February 1, 2010, Economic History Association, Life Insurance in the United States through World War I, by Sharon Ann Murphy,
The Armstrong Committee Investigation.
In response to a multitude of newspaper articles portraying extravagant spending and political payoffs by executives at the Equitable Life Assurance Society – all at the expense of their policyholders – Superintendent Francis Hendricks of the New York Insurance Department reluctantly conducted an investigation of the company in 1905. His report substantiated these allegations and prompted the New York legislature to create a special committee, known as the Armstrong Committee, to examine the conduct of all life insurance companies operating within the state. Appointed chief counsel of the investigation was future United States Supreme Court Chief Justice Charles Evans Hughes. Among the abuses uncovered by the committee were interlocking directorates, the creation of subsidiary financial institutions to evade restrictions on investments, the use of proxy voting to frustrate policyholder control of mutuals, unlimited company expenses, tremendous spending for lobbying activities, rebating (the practice of returning to a new client a portion of their first premium payment as an incentive to take out a policy), the encouragement of policy lapses, and the condoning of “twisting” (a practice whereby agents misrepresented and libeled rival firms in order to convince a policyholder to sacrifice their existing policy and replace it with one from that agent). Additionally, the committee severely chastised the New York Insurance Department for permitting such malpractice to occur and recommended the enactment of a wide array of reform measures. These revelations induced numerous other states to conduct their own investigations, including New Jersey, Massachusetts, Ohio, Missouri, Wisconsin, Tennessee, Kentucky, Minnesota, and Nebraska.
In 1907, the New York legislature responded to the committee’s report by issuing a series of strict regulations specifying acceptable investments, limiting lobbying practices and campaign contributions, democratizing management through the elimination of proxy voting, standardizing policy forms, and limiting agent activities including rebating and twisting. Most devastating to the industry, however, were the prohibition of deferred dividend policies and the requirement of regular dividend payments to policyholders. Nineteen other states followed New York’s lead in adopting similar legislation but the dominance of New York in the insurance industry enabled it to assert considerable influence over a large percentage of the industry. The state invoked the Appleton Rule, a 1901 administrative rule devised by New York Deputy Superintendent of Insurance Henry D. Appleton that required life insurance companies to comply with New York legislation both in New York and in all other states in which they conducted business, as a condition of doing business in New York. As the Massachusetts insurance commissioner immediately recognized, “In a certain sense [New York’s] supervision will be a national supervision, as its companies do business in all the states.” The rule was officially incorporated into New York’s insurance laws in 1939 and remained both in effect and highly effective until the 1970s.
Continued Growth in the Early Twentieth Century
The Armstrong hearings and the ensuing legislation renewed public confidence in the safety of life insurance, resulting in a surge of new company organizations not seen since the 1860s. Whereas only 106 companies existed in 1904, another 288 were established in the ten years from 1905 to 1914 [Figure 1]. Life insurance in force likewise rose rapidly, increasing from $20 billion on the eve of the hearings to almost $46 billion by the end of World War I, with the share insured by the fraternal and assessment societies decreasing from 40% to less than a quarter [Figure 5].
September 2, 1905, New York Times, Graveyard Insurance to Figure in Inquiry; Armstrong Committee Hears the Practice Has Been Widespread. OFTEN A FORM OF BRIBERY Medical Examiners' Records Will Be Compared with the Death Certificates of Policy Holders.
Evidence of extensive fraud in the writing of insurance on risks known to be bad has been brought to the attention of the Armstrong Committee. From the information it already possesses the committee is inclined to the opinion that it has struck a new lead, which will produce extraordinary results.
September 3, 1905, New York Times, Senator William W. Armstrong, Head of the Insurance Investigating Committee,
Masons Will Do Tardy Honor to Governor Tompkins; His Masterful Service to the State and Nation During the War of 1812 and Subsequent Downfall --- A Brilliant Career That Ended in Bitterness and Failure --- Movement to Erect a Monument to Him.
FORGOTTEN for well-nigh a century, and practically unknown to the present generation, the name of Daniel D. Tompkins, one of the most picturesque and notable men who figured in the early history of the American Republic, has at last been resurrected in a movement by the Grand Lodge of Masons of New York to erect a monument to his memory.
