THE passing of the
National Insurance Act, 1911, directed attention to the question of
insurance against sickness, and to the history and operations of what
are known in this country as “Friendly Societies.” In order that the
situation, prior to the introduction of the National Insurance Bill may
be better understood, it may be well to give a brief outline and summary
of the outstanding features of those associations.
The ideas associated with
Friendly Societies will be found to exist to some extent in the trade or
craft guilds of the Middle Ages. These were the Friendly Societies of
their day. Later, in some districts of England, the village club
introduced features of the old guilds. The main idea associated with
mutual provident organisations under the form of Friendly Societies is
well expressed in Defoe’s Essays (1696), in which the famous author of
“Robinson Crusoe” advocated the promotion of “Societies formed by mutual
assurance for the relief of the members in seasons of distress ... by
which not a creature so miserable or so poor but should claim
subsistence as their due, not ask it of charity.” In thus advocating
such Associations, Defoe would seem to have been urging the extension of
the operations of a system of thrift institutions which existed to some
extent at that time. Several institutions, some of them enjoying such
quaint names as “Sea Boxes,” are of considerable antiquity, and their
operations, though limited in extent, were beneficent in the relief of
poverty and distress arising through sickness.
It is important to note
that this form of provident insurance arose from the economic
necessities of the industrial classes of Great Britain. To some limited
extent these organisations provided, in certain districts, a means
whereby certain pressing necessities of their members were met by
themselves for themselves.
For a time Friendly
Societies were not deemed lawful, but in 1793 Parliament first
recognised the necessity of protecting and encouraging Friendly
Societies, and it was then enacted—“that it should be lawful for any
number of persons in Great Britain to form themselves into and to
establish one or more Society or Societies of good fellowship, for the
purpose of raising from time to time, by subscriptions of the several
members, a stock or fund for the mutual relief and maintenance of all
and every the members thereof, in old age, sickness, and infirmity, or
for the relief of widows and children of deceased members.” At a later
date, 1825, the following reasons for the existence of the mutual
Friendly Society as opposed to the individualistic saving bank were
given by a Parliamentary Committee of that date :—
"Whenever there is a
contingency, the cheapest way of providing against it is by uniting1
with others so that each man may subject himself to a small deprivation,
in order that no man may be subjected to a great loss. He upon whom the
contingency does not fall does not get his money back again, nor does he
get for it any visible or tangible benefit, but he obtains security
against ruin, and consequent peace of mind. He upon whom the contingency
does fall gets all that those whom fortune has exempted from it have
lost in hard money, and is thus enabled to sustain an event which would
otherwise overwhelm him. The individual depositor, not the contributor
to a common fund, ig really the speculator. If no sickness attacks him
during his years of strength and activity, and he dies before he is past
labour, he has been successful in his speculation ; but if he fall sick
at an early period, of if he live to an old age he is a great loser, for
his savings, with their accumulations, will support him but a short time
in sickness.”
Acts of Parliament of
various dates, from 1793 up to 1890, enacted in many directions
important provisions relating to the control and management of Friendly
Societies. Registrars were appointed, Societies were put under the
necessity of keeping and making returns of their sickness and mortality
experience ; important provisions were inserted into different Acts
relating to officers, to the determination of disputes by arbitration,
to the recognition of an affiliated class of society, to annual audits,
to the valuation of assets and liabilities every five years, and to
numerous other provisions embodied in Friendly Society law.
Along with a growing
interest by the State shewn in the direction of legal protection and the
granting of privileges to Friendly Societies with a view to the proper
management of such organisations and the safeguarding of the rights and
funds of the members, there developed in the Victorian era increased
attention to the financial and actuarial side of such Societies.
Hitherto Societies to a great extent had been working in the dark
without proper data. In many instances Societies and their members
suffered great loss through being founded on wrong lines and through
lack of knowledge, offering to provide benefits on terms which financial
stability would not permit. A number of highly important investigations
were from time to time conducted by various financial experts with the
view of procuring scientific information with regard to the construction
of tables relating to the value of annuities, sick benefits, assurance
for death, and the necessary contributions to be paid for such. The
labours and investigations of Mr. Ansell, the elder Mr. Nelson, Mr.
