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Selecting Risks in an Anonymous World: The Agency System for Life Insurance in Antebellum America

Published online by Cambridge University Press:  13 December 2011

Sharon Ann Murphy
Sharon Ann Murphy
Affiliation:
SHARON ANN MURPHY is assistant professor of history at Providence College.
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Abstract

Early American life insurers found themselves facing the problem of asymmetric information, as they needed to rely on applicants themselves to provide truthful, complete answers to a standard set of questions. In an attempt to repersonalize the relationship between their boards of directors and the individual applicants, firms selected highly respected local citizens to act as their agents. These agents were expected to evaluate the appearance of candidates, unearth evidence of unhealthy family histories or questionable habits, and attest to the respectability of people writing testimonial letters on an applicant's behalf. In short, the initial purpose of the agency system was not to actively solicit customers, but rather to recreate the glass-bowl mentality associated with small towns or city neighborhoods.

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Articles
Information
Business History Review , Volume 82 , Issue 1 , Spring 2008 , pp. 1 - 30
Copyright
Copyright © The President and Fellows of Harvard College 2008

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References

1 Letter from William Bard to Frederick Whittlesey, Rochester, N.Y., 25 July 1832, New York Life Insurance & Trust Company (NYL&T). Baker Library Historical Collections, Harvard Business School, letter book GA-2.

2 Several other companies—most notably the Insurance Company of North America (1794-1798)—possessed charters permitting the sale of life insurance, but these companies never sold more than a handful of policies. For a table of these early companies, see Stalson, J. Owen, Marketing Life Insurance: Its History in America (Cambridge, Mass., 1942), 784Google Scholar.

3 Letter from William Bard to the Phil [Pennsylvania Company; Philadelphia Office], 8 Jan. 1831, NYL&T letter book GA-1.

4 For more on the marketing of life insurance and the emergence of the middle class, see Murphy, Sharon Ann, “Security in an Uncertain World: Life Insurance and the Emergence of Modern America” (Ph.D. diss., University of Virginia, 2005), ch. 6Google Scholar.

5 Letter from William Bard to Frederick Whittlesey, Rochester, N.Y., 25 July 1832, NYL&T letter book GA-2.

6 The companies included in this study employed only male agents during the antebellum period. While some women did apply for life insurance, the majority of applicants were also male.

7 Letter from William Bard to Levi A. Ward Jr., Rochester, N.Y., 25 July 1832, NYL&T letter book GA-2.

8 Johnson, Paul E., A Shopkeeper's Millennium: Society and Revivals in Rochester, New York, 1815-1837 (New York, 1978), 74Google Scholar; Barnes, Joseph W., “Rochester's Congressmen, Part I: 1789-1869,” Rochester History 41 (July 1979): 13Google Scholar; and “Frederick Whittlesey,” American Political Leaders, 1789-2000 (Washington, D.C., 2000), 322Google Scholar.

9 The few historians who have examined life insurance depict its early agency system in very critical terms. For example, J. Owen Stalson disparages the agency system as being a “passive mode of marketing,” which “was almost completely lacking in initiative, [and] was low in selling intensity.” In assuming that early company agents should have been (or were intended to be) active salesmen, these historians fail to understand the original purpose of the agency system. See Stalson, Marketing Life Insurance, 103-25, 156; Buley, R. Carlyle, The American Life Convention, 1906-1952: A Study in the History of Life Insurance (New York, 1953), 48–50Google Scholar; and Zelizer, Viviana A. Rotman, Morals and Markets: The Development of Life Insurance in the United States (New York, 1979), 17–18Google Scholar.

10 Letter from William Bard to Frederick Whittlesey, Rochester, N.Y., 25 July 1832, NYL&T letter book GA-2.

11 This adverse selection could range from a feeling of general unease that induced the person to apply for insurance, to outright fraud.

12 McKelvey, Blake, “Civil Medals Awarded Posthumously,” Rochester History 22 (Apr.1960): 4Google Scholar; Johnson, Shopkeeper's Millennium, 65.

