Metropolitan Life Insurance Company’s Competition

One obstacle which the officers of the Metropolitan Life Insurance Company had to overcome was the fierce competition of the older companies in the field. These could afford to pay higher commissions because their greater assets and surplus gave them a more solid financial position. The Metropolitan was unable to compete in commissions with these better established companies without seriously impairing its assets.

This situation was accentuated by the growing depression throughout the country. As a result, the company’s business began to drop sharply in 1874, and continued downward for five years until 1879. In this short period, the number of policies issued annually declined from 8,280 to 510. The insurance in force decreased rapidly from $27,300,000 in 1874 to less than $12,000,000 in 1879. The company, to any outsider, would have seemed to be on the way to dissolution.

But even in these darkest hours the officers retained their vigor and faith. They were no mere summer soldiers. They had shown their confidence in the ultimate success of the organization by obtaining a leasehold and moving into the spacious building at Park Place and Church Street in 1876. They were confident that the company would soon return to the highroad of success.

It was the ever resourceful Mr. Knapp who pointed the way. He proposed opening a new and immense field of operation-life insurance for wage earners and their families–where the Metropolitan would not be compelled to compete at a disadvantage with other companies.

In 1879 the company entered the field of industrial insurance. Thus began the establishment of the close ties it has always maintained with the working people of this country, a relation which has determined the distinctive character of the organization and its services. By entering this vastly enlarged theater of operations, the company was to influence the entire course of the business in this country. The year 1879 is indeed historic for American life insurance.

The decision to write industrial insurance was by no means a sudden inspiration, but a carefully planned move. Both Mr. Knapp and Mr. Hegeman were keen students of the business, and for a decade they had been following the discussions on the need for industrial insurance in this country in The Insurance Monitor, the Spectator, and especially in The Insurance Times under the distinguished editorship of Stephen English.

This branch had already achieved signal success in England, where the Prudential of London was carrying on a considerable industrial business and had home owner insurance on the brain as well. Meanwhile American insurance officials had been warmly debating the pros and cons of Weekly Premium business.

In fact, by 1879, the Company already had had a decade of experience with life insurance on the lives of working people, sold on the basis of weekly premiums. It will be recalled that in 1869, almost before the ink on the new charter was dry, the Metropolitan underwrote a type of insurance on working people who paid their premiums weekly, and found this business both feasible and profitable. If the company only foresaw the future of life insurance online life insurance quotes and all!

The most convincing argument for undertaking the new business was the success of the Prudential Assurance Company of London in popularizing industrial insurance among the wage earners in the cities of England. Both Mr. Knapp and Mr. Hegeman had watched this organization with avid interest. In the company’s archives there is still an old scrapbook, big as an unabridged dictionary, labeled “Prudential of London,” which contains booklets, pamphlets, correspondence, annual statements, newspapers, magazine and insurance paper clippings about the English organization.

It shows the evidence of painstaking study by these Metropolitan officers. They commented on the various forms of policies. They studied the annual reports of the Prudential. On its quinquennial report for the period ending December 31, 1876, are notations in Mr. Hegeman’s handwriting, commenting on the vastness of the Prudential’s Industrial compared with its ordinary business.

The premium income from industrial was 11 times that of ordinary. He noted the size of the average weekly Industrial premium, about 3 1/2 cents. “Very heavy loading,” is his cryptic note on the figures giving the expense of the business. He underscored the stipulation that the full benefit was not to be paid if death occurred during the first year of insurance.

He studied carefully the ratio of expense to income. The Metropolitan officers learned also that while the Prudential had achieved phenomenal prosperity, it had gone through difficult years before the initial surplus was built up.

Metropolitan Life Insurance Company’s Standards of Ethics

The Metropolitan Life Insurance Company’s officers were particularly careful in the selection of their agents, and inquired in detail as to their abilities, character, and previous experience. They knew how important it was to look into every application for insurance, and they urged their agents to exercise extreme care in the selection of clients.

In spite of the sharp struggle for business, the company emphasized and maintained high standards of ethics. It cautioned agents not to offer improper inducements or make unauthorized promises. It instructed them to stick to the printed text in representing the plans, features, and record of the company. Agents overstepping the bounds were reprimanded or dismissed. The officers condemned the common recourse of running rival companies down in the wild scramble for business. This malpractice, they realized, was injurious to the entire institution of life insurance. They were not building for the day; they were building for the future.

It is obvious that they were also keen businessmen and knew that generous and fair treatment of policyholders would win public recognition. Claims were paid promptly. Policies were “registered,” i.e., countersigned by the Insurance Department, indicating that a special fund was deposited by the company and held by the State as security for the payment of policies when they became due.

In order to gain official confirmation of its sound financial status, the company requested an examination by the New York State Insurance Department. In 1871, after such an examination, the Superintendent of Insurance, George W. Miller, stated that the life insurance company was managed with “integrity, energy, and ability, and concluded with the following words: “From the thorough personal examination made, 1 am satisfied that the condition of the company is such as to entitle it to the confidence of the policyholders and the public.”

