# The Story of Life Insurance/Chapter II

AMERICAN life-insurance really had its beginning at an English breakfast table. John Kenyon, the well-known poet and entertainer, was the host, Robert Browning, Samuel Rogers, Elizabeth Barrett, Miss Mitford, and Barry Cornwall were among the more notable guests. Less conspicuous was a dark-eyed, dark-haired American who had arrived only a few days before from Boston in the somewhat humble guise of a book agent, but whose previous labors for liberty and philanthropy, to say nothing of his fine bearing and brilliant wit, were a sufficient passport into the most distinguished circles.
Barry Cornwall and Elizur Wright, the American book agent, sat side by side and soon found many topics in common. Wright gave entertainingly his impressions of London, and described with enthusiasm his recent visit to the Sun Life-Insurance office and his talk with Joshua Milne, the author of the Carlisle table of mortality. His trip to London, Wright explained, was partly to investigate English life-insurance conditions in the interest of the Massachusetts companies, and he had already learned a great deal about the subject that was new to him.
"Life Insurance!" interrupted Cornwall. "Why, it's the greatest humbug in Christendom!"

## 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. 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 saw them regularly advertised in the newspapers. He found that a considerable part of the speculative public made fortunes in this way, and be discovered one venturesome individual who had thus picked up forty-two policies. He was also told that the custom frequently incited to crime.
Wright declared that he had attended many slave auctions at home, but that they seemed little worse to him than this British custom. He learned, however, that it was only typical of the general injustice on which the whole British life-insurance system rested. His London visit took place in 1844, and the business by that time had largely fallen into the hands of swindlers. The chancery courts were constantly clogged with defunct companies. In twenty-five years nearly three hundred offices had been chartered; in the same period nearly two hundred and fifty had failed. Amalgamations, embezzlements, reinsurances—these were the order of the day. A few years after Wright's visit, seventy-eight life-insurance schemes scandalously wound up. Needy aristocrats constantly sold their names for this purpose; the favorite device of the bankrupt nobility, indeed, was the organization of life companies. They fitted up elaborate offices; issued high sounding prospectuses; impressed defunct schoolmasters and clergymen in as canvassers; and for a brief time did flourishing business. They paid what were then enormous commissions—thirty-five and forty per cent; regularly abstracted fifty per cent, of the premiums in "expenses;" and thus soon, in spite of frequently large receipts, found themselves unable to pay their policy claims. At the time of Wright's visit the public conscience was aroused. Dickens had recently satirized the business in "Martin Chuzzlewit," and Parliament had held a futile investigation.
Wright recalled that similar tendencies had manifested themselves at home. They had not reached the same proportions in America, however, probably because the life-insurance business had not yet passed its infant stage. In its undeveloped condition Wright thus saw a great opportunity. He took upon himself a solemn vow. He determined to exert all his powers to save his own country from the humiliation which he had witnessed in England. He had sufficiently studied life-insurance to know that it was basically sound; and that, properly practised, it could be made one of the greatest safeguards of the economic system. For more than forty years, until his death in 1885, Wright devoted his whole life to this end.

## 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. 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. His mental qualities had manifested themselves at an early age; as a child he had shocked his pious father by pressing arguments against the Shorter Catechism. At the age of seventeen he became a student at Yale, earning his education by ringing the bell, waiting on commons, and tutoring his classmates. Here his chief relaxations were Webster's conics and Playfair's geometry; and here, too, his unceasing zeal for certain unfashionable theories made him unpopular. He preached temperance, and succeeded in having wines abolished from the Phi Beta Kappa banquets, and, worse than all, regarded slavery as the great national sin. Yale College in those days was full of Southern students, and upon them Wright frequently exercised his dialectics. His intellectual capacity, especially in mathematics, so impressed the teaching force, that after graduation he was invited to return to New Haven as a tutor; but after a year or two teaching he became Professor of Mathematics at the Western Reserve College, which his father had helped to found. Here, too, his constant and open advocacy of the anti-slavery cause made him detested. He early joined forces with Garrison; wrote frequently in the Liberator, and became the close friend and correspondent of Arthur and w:Lewis Tappan, Beriah Green, and the other early abolitionists. 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. At another time his house in Brooklyn was threatened by a mob. The Mayor called on Wright and begged him to leave town in order to prevent a riot. Wright refused to budge. "If you can't protect me," he said, "I'll protect myself." Whereupon he placed a huge ax against the door and awaited his foes. Only by stopping the ferries from running was a serious disturbance avoided.

