In service

Front matter

^76

HKESE.NTEI) BY

In Service

II

The progress of affairs during 1914, 1915 and 1916 made a number of things apparent to every thinking man in this country. The first of these was that sooner or later this country would become an active combatant ; whatever doubt on this point may have existed at first, it was clear that the sinking of the Lusitania and the unrestricted operations of the U-boats would require us to take a decided stand in the interest of humanity. The second thing that was apparent was the woeful unpreparedness of this country. I doubt whether anyone realized the full extent of our helplessness until the events which followed our entry into war demonstrated so unmistakably our short sightedness in failing to profit by the experience of other nations.

Attempts were made by various people to meet this situation along different lines. The first Plattsburg camp had been held and this served admirably to emphasize the need for trained men in the military establishment.

On January 17th, 1916, I wrote the following letter to the New York Times :

The Editor.

The New York Times.

Sir:—

"If the present war has taught us one thing above all others, it is the great advantage which results from the ability to have a large force ready to strike rather than to have to drill and train the various units after the declaration of war. This is the keynote of the entire plea for preparedness

A careful reading of the proposed bills for the increase of our armed forces and a study of the programs which have been spread before the American public, do not, in my opinion, take cognizance of a very important factor.

In the rearrangement of the military establishment some place should be found for those who are beyond the age of active military service, but who, by virtue of their training and experience, could be of peculiar value to the Government. There are certain duties which, while vital to the success of an armed force have more of an administrative than a military function. Such, for example, is the solution of problems dealing with the obtaining of food supplies, of arms, of ammunition, of clothing, with their manufacture under forced conditions, with the transportation of men and supplies and the various other matters related to them. A reserve force trained to look after such needs of large bodies of troops, could be entrusted with certain duties now devolving upon the Ordnance, Quartermaster and Commissary

Dcpailmcnts, thus relieving: sotiio o( tlic olVicers of those Departim'iits for service in other directions. Men between the ages of 40 and 50, connected with large industrial enterprises who have been especially trained in organization, in directing large numbers of employees in the most effective way, who are skilled in liandling i)roblems of administration, constitute a group of civilians possessing a form of ability which should prove particularly valuable in times of emergency.

I have been told tliat civilians interested in the various branches of engineering are now arranging to be of service to the C'lovernment in case of war and this is a step in the right ilirection. The pri>posal outlined above, however, deals not with engineers, but with men who have been especially trained along the lines indicated.

The fact that recruits may be enlisted in the National Guard uii to age 45. does not solve the problem, for the men who would be entrusted with this work of organisation and who are now beyond the age of 40, could not be expected to enlist in the National Guard: iti fact, there is no place in that body where they could be used etYectively.

If this suggestion appeals to any of your readers I would be ghul to have them correspond with me for the purpose of tindit\g out whether there is some way of carrying out the plan."

Yours trulv,

S. H. WOLFE.

'VUc rcspoiK^o whicli I roooivod to this were most encouraging-. A nntnlier of professional men telephoned or wrote to me. pleili^ing their ei>-operation. .Xmotiji them were F. E. Townsetid. Sturtiis Laurence. B. G. Burtnett, Major C. H Eagle and Archibald E. Stevenson. Copies of the "Times" were sent to ex-President Roosevelt and Major General Leonard Wood, with the request that if thev approved of the idea they assist in forming the organization. The following replies were received:

Oyster Bay, Long Lsland, N. Y.

Februarv 4. 1016.

My Dear Mr. Wolfe:—

■"That is a very interesting suggestion contained in your letter, but it is not possible for me to take up matters of that kind at this time."

(Signed^ T. ROOSEVELT.

Headquarters Eastern Department.

Governor's Island. X. V.

January J5. \^\6.

My Pear Sir :—

"Yours received. I think there is indeed a place for older men in the general scheme of preparedness. Their place is in connection with the organization of <upply departments and work behind the lines, work where business experience and capacity for organization will tell."

