Incorporated: 1917 as Luther Union
Sales: $1,693 million (1998)
NAIC: 524113 Direct Life Insurance Carriers
Lutheran Brotherhood is the second-largest fraternal benefit society in the United States. It provides a variety of financial services to members of the Lutheran faith and their families. Lutheran Brotherhood offers life insurance, health insurance, and property and casualty insurance to its members, and operates mutual funds, annuities, retirement plans, and other financial services. The company runs a bank, the LB Community Bank and Trust, which offers traditional banking services both to Lutheran Brotherhood members and to the general public. The company also runs a network of financial programs to aid Lutheran charitable organizations. It provides matching funds for these charities, offers scholarships and loans, and helps congregations meet financial goals through services such as arranging electronic transfer of funds from members to their church collection plates. Lutheran Brotherhood also funds and manages a wide range of community service projects. The company is the major sponsor behind a national initiative to foster positive behavior in teens called Healthy Communities, Healthy Youth. In the late 1990s Lutheran Brotherhood had more than $19 billion in consolidated assets, and more than one million members.
Lutheran Brotherhood began in 1917 as an aid society for members of the Norwegian Lutheran Church of America. Norwegian Lutherans in the United States had belonged to three different church organizations, called synods, that held longstanding theological differences. In June 1917 the three synods held a massive convention in St. Paul, Minnesota, and agreed to merge into a unified church body. Thousands of delegates attended the historic meeting, and thousands of other Norwegian-Americans observed the proceedings and celebrated the new church, the Norwegian Lutheran Church of America. Prominent members of the unification convention were Jacob Preus, state insurance commissioner for Minnesota, and Herman Ekern, a Chicago attorney and one-time insurance commissioner for Wisconsin. These men were concerned that many Norwegian Lutherans felt that the Bible forbade them to buy insurance. Norwegian Lutherans commonly interpreted several verses from the New Testament, including Matthew 6:34, “Take therefore no thought for the morrow: for the morrow shall take thought for the things of itself,” as meaning that insurance was not sanctioned by the Bible. As a result, not only were Norwegian Lutheran church buildings of the time typically not insured, but church members who took out life insurance were shunned. Many church members therefore took out insurance secretly, or else joined secret societies and lodges that gave insurance benefits. Ekern and Preus were worried that as more Norwegian Lutherans left their rural communities and moved to big cities, more church members would be left without even the benefit of the informal aid delivered by friends and neighbors in a crisis. Legitimate insurance was desperately needed by the Lutheran community. Ekern and Preus dared to raise this volatile issue at the unification convention. They were given the go-ahead to begin a mutual aid society. This was to be a non-profit corporation open to church members. Its stated goals were very broad, and included fostering patriotism and providing proper entertainment and amusements for its membership. But its articles of incorporation also spelled out that the aid society would pay out benefits in case of death, disability, or sickness. The society was named Luther Union, with Ekern and Preus as directors and the Reverend Thore Eggen as president. Within a year, it had over 500 applicants, and it received its Minnesota life insurance license in September 1918.
The concept of the mutual aid society dated back to shortly after the Civil War in America. Little commercial or government insurance was available to working people at the time. Many workers participated in fraternal societies, which were generally social clubs for people in a particular field, such as railroad workers or mill workers. These fraternal societies gradually began offering insurance benefits, with all the members chipping in a certain amount for the surviving family if a member died. Most life insurance in the United States was issued by these fraternal benefit societies by the turn of the century.
