The History of New York State
Editor, Dr. James Sullivan
Online Edition by Holice, Deb & Pam
|The special task laid upon the
insurance department is supervision of all forms of insurance offered
the public at large. Since the establishment of this separate
supervisory agency in New York State, these interests have developed new
forms and have increased from amounts represented by a few millions to
many billions. Business of such vast proportions can be conducted with
safety and success only by an association or incorporated company of
individuals. During the colonial period the small vessels and cargoes
that adventured along out Atlantic coast were protected by personal and
partnership underwriting. Fire insurance had come into increasing vogue
in Great Britain after the great London conflagration of 1666, but to
the scattered, modestly-built settlements of America such protection
became imperative only after the rapid growth and increase of wealth
following independence and the inauguration of our national government.
A life association, started in Philadelphia in 1750, is still in
operation, as also a fire company organized there in 1792. The first
fire company chartered in New York was, as has been noted, the Mutual
Insurance Company, in 1787. With the steady advance of the port of New
York to supremacy after the year 1800 a number of fire and marine
companies sprang up in that city, and here, likewise, toward the middle
of the century, several life companies began existence that are now
among the strongest in the world.
These earlier companies were created by special charter and no particular control was exercised over them by the State. Such control began in a small way under the revised statutes of 1827, which required every moneyed corporation thereafter created to render an annual statement to the State comptroller. Insurance corporations were specifically brought under this law in 1830. A blank form of annual statement was provided, and while not obligatory upon companies previously organized, an increasing number of such statements was filed with the comptroller from year to year.
A further step toward real supervision was taken under the Constitution of 1846, which provided that all corporations should henceforth be formed under general laws. Pursuant to this mandate of the people the first insurance act of the State was passed by the Legislature of 1849, covering the classes of business then in use--marine, life and health, fire and inland transportation--and requiring an annual statement from domestic concerns and stipulating the same for other State and foreign companies as a prerequisite for authority to do business in the state.
An act of 1851 required of life companies a deposit of $100,000 with the State comptroller. In 1853 supervision was further elaborated by a general act regulating life companies and by another general act regulating fire companies. Marine companies were, because of the relation of their business to the high seas and to foreign lands, still left quite by themselves. It was not until 1864 that an annual report was demanded of them, since which time ocean marine business had a gradual development in America until the Great War brought a sudden and large expansion.
By 1850 the increasing burden upon the State comptroller of even a moderate oversight of the State's financial institutions had become such that relief was had the next year by establishing the banking department to supervise more closely banks of deposit, and discount with enlarging importance o currency and trade. Under the pressure of similar circumstances, in his report of 1855, Comptroller James M. Cook advised the establishment of a department for the supervision of insurance companies, but a strong protest sent in by fire insurance companies caused the measure to fail in the Legislature of 1856. However, the financial stringency of 1857 revealed the insolvency of a number of fire companies and the fraudulent organization of some, so that a change of attitude quickly followed and during 1858 the sound companies turned heartily to the support of the plan for a separate department and closed supervision of the business.
First State Insurance Superintendent.--A new measure for an insurance department was brought before the Legislature in 1859 and passed with general approval ion April 15, but was not made effective until the following January 1, at the close of the term of the comptroller then in office. On January 11, 1860, William Barnes, as before noted, was appointed the first superintendent. Under the statute of 1830 one fire and one marine company had reported for that year. In 1848 fifty-four fire companies sent in reports, a number that was increased two years later under the broader statute in 1849, to fifty-five domestic fire, twenty-two other State fire and three domestic life and twelve other State life--a total of ninety-two companies. The new superintendent's first report, covering the business of 1859, surveyed one hundred and twenty-five domestic and twenty-eight other State fire, fourteen domestic marine, and eight domestic and nine other State life companies--a total of two hundred and three.
The first task of the new department was to secure full returns of the financial condition and business methods of the corporations placed under its supervision. This involved some changes in bookkeeping and relies to printed interrogatories, and revealed the fact that some company officials were very reluctant to yield to public oversight of what they considered their private business. It is only in recent times that the fiduciary and public character of the insurance business has been fully assented to.
A second task of the department was to formulate and secure the adoption of such theories and standards of business as would afford security for the future, since without stability and permanence insurance is of small worth. To accomplish this end Mr. Barnes placed himself in touch with the first actuaries and mathematicians in America and abroad. A complete straightforward annual financial statement must be founded on such provision of funds as would meet all possible obligations, however long deferred, since the essence of insurance is absolute security for the contingencies of the future. All this involve a vast amount of detail and of patient investigation and calculation which can hardly be appreciated in this day of established practice and accepted formulae, to say nothing of labor-saving devices for duplication and calculation.
