Friendly society

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

Workings
People in need because of their inability to earn enough to support themselves, whether temporarily or permanently, were supported in a rich variety of ways. Family and neighbors played their part but because their help was informal and undocumented historians have tended to underestimate it. Charity was also important and it is often supposed that organized welfare before the welfare state was left to charities, but by far the most important organized method by which people met the needs of their fellows was mutual aid. In Britain the friendly societies were the most important providers of social welfare during the nineteenth and early twentieth centuries.

The mutual benefit association was an association of individuals pledged to help each other when the occasion arose. Any assistance was not a matter of largesse but of entitlement, earned by the regular contributions paid into the common fund by every member and justified by the obligation to do the same for other members if hardship came their way. They began as local clubs, holding their common fund in a wooden chest or strong-box, but the nineteenth century saw the gradual evolution of national federations with hundreds of thousands of members and carefully managed investments.

During the nineteenth century and until early in the twentieth century most families took pride in being self-supporting, but wages were such that if the breadwinner fell ill or died, hardship was the invariable result. The philosophy forged by this harsh reality was mutual aid. By the early years of the twentieth century the friendly societies had a long record of functioning as social and benevolent clubs as well as offering benefits such as: sick pay when the breadwinner was unable to bring home a wage due to illness, accident, or old age; medical care for both the member and his family; a death grant sufficient to provide a decent funeral; and financial and practical support for widows and orphans of deceased members. Medical services were usually provided by the lodge or branch doctor who was appointed by a vote of the members, but most large towns also had a medical institute, offering the services now provided by health centers. The societies also provided a network of support to enable members to travel in search of work.

At first the societies were local gatherings of men who knew each other and who met regularly to socialize, usually at a public house. All members paid a regular contribution which gave them an agreed entitlement to benefit. Some divided any surplus annually, often just before Christmas; others accumulated funds beyond a year. Some of the societies had no written rules; others had elaborate rulebooks. Each society was completely autonomous and it was this self-governing character which was always one of the strongest attractions to members. They were organizations which could be speedily adapted in any way to meet members’ needs as and when they arose. When the government introduced a scheme for registration, very many societies preferred not to register, because to do so meant putting a legal limitation on their ability to adapt.

The prevailing ethic in the earliest clubs was that everyone should have an equal say in common decisions. And since it was possible for all the members to meet in one place the normal practice was for decisions to be taken in a general assembly of all members. These early meetings were not only to reach decisions, but also for enjoyment, as the rules of the early clubs reflect. Invariably, they provided for the maintenance of order as well the distribution of beer to members.

The societies prided themselves on the absence of barriers to the advancement of any member to the senior office: the rights of every individual member are scrupulously respected and guarded; each individual has equal rights and privileges; merit alone is the medium through which posts of honour may be arrived at, and no artificial barriers are permitted to prevent virtue and talent from occupying their fitting station.

A large part of the mutual aid dispensed by fraternal insurance societies, much like that given by secret societies, was not a matter of record. Virtually all such organizations, regardless of their class or ethnic composition, repeatedly stressed the responsibility of individual members to provide aid to "brothers" and "sisters" in need. On this score, a spokesman for the Modern Woodmen of America (which called its members "neighbors" and its lodges "camps") wrote in 1934, "a few dollars given here, a small sum there to help a stricken member back on his feet or keep his protection in force during a crisis in his financial affairs; a sick Neighbor’s wheat harvested, his grain hauled to market, his winter’s fuel cut or a home built to replace one destroyed by a midnight fire—thus has fraternity been at work among a million members in 14,000 camps." Sociologist Peter Roberts described how fraternal societies among the coal workers of Pennsylvania at the turn of the century regularly sponsored raffles to help members who exceeded the time limit of their sick benefits.

