The government in Germany is said to have created the first welfare state in the 19th century, built around social insurance schemes protecting against sickness, workplace accidents, and other hazards. In Britain, the government began building its own welfare state a few decades later, organizing it around principals of insurance as well. However, the British already had an extensive system of insurance under which most people already had some form of coverage. This was typically life or burial insurance but even health insurance was hardly rare, even among the working classes. As such, private insurers continued to play a key role in providing near-universal coverage.
As with other financial services and perhaps to an even greater degree than most, insurance became increasingly accessible to ordinary people in 19th century Britain. Among the purveyors of insurance were the ‘friendly societies’. Part social clubs and part mutual insurance schemes, friendly societies provided insurance to the lower and middle classes in Victorian Britain. Members would chip in to provide aid to the sick among them and paid for the funerals of their recently deceased.
Friendly societies were founded on principals of mutual support and were typically organized around local lodges, rarely with more than 150 members each. They became important social institutions; participation in the societies picked up in the late 19th century especially, as new members were solicited by their friends in the mills, mines, and factories of Britain. Though they had a broad reach, friendly societies actually originated with the working classes; they appealed most to the more prosperous strata of the working class in particular.
Despite their most common structure, some friendly societies were very large and often formed by the amalgamation of smaller societies. As some examples, the Manchester Unity of Oddfellows had 713,000 members in 1899 and the Ancient Order of Foresters had 666,000. Besides them were thousands of smaller independent clubs.
Other societies were organized around voluntary associations like the Sons of Temperance. Together, these organizations provided either sickness or burial insurance to perhaps six million people by 1911. That said, most of the growth in insurance came from outside the societies. In life insurance at least, they were overshadowed by large insurance companies who administered most of the 42 million death insurance policies in force by 1911.
National Insurance Act
Insurance against death had become ubiquitous in Britain and even children were often insured under burial insurance policies. Nonetheless, the National Insurance Act of 1911 intended to reduce poverty by further insuring against sickness and unemployment, which remained threating risks for working people and against which the working classes were underinsured.
The National Insurance Act created the world’s first national compulsory program for unemployment insurance. Furthermore, workers earning below £160 a year were required to buy health insurance from an ‘approved society’, each of which was required to be a non-profit entity. The threshold below which insurance was mandated was raised to £250 in 1920. Thus, under the act, four-fifths of British workers were also insured against illness.
This ‘insurance for nearly all’ was paid for by contributions from the worker themselves, their employer, and the state. Employers paid three pence per week, the government two, and the covered worker either four pence in the case of men or three for women. The sickness insurance this paid for covered medical care, drugs, sanatoria, and maternity care and provided 26 weeks of paid sick leave. Workers were given a contribution card where contributions were recognized with stamps affixed to the card, serving as proof of premiums paid.
Though the foundation of Britain’s welfare state, the program gave private insurers a large role; they essentially administered the program. Here, the old friendly societies were also involved. The legislation, although crafted by the Chancellor of the Exchequer David Lloyd George and his department, reflected input from the National Conference of Friendly Societies. Under the act, a National Insurance Committee regulated private insurers by approving the societies whose coverage met the needs of the National Insurance Act. Many of these were the old friendly societies.
However, the existing societies’ role in national insurance was quickly overshadowed by large insurance companies. The friendly societies were, rightly or wrongly, judged to have insufficient administrative capacity to manage a national insurance scheme and large for-profit insurance companies lobbied to be more involved in the new program. Doctors were also skeptical of the friendly societies, arguing that they had been habitually underpaid by them. This meant that friendly societies were often associated with access only to cheap and shoddy care.
True, friendly societies formed many of the new state-approved insurers but in the end so too did the large life insurance companies. It was the latter who became the most significant with time, in part because women were less often covered by the friendly societies, imbued as they were with a fraternal character. Earlier efforts to establish friendly societies for women were largely unsuccessful. By contrast, these ‘industrial’ life insurers catered to all working class insurance buyers. To maximize sales, the companies divided premiums into smaller weekly payments and sold policies and collected premiums through large agent networks that met with customers.
