The Early Mutuals

Early Mutual Insurance in Europe and the United States

Let’s step back in time look at the origins of insurance.

Early Mutual Insurance in Upper Canada

The United States was ahead of Canada in settlement and development and the need for insurance took longer to develop. But, by the 1830’s pioneering farmers and merchants were pushing back the wilderness with farms, towns, and businesses.

This video describes the situation in Upper Canada at that time.

Sir Francis Bond Head and the Early Mutuals

In 1835 Sir Francis Bond Head was appointed by the Crown as Lieutenant Governor of Upper Canada. While better known for his handling of the 1837 Rebellion, he also played a critical role in bringing mutual insurance to the Colony.

In the 1830’s there was only one insurer offering very limited coverage in Upper Canada. There were no insurers willing to insure the farms, towns, and villages being established as the province opened up. 

Sir Francis recognized the need for insurance to support economic development and created the Mutual Insurance Companies Act. This Act declared that landowners could organize Mutuals to insure their property. So pressing was the need for this Act, that it was enacted before receiving Royal approval, a controversial move at the time.

Upper Canada at the time was organized into 20 districts for the purpose of municipal government and military service. As can be imagined these districts covered huge territories and large parts of each district might be very lightly populated.

Under the Act, each of Upper Canada’s 20 would be allowed to form a mutual.  Eventually 12 did.  Gore Mutual, incorporated in 1839, still operates today from Cambridge and is the last remaining of the original six district Mutuals.

How to “Make” a Mutual: The Early Days

Ontario Mutuals in the 1830s

In the early days of mutual insurance, things worked differently than they do now. If a loss occurred the amount of damage would be assessed by someone from the mutual, typically a director. Directors were “jacks of all trades” in those early days.  A mutual might have at most one permanent staff member, the Secretary-Manager, and that individual would probably have another job or post elsewhere.

In the very early days, there were no cash premiums up front. Policyholders signed a form of promissory note, known as the Premium Note. The Premium Note stated that the policyholder would assume liabilities proportionate to their overall share of all premium in the event of a loss by any policyholder.   While this may seem very odd today, it should be remembered that currency was scarce, and bank accounts, and credit were not universally available in those early days of the 1800’s.

In the event of a loss, the value of the loss was determined by a director and, subject to approval of the claim by the board, an assessment of all policyholders for their share of the loss would be made.  Typically, an assessment would be made once per year, but could be more frequent depending on an individual mutual’s loss experience and access to borrowed funds or reserves.

As you might imagine, this method of assessment and managing cash flow was cumbersome at best, precarious at worst.  Over time mutuals began to accumulate excess funds to create a Premium Stabilization Fund.  The purpose of this fund was even out the highs and lows of claims and cash flow.  Today we commonly refer to this fund as Surplus or Policyholders’ Equity.

The Premium Note would however remain a core feature of farm mutual insurance policies until the 1970’s.

Aside from the unusual method of assessing premiums, the early mutuals were simple operations with very limited operating expenses aside from a small stipend to the secretary manager.  In many cases the mutual was operated out of that individual’s home, or out of shared space with the township or municipal office.  Under this simple structure the bulk of any money flowing through the mutual would be used to cover the losses.

The majority of losses were caused by fire.  A strong focus on fire loss prevention grew out of the fact that directors could be responsible for payments for losses and policyholders knew that they, in turn, would be assessed for losses. So, directors and policyholders alike developed a keen interest in fire safety and in making sure their neighbours were equally focused. Over the years as Mutuals grew they developed bigger cash reserves. Additionally, as Mutuals began moving to collecting premiums in advance they did not rely as heavily on assessments and the majority of the payments came from the reserves. However, as the premium notes still existed, if a Mutual ran into financial trouble, they could still call upon the policyholders to contribute an additional amount on demand.


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