Before the Depression, fraternal societies in the US thoroughly dominated the health insurance market (at least among the working class), while their commercial competitors lagged far behind. In large part, the secret of fraternal success lay in the peculiar competitive strengths offered by the fraternal structure itself. Unlike private companies, fraternal societies were enviably positioned to check the threat of "moral hazard," the bane of the insurance industry. For health insurance, a major moral hazard is that individuals will take advantage of their insured status and overload the system with frivolous claims. The validity of a health insurance claim is highly subjective and thus difficult to verify. Life insurance has less daunting moral hazard pitfalls because beneficiaries can collect only if they present a death certificate. This partly explains why fraternal societies continued to dominate the sickness insurance market long after they had lost their competitive edge in life insurance.

Types
Many early clubs were organized as dividing societies, that is each member paid an equal amount into the common fund and if there was a surplus after the payment of benefits at the end of the year, it was divided up equally among members. Such societies retained their popularity well into the twentieth century, but their disadvantages soon became apparent. First, the lack of an accumulated fund meant that they sometimes ran out of cash, and second, because of the annual renewal of membership very sick people were sometimes excluded at the year’s end. These flaws led to the emergence of federations with accumulated reserves and a right to continued membership so long as contributions were paid.

While the lines are often blurred, fraternal societies can be divided into two categories: the secret society and the fraternal insurance society. The chief difference between the two was one of emphasis rather than kind.

Secret societies specialized in the social and informal components of mutual aid. The largest of them included the Masons, the Elks, and the Odd Fellows. The membership of the Masons alone constituted an amazing 12 percent of the US adult male white population in 1930. Labor unions, by contrast, rarely included more than 10 percent of the labor force until the 1930s. Like most secret societies, the Masons eschewed written contracts or regularized guarantees of insurance for their members. Despite these official strictures, secret societies served as major conduits for mutual aid throughout American history. A Mason in good standing could rest assured that, if he so requested, the order would not only pay for his funeral but conduct an elaborate ceremony. If sick and in need, he could generally count on his lodge brothers to hang a collection hat on the altar or appoint a visiting committee. Masonic membership could open doors to employment and business advancement.

Overall, the fraternal insurance society had a more substantial social-welfare impact than the secret society. The two shared the attributes of a lodge system of organization, rituals, and the rendering of informal mutual aid. The principal difference between them was that the fraternal insurance society offered its members formal insurance policies while the secret society did not. The keystone of fraternal insurance protection was the death benefit (actually a form of life insurance) paid to the beneficiary of deceased members. It was especially prevalent among wage earners. "Rich men insure in the big companies to create an estate," observed an article in Everybody’s Magazine from 1910, "poor men insure in the fraternal orders to create bread and meat. It is an insurance against want, the poorhouse, charity and degradation."

Federations began to develop from early in the nineteenth century and became known as affiliated orders. By the time of the Royal Commission on the Friendly Societies of 1874 there were thirty-four of them with over 1,000 members each, with the Manchester Unity of Oddfellows and the Ancient Order of Foresters alone accounting for nearly a million members between them.

Gradually, a three-tier federal structure emerged—branch, district, and unity—which combined significant local autonomy with representation at district and unity (national) levels. In the affiliated orders, the branches—known as lodges among the Odd fellows and courts among the Foresters—retained wide powers, though final decision-making authority rested with an annual or biennial assembly.

It was found advisable to spread the liability for death benefit more widely than amongst members of each branch, where even a few deaths in rapid succession could exhaust a small fund. Many societies evolved a district structure to spread the risk. Each district took its authority direct from the central body, but was governed by a committee of representatives from the individual branches. Apart from controlling the funeral funds, the districts also served as intermediate courts of appeal, and supervised the management of the various lodges, examining accounts and intervening where necessary. Lodges were required to send in yearly balance sheets and reports to the district as well as to the central body. However, some branches disliked the additional control that the district system entailed and refused to affiliate.

Friendly societies in Britain
Among the oldest was the Incorporation of Carters, founded in 1555 at Leith in Scotland, but it was not until the eighteenth century that the number of societies expanded rapidly.

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.

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 Britain, as in the US, the movement towards mandatory insurance was 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."

