History of the Prudential Insurance Company of America (industrial insurance) 1875-1900

Preface

THIS work has been prepared at the request of the United States Commissioner to the Paris Exposition of 1900, as part of an exhibit of charts, diagrams and statistics illustrating full}* the methods and results of Industrial insurance in the United States, as represented in the history of The Prudential Insurance Company of America. The time at my command for the preparation of this work having been very limited, I can hardly hope to have succeeded in presenting the subject in all its essential aspects to the full satisfaction of the reader, but every effort has been made to meet ordinary requirements for information and data on a subject here, for the first time, dealt with on a somewhat extensive scale. In view of the fact that The Prudential Insurance Company of America was the first company organized in this country for the transaction of an Industrial business on the plan of The Prudential Assurance Company of England, I believe that it can be said, with perfect justice, that the history of The Prudential is the history of American Industrial insurance ; for in all measures, methods and results, the Company has not only had its proper share, but it has ever made the most determined effort to hold the first place among American life companies, as a progressive institution vitally interested in everything tending to make the business with which its name is inseparably associated the most successful of its kind, and to offer the most satisfactory form of insurance to the people, who now, to the extent of more than three and a half millions, are its patrons and policy-holders. I have been compelled, for want of space, to limit myself to the barest recital of the historical facts pertaining to

Vi PREFACE.

the early history of the Company itself, and practically everything of a personal character relating to Mr. John F. Dryden, Dr. Leslie D. Ward and other early and present officers of the Company has been omitted to allow for as wide a discussion of general facts as possible. I feel very keenly the imperfect manner in which I have done justice to the men to whose energy, skill and abiding faith the Prudential Company and Industrial insurance in general owe so large a share of the wonderful success which has been achieved, but under the circumstances referred to, no other course was possible without injury to the undertaking as a whole.

For similar reasons I have been compelled to deal very briefly with the early history of workingmen's associations for life-insurance purposes, with the worthy object of providing for uncertain contingencies by means of fraternal associations, gilds, burial clubs or friendly societies, from the latter of which the present form of Industrial insurance is able to trace its origin by an unbroken chain of historic evidence. This limitation is much to be regretted, since many of the works dealing with the subject, or its related aspects, are difficult of access to the general reader, while others are practically out of print, and to be found only in the larger libraries of New York and Boston. For a complete understanding of the causes which have been productive of such vast results in the development of modern Industrial insurance, the reader should make himself familiar with the works of Cornelius Walford on Gilds and Friendly Societies, and with the large number of Parliamentary reports on Friendly Societies and Industrial Insurance Companies, on Old-Age Pensions, Compulsory Insurance and the Life Insurance of Children, published during the period 1 825-1 899. To these must be added the exceedingly valuable paper of Mr. Harben on ' ' The History of Industrial Assurance," published in 1871 ; "The History of The Prudential Assurance Company," published in 1880 ; Baernreither's work on ' ' English Associations of Workingmen " ; T. Mackay on ' ' The

PREFACE. Vll

English Poor" and "Insurance and Saving"; and C. H. E. Rea's paper on w Some Observations on Industrial Assurance," published in the Journal of the Institute of Actuaries, July, 1898. For this country the information is much more limited, but the student should not fail to read the address of Mr. Dry den before the Massachusetts Legislature in 1895, an< ^ tne March, 1898, number of the Charities Review, containing an excellent paper on the subject of Industrial Insurance by Mr. Haley Fiske, the Vice-President of the Metropolitan Life Insurance Company. A valuable address on Industrial Insurance was made by Mr. John R. Hegeman, the president of the last-named company, at the annual meeting of Insurance Commissioners at Milwaukee, September, 1898, but the paper, not being in general circulation, must be applied for at the office of the company. Other information and minor publications can be obtained free on application to any one of the larger Industrial companies, while the general subject of workingmen's insurance can best be studied in Mr. Willoughby's " Workingmen's Insurance," and the United States Labor Report on ' ' Compulsory Insurance in Germany. ' '

Had space permitted, I would have added to this volume a bibliography of works and articles in periodical literature, but the few references given will indicate sources from which valuable material for the study of this most modern form of life insurance can be derived. Some of the more important articles can easily be traced through Poole's index of periodical literature, under the titles of Insurance, Life Insurance, Industrial Insurance, Child Insurance, etc., while a brief discussion of controversial matter can be found in ' ' The Development of Thrift, ' ' by Miss Mary Willcox Brown (New York, 1899).