Role of Private Insurance
One of these industrial life insurance companies was the Prudential Assurance Company formed in 1848 and one of the most involved in national insurance between 1911 and 1947. The company’s policies in force grew from 670,000 in 1870 to ten million in 1891. Already by 1900, the company insured one-in-three people. By 1913, almost half of industrial life insurance policies in force were with the Prudential, which employed 20,000 agents around the country.
Prudential benefited still further from the National Insurance Act. In 1912, the industrial insurance companies, friendly societies, and other insurers competed for the masses of new health insurance buyers the legislation created. Launching this insurance drive, the newly established National Insurance Commission produced 75 million leaflets on sickness insurance. In the summer of 1912 alone, the Prudential picked up three million new customers as a result of the National Insurance Act.
Under national insurance, the company formed four separate approved societies, one each catering to men, women, agricultural workers, and domestic servants. These were the largest in Britain, insuring 3.4 million people in 1920 and 4.8 million in 1946, equivalent to one-fourth of the workers covered by national insurance. Prudential was even more successful in recruiting members than the largest friendly society, the Manchester Unity of Oddfellows, and even these very successful friendly societies were more corporate in their organization, often possessing fewer of the rituals and placing less emphasis on fraternity than the smaller societies.
Able to leverage their agent networks, insurance companies were generally more successful than the friendly societies in recruiting new members. Prudential even secured invitations from large employers to lecture their workers on the national insurance scheme, picking up new customers in the process.
The Prudential Assurance Company even employed its own visiting nurses. It offered dental and ophthalmic care and although hospital care was not covered by national insurance, Prudential’s approved societies provided some assistance here also. While the company’s own societies could not make a profit from these operations, per the National Insurance Act, its approved societies did enable the company to cross-sell other products to members, like life and burial insurance, and helped the company retain existing customers.
In Britain, national insurance became the foundation for the modern welfare state. At the time the National insurance Act was passed, David Lloyd George considered it almost impossible to have implemented the scheme without the industrial life insurance companies. The existing insurers provided distribution and administrative capacity. They also fought against future governments’ attempts to cut costs by reducing its contributions into the system.
Nonetheless, the role of private insurers in national insurance was controversial. Private companies are of course founded to make profits and their involvement in a welfare program was treated with suspicion by many. Motivated by self-interest, the companies would surely use their position within the system to stop further reforms, would they not? Whether their intention or not, they were unsuccessful, at least in the area of health insurance. After the Second World War, private insurers were removed from the national sickness insurance system in 1947, upon the creation of the National Health Service.
Even life insurance, the old preserve of the industrial insurers, became more regulated in the years after the National Insurance Act. The Industrial Assurance Act of 1923 required that insurance companies honor policies even if payments lapsed, so long as the lapse in payments happened after five years of paid premiums. An Industrial Insurance Commissioner was also appointed to investigate complaints from customers. In any case, the large insurance firms profited from the expansion of new insurance products to ordinary people.
From the mid-19th to the mid-20th century, insurance became increasingly accessible, indeed even ubiquitous, in many rich countries. Social insurance schemes providing universal taxpayer-funded unemployment insurance and old age pensions were a large reason why. But they weren’t the only one. In Britain, private health insurance was already becoming increasingly common thanks to the friendly societies and simple life insurance had already been sold to most of the country by large insurance companies by the year 1900.
More from the Tontine Coffee-House
Read about another of David Lloyd George’s reforms, the People’s Budget of 1909. Afterwards, learn about the Amicable Society, the first chartered life insurance company. Also, consider subscribing to this blog’s newsletter here.
1. Alborn, Timothy. “Senses of Belonging: The Politics of Working‐Class Insurance in Britain, 1880–1914.” The Journal of Modern History, vol. 73, no. 3, Sept. 2001, pp. 561–602.
2. George, David Lloyd. The Peoples Insurance. Explained by D. Lloyd George. Hodder and Stoughton, 1912.
3. Gilbert, Bentley B. “The British National Insurance Act of 1911 and the Commercial Insurance Lobby.” Journal of British Studies, vol. 4, no. 2, May 1965, pp. 127–148.
4. Heller, Michael. “The National Insurance Acts 1911-1947, the Approved Societies and the Prudential Assurance Company.” Twentieth Century British History, vol. 19, no. 1, Nov. 2007, pp. 1–28.
5. Workmen’s Insurance and Compensation Series No. 2, British National Insurance Act, 1911. Government Printing Office, 1912.