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Annals of the Scottish Widows Fund Life Assurance Society
Chapter I


AMONG the manifold sources of disaster and sorrow befalling civilised humanity, none has been, and none remains, more prolific than Chance and Death - Chance, that elusive, incorporeal agency which has lured gamblers by the thousand to moral and material wreck— Death, which tears loving hearts asunder and brings to nought the wisest schemes. Nevertheless, just as the most deadly drugs, prepared by scientific pharmacists, may be applied successfully by physicians to mitigate pain or expel disease, so men have learnt by slow experience to turn to beneficent account the relation which these two intangible forces bear to one another, and to harness them for the service of mankind. For, as Euripides observed 2350 years ago:-

The experience needful to enable men to compel Chance and Death to their advantage was gathered very slowly, as any one may realise by glancing over the history of life assurance. [Babbage attempted a formula distinguishing between the terms "assurance" and "insurance." He defined assurance as a contract dependent on the duration of life, which must either happen or fail ; and insurance as relating to events that may partly happen or partly fail, such as injury to person or property by fire, storm, or other accident. Walford (Insurance Enyclopaedia) held that assurance represented the principle, insurance the practice. Probably the true definition would be that a person insures with an office and the office assures him against certain contingencies ; but in practice the terms have become synonymous and interchangeable.]

As to death, indeed, all men had inherited the experience that it was inevitable, and King David—or that anonymous syndicate which the higher critics would have us regard as responsible for the psalms attributed to King David— estimated the normal duration of life at a figure which subsequent experience has done little to modify; but no organised provision against death was feasible until the conditions of government and society became such as to provide reasonable security against the arbitrary interruption of human life.

So long as the scaffold and the gallows continued to be recognised as the natural and readiest means of suppressing political controversy so long as family and tribal feuds continued to be conducted by private conflict and assassination—so long as nations could be plunged into war at the bidding of autocrats—so long did the chances of life remain incalculable.

Consider the social and political conditions which prevailed in England and Scotland during the fifteenth and sixteenth centuries, when these two countries waged almost incessant war with each other. Every baron was liable to be summoned to a campaign at any moment, and all his tenants were bound to follow their feudal master to the seat of war. A common uncertainty thus affected the expectation of life in all classes and in all parts of the two countries. Nor was that all. Life was far more precarious in some districts than it was in others. Had there existed in those days an Assurance Society, it would have baffled the acumen of the most skilful actuary to draw up a table of mortality adapted alike for the circumstances of a yeoman in the Cumberland fells or a laird in Teviotdale, both being dwellers in the very cockpit of Border war, and for those of a Cornish tin-miner or a parish priest in Warwickshire, living remote from the seat of chronic war.

So much for the rural community. In towns the probability of life was even less calculable. The universal neglect of hygiene and sanitary provision—the indescribable filth of both streets and dwelling-houses—afforded a fertile breeding-ground for virulent fevers, which, always smouldering in the tainted alleys, swarmed forth at uncertain but frequent intervals, in the form of the Black Death, to sweep away its victims by the hundred thousand. In the outbreak of 1348-9 there is reason to believe that one-third of the entire population of England perished; the mortality in London alone has been reckoned at 100,000, whereof 50,000 were buried in what is now Smithfield Market. The last great visitation in 1665 carried off 97,306 inhabitants of London, or nearly one in every five of a population of 500,000.

The first person to connect cause and effect in regard to the plague, and to reflect upon the possibility of averting this terrible scourge by removing the festering sources whence it sprang, seems to have been Desiderius Erasmus (1467-1534). His intellect and disposition were as far in advance of his contemporaries in this matter as they were in the spirit of religious tolerance. Moreover, the misery attendant upon a visitation of the plague was borne in upon him in youth by the death of his mother, the break-up of his home, and the consequent compulsion exerted by his guardians to force him into monkhood, a vocation most hateful to him.

In later life he became powerfully impressed by the dirt of English dwellings—those of the wealthy as well as those of the poor. He discerned that which is now universally accepted as a cardinal truth, namely, that epidemics are not to be accepted as acts of arbitrary vengeance on the part of an angry God, but as the natural crop springing from accumulated filth. Howbeit, Erasmus was not going to proclaim this discovery. Not he! he has told us naïvely and frankly that he was not of the stuff whereof martyrs were made. He had suffered enough already from the enmity of the Sorbonne to make him wary of casting more pearls of intelligence before the rulers of that citadel of obscurantism. In private correspondence, however, he allowed himself to express the common sense wherewith he was so superlatively endowed. Writing to his friend Francis he describes a condition of things quite disgusting enough to account for the frequency of epidemics.