\"ery truly yours.

(Signed) LEONARD WOOD.

Mr. S. H. Wolfe.

In order that the details might be discussed, all who had written to me were invited to meet in the directors' room of the United States Casualty Company, the use of which had been cheerfully given for that purpose by Edson S. Lott, President of the Company. I notified General Wood of my intention and he wrote as follows :

En route to Boston, February 14, 1916.

My Dear Sir : —

"Your letter received. If you will give me the date of the next meeting I will try and arrange to have Colonel Bellinger or Captain Dorey of my staff present to talk the matter over with you."

Very truly yours,

(Signed) LEONARD WOOD.

Mr. S. H. Wolfe,

165 Broadway, New York City.

At the meeting Colonel John M. Bellinger. Q. M. Corps. U. S. A., represented General Wood and indicated the way in which the proposed organization could be of service to the Government. At the Colonel's suggestion I prepared an outline of the organization, its scope and the duties of those who would join. This outline was discussed with him and Major Frank H. Lawton, who was then on duty on Governor's Island. They were good enough to approve of tlie general plan and to suggest that I present it to the War Department officials in Washington.

Although I have had considerable experience in submitting new propositions to those in authority, I must admit that I was unprepared for the lack of interest and lack of desire to co-operate which was manifested by those in Washington. I had no illusions as to the value of my idea. Our unpreparedness was something which everybody had to admit : that soon there would be need for the services of the kind indicated was likewise too obvious to permit of discussion : that the regular establishment could not spare men to take up these duties was equally clear ; that my proposal (approved as it had been by General Wood and such practical Quartermasters as Colonel Bellinger and Major Lawton) would enable the Government to obtain the services of professional men with special qualifications, was apparent. Notwithstanding all of these facts, however, there was a spirit of antagonism in Washington which would have discouraged one imbued with less confidence in his proposal. Lindley M. Garrison, the then Secretary of War. was away and I was referred to Major General Hugh L. Scott. Polite frigidity would be the proper characterization of the reception accorded me. The request to have General Scott (who was then Chief of Stafi") refer the matter with recommendations to the Quartermaster General of the Army was denied and I returned to New York disgusted not with the men with whom I had come in contact, but with the blind adoration of the existing svstem which tliey manifested and the refusal to try something new simply because it had never been done before.

After considering the matter at some length I came to the conclusion that the only way in which my object could be accomplished would be by directly entering the service through the Reserve Corps of the Army. 1 had served over five years in the 22nd Regiment of Infantry, National Guard, New York, and had thereby l)ecome familiar with basic military matters; I had studied various manuals issued by the different bureaus of the War Department from time to time and I felt that it would not take me long to master the necessary subjects for the examination. About this time T became acquainted with a newspaper writer — John M. Oskison — who was interested in the same subject and who had attended the Plattsburg Camp. We arranged to study together and for several months burned the midnight oil mastering the details of army "paper v/ork," regulations, rules for the care of horses and kindred subjects. Learning that a certain number of men would be admitted to the Reserve Corps on their professional qualifications without examination, application was made with the approval of General Wood, but the application arrived one or two days after the War Department decided to admit no more without examination and it was therefore denied.

Orders were finally received from Washington directing me to report for examination early in May, 1917, and together with a number of other candidates for commissions in the different branches of the service. I presented myself at the Army Building, 39 Whitehall Street, New York City ; a non-com in the Hospital Corps tested my ability to detect different colors and shades by having me select pieces of wool yarn, and also tested my hearing; a Captain in the Medical Corps completed the examination of the various organs and after certifying to my physical capacity directed me to the Board of Examiners.

Of the seven who entered the physical examination only three of us emerged successfully ; this was somewhat of a shock for it indicated from the physical standpoint how poorly equipped was the average citizen of mature age to enter military service. Subsequently I learned that this was also the experience in England and it is a commentary upon the conditions of life surrounding the man of sedentary habits. Afterwards, I believe the standards were lowered as the rejections were interfering with the military program.

