Assessment Plans Used by Such Associations

The earliest associations were operated on the "flat assessment plan" i.e. upon the death of any member all the other members would be called upon to pay an assessment which was equal for all and just large enough to pay the claim. While mostly local in character certain of the associations were connected with some trade or profession, and, instead of limiting their membership to a particular locality, sought business wherever it could be found, and in certain instances even organized an agency system for the purpose. In the latter case the management was more apt to be such as would discern the shortcomings of the pure assessment plan. Accordingly, we find that this latter class of associations showed a greater vitality and was the first to require either the payment of the assessment in advance (instead of a post mortem assessment) or, as was done later, to collect an extra sum to create an emergency fund which could be drawn upon when necessary and thus avoid the necessity of levying extra assessments. But those who adopted this plan still condemned the mathematical reserve idea, and usually explained their emergency fund collections as nothing more than a means of making extra assessments unnecessary in case the mortality should exceed "10 per 1,000" or "the losses according to the American Experience table of mortality". Some of the societies succeeded in this way in accumulating considerable assets, although in nearly all instances the fund was woefully inadequate to guarantee the payment of the association's obligations at the rates and assessments which were being collected. Various societies also made use of the "graded assessment plan" at an early date, the rate being determined by the age at early and remaining the same during the continuance of membership.

When it became apparent that the flat and graded assessment plans were grossly unsound, several of the associations adopted the "stipulated-premium" plan. This method involve d not only the collection of the estimated cost of insurance in advance, but the accumulation of a reserve fund whose purpose, according to the managers of the association using the plan, was to "equalize the cost" of the insurance during the later policy years. Here we have a recognition of the mathematical reserve idea, but it should be noted that the reserve fund accumulated, usually being accomplished by adding a certain sum per $1,000 of insurance or a certain percentage of the rate of mortality at the age of entry, fell far short of equaling the reserve maintained by old-line companies. In the case of at least one important business assessment association, which has since been successfully reorganized into an old-line mutual company, the stipulated premium was so computed that, assuming a given lapse ratio, the rate it was felt could be kept level if no surrender values were allowed.

After the difficulties inherently connected with any assessment plan which does not involve the maintenance of adequate reserve became more apparent, a considerable number of the important associations undertook to reorganize themselves into legal reserve companies. In fact this movement considerably preceded the similar movement towards old-line methods which is now assuming such large proportions in the field of fraternal insurance.