September 5, 1905, New York Times, Armstrong Committee Will Start To-Morrow; Conference To-day Will Precede First Open Insurance Session. MERRITT FOR LOWER RATES Member of the Investigating Committee Hopes That Will Be an Outcome of the Inquiry.
Members of the Joint Committee of the Legislature to investigate insurance conditions are expected to return to the city to-day for a conference with the committee's counsel, Messrs. Hughes and McKeen, preparatory for the first open session of the committee to be held to-morrow in the Aldermanic Chamber of the City Hall.
December 1, 1905, New York Times, Insurance Department Will Be Investigated; Armstrong Committee to Overhaul Hendricks's Bureau AND WORK OVER INTO 1906 Charges Against Payn One of the Reasons for This Action -- Absent Witnesses Wanted.
As the result of the publication of evidence taken in the Canadian insurance investigation charging that ex-State Superintendent of Insurance Louis F. Payn got $40,000 from the Mutual Reserve Life Association in connection with a report by his examiners and of other disclosures before the Armstrong committee pointing to relations between the insurance companies and the State Insurance Department, the investigation now on will be extended to that branch of the State administration.
December 2, 1905, New York Times, W.S. Sullivan Put In Field's Place; Mutual's Advertising Manager Temporarily in Charge of Supplies MAY BE AN ISSUE IN BOARD Resignation of Adrian Iselin, Jr., In -- Friends Urge Him to Stay -- Equitable Trustees Meet.
Walter S. Sullivan, who for several years has been the advertising manager of the Mutual Life Insurance Company, was appointed to the head of the company's supply department yesterday. This is the post long held by Andrew C. Fields, the legislative generalissimo of the Mutual and Equitable.
December 6, 1905, New York Times, How Mutual Reserve Got Missouri License; It Employed Lobbyist Phelps, Says Vice President Eldridge. MERRIAN ASSIGNED HIS FEES Large Commissions Thus Went to a Friend of President Burnham -- Mr. Behler's Investigations.Another chapter of the relations of the Mutual Reserve Life Insurance Company with the Insurance Departments of this and other States was unfolded yesterday at the Armstrong committee's investigation.
Jan. 5, 1906 New York Times, Insurance Reforms That Will Be Urged;
Armstrong Committee Will Recommend Radical Changes. POLICY HOLDERS TO TAKE PART Proposed Bills Will Give Them a Share in Management -- Publicity and Restriction of Investments.
Upon authoritative information THE TIMES is able to say that the principal objects which the Armstrong Insurance Investigating Committee will seek to accomplish in the legislation it recommends to the Legislature are:
January 20, 1906, New York Times, Want Uniformed Code of Insurance Laws;
Armstrong Committee and Outside Commissioners Agree. LONG CONFERENCES ON HERE The Restriction of Deferred Dividends and the Standardization of Policy Forms Discussed.
As the result of conferences which are now in progress at the Hotel Cadillac between the Armstrong committee of Insurance investigators and representatives of the Insurance Departments of ten outside States, a plan is being put under way which may result in a practically uniform insurance code in many States of the Union.
February 23, 1906, New York Times, The Armstrong Report Comes Out; Radical Reforms Urged in 25 Insurance Bills. POLICYHOLDERS SUPREME New Trustees All Around Next November. NO STOCKS TO BE HELD Must Be Sold in Five Years -- No Syndicates. NEW BUSINESS LIMITED To $150,000,000 a Year -- No Campaign Gifts, No Deferred Dividends -- Policy Holders May Sue.
The report of the Armstrong Insurance Investigating Committee was presented to the Legislature yesterday and simultaneously made public in this city. Leading insurance men, while declining to comment in detail on its recommendations or to be quoted individually for their opinions, declared these recommendations and the provisions of the bills introduced with it into the Legislature to be radical beyond all expectation.
March 11, 1906, New York Times, Will Ask Mr. Cravath About Equitable Plan; Armstrong Committee Seeks Light on Mutualization. HEARING PLEASED MEMBERS While Some Concessions Are Likely They Consider That Their General Plan Stood the Test.