I shall never forget the mental examination which we received. Two retired army officers — one Major Whipple (Cavalry) and the other Captain Piper, an Infantry officer — put us through our paces. For three hours we were submitted to a gruelling examination. The findings of the Board were forwarded to Washington and we were left in doubt as to our fate.

Ill

As soon as it became evident that there would be war between this country and Germany, the life insurance companies gave serious attention to the question of additional premiums to be charged to those who entered the military or naval service. Nearly every company decided to charge no additional premium on policies then in force, but the methods to be followed in the case of new issues varied greatly ; in fact, there were nearly as many diflferent plans as there were companies ; some planned to charge $100 for each $1,000 of insurance, the payments to continue for five years ; others planned to limit the payments to two years ; still others planned to charge $25 per $1,000 as long as the policyholder was engaged in military or naval service irrespective of the field of operation. I felt that the additional charge would be prohibitive in man}^ cases and would serve to discourage enlistments.

This matter was discussed at great length with Mr. Justice Brandeis of the Supreme Court of the United States and at his suggestion I placed the matter before Mr. Ingraham, then Assistant Secretary of War, and Mr. Howard Coffin, of the Advisory Commission of the Council of National Defense. I had very courteous interviews with both of them April 11th; Mr. Ingraham felt that the proposed activity was one in which his department should not engage. I. of course, could not agree with him and this and the subsequent history of the War Risk Insurance Bureau showed the correctness of mv judgment: Mr. Cofiin asked me to submit the matter to him in writing, which 1 did on April 12th. Under date of April 17th, he wrote a noncommittal formal letter of acknowledgment in the course of which he said :

"This of course brings up problems, the solution of which is only now being taken up. I can only say that the matter is in the hands of the Director for action."

Although the matter was taken up with Mr. Gifford, the Director, by me, I was never able to get any action by the Advisory Commission. I mention these matters in order that they may form links in the chain of events which led to the formation of the War Risk Insurance Bureau.

The National Convention of Insurance Commissioners at its meeting in Des Moines, on April 17th, 1917, appointed a committee to take up with the life insurance companies the question of uniform war service regulations. The committee invited all of the life insurance companies to send representatives to meet them at the Hotel Astor, in New York, on April 27th, 1917. At that time a joint committee of the commissioners and representatives from the companies prepared a joint report setting forth recommendations upon which all had agreed and urging every company to adopt the recommendations contained therein.

The matter had been discussed at length by a number of people and the suggestion had been made by the President of one of the insurance companies in a letter to the President of the United States that the companies should issue policies at their regular rates and that the Government should agree with the companies to make up any mortality experienced in excess of the American Experience Table.

The matter was of interest not only from the actuarial standpoint, but in view of its direct bearing upon enlistments ; T felt that it was the patriotic duty of everyone to devise some plan whereby the policies of the large number of men who would probably be required to serve their country could be saved for the benefit of their families ; I feared that the charging of the proposed additional premium would interfere with the taking out of the necessary protection, which would result in privation and hardships to many of their dependents.

At the request of one of the technical magazines, I suggested the following plan for handling the situation.

LIFE INSURANCE AND THE WAR— A SUGGESTION

By S. H. Wolfe, Consulting Actuary

(Written exclusively for Insurance and Commercial IMagaziiie)

"Per capita, the people of the United States enjoy better life insurance protection than do the inhabitants of any other country.

This is merely another waj' of saying that our people have been quicker to grasp the economic advantage of permitting a large number to share the financial damage caused by their death instead of bearing it individually with no help from their fellows.

Is it any wonder then that the patriotic man about to obey the call of his country will stop long enough to see how his act will affect the protection which he has provided for his dependents, for in many cases the insurance policy is the thing which will spell the difference between comfort and discomfort for his family in the event of his death?

