and did. What I saw at that sublime center of trade was a sale of several old policies on very aged men to speculators apparently of Hebrew persuasion, to be kept up by them by their paying annual premiums to the company till the decease. This was done, I was told, because the companies made it a rule “never to buy their own policies.” A poor rule it seemed to me! I had seen slave auctions at home. I could hardly see more justice in this British practice. If I should ever become old myself, I thought, I should not like to have a policy on my life in the hands of a man with the slightest pecuniary motive to wish me dead. This then is what had disgusted the sweetest song writer in England with life insurance…. I resolved, if I ever returned to America, it should be otherwise here, if my voice could avail.

The abuse which Wright witnessed in London came from the refusal of insurance companies to give a cash-surrender value to policies. It was thirty-six years before Wright managed to remove this abuse from the laws of Massachusetts. Meanwhile he labored to make life insurance a cure for the worries of the common man.

Life Insurance, when Elizur Wright first turned his mind and heart to it, was, he complained, “the most availably convenient and permanent nidus for rogues that civilization had ever presented.” Of course, there were a number of honest companies. But the temptations to charlatanry were overwhelming. Swindlers set up impressive offices, enlisted unsuspecting solid citizens to serve as front men, collected lifetime savings in premiums and then dissolved their companies into bankruptcy or absconded.

“Dear Wright,” one of his friends observed, “has every kind of sense but common sense.” But his peculiar combination of mathematical talent and reforming zeal actually qualified him to shape insurance into a grand new democratic institution. “Life insurance,” Wright explained, “comes in as a financial invention by which capital in the shape of a productive life … can perpetuate itself…. It gives to an energetic young man, who has not a spare dollar to bequeath, the power of making a will good for several thousand dollars in case of his death the next day.” This invention multiplied human resources as the steam engine had multiplied power or the telegraph conquered distance, and it should be made available to all citizens in a democracy. To young people just assuming the responsibilities of a family, life insurance was “as great a blessing as sound sleep. But it must be sound life insurance.”

The “facts” required to run a prudent life insurance company were complicated beyond the comprehension of the ordinary policyholder, and even beyond the resources of information then available to insurance executives. A company should charge a sufficient annual premium to cover its current risk on a policyholder’s life, while accumulating sufficient reserves to pay off its accrued policies. Yet the company should not require excessive premiums, nor, on the other hand, should it offer “bargain” rates which left it without a sufficient reserve. These computations were further complicated if the company wished to offer a “level premium,” which would allow the policyholder to continue over an extended period to pay the same annual amount despite the company’s increasing risk. And what was the proper surrender value of a policy, should the holder wish to cancel at any time? All these sums had to be figured in dollars and cents despite the fact that the company, of course, could never know the precise number of death claims it would have to settle in any one year. No wonder, then, that life insurance was a happy hunting ground for charlatans, swindlers, and high-pressure salesmen. The holder of a life policy was apt to be gambling as much on the solvency of the company as on the length of his own life.

Wright attacked some of the more obvious abuses in the columns of his crusading Chronotype. In order to sell more insurance, for instance, some companies were accepting personal notes signed by the insured for as much as three quarters of the premium. As a result, these companies’ “reserves” consisted largely of promissory notes from the very persons they were supposed to protect. And on the death of the insured the widow would receive nothing but the promissory notes of the deceased. Wright aimed to reduce the understanding of insurance “to the range of ordinary mathematical ability and freed from unnecessary expense. Thus far, to the millions, it has been enveloped in considerable mystery … a hieroglyphic veil.” Under this veil, fraudulent companies “bled the confiding” and charged policyholders with the high salaries of” ‘eminent mathematicians’ to pilot them annually across the unknown depths of the logarithm table.” Wright’s great success, as Hunt’s Merchant’s Magazine observed, was in “unmystifying” the subject.