In numbers
By 1801 an authoritative study by Sir Frederic Eden estimated that there were about 7,200 societies with around 648,000 adult male members out of a total population of about nine million. This can be compared with a figure based on the Poor Law return for 1803 when it was estimated that there were 9,672 societies with 704,350 members in England and Wales alone. By the time the British Government came to introduce compulsory social insurance for 12 million persons under the 1911 National Insurance Act, at least 9 million were already covered by registered and unregistered voluntary insurance associations, chiefly the friendly societies. In 1910, the last full year before the 1911 Act, there were 6.6 million members of registered friendly societies, quite apart from those not registered. The rate of growth of the friendly societies over the preceding thirty years had been accelerating.

In 1877, registered membership had been 2.75 million. Ten years later it was 3.6 million, increasing at an average of 85,000 a year. In 1897 membership had reached 4.8 million, having increased on average by 120,000 a year. And by 1910 the figure had reached 6.6 million, having increased at an annual average rate since 1897 of 140,000. It was at the height of their expansion that the state intervened and transformed the friendly societies by introducing compulsory national insurance.

Friendly societies in the US
Mutual aid was particularly popular among the poor and the working class. For instance, in New York City in 1909 40 percent of families earning less than $1,000 a year, little more than the "living wage," had members who were in mutual-aid societies. The "new immigrants," such as the Germans, Bohemians, and Russians, many of whom were Jews, participated in mutual-aid societies at approximately twice the rate of native whites and six times the rate of the Irish. This may have been due to new immigrants' need for an enhanced social safety net.

By the 1920s, at least one out of every three males was a member of a mutual-aid society. Members of societies carried over $9 billion worth of life insurance by 1920. During the same period, "lodges dominated the field of health insurance." Numerous lodges offered unemployment benefits. Some black fraternal lodges, taking note of the sporadic nature of African-American employment at the time, allowed members to receive unemployment benefits even if they were up to six months behind in dues.

Under lodge medicine, the price for healthcare was low. Members typically paid $2, about a day's wage, to have yearly access to a doctor's care (minor surgery was frequently included in this fee). Non–lodge members typically paid about $2 every doctor's visit during this time period.

Low prices for lodges did not, however, necessarily translate to low quality. The Independent Order of Foresters, one of the largest mutual-aid societies, frequently touted that the mortality rate of its members was 6.66 per thousand, much lower than the 9.3 per thousand for the general population.

Lodges also had incentives to keep down costs. For instance, the Ladies Friends of Faith Benevolent Association, a black-female society, would pay members taken ill $2 a week if they saw the lodge doctor, and $3 if they didn't. A visiting committee also checked on the claimant to guard against false claims. Members who failed to visit the claimant were fined $1.

Mutual-aid societies also enforced moral codes. In 1892, the Connecticut Bureau of Labor Statistics found that societies followed the "invariable rule" of denying benefits "for any sickness or other disability originating from intemperance, vicious or immoral conduct." Many societies refused to pay benefits for any injury sustained in the "participation in a riot." Some lodges even denied membership to people who manufactured explosives or played professional football.

Many mutual-aid societies branched out and founded their own hospitals and sanitariums. The Securities Benefit Association, or SBA, charged $21 for an 11-day stay at their hospital in Kansas, while the average at 100 private hospitals was $72. Again, quality was not necessarily sacrificed for price. At the SBA's sanitarium, the mortality rate was 4.5 percent, while the historical average for sanitariums was 25 percent. This is especially impressive considering that 30 to 50 percent of all cases admitted to the SBA's sanitarium were "advanced."

Mutual-aid societies also founded 71 orphanages between 1890 and 1922, almost all without government subsidy. Perhaps the largest of these was Mooseheart, founded by the Loyal Order of Moose in 1913. Hundreds of children lived there at a time. It had a student newspaper, two debate teams, three theatrical organizations, and a small radio station. The success of Mooseheart alumni was remarkable. Alumni were four times more likely than the general population to have attended institutions of higher learning. Male alumni earned 71 percent more than the national average, and female alumni earned 63 percent more.