Now. the policies of different companies vary in their provisions. Some do not refer in any way to military or naval service, others assume that risk after one or two years, while still a third group requires the insured, if he wants to keep his policy in full force and effect, to obtain a permit and pay such extra premium as the company may decide it is necessary to charge.

But after he has made a rapid calculation of the high cost of living and the disappearance of the usual pay envelope and salary cheque while he is at the front, he may come to the conclusion that he really ought to have more insurance. He does not anticipate any trouble, for probably he has been importuned time and time again to put his name on the dotted line. In fact, he may have had difficulty in resisting the appeals of his friend— the agent. So, full of confidence, he telephones to the agent to come and see him.

Shock No. 1 is now due.

The news is gently broken to him that in policies issued hereafter there will be a provision that if he engages in military or naval service under certain conditions he must pay an extra premium.

As yet there has been no universal rule adopted by the companies in this country, and some may decide to charge no extra premaum if the service is performed within the limits of the United States : others may charge $50 each year on each $1,000 of insurance; if his services takes him out of the country the insured will be called upon to pay annually $100 or $150 for each $1,000 of insurance. Of course, those charges are prohibitive, and if the war should last five years — the period during which most of these additional premiums are payable — the insured would practically pay the cost of his policy.

Now comes shock No. 2.

Even if he should be willing to pay the extra premium, he may be able to get only a very limited amount of insurance, for companies have reduced the limits of the coverage which they are willing to give to those who engage in military or naval service. One large company has announced that it will not issue such policies in excess of $5,000. and when the regular premium and the extra premium are taken into account, it will be seen that the policyholder is receiving mighty little insurance protection.

It is therefore natural for the prospective policyholder to attempt to find out the cause for this increase and to determine whether the companies have simply become panic-stricken or whether they are really afifected by the war situation.

Of course, there is no question but that warfare has an eflFect upon the mortality of insurance companies, but it is incorrect to consider that the sole effect is felt by those who are in the fighting ranks. Even the mortality on the peaceful stay-at-home may, under certain conditions, show an abnormal increase.

The reason why life insurance companies are interested in the question of war risks are two — first, because with other American corporations they will have to meet a large part of the cost of war in the shape of special war taxes and ordinary corporation taxes, and, second, because all of their contracts with their policyholders involve two sets of calculations — mortality and interest earnings — both of which are directly affected by war conditions.

Of course, the primary purpose of an insurance company is the payment of claims. No one element enters so largely into the cost of that function as mortality. The companies, therefore, are vitally interested and concerned in anything which is so essential to a proper basis for their relations with their clients. It requires no extended proof to show that war does affect the mortality experience of a company, but perhaps we have lost sight of the changed methods of conducting warfare. Formerly a company's mortality was in direct proportion to the number of its policyholders who were enrolled as active fighters; thanks to modern methods of conducting war, this has been changed and new factors have been introduced. Not only are companies concerned in the casualties of the firing line, but I venture to say that a considerable variation in the rate of mortality can be ascribed to collateral causes. In Germany, for instance, the shortage in food supplies and the difficulty in obtaining food with the proper amount of nutrition must be contributing factors to an excessive mortality among those who are not directly engaged in the actual fighting.

Zeppelin raids and all of the other different forms of aerial invasion contribute additional mortality risks to non-combatants.

Passing now to the other factor entering into insurance calculations — the interest rate. Nobody knows just what effect the war in Germany, for instance, will have upon the principal of such securities as internal war loans in which the funds of her life insurance companies have been invested. Will such indebtedness be repudiated or will their payment be provided for by the levying of taxes upon a scale as to amount to practical repudiation? We must wait until the present war is ended before a satisfactory answer to those questions can be obtained.