Large Increase in Supervised Companies.--The two hundred and three modestly-proportioned insurance corporations supervised by the New York Insurance Department sixty years ago have come to number over seven hundred, not a few of which individually exceed in strength the aggregate of their predecessors, while both fire and life business have developed several separate plans of insurance, and an entire new branch--casualty or miscellaneous insurance--has developed over a dozen classes of protection to meet the needs of indemnity for persons, property and business affairs, in our increasingly complex civilization, such as accident, health, liability, fidelity, surety, plate-glass, steam boiler, flywheel, engine breakdown, burglary, and title guaranty insurance.
Companies for insurance against accident in travel were formed beginning in 1863; for steam boiler inspection and insurance in 1866; for live stock in 1867; for fidelity and plate glass in 1868; and health, surety, employers' liability, burglary and theft, sprinkler leakage, baggage, and workmen's compensation have followed. Many fire companies have come to do ocean and inland marine business as well, and also to furnish indemnity for damage by hail, windstorm, frost, earthquake, riot, civil commotion, explosion, and covering automobile, airplanes, seaplanes, and several other special risks.
Early in the seventies fraternal beneficiary societies began to come into existence, offering small amounts of sick and death benefits. Some of them were organized under an act of 1848 providing for the incorporation of charitable, religious and learned bodies; others took rise as social and recreational societies under the so-called clue act of 1875. As a class of purely fraternal benefit orders at length emerged under the lodge system specifically for sick or death benefits, or both, an act was formulated in 1881 for their control. This class of life insurance corporations has become numerous and many strong societies are now found among them. In recent years their business is being placed on a firmer basis, with the promise of continued and increasing usefulness.
The two general insurance statutes of 1853 had been amended and increased by a variety of acts down to 1892, when for the first time all the laws relating to insurance were codified and brought into a measure of consistency and unity. The continued development of insurance science and practice has made additional legislation necessary from year to year, and in 1909 a second revision of the insurance law was adopted by the Legislature. Since then many new developments have occurred, especially in connection with automobiles, air navigation and damage from war or public disturbance.
Consequent on the life insurance investigation of 1905 the sections of the law governing this class of companies were greatly extended. A standard fire policy, first adopted in 1886, was revised and simplified in 1917. New sections of the law covering the casualty lines have been called forth by the rapid advance of this class of business, as experience has made the need evident. In 1891 a model fraternal law was devised and generally adopted by most of the States of the Union.
Employees of the Department.--The personnel of the insurance department at first consisted of a deputy and several clerks under the superintendent. The services of a mathematician and actuary were employed as occasion required. Today about one hundred and seventy-five persons are employed, about half of them are located at Albany and the other half at a branch office in New York City. The branch office is made up of a bureau of examiners, a bureau of audit, a workmens' compensation bureau, a rate-making bureau, and an office of the broker's bureau. The Albany portion of the department consists of a general office and the following bureaus: Actuary's, statistics, assessment life and fraternal societies, licensing, policy, brokers' cooperative fire, accounts, filing, and printing and supplies.
William Barnes continued in office ten years and left an enduring impress on the department and on insurance supervision in America. His first deputy was General James W. Husted, afterwards for many years a leader in the Legislature and Speaker of the Assembly. One of his first clerks, Matthew R. Robertson, remained with the department until his death in 1904--a period of over forty years. Another early clerk was Frederic Remington, the artist of the Western plains, who was a native of Canton, New York. An early employee under Mr. Barnes was a mathematical genius, the then State superintendent of weights and measures, John Paterson, who later served as actuary and gave a son to the service. John Sherman Paterson was actuary of the department for thirty-five years.
The roster of the department shows that, aside from three acting incumbents, there have been seventeen appointees to the office of superintendent. Francis R. Stoddard, who served until 1924, is a lawyer. He saw service in the Spanish War and in the Great War, in the interval practicing law in New York and Serving several terms in the Legislature. For six years under Superintendent Phillips, he was deputy in charge of the New York office of the insurance department. Mr. Stoddard's first deputy, Henry D. Appleton, came into the department in 1883, and has shared actively in the important developments in insurance during the past quarter of a century.
