I. Introduction
Historians of the joint-stock company have largely ignored the Life Assurance Companies Act 1870. In part, this reflects a general neglect of the history of insurance law, which, on those rare occasions when discussed, has usually been seen as a creature of the common law to the virtual exclusion of legislation.Footnote 1 Moreover, the 1870 Act seems out of place when compared with the Companies Acts 1844–62, which are regarded as making British company law “the most permissive in Europe”Footnote 2 by shifting from incorporation as a privilege in the gift of the state to a private right available through mere registration and by conferring benefits, such as limited liability, not available to other business organisations. The 1870 Act, on the other hand, restricted access to the market in life assurance and regulated life offices. Yet, such interventions should not be a surprise. Leading contemporary economists did not regard joint-stock companies as essential for a free market. Indeed, the ability of companies to raise capital was thought likely to squeeze out smaller businesses and create monopolies. In 1776, Adam Smith wrote that he could not see why they should be exempted from laws that applied to other business structures, and 80 years later John Ramsay McCulloch warned, “cautious surveillance is less manifested in great associations, where ordinary individuals feel their efforts are apt to be of little avail”.Footnote 3 On the other side was Robert Lowe, President of the Board of Trade, who summed up his views on company law in 1856: “I am arguing in favour of human liberty – that people may be permitted to deal how and with whom they choose, without the officious interference of the State”.Footnote 4 The freedom supposedly afforded companies was never absolute. The Companies Acts imposed obligations, such as registration and information disclosure. Furthermore, the characterisation of the nineteenth century as a period when the state was expelled from the market hardly fits with the emergence of core elements of modern welfare that involved business regulation, such as laws on slavery, child labour and working conditions.
The 1870 Act was passed after the collapse of a large life office, Albert Life, but the idea that this reform can be explained simply in terms of that event is unsatisfactory, first, because in restricting access to the market for new life offices, the act was clearly driven by a broader agenda, and, second, because previous crises in insurance had brought calls for regulation without any effect, so what was different about 1870? Shining an intense light on a crisis that triggers reform tends to throw a shadow over earlier events: they are ignored because they failed. But history that merely lists the winners gives no sense of the race which brought and shaped this result. To understand why reform occurs it is important to understand why it does not occur.
II. Opening the Marine-Insurance Market
While the oldest form of insurance – marine – continued to dominate the insurance market in the nineteenth century, other sectors flourished. Fire expanded rapidly, as did accident with the development of rail travel, but the most spectacular growth came in life assurance. In 1800, there were only nine life offices, but over the next 70 years some 463 new offices were projected. The sector was attractive because it produced a flow of high-value premiums, while postponing payments, often for years. However, the speculative nature of the business meant that not all these proposed life offices became active, and others were lost through insolvency and amalgamation or takeover, so that only 92 remained by 1900.Footnote 5
Insurance businesses took a number of forms in the nineteenth century. Individual underwriters in the subscription market (mainly at Lloyd's) wrote the bulk of marine policies with each typically taking part of the risk so that the whole was shared among several underwriters. Other types of business structure were used in fire and life assurance. Mutual societies were owned by subscriber-policyholders, who contributed to the losses of other subscribers, or, in the life sector, paid premiums and shared any surplus after claims. Corporations were established by royal charter and statute.Footnote 6 In contrast to mutual societies, they were owned by shareholders, who received the profits, and policyholders were merely customers, although by the mid-nineteenth-century competition had led most life offices to entice policyholders by the promise of bonuses paid out of profits.Footnote 7
The cost and delay involved in obtaining a charter meant most companies did not bother, and, instead, based themselves on a deed of settlement. These unincorporated companies were illegal under the Bubble Act 1720, but those provisions were assumed to be obsolete. Indeed, when a charter was refused to Phoenix Fire Office in 1783, the Attorney General advised the formation of an unincorporated company.Footnote 8 It was a surprise, therefore, when an attempt was made in 1808 to prosecute Ralph Dodd for seeking to establish distillery and paper manufacturing companies. This came during a surge in the economy which had brought the formation of a large number of unincorporated companies and raised fears of a speculative bubble, although critics thought the prosecution an attempt by brewers to eliminate competition.Footnote 9 The prosecution was dismissed because of the interval since the last case, but Lord Ellenborough C.J. declared the act “could not be considered as obsolete”, and warned against these “mischievous and illegal projects”.Footnote 10 A few cases followed, but the act's revival had a limited impact. For example, while Ellenborough denounced as “a mischievous delusion” statements by companies that shareholder liability was limited and ceased on sale of the shares, life offices continued to make such statements in advertisements, and the act did not prevent insurance policies that restricted the liability of shareholders to policyholders, who were the principal creditors.Footnote 11 Nevertheless, unincorporated companies faced practical difficulties because they were characterised as partnerships which meant all shareholders had to join in any litigation. This led many to obtain statutes allowing them to sue and be sued through a single officer, which was not only easier than incorporation but also brought the unexpected benefit that, since Parliament had acknowledged the company's existence, it could not be unlawful.Footnote 12
Chartered companies do, however, play a significant role in this history, since, although the Bubble Act is chiefly remembered for the prohibition of joint-stock companies, most of its provisions were concerned with the recently chartered Royal Exchange Assurance and London Assurance companies.Footnote 13 The act banned other partnerships and companies from writing marine insurance, but did not restrict individual underwriters in the subscription market because of concerns about the effect on trade and on the naval intelligence that the market provided to the Admiralty. As trade expanded through the eighteenth century criticism of these restrictions on access to the market grew, particularly among merchants outside London and particularly with the rise in premiums during the wars with France (1793–1815).Footnote 14 Attempts were made to break the triopoly. In 1799, Globe Insurance was incorporated for fire insurance and permitted, among other things, to insure ships in ports or on inland waters.Footnote 15 London Assurance and Royal Exchange countered by petitioning for the extension to inland waters of the privileges granted by the Bubble Act. When this was refused, the Globe sought to break the restrictions on marine insurance generally, arguing that they raised premiums, and, therefore, the cost of goods, and drove insurance business abroad.Footnote 16 The petition was rejected following objections from London Assurance and Royal Exchange that it would infringe privileges granted by the Bubble Act in exchange for payments to the Crown, although the companies failed to mention that these privileges had not been granted for an indefinite period and that the payments had never been completed.Footnote 17