Minorities
The immigrant fraternal society, a close relative of the immigrant aid society, contributed to remarkably high insurance rates among immigrant groups, including those from impoverished areas of Eastern and Southern Europe. By 1918, membership in the largest Czech organizations exceeded 150,000. A report by the Massachusetts Immigration Commission in 1914 identified two or more Greek societies in every town that had a Greek settlement. Springfield, Illinois, with a total Italian population of less than 3,000 in 1910, could claim a dozen Italian societies.

The popularity of the fraternal society among African Americans rivaled, and often exceeded, that among immigrants. Excluded from the leading white orders, African Americans founded their own parallel organizations. In 1910, sociologist Howard W. Odum estimated that in the South the "total membership of the negro societies, paying and non-paying, is nearly equal to the total church membership. . . . A single town having not more than five hundred colored inhabitants not infrequently has from fifteen to twenty subordinate lodges each representing a different order." The oldest and most famous African American society was the Prince Hall Masonic Order. William Muraskin estimates that during the 1920s and 1930s, the Order signed up over 30 percent of adult male African Americans in many small towns throughout the South. Local and state lodges provided a wide range of mutual-aid services, including medical insurance, orphanages, employment bureaus, and homes for the aged.

The Masons represented just the tip of the iceberg of African American fraternal societies. African Americans organized parallel versions of the Odd Fellows, the Elks, and the Knights of Pythias. Many other societies, such as the True Reformers, the Knights and Daughters of Tabor, and the Grand United Order of Galilean Fishermen, did not have white namesakes. In 1904, the African American versions of the Prince Hall Masons, Knights of Pythias, and Odd Fellows had between them over 400,000 members and 8,000 lodges scattered throughout the United States. Five years earlier, W. E. B. Du Bois had estimated that at least 70 percent of the adult African Americans in the seventh ward of Philadelphia belonged either to fraternal societies or to less structured mutual benefit and petty insurance societies.

In 1919, the Illinois Health Insurance Commission estimated that 93.5 percent of the African American families in Chicago had at least one member with life insurance. African Americans were the most highly insured ethnic group in the city, followed by Bohemians (88.9 percent), Poles (88.4 percent), Irish (88.5 percent), and native whites (85.2 percent). The fact that African Americans worked overwhelmingly in low-paid and unskilled occupations, such as domestic service and menial labor, render these figures even more noteworthy. They also represent a striking testament to the resilience of African American families in an era of Jim Crow segregation and economic marginality.

A 1919 survey of African American southern migrants in Philadelphia revealed that 98 percent of the families (regardless of income group) had one or more members insured, over 40 percent of them in fraternal societies. In the mining town of Homestead, Pennsylvania, in 1910, 91.3 percent of the African American families carried life insurance, slightly behind Slavs, at 93 percent, but ahead of native whites at 80 percent.

A large number of African-American societies also created their own hospitals. In the early 20th century, it was not a given that African-Americans would be admitted into many hospitals. If they were, they frequently had to face such indignities as being forced to bring their own eating utensils, sheets, and toothbrushes and to pay for a black nurse if none was on staff. When the Knights and Daughters of Tabor in Mississippi, a black fraternal society with a reach across only a few counties, opened Taborian Hospital in 1942, membership nearly doubled in three years to 47,000.

The fraternal lodge (despite its gender-specific connotations) was not an all-male preserve. Many fraternal societies had women’s auxiliaries, such as the Eastern Star for the Masons and the Rebekahs for the Odd Fellows. One of the largest of the fraternal societies managed and financed solely by women was the Ladies of the Maccabees. It called its lodges "hives" and offered members services that included maternity insurance. Fraternal orders touched women’s lives in other ways as well. Most fraternal homes for the aged admitted the wives of members on the same terms as their husbands. While national statistics are not available, the Pennsylvania Commission on Old Age Pensions found that women constituted 76 percent of the residents of fraternal and benevolent homes for the aged in that state. Moreover, women were the major beneficiaries of death benefits.

Downfall
The first major legislation, in 1893, was promoted by the friendlies themselves. They lobbied in Washington through the National Fraternal Congress. This organization represented 100 friendly societies with 6 million members and $7 billion in insurance funds. It pressed for passage of the "Uniform Bill," forcing all new friendlies to adopt the same mortality rates. This would put them at a competitive disadvantage to the established societies. However, 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, leaving consumers with fewer choices.