## A Man With All the Qualities of a Successful Reformer

As it turned out, these were precisely the qualities needed in his battle with life-insurance dishonesty. The fight for the policy-holder called for the same sympathies, the same watchful zeal, the same sacrifice of expediency to conviction as the fight for the slave. In life-insurance, as in the slavery agitation, Wright was always the radical. To this moral fervor, however, he added indispensable talents; he had a capacious brain and marked mathematical genius. In him moral enthusiasm and actuarial science blended. As soon as he returned from Europe he mingled his anti-slavery crusade with his struggle for life-insurance reform. When not calculating life tables he was assisting in the escape of runaway slaves. He was one of the "mob" arrested for assisting the flight of the fugitive Shadrach. In order to preach more effectively his causes he decided to found a daily newspaper. He scraped together enough money to buy a quantity of paper, carried it over to the printer on his own back, and told that astonished person to begin the first issue. Thus appeared the Chronotype, which many old Bostonians still remember with intellectual relish. Among other things Wright made the journal a live newspaper, scoring several "beats" worthy of Bennett himself. In this he actively began to discuss life insurance. He found that the Mutual Benefit of New Jersey, recently organized, offered to insure by taking three-quarters of the premium in notes; and called it to account. He succeeded in persuading the officers of their mistake; had the satisfaction of being thanked by them for his criticism, and of seeing the Mutual Benefit develop into one of our greatest and best managed American companies. Wright called other companies to account for similar practices. He now went deeply into life-insurance mathematics. He decided, on his own hook, to prepare a series of actuarial tables—something then unknown in America. He worked for a year at his calculations; his own boys and girls set the type. It was published in 1853; a revised edition was issued in 1871 and is still considerably used. He eked out his living by translating La Fontaine's Fables—his translation still being preserved in all the bibliographies. All these years, however, Wright lived in the utmost poverty. He foolishly sold his Chronotype, and was retained as editor at a salary of ten dollars a week. At this time, too, he had a family of twelve children! His appearance on Boston Common, followed by his brood, was one of the sights of the times.

## The Cause of England's Scandalous Record

By this time, however, Elizur Wright had formulated his ideas as to needed reforms in life insurance. He had carefully studied its scandalous history in England, and had emphatically put his finger on the cause. He found it in the endless opportunity offered by the system itself. "I became persuaded," he said, "that life-insurance was the most available, convenient, and permanent nidus for rogues that civilization had ever presented." No institution based upon general benevolence, indeed, so contains within itself the possibilities of fraud. 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. But there are two factors which differentiate it from other financial institutions. The first is the long period its policies run. The company makes definite contracts for an indefinite time. It agrees to pay stipulated sums, but to pay them only at death. 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. Consequently the companies attempt to average up the yearly cost, and thus charge a greatly excessive price in the early years, and a price much below cost in the latter. 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; and this it reserves against the day when its payment will be required. For such future payments the Mutual Life has already heaped up some $440,000,000.; and, even though it should cease writing new pohcies to-day, this sum, so great is the accumulation from compound interest, will in a few years increase to $1,000,000,000.
In Wright's time, these reserve premiums were a constant temptation to plunder. The life companies assessed their premiums on the level payment, or part-advance payment, system; but were not legally held responsible for the great sums so accumulated. Being unrestrained by law, their officers could squander and steal these reserves and still maintain an outward show of solvency. 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.
    1↑ Testimony before the Armstrong Investigating Com. Vol. III, page 2263.

