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Scotland Insured
Chapter I - A Retrospect


THE passing of the National Insurance Act, 1911, directed attention to the question of insurance against sickness, and to the history and operations of what are known in this country as “Friendly Societies.” In order that the situation, prior to the introduction of the National Insurance Bill may be better understood, it may be well to give a brief outline and summary of the outstanding features of those associations.

The ideas associated with Friendly Societies will be found to exist to some extent in the trade or craft guilds of the Middle Ages. These were the Friendly Societies of their day. Later, in some districts of England, the village club introduced features of the old guilds. The main idea associated with mutual provident organisations under the form of Friendly Societies is well expressed in Defoe’s Essays (1696), in which the famous author of “Robinson Crusoe” advocated the promotion of “Societies formed by mutual assurance for the relief of the members in seasons of distress ... by which not a creature so miserable or so poor but should claim subsistence as their due, not ask it of charity.” In thus advocating such Associations, Defoe would seem to have been urging the extension of the operations of a system of thrift institutions which existed to some extent at that time. Several institutions, some of them enjoying such quaint names as “Sea Boxes,” are of considerable antiquity, and their operations, though limited in extent, were beneficent in the relief of poverty and distress arising through sickness.

It is important to note that this form of provident insurance arose from the economic necessities of the industrial classes of Great Britain. To some limited extent these organisations provided, in certain districts, a means whereby certain pressing necessities of their members were met by themselves for themselves.

For a time Friendly Societies were not deemed lawful, but in 1793 Parliament first recognised the necessity of protecting and encouraging Friendly Societies, and it was then enacted—“that it should be lawful for any number of persons in Great Britain to form themselves into and to establish one or more Society or Societies of good fellowship, for the purpose of raising from time to time, by subscriptions of the several members, a stock or fund for the mutual relief and maintenance of all and every the members thereof, in old age, sickness, and infirmity, or for the relief of widows and children of deceased members.” At a later date, 1825, the following reasons for the existence of the mutual Friendly Society as opposed to the individualistic saving bank were given by a Parliamentary Committee of that date :—

"Whenever there is a contingency, the cheapest way of providing against it is by uniting1 with others so that each man may subject himself to a small deprivation, in order that no man may be subjected to a great loss. He upon whom the contingency does not fall does not get his money back again, nor does he get for it any visible or tangible benefit, but he obtains security against ruin, and consequent peace of mind. He upon whom the contingency does fall gets all that those whom fortune has exempted from it have lost in hard money, and is thus enabled to sustain an event which would otherwise overwhelm him. The individual depositor, not the contributor to a common fund, ig really the speculator. If no sickness attacks him during his years of strength and activity, and he dies before he is past labour, he has been successful in his speculation ; but if he fall sick at an early period, of if he live to an old age he is a great loser, for his savings, with their accumulations, will support him but a short time in sickness.”

Acts of Parliament of various dates, from 1793 up to 1890, enacted in many directions important provisions relating to the control and management of Friendly Societies. Registrars were appointed, Societies were put under the necessity of keeping and making returns of their sickness and mortality experience ; important provisions were inserted into different Acts relating to officers, to the determination of disputes by arbitration, to the recognition of an affiliated class of society, to annual audits, to the valuation of assets and liabilities every five years, and to numerous other provisions embodied in Friendly Society law.

Along with a growing interest by the State shewn in the direction of legal protection and the granting of privileges to Friendly Societies with a view to the proper management of such organisations and the safeguarding of the rights and funds of the members, there developed in the Victorian era increased attention to the financial and actuarial side of such Societies. Hitherto Societies to a great extent had been working in the dark without proper data. In many instances Societies and their members suffered great loss through being founded on wrong lines and through lack of knowledge, offering to provide benefits on terms which financial stability would not permit. A number of highly important investigations were from time to time conducted by various financial experts with the view of procuring scientific information with regard to the construction of tables relating to the value of annuities, sick benefits, assurance for death, and the necessary contributions to be paid for such. The labours and investigations of Mr. Ansell, the elder Mr. Nelson, Mr. Ratcliffe, and, in our own time, Mr. A. \V. Watson, have been of the utmost value in exhibiting the true principle of financial security and indicating the lines on which reform should proceed where it was required by Friendly Societies and Assurance Companies in order to maintain a condition of solvency in a large and difficult field of operations.