I often wonder, and not without anxiety, why it is that England hath been afflicted with pestilence so continually during many years; above all with the sweating sickness, which seemeth almost peculiar to that country.

The floors are usually made of clay, covered with rushes that grow in the marshes; and these are moved so slightly from time to time that the lower part sometimes lieth for twenty years on end, and therein is an accumulation of spittle, vomit, urine of dogs and men, fragments of fish, and filth of other kinds not to be described. Out of this, when the weather changeth, arise vapours very pernicious, as I think, to the human body.

It is, indeed, wonderful how any human constitution could withstand the baneful conditions of mediaeval homes ; nor is the wonder lessened by contemplating the grotesque phases of empiricism through which the science of medicine had to struggle into existence. Utter indifference to domestic cleanliness long survived Erasmus's protest. At the present day there is not a city in Europe where sanitation is more thoroughly understood or more rigidly enforced than it is in Edinburgh; but hear how an English barrister, Joseph Taylor, described the Maiden City when he visited it in 1705. It is necessary to leave out some of the darker passages in his experience.

Every Street shows the nastiness of the Inhabitants: the excrements lye in heaps. . . . In a Morning the Scent wai so offensive that we were forc't to hold our Noses as we past the streets, & take care where we trod for fear of disobliging our shoes, & to walk in the middle at night for fear of an accident on our heads. The Lodgings are as nasty as the streets, and wash't so seldom that the dirt is thick eno' to be par'd off with a Shovel. [Journey to Edenborough, by Joseph Taylor, 1702.]

Conditions do not seem to have been any better at Moffat, which was already a health resort, described by Taylor as "famous for its Spaw." Here the travellers lodged with the Provost.

We met here with good wine, and some mutton pretty well drest; but looking into our beds, found there was no lying in them, so we kept on our cloaths all night, and enjoy'd ourselves by a good fire, making often protestations never to come into this Country again.

This being the environment wherein town- dwellers passed their lives at the beginning of the eighteenth century, it is not surprising that it never occurred to business men that such lives were insurable. Going back to still more primitive times, we do not find that death was included among the casualties against which the Anglo-Saxon gilds made provision. These gilds existed at the earliest period to which English history can be traced, and although they partook mainly of the character of friendly societies, yet they had many features in common with modern Assurance companies.

In a maritime country like England it was natural that merchants and shipowners should desire some means of providing against the loss of ships and cargo by storm, fire, or pirates, and so we find that the earliest English law affecting this matter was "An Act concerning Matters of Assurances among Merchants," passed in 1601. From the preamble of this Act it is clear that the practice of underwriting the safety of a vessel on a voyage had been long established.

Whereas it hath been time out of mind an usage among merchants, both of this realm and of foreign nations, when they make any great adventure, specially into remote parts, to give some consideration of money to other persons, to have from them assurance made of their goods, merchandises, ships, and things adventured, or some part thereof, at such rates and in such sort as the parties assurers and the parties assured can agree ; which course of dealing is commonly called a policy of assurance, by means of which policies of assurance it cometh to pass, upon the loss or perishing of any ship, there followeth not the loss or undoing of any man, but the loss lighteth rather easily upon many than heavily upon few, and rather upon them that adventure not than on those that do adventure, etc. etc.

It will be noted that in this system, though the safety of ship and cargo were assured, no provision was made against the death of captain or crew. It is true that as early as the sixteenth century private underwriters were found willing at exorbitant premiums to take the risk of insuring travellers and others against death for brief periods and during special undertakings, such as individual voyages or even campaigns. Under this system, if such it may be called, a traveller might deposit, say, £100 with a Jewish moneylender, who would bind himself to pay him twice or thrice the amount on his safe return. Herein, if the seed of modern life assurance may be recognised, the principles have come to be reversed, for the underwriter no longer derives benefit from the death of the insured, but has every reason to desire the prolongation of his life.

Towards the end of the seventeenth century marine insurance acquired a more business-like character. In 1688 one Edward Lloyd kept a seamen's coffee-house in Tower Street, London where, being a man of energy and intelligence, he exerted himself in collecting such information from foreign ports as might be useful to underwriters. In 1692 he moved to Lombard Street, drawing many of his old seafaring customers after him, who soon began to derive advantage in the new premises from easy intercourse with merchants, consigners of goods, and other business men. Lloyd's tavern became the recognised place for bargains about freights, the sale or charter of ships, underwriting, and such-like transactions. Maritime intelligence of all kinds was regularly posted up for the information of customers, and in 1696 this enterprising man began publishing such news three times a week under the title of Lloyd's News, altered in 1726 to Lloyd's List, now the oldest periodical in the world except the London Gazette. Such was the origin of the world-wide system known as "Lloyd's," which was incorporated by Act of Parliament in 1871. The value of property annually insured with underwriters certified by Lloyd's now amounts to about £500,000,000.

