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Whole life or not whole life: that is the life insurance question – Part 3

Part 3: The modern insurance carrier

In Part 2 of this series, we discussed the formation of the corporate structure for providing insurance. This structure made it easier for interested parties to pool resources and spread the risk, thus making it possible to insure against large losses at a discount.

In Part 3 we will discuss the creation of the modern insurance carrier. Think Advisor reports that the first carriers were almost exclusively mutual, or owned by the policy holders:

“The panic of 1837 and the resulting financial crisis spurred a shift toward mutualization for life insurance companies. Between 1838 and 1849, only one life insurance company raised capital on a stock basis. During the same period, 17 mutuals, requiring little initial capital, were chartered.”

“The spread of mutuals as well as other developments — like legal changes allowing women to purchase life insurance and a cultural shift away from preachers who demonized life insurance as “gambling” — created a boom period for life insurance companies. Many of today’s largest life insurers were formed in this period, including New York Life, MassMutual, John Hancock and MetLife.”

It is interesting to note the legal and cultural advancements of the modern era that made it possible for the life insurance industry to grow. Today’s sensibility would not countenance laws prohibiting women from buying life insurance, or risk management as “gambling.” It is also significant that the policy holders owned the first companies. In my point of view, this made the carriers immediately accountable to the people they serve.

In our next article, we will take a look at the next stage of growth for the industry.