When the insurance department was established the design was that sufficient fees and taxes be collected from the companies supervised to pay the expenses of the department, but so large and rapid has been the development of the business during sixty years that the total regular sum collected and covered into the State treasury by the insurance department a the close of the fiscal year ending June, 1921, aggregated $23,147,752, while the total charges of the department upon the State since January 12, 1860, had amounted to only $9,253,484. The aggregate of income does not include payments made to the State under the tax law.
The insurance law has been broadened and strengthened from tine to tine as circumstances have required, so that its provisions now regulate strictly the manner of organization and the methods and standards of business for all lines of insurance offered the public at large, with the object of making this important economic service absolutely secure. The fiduciary nature of insurance service is so well recognized to day that insurance officials have come to regard their business as a sacred trust for the benefit not only of the policy holder, but of the wider public circle that is ultimately and directly concerned with serious losses that may befall the private or public interests of the community.
The insurance department of the State of New York is charged with the duty of supervising the organization and conduct of insurance corporations to the end that the important objects of their business may be guaranteed. This supervision is general, takes the form of examination of companies on organization or upon entrance into this State, with periodical examination of all domestic companies and complete annual statements covering every phase of their activities; and a positive control is further exercised over their affairs by means of an annual certificate of authorization to outside companies and an annual license to all agents, and by the requirement of a deposit from certain class of companies of from one to several hundred thousand dollars in securities, according to the number of and kinds of business authorized.
Life Insurance Growth.--In the sixty-sixth annual report of the Department of Insurance, for the year ending December 1, 1924, Superintendent James A. Beha, who succeeded Superintendent Francis R. Stoddard on July 1, 1924, observes:
"The great volume of life insurance written by companies operating in this State and their vast assets have continued the extraordinary growth of the last few years. One company has over ten billions of insurance in force and nearly one and two-thirds billions of assets. Efficient and economical management of corporations doing such a volume of business is most essential for the welfare of their policy-holders and of the country itself. The regulation by law and supervision of these companies demands the constant and increasing attention of this department. The limitation of expenses and supervision generally provided for under the New York law have been, and still are in the opinion of this department, the most important factors controlling the business of life insurance and giving it the standing which it has in this country at the present time.
"The four largest companies located in this State belong to the policy holders. With approximately seven and a half million of ordinary and thirty million of industrial policies in force, with assets of approximately four billion, over twenty-five billion of insurance in force, the conditions and conduct of these companies constitute a serious matter. They have become so large and deal with the interest of so great a proportion of the citizens of this country that they are becoming more and more semi-public institutions. No personal ambitions, selfishness, prejudice, or any consideration other than the public interest and that of the policy holders should be the motive by which these corporations are conducted. These corporations were created to serve great purposes. It is the business of the State to see that this service is performed."
Recent Insurance Developments.--Now as to developments within the last few years or so in the insurance field in New York. In fire insurance, particularly in the United States and Canada, the great toll of fire losses continued to mount, and underwriters were working zealously on methods of fire prevention and improved fire protection in order to diminish the carious hazards as far as possible. In life insurance the year was one of great activity and indicated so far as the United States was concerned a generally prosperous condition in which thrift and saving were important factors. The accompanying paragraphs, based in large measure on the authoritative reviews published in the annual insurance number of the "Journal of commerce" give some of the more important facts and tendencies in 1924 and 1925.
Fire Insurance.--During 1924 fire underwriters experienced a run of heavy losses and continued high expense ratios. Nevertheless many of the companies increased their unearned premium results notwithstanding a considerable decrease in the volume of business due to writing a larger proportion of business for three or five year terms. At the same time many of the companies also showed increased surplus due to the appreciation of the value of securities owned by them. The slackness in general business during the year was responsible in a measure for the reduction in the amount of premiums received.
In 1925 the business of fire insurance companies in New York in practically all lines made a good growth.
Marine Insurance.--The tendency to reduce rates on marine insurance continued during 1924 and the year was not marked by any unusual changes. The marine underwriters in 1924 did not experience many losses, but at the same time the profits were not large as the business was not marked by great activity.
Companies writing ocean marine insurance had in 1925 another unsatisfactory year. since the collapse of trade in 1920 the volume of marine insurance had fallen far short of satisfying the companies writing this class, whose number greatly increased in the early years of the war. The result was excessive competition, forcing rates downward and introducing bad practice in the effort to get more business.