Similarly, The Baltimore Underwriter, in referring to the business of 1872, wrote:

“In its issue of 8,642 policies last year, the steady augmenting of its receipts, the economy of expenditure, the character of its assets, its watchful management, its large membership, the rigid scrutiny of its risks, the public appreciation of its distinctive plans of insurance, etc.–in all these, we say, is the assurance that whatever solid life assurance contemplates the Metropolitan is abundantly able to supply.”

Intelligent management and energetic prosecution of the business by the new administration bore results. By the end of 1871, after less than four years of existence, the company had on its books more than 11,000 life insurance policies totaling almost $15,000,000 of life insurance, a considerable sum for that time. Only two years later the figures increased to 18,600 policies in force, and to more than $26,300,000 of business.

The official returns for 1873 revealed that, in the number of policies written, the company held third place among the 56 companies transacting business in New York State. By this time, the company had already entered 17 States and the Dominion of Canada. Its business extended to all the States in the New England, the Middle Atlantic, the East North Central areas, as well as to Iowa and Missouri.

This sound growth is all the more remarkable in that it occurred during a period of economic and financial excesses. Speculation and “frenzied finance” were rampant. The post Civil War demand for commodities was gradually letting up and prices declined as a result. Excessive railway building and the too rapid development of the trans-Mississippi West had brought about a glut of foodstuffs and thrown older areas out of cultivation.

A sudden crisis developed which broke into the lavish prosperity of the country and was immediately felt by all insurance firms. Partly owing to deficiencies of management, accentuated by the general economic crisis, no less than 22 life insurance companies in New York State had ceased business in the six years ending with 1873.

It must not be assumed, moreover, that the Metropolitan’s early success was achieved without many difficulties or that it continued indefinitely. The task of building a functioning organization and a Field Force was an arduous and expensive one. Competent agents were difficult to find. Many of the men engaged produced insufficient business, and a considerable number of the applications submitted were on questionable risks.

In spite of every effort, the lapse of life insurance rates was high, reflecting the adverse business conditions which were gripping the country. As the depression deepened, insurance company after insurance company went to the wall. Of the more than 15 life insurance companies incorporated in the State of New York in the three year period of 1866 to 1868, the Metropolitan alone survived.

The Crash of 1929 and Its Effect on Life Insurance

Soon after Mr. Ecker took the helm of the Metropolitan Life Insurance Company, Leroy A. Lincoln, at the age of 49, was made Vice President. He had come into the company in 1918, and in little more than a decade had demonstrated his capacity to handle a variety of complicated administrative problems.

He had a broad and intimate knowledge of the entire insurance business, having previously served as Counsel to the New York State Insurance Department. He brought to his duties not only a keen analytical mind but also a warm sympathy for the men in the field, and special enthusiasm for the social service program of the organization. When, in March 1936, Mr. Ecker became Chairman of the Board of Directors, Mr. Lincoln succeeded to the Presidency, continuing the policies of his predecessor in office.

Frederick H. Ecker became president of the company at a period which then looked to many like a “Golden Era.” All business was at a high peak, and the Metropolitan shared in the general prosperity. Toward the close of this period many people seriously believed that a new order of living had arrived in America and that prosperity, along with low cost life insurance, was to go on forever.

One measure of this buoyant state was the rise in prices of common stocks, particularly those dealt in on Exchanges. Under such promising conditions, it is not surprising that common stocks were seriously urged as suitable investments even for life insurance companies; and one or two companies not subject to the restrictions of the New York Law purchased sizable blocks of well selected common stocks for their portfolios.

It was at this juncture, in September 1929, that President Ecker, in an address before the National Association of Life Underwriters at Washington, analyzed the proposal that life insurance funds be put into common stocks, and took a firm position against such “investments” by the life insurance companies. There were some who challenged his position; but not long after Mr. Ecker’s address had been published and put into circulation there came, in October 1929, the first of the Stock Exchange crashes. His judgment as to the dangers of common stock investments for life insurance companies was vindicated almost overnight.

The full import of this disaster was little understood at the moment. It was not for weeks and months that the country came to understand that its entire economy had suffered a shock which could not be overcome for years. As the first overturns in the Stock Exchange deepened into a well defined national depression, the life insurance companies shared the difficulties of the times with other financial institutions.

Large numbers of people lost their savings on the Exchanges. Many banks closed their doors, foreclosures increased rapidly, and employment began to drop sharply. As a consequence, many people borrowed on their policies, whether it was individual health insurance or life insurance to obtain the cash which they could find through no other source. This situation was further complicated by moratoria on policy loans and surrenders enforced in a majority of the States-limitations which were not sought by the Metropolitan.

The company continued to make all payments where no restrictions existed, and met every obligation as soon as the curbs were lifted. During the decade from 1930 to 1939 the Metropolitan paid out well in excess of $5,000,000,000 to life insurance policies or beneficiaries. These payments saved from the ignominy of public relief many thousands of individuals who had set up their own protective plans through insurance during more prosperous years. Contemporary with the efforts of the Federal Government to afford relief to the destitute members of the population, they certainly lightened the public burden.