In his retirement
speech as Speaker of the House, Tip O’Neill contrasted the world of small
government in the 1930s, when he entered politics, with today’s big government
emphasis on social services, which he helped cre ate: “Health insurance was out
of the question. For the elderly, life was filled with uncertainty, dependency
and horror. Only the lucky few had pensions. There was no such thing as social
security.”
O’Neill was wrong. Working class families had a
“safety net” long before Uncle Sam became involved. Our grandparents and even
great-grand-parents had benefit plans that protected them when they were sick,
injured, out of work, or too old to work. Millions of workers belonged to
“friendly societies.”
Various forms of friendly societies have existed since ancient China, Greece, and Rome. In Britain, they arose out of the guild system. Daniel Defoe wrote in 1697 that friendly societies were “very extensive” in England. In the mid-18th century, as the Industrial Revolution hastened the growth of British towns, the friendly society system became well established. Sometimes they were called fraternal societies, mutual aid societies, or benefit clubs. Similar organizations developed in the United States in the 19th century.
The lengthy success of the friendlies reflects that
they were much more than benefit institutions. Friendlies were voluntary
serf-help associations, organized by the members themselves. The workers
regarded the friendlies with great pride, as their own creation. More than just
a means of support, they brought independence from the degradation of charity.
Friendlies served social, educational, and economic functions, bringing the idea of insurance and savings to those who might not have planned for the future. The social aspect of the friendlies should not be underestimated. Their meetings included lectures, dramatic performances, and dances both to inform and to entertain members.
Since members took turns at managing the friendlies,
the typical workingman developed executive skills that could prove valuable in
his everyday employment.
Nineteenth-century commercial insurance companies
couldn’t compete with the friendlies, so they focused on business clients and the
rich. Workers were suspicious of the companies because of their numerous
failures and scandals. Besides, insurance rates were higher than those the
friendlies charged for comparable benefits. The reason? Friendlies didn’t
solicit. Thus, there were no salesmen and no commissions. Also, the member-
managers worked on a volunteer or token salary basis.
Types of Friendlies
Friendlies usually were formed by people with a common
denominator, like the same occupation or same ethnic, geographic, or religious
background. Thus, there were the Czechoslovak Society of America, Providence
Association of the Ukranian Catholics in America, Locomotive Engineers Mutual
Life and Accident Insurance Association, and the Fraternal Society of the Deaf.
Unlike today’s compulsory and standardized state-run
plans, friendlies provided dozens of benefit packages. Each person created his
own plan. One could retire at 60 or even 50 or get unemployment or illness aid
equal to one’s own wages. All that was required was higher premiums.
Originally, friendlies insured against “disability to
work,” with little distinction between accident or sickness. This also came to
mean “infirmity,” i.e., insurance against old age. Most friendlies paid for a
doctor’s services, burial expenses, annuities to widows, and educational
expenses for orphans. They built old-age homes and sanitariums for members and
their families. Even in their early stages, they offered unemployment benefits
for those in “distressed circumstances” or “on travel in search of employment.”
The most common pay-outs were for maternity leave and retirement pensions.
1. Dividing Societies
These were among the earliest British friendlies,
developing in the 1750s. After making payments for specified “events”
(sickness, retirement, death, unemployment), the society would divide the
balance of its fund among its members at the end of the year The disadvantage
of this was the constant need to recruit young people because these societies
had no reserves, and the bulk of their claims tended to come from older
members.
Still their appeal was considerable. Each contributor
received an annual return even when things were going well. The fees were
uniform and easy to calculate. They used no actuarial tables (which were
considered morbid for predicting the odds of sickness and death). The
contributions were higher than at other types of friendlies, but the members
got back a lump sum at the end of the year. Dividing societies combined
insurance with the idea of savings. As such, they advanced loans to members.
A good example of a dividing friendly was the Union
Provident Sick Society. In 1880 its rules provided that no one would be
admitted under age 16 or over 31. A 12-man executive committee was rotated
among the society% members. Meetings were held “every quarter night.” There
were a small entrance fee and a small contribution every two weeks. Eighty percent
went into the fund, 20 percent toward management. Sick benefits were roughly 25
to 33 percent of weekly wages for a year, and 15 to 20 percent for the
remainder of the illness. For members over the age of 20, contributions and
benefits were double. The surplus was divided each December, the members
receiving shares in proportion to their contributions.
Five percent of the Union Provident’s members were
self-employed tradesmen or manufacturers who didn’t need the society’s help.
They had been workingmen when first admitted, but still remained to show their
moral commitment and to donate their managerial skills to the society.
Friendlies that did not divide gave higher benefits.
One example was the Hitchen Friendly Institution. It provided benefits equal to
full pay for a year to a member who was out of work due to illness, and half
pay for the remainder of the illness.
2. Deposit Societies
An English clergyman, Reverend Samuel Best, originated
this more sophisticated system. He introduced the concept of savings to early
industrial workers. The deposit system connected the savings account with an
insurance account so that the benefits for sickness or distress were derived
partly from each. The member had a specific credit in the insurance fund based
on his savings, but the claim ceased as soon as his own fund was exhausted.
