Part 1
Even though everyone seemed anxious to avoid topics that might lead to heated controversy, serious questions regarding unethical business practices were unavoidable.  It was, after all, dissatisfaction with the way certain companies and agents conducted business that impelled the agents to organize in the first place. Despite its proven value in bringing untold benefits to the American people, there was much that was not right about how life insurance was marketed during the last decades of the nineteenth century.

Fierce competition for business had given rise to a variety of abuses. Even though the majority of agents probably conducted their affairs honorably, there were many who, under pressure to meet ever-rising production goals, resorted to any scheme that promised large sales. In an unbridled marketplace, these reckless tactics were widespread enough to put the whole industry in a very bad light. People were beginning to have second thoughts about what they were getting for their premium dollars. The loss of public confidence was very much a concern of the men gathered at the Parker House. Clearly, the life insurance industry needed regulating, and its house put in good order.  While they relied on subtler and less direct means than earlier groups, the founders of the NALU were nevertheless wholeheartedly committed to a program of reform.

One of the most pernicious and widespread abuses was rebating in order to make a sale. Allowing the policyholder to pay less than others of his age for the same coverage struck at the foundations of actuarial science, bringing into question the soundness and validity of the very concept of life insurance.  Calling it a form of concealing the bargain, Dr. Proschansky explains the deleterious effects of rebating practiced on a wide scale:

Perhaps its most serious consequence was the feeling of distrust, which it engendered among the buyers of insurance.  Since insurance was given at a discount when procured through a rebate, the buyer reasoned that it was not worth its full value. Aware that many were getting rebates, the average policyholder felt that he was being discriminated against by the company if he was not offered one....

The practice of rebating induced people to take out excessive amounts of insurance frequently at high rates, which were beyond the means of the average person. The inevitable high ratio of lapsation was harmful to both the company and to the policyholder.

The buyer of insurance at a discount was frequently not content with receiving merely a rebate on his first premium. Tempted to demand a rebate on his second and succeeding premium payments, he often dropped his policy when the rebate offered was refused.  He then repaired to a rival company and again sought a policy offering a rebate. Among the more important effects of this instability on the part of the policyholder were high acquisition costs of many life insurance companies; such excessive costs were an important cause for the failure of the smaller companies.

In castigating the company that encouraged rebating, Jacob L. Greene [at the time, president of the Connecticut Mutual] succinctly summarized the unhealthy consequences of the practice:

"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 wherever it could.  It has raised the question whether its premiums as published have any real 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 that new business so costly that there is no profit in it to the company."[i]

Owing largely to the efforts of life underwriters associations, ten states had passed anti-rebating laws by 1890. Leading the pack was the Boston Association which persuaded the Massachusetts State Legislature to enact a law on April 21, 1887, prohibiting "any distinction or discrimination in favor of individuals between insurants of the same class and equal expectation of life in the amount or payment of premiums or rates charged for policies."[ii]

From the moment of organization, the Pittsburgh Association conducted a vigorous campaign to combat the rebate evil, and finally succeeded in getting a law similar to the Massachusetts anti-rebate law enacted in Pennsylvania in 1889.

Regarding these lobbying campaigns, Proschansky observes, "In the case of both the Massachusetts and the Pennsylvania anti-rebate laws, there is no indication from the available evidence that associational efforts on behalf of their enactment were aided in any way by public demand for the legislation. The greatest single factor in ensuring their passage was the work of the agents' associations."[iii] In the other states, the story was the same. Invariably the life underwriters associations could be seen at the forefront of the drive for regulatory legislation.

The associated agents also worked hard to effect reform from within.  While refraining from blacklisting and other coercive measures, many of the local associations asked members to sign agreements not to engage in rebating.  Thus, by example, at least, they raised the ethical tone of their local marketplaces.

When the delegates reassembled in room 12 at the Parker House for their final session on the afternoon of June 19, Plummer was asked to read two resolutions proposed by the NALU Executive Committee. (They had held their first meeting just before lunch.) The first called for the early formation of local associations in all states.  The second was a denunciation of rebating:

Resolved, that this Association is heartily in favor of using every moral and legal restriction possible to prevent giving away any possible part, either directly or indirectly, of the premium to the insured on the life insurance policy.