## Wright's Great Fight for the Legal Reserve

Wright, apparently alone of all men in his generation, saw where this would end. He also pointed out the obvious remedy. He showed that the amounts deducted from each premium for reserve purposes were matters of precise mathematical calculation. Given a certain number of policies, of certain ages and fixed premiums, he could readily figure the total amount which must be laid aside each year. Very well, then why not pass a law requiring all companies to maintain these reserves? Why not place the enforcement of this law in the hands of an insurance commission which should make this annual calculation? Wright preached this reform with his usual enthusiasm. He was generally ridiculed and opposed. He was told that his scheme was impossible because of the enormous labor involved. Wright appeared before the Massachusetts legislature year after year, only to be jeered at and insulted. But he was one of those cranks who could not be browbeaten nor laughed down. He was engaged in what he regarded as a sacred task: "lobbying for the widow and orphan." And, almost by accident, his bill slipped through. He had been especially annoying all through the session of 1858. As usual, his gaunt figure and his remarkable mathematical discussions provoked only mirth. In those days however, legislative courtesy prevailed almost as generally as now. It so happened that one member, who had been converted by Wright, had asked no favors that year. His friends finally rallied him about it. "Well, Fabens," they said, "you have asked nothing; what can we do for you?" Quick as a flash he answered: "Pass Wright's bill." In a moment the thing was done. Wright, who, as usual, was prowling around the state house in the interest of his favorite measure, quickly heard the news. He took the bill, rushed it over to the House, and, in the last few minutes of the session, that body hurried it through. Then Wright took it up to Governor Banks, and refused to leave his presence until the measure was signed,
In this haphazard fashion was American life-insurance placed upon a solid basis. This was the beginning of the great modern life-insurance principle of the legal reserve. Wright's old abolitionist persistence, in the face of constant discouragement, redeemed the whole system in this country, popularized life-insurance, and made it one of the great safeguards of society; and saved millions of dollars to the beneficiaries of life-insurance policies. Not improbably he rescued from ultimate disaster such large companies as the Mutual and the New York Life, but, more than that, he gave American life-insurance a standing unattained up to that time by that of any other country. He thus forced through a measure which has since been adopted by practically every state and territory. Wright made the failure of a life-insurance company mathematically impossible. No company which has observed the Massachusetts legal reserve law has ever gone to the wall. The financial stability of the three great New York companies, in spite of recent disclosures, has caused general amazement. The greatest banks, in the face of such assaults, would almost inevitably have landed in the receiver's hands. But the Equitable, the New York Life, and the Mutual have stood the awful tests of the last twelve months—and why? Simply because Elizur Wright, fifty years ago, "lobbied for the widow and orphan" in the Massachusetts legislature and thus made the life companies so strong that even the recent dishonest managements have not unsettled them. Thanks to Wright, life-insurance scandals to-day affect other things than the companies' solvency.
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.

## 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; who had a wide conception of official duty. In a little dingy room he labored for eight years over a mass of figures that would have driven other men insane. He became an official interrogation point. He did not good-naturedly take the company's statements at their face value; but aroused their ire by endlessly asking questions. There were thousands of things that he wished to know; most of them consisting of that precise information which the companies were reluctant to give. How much money do you take in each year? How much do you pay out? What your assets? In what form do you keep them? Are your investments safe? What dividends do you return? What salaries do you pay to your officers? What commissions to your agents? How about this item? How about that? He went to extremes to protect the individual policy-holder. He prepared an amazing volume which he called his "Life Insurance Registry." In this he kept a record of every policy issued by every company doing business in Massachusetts. He had its number, the amount of premiums paid, and the necessary reserve which should stand to its credit. He also showed whether the companies had made this reservation, whether, in other words, they could pay the policy should it fall due. He invited all policy-holders to visit him for advice on this point. He thus entertained an endless procession; high and low constantly visited him. His attitude was paternal; almost patriarchal. He was already an old man, with a flowing white beard and white hair and a high bald head. As each policy-holder came before him, he consulted his bulky Registry and told him whether he was being cheated, how much he would lose by dropping his policy, and what the company was morally bound to pay on surrender. The amount of labor which went into these calculations is almost inconceivable. It was estimated that the work Wright did during his commissionership would have taken the average man eighty-two years. In one year he made 250,000 mathematical calculations. To facilitate this work he invented his famous Arithmeter, a calculating machine which is still extensively used.

