Insurance

Insurance. The history of insurance in the United States involves two major themes: risk protection and capital accumulation. Early American insurance companies adopted British insurance firms' practices in covering marine and fire hazards. Organized underwriters, usually merchants and real‐estate men who could assess risk and estimate profitable premium rates, insured policyholders for lost cargoes and the destruction of buildings by fire. (Risk is now calculated by professional actuaries using complex statistical techniques.)

The most significant ninteenth‐century outgrowth of fire and marine insurance was life insurance. The nation's first life‐insurance company was founded in Philadelphia in 1812. Most major life‐insurance companies, founded in the 1830–1870 period, were mutually owned by policyholders, as were many fire‐insurance companies. After the Civil War, these companies became fiduciary agents of middle‐class (and eventually working‐class) savings as well as key investors in transportation, financial, and industrial corporations. By 1900, life‐insurance companies rivaled banks in terms of financial power. In Paul v. Virginia (1868), the Supreme Court ruled that insurance was not “commerce” and therefore was not subject to federal regulation. Insurance remained subject to state regulation, however, and in 1871 state regulators formed the National Association of Insurance Commissioners to coordinate legislation and other matters.

Social and economic changes of the twentieth century coupled with the increasing sophistication of actuarial methods helped insurance spread to broader aspects of property and society, including such diverse areas as automobile insurance, crop insurance, comprehensive homeowners' policies, product‐liability coverage, and malpractice insurance for physicians. The New Deal Era saw the growth of various forms of social insurance, including bank‐deposit insurance, workers' injury compensation, unemployment coverage, and Social Security. Health insurance expanded rapidly with the founding of Blue Cross in New York in 1934 and its spread to other states. The Medicare and Medicaid programs of the 1960s, coupled with many private employee systems, extended health insurance still further.

The insurance industry grew enormously, in both size and investment power, in the later twentieth century. The Financial Services Modernization Act (1999) gave insurance companies and banks greater freedom to compete and collaborate in various financial services. In the mid‐1990s, the nation's leading life‐insurance carrier, Prudential of America, had annual revenues of more than $40 billion. In 1997 the nation's insurance carriers employed more than 1.5 million people, and there were 724,000 insurance agents and brokers. With assets of some $3.4 trillion invested in banks, mortgages, and corporate and government securities, the insurance industry loomed as a major player in the American economy as the twentieth century ended.
See also Banking and Finance; Business; Stock Market.

Bibliography

Kailin Tuan, ed., Modern Insurance Theory and Education: A Social History of Insurance Evolution in the United States during the Twentieth Century, 3 vols., 1972.

Tom Mertes