WITH HIS ZEAL for reform, his talent for mathematics—and his numerous children to whom he could assign the thousands of necessary simple calculations—Elizur Wright was well equipped for the job. Six insurance companies hired him to prepare “Valuation Tables on the Combined Experience, or Actuaries’ Rate of Mortality.” Using the English “Combined Experience Tables,” after a year’s intense work Wright completed his tables in 1853. For each of 268 different kinds of policies, the tables showed the precise reserve which the company should hold each year from the date of the policy until its termination; each of the 203 pages of Wright’s Tables required a thousand separate computations, which, of course, had to be accomplished without calculating machines. For this monumental labor, including ten handwritten copies, six of which were delivered to the subscribing companies, Wright received $2,200.

With these tables, then, any businessman without special training could determine the solvency of an insurance company. Now there was no excuse for a company’s not keeping a sufficient reserve to pay death claims, and the fair surrender value of any policy could be figured at any time. But there was no law yet to require a company to set aside such reserves, nor were insurance companies regulated in other ways to protect the rights of the insured. What solace was a lawsuit against a defunct company to the widow or the orphan whose family’s savings had gone into a life insurance policy?

Wright, whose years as an abolitionist had made him impervious to ridicule, began “lobbying for the widow and orphan.” At the Boston State House he crusaded for laws to require every company chartered by Massachusetts to keep the necessary reserves, which were now defined in his valuation tables. Finally, on the last day of the session of 1858, as much to be rid of Wright as for any other reason, the Massachusetts legislature in exasperation enacted “that everlasting Wright bill,” and Wright personally supervised the unenthusiastic governor’s signature. There were to be two insurance commissioners charged with enforcing the law, but Wright’s Act was so complicated and so full of technical mathematical terms, and the enforcement of the law was so unpalatable to business interests that the governor’s political friends refused to accept appointment. The governor had no alternative but to appoint Wright, who reputedly was the only person who could understand the act, as one of the commissioners.

Commissioner Wright collected facts on every company in Massachusetts and compiled a Life Insurance Register, recording the amount of each policy, the premium paid, and the reserve required. He asked policyholders to bring him their questions. By referring to his Register, Wright informed the policyholder whether he was getting his money’s worth, and told him the surrender value of his policy. In a single year this job (according to Wright) required 250,000 separate calculations. To help in his work Wright invented a calculating machine, which he called the “Arithmeter.” This device, based on the principle of the slide rule, showed the natural numbers separated by logarithmic distances; by putting these numbers on the surface of a cylinder in a continuous spiral, he provided a compact machine with the accuracy of a slide rule eighty feet long.

Wright’s investigations, his published studies of particular companies, and his Annual Reports as commissioner made him few friends among insurance executives. They called him their persecutor. “Rosewater is good,” he replied, “but it never built pyramids or machine shops.” Armed with the facts, he drove fourteen shady companies out of Massachusetts. This required a courageous disregard for social amenities, since the dubious enterprises had paraded respectable names in their lists of officers and trustees. One such company—which, Wright found, was spending fifty cents of each dollar on “expenses” and was insuring anybody regardless of health, had cut its reserves and was publishing false financial statements—had for its president the eminent Yale scientist Benjamin Silliman, Jr., with Silliman’s son-in-law as manager. Another swindling Massachusetts company listed English noblemen as trustees and for its actuary had hired a Fellow of the Royal Astronomical Society. Wright’s crusade against the swindlers strengthened public confidence in those firms which he endorsed, and the honest life insurance business flourished. During Wright’s eight years as commissioner, life policies issued in Massachusetts increased fivefold, to a figure of a half-billion dollars.

Yet Wright had only begun his reforms. The requirement that companies keep an adequate reserve, Wright explained, “made life insurance safe, but it did not make it just.” Companies were still tempted to make unconscionable profits out of their reserves; and when a policyholder let his policy lapse by not paying premiums, they commonly kept the accumulated sums, or refused to return him his savings. Dishonest executives were even tempted to spread rumors of the insolvency of their company so that policyholders would let their policies lapse, enabling the executives to confiscate the sums for themselves. Until there was a “non-forfeiture” law, requiring insurance companies to return to policyholders the fair value of lapsed policies, insurance remained, in Wright’s phrase, “Traps Baited with Orphan.” In 1861, for example, Wright found that of the life policies that had been terminated that year, only one tenth had been terminated by death, while all the rest had lapsed for nonpayment of premiums; yet those policyholders had been left without any legal way to recoup their savings from the company. In that year Wright pushed his “Non-Forfeiture Law” through the Massachusetts legislature.