The Globe renewed its petition in 1810, but this time a rival group of London merchants also petitioned to establish a new marine insurer.Footnote 18 William Manning, M.P., proposed a parliamentary inquiry. He suggested that the failure of the chartered companies to carve out a significant presence in marine insurance meant Lloyd's had, in effect, a monopoly, and this forced merchants to deal with underwriters whose solvency was unknowable.Footnote 19 Opponents countered that a new company would destroy Lloyd's and create “a gross monopoly”Footnote 20: “The exclusive privileges of the chartered companies, and the restrictions against underwriting in partnership, are the great fences against the inroads of mercantile speculations”.Footnote 21 In a speech to Parliament full of contradictions, Joseph Marryat, M.P., himself an underwriter, said that the large number of underwriters at Lloyd's provided adequate competition. The limited impact on the marine market of London Assurance and Royal Exchange showed companies did not increase capacity, in part, because the priority given to the interests of shareholders led them to refuse risks and claims that Lloyd's accepted. Finally, he said Lloyd's would be destroyed because those merchants who financed the new company would transfer their business.Footnote 22
Manning's inquiry went ahead. It concluded there was insufficient competition and that Lloyd's did not offer security to policyholders. But the report contained few proposals, and its suggestion that a decision over the new companies should be left to Parliament proved sufficiently discouraging for the petitions, which had led to the committee, to be abandoned. Further Bills to repeal the privileges of the chartered companies were presented in 1810–13, but all failed.Footnote 23 It did not seem a good idea to disturb the market during war when trade was being strangled by blockades. More importantly, there was the Admiralty's dependence on Lloyd's for shipping information, and underwriters undoubtedly boosted their position by festooning naval commanders with honours and subscribing lavishly to the Patriotic Defence Fund.Footnote 24
III. Repeal of the Bubble Act 1824–25
A decline in the economy quietened litigation arising out of the Bubble Act and interest in its reform, but both returned with the boom of 1824–25, and this time produced major reforms. The first was the abolition of restrictions on marine insurance in 1824. The Bill was introduced by Thomas Fowell Buxton, a Spitalfields brewer. Although now remembered for campaigning against slavery, Buxton also worked for Alliance British and Foreign Life Assurance, which, following the 1824 Act, established Alliance Marine Assurance and appointed him auditor.Footnote 25 In introducing the Bill, he attacked the Bubble Act as anti-competitive, pointing to the benefits of an open market in fire and life assurance and the difficulties that concentration of marine insurance in London caused provincial merchants. Moreover, the shortage of capital at Lloyd's meant several underwriters subscribed to each risk, so that someone making a claim “found one underwriter probably dead, and his executors (troublesome people generally) were to be dealt with; a second was insolvent; a third litigious, and ready to defend an action”.Footnote 26 In contrast, companies could raise sufficient capital to cover the entire risk and in the event of litigation only one action was needed. He optimistically added, “insolvency was in the highest degree improbable”.Footnote 27
Opponents advanced familiar arguments, asserting that there was sufficient capacity in the existing market, highlighting the strategic importance of Lloyd's, which, “had, by their enlarged intelligence and active agency, become the centre of all information respecting maritime affairs”,Footnote 28 and even invoking the spirit of Adam Smith by warning that “the formation of joint stock companies for the purpose of effecting that which can and has been done advantageously by individuals, would be to create so many monopolies”.Footnote 29 There were personal attacks on Buxton. He did not understand the industry and (contradicting this) had a conflict of interest because of his involvement with Alliance. His championing of free trade in insurance was contrasted with brewers tying public houses and his opposition to repeal of the Spitalfields Act, which regulated wages and prices in silk weaving.
The ground had, however, been prepared. Republication of the 1810 report precluded the possibility of delay for another inquiry,Footnote 30 and, crucially, the Government favoured a more open market. Frederick Robinson, Chancellor of the Exchequer, had spoken against the privileges enjoyed by London Assurance and Royal Exchange as early as 1813, and when a deputation from Lloyd's lobbied William Huskisson, President of the Board of Trade, they were treated to a lecture on the benefits of free trade.Footnote 31 In Parliament, Huskisson argued that the aim of granting privileges to the chartered companies must have been to improve the security of policyholders, but the continued dominance of Lloyd's meant this had not been achieved. More importantly, Huskisson was applying new criteria to these issues, as revealed in his response to the objection that Lloyd's would be destroyed by allowing people to choose cheaper providers: “And why … ought they not to be permitted to do so?”Footnote 32
The 1824 Act only removed restrictions on marine insurance; it did not affect the law on company formation. Reform of that part of the Bubble Act came in 1825.Footnote 33 The economic boom had led to the promotion of 624 new companies in London alone,Footnote 34 triggering litigation which brought further confusion over their legality and a surge in petitions for incorporation, with 297 in 1824–25.Footnote 35 Abbott C.J. warned “the sale and transfer of shares at enormous premiums is carried on to a greater extent than was ever known, except at the period when the statute referred to was passed”.Footnote 36 But the Government did not think the Bubble Act provided the solution. The Attorney General, John Copley, declared it “unintelligible”, and praised joint-stock companies – in particular insurers – as “advantageous to the public”. He rejected fresh regulation because the lack of prosecutions under the old act showed it to be unnecessary.Footnote 37 Yet, while repealing offences in the Bubble Act, the 1825 Act did not alter the method of incorporation, which remained in the gift of the state, or clarify the status of unincorporated companies, or affect the legal position of shareholders or policyholders.Footnote 38 Huskisson thought that “to authorize an unlimited number of trading companies … would be to do a most material mischief to the country”, so, although convinced that “the interests of commerce required the proper encouragement and protection of joint-stock companies”, he continued to favour incorporation by charter.Footnote 39 The new act's impact was further diminished by Lord Eldon's opinion – subsequently endorsed by the courts – that there was “hardly any thing in [the Bubble Act] which was not punishable by the common law”.Footnote 40
IV. Fraud and Life Assurance
The confused state of the law on unincorporated companies did not reduce demand for insurance or stem the promotion of new life offices which ebbed and flowed with the economy. Many puffed their prosperity and stability in advertisements, and a few even built lavish London headquarters that “changed the face of the early-Victorian City”.Footnote 41 But there were concerns. In 1839, the London Saturday Review noted that, while greater enthusiasm for life assurance had encouraged new offices and brought fierce competition, the public remained poorly informed.Footnote 42 Writing in the London Quarterly Review that year, Sir John Barrow, a senior government official, agreed that life offices were “great public benefits”, but, like “all other human institutions, they are liable to be misconducted and abused”.Footnote 43 Oversupply meant new offices struggled, became vehicles for speculation or fraud, or were closed as soon as mortality rates of insured lives rose. He was surprised “no warning has been taken by their downfall”, so that even a sound office “thinks it may take any liberties with the gaping mass”.Footnote 44