ALBANY, March 10. -- When Paul D. Cravath appears next Thursday at the adjourned hearing on the bills proposed for the reorganization of the insurance business in this State, members of the Armstrong Investigating Committee will try to obtain from him an authoritative declaration of Thomas F. Ryan's intentions on the question of mutualizing the Equitable Life Assurance Society through the retirement of the stock.
March 11, 1906, New York Times, Limitation of Insurance; Illustration of the Plan Proposed by the Armstrong Committee;
The proposed restriction in writing new life insurance being one of the recommendations of the Armstrong Committee that has been discussed as too radical, an illustration of the working of the plan for limitation may be interesting and instructive for policy holders.
April 26, 1906, New York Times, They Miss Those Old Insurance 'Ads' Sorely; Those Who Lost Them Plan Campaign to Get Them Back. C.J. SMITH CALLS MEETING He It Was Who Used to Distribute the Mutual's Favors to Out-of-Town Newspapers. Mutual's Premium Loss. First Quarter Shows One---Also a Big Saving in General Expenses. Burnham Indictments Up. Motion to Quash Them Made by Insurance Men's Counsel.
April 28, 1906, New York Times, Gov. Higgins Signs Last Insurance Bills; The Big Bill and Perjury Measure Become Laws. REVIEW OF INVESTIGATION Praise for the Armstrong Committee and Credit for the Administration in the Governor's Memoranda.
ALBANY, N.Y., April 27. -- Gov. Higgins to-day signed the two remaining insurance bills. All of the measures which followed the long investigation in New York last year are now part of the law of the State. The bills signed to-day are the "big bill" which amends the insurance law generally and the perjury bill over which there was much discussion in both houses.
May 15, 1906, New York Times, Mutual Life Sues Trustees For Waste; Defendants Were All Members of the Expenditures Committee. NEW BY-LAWS ARE ADOPTED Officers Elected from Second Vice President Down -- McKeen Now General Solicitor.
Suit has been started by the Mutual Life Insurance Company against Robert Oliphant, Charles E. Miller, and James C. Holden, Trustees and members of the Mutual's Committee on Expenditures, and against the estate of the late J. Hobart Herrick, a former member of the committee, to recover such sums of money as may have been wasted through the alleged negligence of the defendants.
October 22, 1906, The Fredericksburg [Va.] Daily Star, New York Campaign. Bryan's Commoner Comments on Gubernatorial Contest. Speaks of Parker Charges. Also Wants to Know Why Did Mr. Hughes Fail to Put Bliss and Cortelyou on Stand In the Recent Insurance Investigation
November 18, 1906, New York Times, Jerome Tells Higgins of Insurance Probing; Only the Mutual Considered -- N.Y. Life Report to Come Later. LITTLE EVIDENCE OF CRIME Statement an Explanation of His Failure to Indict Officials Other Than Grannis and Gillette.
District Attorney Jerome submitted to Gov. Higgins yesterday a long report on his investigation of the Mutual Life Insurance Company by way of a preliminary answer to the Governor's request of June 22, 1905, that Mr. Jerome should make a general inquiry into life insurance matters.
February 20, 1907, Boston Evening Transcript, Hughes Scores Kelsey; Asks Senate to Oust Insurance Superintendent. Declares His Unfitness for Office Amply Demonstrated. Message a Scathing, Unanswerable Document. Conspicuously Failed to Perform Obvious Duties.
The governor cites the fact that Kelsey took office May IT, He then reviews In some detail the famous revelations of the Armstrong committee investigation, ...
April 16, 1907, New York Times, Equitable Report Shows Economies; Saving of $3,179,910 from Fund Set Aside for Expenses in 1906. FIRST TEST OF NEW LAW Legal Expenses Cut from $204,019 in 1904 to $85,489 Last Year -- Other Reductions.
Schedules filed by the Equitable Life Assurance Society with the State Insurane Department showing the operations of the society for 1906, and its financial condition on Dec. 31 last, afford some interesting comparisons with the figures reported by the Equitable for 1904, which was the last full year of operation under the old management.