Wright’s efforts led the insurance companies to do some lobbying of their own. In 1867 they secured passage of a law reducing the number of commissioners from two to one, cleverly worded so as to leave the commission in the hands of the other commissioner, who saw his job as “helping” the companies and not policing them. Scorning an annual pension of $10,000, which some insurance executives offered him if he would keep quiet, Wright set himself up as a consulting actuary, and made a good living advising a number of reputable firms. Until his death in 1885 Wright worked for life insurance reform, an unpaid lobbyist for millions of policyholders.

These accomplishments in Massachusetts promoted similar reform in other states, since no company from another state could sell insurance in Massachusetts without conforming to the Massachusetts rules. His reforms had given life insurance companies a stability that kept them alive during the post-Civil War panic.

WRIGHT’S RARE COMBINATION of technical competence and humanitarian zeal had made large insurance enterprises honest and stable, and had protected the rights of small policyholders. But to democratize the benefits of insurance required the additional talents of salesman, promoter, advertiser, and organizer—all of which happened to be combined in the person of Henry B. Hyde.

Young Hyde at the age of sixteen had left the village of Catskill for New York City, where he worked first as a clerk in the Mutual Life Insurance Company, and by the age of twenty-five became the company cashier. Although Mutual was the largest pre-Civil War company, its sales techniques were stodgy; since the company would not insure any life for more than $10,000, policyholders were going elsewhere for additional insurance. The ambitious young Hyde conceived the idea of forming another company to pick up this business. One Saturday evening, March 12, 1859, when he asked the president of Mutual for advice on this project, he was promptly told that he was fired and must deliver his keys and settle his accounts on Monday morning. On that very Monday, Hyde rented a room on the second story of the building at 98 Broadway and equipped it with borrowed furniture. “In order to make everything agreeable and cheerful for visitors,” Hyde recalled, “I purchased a box of cigars and placed them in a convenient position on the mantelpiece. On the succeeding Monday a sign, about thirty feet in length, with the inscription, ‘The Equitable Life Assurance Society of the United States,’ was placed directly over the smaller sign of the Mutual Life, which company, at that time, occupied the first floor of the same building.” The sign gave the impression that the new company occupied all the upper floors.

Under the laws of New York, no life insurance company could be formed without depositing the sum of $100,000 with the state comptroller. Hyde quickly began to raise the money so there could be a company behind the sign. For this task Hyde was not especially well equipped by birth or by education. Insurance was “the friend of widows and orphans.” And since insurance companies were not selling a commodity but building a public institution, their executives were not generally classed with dry-goods merchants, shoe manufacturers, and others who aimed to make a profit, but rather with school-teachers, university presidents, ministers of the gospel, statesmen, and other champions of the public weal.

Henry Hyde had not gone beyond grade school, and had no impressive social standing. His father was merely an insurance agent. How was he to compete with established institutions like Mutual, whose stationery was embellished with eminent names? The halo of respectability came from the lucky coincidence of Hyde’s membership in the Fifth Avenue Presbyterian Church, whose congregation included some of the city’s wealthiest merchants and bankers. Hyde had become a close friend of the pastor’s son—and in his quest for the required sum, this association proved invaluable. Seventeen of the fifty-two members of Equitable’s first board of directors came from the Fifth Avenue Presbyterian congregation. The remunerative post of company physician was offered to young Dr. Edward W. Lambert on condition that he persuade his wealthy father to invest $25,000. A Mr. Henry Day was told he could be the company lawyer if he could raise $25,000; when he demurred, another candidate was found who was willing to meet the condition, and then Day’s scruples were overcome. To hold the title of president, Hyde decided that instead of himself a more impressive choice would be William C. Alexander, brother of the pastor of the Fifth Avenue Presbyterian Church, a Princeton graduate, “a man of mature years, of long experience at the bar and in the Senate of New Jersey, and possessed of those qualities which gave to the community a high degree of confidence.” Hyde, as vice-president and manager, was the operating head.

