Insurance Companies

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Insurance Companies

Historically, African-American-owned insurance companies have their roots in the numerous fraternal orders and mutual aid societies that existed in the early history of the United States. These societies were formed among free blacks to provide security during times of hardship. African Americans banded together to care for the sick, widowed, and orphaned, and to administer burial rites. In 1780 free blacks formed the African Free Society in Newport, Rhode Island, to care for indigent members of their community. Seven years later Richard Allen and Absalom Jones formed the Free African Society of Philadelphia, which operated under a formal constitution. Members paid one shilling monthly. Mutual aid societies also existed in the South. In 1790 free mulattoes in Charleston, South Carolina, organized the Brown Fellowship Society, which, aside from caring for widows and orphans, maintained a cemetery and credit union.

Often church related, these mutual aid societies were the only place to which blacks could turn for financial protection. Evidence of the need for such security was given by the fact that over a hundred such societies existed in Philadelphia alone in 1849. Premiums ranged from about $.25 to $.35 and benefits from $1.50 to $3 per week for sickness, $10 to $20 for death.

The late nineteenth and early twentieth centuries witnessed the transformation of mutual and fraternal aid societies into modern insurance companies—though fraternal societies such as the Masons, the Knights of Pythias, and the Oddfellows would remain an important source of insurance among the African-American community until the 1930s. One of the most important African-American reformers was William Washington Browne, who in 1881 founded the Grand United Order of the True Reformers in Richmond, Virginia. Browne, a former slave and preacher, formed the True Reformers to promote "happiness, peace, plenty, thrift, and protection." The society became quite popular, reaching a membership in the 1890s of 100,000 people in eighteen states. Browne's reforms included using mortality tables—though based on crude statistics—to set premium rates. Like other successful black entrepreneurs, he used the income from his organization to found other businesses, including a bank, a hotel, a department store, and a newspaper.

A great number of insurance associations founded in the upper South during the late nineteenth century can be traced to former associates and employees of Browne. These include Samuel Wilson Rutherford, who founded the National Benefit Insurance Company of Washington, D.C., in 1898; Booker Lawrence Jordan, who helped to create the Southern Aid Society of Richmond in 1893; and John Merrick, who founded what became the North Carolina Mutual Life Insurance Company in 1898. Newer insurance companies lost the fraternal and ritualistic side of the earlier societies; they were, for the most part, state-chartered insurance corporations.

Another entrepreneur, Thomas Walker, brought similar innovations to mutual aid associations in the lower South. Walker, also a former slave and preacher, organized the Union Central Relief Association of Birmingham in 1894 (it had previously been known as the Afro-American Benevolent Association). Walker tied benefits to premiums and selected policyholders with care; he sent a stream of African-American agents traveling throughout the South to secure insurees.

These enterprises were formed at least in part out of expediency. Many white-owned insurance companies refused to insure blacks, whom they regarded as too high a risk. The reluctance of white companies to insure black lives was based in part on the widespread poverty and the higher mortality rate among blacks. Those that did sell insurance to African Americans usually offered them inferior policies. In 1881 the white-owned Prudential Insurance Company calculated a mortality rate among blacks that was 50 percent higher than that of whites. In turn, it offered policies to blacks that paid only one-third of the benefits whites received for the same premiums. Despite these policies, most black-owned firms had trouble competing with their larger white-owned counterparts, even among black insurees. Calls for support of black-owned businesses had only limited appeal. National white-owned firms appeared to offer a stability and security that black firms could not match. In 1928 the white-owned Metropolitan of New York had twenty times more insurance on African-American lives than the largest black-owned insurance company.

The difficulties of black insurers were magnified by the fact that, due to the relative poverty of their policy-holders, they were forced to compete almost exclusively in the field of industrial insurance—a type of insurance in which insurees paid a small weekly premium of only a few cents and received a small return. Industrial insurance had been introduced in the United States by the white-owned firms The Provident and John Hancock in the 1870s. It was popular among working-class people who could not afford large annual premiums for term and whole life insurance; for blacks, industrial insurance was most often purchased to provide money for proper burial ceremonies. Industrial insurance incurred high operating costs, largely because agents had to make weekly trips to the homes of policyholders. This cost was made worse for black agents,

who, at the turn of the century, were forced to travel on Jim Crow cars and stay in out-of-the-way, unsanitary hotels.