Barrow particularly advised against offices that offered lower premiums and higher benefits than their rivals, and highlighted Independent West Middlesex Assurance as advertising rates that were “too low to be safe”.Footnote 45 Formed in 1836, this fire and life office boasted that it was, “Established and empowered under the several Acts of Parliament”, although had anyone troubled to check they would have discovered that the statutes listed did neither of these things.Footnote 46 In 1839, the Reformers’ Gazette, a Scottish newspaper, denounced this “false and fictitious company”,Footnote 47 but, beyond Barrow's essay, such criticism barely surfaced in the more widely read London newspapers, perhaps because the office focused operations outside the capital, made threats of legal action against critics and spent heavily on newspaper advertisements.Footnote 48 Then in 1841 its principals suddenly vanished with, according to some reports, £250,000 of shareholders’ and policyholders’ funds. Sir Peter Laurie, a London magistrate, launched an inquiry, not because he thought prosecution likely but to publicise the dangers.Footnote 49 The failure coincided with the collapse of other companies as the economy dipped, and belief that another speculative bubble had burst was strengthened by the success of Charles MacKay's book on popular delusions, which was published a few months later and revived interest in the South Sea Bubble of 1720. More damaging in the long term was the way novelists such as Thackeray and Dickens quickly adopted the life office as a symbol of greed, financial naivety and fraud.Footnote 50 The Times knew who – aside from the fraudsters – to blame: “Incautious investors, whose lamentations upon this point are always loudest, are themselves the chief cause of the evil they deplore. Let them learn wisdom by experience; and then the existing facilities for swindling, so injurious to sound commerce, will be soon superseded by a more healthful state of things.”Footnote 51
Similarly, Trewman's Exeter Flying Post bemoaned “the gullibility of mankind”.Footnote 52 Yet, both newspapers had regularly published advertisements for the Independent.Footnote 53 Indeed, The Times only discovered the collapse when a clerk went to collect outstanding fees and found the office deserted.Footnote 54 Sir Peter Laurie did not think newspapers could be expected to check the accuracy of advertisements,Footnote 55 but The Satirist was less forgiving: “it behoves all journalists, as a public duty, to draw attention to any circumstance of singularity which attends any of these establishments, and large-promising of beneficial results, yet so capable of yielding bitter and heart-breaking disappointments to long-cherished hopes.”Footnote 56 This is rather curious given that this newspaper had not merely published advertisements for the Independent but had puffed its policies, ascribing their “superior advantages” to “rigid economy”.Footnote 57
Concern about the impact of this collapse on confidence in life assurance did, however, bring some recognition of the difficulties policyholders faced in determining an office's viability and, therefore, calls for regulation. At the extreme end was the suggestion that the financial stability and probity of new entrants to the market should be scrutinised, that each should provide security in the form of a deposit held by public authorities, that life offices should be obliged to provide regular statements of financial dealings, and that directors and senior officers should be made accountable.Footnote 58 Life offices accepted and even advocated reform but, unsurprisingly, wanted something less radical: Swinton Boult of Liverpool Fire and Life opposed government intervention but favoured compulsory registration, and John Beaumont of County Fire suggested mandatory information disclosure.Footnote 59
The Independent was the most notorious of the company failures that accompanied the dip in the economy and that together led Henry Labouchère, President of the Board of Trade, to institute an inquiry in 1841 into company law “with a view to the prevention of fraud”.Footnote 60 It was suspended shortly after because of an election, and only revived in 1843. This time it was chaired by the new President of the Board, William Gladstone. His recent conversion to the role of free trade in the economy led him to refocus the inquiry, adopting as its basic premise that “the advantages which had arisen from [companies] more than preponderated”.Footnote 61 This – rather than fraud prevention – became the key theme of the inquiry and of subsequent company law reform. The committee did note the problem of fraud and mismanagement among bubble companies, but never adequately distinguished between them or acknowledged that some practices might merely be innovative ways of conducting business, and it placed responsibility on investors, with one witness saying of life offices, “each person … is left to select out of a vast number of joint stock companies which he pleases, and that is protection enough”.Footnote 62 It was thought that little could be done about fraudsters, who “are practically unamenable to any judicature, civil or criminal”.Footnote 63 This reflected the limited interest of the state in the detection and prosecution of criminals. In spite of the spread public police forces after 1829, criminal justice still revolved around the idea of the active victim, and victims of fraud might hesitate to prosecute because the process was expensive, difficult and time-consuming, or because they were seen as blameworthy and, therefore, were too ashamed, or because they were more interested in recovering funds, which would not be achieved by prosecution. In any event, the committee thought fraudulent companies did little real damage since they were short-lived, which ignored the history of the Independent. Instead, the focus was on mismanaged companies where the solution was to improve disclosure requirements so that investors could scrutinise the actions of directors. The problem was that, while corporations were obliged to make disclosures under the terms of their charters, unincorporated companies had no such obligation. The solution, put forward by the committee and adopted in the Companies Act 1844, was to make incorporation a matter of simple registration and require all registered companies to make disclosures.Footnote 64 The committee recognised that this did nothing to protect existing life policyholders, but Gladstone left office and the inquiry, therefore, ceased before further work could be undertaken.
The 1844 Act seemed to signal a shift from incorporation as a privilege in the gift of the state to a private right with which the state should not interfere, so that in 1851 when someone fraudulently represented himself as authorised by the Registrar of Companies to view an insurer's books, the Registrar felt compelled to write to The Times: “The right to inspect the account of companies … is one which I have never considered myself authorized to claim for myself.”Footnote 65 The courts fell in with this shift by ruling that the offence of issuing transferable shares had been created not by the common law, as Lord Eldon argued, but by the Bubble Act and had been, therefore, abolished in 1825.Footnote 66
V. The Life-Assurance Controversy, 1849–53
After the slump of the late 1830s came a surge in the economy, generated in part by railway building, but that brought another speculative bubble, which burst in the late 1840s. This time some blame was attached to the 1844 Act. A Board of Trade report on life offices, published in 1849, revealed that many were not complying with statutory disclosure obligations and information supplied by those that were complying was often defective, with expenditure unexplained, calculation errors and comparisons between offices made difficult by the lack of standardisation in accounts.Footnote 67 The data did, however, suggest there were serious problems with the way some life offices were run. Many offered fire and some marine cover alongside life assurance, which rendered their financial position somewhat obscure (although this practice was not confined to the new offices established under the 1844 Act). Many new offices had enormous amounts of unpaid share capital: Agricultural Cattle Insurance had nominal capital of £500,000, but only £28,628 was paid up. Assets often seemed low: British Empire Mutual Life, which issued policies for £140,886, had assets of £4,538 in mortgages and £668 at the bank. Resources were not always sufficient for initial expenses and those expenses seemed excessive: Medical, Legal, and General Mutual Life received premiums of £3511 but spent £5451. Finally, some offices had invested heavily in railways which suffered in the recent crash.