The purchase of annuities by individuals from corporations or other individuals became not uncommon in the sixteenth century, and led to some very gross abuses. There was no fixed relation recognised between the age and health of the annuitant and the price or amount of the annuity. Each several contract was fixed by independent bargaining in the total absence of any data whereon to base expectancy of life.

Insurance against loss by fire, as shown above, was included among the casualties provided against in the Anglo-Saxon gilds; but it was not until after the Great Fire of London in 1666 that the matter was taken up in any great commercial community, and in 1681 a regular Fire Insurance Office was opened "at the backside of the Royal Exchange." This was followed in 1696 by the formation of the "Hand-in-Hand Contribution- ship, or Society for the Insurance of Houses and Goods from Loss or Damage by Fire." Several other fire offices dating from about this time foundered after a brief existence; but this one did not succumb, even under the weight of its voluminous title, but, having extended its operations to life assurance in 1836 and altered its name to the Hand-in-Hand Fire and Life Office, it was merged in the Commercial Union in 1905.

An attempt has been made in this brief sketch of the earliest efforts at life assurance to show how little advance had been made before the close of the seventeenth century to reduce those two inimical agencies, Chance and Death, to the service of human society. Yet it was during that century that busy intellects had been at work collecting the material out of which has been built the great fabric of Insurance which has proved of incalculable benefit to millions of human families.

It is to the City Company of Parish Clerks [ Incorporated in A.D. 1232 under the title of the Brotherhood of St. Nicholas.] that credit is due for laying the foundations whereon that fabric has been reared. In the reign of Queen Elizabeth they began to register accurately all baptisms and burials within the City of London. In 1592 they commenced publishing weekly statements, and from 1625 onwards these returns were printed under the title of Bills of Mortality, whence, for the first time, some material might be drawn for calculating the chances and average duration of life among the population of London.

Coincident with the collection of these statistics was the rise of that profound and versatile thinker, Blaise Pascal (1623-1662), who, before he ceased to devote his faculties to scientific research in order to concentrate them exclusively upon "the greatness and the misery of man," applied them to studying the problem of Chance in an attempt to elucidate its laws. Pascal's attention was first attracted to what might have been deemed a barren field of enquiry by the Chevalier de Mere, a noted gambler, who invited him to calculate probability in the fall of the dice, with a view, of course, to a profitable system of play. Pascal at once plunged deeply into the subject in correspondence with the mathematician Pierre de Fermat, the result being the formulation of the Theory of Probability, which immediately commanded widespread attention. This unpromising beginning "was the first of a long series of problems, destined to call into existence new methods of mathematical analysis, and to render valuable service in the practical concerns of life." [Boole's Laws of Thought, P. 243.]

The first to apply Pascal's doctrine of probability to the ends of government and the benefit of society was the great Dutch statesman and financier, Johan de Witt (1625-1672). The States-General having resolved in 1671 to raise a fund by the issue of annuities, de Witt presented a remarkably able report on the whole question, setting forth the superior value of life annuities as compared with redeemable annuities. [It appears from a passage in de Win's report that the governments of Holland and West Friesland had been in the practice for more than 150 years of raising funds by the sale of annuities, without any correct estimate of the value of such annuities in relation to the health, age, and other circumstances of the purchaser.] He had received a thorough training in mathematics at school in Dordrecht and in the University of Leyden, and applied the principles of that science to calculating the probability of life. Basing his calculations on the statistics of mortality recorded in the State Registers, he concluded that the expectation of life in every man was the same in each six months between the ages of 4 and 54. This he expressed by the figure I. From 54 to 64 the probability in each six months was again equal, expressed by the fraction 2/3 from 64 to 74 was expressed by 1/2; and from 74 to 81 by 1/3. Burgomaster Hudde added to this report his certificate to the effect that he was satisfied that de Witt's calculations rested "on solid and incontestable mathematical foundations." The report seems to have been adopted by the States-General ; but no action followed, owing, probably, in great part to the hostility of the Calvinist clergy, whose enmity de Witt had incurred. In the following year it was de Witt's fate to afford in his own person an instance of the uncertainty of life, and the consequent advantage to the granter of a life annuity as compared with a redeemable one, when he and his brother Cornelius were assassinated by the mob at The Hague.