A major blow against fraternalism occurred when the American Medical Association gained control of the licensing of medical schools. In 1912, a number of state medical boards formed the Federation of State Medical Boards, which accepted the AMA's ratings of medical schools as authoritative. The AMA quickly rated many schools as "unacceptable." Consequentially, the number of medical schools in America dropped from 166 in 1904 to 81 in 1918, a 51 percent drop. The increased price of medical services made it impractical for many lodges to retain the services of a doctor. Medical boards also threatened many doctors with being stripped of their licenses if they practiced lodge medicine.

The next most damaging piece of legislation was the Mobile Law. The Mobile Law required that mutual aid societies show a gradual improvement in reserves. Until this time, societies had tended to keep low reserves in order to pay the maximum benefits possible to members. High reserve requirements made it difficult for societies to undercut traditional insurance companies. The Mobile Law also required a doctor's examination for all lodge members and forbade all "speculative" enterprises such as the extension of credit to members. By 1919, the Mobile Law had been enacted in 40 states.

The requirement that all members undergo a medical examination effectively barred mutual-aid societies from the growing group-insurance market. Group insurance is insurance offered to a large group of people, such as all the employees at a company, without a medical examination. From 1915 to 1920, the number of people insured under group policies rose from 99,000 to 1.6 million. Some lodges, such as the Arkansas Grand Lodge of the Ancient Order of Workmen, tried to get around the medical examination requirement by offering group insurance at a higher price than normal lodge coverage, but this put them at a competitive disadvantage.

Mutual aid was hindered in other ways. Lodges were prohibited from providing coverage for children. This opened the door for commercial companies to offer industrial policies in which children's coverage was standard. The number of industrial policies rose from 1.4 million in 1900 to 7.1 million in 1920. By 1925, industrial policies surpassed the number of fraternal policies. Group medical insurance also eventually became tax deductible, while private plans such as those purchased through a lodge did not.

Fraternal hospitals also came under attack. During the 1960s, the regulation of hospitals increased. Taborian Hospital in Mississippi was cited for "inadequate storage and bed space, failure to install doors that could swing in either direction, and excessive reliance on uncertified personnel." A state hospital regulator said of the Taborian Hospital, "We are constantly told that you do not have funds to do these things [make improvements], yet if you are to operate a hospital, something has to be done to meet the Minimum Standards of Operation for Mississippi Hospitals."

The Hill-Burton Hospital Construction Act of 1946 also hurt many fraternal hospitals, especially black hospitals. The act required that hospitals receiving federal funds use a portion for indigent care and that services be offered "without discrimination on account of race, creed, or color." Although this enabled many blacks to get free service at hospitals previously unavailable to them, it also cut into the membership base for black fraternal hospitals. Additionally, some hospitals, such as Taborian Hospital and the Friendship Clinic in Mississippi, received no funds, while their nearby competitors received millions.

The advent of Medicare also hastened the decline of fraternal hospitals. MIT economist Amy Finkelstein estimated that Medicare drove a 28 percent increase in hospital spending between 1965 and 1970 by encouraging hospitals to adopt new medical technologies. Smaller hospitals, such as many fraternal hospitals, were not able adopt new technologies as quickly as larger hospitals and were driven out of the market, another finding supported by Finkelstein.

Some fraternal societies escaped the attack of the state by converting into traditional insurance corporations. Both Prudential and Metropolitan Life have their origins in fraternalism. Many societies, however, simply died off.

Although millions of Americans are still members of fraternal societies such as the Masons or Oddfellows, the organizations no longer have the importance in society that they once did. The history of fraternalism serves as a reminder of the power of human cooperation in a free society.

Links

 * Friendly Societies, 1911 Encyclopedia Britannica
 * Reinventing Civil Society: The Rediscovery of Welfare Without Politics (pdf) by David G. Green, 1993
 * Anton Howes - After The Welfare State (video), November 2012