The year after this report another scandal broke. It centred on Augustus Collingridge, a ship's captain and author. In 1845, he established Merchant Traders’ Ship Loan, and Insurance Association, leaving the following year, shortly before it failed, to found General Commission, Ship Loan, Insurance Company. Quitting in 1847, he established General Commission, Ship Loan, and Insurance Company, but again left before it failed to form Port of London and Shipowners’ Loan and Assurance, which was later alleged to have met registration requirements under the 1844 Act by giving people “a shilling and a pot of beer to sign the deed”. When that office got into difficulties, Collingridge expanded his interests into life assurance, with a new company, Sea, Fire, and Life Assurance. It, too, failed in 1850. This time Collingridge fled, only to return for the insolvency proceedings. He seems never to have been prosecuted.Footnote 68
This scandal added fuel to a vigorous debate on life assurance, which was already well established but which grew in intensity in the early 1850s. This pitched old (pre-1844) offices, which were not required to register under the 1844 Act, against new (post-1844) offices. The importance of life assurance was assumed: “If life assurance were properly developed and carried out, it was capable of driving destitution from the land, and of conferring even upon those in the lowest state a degree of happiness they had never experienced before.”Footnote 69 But, according to supporters of the old offices, “The facility with which new assurance offices are set on foot, the tempting promises with which each new scheme is baited … have … converted a scheme of infinite utility and philanthropy into one of the greatest speculative projects of the present day.”Footnote 70 Failures among life offices would “bring all alike into general suspicion and discredit”.Footnote 71 The concerns expressed by Barrow a decade before resurfaced, and, in particular, saturation of the life market was allegedly forcing new offices to reduce premiums to levels that threatened their solvency.Footnote 72 Again, the solution proposed was regulation, but there was no agreement on what this should involve. Robert Christie of Scottish Equitable Life Assurance thought new companies were “founded and conducted, in many instances, by persons possessing neither capital, nor character”, and that the lack of knowledge among policyholders made regulation necessary to ensure proper disclosure of information.Footnote 73 William Thomson of Standard Life and Colonial Life offices wanted an actuary to advise the Registrar of Companies and for the Board of Trade to be able to suspend registration: “These suggestions, it may be urged, involve to some extent a new principle of interference, but I affirm that the circumstances call for it. The vast interests at stake require it.”Footnote 74 Others proposed minimum capital requirements, or good faith deposits, or even closing the market to new offices.Footnote 75
The new offices hit back. In 1853, a meeting of Deposit and General Life, which had only completed its registration the year before, was told by its chair, Lord Viscount Drumlanrig, “those that were long established did not like to see their interests trenched upon”.Footnote 76 The Sunday Times agreed: “It is, however, but little surprising that those companies which had long enjoyed a most remunerative monopoly should have gradually become alarmed at the growing prosperity of the newly-founded institutions, or that they should have sought by illegitimate means, and by casting imputations upon their plans, to crush them in their infancy.”Footnote 77
Low premiums were evidence of efficiency and innovation, not fraud. The old offices were established before life assurance was properly understood and so were based on wrong principles, which led to high premiums.Footnote 78 New offices “come into the field with new energy and improved tactics for the employment of smaller capital”.Footnote 79 Such innovation would be stifled by further regulation. Unlike the old offices, new offices already had to disclose information under the 1844 Act, which – ignoring criticism of that Act – meant, “in the companies lately founded clear and accurate statements are periodically made of the doings of the association”.Footnote 80 More disclosure would disadvantage new offices because they necessarily incurred higher costs during their early years and so would look weaker than older offices.Footnote 81 But, at root, the argument was based on competition, as Bethel Strousberg remarked: “it is wholesome in principle, and for the benefit of the country, that new elements of supply should be introduced, in order to prevent that stagnation, which, has always been found the inevitable attendant of monopoly in any shape.”Footnote 82
The case for the new offices was, however, weakened because they did seem to fail more frequently and some of their advocates were suspect: The Sunday Times had carried an enthusiastic report of the shareholder meeting held by Sea, Fire shortly before it collapsed,Footnote 83 and Strousberg had been imprisoned for embezzlement.Footnote 84
There remained more fundamental objections to regulation. The Sunday Times condemned “an ardent but unEnglish desire for government control in the affairs of private individuals”,Footnote 85 and even some critics of the new offices shared this view, such as John Young Caw, who wrote: “No legislative enactment can interfere in this matter with success. Any such enactment would be an opposition to free trade.”Footnote 86 Others simply doubted the efficacy of regulation: “it is impossible to legislate effectually against some men; they creep through Acts of Parliament as cats walk over a dresser at night, without touching an article. They are controlled by one power only, and that is public opinion.”Footnote 87
VI. Wilson Committee, 1853
This debate over life assurance roused James Wilson, M.P., to propose a parliamentary inquiry with a view to regulating the market. His involvement was significant, since he was Financial Secretary to the Treasury and an enthusiastic supporter of free trade who opposed other proposals for regulating business and had established The Economist: The Political, Commercial, Agricultural and Free-Trade Journal. He saw life assurance as a special case:
he looked upon these institutions much more as a sacred trust for the future, than as the means of mercantile operations for the present … because present payment was to secure future benefit, and because individuals, actuated by the best feelings of human nature, were induced to make great sacrifices and to exercise great self-denial, in order to provide for those who followed them. He thought this was a reason, therefore, why these companies should be taken out of the strict category of commercial institutions; and, if the House was justified in interfering by Act of Parliament to regulate joint-stock companies in general [namely the 1844 Act], it was doubly justified in interfering with respect to institutions where the operations were so great and the effects so distant.Footnote 88
The purchase of life policies was to be encouraged because they supported dependent families and reduced the burden on poor relief funds. He was also aware that, unlike banks, which needed high levels of liquidity, life offices could invest in long-term assets, including infrastructure, mortgages for the improvement of landed estates and government securities. Estimating such investments at £150 million, Wilson said, “those funds which were accumulated for the benefit of private individuals became in the meantime useful instruments of public utility”.Footnote 89 He remarked that, unlike bank depositors and non-life policyholders, life policyholders often could not switch when an office got into difficulty and had either to continue paying premiums in the hope of recovery or abandon their policies.Footnote 90 But he characterised the key problem in familiar terms: “hundreds of associations were springing into existence one day, and falling like an autumn leaf the next”.Footnote 91 Wilson's proposal for an inquiry was unsuccessfully opposed by those who argued it unnecessary because the high failure rate of life offices demonstrated the market's effectiveness and that any intervention would undermine the principle that, “every man must look after his own affairs, for they could not be safely left to any one else”.Footnote 92 In particular, the new offices believed any inquiry would be prejudiced in favour of the old offices.Footnote 93
The committee produced its 400-page report in only five months. The tone was set by the choice of witnesses, who were largely critical of new offices. William Pateman of Post Magazine, a leading insurance journal that campaigned against what he regarded as the generally fraudulent new offices, told the committee, “the Act of 1844 gives them an appearance of greater respectability and consequently a greater chance of imposing on the public”.Footnote 94 Witnesses from the old offices mostly supported him. William Thomson thought life offices should be regulated because “the public do not know the risk they are running”.Footnote 95 He suggested a good faith deposit from new offices, standard form balance sheets with a detailed version for the Board of Trade and a simplified one for publication, and an actuary to advise the Board on the accounts of each office. There were, however, dissenting voices among the old offices. James Downes of Economic Assurance thought regulation unnecessary and, instead, emphasised the role of policyholders and the market: “people are very acute when their own pecuniary interests are involved in the matter, and there are very few societies where you will not find a sufficient amount of intelligence to detect anything that is egregiously wrong.”Footnote 96