There was no discussion and the resolution was adopted unanimously "amid prolonged applause."[iv]

Rebating, of course, was only one of the many obnoxious practices tarnishing the image of the life insurance business in this country. Co-workers, company heads, insurance commissioners and politicians would all come to know the associated agents' impatience with incompetence and their distaste for underhanded means. During the following decades the NALU and its affiliates would set about rectifying abuses and exposing malpractice in all their various guises—on local, state and national levels. Association leaders would give speeches, pass resolutions, publish articles and books, initiate educational programs, needle companies and goad legislators. In exposing inept and dishonest agents, they would lodge complaints with state officials and file lawsuits. Above all, they would aim at showing their fellow life underwriters honorable and more efficient ways of doing business. It would take a hundred years.

Meanwhile, having announced war on rebating, the delegates devoted the remainder of the session to a friendly exchange of views on how to involve the rest of the nation's agents in the association movement. They adjourned early in order to allow time for the Boston Association's business meeting and for everyone to dress for dinner.

The National Association of Life Underwriters concluded its first convention with an elaborate banquet that evening. It was held in the grand banqueting hall on the main floor of the Parker House, which the reporter described as "richly festooned with draperies of American flags, in the center of which appeared a life-like portrait of the late Henry H. Hyde, justly regarded as the pioneer life insurance solicitor of America as regards perseverance, intelligence and success, and the prototype of the successful solicitors of today." [v]

The guest list presented dramatic proof of the Boston agents' success in cultivating valuable friends. Two company presidents attended: T.W. Russell of the Connecticut General Life and John De Witt of the Union Mutual.  Others gracing the head table included Thomas N. Hart, Mayor of Boston, George S. Merrill, Insurance Commissioner of Massachusetts, Rev. Edward Everett Hale and John D. Long, former Governor of Massachusetts and future Secretary of the Navy.

Hale, the well-known author of The Man Without a Country, was the principal speaker of the evening.  Congratulating the agents on having formed a national society, he urged them to extend the benefits of life insurance to all classes of society. "You should not be satisfied with this upper crust whom you are insuring now," he said, "take in us poor dogs who belong to the lower grade, and insure everybody."

Mayor Hart amused the members when he thanked them for returning the Putnam Bradlee undamaged.

During the following year, the Executive Committee held two meetings: the first at the Brunswick Hotel in New York City on October 28, 1890; the second at the Rennert Hotel in Baltimore on March 20, 1891. These meetings resulted in proposals to refine the constitution of the National Association, the establishment of a number of committees, and the approval of the constitutions of new associations seeking admission to the national body.

As everyone hoped, the successful launching of a national organization gave added impetus to the association movement. When the NALU met at the Hotel Cadillac in Detroit on June 17, 1891, for its second convention, twenty-three associations sent delegations. Associations had also been formed in St. Louis, North and South Carolina, Minnesota and Wisconsin. The NALU wasted no time in initiating its drive for improved business practices. At this stage, many members seemed to favor some degree of federal supervision in the industry, and heartily approved Thomas Morgans's proposal for establishing a bureau of insurance in the District of Columbia. To encourage better industry regulation on the state level, the Executive Committee had appointed a committee to draw up a model anti-rebating law to guide associations eager to push for regulatory legislation where none existed. In presenting the proposed bill to the convention, Caleb Tillinghast, chairman of the committee, explained that it was based largely on New York's statutes.

Another proposal that excited keen interest came from John H. Nolan of Chicago, who urged the foundation of a professorship of life insurance at the recently chartered University of Chicago. (John D. Rockefeller and several prominent of the Chicago Financial community had provided large endowments to establish this university.)

The leaders of the NALU knew they must have their organizational machinery in good working order before they would see any real progress. During the second day of the meeting, considerable time was devoted to changes in the constitution and bylaws. This proved to be only the first in a series of measures to modify the structure of the Association. It was an evolutionary process. The question of how a large, national organization should be governed became increasingly complex as the Association grew.

The proposed amendments had to do with the number, selection, tenure and functions of the officers. The problem centered on reconciling the need for strong leadership—from whatever quarter—with an eagerness to allow all members to have a voice in determining policies. The issue was aggravated by sectionalism.  On the one hand, stability and continuity were essential if the Association was to accomplish its long-range objective for improving the position of America's life insurance agents. On the other hand, the organization could lose its national character if it came to be dominated by a few influential men from the large urban centers in the East, where there was a heavy concentration of members as well as company offices. These questions were to plague the NALU throughout the decade.