## An Insurance Commissioner Who was a Human Interrogation Point

Wright, however, unlike many of his successors, did more than merely determine questions of solvency. Superintendent Hendricks has recently declared that his duties did not comprise general investigations of management; that its honesty or dishonesty did not primarily concern his department. If corruption were pointed out to him then he would properly take action; but he could not be expected to discover such things himself; he must be "told." For many years our life-insurance superintendents have examined the Mutual, the Equitable, and the New York Life, and have found nothing wrong. Mr. Hendricks, only three years ago, gave a clean bill of health to the Equitable. The great originator of state supervision did not so understand his task. He did not wait to have the evils pointed out; he thrust in his own probe and did not hesitate to publish what he found. He examined minutely each new company, as it applied for admission into Massachusetts; and informed the public, in his official reports, whether it were good or bad. He did not quite like the investments of the John Hancock, and said so. He did not take kindly to the Equitable, organized in 1859. "Its surplus," he said, after making certain important deductions, "seems to belong to the stockholders." He found certain companies treating their retiring policy-holders unfairly, and mentioned them by name. He found others using too much money in current expenses and published the facts broadcast. He went for the Massachusetts companies as vehemently as the rest. He found much stock jobbery in them. He discovered that, in certain companies, the stockholders had purchased their stock by "borrowing" the money from the company's surplus without interest; an old dodge of which there are many modern instances. By a refinement of rascality, they had lifted considerable sums out of the treasury, and then required the companies to pay them dividends on it. The one remedy, Wright declared, was to retire the stock altogether—to "mutualize;" and this the companies did. He found that other concerns solicited business on the promise of big dividends, and then refused to pay them. He made public all these facts in his annual reports. Of course the companies did not like this treatment. They called Wright's frankness, brutality. They accused him of furnishing ammunition to the agents of rival companies. "Rose-water is good," Wright replied to one especially bitter onslaught, "but it never built pyramids or machine-shops. Before the temple is complete, we must have something besides frankincense." Meanwhile he discussed all life-insurance principles and problems as they have not been discussed before or since. His reports, written in beautiful and forcible English, are the greatest text-books extant on the subject. They became, in Wright's own lifetime, rare books; and have since been issued, so great has been the demand, in a special edition.

## Dishonest Companies Driven Out of Massachusetts

Wright, in his eight years' administration, drove fourteen dishonest companies out of Massachusetts. How he handled them is shown in his treatment of the American Mutual, of New Haven, and the International of London. His official honesty was especially tested in the case of the American Mutual. Its president was Prof. Benjamin Silliman, the great scientist of Yale, who had been Wright's beloved instructor in Natural Philosophy. Its active manager was one Benjamin Noyes—"Ben Noyes" he was popularly known—Silliman's son-in-law. Noyes is a picturesque figure in the life-insurance history of this country. Before Wright began his work his company did a flourishing business in Massachusetts. 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. Wright therefore bodily threw his company out of Massachusetts. He boldly advised the American public to have nothing to do with it. He thus saved money for thousands of possible victims. In a few years the American Mutual went down, a riddled hulk; and the adventurous Benjamin Noyes wound up his career in state's prison.
At about the same time Wright directed his attention to the International of London. This was one of the most flourishing of the English life companies. It had several noblemen among its trustees; had, as its actuary, a Fellow of the Royal Astronomical Society. Its directors, like many of their modern successors, knew and cared little about the company; and left its management to the executive officers. Wright soon found that they were running things chiefly in their own interest. Thomas Lamie Murray was the "founder" of the Society. He managed the company as a private graft. He organized it on the stock basis; but had only a small amount of this paid in. He had so phrased the charter that it fixed him in his place as chairman for life. He could not be removed even by the vote of the shareholders. In addition to his salary he had an agreement by which he received annually five per cent, of the "net profits"—this emolument also to be enjoyed by his heirs and assigns for twenty-eight years after his death. Instead of reserving his advance premiums Murray used them constantly in schemes of his own. He invested them in mines and cheap stocks; lent them to his personal friends and to his trustees. He used them to pay excessive agents' commissions and traveling expenses—how modern this all sounds! He did a fine business, however, and, just before the inquisitive Wright came into office, congratulated his directors, in an official meeting, on the success of the American branch. Then Wright began to ply him with questions. Would the International please inform the Massachusetts Department concerning its reserves? Had it laid by a sufficient sum to meet the obligations of the future? Mr. Murray at first refused to answer. "Very well," said Wright; "then withdraw your agents from Massachusetts." Finally a report was sent in. Wright found it a fine looking statement; but it did not meet his dreary mathematical test. He found that the International had a deficit of nearly $1,000,000. He riddled the statement in his official report, and was especially severe upon the distinguished mathematicians that had countenanced it. "I find," he I said, "that there are parties connected with the parent office in London who have endeavored to deceive the people of Massachusetts, making them believe that the company has been earning large profits while it really been squandering sacred funds. Its assets are only forty-scven cents on the dollar, and we should naturally think that no one could have known this better than a Fellow of the Royal Astronomical Society who had labored four months over the figures." This report produced the most celebrated discussion in the history of American life-insurance. The International called to its assistance the most distinguished actuaries in England, and Professor Pierce [sic!] of Harvard, who twisted figures in every possible way to prove Wright in error. Again time justified Wright's action; again he kept the money of thousands of American policy-holders out of a mismanaged company. In about ten years the International found itself unable to pay its claims, because it had not kept proper reserves, and failed under scandalous conditions.

