From sickness to death: the financial viability of the English friendly societies and coming of the Old Age Pensions Act, 1875-1908

Traditional theories of the origins of the welfare state have emphasized the financial weakness of Britain’s largest provider of mutual insurance in the late 19th century, the friendly societies. These theories share common implications with contemporary theories of institutional change popularized by Douglas North and others. Of prime importance is the contention that ageing memberships and declining popularity forced mutual insurers, a prominent feature of the Victorian age, into financial distress and tacit support of state pension schemes. This argument, though supported by secondary sources from the period, has never been quantitatively scrutinized. This paper, inspired by the path-breaking work of Emery and Emery (1999) on North American friendly societies, seeks to partially remedy this gap. Using data from the Ancient Order of Foresters archives, it does this in two ways. First, it isolates the determinants of late 19th century friendly society membership in a cross-sectional regression framework. Second, it computes two empirical tests of financial viability for each society lodge: the implicit share of risk loading and the probability of ruin. These values improve upon conventional literature by more precisely defining financial insolvency and by more accurately capturing the financial decisions facing lodges. Results suggest that though the friendly societies were the domain of the old, they were more financially resilient than has been previously assumed. These findings cast doubt on traditional theories of the origins of the welfare state, suggesting a stronger role for political consensus and compromise in the understanding the 1908 Act.