The committee's recommendations were not directed at the old offices. It was assumed they were not fraudulent and that policyholders and shareholders could guard against such abuses as might arise. The targets were offices “brought into existence with no reasonable prospect of, or guarantee for success, and not unfrequently without any bona fide intention of transacting business”.Footnote 97
[The 1844 Act: does] too much, inasmuch as any legislative enactments professing to protect the public in such matters, have a certain tendency to weaken and impair that individual vigilance which would be more surely exercised, if no such attempt was made; and too little, inasmuch as the securities which the law provides are ill calculated to effect the object at which they aim.Footnote 98
Prospectuses “often vary materially from the objects for which they have been provisionally registered; and there appears to be no means at present to prevent deception and misrepresentation being practised on the public in this way”.Footnote 99 The requirement in the 1844 Act that shareholders sign the deed of settlement was abused by false signatures, rules on balance sheets were inadequate and the powers of the Registrar of Joint Stock companies were too limited. The committee recommended separate legislation on life offices from that applicable to other companies. New offices should be obliged to deposit £10,000 in public funds, and more detail should be provided in annual returns, with “a complete investigation” of an office's finances at least every five years to enable the public “to come to a correct judgment as to the condition of an office”.Footnote 100
The Sunday Times, which championed the new offices, attacked much of the report, believing Wilson had largely swallowed the evidence of the old offices, and that he had only been restrained from completely closing access to the market by his free-trade principles.Footnote 101 Yet, the appointment of the committee (together with separate legislation that allowed the deduction of life premiums for income tax and exempted benefits from succession duty) seemed to demonstrate the Government's commitment to the sector and to reform.Footnote 102 However, the report was not implemented. Aside from uncertainty over regulating the market, Wilson later admitted: “It was a most difficult subject to determine how to establish restrictions which, while apparently offering security to the public, would not be easily evaded.”Footnote 103 In any event, the Government had become mired in recriminations over the conduct of the Crimean War, which eventually brought its downfall in February 1855.
Although Wilson remained in office, the new administration prioritised reform of general company law. The Companies Acts 1855–56 made limited liability more widely available but excluded insurance companies because of the Wilson report's recommendation that they should be treated separately. Robert Lowe, Vice-President of the Board of Trade, regretted this, although he doubtless expected progress on new legislation.Footnote 104 Indeed, the exclusion made little sense, since, as mentioned earlier, insurance companies were already limiting liability of shareholders to policyholders through policy terms.Footnote 105 Wilson did bring forward Bills in 1857–58, with support from Lowe and Benjamin Disraeli, Chancellor of the Exchequer. These would have obliged life offices to register and provide accounts, permitted the Board to appoint inspectors to conduct inquiries and established a special insolvency regime.Footnote 106 But neither passed, and it was not until the Companies Act 1862 that limited liability was extended to insurance offices.Footnote 107 This did not placate supporters of the Wilson reforms, which by 1859 included The Sunday Times. Abandoning its earlier opposition to regulation, it attacked the failure to implement the Wilson report: “assurance companies should be placed upon such a footing that swindling would be more difficult to concoct, and that … policy-holders would be less easily plundered.”Footnote 108
VII. The Failures of the Albert and the European, 1869–70
The battle between pre- and post-1844 offices continued into the 1860s, fuelled by the Wilson report and by the fact that, while 44 of 153 life offices established before 1844 had been acquired by other offices or ceased, among offices formed since the act the figure rose to 250 out of 260.Footnote 109 Nevertheless, the new offices fought back against critics. They continued to offer premiums at a rate that undercut rivals and accused old offices of either unfairly resisting claims on obscure points of law or making low offers in the knowledge that most claimants would be unwilling to litigate: “the only fair pleas which an Insurance Company can oppose to a claim for the sum against which they have been paid their premiums is arson in the case of fire, and suicide in the case of death.”Footnote 110 Many new offices promised to pay all claims: the London Indisputable Life Policy Company (founded 1847) declared it was “prohibited by their Deed of Constitution from disputing a Policy upon any ground whatsoever”, although it soon relinquished this stance to defend a claim by a policyholder.Footnote 111
The old offices were, however, to suffer a damaging blow when Albert Life failed in 1869. Formed in 1838 as Freemasons’ & General Life Assurance, a name change in 1850 signalled a period of rapid growth that made it one of the largest life offices, with branches across the UK and in India, Ceylon, China and Japan. As late as May 1869, in an advertisement for new agents the office boasted of its good health, with fully paid capital of £500,000, annual premium revenue above £500,000, and new policies to the value of £640,000 in the previous year. The following month it announced a proposal to extend into fire and marine insurance involving the issue of £1 million in shares.Footnote 112 Yet, rather than signs of strength, these were the office's last blustering attempts to rescue what was beyond saving. Indeed, signs of the difficulties had been evident for some time: it had ceased paying bonuses to policyholders several years before, and new business had declined by a third over the previous five years.Footnote 113 The failure of the Albert was made worse because an even bigger office, European Life Assurance Society was also tottering towards insolvency, although it did not finally collapse until 1872. The European had written twice as many new life policies in 1868 as the Albert and more in terms of total sum assured than any other office.Footnote 114
Both offices had expanded principally by acquiring rivals, with the Albert, “a noisy bustling company”, swallowing 22 and the European 33.Footnote 115 This practice was defended because the creation of large companies seemed to provide protection to policyholders at a time when the market had become overcrowded and many offices were struggling.Footnote 116 The problem was that the acquisitions were driven less by the prospect of acquiring good businesses and more by the practice of paying senior employees commission based on premium revenue – G.G. Kirby, managing director of the Albert, received £15,000 p.a.Footnote 117 These senior employees also controlled company funds and so could use them to persuade directors and managers in targeted offices. When Medical, Invalid, and General Life Assurance was acquired by the Albert in 1860, more than £43,000 of the purchase price of £77,735 went to 11 people, including £15,750 to the agent who arranged the deal and £15,000 to the company secretary. According to one estimate the Albert spent £274,152 on acquisitions.Footnote 118
Worryingly for other policyholders, this strategy was common throughout the sector: Eagle (formed in 1807) acquired 20 offices, Standard (1825) nine, and Liverpool and London, and Globe (1836) eight. Prudential Assurance (1848) rushed to reassure investors that its growth came only from increased business, conveniently forgetting its own acquisition of four offices.Footnote 119 Many of the offices that were acquired had themselves previously acquired offices: before its takeover by the European, British Nation Life acquired nine offices, and those offices (or the offices they had acquired) had previously acquired another 13. By 1869, 175 life offices had been absorbed into 32 offices, with more than half going to pre-1844 offices.Footnote 120 Policyholders may have been convinced that this would provide them greater security, but in any event they were powerless to object. Some experienced repeated transfers. A policyholder with Tontine would have been transferred to Engineers and Masonic in 1849, English and Irish Church and University Assurance in 1858, British Nation in 1861, and, finally, European in 1865.