But irrespective of any consideration of the security of the principal, we do know that in every country violent fluctuations have taken place in the interest yield, and in consequence all calculations based upon interest rates have been directly affected. At the present time short-term notes of some of the principal countries at war are being offered upon a basis which will yield over 8 per cent, and in some cases 9 per cent. The entrance of this country into the war can have only one effect, viz: to still further increase the interest rate at which securities will become attractive to capital available for investments. The value of the securities now held by insurance companies will be directly affected by these fluctuations in the interest rate.

From the above we may properly conclude that war conditions affect not only the fighting man, but every policyholder on the books of an insurance company. It must follow, therefore, that every policyholder is vitally interested in reducing the time during which such abnormal conditions prevail. Is it good policy, therefore, to discourage military or naval service by imposing penalties upon those who are able and willing to do the actual fighting?

But that is just what some companies are doing, and it seems to me that instead of discouraging efforts to shorten the duration of war, every attempt should be made to encourage those acts which will safeguard the interest of all of the policyholders by bringing the fighting to a prompt termination.

How can this be done? In the first place, let us not lose sight of the fact stated before, viz: that insurance companies were primarily intended to furnish insurance protection. The question of profits is entirely secondary. If we are prepared to admit that, the rest of the proposition is comparatively easy. Why should we attempt to separate the mortality as between the combatants and non-combatants? Are we not justified in assuming that if any additional mortality be experienced in the former class it is the result of an endeavor to maintain intact the equities of the entire body of policyholders and therefore it should be assumed not by any particular class, but by the entire body? Of course, this would result in those profits which arise from favorable mortality among the non-combatants being used in part — or even in whole — for the pavment of unusual death claims instead of being distributed in the form of dividends. After all. however, this is both just and equitable.

Our chief concern is with the new entrants. Are they to be deprived of the benefits of life insurance protection by the imposition of an additional premium purposely made prohibitive? If so, the matter seems wrong in principle.

For the reasons outlined above, I am of the opinion that the proper procedure would be for the companies by concerted action to agree to issue policies for a certain restricted amount at the regular rates and to provide for the additional mortality from the profits which would ordinarily be distributed in the shape of dividends to policyholders or to stockholders. Last year the records of the three largest companies were as follows :

Dividends Paid to Death Claims

Company Policyholders Paid

This is the record for one year only, and when we stop to consider that these companies very wisely did not distribute all of their profits, we can appreciate the reserve power of life insurance companies to meet unusual conditions such as the one which now confronts us.

There is still another flexible fund which may be used as a 'shock absorber' for the three companies shown above were holding at the end of 1916 certain funds representing profits to be paid to policyholders in the future. These undistributed profits amounted to the enormous sum of $212,592,887, and there is no reason why they should not be used for any legitimate purpose, such as the one indicated. What is the true significance of these accumulations? Disregarding for the moment the question of normal profits on the business in force and assuming that each policyholder serving outside of the limits of the United States is required to pay an additional premium of 10 per cent, of the amount of insurance, each $100,000,000 of undistributed profits on hand would pay the additional premium for one year on $1,000,000,000 of insurance, and therefore, in the three companies shown above, the accumulated profits of over $200,000,000 would be sufficient to pay the additional premium for one year on over $2,000,000,000 of insurance protection.

While, of course, it is impossible to tell just how much insurance will be issued upon the lives of those who will be exposed to the war hazard, it is fair to assume that the three companies referred to will not issue more than $500,000,000 of insurance a year to all policyholders. What percentage of the total will be war risks? If we take into consideration the fact that it is proposed to recruit the fighting force from those between the ages of 19 and 25, and if we consider that the companies proposed to limit the amount of insurance which will be granted to such applicants, it is safe to assume that not more than $25,000,000 will be issued on such lives. The annual additional premium — 10 per cent, of the face of the policies — will therefore amount to $2,500,000. Inasmuch as the three companies referred to paid dividends to their policyholders last year of over $50,000,000 and also had on hand undistributed profits of over $200,000,000. it would seem that the question of additional mortality would take care of itself without causing more than a ripple on the financial exhibit of the companies.