## Wright's Fight in Behalf of Lapsing Policy-holders

Wright soon discovered that this legal reserve law did not reform the life-insurance business. It made life-insurance safe and solvent; it did not make it just. It prevented companies from cheating their members out of their policy claims; it did not compel them to treat the insured fairly. Solvency, however, remarked Wright, was not the only issue in life-insurance; there was a question of equity as well. He found that the greatest abuses existed in the treatment of lapsing members. A few companies paid a certain surrender value on lapse; but, in the main, a system of wholesale forfeiture prevailed. Most policies stipulated the payment of premiums at certain dates, "twelve o'clock noon," on pain of absolute forfeiture. Policies were abandoned then, as they are now, in large numbers. In 1861 Wright found that six thousand two hundred and thirty-six policies had been terminated, and only six hundred and thirteen by death; the remaining five thousand six hundred and twenty-three, insuring $13,677,000., were dropped for non-payment of premium. Many of these were abandoned because of poverty. In other cases the reasons for insuring had passed. Hundreds were also dropped through inadvertence. Members forgot the day of payment; and would wake up, a week or so after, and find that the savings of years had been swept away. Stories are told of sea captains, who, detained on their voyages, returned to port to find their insurance suddenly wiped out. Illness, sudden insanity might also interfere with prompt payment.
The companies, of course, could not justify this on any sound life-insurance grounds. In all lapses the amount which they should return was pretty clearly indicated. It must be, of course, the larger part of the reserve. This reserve, as already explained, is the amount accumulated to meet future claims upon the policy; it provides, that is, for future contingencies. Manifestly, if a policy lapses, there can be no future contingencies to provide for; and clearly the accumulation should be returned. This principle is now generally recognized. 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. Policy-holders were thus frightened into dropping out. Many unsound companies thus kept themselves from insolvency. They appropriated large parts of the premiums as they came in, and then recouped themselves by lapses. Many, like the Mutual Life of New York, paid all their working expenses in this way. In one year the New York Life made $375,000 on lapses—in those days a large sum. The Mutual reaped a great harvest in the Civil War, when nearly all its Southern policy-holders withdrew. In some cases swindlers obtained control of companies, and then spread the most damaging reports concerning their solvency. They sent agents broadcast to frighten policy-holders out, occasionally paying small sums on surrender. Then they themselves appropriated the money standing to the credit of the policies—that is, the reserves.