There had been criticism of this practice before the Albert fell.Footnote 121 When Sir Thomas Phillips, chair of Medical, Invalid, and General Life, declared in 1860 that amalgamation with the Albert would have “the effect of diminishing expenses, increasing the business, and reducing the necessity of competition”,Footnote 122 the Sunday Times scoffed: “we question whether policy-holders will feel secure when such rapid changes are passing under their eyes, and their interests transferred to new hands, and frequently, it is to be apprehended, placed in jeopardy.”Footnote 123
In 1864, Gladstone, now Chancellor of the Exchequer, denounced one of the European's takeovers as “no better than wholesale robbery”,Footnote 124 although he offered no solution and was attacked by a member of his own party for “improper statements involving very grave imputations upon existing institutions”.Footnote 125 The edition of the Insurance Register published just before the failure of the Albert warned that frequent transfer of policies created “a feeling of insecurity in regard to Life Offices generally”.Footnote 126
These fears seemed to be confirmed by the Albert. Its collapse threatened the idea, carefully built up in the debates of the previous 20 years, that old, large life offices provided greater security. It was also harder to blame policyholders for lack of prudence, both because the simple argument that buying from an old office provided security had been undermined, and because, even if they did exercise care in their choice of policy, it might be transferred without consent, or, if consent were required, this might be easily engineered because the office controlled information.Footnote 127
VIII. The Life Assurance Companies Act 1870
A. Insolvency
The most immediate problem was to unravel the Albert and the European. Insolvency law was unsuited to life offices. Under the Companies Act 1862, s. 79, a company could be wound up if unable to meet existing debts or it was “just and equitable”, but neither of these tests considered whether a life office could meet claims under its policies in the future. In a decision on the European, Sir William James, V.-C., said:
I take it that the Court has nothing whatever to do with any question of future liabilities, that it has nothing whatever to do with the question of the probability whether any business which the company may carry on to-morrow or hereafter will be profitable or unprofitable. That is a matter for those who may choose to be the customers of the company and for the shareholders to consider.Footnote 128
This allowed the European to stagger on, and ignored the position of policyholders, who had no real choice, except to abandon their policies. There were other problems with the Albert and the European. It emerged that promises to ring-fence funds of some of the offices acquired had not been kept.Footnote 129 There was also the question of whether someone who bought a policy from an office that was later taken over could sue the original office and its shareholders, or only the acquiring office. The Court of Appeal decided the original company remained liable, unless it had been wound up, and, since this additional step had rarely been taken, that ruling led to a torrent of winding-up petitions.Footnote 130
It was clear that unravelling the Albert and the European through the courts would be difficult and might dissipate such assets as remained. This led to the adoption of a mechanism used after the failure of London, Chatham and Dover Railway in 1866. Special legislation was passed appointing arbitrators with unlimited discretion to resolve claims. This did not remove all difficulties, not least because different arbitrators were appointed for the Albert and the European and they took different approaches, in particular, over whether policyholders retained rights against the office that issued the original policy.Footnote 131
The need for changes to insolvency law was obvious, both to take account of the different issues in life assurance and to avoid the need for ad hoc solutions which created uncertainty about how any future insolvency might be resolved.Footnote 132 The Life Assurance Companies Act 1870 amended the test for insolvency to include contingent or prospective liability under policies or annuities (s. 21), and another statute in 1872 provided that transferred policyholders only lost rights against the original company if they signified abandonment in writing.Footnote 133
B. Regulation
The bulk of the 1870 Act was concerned with the more controversial subject of the regulation of life offices. The failures of the Albert and the European were quite different from the Independent West Middlesex and Sea, Fire and Life affairs, since they involved more substantial companies and business methods that were regarded as normal market practice: “It is not surprising that the collapse of the Albert Company should produce a panic among life policy-holders. People have not been in the habit of supposing that to insure their lives was only a particular kind of speculation.”Footnote 134
The idea of state supervision was rejected because it would require periodic returns and there was no way of ensuring their accuracy, unless the sector were taken over by government, and there seemed no more justification for state ownership of this industry than any other.Footnote 135 Rather less drastic reforms were proposed in a Bill introduced in 1869 by Stephen Cave, M.P., who, although in opposition, had been Vice-President of the Board of Trade. This first Bill merely tested the water, and the following year he introduced a new version, which was four times as long and had the benefit of advice from actuaries, the principal life offices and the Board of Trade.Footnote 136 Cave declared the life office in Martin Chuzzlewit to be “by no means an overdrawn picture”, and pointed out the danger that, “nothing like the number of people avail themselves of this mode of providing for the future than would otherwise do so”.Footnote 137 He noted the higher take-up of life assurance in countries with regulation, such as the US, and sought to increase the sense of urgency by observing that 59 life offices were currently being wound up, although he failed to acknowledge that this was a tidying-up operation, since most had ceased trading after a takeover.