For the moment they decided to reduce the number of vice presidents to two.  Eventually a solution was found in the composition of the Executive Committee.  This arrangement entitled each local association to one representative who served for a term of three years. In this way both wide representation and a degree of continuity was attained. To fill the major offices for the 1891-92 term, the delegates elected New York's Charles H. Raymond, president, and Layton Register and General Harbison of Hartford, vice presidents.  William Ratcliffe was reelected treasurer and Caleb Tillinghast, a general agent for the Equitable in Cleveland, was named chairman of the Executive Committee. During these years Plummer served as secretary both for the Executive Committee and the NALU.

Colonel Raymond, who had spent practically his whole adult life in the life insurance business, headed one of the most successful agencies in the country.  He was a close friend and partner of Richard A. McCurdy, president of the Mutual Life of New York. McCurdy's son, Robert, and son-in-law, Dr. Louis A. Thebaud, were also partners in the Raymond agency.  Originally from Albany, Raymond had been educated in Europe. After completing his schooling he returned to serve as Deputy Superintendent of the New York State insurance Department.  When the Civil War broke out four years later, he enlisted as an officer of the Zouaves and distinguished himself in several major campaigns. Returning to civilian life after the war, he became president of the Widows' and Orphans' Insurance Company for a time before joining the Mutual Life.

Tillinghast set the organizational machinery humming.  In October he called a meeting of the Executive Committee at the Hotel Brunswick in New York City, and the following May at the Hotel Wellington in Chicago. The leaders of the NALU were eager to establish liaisons with other insurance organizations.  Invitations to the next NALU convention were extended to the recently formed Association of Actuaries and the Association of Medical Examiners. Since the insurance commissioners planned to hold a convention in St. Louis the following September, a committee was authorized to communicate with C.B. Ellerbe, president of the National Convention of Insurance Commissioners, on issues of particular interest to agents.

Responding through their legislative committee in a letter dated September 15, the insurance commissioners heartily concurred with the associated agents, views, and stated their intentions of acting on their recommendations. The list provides a good index of which problems Tillinghast and his colleagues considered most critical. They asked the commissioners to address ways of enforcing anti-rebate laws and the enactment of effective legislation where none existed.  Other concerns recommended for the commissioners' consideration were: the suppression of "fraudulent short-term bond and endowment societies"; an investigation of "that class of assessment associations which are organized, not for any benevolent object, but for the purpose of securing money from the credulous and unwary"; ways of eliminating "company and agent attacks upon rivals in the use of anonymous, misleading and abusive literature"; and the reduction of "excessive taxation" in some states. [vi]

Assessment and fraternal societies, as opposed to legal reserve life insurance companies, were organized as self-help groups to defray expenses for funerals and extended illnesses.  While they originated with the most noble intentions, many failed because they neglected to build up enough reserves.  Often based in a rather simplistic "passing of the hat" principle, they lacked administrative facilities and actuarial expertise. These organizations grew out of a widely felt need for an alternative to life insurance. Their popularity was one manifestation of the growing reaction against life insurance, resulting from mismanaged companies that employed deceptive marketing tactics and finally proved insolvent.  In many cases, assessment societies were built on an illusion that ignored the realities of actuarial science. Preying on the naivete of the public, not a few were ephemeral moneymaking schemes from which their members never derived the promised benefits.

This explains the association members' alarm at the growing popularity of assessmentism. They were not attacking well-managed benevolent societies but those that were patently commercial in intent and actuarially unsound. The NALU and its affiliates, however, made little progress in checking or regulating these operations:

Although successful in inducing legislators to enact anti-rebate legislation, the local associations met with very little success in their attempts to curb assessmentism in its various manifestations.  In view of the very large numbers of members enrolled in such societies, it was quite patent that legislators would not risk stirring up a hornet's nest about their ears by enacting restrictive legislation. As Stalson wisely notes: "Members of the various 'societies' acted as a solid block of influence in their favor.  No politician was foolhardy enough to risk his position by standing out against them." [vii]

It was rebating, however, that Raymond focused on in his opening address to the NALU convention at New York's Carnegie Music Hall that September. "The reason for the merely gradual effect of our efforts toward this reform is found in the fact that the morals of our business cannot be entirely influenced by the acts of associated agents," he told the delegates. "In the companies, and the companies alone, is to be found the means for a speedy elimination of this pernicious fault."