13 McKelvey, Blake, “Rochester Mayors before the Civil War,” Rochester History 26 (Jan. 1964): 13.Google Scholar

14 This expansion of the agency system is based on letters from NYL&T letter book GA-4.

15 In 1835, New England Mutual became the first mutual company chartered in the United States, although it would not begin selling policies until February 1844, underwriting $1 million of insurance during that year alone. They were the fifth-largest life insurance company throughout the 1840s and 1850s. See Life Insurance History, 1843-1910: Yearly Business of All Active United States Life Insurance Companies from Organization (Chicago, 1911), 84–85, 90-91Google Scholar; and Stalson, Marketing Life Insurance, 791-95.

16 Companies were likewise concerned about the applicant's occupation and the climate where he or she resided, but these characteristics were more easily discerned through objective questions on the application and were less likely to require subjective interpretation.

17 Letter from David Thompson to Charles Augustus Doelter, Puerto Rico, 18 Oct. 1849, NYL&T letter book GA-16.

18 “Notes on the Pennsylvania Life Assurance Company,” Massachusetts Hospital Life Insurance Company (MHL). Baker Library Historical Collections, Harvard Business School, unbound papers, box 1; Proposals of the Massachusetts Hospital Life Insurance Company, to Make Insurance on Lives, to Grant Annuities on Lives and in Trust, and Endowments for Children (Boston, 1835), 42Google Scholar; and Baltimore Life Insurance Collection (BLIC), MS 175, applications, 1831-65, H. Furlong Baldwin Library, Maryland Historical Society.

19 Rates and Proposals of the New York Life Insurance and Trust Company, No. 38 Wall-Street, for Insurance on Lives, Granting Annuities, Receiving Money in Trust, and the Management of Trust Estates (New York, 1830), 31–32.Google Scholar Dropsy is an old name for edema, or swelling due to an accumulation of fluid, which is often a sign of congestive heart failure.

20 Bazin, Hervé, The Eradication of Smallpox: Edward Jenner and the First and Only Eradication of a Human Infectious Disease (San Diego, 2000), 6Google Scholar.

21 Buley, The American Life Convention, 22, and letter from William Bard to J. B. LaForge, Albany, N.Y., 21 Jan. 1834, NYL&T letter book GA-4.

22 See, for example, letters from William Bard to Levi Ward, Rochester, N.Y., 21 Sept. 1833, to Bond Murdock, Macon, Ga., 10 July 1845, and to Henry Hayes, Cincinnati, Oh., 2 July 1846, NYL&T letter books GA-3 and GA-13.

23 Bazin, The Eradication of Smallpox, 7, 40-41. Although doctors initially believed that vaccination provided lifelong immunity, they later discovered that periodic revaccination was necessary. Bazin, 80,124. As early as 1846, applicants to the New England Mutual commonly replied to the question, “Has he been vaccinated, or had the small pox?” with “Has been twice vaccinated.” See, for example, New England Mutual Life Insurance Company (NEMLIC). Baker Library Historical Collections, Harvard Business School, policy applications, vol. 3, no. 1219.

24 However, exceptions were still sometimes made on a case-by-case basis. For example, in 1845 Bard informed the NYL&T agent in Wilmington, N.C.: “It appears from Mr. Hall's application, that he has not had either the small or the cow pox. Hitherto, where such has been the Case, we have declined insuring. In the case of Mr. Hall, we have forwarded you a policy, with a stipulation, that in case he should die by the small pox, the Company not to be held responsible.” See letter from William Bard to W. C. Lord, Wilmington, N.C., 21 July 1845, NYL&T letter book GA-13.

25 Hirschhorn, Norbert, “Was It Tuberculosis? Another Glimpse of Emily Dickinson's Health,” New England Quarterly 72 (Mar. 1999): 103–4CrossRefGoogle Scholar.

26 Long, Esmond R., “The Decline of Tuberculosis as the Chief Cause of Death,” Proceedings of the American Philosophical Society 92 (July 1948): 141Google ScholarPubMed.

27 Letter from William Bard to Gustavus A. Myers, Richmond, Va., 10 Oct. 1834, NYL&T letter book GA-4. While it is unclear where Bard found his statistics, they match the results of a twentieth-century study done by the Prudential Insurance Company of America on tuberculosis death rates in mid-nineteenth-century New York City. See Long, “The Decline of Tuberculosis,” 141. Letter from William Bard to Thomas C. Perkins, Hartford, Conn., 17 Mar. 1836, NYL&T letter book GA-5.