Industrial insurance also lent itself to fraud and abuse, including especially forfeiture, whereby customers who missed two or more consecutive payments would lose their entire policies. Complaints about the improprieties of insurance companies—both industrial and ordinary—led to a series of investigations throughout the industry. The best known were the 1905 Armstrong investigations, which revealed malpractice, fraud, and mismanagement in the workings of New York State's (and the nation's) largest life insurance companies. The trials led to stricter regulation in many states, such as larger cash reserve requirements, which many black-owned companies found difficult to meet.

Given these new requirements, the higher costs of selling industrial insurance, and the lack of reliable data on black mortality, many black-owned firms were unsuccessful. A small number of black-owned insurance companies founded in the early twentieth century proved more enduring. These included North Carolina Mutual (1898) and Atlanta Life (1905). The North Carolina Mutual Life Insurance Company was founded in Durham, North Carolina, by John Merrick. Its agents worked strictly on commission and sold industrial insurance almost exclusively. It formed offices in surrounding cities—Chapel Hill, Hillsborough, Raleigh, Greensboro—and after five years of business had over 40,000 policyholders. North Carolina Mutual also began the practice of reinsuring financially distressed black-owned societies. This became particularly true when stricter state regulation of mutual-assessment organizations came about in the early twentieth century. By 1907 it claimed, with some justification, to be the "Greatest Negro Insurance Company in the World."

One reason North Carolina Mutual was able to secure such business was the strength of its agency force. Charles Clinton Spaulding, who would later serve as president of North Carolina Mutual, was made general manager in charge of agents in 1900. He advised the company to publish a monthly newspaper to advertise and motivate agents. He also oversaw devotional meetings at which agents and other employees sang such songs as "Give Me That Good Ol' Mutual Spirit" to the tune of "Give Me That Old-Time Religion." These sales meetings, along with other trappings of modern business culture, straddled the line between the church-bound mutual aid societies of the past and the secularized business practices of the present. Because of its prominence, North Carolina Mutual was important in the black community—even outside of business circles. It established a savings bank and employment bureau, and erected a highly visible headquarters. By 1920 North Carolina Mutual had grown to the extent that it employed 1,100 people.

Another successful black-owned insurance company founded in the early twentieth century was the Atlanta Life Insurance Company, organized by Alonzo Herndon in 1905. Herndon, born in 1858 in Georgia, had spent seven and a half years of his life as a slave. Like North Carolina Mutual's founder, John Merrick, Herndon had made a fortune through the ownership of barbershops. Active in black intellectual movements, Herndon became friends with Booker T. Washington and attended the first Niagara Conference in 1905 under the leadership of W. E. B. Du Bois. In the company's first year, Atlanta Life secured 6,324 policyholders. Between 1922 and 1924 Atlanta Life entered a half dozen new states, most in the lower South. Although the majority of its business was in industrial insurance, Atlanta Life opened an ordinary department in 1922. That same year, it became the first black company to create an educational department to teach agents salesmanship and the technical aspects of insurance and accounting.

Less successful in the long term than either of these was the Standard Life Insurance Company, founded in 1913 by Herman Perry. Standard Life was the first black company organized for the purpose of selling exclusively ordinary life insurance. It had an explosive beginning, with phenomenal sales that by 1922 had brought the company more than $22 million of insurance in force. Perry, however, expanded the operation to include a number of different businesses, including real estate, printing, pharmaceutical, and construction firms. This expansion proved ruinous to cash reserves, and Perry was forced to sell to the white-owned Southeastern Trust Company in 1924, despite the efforts of several black businessmen to retain ownership within the African-American community.

The migration of blacks to northern cities after World War I brought new opportunities for black-owned insurance companies. Several northern companies were founded: The Supreme Life Insurance Company (1921) and the Chicago Metropolitan Mutual Association (1927) were founded in Chicago; the United Mutual Life Insurance Company (1933) was founded in New York. Some southern-based companies, such as Atlanta Life, began selling policies in the North (in this case, in Ohio, and later, Michigan). In 1938 North Carolina Mutual, for the first time, sent agents north of Baltimore.

Black insurance enterprises suffered greater losses during the depression than did white enterprises, in part because they dealt almost exclusively in industrial insurance. A total of 63 percent of all insurance carried by Negro companies in 1930 was industrial, in contrast to only 17 percent for white companies. Black industrial policyholders generally had very little wealth and were forced to give up policies at the onset of hard times. The major black firms of the 1930s experienced a lapse rate for industrial insurance nearly 350 percent higher than for ordinary insurance. Victory Life and National Benefit Life, which had been founded in 1898 by Samuel Rutherford, both failed, while Supreme Liberty Life switched from ordinary insurance to enter the industrial market. Throughout its relatively brief history as a business, insurance had largely been dominated by men, but women had held high positions in companies, and black-owned insurance companies seemed to offer more opportunities to women than did their white counterparts. In 1912 nearly one-fourth of North Carolina Mutual's agents were women; at the white-owned Metropolitan Life Insurance Company, only one woman was employed as an agent before the mid-1940s. At the start of World War II, as more and more men entered war-related industries or were drafted, opportunities for women agents increased. In Philadelphia, a woman, Essie Thomas, led all other agents in sales for North Carolina Mutual.