The delegates agreed and unanimously passed the resolution proposed by the Executive Committee:

Be it resolved by the National Association of Life Underwriters that the companies—who need no assurance of the loyal devotion of their agents—are earnestly requested to promptly adopt such measures as will exclude from the business all agents who may thereafter persist in the practice of rebating. [viii]

Copies were sent to all the companies with the delegates' signatures attached.  Responses ranged from indifference to very positive endorsements. The National Life Insurance Company of Vermont, for example, issued a warning to its agents that anyone found guilty of rebating would be instantly dismissed.

Another proposal that won the delegates' ready support represents the NALU's first official steps in promoting agent education. They appointed a committee of five "to correspond with the various leading educational institutions for the purpose of ascertaining to what extent they now teach the principles of life insurance, etc."

Recognizing his able leadership, the delegates elected Caleb Tillinghast president for 1892-93 and selected Cleveland as the site for the next convention. At fifty-two, Tillinghast enjoyed a high reputation in life insurance circles. As a young man he had attracted the notice of the Equitable for his brilliant record as a manager of the New York Life in Kansas, Nebraska, Texas and Colorado. A few months before his election as NALU president, Tillinghast had resigned his position as manager in southern Ohio for the Equitable and accepted, in connection with his two sons, the management of the Manhattan Life.  Later when he was named vice president of the provident Savings Life, the editor of the Ohio Underwriter commented, "Mr. Tillinghast is reported to have made a fortune in the life insurance business," adding that he was a "shrewd, broadminded, long-experienced" underwriter.[ix]

By the close of the convention on September 23, forming local life under writer associations was becoming a national habit. Seven new associations had joined the NALU with the South particularly well-represented. During the previous year associations had organized in Louisiana, Kentucky, Tennessee, Alabama, and Texas. The following year Virginia and Georgia were added to the list. The total number of associations affiliated with the NALU as of September 1892 was thirty.

Little by little, throughout the industry they made their presence felt.  Addressing the NALU convention in Cleveland on September 6, 1893, Henry Worthington Smith, editor of Philadelphia's United States Review, spoke of the influence the life underwriters associations were having.  Noting that there had been few changes in the theory of life insurance in recent years, Smith observed:

On the practical side of this work, however, there have been great and radical advances.  New and more liberal policy contracts have been adopted. The personnel of the agency force has been improved.  Managers and solicitors, better instructed, have come to understand that a predatory and unscrupulous warfare, in which the hand of every man is against the throat of his neighbor, does not advance either the business as a whole or that of the individual solicitor. The field workers have come out from under to yoke of a bondage created by bitter animosities and formed associations for the common weal. They have also come to a better knowledge of each other. They met at stated times, broke bread together, and became mutually helpful.

This altered situation promised substantial benefits to the insurance-buying public, Smith felt, crediting the life underwriters associations with having provided the stimulus for many of the improvements within the industry.[x]

There were thirty-eight associations represented when the fifth annual convention met in Chicago on June 20-21, 1894. Charles H. Ferguson of Chicago was the president that year. The business sessions were conducted in Recital Hall at the Auditorium Building. Attendance at this meeting was nearly double the previous meeting in Cleveland. This was taken as a strong indication of generally high interest in the association movement, as the official reporter of the convention observed, "in view of the financial depression which had been felt keenly within the rank and file of the life insurance profession."

Always fine-tuning its organizational machinery and improving the quality of its meetings, the NALU at this stage maintained seven standing committees, headed by key members of its oligarchy. In 1894, Plummer chaired the Speakers Committee, Charles Raymond was assigned to Finance, and Tillinghast had charge of Topics and Publication. The committee on Local Associations was chaired by Ben S. Calef; Ways and Means by Charles Ferguson. Henry C. Ayers of Pittsburgh was in charge of the committee on Statistics while George Hadley managed Credentials.