This work would have been impossible but for two facts, which may be mentioned in explanation of some points otherwise likely to be imperfectly understood. The writer has, for a number of years, been engaged in the collection of material for a larger and more complete work on Industrial insurance in this

Vlll PREFACE.

and other countries, and from the partly completed manuscript of the larger work this sketch has been prepared to meet the wishes of the United States Commissioner to the Paris Exposition. It is, therefore, more than probable that within a few years this book will be followed by another of a more satisfactory nature, supplementing many matters here imperfectly dealt with. Another factor of some importance, and one which is only too often absent in similar discussions of social and economic problems, is that the writer has had many years of actual field experience, having commenced his connection with the business as an agent, successively filling the higher positions of assistant and superintendent in charge of districts in the East, West and South. I have thus had exceptional opportunities to verify field observations by extensive office investigations, and I may add that there is not in this work a single statement of fact or theory which has not the support of personal observation and experience. On account of the peculiar nature of the business of Industrial insurance, the relations of agents to policy-holders are so very close and personal that there is little of importance affecting the daily life and struggle of working people that fails to come to the knowledge of the intelligent observer who, week after week, calls upon the same people for the purpose of collecting the weekly premiums. Their difficulties, trials, hardships and final successes are known to him ; he is their friend and they are his friends, and he is often their adviser, counsellor and aid in emergencies. Coming in such close contact with hundreds of thousands of our wage-earners of all types and nationalities, engaged in every occupation, the Industrial agent has opportunities for study and observation which fall to the lot of only the very few, and I can not but think that in the light of this personal experience I may be pardoned for having at times expressed myself with exceptional emphasis in favor of the character of our industrial population and its struggle for economic independence. I am convinced that if those who think ill of the masses, and

PREFACE. IX

who see in their humble endeavors little deserving of praise and much to blame, would go and really live among the plain people, they would soon realize that beneath all of the apparent sordidness and selfishness there lies much nobility of effort and of aim. The more I have seen of working people, the more I have learned to respect their motives, their efforts and the results of their struggle, and the less, I acknowledge with shame, do I think of the efforts and results of those who, under vastly better conditions, with far greater opportunities, fall materially short of what, by a reasonable standard, we have a right to expect.

In the preparation of this volume I have been materially aided by the editors and publishers of a number of our more important insurance publications, especially Mr. Walter S. Nichols, of the Insurance Monitor; Mr. Clifford Thomson, of the Spectator; Mr. J. A. Fowler, of the Exchange and Review ; and the editor of the Weekly U?iderwriter, who have been good enough to extend to me the loan of their complete files, extending in some instances over a period of more than fifty years.

I am also under obligations to the Insurance Commissioners of the various States for valuable data and information relative to the results of official investigations into the practice of Industrial insurance ; to the Health and Charity officials of nearly all the States and large cities for valuable statistics and data indirectly relating to the business ; to Mr. Julius Clarke, of West Newton, Mass. , and Mr. John B. Clark, of New Haven, Conn. , for information relating to the early history of the business in this country ; to Mr. John K. Gore, the Actuary of The Prudential, and Mr. F. S. Crum, my associate in office, for the reading of the manuscript of this work and valuable aid and suggestions which have materially diminished the possibility of occasional errors and unintentional misstatements. But most of all, I am under a debt of gratitude to Mr. John F. Dry den and Dr. Leslie D. Ward, respectively the President and Vice-President of The Prudential, for complete freedom in making use of the records and archives of the Company

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and for every possible aid in making this work one of interest and value to the student of Industrial insurance and its relation to the general progress of the industrial population of this country. I trust that I have discharged my duty to the satisfaction of those into whose hands this volume may fall ; that I have not materially fallen short in my effort to do justice to the founders of the Company, who have made Industrial insurance the business success of the age ; and that I have done equal justice to the millions of honest, high-minded men and women who are the patrons, as they are the policy-holders and true makers of The Prudential Insurance Company of America.

F. I* H.

761 Broad Street,

Newark, N. J.

Table Of Contents

Chapter. Page.

I. Introduction, i

II. Early Workingmen's Insurance in America, . 6

Introduction

The history of The Prudential Insurance Company is, in a large measure, the history of Industrial insurance in America. Founded in 1875 by Mr. John F. Dryden, the present President of the Company, it was the first organization of its kind to practically demonstrate the possibility of extending the benefits of life insurance to the masses, and the first to demonstrate to the industrial population that life-insurance principles, properly applied, could be made to serve the useful purpose of providing for the burial expenses of every member of the family, in return for a small weekly charge collected from the house of the insured. Mr. Dryden was the first among a number of American insurance managers to put to a successful test the methods of the British Prudential Assurance Company, and the first to recognize the possibilities of family insurance on the Industrial plan in the United States. All efforts in this direction previous to 1875 had failed ; every variety of co-operative or other form of workingmen's insurance had been tried and found wanting, and, instead of acting as an incentive to savings and thrift, these forms of pseudo-insurance had acted as a direct discouragement, and, instead of tending to diminish pauperism and want, these organizations, on account of their inherent worthlessness, were partly responsible for an amount of out-door relief and public support in illness and at death such as has not been known since Industrial insurance became an active factor in the social economy of the American population.

