Louis D. Brandeis: “The Greatest Life Insurance Wrong”

Explanation and Analysis of the Document

This article, which may be taken as typical of the numerous articles that Brandeis wrote on behalf of the various reform causes in which he engaged, was published in the Independent magazine in December 1906. It appeared in the midst of Brandeis's long campaign to establish the system of Savings Bank Life Insurance in Massachusetts. He had become interested in the insurance industry when he agreed to serve, without pay, as the lawyer for a group of policyholders in the wake of a scandal involving the affairs of the Equitable Life Assurance Society of New York. The New York legislature's Armstrong Committee had uncovered shocking abuses in the insurance business, and the worst of those abuses involved so-called industrial insurance—life insurance policies sold door to door by salesmen on commission. The targets of these salesmen were working men and women who were often struggling to keep themselves and their families afloat on meager wages. The huge profits from this branch of the business accounted for a large portion of the tremendous profits that the big insurance companies were making. As was typical of Brandeis, he began an exhaustive study of the insurance companies and was soon an expert in the intricacies of the business. That hard-won expertise is reflected in the mastery of facts and figures that he presents to his readers in this article.

Brandeis begins by describing the appalling records of the big companies in their industrial insurance operations. He dwells on the huge extent of that branch of the industry, the enormous profitability to the companies, and the reasons why a worker was ill advised to buy such a policy under the conditions presently imposed by the companies. Then he argues that the reason for this sorry situation is the fact that the big companies are not interested in the welfare of working American men and women who are desperately trying to provide some security for their loved ones in case they should die; the companies are interested, instead, in wringing large profits out of them to benefit the company, pay the large salaries of its officers, and pay healthy dividends to its stockholders. He dwells especially on the frightening lapse rates for these policies, as many workers find themselves unable to keep up with the premiums. In view of these abuses and the unwillingness of the big companies to reform themselves, Brandeis ends the first part of his article with the bold assertion that the solution to these difficulties must be “radical.”

The solution to the problem of providing affordable life insurance to working men and women, Brandeis contends, lies in expanding the functions of a particular preexisting institution. Nonprofit “savings banks”—neighborhood institutions controlled by unpaid trustees and designed to encourage savings and provide modest interest—were functioning in both New York and Massachusetts. Such institutions had a record of community service, a history of very low operating expenses, and a reputation for honesty that the for-profit banks and private insurance companies could only envy. Brandeis proposes that these institutions be allowed to open insurance departments, whereby workers could take out modest policies without having to bear the expenses of big company salesmen, high executive salaries, advertising, and stockholder dividends. He argues that insurance is not a complicated business and does not require expertise beyond the understanding of actuarial statistics, such that the functions of insurance could easily be added to the duties of these savings banks without impairing their other functions or in any way risking their soundness.

By midsummer 1907, as a result of a tireless campaign of organizing the public, persuading officials, and lobbying the legislature, Brandeis was able to overcome the determined and powerful resistance of the insurance companies and establish the system of Savings Bank Life Insurance in Massachusetts. For the rest of his life he was attentive to the affairs of the system and extremely proud of its record of growth, low surrender rates, and service to working men and women. The system exists and thrives to this day.