Ratcliffe, and, in our own time, Mr. A. \V. Watson, have been of the
utmost value in exhibiting the true principle of financial security and
indicating the lines on which reform should proceed where it was
required by Friendly Societies and Assurance Companies in order to
maintain a condition of solvency in a large and difficult field of
operations.
The Friendly Societies
had always kept steadily in view provision for distress caused by
sickness or old age, assurance against death, assistance in securing
medical attendance and treatment, and incidentally the education of the
people in thrift, temperance and good citizenship. Uniform methods were
not adopted to attain these ends, and many variations existed in the
contributions exacted and in the terms and conditions imposed on members
for different benefits. Some Societies limited their operations in
various ways and adopted restricted conditions for restricted benefits.
Others varied and extended their sphere. Not all achieved the same
success in membership, in financial stability and in successful
management. Many Societies learned somewhat slowly by bitter experience
that the essentials of good management and the test of financial
security could not be ignored. Slowly it came to be recognised that
Registration was necessary, not because registry of itself could make
any Society safe, but because its position must be always unsafe without
registry. Long years of varying experience had to be spent before
Societies learned the fundamental lesson that rates of contribution for
benefits, both sick and funeral, must be on a graduated or sliding
scale, according to age on entry, and that these rates themselves must
be such as to carry benefits contracted for. They learned that from the
actuarial point of view contributions must be on a commercial basis if
benefits were to be purchased. Another test of good management evolved
from experience was that records of yearly sickness and mortality
experience must be kept so that the value might be in the possession of
sufficient data to estimate the liabilities of the branch or Society.
Yearly audits were found to be imperative. A periodical valuation or the
overhauling of assets and liabilities was found to be absolutely
essential. This was found to be the salvation of Societies, especially
when subsequent steps were taken without delay to give effect to the
remedial measures recommended by the valuer where the liabilities
exceeded the assets. It was found that where different Insurance Funds
existed they should be kept separate and that expenses of management
should be provided for, and that the fund for expenses of management
should be kept separate. It was found to be of first-class importance to
create Reserve Funds to realise or clear the percentage of interest
equal to that on which tables or scales of contributions had been
calculated—generally 3 per cent. Societies, to safeguard themselves,
especially if of limited membership, had instituted a medical
examination. Usually candidates were refused admission if they were over
40 or 45. The efficient supervision of sick payments came to be
recognised as one of the most important tests of good management. The.
Society was thus safeguarded against improper claims and against
malingering. There were two main lines of defence by which Societies
protected themselves. The first was the certificate of the Society
doctor, who was regarded as the protector of the funds, and the other
was the employment of a sick visitor whose duty it was to pay benefit
and inform the Society of any doubtful cases and of any misconduct
likely to retard the recovery of the member. Many Societies attached
importance to the payment of arrears, and to the retention of members
during unemployment. These tests of good management have been mentioned
at this stage not as novel features but in order to indicate the result
of the accumulated experience of over a century of management of
sickness societies. That experience, it will be kept in mind, appertains
to fairly good lives who were placed under some training and discipline.
Some of these tests have been embodied in the National Insurance Act.
Their importance will, however, be recognised when it is remembered that
some fourteen million people have been insured, many of them without
education in insurance principles and methods and without discipline and
knowledge of the fundamental tests of financial security and those
principles of good management without which no Society can be
successfully organised and maintained.
The following- figures,
which arc the latest available with regard to membership and funds of
various types of Societies, have been extracted from the Report of the
Chief Registrar of Friendly Societies for the year ending 31st December,
1911. They exhibit, as far as it can be done, the strength of insurance
schemes prior to the passing of the Insurance Act:—
|
No. of |
No. of |
|
Type of Society. |
Returns. |
Members. |
Funds. |
Ordinary Benefit
Societies ... |
3,151 . |
. 1,289,271 . |
. £13,146,939 |
Orders and their
Branches... |
20,660 .. |
. 2,803,429 . |
. 28,021,449 |
Deposit Societies
... ... |
81 . |
. 3S1.491 . |
. 3,497,668 |
Dividing
Societies ... ... |
1,457 . |
. 332,514 . |
. 302,114 |
Juvenile
Societies ...... |
972 . |
. 155,156 . |
. 272,626 |
Friendly Society
Asylums and |
|
|
|
Convalescent
Homes ... |
6 . |
. 36,651 . |
. 32,184 |
Shop Clubs ...