Recognizing that ' ' Political Economy is concerned with the facts of industrial life ' ' and that ' ' this involves a treatment of past industrial life, the forces which have been at work and which have made it what it is to-day," * I have largely confined my sketch to a statement of the underlying causes making for the establishment of The Prudential and the subsequent development and present success of Industrial insurance in America.

It has justly been said, by a great French writer on English history and civilization, that " Whoever attentively considers the English turn of mind will be struck by the fact of a twofold nature : on one side practical ability, and on the other the absence of general ideas and elevation of mind on purely theoretical questions," and, ''whether we turn to works on history or jurisprudence or any other subject, we rarely find that the great fundamental causes of things have been investigated." These remarks of Guizot apply with special force to the history of life insurance and in particular to that modern branch of the business which is to-day, the English-speaking world over, known by millions of working people as " Industrial Insurance."

With this idea in mind, the following sketch has been prepared as a contribution towards a better study of the all- important problem of life insurance for the masses and a better knowledge of a form of insurance which, though familiar to millions of the industrial population, is practically unknown to even the most thoroughly informed students of sociology and political economy. While Mr. Spencer could speak of Friendly Societies as the most familiar instances of co-operation among working people, and rightly included "certain other bodies of kindred natures, chiefly burial societies" and " Industrial Assurance Societies ; doing for the poor what the more conspicuous institutions for averaging the risks of fire, accidents, etc., do for the better off," t it is only too true that this form of insurance, of saving and thrift has almost completely escaped the notice of the economist and been practically ignored by writers on what Mr. Spencer has so well defined as forms of ' ' social structure. ' '

* Richard T. Ely, Problems of To-Day, p. ioo. f Principles of Sociology, Vol. III., p 556.

INTRODUCTION. 3

Industrial insurance differs from ordinary level -premium life insurance in the following four essential points : first, the premiums are payable weekly, instead of being payable quarterly, semi-annually or annually ; second, the premiums are collected from the house of the insured by an agent of the company, instead of» being payable at the office of the company ; third, the amounts of insurance are adjusted to the unit premium, instead of the premium being adjusted to the amount — that is, in Industrial insurance certain amounts of insurance can be purchased for a premium of five cents per week or multiples thereof, while in Ordinary insurance the amount is in round numbers and usually in multiples of one thousand dollars ; fourth, every member of the family can be insured for a small premium, while in Ordinary insurance, as a rule, only the head of the family is insured for a proportionately large amount.

In the sense of this definition Industrial insurance is practically ??iass insurance, while Ordinary insurance is, in a measure, class insurance, and the popularity of the former and its extent may be attributed to the fact that, for reasons inherent in the four cardinal principles, the system provides for contingencies and acts as a protection against uncertainties which are not provided for by any other form of saving or of thrift. Combining with all the elements of security of Ordinary level-premium companies a convenience or propinquity in the manner of paying the premiums from week to week out of weekly wages, the method of Industrial insurance has thus far been proven to be best adapted to the wants and convenience of the industrial population; hence the term "Industrial," which has from the beginning distinguished, and properly so, this form of insurance from life insurance on the Ordinary plan for the more prosperous elements of the population. The business was called ' ' Industrial ' ' by the first company which attempted to develop the system in England, in 1849, — that is, "The Industrial and General" ; and while most of the companies transacting this form of insurance are at the same time transacting an Ordinary business, often reaching vast proportions, the Industrial part of the business is always separately managed and separately valued, with its funds separately invested, similar to the manner in which the business and funds of English Fire and I^ife companies are kept apart.