28 Stone, Mildred F., Since 1845: A History of the Mutual Benefit Life Insurance Company (New Jersey, 1957), 23Google Scholar; Ravenel, Mazyck P., “The Warfare against Tuberculosis,” Proceedings of the American Philosophical Society 42 (Apr. 1903): 212Google Scholar; and Hirschhorn, “Was It Tuberculosis,” 103-4.

29 Letters from William Bard to Alexis Ward, Albion, Orleans County, N.Y., 1 Sept. 1846, to Pelham W. Warren, Boston, Mass., 8 Sept. 1846, and to David A. Noble, Monroe, Mich., 12 Sept. 1846, and letters from David Thompson to Sanford S. Smith, St. Louis, Mo., 17 Sept. 1846, to Thomas T. Davis, Syracuse, 28 Dec. 1846, and to Messieurs Baker and Millerd, Adrian, Mich., 25 Feb. 1847, NYL&T letter book GA-14. Letter from William Bard to Thomas C. Perkins, Hartford, Conn., 17 Mar. 1836, NYL&T letter book GA-5.

30 Letter from Joseph Tilden to Eccles Gillender, N.Y., 14 Aug. 1839, and letter from Moses L. Hale, to George M. Western, Augustus, Me., 15 June 1841, MHL letter book LA-2.

31 “Notes on the Pennsylvania Life Assurance Company,” MHL unbound papers, box l, Proposals of the Massachusetts Hospital Life, 43; and BLIC applications 1831-65.

32 For example, see letters from William Bard to Thomas C. Perkins, Hartford, Conn., 7 Apr. 1831, and to Ira T. Eastman, 7 Feb. 1832, NYL&T letter books GA-1 and GA-2.

33 Letter from Charles Little, Washington, D.C., to George Carr Grundy, 17 Mar. 1832, BLIC Correspondence Box 1.

34 Letter from William Bard to Mark W. Collet, Paterson, N.J., 3 Apr. 1832, NYL&T letter book GA-2.

35 Letter from William Bard to Peter Lythoff, Paterson, N.J., 12 Mar. 1832, NYL&T letter book GA-2.

36 J. Owen Stalson refers to the sale of mutual policies as the “revolution of 1843” and credits aggressive marketing campaigns by mutual companies during the 1840s with establishing the industry. In particular, Stalson blames the alleged lackluster performance of early companies on the lack of “effective agency arrangements.” For Stalson, the chartering of mutual companies demonstrated a significant shift from this passive agency system to a more aggressive, soliciting agent. Stalson, Marketing Life Insurance, 54, 103-25. This argument completely ignores the dynamism of the pre-1843 industry, apparent in both the statistical and anecdotal evidence. Indeed, the amount of life insurance in force increased steadily during the second quarter of the nineteenth century, with no shift at any point in the 1840s. Additionally, the mutual companies constructed their new business model on the solid industrial foundations established by the earlier stock companies. See Murphy, “Security in an Uncertain World,” chs. 1, 6.

37 NEMLIC policy applications, vol. 1, no. 6.

38 Ibid., and volume 4, no. 1513.

39 For more information on the antebellum temperance movement, see Rorabaugh, W. J., The Alcoholic Republic: An American Tradition (Oxford, 1981)Google Scholar; or Pegram, Thomas R., Battling Demon Rum: The Struggle for a Dry America, 1800-1933 (Chicago, 1998)Google Scholar.

40 “Notes on the Pennsylvania Life Assurance Company,” MHL unbound papers box 1, Proposals of the Massachusetts Hospital Life 42; and BLIC applications 1831-65.

41 NEMLIC policy applications, vol. 4, no. 1534.

42 For example, see letters from William Bard to Dr. E. J. Marsh, Paterson, N.J., 31 Dec. 1831, and to Levi Ward, Rochester, N.Y., 25 July 1832, NYL&T letter books GA-i and GA-2.