The Friendly Societies had always kept steadily in view provision for distress caused by sickness or old age, assurance against death, assistance in securing medical attendance and treatment, and incidentally the education of the people in thrift, temperance and good citizenship. Uniform methods were not adopted to attain these ends, and many variations existed in the contributions exacted and in the terms and conditions imposed on members for different benefits. Some Societies limited their operations in various ways and adopted restricted conditions for restricted benefits. Others varied and extended their sphere. Not all achieved the same success in membership, in financial stability and in successful management. Many Societies learned somewhat slowly by bitter experience that the essentials of good management and the test of financial security could not be ignored. Slowly it came to be recognised that Registration was necessary, not because registry of itself could make any Society safe, but because its position must be always unsafe without registry. Long years of varying experience had to be spent before Societies learned the fundamental lesson that rates of contribution for benefits, both sick and funeral, must be on a graduated or sliding scale, according to age on entry, and that these rates themselves must be such as to carry benefits contracted for. They learned that from the actuarial point of view contributions must be on a commercial basis if benefits were to be purchased. Another test of good management evolved from experience was that records of yearly sickness and mortality experience must be kept so that the value might be in the possession of sufficient data to estimate the liabilities of the branch or Society. Yearly audits were found to be imperative. A periodical valuation or the overhauling of assets and liabilities was found to be absolutely essential. This was found to be the salvation of Societies, especially when subsequent steps were taken without delay to give effect to the remedial measures recommended by the valuer where the liabilities exceeded the assets. It was found that where different Insurance Funds existed they should be kept separate and that expenses of management should be provided for, and that the fund for expenses of management should be kept separate. It was found to be of first-class importance to create Reserve Funds to realise or clear the percentage of interest equal to that on which tables or scales of contributions had been calculated—generally 3 per cent. Societies, to safeguard themselves, especially if of limited membership, had instituted a medical examination. Usually candidates were refused admission if they were over 40 or 45. The efficient supervision of sick payments came to be recognised as one of the most important tests of good management. The. Society was thus safeguarded against improper claims and against malingering. There were two main lines of defence by which Societies protected themselves. The first was the certificate of the Society doctor, who was regarded as the protector of the funds, and the other was the employment of a sick visitor whose duty it was to pay benefit and inform the Society of any doubtful cases and of any misconduct likely to retard the recovery of the member. Many Societies attached importance to the payment of arrears, and to the retention of members during unemployment. These tests of good management have been mentioned at this stage not as novel features but in order to indicate the result of the accumulated experience of over a century of management of sickness societies. That experience, it will be kept in mind, appertains to fairly good lives who were placed under some training and discipline. Some of these tests have been embodied in the National Insurance Act. Their importance will, however, be recognised when it is remembered that some fourteen million people have been insured, many of them without education in insurance principles and methods and without discipline and knowledge of the fundamental tests of financial security and those principles of good management without which no Society can be successfully organised and maintained.

The following- figures, which arc the latest available with regard to membership and funds of various types of Societies, have been extracted from the Report of the Chief Registrar of Friendly Societies for the year ending 31st December, 1911. They exhibit, as far as it can be done, the strength of insurance schemes prior to the passing of the Insurance Act:—

 

No. of

No. of

 

Type of Society.

Returns.

Members.

Funds.

Ordinary Benefit Societies ...

3,151 .

. 1,289,271 .

. £13,146,939

Orders and their Branches...

20,660 ..

. 2,803,429 .

. 28,021,449

Deposit Societies ... ...

81 .