Having defined the principles of Industrial insurance, I add here a brief definition of its immediate and remote objects, which will partly explain its wonderful success from a purely business standpoint of financial importance. The underlying purpose of Industrial insurance is to provide for the expenses of burial and the cost of the last illness of every member of the family, and thus make unnecessary the assistance of the State or of charitable agencies in meeting a call for funds at a time when such funds are needed most. The abhorrence of pauper support, especially for the burial of the dead, is a pronounced trait of every self-respecting man, and only those who are familiar with the life and the labor of the industrial masses can fairly grasp the deeper meaning of the abhorrence of a pauper burial of a member of the family in the potter's field. Only those who for years have come into intimate contact with the masses can understand the unwillingness of wage-workers, or what I have elsewhere called the industrial masses, to avail themselves of the dispensary doctor during the last illness of a father or a child ; hence the readiness or willingness on the part of the masses to make use of life insurance on the Industrial plan as a method of providing for these contingencies. It has been well said by B. Demolins that "a man who is conscious of his respectability is naturally inclined to increase it,"* and, as a first step in this direction, a provision against pauper burial and pauper medical attendance must be looked upon as a most effective means to elevate or ameliorate the lot of the average man.

To understand this trait — for such it is — among Anglo-Saxon peoples, it is necessary to take into account Germanic origins which have remained race traits up to the present time. To bury the dead was an ancient obligation, and even in the early days of the Northmen there is recorded a famous passage in the ' ' Kdda ' ' which mentions "the different deaths which men may die," and which contains the counsel and demand " That thou give the dead man burial wherever thou shalt find him." According to Tacitus, 1 ' Funerals among the Germans ' ' of his day ' ' were of the highest importance," and in the words of Mr. Gummere, from whose work I have just quoted, "Whatever is sanctioned by religion and dateless customs comes to be regarded as a virtue, ' ' and by the same author, in another passage, ' ' it seems reasonable to infer

* Anglo-Saxon Superiority, p. 183.

INTRODUCTION. 5

for the whole Germanic race a general sense of the immense importance of funeral-rites. ' ' * This respect for the memory of the dead became in time an obligation for survivors to make proper provision for the burial of the departed, and is met with among all peoples and at all times, but most so among the early Romans, the Germans and the English, where we find abundant proof of an ever-present recognition of the decent burial of the dead as a social duty which had to be discharged, even though other duties had, for the time being, to be ignored.

In most of the charters of ancient associations, the Roman Collegia and the Gilds of the middle ages, provision was made for the burial of the dead as one of the most important duties to be discharged by one member of the association towards the other. After the destruction of the Gilds by Henry VIII., Friendly Societies and Burial Clubs came into existence, largely for the purpose of fulfilling one of the essential functions of the former Gilds — that is, the proper burial of the dead. Out of these clubs and societies Industrial insurance was developed in England, the first company for the purpose of transacting such a business having been founded in 1849, under the name of the "Industrial and General." This company was absorbed in 1854 by the Prudential Assurance Company, which commenced the transaction of an Industrial business in that year, its attention having been called to the need for such an extension of insurance principles to the masses by a Parliamentary report on ' ' Assurance Associations" in 1853^

* Germanic Origins, pp. 306, 321, 322.

t Report on Assurance Associations, London, 1853, P- y i- : "Your Committee feel that the ground [s] hitherto occupied by these useful institutions have been comparatively limited and that their application is capable of a great extension, not only in the higher and middle classes of society, but also among the humbler classes, to whom it has recently been very considerably applied ; and that it is therefore very important that no check or impediment should be placed in the way of the further extension of this enterprise, not absolutely needful for the security of the public."

HISTORY OF THE PRUDENTIAL,.

Chapter II. Early Workingmen's Insurance In America

Briefly explained, the underlying purpose of Industrial insurance has its justification in an inherent trait of Anglo- Saxon peoples to make provision for the proper and respectful burial of the dead. Under the earlier forms of association, as Gilds, Fraternities or Secret Orders, this object was accomplished largely on the basis of status and a kindly spirit of brotherly regard, fully in harmony with the conditions of the time. During more recent years the condition of status has largely passed away, giving place to the condition of contract, in which sums certain are insured for in place of indefinite promises made by associations operating, contrary to their intentions, on an unscientific and unbusinesslike basis.

Modern conditions in a free democracy make it imperative that each man shall take care of his own, or, as Professor Sumner has put it, "Every man and woman in society has one big duty. That is, to take care of his or her own self. This is a social duty. For, fortunately, the matter stands so that the duty of making the best of one's self individually is not a separate thing from the duty of filling one's place in society, but the two are one, and the latter is accomplished when the former is done." * For fifty years previous to the establishment of The Prudential in the city of Newark, N. J., workingmen, in their own way and at their own cost, made efforts to provide, by means of the principle of association, for the contingencies of illness and of death. It is a long and interesting history, which has never been written and which has only rarely been touched upon by historians. That the principle of ' ' providing by the association of the many for the contingencies likely to affect the few ' ' is weak and inherently false when applied to life contingencies, unless the laws of human mortality, of sickness and finance

* What Social Classes Owe to Each Other, p. 113.

