Burton J. Hendrick

“ In 1880 Massachusetts passed Wright's cash surrender bill. All companies have adopted his ideas; cash values and loans are now written in nearly every policy issued. The New York companies make more noise over their cash surrender features than any others—entirely forgetful of the viciousness with which they opposed them for years. The Mutual, which, in Wright's time, gave only a small part of the reserve on surrender, now loudly boasts that it gives more. ”

“ Wright's denunciations of the Equitable now have all the sanctity of prophecy. He had a certain admiration for Henry B. Hyde as a pushing life-insurance man, but abhorred his practices. He denounced the Tontine scheme—of which the modern successor is the deferred dividend—when first started, and increased his vehemence as its full meaning appeared. In 1882, three years before he died, he said: "Some day there will be a terrible crash in the Equitable. Its disruption is only a matter of a few years." ”

“ The Mutual Life, and all the other mutual companies, had been organized as pure democracies. They had no shareholders, the theory being that the policy-holders would elect, by a general plebiscite, the trustees and equally participate in all the benefits of the business. Winston and McCurdy, declared Elizur Wright, had transformed their company into a pure autocracy. They held proxies enough, he said, to insure their own election, in "the face of any opposition, short of the miraculous." In fact, they had twenty thousand or thirty thousand ready to vote at the slightest indication of revolt. ”

“ Theoretically devised to ameliorate human suffering, its very structure is a constant temptation to the vicious. Ostensibly the life-insurance company merely collects certain sums from its members, invests them at compound interest, and pays them back as contracts mature. ”

“ And the average life policy becomes a claim thirty years after the first payment is made. Again, the company receives much larger amounts than the actual insurance cost. This peculiarity results from the fact, described in the first article, that men will not pay for their insurance as they go. They will not pay its actual cost this year, its actual cost next, and so on—on the natural premium plan, that is—but insist on paying the same amount each year—or a level premium. ”

“ The companies pressed the only valid argument ever brought against the surrender value system: that it encouraged adverse selection against the company; that under it, only the healthy members would retire; that those anticipating early death would certainly remain; and that thus, by increasing the average of mortality, it might weaken the company as a whole. Wright always recognized the justice of this argument, as long as it was not pushed to extremes; and so, in his first bill, he allowed the companies to retain twenty per cent of the reserve as compensation for the loss of the member. ”

“ English Policy-holders Sold Out at the Royal Exchange To prove his statement Cornwall invited Wright to visit the Royal Exchange the succeeding Thursday afternoon. They found in progress an auction upon life-insurance policies. The bidders were chiefly Hebrew speculators. The victims, for the most part, were old men who had put practically all their savings into their life-insurance, and who now found themselves unable to continue their payments. They could get nothing back from the companies for what they had paid in. The great modern principle of surrender values was as yet unrecognized. ”

“ If you lapse now, you get a considerable part of your reserve; if you borrow money from the company, that money is taken from your reserve. Before Elizur Wright pointed out this simple equity, few companies observed it. They all held large sums in their treasuries withheld from lapsing policy-holders, Wright found that many companies encouraged the lapsing habit. In this way they obtained great sums which they used in wasteful expenditure. A peculiarity of the business, he pointed out, was that a company always enormously profited from its own bad reputation. ”

“ Greatly to Wright's surprise, he was himself selected as the first commissioner under this law. He had no right to anticipate the appointment, as he had no political qualifications. Governor Banks selected him, however, because he could find no one else to take the job. He picked out one or two political favorites, but they all refused. They could not undertake the monumental task involved, especially at the salary provided—$1,500 a year. They all declared that there was only one man in Massachusetts who could enforce the law, and that that was Elizur Wright. ”

“ Wright applied his usual mathematical test and was far from satisfied. He found that Noyes was spending fifty cents out of every dollar he took in in "expenses"; that he had seriously impaired his reserves; and that his filed statements were absolutely false. Noyes daily committed the old sin of the English companies: he did not reserve the advance premiums of the early years, but used them in all sorts of extravagance. He insured everybody who offered, irrespective of their physical condition or employment—in the mad chase for "new blood"; and annually contested half his claims. ”

“ Early Training as an Abolitionist If any single man was created for the purpose of elevating and preserving life-insurance, Elizur Wright was that man. He united in one personality all the essential intellectual and moral qualities. ”