. 3S1.491 .

. 3,497,668

Dividing Societies ... ...

1,457 .

. 332,514 .

. 302,114

Juvenile Societies ......

972 .

. 155,156 .

. 272,626

Friendly Society Asylums and

 

 

 

Convalescent Homes ...

6 .

. 36,651 .

. 32,184

Shop Clubs ... ... ...

8 .

. 13,798 .

.. 1,717

Medical Societies ... ...

85 .

. 329,450 .

. 64,298

Shipwreck Societies ... ...

8 .

. 740 .

.. 8,770

Other Societies ... ...

90 .

. 403,459 .

. 1,683,157

Benevolent Societies......

74 .

. 33,433 .

. 367,468

Working Men’s Clubs ...

1,250 .

. 316,407 .

. 468,506

Specially Authorised Societies

168 ..

. 79,446 .

. 874,414

Trades Unions ... ...

638 ..

. 2,017,656 .

. 5,925,358

Total......

28,648 ..

. 8,192,901 .

. £54,666,668

It is well known, however, that many persons are members of more than one Society. The membership shewn above is consequently inflated to that extent, but how much it is impossible to say.

A survey of the best of the Friendly Society orders in this country shews a slow development of a great movement arising out of the economic needs of the industrial classes. That movement drew its impulse from the working classes. At first the State looked on, and then, as is its wont, gave a limited measure of protection 'and the benefit of the law of the land to the protection of rights and funds. For many years the underlying principles of financial security and sound management were imperfectly understood by the working classes, or, indeed, by any class. Slowly scientific principles and sound business methods were evolved. Societies grew, carried on important operations, attained magnitude and accumulated large funds. It would be difficult to exaggerate the effect of the working of Friendly Societies on the life and work and health of the nation ; on the character of the people in training them for the management of affairs; in the discipline entailed by self government of societies; in the habits of thrift, and sobriety; in the moral and ethical training involved in membership of societies; in judging others and in claiming benefits on a proper interpretation of rights and duties to his neighbour and his Society. Sufficient attention has not hitherto been paid to the valuable work performed by the great Friendly Society organisations, nor has due recognition been made of the most honourable labour of the pioneers and leaders in this beneficent movement. All honour to such men and to their work.

When this is said, however, it must be admitted that owing to a variety of causes which need not be fully analysed here, the movement, while achieving a great measure of success, never fully covered the ground. There were, outside its ranks, vast numbers of people who did not secure aid when they required it, and inside its ranks numbers who dropped by the wayside through falling into arrears. In short, the Friendly Society movement embraced the selected lives of the industrial classes who, while requiring aid, required it in lesser degree than those outside sickness insurance. The Societies did great work in a field where work was required, but after more than a hundred years of organised effort they never professed to cover even half the field. Moreover, owing to changed views, modern tendencies and heavy emigration, there were signs that in some important respects the movement had reached its limit, and that in fact it was in imminent danger of retrogression. The membership, the age of the members and the financial standing of many societies were such as to give rise to anxiety among the well-wishers of such institutions. For these and other reasons the time seemed ripe for a great forward movement. That movement could only elliciently be undertaken by the State in a compulsory scheme for Health Insurance. Wedded as they have been to a voluntary sickness scheme, and accustomed to voluntary management and control under the law to rule their own affairs, it is little wonder that many of the leaders of Friendly Societies did not at first view with great favour so fundamental a change. The Act, too, was complicated in detail, and in some respects difficult to understand. Further, some leaders of Friendly Societies allowed their political views for the first time to sway their judgment. It is noteworthy, however, that there was little evidence of this in Scotland and, indeed, in Friendly Society circles north of the Tweed there was evinced that well-known capacity for making the best of a situation which is such an asset to the Scottish nation. The result has shown the wisdom of such a policy, for nowhere in the United Kingdom has the Act been better organised and administered than in Scotland. The old Scottish motto, “Ready, Aye Ready,” has been lived up to.


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