While recognising the impotence of policyholders, Cave opposed government regulation or controls on premiums, believing, “such matters are best left to competition”.Footnote 138 Instead, “perfect freedom and perfect publicity ought to be the motto of a legislator in such matters”.Footnote 139 His Act resembled earlier proposals, including those made by the Wilson report, in its combination of restrictions on access to the market for new life offices and financial disclosure by all offices. A new life company did not need permission but could not be registered by the Registrar of Joint-Stock Companies unless £20,000 was deposited in the Court of Chancery as evidence of good faith, recoverable when the life premium fund exceeded £40,000.Footnote 140 On insolvency, policyholders would not have priority over this deposit because that would unfairly privilege them.Footnote 141 Deposits were not required from pre-1870 life offices. An unintended effect of this was to restrict the formation of mutual life offices. They were owned by policyholders, and, therefore, not regarded as a problem, but their structure made it difficult to raise the deposit, which a joint-stock office might obtain from shareholders or by a loan secured on future profits. Nevertheless, an exemption was rejected because of the overriding concern about the stability of life offices and the view, based on the examples of the Albert and the European, that reconstruction was impossible.Footnote 142
Policyholders acquired some protections and extra-contractual rights. The act obliged offices to keep the life fund separate, and this fund was not liable for any other policies written by the office.Footnote 143 Most importantly, judicial consent was required for the transfer of policies and could only be granted if the court were “satisfied that no sufficient objection … has been established” and if not opposed by policyholders with 10% of the value of outstanding policies.Footnote 144 Offices had to provide information annually to the Board of Trade for publication and to undergo an actuarial valuation every five years: “the whole scope and object of these sections is to give to the policy holders and the public the means of judging from time to time whether a Life Assurance Company is in a position to meet its engagements.”Footnote 145
IX. The 1870 Act: “A Happy Mean”?
Thomas Sprague, the leading actuary of his day and later uniquely president of both the Institute of Actuaries in London (founded in 1847), and the Faculty of Actuaries in Edinburgh (1856), expressed what seems to have been the general view of the industry that the act struck “a happy mean between the old system of leaving the public to make unaided their own enquiries … and the American system of State supervision”.Footnote 146 It was expected to bring stability because “the light now let in upon life assurance by the reports of the Board of Trade will, in due time … [show] clearly to the public that their true interest lies in solid security rather than in showy income”.Footnote 147 The Journal of the Institute of Actuaries thought that, in spite of complaints about the detail required by disclosure rules, “Companies will cheerfully comply with the Act satisfied that whatever increases public confidence must result advantageously for the Companies themselves”,Footnote 148 and, indeed, even before it was passed, offices rushed to advertise their compliance.Footnote 149
Criticism did emerge from outside the industry at the failure to address the behaviour of directors, and offices were later accused of failing to comply with the provisions on information disclosure.Footnote 150 A report from the Board of Trade in 1874 observed that the lack of a precise statutory methodology for the calculation of future liabilities meant the act had not stopped offices producing flattering balance sheets and paying unsustainable bonuses to attract policyholders.Footnote 151 The problem of fraud also remained. This was deliberately not addressed by the act, since Cave took the Wilson view: “there is a considerable difference between deception produced by fraud, and that resulting from the mystification which seems to be a virtue in the eyes of some framers of accounts. The first cannot be prevented, though it may be punished; the second will, I trust, be rendered more difficult by this measure.”Footnote 152
The disclosures required by the act, the involvement of actuaries and accountants, and the caution engendered by the Albert and the European made fraud more difficult. So, while the problem did not vanish, characters like Edward Yelland began to seem something of a throwback. He was fined in 1871 under the Companies Act for not registering Minerva Banking Assurance, which had been established just before the 1870 Act and had failed. He was also involved in British Guardian, another office formed shortly before the act that failed soon after. Like Collingridge, neither these setbacks nor subsequent bankruptcy seem to have prevented his involvement in other life offices or led him to conceal his identity.Footnote 153 Prosecutions remained rare. When directors of Albion Life were imprisoned in 1877 over the fraudulent sale of life policies as security for loans that never materialised,Footnote 154 The Times applauded because this behaviour was “calculated to shake the confidence of large classes of people in the insurance system, without which English thrift would often find itself at a loss”.Footnote 155 Such cases attracted attention because they were unusual. Some policyholders did use the threat of prosecution to extract a settlement, although this prompted differing judicial reactions. Yelland had escaped prosecution in 1868 over a life office failure by settling with the aggrieved parties to the evident dissatisfaction of the magistrate who was obliged to dismiss the case; but in the following year another magistrate congratulated prosecutors for withdrawing the case against directors of Hercules Insurance in order to pursue a civil action.Footnote 156
The 1870 Act represented a triumph for the old offices. They had so effectively shaped the debate over the previous 20 years around the dangers posed by new offices that, even though the legislation resulted from the failure of a major life office and an acquisition strategy many old offices employed, at its core the act aimed to restrict access to the market. Like the Lloyd's members who had opposed opening the marine market fifty years before, the old life offices sought to curb competition by arguing that the new offices damaged the confidence that was so vital to the industry. Since the removal of post-1844 offices was never a possibility, they settled for a proposal to restrict access in the future.
Judged by statistics, the act was a success. Five life offices failed in 1870–76, but four of these had been rushed into existence before the new Act. After the Briton collapsed in 1886, there were no other life office failures for almost 90 years.Footnote 157 The market narrowed, as the act discouraged the formation of new offices and mergers and acquisitions revived, but the number of new policies issued each year continued to rise, from 70,000 in 1868 to 194,000 in 1899, with the total value of policies almost doubling to £640 million.Footnote 158
Concerns over the viability of some offices remained, but this was generally seen as a matter for policyholders and shareholders: the act was only intended “to give parties every facility for investigation, but that investigation they should conduct for themselves”.Footnote 159 The problem was that, even leaving aside the issues over the information provided, the complexity of life offices and life policies made it unrealistic to expect ordinary policyholders to undertake such inquiries. It was, therefore, important for the industry that policyholders had confidence in the conduct of the offices. This might come from better standards within the industry. The formation of regional insurance institutes and the publication of more than 30 periodicals specialising in insurance news gave the industry more coherence, professionalism and an element of peer-regulation.Footnote 160 There was also a greater role for actuaries. They had long been regarded as a means of establishing the credibility of any life office, but their authority had grown after the middle of the century through the professionalism and scientification brought by the formation of learned societies and the publication of authoritative texts and specialist journals. The events of 1869 strengthened their role, as life offices sought to reassure policyholders through the endorsement of independent professionals.Footnote 161
Finally, there was the question of the Board of Trade's role. During the Bill's passage through Parliament, Robert Lowe, now Chancellor of the Exchequer, had expressed reservations about government's role:
The difficulty really amounts to this – the returns of the affairs of companies are wanted; but if you trust to the companies to make their own returns, you may be quite sure they will strain every nerve to keep back all that they wish you not to know. If, on the other hand, you trust to a Government audit or inspection, then you mix the Government up in the concern; and, although a man may be given only a limited function, yet the inevitable result will be that he will give the company a spurious, false, and unfair credit, as having the weight, and probably the guarantee of the Government behind. You cannot escape from this dilemma … I do not think you can call upon the Government to make this audit … I do not think it is the function of the Government, and I do not believe the Government would do it well. They would go to sleep over it; they would give to companies undue and unfair credit; and thus the Government would be parties to leading persons to trust many unworthy concerns.Footnote 162
He suggested that companies might be required to publish information in newspapers, but did not force an amendment. However, he remained concerned that the Bill gave no certainty to a policyholder that the benefit promised in the policy would be paid. The only solution he had for this was that government might have to enter the marketplace; but this suggestion seems hastily made and undeveloped, and, in the long term, aside from objections to government engaging in business, the apparent success of the act, measured by the number of failed offices, made it unnecessary to pursue such alternatives.Footnote 163
Since the act did not give the Board direct powers to intervene in the sector, its role remained uncertain. In 1874, Mr. Clarke, a shareholder in Briton Life, wrote to the Board complaining of the company's failure to produce the returns stipulated by the act, and insisting the Board, “take some steps to compel the Company to comply with the law”.Footnote 164 The letter caused annoyance: “The less correspondence we have with Mr Clarke the better”, noted an exasperated official.Footnote 165 The formal response was less blunt, stating that, while the Board would continue to request the returns, the issue was something Clarke should take up with the company, and he was advised to seek legal opinion as to whether the act entitled him to demand this information.Footnote 166 This all highlighted a difficulty with the act. The information was for the benefit of investors (shareholders and more particularly existing and future policyholders), but did the Board have a role in insisting on its production? Under s.24, the Board had to lay before Parliament the information that the companies were required to produce. This would suggest it had a duty to compel the production of that information, but the act gave no enforcement powers to the Board and no remedy to investors like Mr. Clarke. Yet, the Board was not as disinterested as its reply over Briton Life suggested, privately seeking advice from the Attorney General, who, noting that the Board had no statutory power to insist, responded in terms that recalled Lowe's reservations:
Under these circumstances … the Board of Trade are placed in considerable difficulty. If they publish the accounts as received without observation, they are publishing under the stamp of official authority accounts which they cannot help knowing are so framed as to mislead the public and the policy-holder. If they refuse to publish them altogether it may be alleged, especially having regard to sect. 3 of the Act of 1872,Footnote 167 that they are disobeying the Act. If they publish them with observations they may possibly (not to mention other difficulties) expose themselves to actions by the Companies. A fourth course would be to lay before Parliament the statements as received from the Company and to print with them the correspondence between the Board of Trade and the Company showing the criticisms and requirements of the Board of Trade on the one hand and the replies of the Company on the other.Footnote 168
This last was the solution adopted by the Board,Footnote 169 and it conferred substantial influence, since life offices depended on reputation to give people the confidence to buy policies, and that reputation might be affected by any adverse publicity.
All of this raised some fundamental issues that continue to challenge financial regulation. The act was an acknowledgment that the life market was sufficiently important to justify intervention, that its problems could not be left to the market, and that these problems could be prevented, resolved or mitigated by state intervention. Furthermore, this implied that the state bore some responsibility if problems arose, and, if the state had responsibility, less might be expected from policyholders, or even from insurers, whose integrity and security might be assumed from mere compliance with the regulations. The 1870 Act had intended to place responsibility on the policyholders by requiring insurers to supply information, but the complex nature of life assurance made this unrealistic, and the intervention by statute created an expectation among investors like Mr. Clarke that the state would define and, therefore, monitor this information. All of this dragged the Board of Trade into a more active role and led to the extension of the 1870 model to other areas of insurance.Footnote 170
X. Conclusion
The temptation in studying the history of law is to focus on reform and ignore opposition and defeated proposals. Yet, even where there is powerful support and a sense of urgency generated by crises, such as the collapse of Albert Life, change rarely involves the simple resolution of a problem. Reform depends on the existence of a solution, and the range of solutions is restricted by what it is possible and acceptable to think and do about the problem, which, in turn, may constrain the way in which the problem is identified. These limitations may be conceptual (what can be conceived as a solution, which may be constrained by those ways of looking at the world that gave rise to the problem in the first place), ideological (solutions that are acceptable to the dominant ideology), technological, physical and financial (solutions for which knowledge, skills and funding exist), and temporal (such as the availability of sufficient parliamentary time needed to enact new law). There is likely to be disagreement on all of these issues, and perceptions and priorities may alter over time, as, for example, government changes or new crises emerge.
Developments in insurance law – and, more generally, in company law, which was influenced by problems with insurance companies – illustrate this argument. In the nineteenth century, there was much support for a free market and opposition to state intervention in business, but even Adam Smith doubted the benefits of dismantling restrictions on joint-stock companies because of a fear that the market would be distorted if they were allowed to proliferate. The contrast between the events that bookend this paper – the opening of the marine-insurance market in 1824 and the restrictions on life assurance in 1870 – illustrates this controversy and shows the difficulties with a view of commercial and company law that over-emphasises the impact of free-market ideas. Regulation played a significant part in the emergence and shaping of the economy and social policy in the nineteenth century. Some of this regulation was general in application, such as obligations under the Companies Acts to disclose information, register the company and charges on its assets and hold meetings, restrictions in the Factories Acts on working conditions, and the anti-slavery laws; others addressed particular industries, including the legislation on railways, mines, utilities, banks, friendly societies and, of course, insurance.Footnote 171 While a good deal has been written on the campaigns around those regulations that affected the conditions of working people, this list indicates that much of the legislation involved issues that concerned the middling ranks in society.
It is not surprising to find businesses seeking to influence regulation. Life offices scattered directorships among members of both Houses of Parliament, and, although the main objective was to reassure investors about the security of the offices, this practice also helped structure the debate on life assurance.Footnote 172 Offices also drew together and fought campaigns against rivals (such as the struggle between pre- and post-1844 offices) through national and regional associations, and the publication of newspaper articles and pamphlets. Powerful lobbyists did not always get their way. The victory in 1810 won by Lloyd's against those seeking to open the marine market proved short-lived; but, while the 1824 Act might be viewed as a triumph of free-market thinking, it was primarily a triumph for the wealthy investors who were keen to climb into this profitable business, such as the Alliance which employed Buxton, the Bill's promoter. The 1870 Act was a response to the failure of the Albert, but its provisions reflected the efforts of large life offices to close the market by depicting the greatest threat as coming from new offices. In addition, while this Act conceded the need for greater disclosure by all life offices, it did so as part of an attempt to reinforce the notion that policyholders were responsible for their own protection. Yet, in passing this Act and leaving unclear how the obligations it created were to be enforced, there arose (as Lowe feared but did not fully recognise) an expectation of government intervention and, as a consequence, the idea that government bore some responsibility. And this – for good and ill – fed the growth of regulation.