Nevertheless, the ball had been set rolling in the right direction. Pascal's doctrine of probability, applied in the light of such limited and imperfect statistics as could be drawn from the Bills of Mortality, furnished a clue which led to the inauguration of a great system. In 1686 there was published at Cambridge A Table for the purchasing of Lives, certified by Isaac Newton as being, in his belief, actuarially correct. In 1692 the English Parliament passed an Act for raising one million sterling by the purchase of annuities, to carry on the war against France. The price of such annuities was not fixed in any relation to age or health. Annuities to the value of only £881,493 : 12: 2 having been purchased, a second Act was passed in the following year for granting life annuities at 14 per cent to make up the balance of £118,506 : 7:10. The worthlessness of the imaginary valuations whereon these annuities were based was exposed in the same year by Dr. Halley, who read a paper before the Royal Society propounding an estimate of human mortality drawn from five years' registry of births and deaths in the city of Breslau. This, and the discussion which followed thereon, combined with the action of the Government in advertising their scheme, drew public attention forcibly to the subject. In 1699 the Mercers' Company of London were persuaded by the Rev. Dr. Assheton (1641-1711) to carry into effect a project which he had already laid in vain before the Corporation of the Clergy and the Bank of England, for establishing a Life Assurance and Annuity Association. The venture was favourably received, especially by married citizens, who were enabled to purchase annuities for their widows on a 30 per cent basis, and the subscription list filled rapidly. But it was not long before Dr. Assheton's tables were found to be faulty ; the annuities had to be lowered ; the society led a precarious existence for six-and-forty years, until, in 1747, being hopelessly insolvent, a petition was presented to Parliament for aid to extricate it from its difficulties. The Mercers were able to plead in support of their appeal the "benevolences" which they, in common with other City Companies, had granted to needy Sovereigns in past centuries; it may have been that consideration, or simply recognition of the merits of life assurance as an institution, that disposed Parliament favourably to the suppliants; at all events the prayer was granted; an Act was passed securing to "the Commonalty of the Mystery of Mercers" £3000 per annum for thirty-five years towards liquidating their liabilities to assured persons. Profiting by the early experience of the Mercers' Company, the Bishop of Oxford and Sir Thomas Allen founded the Amicable Insurance Society in 1706, and obtained for its incorporation a Royal Charter. This society, based upon the calculation of one death per annum in every twenty inhabitants of London, charged uniform premiums, irrespective of age, sex, or health, pooled its income and divided it each year among the representatives of those who had died. It conducted a small, but sound, business till 1866, when it was absorbed in the Norwich Union.

By the middle of the eighteenth century numberless insurance schemes had been floated, nearly all of which failed ; and no wonder, for it was not until the Equitable Society, founded on the mutual principle in 1762 (and maintaining a vigorous existence at the present day), adopted the tables prepared by their actuary, Mr. William Morgan, [This remarkable man (1750-1833) was one of the true pioneers of life assurance. Appointed assistant actuary to the Equitable in 1774, and promoted to be actuary in 1775, it was to his sagacious insight into principles that the Society owed its success among the wreck of innumerable others. Morgan continued in office till 1830, when he retired at the age of eighty, and was succeeded by his son Arthur, who, in turn, retired in 1870, father and son having acted as actuaries to the Equitable fur a period of ninety-six years.] that premiums were graduated on a scale according to the age of the insured. 'While, therefore, the Mercers' Company must be credited with being the authors of the first corporate institution for the assurance of lives, to the Equitable Society must be assigned the honour of being the true pioneers in the application of scientific principles to the business. Moreover, the Equitable Society possesses a special claim to the regard of members of the Scottish Widows' Fund, inasmuch as our Society was framed on the model of the older institution, and its constitution moulded under the advice of its actuary, William Morgan. It was owing to the prosperity of the Equitable, which in 1809 had accumulated nearly four millions and a half of invested capital and had more than eight millions of assurances, that the promoters of the Scottish Widows' Fund were induced to take the bold step of adopting the mutual system, under which the whole profits should be divided among the policy-holders, instead of the proprietary system, which was almost universal at that time among other assurance companies, and under which the profits were assigned as dividend to those who subscribed the capital of the concern. [Besides the Equitable, the London Life Assurance and the Norwich Union had been established on the mutual system.]

In view of the keen competition now existing between companies doing assurance business, the action of the Equitable in promoting by counsel and encouragement the foundation of a rival society—acting, in short, as a kind of foster- mother to it—may seem to have been strangely unselfish and even quixotic; but the truth is that the directorate of the Equitable were far from eager to extend their business beyond the unprecedented limits it had attained in the early years of the nineteenth century; they had from the first consistently declined to adopt the agency system, being quite content with the grist that came to their mill in London ; wherefore they could regard with equanimity and approval the foundation in the northern capital of a counterpart to their own institution. Nevertheless, members of the Scottish Widows' Fund should bear in grateful remembrance how much their society owed in its infancy to the Equitable and its actuary William Morgan.


 

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