Friendly society

Friendly society is a mutual association for providing life and health insurance and old-age pension benefits to members.

See also: Insurance

History

Various forms of friendly societies have existed since ancient China, Greece, and Rome. In Britain, they arose out of the guild system. Daniel Defoe wrote in 1697 that friendly societies were "very extensive" in England. In the mid-18th century, as the Industrial Revolution hastened the growth of British towns, the friendly society system became well established. Sometimes they were called fraternal societies, mutual aid societies, or benefit clubs. Similar organizations developed in the United States in the 19th century. Friendlies usually were formed by people with a common denominator, like the same occupation or same ethnic, geographic, or religious background.

Their lengthy success reflects that they were much more than benefit institutions. Friendlies were voluntary serf-help associations, organized by the members themselves. Friendlies served social, educational, and economic functions, bringing the idea of insurance and savings to those who might not have planned for the future. The social aspect of the friendlies should not be underestimated. Their meetings included lectures, dramatic performances, and dances both to inform and to entertain members.

Nineteenth-century commercial insurance companies couldn’t compete with the friendlies, so they focused on business clients and the rich. Workers were suspicious of the companies because of their numerous failures and scandals. Besides, insurance rates were higher than those the friendlies charged for comparable benefits.

Originally, friendlies insured against "disability to work," with little distinction between accident or sickness. This also came to mean "infirmity," i.e., insurance against old age. Most friendlies paid for a doctor’s services, burial expenses, life insurance, annuities to widows, and educational expenses for orphans. They built old-age homes and sanitariums for members and their families. Even in their early stages, they offered unemployment benefits for those in "distressed circumstances" or "on travel in search of employment." The most common pay-outs were for maternity leave and retirement pensions.

A local country society had usually few members, reaching tens or at most hundreds of individuals (in some cases also covering the families of those insured). Until the 1820s, most friendly societies were local. Due to their vulnerability to adverse conditions and actuarial risks, they organized into "affiliated orders". (The "Independent Order of Odd Fellows" had 781 lodges with 47,638 members around 1835; at the end of 1886 there were 4,351 lodges, with 617,587 members.) The local lodges kept control of their sick insurance to prevent moral hazard. As the problem does not arise with burial insurance, there was a central funeral fund. Besides the actuarial importance of a greater pool of members, other advantages included more skilled management, more transparent rules, and the possibility of transferring benefits to a different part of the country - or even to the colonies if the worker moved. It was mainly the affiliated orders that spread, the idea of fraternalism to the United States. At its apex in the 1920s, roughly every third adult American male belonged to a fraternal society.

All societies formally refused applicants who were younger or older than a certain age, had serious or chronic health problems, or were employed in extremely risky occupations. But the requirements were relaxed in practice and even the poorer members of society could get insurance within the fraternal movement. High-risk workers, like miners and railway workers, mostly formed their own societies, paying higher premiums due to a higher risk of disability. (Part of the insurance was paid by the employer. Most English miners have been members to a friendly society, a similar system worked in Prussia, which served as a model for Bismarck’s system of compulsory insurance.)

The friendlies did not collapse financially. Nor did they disappear because they failed to do their job for working people. They declined because of government action.

In Britain, the aristocrats feared the friendlies because they viewed their huge contributor funds as a means for political subversion. Eventually, a steadily growing web of uniform state-mandated benefits first duplicated, then absorbed the friendlies. The National Insurance Act of 1911 made insurance mandatory for some professions. State benefits were expanded, financed by compulsory contributions from employer and employee. Via subsidies, the friendlies were led to administer the state plan. Claims for benefits had to be filed with both systems. After WWII were the friendlies bypassed, and the loss of funding and higher state benefit rates drove many of them out of existence.

In the US, the friendlies pressed for their own legislation, forcing all new friendlies to adopt the same mortality rates. This would put them at a competitive disadvantage to the established societies. Instead of driving off the upstarts, this legislation blurred the distinction between friendlies and commercial life insurance companies. Legally they were grouped together. As a result, the commercial insurance companies gradually absorbed the friendlies.

In both countries was the movement towards mandatory insurance supported by the medical profession. Where the friendly societies tried to secure good-quality health care for their members at reasonable prices, the doctors "felt strongly that conditions they had accepted in the marketplace should not be imposed on them by the state" and eventually "freed themselves from lay control."

Links

• Friendly Societies, 1911 Encyclopedia Britannica
• Anton Howes - After The Welfare State (video), November 2012
• Friendly society at Wikipedia