This promoted thrift by encouraging the member to add to his savings, not to
drain off the account.
If a person remained healthy throughout his working
life, when he retired he would have a large amount in his personal account.
With much sickness and exhausted savings, the sickness or distress benefits
ended, but were replaced by “grace pay,” which could be drawn for as long as
benefits had been drawn. Grace pay related to the amount of savings.
The deposit system had major advantages over others.
It did not use actuarial tables, which would force higher contributions on the
elderly or sick, or exclude them from membership. Admission was without
limitation.
3. Burial Societies
This was the one area where commercial insurance
companies competed successfully because the “event” (death) was easy to verify
and actuarially predictable. For a long time burial societies were illegal
because they “gambled on death.”
4. Factory Societies
There is a widespread belief that the 19th-century
factory owner was heartless, providing no benefits for his workers. That
picture is false, as evidenced by this report from an 1891 study of
workingmen’s associations: “There is scarcely a single large establishment . .
. which does not make provision for its employees, whether accident, sickness
or burial. The management is in the hands of the workingmen, while the firm
acts as treasurer, exercising some supervision, and represents a moral
influence through its chief officers. Membership was supported by the firm.
These subsidies gave substantial benefits for small contributors.” Another
study noted that “the mill owners have created a fund, applied to the
encouraging of women to cease work for a sufficiently long time before and
after the birth of their children to prevent injury to the constitutions of
mother or infant.”
5. Building Societies
Building societies were workingmen’s financial
institutions. They lent money to members for the purpose of buying a home. The “terminating”
type ceased existence when all the members had bought a residence. The
“permanent” type had more of the characteristics of a contemporary bank.
These societies had a powerful influence until fairly
recently. Between 1918 and 1939, half of the homes built in England were
purchased with the aid of building society funds.
6. Fraternal Societies
“Fraternals” were more like life insurance companies
in that they tended to focus on death benefits and pensions. Because of this,
in the long run they were more easily absorbed by the large commercial
insurance organizations.
There were dozens of variations of fraternals. Those
with branches (or lodges) were commonly called “affiliated” or “federated”
orders, with divisions of power between the central administration and the
regional branches. Those without branches were referred to as “unitary”
societies.
Downfall of the Friendlies
The friendlies did not collapse financially. Nor did
they disappear because they failed to do their job for working people. They
declined because of government action.
British aristocrats feared the friendlies because they
viewed their huge contributor funds as a means for political subversion. At the
end of the 18th century, the aristocrats, dreading the political power of the united
workers, moved against them. The Combination Acts, the Illegal Societies Act,
and the Seditious Meetings Act were aimed at preventing workingmen’s groups
from forming. The one legal loophole was the Rose Act of 1793, which allowed
“societies of good fellowship for security” to exist.
Eventually, a steadily growing web of uniform
state-mandated benefits first duplicated, then absorbed the “dangerous”
friendlies.
• 1793: State supervision of friendly societies’
management and rules.
• 1818: First bill to set up a standard of
“scientific” contribution rates. This made the fees more uniform, weakened
competition, and led to the gradual absorption of the smaller friendlies by the
larger.
• 1870-75: A royal commission studied the friendlies.
Parliament created a rival state-run system, focusing on the most predictable
“events”: burial and retirement benefits.
• 1911: National Insurance Act. State benefits were
expanded, financed by compulsory contributions from employer and employee. Via
subsidies, the friendlies were led to administer the state plan. Claims for
benefits had to be filed with both systems.
• 1946-48: The Labour government ended the National
Insurance Act subsidies and bypassed the friendlies, structuring a complete and
exclusive administrative machine of its own. The loss of funding and higher
state benefit rates drove many friendlies out of existence.
In the United States, the government was less worried
about the friendlies. The first major legislation, in 1893, was promoted by the
friendlies themselves. They lobbied in Washington through the National
Fraternal Congress. This organization represented 100 friendly societies with 6
million members and $7 billion in insurance funds. It pressed for passage of
the “Uniform Bill,” forcing all new friendlies to adopt the same mortality
rates. This would put them at a competitive disadvantage to the established
societies. However, instead of driving off the upstarts, this legislation
blurred the distinction between friendlies and commercial life insurance
companies. Legally they were grouped together. As a result, the commercial
insurance companies gradually absorbed the friendlies, leaving consumers with
fewer choices.
1. Thomas P. O’Neill Jr., “When
Government Was a Friend in Need” (The
New York Times, May
16,1986), p. A-35.
2. Walter Basye, History
and Operation of Fraternal Insurance (Rochester. The Fraternal Monitor,
1919), pp. 41-52.
3. Richard DeRaismes Kip, Fraternal
Insurance in the United States (Philadelphia:
College Offset Press, 1953), p, 10.
4. Richard Price, Observations
on Reversionary Payments (London:
T. Caldwell and W. Davis, 1803), pp. 141-42.
5. J. M. Baerneither, English
Associations of Workingmen (London:
Swansonnerchem and Co., 1891), p. 164.
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