Within four months Hyde had raised the necessary $100,000 and had begun an unprecedented campaign to sell life insurance. One advantage of his religious connections, which had not escaped Hyde’s notice, was the special importance given in those days to the “religious press.” Each denomination had its own newspapers and periodicals; the widely circulated religious weeklies were an admirable medium for insurance publicity. When the prominent Reverend S. Irenaeus Prime made flattering remarks about Hyde’s company “at a recent social gathering,” Hyde saw that these remarks were printed at length in the New York Observer, the leading Presbyterian journal, and then extracts were reprinted in other papers. The Reverend Prime observed:

The Equitable Life Assurance Society of the United States, has been founded with a view to meet the wants of all parts of our widely extended country. Its founders and directors are chiefly religious and benevolent men. They hope to enroll, in the society of the assured, good men in all the departments of business. They know that intelligence and virtue tend to prolong life, and that the most safe and profitable life insurance will be among enlightened religious communities. As they extend the range of their operations and take into their society the clergy of the whole land, they will become a most efficient, useful and blessed society for the relief of the widows and orphans and clergymen…. I believe your society is one of the most purely benevolent institutions in our land.

The company seal bore the motto Aeque pauperibus prodest locupletibus aeque (“Of benefit alike to rich and poor”). The Society’s first rate book opened with a section describing “Robert Burns’s Disease” (poverty) and prescribed “The Great Preventive” (insurance). Hyde distributed thousands of pamphlets stamped with the Equitable name, explaining and preaching life insurance.

Among the pious a common objection was “that life insurance implies a distrust in Providence, and is an impious attempt to prevent or control His will.” One answer was that life insurance was itself a divinely ordained institution and that it providentially prolonged life by removing “corroding anxiety and uncomfortable reflection” and making men more cheerful late in life and on the sickbed. “The old feeling,” a brochure of 1872 warned, “that, by taking out an insurance policy we do somehow challenge an interview with the ‘King of terrors,’ still reigns in full force in many circles; and the very fact that her husband has insured his life, thrills the bosom of his wife with fearful apprehensions.” Hyde hired the highest religious authorities, including Henry Ward Beecher himself, to write articles explaining to prospective customers how life insurance fitted into God’s plan.

Hyde’s “benevolent” institution flourished beyond his wildest hopes. In 1862 the company wrote nearly $2 million in new policies. When Hyde himself was drafted into the Union Army he bought a substitute, as the law permitted, for $800; he later described this as the best investment he had ever made. The Civil War reminded men of their mortality, and in 1862 the new business of New York insurance companies was nearly double that of any earlier year. By the end of the war, life insurance in force in the nation was more than three times what it had been at the outbreak. The Equitable grew even faster than its competitors.

HYDE DEVELOPED an elaborate training program for agents, providing sales literature, prescribing sales techniques, listing the usual objections from prospects, and offering the most effective answers. By 1870 his sales conventions for exchanging sales techniques and improving morale had become a regular institution.

His national sales organization was as different from earlier salesmanship as the great American mail-order houses and department stores were different from the general store. Traveling about the country, Hyde evangelized for life insurance and he recruited agents. The Agent’s Manual, by the Reverend Henry C. Fish, D.D., Pastor of the First Baptist Church of Newark, which Hyde circulated, explained that “life agency may fairly be called a profession,” requiring certain qualities of a man:

1. He appreciates his work.

2. He is moved by high impulses.

3. His heart is enlisted.

4. He is active and industrious.

5. He is courageous and determined.

6. He has tact and discrimination.

7. He speaks the truth.

8. He has a good reputation.

9. He is agreeable in manners.

10. He is devoted to his calling.

11. His interest is in one Company.

12. He is careful in selecting risks.

Hyde inspired Equitable agents, as one of his associates remarked, “with a passionate faith in the company, and an enthusiasm for its triumphant progress which a soldier has for the flag under which he fights.” When depression struck, Hyde urged, “Be not discouraged by hard times. Men will die now as formerly. Families unprovided for by an assurance will be left more destitute than before. Never was here greater need of assuring than now, in these HARD TIMES…. Let, then, all our agents take hold with a will.” And he organized his sales force to cover the continent, hiring general agents charged with finding salesmen to cover their territory. In his letter to general agents on September 2, 1867, he noted the miracle of Equitable’s assets of $4.5 million after only eight years.

His sales conventions were a combination of lecture sessions and revivalist meetings. And by 1870 Hyde’s brochures were quoting the “testimony” of salesmen who had increased their earning power by what they had learned at these conventions. Hyde encouraged aggressive competition by contests and prizes; a crack salesman could be identified by his badge, “a massive and valuable gold watch and chain” with which the company had recognized his success. Bringing together all these ideas, Hyde may be said to have created the American sales convention, at the very time when expanding railroads and hotels had their own good reasons for encouraging such perennial gatherings from all over the country. Hyde himself said that he felt even more at home in a Pullman car than in a hotel.

The Great American Salesman was born. The tie to insurance created virtue by association. The aspiring American salesman, partly because of the rhetoric and the organizing energies of Henry B. Hyde and others like him, would henceforth trace his lineage not to peddlers or charlatans or showmen, not to the hawkers of patent medicine or the P. T. Barnums, but to the great preachers and reformers and philanthropists, the benefactors of mankind. The gospel of salesmanship produced its own theology and morality and folklore, its own iconography, its own “sciences,” and its own philosophies. In the early decades of the twentieth century Bruce Barton, founder of a great advertising agency, would praise Jesus as the World’s Greatest Salesman, and the Bible as the All-Time Best-Seller.

Hyde persuaded his sales missionaries that life “assurance” (second perhaps tothe Gospel) was the one thing that all men needed. In 1869 he succeeded in making Equitable’s tenth anniversary into a widely celebrated event; the company was already writing more than $50 million in new business annually, which was more than that of all the leading British companies combined. Within another two decades, the total value of Equitable policies in force made it the largest life insurance company in the world.

IN 1899, WHEN Henry B. Hyde died, he left his control of Equitable, in the form of the majority holding of 502 shares, to his twenty-three-year-old son, John Hazen Hyde, who then wore the mantle (in the phrase found on Equitable policies) of “protector of the widow and orphan.” More than three million prospective widows and orphans were under his protection; the instrument of protection was the company’s assets valued at over $400 million. While young Hyde began with the commonplace virtues and amiable vices of any other young monarch, his extravagance and irresponsibility became spectacular; a Francophile, his formal, “business-expense” dinners for French actresses sometimes cost over $10,000 apiece. Among Hyde’s rivals and enemies were the Alexander family, who feared he would take from them their own smaller slice of inherited power in the company. The Alexanders themselves annually drew perquisites, commissions, and fees from Equitable totaling over $1 million. But before the public investigation of Equitable, along with other large insurance enterprises, got under way, Hyde had sold his majority shares to Thomas Fortune Ryan, a New York promoter, for $2.5 million. Legally the benefits of these shares were limited by the Equitable charter to $7 per share per year, but ownership of the majority shares conferred control over $400 million of policyholders’ assets.

In 1905, when the New York State Legislature held its hearings on the abuses in insurance, a handsome and able young lawyer, Charles Evans Hughes, was in charge. His successful exposures of the extravagance, nepotism, and irresponsibility in the great insurance companies started him on his statesmanly career. And these revelations were aptly characterized by the humorous magazine Puck (October 1905) in its “Little Sums for Policy-holders”:

The tenth Vice-President of a big Insurance company buys one thousand shares of stock at 84. If the stock goes up ten points, how much will he win? If it goes down ten points, how much will you lose?