43 Letter from William Bard to Philip Viele, Troy, N.Y., 19 June 1833, NYL&T letter book GA-3.

44 Letter from John J. Donaldson to J. S. Carson, 17 Oct. 1837, BLIC letter book 1833-41.

45 Letter from Nathaniel Bowditch to Ulm [illegible], Osborn, N.Y., 20 Feb. 1828, MHL letter book LA-1.

46 Letter from Francis C. Lowell to Samuel H. Mather, Cleveland, Oh., 14 Dec. 1846, MHL letter book LA-3.

47 Letter from Samuel H. Mather, Cleveland, Oh., to Joseph Tilden, l Sept. 1846, MHL letter book LB-2.

48 Letter from Francis C. Lowell to Samuel H. Mather, Cleveland, OH, 7 Sept. 1846, MHL letter book LA-3.

49 Letter from the MHL secretary to George Rivers, Providence, R.I., 27 June 1850, MHL letter book LA-4.

50 These conclusions are based on biographical information on more than three-quarters of the approximately forty New Yorkers who served as insurance agents for NYL&T during the 1830s and 1840s, as well as more than half of the agents representing the company outside of New York. The agents’ names were found in NYL&T letter books GA-1 to GC-3. Biographical information on these agents was primarily drawn from American Political Leaders, 1789-2000, and Biographical Directory of the American Congress, 1774 to 1861 (Washington, D.C., 1961)Google Scholar. Additional information came from American Biographical History of Eminent and Self-Made Men of the State of Michigan (Cincinnati, Oh., 1878), 53Google Scholar; Goodwin, Nathaniel, The Foote Family: Or, The Descendants of Nathaniel Foote (Hartford, Conn., 1849), 89Google Scholar; Fuller, Horace W., ed., The Green Bag: A Useless but Entertaining Magazine for Lawyers 3 (1891): 428Google Scholar; Guide to the Archival Collections at the New York University Archives (New York)Google Scholar; Guide to the Archival Collections at the Missouri Historical Society (St. Louis, Mo.)Google Scholar; Guide to the Archival Collections at the William L. Clements Library, The University of Michigan (Ann Arbor, Mich.)Google Scholar; History of Chautauqua County, New York and its People, (1921); Farmer, Silas, The History of Detroit and Michigan: Or, The Metropolis Illustrated: A Chronological Cyclopaedia of the Past and Present (Detroit, 1884), 785, 865Google Scholar; Thompson, Francis M., History of Greenfield, Shire Town of Franklin County, Massachusetts (Greenfield, Mass., 1904), 845Google Scholar; History of Ontario County, NY (1878), 38-39; History of Ontario County, NY (1893), 154-79; History of Saratoga Springs, NY from our County and its People: A Descriptive and Biographical Record of Saratoga Springs, New York (1899); John H. Selkreg, Landmarks of Tompkins County, New York (1894); William L. Mackenzie, The Lives and Opinions ofBenfn Franklin Butler, United States District Attorney for the Southern District of New York; and Jesse Hoyt, Counsellor at Law, formerly Collector of Customs for the Port of New York (1845), 32; and Corbett, Theodore, The Making of American Resorts: Saratoga Springs, Ballston Spa, Lake George (New Brunswick, N.J., 2001), 66Google Scholar.

51 Letter from NYL&T to Millard Fillmore, Buffalo, N.Y., 2 June 1840, NYL&T letter book GA-8. Agents earned $1 for each new policy (paid by the policyholder, in addition to the premium, upon acceptance of their application) plus 5 percent of all initial and subsequent premium payments. For a $1,000 policy on a thirty-year-old man, this commission would be $1.18. If the applicant needed to be examined by the agency physician, the $1 policy fee would be paid to the physician. See letter from David Thompson to A. L. Stimson, Boston, Mass., 20 June 1849, NYL&T letter book GA-16.

52 “Millard Fillmore” and “Nathan Kelsey Hall,” American Political Leaders, 1789-2000, 15, 25, 158, 178.

53 Olegario, Rowena, A Culture of Credit: Embedding Trust and Transparency in American Business (Cambridge, Mass., 2006), 49CrossRefGoogle Scholar.