Despite Luther Union’s initial success in signing up members for its life insurance benefits, the Norwegian Lutheran Church was still apparently uncomfortable with the idea of the mutual aid society. Luther Union issued a report on its activities to the church in 1919, but the report was not officially recognized. This was the end of Luther Union’s legal ties to the Norwegian Lutheran Church. Luther Union solicited help from a broader organization, the Lutheran Brotherhood of America, or LBA. The Lutheran Brotherhood had been formed in 1917 to provide for the comfort and spiritual life of Lutherans in the armed services. It had grown quickly to approximately 60,000 members, and it brought together Lutherans of many different synods. Luther Union made a formal agreement with the LBA in 1920 to become the group’s insurance auxiliary, open to all Lutherans. It gained national exposure through advertising in the LBA newsletter, as well as some financial backing. Luther Union decided at that point to change its name to Lutheran Brotherhood. This was somewhat confusing, as it was still a distinct entity from the Lutheran Brotherhood of America. This became a troubling issue. Lutheran Brotherhood grew slowly, making only slight gains in membership through the mid-1920s. Some members and employees suggested changing the name again, to make it clear that Lutheran Brotherhood was not the LBA, and that any Lutheran, whether in the LBA or not, was eligible for its insurance. Lutheran Brotherhood’s board declined to change the name, but by 1927 the point was moot, as the LBA dissolved.
By the mid-1920s, Lutheran Brotherhood had around 350 sales representatives. They recruited members mostly from rural areas of the Midwest. It was not an easy job, and most of the Brotherhood’s salesmen worked part-time, selling insurance as a sideline. Others were dedicated travelers, visiting far-flung small towns and persuading first the Lutheran minister, then the congregation, of the benefits of life insurance. The salesmen encountered strong resistance to the idea of insurance because of the long-held beliefs of Norwegian Lutherans, so Lutheran Brotherhood began publishing a magazine in 1924, aimed principally at gaining the trust of members and prospective members. Entitled The Bond, the magazine used many strategies to win converts to insurance. It profiled church leaders who worked with Lutheran Brotherhood, ran articles from salesmen who were ministers first, insurance brokers second, and even reached out to children with essays describing how nice Lutheran Brotherhood’s directors were. The Bond also took the opportunity to proclaim Lutheran Brotherhood’s financial soundness. It declared that its healthy-living Lutheran members had a low mortality rate, and printed tables demonstrating that the death benefits the society paid out far outweighed the premiums paid by the deceased.
Through the Great Depression
The stock market crash of October 1929 destroyed many businesses, but Lutheran Brotherhood was not immediately affected. Its membership continued to grow, and in 1930 its total insurance in force grew by approximately $6 million, to reach nearly $37 million. The total assets of the society stood at almost $2.5 million in that year. But because of the shakiness of the American economy, investing those assets became quite risky. So in 1931 Lutheran Brotherhood hired an investment manager for the first time. Harold Ingvaldson took the position, and he initiated a lending program. Lutheran Brotherhood began writing mortgages, mostly for its members’ single-family homes, family farms, or Lutheran churches. By the end of the decade, the society had issued over 1,400 loans, worth around $5.5 million. Despite the lean times, Lutheran Brotherhood continued to find new recruits. In 1937 the society had 48,500 members, and over $61 million of insurance in force. Most of its members were found in the Midwest, but the Brotherhood gradually widened out, reaching farmers in Pennsylvania and extending loans to clients in California and Florida. Though the bulk of the society’s members lived in rural communities, by the mid-1940s it had penetrated into Chicago, which became a ripe piocking ground for new members.
Lutheran Brotherhood was quietly and conservatively managed, and it blossomed through the 1940s from a small regional insurance company to a major player. By the end of the decade, the society’s assets had grown to approximately $65 million, and it had about $366 million of insurance in force. Its president was still Herman Ekern, who had been one of the original instigators of the fraternal benefit society and who had taken over from Reverend Eggen in 1929. But at the end of the 1940s, younger executives at the society began agitating for certain practical changes. Lutheran Brotherhood was using an actuarial table called the American Experience Table, which was based on mortality rates from the early 1940s. Ekern was opposed to using a more modern and accurate table, and finally he resigned over the issue. He left the society in 1951, and a new era at Lutheran Brotherhood began.
Growth and Modernization in the 1950s and 1960s
Lutheran Brotherhood’s new president was a Minneapolis lawyer named Carl Granrud. He had served on the board of directors since 1940. One of his first acts was to draft plans for a new corporate headquarters. The society had previously rented space in a downtown Minneapolis office building, but Granrud wanted it to have a grand building of its own. This was erected between 1955 and 1956, and it became known as “the green building,” a Minneapolis landmark.