Therefore, why should we not carry the principle of insurance one step further? If the basic idea is the distribution of the normal losses over the entire body of policyholders, why should we not distribute the abnormal losses in the same manner? Surely every logical reason exists for requiring the policyholder who has been insured for a number of years and who has valuable equities in the shape of accumulated reserves requiring protection, to pay for such protection by foregoing his usual profits.

Certainly the plan is worth a trial, and the wise underwriters managing our companies can be trusted to safeguard the interest of their policyholders by discountinuing the practice before it reaches the danger point.

I. personally, think the danger has been over-estimated and the extra mortality arising from our participation in the war may safely be paid — for the present at least — from the profits of the large amount of business now on the books of the companies.

Of course, this would require the concerted action of the companies to prevent discrimination, but surelj- in times like these the supervising authorities would be justified in exercising whatever pressure was necessary to extend benefits to those of our people who make the sacrifices and undergo the hardships not solely for their own protection, but in order that the interests of others may be conserved."

IV

Early in April, 1917, I received a telegram from Mr. Justice Brandeis. asking me to come to Washington for a conference in connection with some important war work for the Government ; at the conference in his office were present Miss Julia C. Lathrop, Chief of the Children's Bureau of the Department of Labor, and Miss Josephine Goldmark, whose interest in sociological work is so well known.

The object of the conference was to outline some plan of providing relief for the care of the dependents of enlisted men serving in our armed forces, for it was felt that it would be a mistake to defer the preparation of relief plans until the destitution actually existed. It was suggested that valuable suggestions might he obtained from the methods followed by our neighbor — Canada — and I was requested to undertake this work. I agreed to do this if it was understood that I should receive no remuneration, and that it might be considered as my contribution to the war activities.

Early in May, 1917, I proceeded to Toronto, Ottawa and Montreal. It is unnecessary to refer here to the results of my inquiry, for they have been published in the shape of a pamphlet by the United States Department of Labor, Children's Bureau (Bureau Publication No. 25) "Care of Dependents of Enlisted Men in Canada." but I should feel that 1 would be guilty of gross lack of appreciation if I did not take this opportunity of acknowledging the great courtesies received at the hands of all with whom I was brought in contact in Canada.

In Toronto, Sir William Mulock, K. C. M. G., and Mr. Angus MacMurchy, who were greatly interested in the Canadian Patriotic Fund, were instrumental in enabling me to obtain a clear insight into the workings of that efficient institution ; in Ottawa, thanks to Major J. L. Todd, the President of the Board of Pension Commissioners, I not only obtained valuable information, but was introduced to Sir Herbert B. Ames, Mr. E. H. Scammell (Secretary of the Military Hospitals Commission) and all of the officers of the Assigned Pay and Separation Allowance Departments of the Canadian Military Establishment; Miss Helen R. Y. Reid, Convener of the Montreal branch of the Canadian Patriotic Fund, was greatly interested in the attempt of our Government to solve a problem, the full extent and importance of which she realized and was of the greatest assistance in that city in pointing out the practical safeguards necessary in relief work of this kind. In Toronto, Lieutenant Colonel and Mrs. Vincent Massey were most kind ; he was the Dean and Professor of English Literature. I think, at Victoria University, a man of wealth and erudition, who had given up his academic work in order to instruct soldiers in musketry and in the mechanism of the rifle and the machine gun. In one of the university buildings Colonel Massey had constructed a most ingenious aid to musketry instruction. One entered the room by means of a trench identical in construction with those on the battle field. The soldier was given a rifle and instructed to observe carefully any moving object which appeared upon the stage situated at the other end of the hall ; by pressing a button the instructor was enabled to cause a small tin figure of a German soldier on a bicycle to shoot across the stage ; pressure on another button caused the figure of a German spy to appear for a moment in a church tower and similar effects were produced with other buttons. The soldier was instructed in sightmg and by means of sub-caliber ammunition was instructed in marksmanship.