... ... |
8 . |
. 13,798 . |
.. 1,717 |
Medical Societies
... ... |
85 . |
. 329,450 . |
. 64,298 |
Shipwreck
Societies ... ... |
8 . |
. 740 . |
.. 8,770 |
Other Societies
... ... |
90 . |
. 403,459 . |
. 1,683,157 |
Benevolent
Societies...... |
74 . |
. 33,433 . |
. 367,468 |
Working Men’s
Clubs ... |
1,250 . |
. 316,407 . |
. 468,506 |
Specially
Authorised Societies |
168 .. |
. 79,446 . |
. 874,414 |
Trades Unions ...
... |
638 .. |
. 2,017,656 . |
. 5,925,358 |
Total...... |
28,648 .. |
. 8,192,901 . |
. £54,666,668 |
It is well known,
however, that many persons are members of more than one Society. The
membership shewn above is consequently inflated to that extent, but how
much it is impossible to say.
A survey of the best of
the Friendly Society orders in this country shews a slow development of
a great movement arising out of the economic needs of the industrial
classes. That movement drew its impulse from the working classes. At
first the State looked on, and then, as is its wont, gave a limited
measure of protection 'and the benefit of the law of the land to the
protection of rights and funds. For many years the underlying principles
of financial security and sound management were imperfectly understood
by the working classes, or, indeed, by any class. Slowly scientific
principles and sound business methods were evolved. Societies grew,
carried on important operations, attained magnitude and accumulated
large funds. It would be difficult to exaggerate the effect of the
working of Friendly Societies on the life and work and health of the
nation ; on the character of the people in training them for the
management of affairs; in the discipline entailed by self government of
societies; in the habits of thrift, and sobriety; in the moral and
ethical training involved in membership of societies; in judging others
and in claiming benefits on a proper interpretation of rights and duties
to his neighbour and his Society. Sufficient attention has not hitherto
been paid to the valuable work performed by the great Friendly Society
organisations, nor has due recognition been made of the most honourable
labour of the pioneers and leaders in this beneficent movement. All
honour to such men and to their work.
When this is said,
however, it must be admitted that owing to a variety of causes which
need not be fully analysed here, the movement, while achieving a great
measure of success, never fully covered the ground. There were, outside
its ranks, vast numbers of people who did not secure aid when they
required it, and inside its ranks numbers who dropped by the wayside
through falling into arrears. In short, the Friendly Society movement
embraced the selected lives of the industrial classes who, while
requiring aid, required it in lesser degree than those outside sickness
insurance. The Societies did great work in a field where work was
required, but after more than a hundred years of organised effort they
never professed to cover even half the field. Moreover, owing to changed
views, modern tendencies and heavy emigration, there were signs that in
some important respects the movement had reached its limit, and that in
fact it was in imminent danger of retrogression. The membership, the age
of the members and the financial standing of many societies were such as
to give rise to anxiety among the well-wishers of such institutions. For
these and other reasons the time seemed ripe for a great forward
movement. That movement could only elliciently be undertaken by the
State in a compulsory scheme for Health Insurance. Wedded as they have
been to a voluntary sickness scheme, and accustomed to voluntary
management and control under the law to rule their own affairs, it is
little wonder that many of the leaders of Friendly Societies did not at
first view with great favour so fundamental a change. The Act, too, was
complicated in detail, and in some respects difficult to understand.
Further, some leaders of Friendly Societies allowed their political
views for the first time to sway their judgment. It is noteworthy,
however, that there was little evidence of this in Scotland and, indeed,
in Friendly Society circles north of the Tweed there was evinced that
well-known capacity for making the best of a situation which is such an
asset to the Scottish nation. The result has shown the wisdom of such a
policy, for nowhere in the United Kingdom has the Act been better
organised and administered than in Scotland. The old Scottish motto,
“Ready, Aye Ready,” has been lived up to. |