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Elizur Wright: The Father of Life Insurance Reform

Hi there! Have you ever purchased life insurance or put money in an annuity? If so, you have Elizur Wright to thank for many of the consumer protections you enjoy today. Though not a household name, Elizur Wright was the pioneering actuary and reformer who transformed the life insurance industry in the mid-19th century. His work established the foundations of fairness, solvency and ethical practice that became pillar principles of insurance as we know it.

So who was Elizur Wright? Born in 1804 in Connecticut, he was a mathematician, abolitionist, inventor and insurance expert who crusaded to reform life insurance through applied science and moral persuasion. By compiling mortality tables, devising new policy valuation formulas, and pushing for consumer safeguards, Wright helped turn life insurance from a speculative gamble into a sound system worthy of public confidence. Let‘s take a deeper look at his remarkable career and lasting impact.

From Yale Scholar to Anti-Slavery Editor

Wright first made a name for himself in scholarship and social reform. He attended Yale College from 1822-1826, supporting himself as a teacher, waiter and bell-ringer while excelling at math and Greek[1]. After graduating, Wright briefly taught at Groton Academy where he met his future wife, Susan Clark. The two married in 1829 and went on to raise 10 children.

Later that year, Wright moved to Hudson, Ohio to become Professor of Mathematics and Natural Philosophy at Western Reserve College. He taught at the school until 1833[2]. Though firmly ensconced in academia, Wright felt increasingly drawn to abolitionism and social reform. In 1833, he served as secretary of America‘s first national anti-slavery convention in Philadelphia[3].

Wright then turned to reform journalism full-time as editor of a series of anti-slavery newspapers, including the Anti-Slavery Reporter in New York and the Chronotype in Boston. He fiercely opposed government policies protecting slavery in the decades before the Civil War[4]. This early career established Wright as a math scholar, abolitionist and crusading editorial writer – talents he would soon apply to transforming the life insurance industry.

An Early Inventor with Practical Ingenuity

In addition to his academic interests, Wright harbored an inventor‘s curiosity and passion for mechanics from a young age[5]. During the 1850s, while editing the Railroad Times, he designed several useful contraptions, including:

  • A machine for manufacturing spikes, which streamlined production of the essential railroad fasteners[6].

  • An improved water faucet that allowed more precise flow control and prevented leakage[7]. Wright secured a US patent in 1855 and briefly manufactured and sold the faucets commercially.

  • A new pipe coupling system, patented in 1858, that simplified joining pipe sections[8].

  • The Arithmometer in 1860, an early cylindrical slide rule that facilitated complex mathematical calculations[9].

Engraving of Elizur Wright

Engraving of inventor Elizur Wright[10]

These inventions displayed Wright‘s practical ingenuity and laid the groundwork for his later actuarial work reforming life insurance.

Exposing Unethical Practices in Life Insurance

Wright‘s enduring legacy, however, stems from his seminal work to reform the life insurance industry. In 1852, after reading an insurance brochure riddled with dubious claims, Wright grew alarmed by the lack of oversight and unethical practices in the industry[11]. At the time, life insurance was akin to an unregulated gambling scheme with little financial accountability or incentive for companies to pay out claims.

Wright set out to change this by educating himself on actuarial science and insurance operations[12]. In 1853, he published Life Insurance Valuation Tables[13], which for the first time enabled companies to scientifically calculate policy reserves using rigorous mathematical formulas. The book established Wright as America‘s first real insurance expert[14].

In a follow-up 1873 work, The Politics and Mysteries of Life Insurance[15], Wright exposed rampant abuses in the industry, including:

  • Overselling questionable policies to unwitting customers
  • Failure to set aside adequate reserves to pay future claims
  • Neglecting to refund any money for canceled policies
  • Operating with a complete lack of financial oversight or transparency

Wright believed applying actuarial principles with transparency and integrity could professionalize the industry and restore public trust.

Pioneering Consumer Protections

To realize these reforms, Wright spearheaded major consumer protection initiatives over his career. From 1858-1866, he served as Insurance Commissioner for Massachusetts[16]. Here Wright pioneered safeguards including:

Mandatory Policy Reserves

  • Required companies to set aside money, known as reserves, to ensure capacity to pay out future claims. Wright helped devise sound actuarial formulas for calculating adequate reserve amounts based on policies in force.

Nonforfeiture Laws

  • Required companies to provide a surrender value for lapsed or canceled policies proportional to the premiums paid. Prior to this, customers lost everything if they stopped paying premiums.

Accurate Pricing

  • Compelled companies to price policies based on rigorous actuarial mortality tables instead of arbitrary or exaggerated rates. This helped policies be priced fairly in line with actual risk statistics.

Mandated Financial Reporting

  • Required companies to file detailed annual financial statements with insurance regulators. Brought much needed transparency and oversight to company balance sheets and operations.
Growth of U.S. Life Insurance in Force

Year Insurance in Force
1840 $20 million
1859 $200 million
1870 $1 billion
1880 $3 billion
U.S. Life Insurance in Force Per Capita

Year Per Capita
1850 $2
1860 $7
1870 $18
1880 $59

These pioneering reforms established a regime of financial accountability, actuarial rigor and consumer rights that transformed life insurance from a speculative enterprise into a trusted pillar of household financial planning. Just look at the growth in policies in force during this period, rising from $20 million in 1840 to over $3 billion by 1880[17]. Wright‘s work played a major role in driving this growth by instilling public confidence.

Actuarial Innovations: The Accumulation Formula

A math whiz since his Yale days, Wright also contributed important actuarial innovations that shaped modern policy valuation practices. Most significantly, he developed the accumulation formula for determining the reserve value of a policy over time[18].

The accumulation formula calculates the reserve as the accumulated value of past net premiums paid plus interest based on:

Reserve Value = (Premium 1 x (1+i)n) + (Premium 2 x (1+i)n-1) + … + (Premium n x (1+i)0)

Where i is the interest rate and n is the number of years in force.

This provided a sound actuarial basis for surrender values and reserves that became an industry standard. Wright also compiled mortality tables and pricing formulas that allowed premiums to be set based on empirical death rate statistics for the first time.

Later Life and Legacy

In his later years, Wright worked as an actuarial consultant to major insurance firms, training a new generation of actuaries[19]. He died in 1885 at the age of 81, leaving behind a formidable legacy[20].

So in summary, what did Elizur Wright accomplish? He pioneered consumer protections like nonforfeiture values, mandatory reserves, and accurate pricing that remain ethical cornerstones of the insurance business today. Through meticulous research and advocacy, Wright transformed life insurance from a speculative gamble into a mathematically grounded undertaking worthy of public trust. His actuarial formulas and mortality tables provided the quantitative backbone for the industry to thrive on an empirical, professional footing.

The system Elizur Wright championed still forms the bedrock of fairness and solvency the industry is built on. So next time you pay your life insurance premium or receive benefits from a policy, take a moment to remember this little-known actuarial trailblazer from the 1800s who made it all possible!