With improved prosperity at the end of World War II, black families became better prospects for insurance sales. More and more white-owned firms courted blacks and eliminated or reduced premium differentials. White firms began to hire agents away from black-owned firms to solicit the new black middle class. In 1940 the vast majority of white underwriters still refused to insure blacks at all, and of the fifty-five that did, only five did so at standard rates. By contrast, in 1957, over 100 white companies competed for black policyholders, often at standard rates. While the overall growth rate of black-owned insurance companies slowed after 1960, there was a corresponding rise in the number of black-owned companies from fifteen in 1930 to forty-six in 1960.

Some black-owned firms, such as North Carolina Mutual, began to lessen their appeals to black solidarity—to the annoyance of black separatists. In the 1960s North Carolina Mutual was allowed to join the American Life Convention and Life Insurance Association. Black-owned companies also began selling other forms of insurance, such as group insurance offered to large employers. Although group insurance was first introduced early in the twentieth century, it did not become popular until the 1930s. The group insurance market proved a difficult one for minority-owned companies to enter. Few, if any, black enterprises employed a hundred or more workers, and white-owned companies were reluctant to sign on with a black-owned company. For this reason, many black-owned insurers had to remain outside the group market until the 1970s, when they were aided by affirmative action laws.

Golden State Mutual of Los Angeles became the second largest black insurance company in the United States, largely due to its success in group sales. Founded in 1925 by William Nickerson, Jr., Norman O. Houston, and George A. Beavers, Jr., Golden State Mutual had remained fairly small for several decades, with operations in only six states. Between 1968 and 1970, its group business grew tremendously, expanding from $59 million to $202 million. North Carolina Mutual also recorded great increases in business due to group insurance; in 1971 it became the first black company with over $1 billion insurance in force.

The 1980s saw difficulties continue for black-owned insurance firms. Reduced federal aid to low-income families (the main policyholders of black insurers) made even industrial policies difficult to afford. Premium receipts dropped 0.92 percent from 1987 to 1988 for the insurance industry as a whole; for black-owned insurance companies, the drop in premium receipts was 7.83 percent. Two strategies for survival emerged among black-owned insurance firms. The first, practiced by North Carolina Mutual and Atlanta Life, was to acquire new insurees through acquisition of smaller black-owned insurance companies. In 1985 Atlanta acquired Mammoth Life and Accident Insurance Company (founded in 1915 in Louisville, Kentucky), and in 1989 it acquired Pilgrim Health and Life Insurance Company (founded in 1898 in Augusta, Georgia). In all, from 1977 to 1989, eleven black-owned insurance companies were merged or acquired. Golden State Mutual—operating in California, Hawaii, Florida, and Minnesota—followed another strategy. It attempted to sell term, whole life, and universal life to the middle-income market rather than the low-income market, which was the mainstay of Atlanta Life and North Carolina Mutual. Golden State greatly reduced the number of its personnel (from 760 employees in 1984 to 410 in 1988, not including commissioned sales staff), and hired college-educated agents. It also began television advertising campaigns starring football star Herschel Walker.

With the onset of a recession, the early 1990s proved particularly hard for many black-owned insurance companies. At that time twenty-nine black-owned insurance companies were operating in the United States; together, they held $23 billion of insurance in force. The largest were North Carolina Mutual, Atlanta Life Insurance, and Golden State Mutual Insurance. United Mutual Life, the eleventh largest black-owned insurance company in the country, was acquired by the white-owned Metropolitan Life Insurance Company of New York in 1992. It was the last black-owned insurance company in the Northeast.

Bibliography

Henderson, Alexa B. Atlanta Life Insurance Company, Guardian of Black Economic Dignity. Tuscaloosa: University of Alabama Press, 1990.

Weare, Walter B. Black Business in the New South: A Social History of the North Carolina Mutual Life Insurance Company. Urbana: University of Illinois Press, 1973.

walter friedman (1996)

Encyclopedia of African-American Culture and History