It was at the Chicago meeting that the idea of holding an annual essay contest was introduced. Ben Calef donated a silver loving cup to be awarded to members submitting the best papers for presentation at the annual NALU conventions. Joseph Ashbrook, Henry Ayers and H.L. Sheppard of Minneapolis made up the original awards committee, assigning the subject, "What Life Underwriters' Associations have Accomplished for the Benefit of Companies, the Agents, and the Public." C.W. Van Tuyl of Minneapolis was the first winner of this award.  Prize essays continued to be a feature of the conventions until 1922.

The Executive Committee recommended that steps be taken by local associations to seek appropriate legislation in thirty-seven states that did not have anti-rebating laws. The delegates readily endorsed the program, but several expressed the view that these measures could have only limited effect, since the heart of the problem remained: ridding the business of unqualified and unethical field men. During the lengthy floor debate on the "Advantages of anti-rebate laws, as for the people, the companies and the agents," twenty-nine year-old Edward A. Woods, a delegate from Pittsburgh, rose and offered this observation:

It seems to me that if no scheme can be devised for elevating the character of life insurance men, that the National Association of Life Underwriters had better adjourn...The unethical agents are the basis of all the evils this association has anything to do with.  You can pass all the laws you please, make all the recommendations you please, but if you cannot eliminate a certain class of men from our business, we are wasting our time.

During the following year the agents were successful in getting a number of states to adopt anti-rebating measures.  By 1895 nineteen states had anti-rebating laws.

Part 1

Part 2

Part 3

Part 4

Part 5

Foreword by Alan Press, 1988-1989 NALU President

Preface by Jack E. Bobo, 1989 NALU Executive Vice President

Introduction

Acknowledgements

Chapter 1

Laying the Foundation—A Meeting at the Parker House

Leading Figures—Ransom, Carpenter, Blodgett and Plummer

Conditions Leading to the Foundation of the NALU

Rise of Modern Life Insurance and the General Agency System

Issues and Accomplishments of the First 15 Years

Chapter 2

In the Wake of the Armstrong Investigation

A Royal Commission Investigates Life Insurance Operations in Canada

A Period of Growth and Visibility for the NALU Under Strong Leadership

The NALU Plays a Leading Role in Insurance Education

The NALU During World War I

Chapter 3

The Post-War Decade

The NALU's Extension of Activity

The Agents Move for Recognition

Chapter 4

The Depression and Aftermath

Annual Conventions and Midyear Meetings

The NALU Celebrates Its 50th Anniversary

Chapter 5

The Agents Earn Their Wings

World War II

The NALU Joins the Industry in Legislative Battles

The NALU Establishes the National Quality Award

Chapter 6

Controversies and Schisms (1946-1956)

The Foundation of LUTC

The Nola Patterson Affair

GAMC Formally Organized

Chapter 7

The NALU Goes to Washington

Dispute Over Minimum Deposit Insurance Plans

GAMC Stages First LAMP Meeting

The NALU Celebrates Its Diamond Jubilee Year

The NALU Increases Political Activity

U.S. Senate Antitrust and Monopoly Subcommittee Investigate Life Insurance

The NALU Responds to Consumerist Activism

Chapter 8

The NALU Reaches the Century Mark

FTC Releases a Study Critical of the Insurance Industry

Formation of the Women Life Underwriters Conference

Drop in Local Membership

The NALU Issues Statements on AIDS

The NALU Combats a New Wave of Attacks

The NALU Celebrates a Century of Service

Open Book

Book Marks

*Henry Hazen Hyde was the father of Henry B. Hyde, founder of the Equitable. When he died in 1873, one trade journal, The Solicitor, considered him "in many respects the most remarkable man in the country, perhaps in the world, as connected with life insurance in the United States....He was without a doubt the most successful life insurance canvasser in the world, having insured risks to the amount of over twenty million dollars in Boston and vicinity, and paid out about two and a half million."

[i] Op. Cit., pp. 11-13

[ii] Standard, April 30, 1887, p. 386

[iii] Proschansky, Op. Cit., p. 98.

[iv] Proceedings, 1890, p.56.

[v] Buley, Op. Cit., pp. 154-156.

[vi] Proceedings, 1892, pp19-26.

[vii] Proschansky, Op. Cit., pp137-138.

[viii] Proceedings, 1892 p.21.

[ix] Op. Cit. May 13, 1897.

[x] Proceedings, 1983, pp. 27-36

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