Life Insurance.--In 1924 the life insurance companies once again were able to show record figures and the new contracts entered into during the year were for an aggregate of more than $13,500,000,000. This figure included ordinary industrial and group insurance written by the old-line companies, but was exclusive of fraternal or assessment insurance or particular risk insurance. At this time in outstanding insurance the amount ultimately promised to the beneficiaries amounted approximately to some $64,000,000,0000, which was more then the value of all the railways the United States. Each year the policy holders were paying premiums aggregating about $2,000,000,000. This amount represented the savings and thrift of the young men of the country.
Another development of the year 1924 was in the field of group insurance where the members of large corporations not only were protected against the hazards of their occupation, but also against premature death arising from any cause. By this method a great breadth of coverage was secured, the cost of administration was reduced to a minimum, and technicalities of various kinds were eliminated. In short, advantages were secured for a large number of citizens of an expense closely approximating the actual cost. By 1924 this system had been in operation sufficiently long to have its participants witness actual payments and it was meeting with much more favorable interest from those whom it was desired to benefit.
The insurance companies and the policyholders were benefiting by the increased interest from their various securities and also from the diminished mortality, which for twenty years had been improving in New York and other parts of the country. The year 1924 was considered even more favorable than 1923 for many companies, but the earlier year was one of the best years in the history of life insurance. This had its effects in increased dividends to the policy holders and reduced costs.
Life insurance in 1925 had the greatest year in its history. Careful estimates place the volume of new legal reserve life insurance paid for at approximately $15,000,000,000, an unprecedented production for a single year. This record was not due alone to a better selling force, greater buying power in the public, increased appreciation of the need of life insurance and of its broad uses in a business way, but also in part to the splendid manner in which the companies had met the needs of the public along new lines.
Group, corporation, and partnership insurance has been sold for years and in rapidly increasing amounts, but the year 1925 saw an extension of "salary-deduction" and "non-medical" insurance. Under the former plan insurance is sold to a number of employees in one establishment under a plan providing for the payment of premiums monthly by deducting them from the employees' salaries, the cashier acting as collector and remitting to the insurance company none amount. This makes it easier for the employees to pay the premiums and for the company to collect them, and a large amount of insurance is now being sold on this plan. Several companies in Canada for some years had written insurance on individuals recommended by their agents as good risks without requiring medical examination. In 1925 a number of companies in New York adopted this plan, with certain safeguards, and it promised to be an important factor in increasing the production of life insurance.
In 1925 there was a noticeable expansion of group insurance, not only by the writing of new groups but also by increasing the amount of insurance on members in groups previously written.
The mortality experience of the life insurance companies was unusually favorable in 1925, following several other very favorable years, and companies were able to earn on their investments much more than the rate of interest assumed at the time the policies were issued. The result was that the companies quite generally had been able to increase their dividends to holders of their participating policies, while leading companies writing non-participating insurance have been able to reduce rates. This situation gave rise to
a discussion of the advisability of adopting a modern mortality table more nearly reflecting the present mortality than does the American Experience Table on which the laws of most of the States now require policies to be valued.
Motor Insurance.--Notwithstanding the decreased number of motor vehicles manufactured in 1824 as compared with 1923, there was a greater volume of insurance written than in the earlier year. It was estimated that the casualty companies probably wrote fifteen or twenty per cent more business in 1924 than in the previous year, while the fire and marine companies wrote practically the same amount. In 1924 the casualty companies changed pleasure car rates, but at the time announced there would be only minor changes for a period of two years. It was anticipated that there would be changes in commercial car rates early in 1925 and the new rates would b permanent for some time. It was realized that there was considerable field for motor insurance in view of the a fact that seventy-five per cent of the cars in the small towns were uninsured and it was stated that in communities of 10,000 or less, not more then ten or fifteen per cent would purchase automobile casualty insurance, and perhaps only twenty or twenty-five per cent would purchase automobile life insurance. The motor insurance companies were working during the year in cooperation with various safety movement realizing the serious condition developing through motor accidents.
The volume of automobile, fire and theft insurance written by stock fire and marine companies grew in 1925, and this branch of their business yielded them a profit thought the percentage was smaller than in 1924.
Fire Insurance Side Lines.--The so-called sidelines written by fire insurance companies continued to grow in volume. Some of them were quite new and the public had not yet appreciated the need for them.
The year saw an unusual boom in earthquake insurance, following a tremor in the East and a serious earthquake at Santa Barbara, California. Tremendous lines of this class of cover were written in New York, where little had been written previously. The rates were low, but the losses were virtually nil. Earthquake insurance had been written in California for years, and a number of companies suffered quite large losses at Santa Barbara. The demand for earthquake insurance comes largely from institutions which lend money on real estate security and insist that their loans be protected by insurance against every contingency, also from trustees responsible for the property of others.