are properly recognized and rigorously applied, is self-evident to all familiar with the science of life insurance. The early forms of association — secret orders, as they have been called — recognized fully the general principle of association ; and while they accomplished much good by its application, they failed completely the moment they added to their benefit features a life-insurance provision for a sum certain, without taking account of the laws of human mortality and finance. With all the good which these associations have accomplished, they have fallen lamentably short in this respect, and countless millions of hard-earned money have been sunk in ' ' Fraternal Orders ' ' or other forms of workingmen's insurance associations, for which neither a fraternal or financial return has ever been made. Providing for the wants of the few at the expense of the many is a complete perversion of the principle of association, a principle fully deserving to be more completely understood and recognized by economists and writers on social problems, since it lies at the root of all modern efforts to improve the methods of production and distribution for the benefit of the masses.

L,ife insurance as carried on by corporations or companies is solely a question of contract, while all forms of organizations such as Fraternal Orders are either wholly or largely operated on the ancient basis of status. The former method concerns itself principally with the question of security for the performance of its accepted obligations, while the latter has for its object a multitude of aims, with but small regard for the contract or business nature of its implied obligations.* Such organizations existed in this country long before even Ordinary life insurance assumed

* This point is well brought out by Mr. Sydney Webb, perhaps the highest authority on Trades Unions, in his recently published work, " Industrial Democracy," pp. 154 and 155, where it is said that "A member who has paid a whole life-time to the sick and superannuation funds may at any moment be expelled and forfeit all claims for reasons quite unconnected with his desire for insurance in old age. Against the decision of his fellow-members there is in no case any appeal ; moreover, the scale of contributions and benefits may at any time be altered even to the extent of abolishing the benefits altogether ; and such alterations do, in fact, even take place in spite of all the protests of the minorities of old members. * * * It is a further aggravation that in any crisis the Trades Union, unlike the Friendly Society, regards the punctual discharge of sick and superannuation liabilities as a distinctly secondary consideration.

definite proportions, and the Odd Fellows, for instance, had a large membership before the first active American life company was organized, in 1843. Occasionally some of the principles of the system of Industrial insurance were partly recognized and partly incorporated in the various efforts to improve the condition of the masses ; but, standing alone, all of such efforts came to an early end and proved useless undertakings. Thus, for example, the element of weekly saving by the weekly payment of small sums for a future contingency was recognized as early as about 1820 by the Philadelphia Fuel Saving Society, which required members to deposit weekly small sums of money to provide for the winter supply of fuel. The principle of family insurance was partly carried out in the practice of the Pennsylvania Company for the Insurance of Lives, organized in 181 2, which accepted risks at ages as low as eight years, indicating that even at this early period life insurance at the younger ages was thought desirable, if for no other purpose than as an encouragement of the habits of saving and thrift in early life.

It was not, however, until 1847 that the first effort was made to provide genuine life insurance for the masses, and, while the experiment proved a failure, it is of considerable interest from an historical standpoint, as a strong indication of the early need of the masses for life insurance on the weekly-payment plan. The credit for having tried this experiment belongs to the Mutual Benefit Life Insurance Company, of Newark, N. J., which company, in 1847, offered to the less prosperous classes a policy on which premiums of twenty-five or fifty cents could be paid weekly, but, no provision having been made for the collection of the premiums, the plan proved a failure and few if any policies seem ever to have been issued. The views of this company on the subject of " Life Insurance for All " are clearly set forth in a little publication called "The American Manual of Life Insurance," in which it is stated that life insurance " is a mode of accumulation open to all classes of men in all pursuits of life," that "the merchant, the minister, the mechanic, the farmer and the laborer may all avail themselves of it to some extent with ease, and to the greatest advantage," and "it is therefore truly an investment for the millions."

To meet the demand for mass insurance at this early period, a form of association was brought into existence which in part resembled the English Friendly Societies, and in a larger part the trading and business organizations of the present day. "Health Insurance," as it was called, attempted to provide for support in sickness and for a burial fund at death, but, without exception, all the societies of this name organized between 1845 and 1855 came to an early end, in consequence of inherent weakness and the absolute impossibility of transacting a sick-benefit business through the medium of a non-fraternal organization. Although the early health-insurance companies all came to an end by about 1855, a revival of these organizations occurred during the sixties, when in a somewhat similar form another effort was made to gain permanent public support, which, however, was again followed by failure. Very little seems to have been known in this country as to the practice of English Friendly Societies and practically nothing of the system of Industrial insurance as practiced at this time by the "Industrial and General" and the "British Industry," which commenced the Industrial business in 1852 and had by this time issued a considerable number of policies.