“ They paid only ten per cent of the first premium to agents; now they pay anywhere from twenty-five to one hundred. They had no elaborate office buildings scattered all over the world. When the New York Life, in 1867, proposed to erect a modest structure on Broadway, several influential persons called upon the insurance department to suppress it on the ground of extravagance, American companies insured only Americans; they did not look for business in China and Japan.
Driven Out of Office; But a Reformer Still Like all reformers, Wright paid the penalty of his zeal. ”

“ For example, you paid the Mutual a premium of $100.; at the end of the year you received a dividend of $30. which was used to purchase reversionary insurance; the Mutual would count it as $130. cash received. In ten years, Wright showed, it had swelled its income $43,000,000. by this ingenious process. Its purpose was to conceal the extravagances of management. All companies figure the expenses by comparing expenditures with premium income; if the income were thus falsely increased, the Mutual could spend millions of dollars and no one be the wiser. ”

“ An Old Man at an Overwhelming Task The generation which has known the administrations of such insurance commissioners as our recent officials in New York, may profitably study that of Elizur Wright. Here was an insurance commissioner who took his task seriously, who actually scrutinized life-insurance management ”

“ They thus force the insured, during the first half of the premium paying period, to advance a considerable amount on the insurance cost of the latter half. These advance payments, with accumulated interest, are the company's reserves. The Mutual Life, for example, collects each year about $60,000,000. from its policy-holders; but pays in death losses only about $20,000,000. Its $40,000,000. balance, after deducting expenses and other larger disbursements, is really the advance payment of the insurance cost of succeeding years ”

“ After a few years he abandoned his professorship for anti-slavery journalism and came to New York as editor of the Anti-Slavery Reporter and Secretary of the American Anti-Slavery Society. Wright also frequently appeared in the courts in defense of runaway slaves; and was constantly threatened with personal violence. At one time an organized attempt was made by Southerners to kidnap him; a pilot-boat, which was to take him to South Carolina, haunted New York harbor for nearly a month. ”

“ They could, that is, for a considerable time, pay all their maturing claims. If they got in "new blood" and new cash they even more successfully concealed their crimes. In England, Wright found the life managers engaged in an unseemly scramble for these reserves. In the United States the New York and the Mutual Life drew upon their reserves to pay dividends. Recently Emory McClintock, the Mutual's actuary, declared that these dividends, if paid now, would be a signal for the sheriff. ”

“ For needy aristocrats to make stool-pigeons of themselves is the regular game." At that time the American companies, thanks to Wright's patient supervision, were our greatest national exemplars of honesty and justice. They devoted themselves to a simple end—the insuring of lives. Ninety per cent, of all their policies were on the ordinary life plan. They had not discovered that life insurance was an "investment." They knew nothing about gold bonds. They distributed their surplus—paid their "dividends"—annually ”

“ It treated its retiring policy-holders with the utmost illiberality. It had no fixed rule; if one wished to surrender his policy, he got just what the company saw fit to give; if he lapsed, nothing at all. Under no condition did the Mutual ever pay more than fifty per cent. Wright showed that the Mutual had lapsed more than fifty per cent of all the policies issued; and that it thus mulcted policy-holders of $1,000,000. a year. In 1876 he attempted to get in the Massachusetts legislature in order to fight for cash surrender values, but failed. ”

“ He had a great mathematical brain; untiring energy; a keen love of justice; a strong instinct for battle. He had already manifested his crusading temper in many unpopular causes. He was of homespun Connecticut stock, and, a boy six years old, had been taken by his parents through "mud, stump, and beech roots" to their new wilderness home in Ohio. ”

“ The insured, in the event of lapse, were thus compelled to dispose of their policies to sharpers for such cash sums as they would bring. The purchasers, of course, by continuing the payments, received the face of the policies at death. They gambled, that is, upon the chance that their victims would die early. Wright was informed that these auctions took place every Thursday afternoon. ”

“ He also declared that President Winston proposed to deprive his policy-holders of a large amount of post-mortem dividends. The Mutual was then on the annual dividend system. In case a member died his beneficiary received, with the full claim, the amount of the next succeeding dividend. Winston, without consulting the trustees, delared that these should no longer be paid. Homans, the actuary, insisted that they should. ”

“ For twelve years they thus claimed an expense rate of eleven per cent; actually said Wright, it was twenty-one. In 1873, he declared, it thus increased its amount to the extent of $6,000,000. The extravagances he particularized were practically those which the recent investigation has disclosed. He declared that the Mutual staff divided each year at least $150,000. of superfluous salary. ”