54 Ibid., 52.

55 In addition to Olegario, see Norris, James D., R. G. Dun & Co., 1841-1900: The Development of Credit-Reporting in the Nineteenth Century (Westport, Conn., 1978)Google Scholar.

56 Letter from NYL&T to Peter Wainwright Jr., treasurer of the Provident Institution for Savings, Boston, Mass., 29 Feb. 1840, NYL&T letter book GA-8.

57 “Erastus Corning,” American Political Leaders, 1789-2000, 133.

58 Letter from William Bard to Erastus Corning, Albany, N.Y., 24 Dec. 1832, NYL&T letter book GA-2.

59 Letter from William Bard to H. Gates, Montreal, 21 June 1833, NYL&T letter book GA-3.

60 Letter from William Bard to B. Davis Noxen, Syracuse, N.Y., 26 Feb. 1833, NYL&T letter book GA-3.

61 Letter from William Bard to Levi Ward, Rochester, N.Y., 16 Aug. 1832, NYL&T letter book GA-2; letter from William Bard to H. Gates, Montreal, 21 June 1833, NYL&T letter book GA-3.

62 Letter from William Bard to Levi Ward, Rochester, N.Y., 25 July 1832, NYL&T letter book GA-2.

63 Letter from William Bard to Peter Lythoff, Paterson, N.J., 16 Mar. 1832, NYL&T letter book GA-2; Letter from William Bard to Peter Lythoff, Paterson, N.J., 25 Feb. 1832, NYL&T letter book GA-2.

64 Letter from James H. Causten, Washington, D.C., to John J. Donaldson, 6 Apr. 1833, BLIC correspondence box 1.

65 Letter from James H. Causten, Washington, D.C., to John J. Donaldson, 7 Jan. 1835, BLIC correspondence box 1.

66 Letter from John J. Donaldson to James H. Causten, Washington, D.C., 9 Jan. 1835, BLIC letter book 1833-1841.

67 Letter from William Bard to Levi A. Ward, Jr., Rochester, N.Y., 19 Aug. 1851, NYL&T letter book GA-17.

68 Letter from William Bard to Levi A. Ward, Jr., Rochester, N.Y., 18 Nov. 1851, NYL&T letter book GA-17.

69 Note from Thomas A. Gold, Berkshire, Mass., 8 June 1846, NEMLIC policy applications, vol. 3, no. 1192.

70 Letter from William Bard to John L. Starr, Halifax, Nova Scotia, 8 Oct. 1833, NYL&T letter book GA-3.

71 Letter from William Bard to Thomas C. Perkins, Hartford, Conn., 17 Mar. 1836, NYL&T letter book GA-5.

72 Note from A. C. Robbins of Brunswick, Me., 31 May 1847, in NEMLIC policy applications, vol. 4, no. 1606.

73 I have not found any specific instances of companies blaming or dismissing agents for recommending poor risks.

74 Letter from Dr. Beverly R. Wellford, Fredericksburg, Va., to John J. Donaldson, 6 Jan. 1835, BLIC correspondence box 1.

75 Note from William H. Taylor, New Bedford, Mass., 29 Dec. 1846, in NEMLIC policy applications, vol. 3, no. 1404.

76 Note from Newton Fitch, Amherst, Mass., 18 Aug. 1847, in NEMLIC policy applications, vol. 4, no. 1720.

77 Bynum, W. F., Science and the Practice of Medicine in the Nineteenth Century (Cambridge, U.K., 1994), 51–52.Google Scholar

78 NEMLIC policy applications, vol. 4, no. 1534.

79 Letters from William Bard to M. Collet, 26 Nov. 1831, and to Dr. E. J. Marsh, Paterson, N.J., 24 Dec. 1831, NYL&T letter book GA-1. Dr. Elias J. Marsh, presumably the latter's son, would rise to become the medical director of the Mutual Life Insurance Company by the early 1900s. See the Mutual Life Insurance Company of New York 1903 Annual Report no. 38, Historic Corporate Reports. Baker Library Historical Collections, Harvard Business School.