The mission of Lutheran Brotherhood is to work together to provide financial security for members and to serve Lutherans, their congregations, institutions, and communities.
Granrud also pushed Lutheran Brotherhood to build a national presence. Though it was well-known in the Midwest, even selling insurance in rural Pennsylvania had been difficult because its name was not recognized. Lutheran Brotherhood hired a Minneapolis advertising agency, who convinced the society that advertising only in Lutheran publications meant that it missed many prospective members. The society began taking out ads in secular magazines for the first time, advertising in popular mass-market journals like Life and Reader’s Digest. By the early 1960s, Lutheran Brotherhood’s advertising had expanded to include billboards across the country, much print advertising, and even radio commercials. In 1955 the society produced a filmstrip giving the history of Lutheran Brotherhood and clearly explaining benefits. Long a conservative organization, Lutheran Brotherhood found itself on the cutting edge of multi-media selling. It was one of the first insurance companies to use a filmstrip.
The society also embraced technology. Lutheran Brotherhood worked with two IBM computers, which ran a program to analyze how much insurance a prospect needed. Few other insurance companies at the time were computerized. By the late 1950s, the society had grown to over 300,000 members, and close to $850 million of insurance in force.
Lutheran Brotherhood began offering health insurance in 1962. Later in the decade, it began investigating offering its own mutual fund. Mutual funds pooled the savings of many small investors, and skilled managers guided the funds so that returns were generally high. This kind of investment had an advantage over life insurance because its benefits rose as the stock market rose, while life insurance offered a fixed amount. With inflation, the relative value of the life insurance benefit might dwindle. Lutheran Brotherhood made careful study of the mutual fund field, and then began offering its own Lutheran Brotherhood Fund in 1969. It did this through two new subsidiaries, Lutheran Brotherhood Securities Corp. and the Lutheran Brotherhood Research Corp. Lutheran Brotherhood’s mutual funds became very popular with members. The first fund attracted nearly $12 million in its initial investment period, much more than management had hoped for. Through the 1970s, the society added several more funds, tailored to different needs.
Change in the 1980s
The success of Lutheran Brotherhood’s mutual funds was one indication of the change that was overtaking the insurance industry. Previously, life insurance was seen as a safe investment that could be used as guaranteed retirement income. But rising inflation made life insurance a less comfortable plan. Growth in the insurance industry slowed as consumers preferred to put money in other types of investment plans. And policy holders also found they could borrow against the cash value of their life insurance policies and invest that money at higher rates. Lutheran Brotherhood began to find its assets depleted by its members’ borrowing. The society found a new president, Clair Strommen, in 1980, and Strommen moved quickly to force Lutheran Brotherhood to be more productive and competitive. First, Strommen introduced new insurance products and overhauled old ones to make sure the society was offering competitive rates. The society worked to improve the education and training of its field force, and sought to stem the declining productivity of many of its older general agents. The general agents were responsible for recruiting and training the district representatives who worked the field selling policies. By the early 1980s, many of these general agents were nearing retirement age, and their productivity was not as high as it had been. Between 1980 and 1985, more than two-thirds of Lutheran Brotherhood’s general agencies changed leadership, as agents retired, resigned, or took new posts. But the changes had results, as the amount of insurance in force actually doubled between 1980 and 1987, from around $10 billion to over $20 billion.
The society also continued to bring in new technology. In 1986 Lutheran Brotherhood began issuing its agents laptop computers outfitted with sophisticated software. The software was able to produce graphics such as graphs and pie charts, so sales people could easily demonstrate values to prospective clients. It also hooked its sales force up to the home office via e-mail. Lutheran Brotherhood was in the forefront of this type of technology in the insurance industry.