Three directors are coming back from Europe to explain things. The first returns on a five-day steamer. The second, on a tramp steamer. The third falls overboard. Which man has the most foresight?

Puck’s version of an application form for life insurance required the president of the insurance company to answer the following questions:

What is your name, salary, and rake-off?

Have you any predisposition, either hereditary or acquired, to any constitutional diseases, such as lying, speculatitis, grafting, grand or petit larceny?

Have you ever had any of the following diseases:

Have you any conscientious scruples against perjury?

Do you know anything about the insurance business? If so, what?

It was no accident that salesmanship had a renaissance in the merchandising of insurance, the invisible commodity. For insurance was complicated and required detailed explanation to everybody, but especially to the democratic millions who in America would have the opportunity to become insurance customers. Before the mid-twentieth century, certain kinds of American insurance (for example, for airline passengers at airports), following the trend of American merchandising, would be packaged, mass-produced, and machine-vended. But the abstract and complex qualities of insurance, together with its intimate and personal aspects, continued to keep it as a last preserve for the salesman against advertising.

American enterprise, the energy and rhetoric of American Go-Getters, had helped transform insurance from speculative businesses, first cousins to gambling, into some of the nation’s largest and most respectable corporations. With modern industry and its increasing risks to machine workers, the demand for insurance became universal, and before long, governments began to make insurance compulsory. In Germany, Bismarck set an example with his state system of workers’ sickness insurance (1883), accident insurance (1884), and disability and old-age insurance (1889). In the United States, the Progressives pressed for a scheme of employers’ liability; from the workers’ point of view, this amounted to government-enforced insurance. A federal law in 1908, insuring federal employees against certain on-the-job risks, was followed by laws in most states by 1920. Beginning with the New Deal’s Social Security Act in 1935, the federal government supported, enforced, and enlarged schemes of insurance covering unemployment, old age, disability, and sickness. More distinctively American were the vast privately organized insurance enterprises.

Every advance in technology produced new risks. For example, the democratizing of glass windows and their increasing use for display created costly new risks against which merchants wanted to be insured. Gas lines, electric wiring, and water pipes in houses were new hazards. And of course the locomotive, the automobile, and the airplane would multiply all sorts of risks. The widening popularity of expensive, machine-assisted sports, of skiing, boating, and snow-mobiling, added still further to the opportunities and needs for insurance.

The spread of casualty insurance in the United States was itself a measure of the rising standard of living, for more and more people could afford the costly objects that brought costly risks. In earlier times the main forms of casualty insurance were against the perils of the sea and against fire. But now everyday machines in the hands of the ordinary American gave him a new power to injure his neighbor or his neighbor’s property. An automobile was incomparably more lethal than a horse. And chains of automobiles moving at sixty miles an hour made any single automobile that simply stopped, into a weapon of death.

Of the new forms of insurance in the first half of the twentieth century, by far the most important related to the automobile. The first liability policy on an automobile was probably issued in 1896, when the nation held fewer than ninety automobiles, and the rates varied according to whether the insured vehicle was propelled by electricity, gasoline, or steam. When a mass-produced steam automobile still seemed probable, insurers were much concerned with the dangers of boiler explosion. In the early days the actuarial problem came from the small numbers of policyholders and from the uncertainties about their uses of the vehicles. By 1916 the differences in risks according to the numbers of automobiles and the amount of urban use in a given area were beginning to appear; then the rate for automobile liability insurance in New York City, where there were 25,000 cars insured, was twelve times that in Arizona, with only 200 cars insured. By 1965, one fourth of all premiums on property and liability insurance was in the form of automobile insurance.

The democratization of life insurance, the rise of the Equitable Life Assurance and other private insurance enterprises, had created enormous new pools of power. Like the Ford Motor Company, Equitable could not have been created except by enlisting the participation of American millions. And the great insurance companies became leviathans, which only the people as a whole had the power to create, but which the people as a whole found hard to control.