## Passage of the Non-Forfeiture Law

As far as the Massachusetts companies were concerned, Wright stopped all that. His law had clearly pointed out the nature of the reserve; and, as an essential corollary, he proposed another measure vesting its ownership in the insured. Thus, in 1861, Wright forced through the legislature, again in the face of united corporate opposition, his world-famous non-forfeiture law. This prevented the companies from appropriating, themselves, the reserves of their retiring members. Wright, at this time, did not compel them to pay the reserve back in cash; under this law, the companies, in case of lapse, applied it to continue the policies in force for the exact period the cash reserve would buy. 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. Afterward he regarded this surrender charge as excessive; and in other ways did not accept his own measure as ideal. It marked, however, an epoch in life-insurance. After 1861 no Massachusetts company could cheat its retiring members. Though the law applied only to Massachusetts it had a most wholesome influence on life-insurance practice. The Massachusetts companies became so popular, because of their non-forfeiture features, that the system, more or less modified, was generally adopted. From Wright's little dingy room in Boston his non-forfeiture reform spread to the four comers of the earth. England, whose companies had for generations robbed their retiring members, adopted the American system.
Wright next took up the subject which, more than any other, has disturbed the life-insurance business for the last twenty years—that of the surplus. As explained in a former article, life-insurance premiums are purposely made redundant. The companies figure on certain amount for death claims, expenses, and reserves; and then, to be on the safe side, always charge an excess price. This excess, when returned, is popularly known as the "surplus" or "profits" or "dividends." Wright found practically all companies returning their surplus, or making their dividends, once in every five years. They had borrowed this idea, as well as numerous others, from England. Wright soon announced the proper method; nearly fifty years ago he took a bold stand for the annual dividend system. He declared that it was a fault, rather than a source of pride, that a company had large accumulations above the amount required for its reserves. This simply signified that it overcharged its insured; that it withheld from policy-holders money which was rightfully their due. "If the surplus should not be divided," he declared, "but continue accumulating till those who are the first contributors to it, and for that reason probably are most largely interested, have dropped away by death, or by the lapse or surrender of their policies, a wrong will be done which, though not so frightful as bankruptcy, may be as extensive in its transfer of property from the hands of owners into those of strangers." At the beginning of Wright's administration few companies paid their dividends in cash; but in the form of additional insurance. If the policy were lapsed, all these paid-for additions were also forfeited. In this great reform, too, Wright's opinions ultimately prevailed. In 1866 the Mutual Life began to pay annual cash dividends. The other companies were forced by competition to follow suit.
Wright was Commissioner from 1858 to 1867. In those nine years he had entirely transformed the life-insurance business. He developed the idea of state supervision, an idea now generally adopted. He made American life-insurance companies the best in the world. England readily admitted the superiority of our system. In 1863 Gladstone devoted several days to denouncing the practices of the English offices. "Their proceedings," he said, "are worse than wholesale robbery, and there are many persons who have never seen the inside of a jail and yet who had better be there than many a rogue that has been convicted ten times over in the old Bailey. 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; they had no "deferred," no "accumulation" system; no tontines. They had no trust company annexes; did not use their funds generally in Wall Street; and did not make themselves adjuncts to great political parties. They furnished insurance, too, at much lower rates than the present quotations. They conducted business on a reasonable margin of expense. 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. He asked too many questions; demanded from the companies too many papers. He was too hard on the sharpers. His crowning sin was his exposure of the receivership proceedings of the Eagle Insurance Cominy. He found the receivers milking this dry; and in his usual blunt fashion published the facts. His enemies combined against him; "Ben" Noyes, whose company he had driven out of Massachusetts, worked night and day to unseat him. Wright, being no politician, knew nothing of all this, and while he busily pored over his figures, the politicians at the state-house deftly legislated him out of office.
Though thus summarily removed from an influential position, Wright by no means gave up the battle for honest life-insurance. He was now sixty-four years old; but he had the fiercest struggle of his life before him. New York now began to get the lead as the headquarters of life-insurance; had begun to develop the dishonest practices which, in their full flower, have recently been revealed. Henry B. Hyde had started his great Tontine scheme; William H. Beers had followed suit in the New York Life; and the Winston régime had gained the upper hand of the Mutual. These forces combined to undo practically everything that Wright had done. He had built up life-insurance on the basis of honest state supervision; they did all they could, by corrupting the departments, to undo it. He had rid life-insurance in part of its greatest evil—that of forfeitures; they proceeded to recast the whole life-insurance system with forfeitures as its keystone. He had induced a period of management economy; they instituted the present extravagance. He had made life-insurance an institution run entirely in the interest of the insured; they reduced it to a machine run, as Wright himself phrased it, "chiefly in the interest of the runners." Against all these innovations, of course, Wright took a firm stand. From his home at Medford, he almost daily, for twenty-five years, inveighed against what he called the "New York life-insurance ring." Almost alone, he foresaw many things that Mr. Charles E. Hughes has recently laid bare; he even exposed many of the particular abuses which, in the last few months, have so astounded the public. His strictures on the Mutual and Equitable read almost as though written yesterday.