80 Letters from William Bard to Alexis Ward, Albion, Orleans County, N.Y., l Sept. 1846, to Pelham W. Warren, Boston, 8 Sept. 1846, and to David A. Noble, Monroe, Mich., 12 Sept. 1846, and letters from David Thompson to Sanford S. Smith, St. Louis, Mo., 17 Sept. 1846, to Thomas T. Davis, Syracuse, 28 Dec. 1846, and to Messieurs Baker and Millerd, Adrian, Mich., 25 Feb. 1847, NYL&T letter book GA-14.

81 Medical form from Robert Brae, M.D., Mar. 1846, attached to NEMLIC policy applications, vol. 3, no. 1098. Medical form from H. B. Smith, 28 Apr. 1845 [sic; 1846] attached to NEMLIC policy applications, vol. 3, no. 1143-1157. See also, medical form from Nathaniel B. Shurtlett, Mar. 1853 [sic; 1846] attached to NEMLIC policy applications, vol. 3, no. 1050; medical form from Theodore Hillredge, M.D., 22 Feb. 1849, attached to NEMLIC policy applications, vol. 5, no. 2499.

82 Medical form from A. A. Hobert, M.D., 25 Feb. 1853 [sic; 1846], attached to NEMLIC policy applications, vol. 3, no. 1021; medical form from Daniel Collins, 25 Nov. 1848, attached to NEMLIC policy applications, vol. 5, no. 2264.

83 Medical form from James Jackson, 30 Dec. 1848, attached to NEMLIC policy applications, vol. 5, no. 2343.

84 Initially, agents of NYL&T were expected to submit a list of their policies in force, along with the applicable premium payments, on a quarterly basis to the head office. In the fall of 1843, the company revised that policy to require returns from agents on a monthly basis. See letter from William Bard to Henry White, New Haven, Conn., 23 Oct. 1843, NYL&T letter book GA-12.

85 Letter from William Bard to Francis H. Smith, Baltimore, Md., 28 Nov. 1838, NYL&T letter book GA-7.

86 For example, after being chastised in the above letter from 1838, Francis Smith continued to represent NYL&T through the mid-i8sos.

87 Letter from William Bard to Peter Lythoff, Newark, N.J., 1 Jan. 1846, NYL&T letter book GA-13.

88 Letter from William Bard to Messieurs Hale & Welbasky, Boston, 3 June 1846, NYL&T letter book GA-13.

89 See Murphy, Sharon Ann, “Securing Human Property: Slavery, Life Insurance, and Industrialization in the Upper South,” Journal of the Early Republic 25 (Winter 2005): 615–52CrossRefGoogle Scholar.

90 Letter from Henry F. Thompson to John Darracott, Richmond, Va., 26 Feb. 1855, BLIC letter book 1852-67.

91 Ibid.

92 Letter from John J. Donaldson to John Darracott, Richmond, Va., 3 May 1856, BLIC letter book 1852-67.

93 Letters from William Bard to Messrs. Delarleld & Burnett, Cincinnati, Oh., 19 Feb. 1840, and to William Weston, Burlington, Vt., 14 Oct. 1846, NYL&T letter books GA-8 and GA-14; letters from David Thompson to Alexander James, Halifax, Nova Scotia, 3 Mar. 1847, to Elijah Bond, Macon, Ga., 15 Feb. 1849, and to W. S. Simpson, Petersburg, Va., 6 Sept. 1850, NYL&T letter books GA-14, GA-15, and GA-16; letter from Tom Pinkney, Annapolis, Md., to John J. Donaldson, 28 Jan. 1834, BLIC correspondence box 1, and letter from Corydon H. Sutton, Richmond, Va., to Baltimore Life, 14 Dec. 1852, BLIC correspondence box 12.

94 Letter from John J. Donaldson to James H. Causten, Washington, D.C., 28 Nov. 1838, BLIC letter book 1833-1841.

95 Letter from James H. Causten, Washington, D.C., to John J. Donaldson, 17 Jan. 1839, BLIC correspondence box 4.

96 Letter from John J. Donaldson to James H. Causten, Washington, D.C., 21 Jan. 1839, BLIC letter book 1833-41. For more information on the issue of insurable interest, see Murphy, “Security in an Uncertain World,” ch. 4.

97 BLIC letter book 1841-51 and BLIC correspondence box 9.