SESSION 14. Climate, Race, and the Measurement of Risk in Expanding Life Insurance Markets

14. Climate, Race, and the Measurement of Risk in Expanding Life Insurance Markets.

Sharon Ann Murphy (Providence College)
Timothy Alborn (City University of New York)
Kathryn Olivarius (Stanford University).


This session will examine the challenges faced by Anglo-American life insurers as they attempted to expand their markets beyond the confines of their limited actuarial knowledge during the long nineteenth century. The industry’s success at convincing the public of the necessity of life insurance, as well as its continued need to attract new applicants, created a demand for policies that outpaced the statistics available for forming accurate mortality tables. Facing unfamiliar climates and disease environments, companies were forced to rely on a combination of imprecise statistics, racial and ethnic stereotypes, and guesswork in defining the premium rates and criteria for these new policies. The 3 papers in this panel explore (1) the mid-nineteenth century expansion of northern insurers into the American Deep South, (2) the sale of policies to soldiers, engineers, and civil servants engaged in the support of the British Empire, and (3) the late-nineteenth-century expansion of US companies into underdeveloped markets in the Caribbean, South America, and Asia.


Paper 1

Quantifying “Climate Risk”: Life Insurance, Yellow Fever, and the American South, 1840-1880 .

Kathryn Olivarius (Stanford University)

In the 1850s, many non-slaveholding whites in the American Deep South sought out life insurance to protect themselves from economic uncertainty. But without accurate life tables, census reports, or immigration data, underwriters (based mostly in New York and London) fretted about how to make this market profitable. Their problem was yellow fever: this highly lethal disease visited the region—particularly New Orleans—almost every summer, killing about 8% of the urban population but up to 30% of “unacclimated” recent immigrants from Germany and Ireland. Such high and unpredictable mortality, as the president of New York Life and Trust William Bard complained, made the life insurance business “not so good in the Southern States as it is in those North of Virginia.”

The internal memoranda of Knickerbocker Life, New England Mutual, and New York Life and Trust suggest most agents crudely adjusted the Carlisle and Northampton tables for the Deep Southern market by guessing at a person’s life-expectancy using idiosyncratic perceptions of racial and ethnic difference, brief trips to New Orleans, selective science, and “anecdata” (the individual case studies of Southern doctors). They then developed the notion of “climate risk” to counteract this market’s uncertainty. By 1860, agents had essentially doubled base-rates and charged Southern policy-seekers at least twenty percent extra unless they could prove they were “acclimated,” i.e. that that had survived yellow fever and that their bodies had sufficiently adapted to a subtropical climate. By 1870, “unacclimated” policy seekers were nearly-universally considered too risky to insure.
Because immunity was invisible and “acclimation” remained vaguely-defined by medical examiners, most insurance companies introduced strict new medical requirements for Southerners. Examiners asked for specifics about when and where a person had suffered from yellow fever, required detailed lists of symptoms, and demanded affidavits from witnesses and doctors who could attest that a person had survived yellow fever.

Some Southerners claimed climate premiums were unfair, even a Northern plot to discredit the region, label it degenerate, and extract more money from it. But this unscientific methodology was also applied to insurance-seekers in other Western locales—especially California—deemed to be similarly risky. “Climate risk” quantified nascent ideas about sectional- and ethnic-risk, determined the “value” of certain lives, and ranked the comparative dangers of America’s varied ecologies.


Paper 2

Taxing Journeys: Life Insurance and the White Man’s Burden, 1800-1914.

Timothy Alborn (Lehman College, City University of New York)

Among the many evocative aspects of the «White Man’s Burden» indexed by Rudyard Kipling in his famous poem was his call for imperialists to construct «ports ye shall not enter» and «roads ye shall not tread,» paired with the ominous invitation to «make them with your living / And mark them with your dead.» For thousands of British soldiers, engineers, and civil servants for whom empire potentially posed a mortal burden, the ever-present possibility of death was also a financial burden. Foreseeing precisely what that price should be charged to cover the risk of death overseas was the job of successive generations of actuaries, who tabulated Britain’s imperial death toll and translated their findings into annual premium payments. Long before they took much interest at all in the relative mortality of their colonial subjects, the British developed a large mass of statistical information concerning their own ability to survive in colonial climates; and neither life insurance actuaries nor their directors could bring themselves wholly to disregard the risk posed by residence overseas. This paper covers the accumulation of British expatriate mortality data from varied sources between 1840 and 1914; and using company archives, surveys the (usually haphazard) application of that data to underwriting by such firms as Colonial Life, Standard Life, the Positive Government Security, and the North British & Mercantile.


Paper 3

Going Global: Life Insurance Risks around the World, 1880-1910.

Sharon Ann Murphy (Providence College)

During the 1880s and 1890s, the Equitable Life Assurance Society sold policies in approximately seventy-seven different countries and dependencies, with foreign policies accounting for almost one-third of its insurance in force in 1894. While they charged ordinary rates on many of these policies, they assessed numerous others at rates labeled “semitropical,” “tropical,” or “Asiatic” to reflect the riskier climate and disease environments they expected to exist in these regions. The Equitable’s venture abroad paralleled similar moves made by the other major US insurers, including the New York Life Insurance Company and the Mutual of New York. Yet not all industry observers agreed with the wisdom of this expansion. For example, in his 1885 annual report, Massachusetts Insurance Commissioner John K. Tarbox opined: “Whether and how far it is prudent and expedient for our life companies to push their ventures into trans-oceanic countries under alien governments and with peoples not superior in condition to our own, I am not prepared to answer with the information I have.” This paper explores the unique actuarial problems which life insurers faced when expanding to underdeveloped markets during the 1880s-1910s. In particular, it examines their risk assessments of applicants, use of mortality data, and the ethnic and racial assumptions that prevailed among company executives and agents. By the 1910s, companies had abandoned most of these markets. To what extent were these decisions driven by inaccurate risk assessment methods?