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August 2008
   VOICES FROM THE FIELD
Conditions Leading to the Foundation of the NALU The time was indeed ripe. The past fifty years had witnessed a spectacular growth in the life insurance business. After years of only modest advances, life insurance had suddenly taken hold in America during the 1840's. Success came with the foundation of the mutual companies. Yet there was another innovation...the soliciting agent. Apart from the advances made in actuarial science, resulting in better-designed policies and more generous benefits, along with steady improvements in company management, it was the development of an aggressive marketing method that accounted for this unparalleled expansion. In his History of Life Insurance in its Formative Years, Terence O'Donnel observes, "Whether life insurance could have so quickly captured popular imagination without the cooperation of the agent is unlikely. Despite its growing importance in the national economy both in America and abroad, life insurance, like any other commodity, still had to be sold... From the first, the function of the agent was vital."[i] The earliest American companies seem not to have recognized the possibilities in the personal solicitation of business. The concept was not unknown, it was simply not exploited. The idea had, in fact, been introduced quite early by the British. Owen Stalson, in his Marketing Life Insurance: Its History in America, notes, "Life insurance selling arrived upon the American scene in 1807. It was thrust upon us by the English. It came, in the form of an agency appointment for one Israel Whelen of Philadelphia, from the Pelican Life Insurance Company of London. So far as we know, he became thereby the first agent for level premium life insurance in America." Quoting one of Whelen's advertisements, Stalson comments on the significance of this appointment:
Pennsylvania was not alone. Most states enacted such prohibitory regulations during the early days of the Republic. The object, of course, was to protect and stimulate developing business enterprises at home. As a result, a number of life insurance companies sprang up in various states during this period. The pioneer in the list was the Pennsylvania Company for Insurance on Lives and Granting Annuities, incorporated on March 10, 1812, with offices located in Philadelphia. "The truly impressive, truly significant thing about the new company," Stalson comments, " was of course the fact that it provided life insurance in a modern form." He explains: By this I mean especially that its founders envisioned whole-of-life level premium life insurance contracts which gave permanent protection to qualified applicants. There were inadequacies in the policy granted, judged by present-day standards...this was notably true in the matter of restrictive clauses in high net cost resulting from large premiums and the absence of dividends and guaranteed cash values...but the policy was none the less a great improvement over those previously available in this country. [iii] Operating alone until 1823, this company was joined then by the Massachusetts Hospital Life Insurance Company of Boston, in 1830 by the New York Life Insurance and Trust Company, located in New York City, and in 1836 by the Girard Life Insurance, Annuity and Trust Company, also in Philadelphia. Incorporated on the joint-stock plan, these were proprietary companies. Since most were also trust companies, their directors tended not to look to the sale of life insurance for their chief source of profit. There was no rush to sell policies. Still, as far as the marketing of life insurance is concerned, these were the most significant ones founded before 1843. Despite the model of a successful agency system in Great Britain during the first several decades of the nineteenth century, the Americans, for the most part, continued to rely on simple notices in newspapers and the distribution of pamphlets to attract customers. Their attitude seems to have been one of "Here we are. Come to us during business hours and we shall be happy to sell you a policy." During the entire life of the company the Girard only appointed four agencies. Neither the Pennsylvania Company nor the Massachusetts Hospital Life ever employed agents. Sales were limited and finally petered out altogether by mid-century. The New York Life Insurance and Trust Company forms the notable exception. As Stalson points out, "It led all companies in sales of life insurance during the years 1830 to 1843; it was headed by the most able of contemporary life executives [William Bard]; it initiated the most important step forward in life insurance marketing method." Sales rose quickly. Three hundred twenty-one policies were sold in 1833. By 1840, the company had 820 policies in force amounting to $2,880,316. "Nothing so convinces one that life insurance was waiting to be sold, not bought," Stalson contends, "as the fact that the policies which Bard's company offered to the public, and sold by the hundreds each year were policies in no way better than those which had been offered for years, though much less successfully, by the two predecessor companies, each located in a rich American city. The only difference was the marketing method employed...the New York Life Insurance and Trust Company hired agents and paid them a commission on the business they sold."[iv] Foreword by Alan Press, 1988-1989 NALU President Preface by Jack E. Bobo, 1989 NALU Executive Vice President 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 Chapter 3 The NALU's Extension of Activity The Agents Move for Recognition Chapter 4 Annual Conventions and Midyear Meetings The NALU Celebrates Its 50th Anniversary Chapter 5 The NALU Joins the Industry in Legislative Battles The NALU Establishes the National Quality Award Chapter 6 Controversies and Schisms (1946-1956) Chapter 7 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 The NALU Issues Statements on AIDS The NALU Combats a New Wave of Attacks The NALU Celebrates a Century of Service [i] Terence O'Donnell, History of Life Insurance in Its Formative Years, American Conservation Company, Chicago, 1936, p. 67 [ii] J. Owen Stalson, Marketing Life Insurance, Its History in America, Harvard University Press, Cambridge, Mass., 1942. pp [iii] Ibid., p. 49 [iv] Ibid., pp 82 and 87 © Advisor Today 2008. All rights reserved.
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