## Wright's Long Battle With the Mutual Life

And it is not until we study his twenty-five years' campaign that we realize how long seated are the present evils; how frequently they, and even the very men recently in control, have been exposed; how really short-lived the public memory is; and how great the danger is that, because of this national forgetfulness, the present upheaval may not end in lasting reform. Especially instructive, from this standpoint, is Elizur Wright's long battle with the Mutual Life. About 1869 he discovered the corrupting influences at work. Frederick S. Winston had organized a palace revolution and seated himself in control. Winston was a bankrupt dry-goods merchant. For several years he drew no stated stipend from the Mutual Life, but received irregular "advances." His creditors had hauled him up in supplementary proceedings; and he evidently adopted this arrangement to keep his salary from them. Winston was a man of commanding energy; of despotic and choleric temper; short, stout, dignified—the very type of high-toned financier always inevitably associated with the Mutual Life. He was a trustee in five or sis churches, connected with the American Bible Society, and deeply interested in foreign missions. Robert H. McCurdy had been closely associated with him for many years; and naturally when the latter's son, Richard A., was graduated from Harvard, a place was readily found for him in the Mutual Life. Wright soon discovered that Winston and McCurdy were managing the Mutual in the most high-handed fashion. They ignored their trustees, except a favoured inside ring, to whom special favors were granted, precisely as the great life-insurance managements do now. "Dummy directors" was already a phrase in current use. They had already fully developed the present system of proxy control. 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. They jocularly called these proxies their "children of Israel," because they were too numerous to count. They publicly announced their purpose of selecting only those trustees "who were friendly to themselves," and rode rough-shod over any independent policy-holders movement. Back in 1869 several New York members attempted to unseat them. This election resembled a Sixth ward primary. As a measure of intimidation, the Mutual compelled all policy-holders to write their names on the back of their ballots. The leader of the opposition was violently assailed by an administration "watcher," who threatened, in so many words, to "smash his face." In the end, after a few timid policy-holders had deposited their votes, McCurdy came up and dumped several hundred proxies into the box; and so, easily carried the day. That was the last time the policy-holders ever tried to control the Mutual.
    2↑ Ebenezer Dale against Frederick S. Winston, Supreme Court of the State of New York. A. B. Tappan, Referee. Oct 1865.
    3↑ Testimony of the Committee on Grievances relative to the petition of Stephen English (1873 New York Assembly Document 169, page 108).
Under Winston many present day abuses—nepotism, legislative corruption, improper use of policy-holders' funds, and illiberal treatment of the insured—first got their start. The executive officers carefully safeguarded their own interests. They all received the most liberal salaries and, at the end of each year, voted themselves additional "bonuses." In three years they thus added $189,000. to their regular compensation. In order to conceal this transaction, they charged these amounts as dividends to policy-holders. Winston had quartered upon the Mutual's agency force numerous relatives. He had one son as Medical Examiner, another as cashier, another as clerk. He had appointed his son-in-law, one Harvey B. Merrill, to the Mutual's most lucrative general-agency. Merrill had his headquarters at Detroit, and received a percentage on every policy written in the states of Michigan, Indiana, Illinois, Wisconsin, and Minnesota. Winston himself admitted, on the witness-stand, that while enjoying these perquisites, Merrill spent a considerable part of his time in Europe. The gross income of his agency amounted to more than $100,000. a year. In 1865 President Winston's son, Frederick M., died. He had taken out policies to the extent of $12,000., but, several years before his death, had surrendered them for their cash values. The Insurance Committee revived these policies and paid the $12,000 to young Winston's widow. Judge Alexander Bradford, a Mutual trustee—one of the inner ring—had held for several years a $10,000 policy, but had surrendered it. When Bradford was on his deathbed the Mutual restored it. Winston also extended improper favors to a few inside trustees. He deposited money in banks in which certain trustees were interested. He also lent money to others under suspicious circumstances. He thus advanced $30,000. to Seymour L. Husted, on the pretence of purchasing United States bonds. When Husted paid it back Winston, in order to conceal the transaction from the trustees, compelled a clerk to falsify the accounts. He lent $18,000. to certain state commissioners, and carried it on the books as "cash on hand." He fanned out the business of examining titles on mortgage real estate loans to favored trustees. Under his régime also the use of Mutual money for legislative purposes began. In an investigation into the Mutual Life, held in 1870, President Winston admitted that he had given a well-known lawyer $6,000. for work at Albany in connection with certain proposed legislation. This appeared in the Mutual's books as "taxes." "This lawyer earned the money," added Winston. The Mutual also admitted paying $3,500 to George W. Miller, Superintendent of Insurance, to further a bill intended to crush out smaller rivals. These items may seem small compared with recent lavish expenditures for similar purposes; but there is the germ of present-day Houses of Mirth and Andrew Hamiltons.
    4↑ For corroboration of this charge, see Report of the Committee relative to the petition of Stephen English. (New York Assembly Document No. 155, 1873): "The distribution of a bonus of over $189,000. among the officers of the Company, in addition to their ample salaries, and its concealment from the policy-holders by charging far the greater portion of it to dividend account, were proved to be true."
    5↑ Examination of witnesses before George W. Miller, 1870, Page 242.
    6↑ From this amount, of course, must be deducted the commissions paid to sub-agents.
    7↑ Report of the Committee on Grievances relative to the petition of Stephen English (1873 New York Assembly Document 155}: "The charge that surrendered and forfeited policies in the life of President Winston's son had been revived, after his death, was proved to be true." Page 3.
    8↑ Ibid: page 3. "The illegal purchase, at a higher rate than its surrender value, of a policy on the life of a trustee; its subsequent restoration when he was actually moribund and its payment as a death claim, was proved."
    9↑ Examination of witnesses before George W. Miller, Superintendent of Insurance in relation to certain charges against the trustees and officers of the Mutual Life Insurance Co. (1870). Pages 82-83.
    10↑ Ibid: page 237.
In the great scandal which shook the Mutual to its foundation thirty-five years ago and resulted in the deposition of Shcppard Homans as actuary, Elizur Wright himself had played a part. In 1869 Homans refused to audit President Winston's financial statement. He declared that it contained gross inaccuracies. He pointed to an item of $2,500 charged up as rent for the Boston office, which had really been paid to Henry B. Hyde, president of the Equitable, for legislative purposes at Albany. 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. A fine row resulted. Winston acted in his usual arbitrary fashion. He told Homans that if he didn't certify to the statement, he would get another actuary who would; and, in fact, finally compelled Homans' assistant to put his name to it. The trustees were finally aroused, however, and referred the question to Elizur Wright and two other experts. Wright declared that the dividends must be paid. Winston still refused, and dismissed Honans for insubordination. Afterward, Homans frequently declared, the Mutual had to appropriate $2,000,000 to rectify this mistake.