The amounts of hail insurance on growing crops, written largely in the grain growing States of the West, and to a lesser extent in some other sections, were of about the same volume as in 1924, but the experience was somewhat more favorable and some companies made money on this line. It is a question whether any profit was made on rain insurance and on "frost and freeze" cover on crops. These lines are new, the demand is somewhat variable, underwriting practices and rates have not become fully stabilized, and they may be considered as still somewhat in an experimental stage.
Casualty Insurance.--While the volume of casualty business increased greatly in 1925, this class yielded little, if any, underwriting profit. The workmens' compensation branch, which had been the largest premium producer, was still unsatisfactory, notwithstanding higher rates than prevailed in 1924.
Automobile liability insurance was rapidly approaching first place in volume among the casualty lines if, indeed, it did not gain that position late in 1925. While the companies generally were making some profit on this class, the accident frequency was increasing and the size of judgments for personal injuries was growing.
Companies writing this class of business face a troublesome situation arising from the demand for laws requiring all owners of automobiles to carry liability insurance for the protection of the public. Massachusetts enacted such a law, effective January 1, 1927, and other States appear likely to enact similar ones. Such legislation would greatly increase the demand for liability insurance, as only a minor fraction of car owners were carrying such indemnity. But the enactment of such laws would also create a strong demand for low rates, not only from owners of cars, but also from manufacturers and finance corporations, whose sales would probably be affected by this additional cost of maintenance. Should the present stock companies reduce rates in response to this demand, it is doubtful if they would make any profits. Should they refuse to meet it, the probability would be strong that additional mutuals and non-agency stock companies organized by automobile manufacturers would cut into their business.
Plate glass insurance was profitable in 1925, but it was not one of the very important lines of casualty insurance. Burglary insurance was suffering from the prevailing lawlessness. Bank burglaries and hold-ups, pay-roll robberies and burglaries of mercantile establishments, create heavy losses. So serious were the losses in some classes of the business and in some localities that underwriting operations had to be curtailed.
Personal accident insurance continued to grow, partly through agency channels and partly through the development of group insurance and "newspaper" accident insurance which was bring written. While liberalization of policies and the great increase in the number of accidents due to automobiles had cut down the profits which this class used to yield, a number of leading companies continued to offer their agents special inducement to write it. Health insurance was placed on a better basis than in the past by rate increases and the more general adoption of a "waiting period" during which no indemnity is paid for disability due to sickness.
Fidelity and Surety Business.--the surety business as a whole continued to be profitable in 1924 and 1925, although companies had lost money on their depository business due to the unusual number of failures of banks in which public funds were deposited. The fidelity branch continued to suffer heavier losses than in the old days because of increased dishonesty among employees, a liberalizing of bond forms and less investigation of the records of employees beefier bonds were executed guaranteeing their honesty. The great building boom, road construction programs and other public construction work have greatly increased the volume of contract bonds, while the volume of fiduciary business grows with the increased size of estates in the hands of various classes of fiduciaries. One of the new things in the surety business in 1925 was the introduction of blank fidelity insurance, which indemnified the employer for loss through the dishonesty of all his employees, wherever located, permanent or temporary, whether compensated by salary or by commission.
In 1924 and 1825, as in previous years, the large number of fires and heavy losses had a depressing effect upon American underwriters and the moral hazards continued to be a very serious matter. At the middle of the year it was believed that these particular classes of risks must have burnt out, but in this the underwriters were mistaken, for the fires continued during the latter half of the year and a number of serious losses resulted, notwithstanding there were not notable conflagrations
The insurance companies continued to experience heavy expenses, including taxes, the cost of rating bureaus, fire prevention activities and similar items taking a large part of the profits, but it was not deemed at all desirable to retrench in preventable measures, while, of course, the taxes were inevitable. The year had its record of disputes and disagreements, not only among companies and organizations, but with State insurance officials. On the other hand, in many States the spirit of increased cooperation was manifested and the various cooperating organizations were able to act towards establishing better conditions and joint interests. The underwriters were able to secure a number of improvement in municipal fire departments in the interest of standardization and towards better equipment and more efficient fire alarm systems, though with generally high taxes it was realized that the cost of such improvement to the various cities was an important matter.
The History of New York State, Lewis Historical Publishing Company, Inc., 1927
This book is owned by Pam Rietsch and is a part of the Mardos Memorial Library
Transcribed by Holice B. Young
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