The rise and fall of fraternal methods of social insurance: a case study of the Independent Order of Oddfellows of British Columbia sickness insurance, 1874-1951

TitleThe rise and fall of fraternal methods of social insurance: a case study of the Independent Order of Oddfellows of British Columbia sickness insurance, 1874-1951
Publication TypeThesis
Year of Publication1993
AuthorsEmery JCH
Academic DepartmentEconomics
DegreeDoctor of Philosophy Ph.D.
UniversityUniversity of British Columbia (Canada)
CityVancouver, BC
KeywordsIndependent Order of Odd Fellows, Insurance, Fraternal, British Columbia - History

Most descriptions of the rise of the Canadian welfare state emphasize that traditional social welfare institutions were always inadequate and it took the Depression to demonstrate the need for better, more comprehensive arrangements. Beyond the enlightening influence of the Depression, the rise of current welfare state institutions is attributed to the efforts and influences of politicians, unions, social reformers, and intellectuals. This myth about the rise of the welfare state has been so widely accepted that there has been little effort expended in examining pre-welfare state social insurance arrangements. The findings of this case study of the Independent Order of Oddfellows of British Columbia (IOOFBC) sickness insurance indicate that before 1930 there was an extensive formalized system of social insurance. The study also reveals that rather than having demonstrated the inadequacies of the traditional welfare mechanisms, the severe economic conditions of the Depression devastated the existing social insurance arrangements which created the impetus for the rise of the welfare state. Up until 1930, membership in a fraternal organization, like the Independent Order of Oddfellows (IOOF), was one of the most important sources of sickness/health insurance and life insurance throughout the world. Fraternal insurers were able to provide insurance at a lower cost than commercial insurers through their non-profit motive and their use of screening and peer monitoring practices to alleviate problems of adverse selection and moral hazard. Until 1930, 13% of the population in British Columbia had sickness/health insurance coverage through fraternal membership. Critics of fraternal insurance argued that while fraternal insurers may have had low costs, they led a financially precarious existence due to their hazardous pricing practices. An analysis of IOOFBC lodges for the period 1891 to 1950 reveals that this is not a good explanation of the decline of fraternal insurance. Even with the most hazardous of pricing practices, IOOFBC lodges had almost no probability of being bankrupted by high claims. Early in lodge operations, surplus revenues were invested in assets, like the lodge hall, which generated revenues that subsidized lodge operations and benefit payments. Given that fraternal insurers were viable, why was fraternal membership not an important source of insurance coverage after the Depression? An analysis of the memberships of four IOOFBC lodges over the period 1891 to 1980 reveals that the devastation of fraternal memberships in the Depression promoted the growth of alternative (commercial and government) insurance arrangements. In the 1930s, more workers than ever before were without sickness insurance coverage. As the probability of suspension for non-payment of dues tripled, workers would have had little expectation of remaining in a fraternal membership long enough to collect sick benefits that were primarily needed after age 45. Through and after the Depression, IOOFBC lodges abandoned their insurance functions. Lodge memberships had aged so much between 1930 and 1945 that the increased lodge benefit liabilities made reforming the IOOFBCs beneficial systems impractical. If changes were not made to the IOOFBC subordinate lodges dues and benefits, lodges would have had to potentially draw on their assets to meet their inflated obligations. The solution adopted was to abandon sick benefits altogether as members who had always been opposed to the insurance.