In 1844, there was a public auction of old, sick men in London. These men could no longer afford the premiums on their life insurance policies. Speculators would inspect the men and bid on the right to take over their premiums, become the beneficiary, and collect the proceeds when they died. Bidding was more active on those men who looked very ill. Elizur Wright hated this system because he believed:
Wright was then in London to assess the calculations behind British life insurance practices to help an American life insurance company. Many life companies often failed to accurately estimate longevity and interest rates, leading to their insolvency. Of the 300 British life insurance companies formed up to 1830, 250 companies failed. Hence, Wright resolved to do the following:
The insurers soon found that the non-forfeiture provision was actually a selling point for its life insurance policies and brought in more business. The zeal of Wright for making sure life insurance companies continually prove their financial solvency made the Massachusetts-based life insurance companies attractive to potential customers nationwide.
In effect, operating under the regulatory rule of Elizur Wright was a seal of approval for a life insurance company in terms of its product, financial standing, and management. It helped Wright’s goal of making better life insurance products for consumers.
Thus, a mutually beneficial relationship grew between the regulator, the insurance companies and the policyholders. In today’s political climate, amidst the various debates about financial inequities and regulation, the “father of life insurance” is worth remembering.
Dr. K. Raja Gopal Reddy, Ph.D, FIII, FCII, FLMI, Chartered Insurance Practitioner
Topspot Insurance Broking Private Ltd. (commercially known as ‘insurancepe’)