Challenges in the 1990s
By 1990, Lutheran Brotherhood had spent about $10 million on computers, software, and training for its sales force. Life insurance accounted for about 75 percent of the society’s sales at that time. It had approximately one million members, and $26 billion of insurance in force. As a non-profit organization, its excess earnings went to its charitable projects, and so it was not society policy to shower its sales force with expensive gadgets. But the investment in laptops had concrete results. The society first deployed laptops at the end of 1986, and then made a significant upgrade in hardware and software in 1990. Life insurance sales rose by 35 percent in the four months after the new laptops were introduced compared to the same period a year earlier, an increase attributed to the better features of its new machines.
The Brotherhood’s mutual funds also prospered in the 1990s. While the whole field of mutual funds grew, Lutheran Brotherhood continued to market exclusively to Lutherans. Its family of funds grew to six by the mid-1990s, with its oldest, the Lutheran Brotherhood Fund, holding $525 million in assets by 1994. This fund had a proud record, with growth over 13 percent annually over the five years preceding 1994. Another fund, the Lutheran Brotherhood Opportunity Growth Fund, was singled out in Barren’s in 1996 for its stellar performance.
- Luther Union founded.
- Name changed to Lutheran Brotherhood.
- Herman Ekern becomes president.
- Lutheran Brotherhood first issues health insurance.
- Debuts its first mutual fund.
- Clair Strommen assumes presidency.
- Brotherhood buys a Minneapolis thrift.
The society continued to introduce new products for its Lutheran membership, including a disability policy that paid out a person’s regular church donations along with an income benefit if a claimant became disabled. It also pioneered a unique tool in 1998 called Simply Giving. This allowed members to make donations to their churches through an automated electronic payment plan. This helped churches receive consistent donations, and made the process easier for churchgoers. Lutheran Brotherhood designed this first-ever program, and made it available free of charge to Lutheran churches. The Brotherhood also began offering regular banking services to its members in 1998. It spent $3.5 million to buy a small Minneapolis thrift called Metro Community Bank. This was to serve the Minneapolis community as well as the Lutheran Brotherhood members at large, who had access to the bank through the Internet. The bank’s services included checking accounts, home mortgages, certificates of deposit, and trust services.
By the end of the 1990s, Lutheran Brotherhood was rated as a very stable, solid, and consistent provider of financial services. Its particular strength was its customer loyalty. Standard & Poor’s continued to rate the society AA + in 1999, based on its strong niche market and the low policy lapse rate of its dedicated customer base. At the same time, another credit rating company, Duff & Phelps, brought the Brotherhood’s rating down from AAA to AA, +. Though both raters affirmed the society’s very strong financial position, the outlook for Lutheran Brotherhood seemed to be growing more dim. While the loyalty of its Lutheran members was of signal importance, the Lutheran market was not growing, and its members were on average older than the general population. Yet the Brotherhood had shown repeatedly that it could overcome obstacles to growth, and it had adapted many times to changes in the industry.
Lutheran Brotherhood Financial Corporation.
Aid Association for Lutherans; Aetna; Prudential.
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Hakala Associates, Inc., A Common Bond: The Story of Lutheran Brotherhood, Minneapolis: Lutheran Brotherhood, 1989.
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Lampman, Jane, “The Electronic Collection Plate,” Christian Science Monitor, August 5, 1999, p. 14.
Lutton, Laura Pavlenko, “Lutherans-Only Insurer Buying Minneapolis Thrift to Offer Banking Products,” American Banker, July 8, 1998, p. 9.
Pompili, Tony, “Non-Profit Insurer Bets on Lap-Tops for Better Field Position,” PC Week, October 20, 1987, p. C4.
“S&P Affirms Lutheran Brotherhood ‘AA + ’ Rating,” PR Newswire, July 27, 1999, p. 9995.
Skillings, Jonathan, “Laptop Upgrade Answer to Productivity Prayers,” PC Week, December 3, 1990, p. 17.
Ward, Sandra, “Lutheran Fund Rates Hosannas,” Barran’s, September 9, 1996, pp. 43–44.