## Wright Establishes the Cash Surrender System

Wright made Winston's existence unbearable for fifteen years. He exposed injustices of the insurance system he stood for. He riddled his annual reports, showing, year after year, how the financial statements were twisted. He thus exposed the Mutual's famous trick of increasing its annual income by counting a large part of its receipts twice. He showed that it counted as money actually received, a large part of that which it applied in reversionary dividends. 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. 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. Again and again he called attention to the wastefulness of the agency department. This then, as now, was a portentous scandal. Wright also showed that the Mutual spent enormous sums for advertising. It subsidized, by advertisements, not far from thirty life-insurance papers; and had also largely muzzled the daily press. Much indignation has been aroused by recent revelations of the Mutual's publicity bureau; its collection of journalistic leeches; of "Dollar-a-line" Smith, whose business it was to secure favorable notices of the Mutual and its officers. Elizur Wright exposed all that thirty years ago. He frequently found it impossible to get his own communications in the papers because of the Mutual's influence. Attacks upon him frequently appeared in the New York papers, sometimes printed as extracts from other journals. Wright learned that these had been paid for at the now familiar rate of a dollar a line!
Wright's greatest struggle with the Mutual was in his attempt to establish a system of cash surrender values. He began this agitation in 1869, and kept at it for nearly eleven years. He always had the utmost solicitude for those compelled to lapse their policies. He soon became dissatisfied with his 1861 non-forfeiture law. It granted only extended insurance; Wright insisted that the companies must, if required, pay cash. He clearly demonstrated the reasonableness of this. He took the position that the reserve on each policy—the advanced payment, the unearned premium—belonged exclusively to the insured. He was entitled, Wright declared, to do whatever he wished with it. If he wished to borrow it, the company must lend; if he wished to leave the company and take the larger part it with him, he could do so. In 1871 he introduced his cash surrender law in the Massachusetts legislature. He got it through the House, but Judge McCurdy came up in the interest of the Mutual and killed it in the Senate. The Mutual fought it because it made enormous profits on lapses. 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. Ultimately, however, he won his great fight. 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." It took twenty years for that crash to arrive; the disruption, as we all know, was avoided only by the sensational transfer of stock control. In this, as in everything else, has time justified Elizur Wright.