Segregating the Group Market

After the Civil War, African Americans employed various forms of mutual aid to ease the burdens of poverty and social exclusion. At “saucer pan” funerals, bereaved families placed collection plates beside caskets to collect money for funeral expenses. Church groups supplied sick members and grieving families with money, meals, and volunteers to help with household chores. Around 1880, black leaders, many of them ministers, began establishing organizations to both strengthen social connections and pool resources to aid individuals in need. Secret societies, fraternal associations, and lodges mimicked similar white organizations by offering members a social network nurtured by secret rituals, handshakes, a shared moral code, and ornate costumes. Leaders of such groups promoted membership in their associations by providing burial insurance in exchange for regular dues payments. During the early twentieth century, as these organizations began encountering financial difficulties and as states tightened their insurance regulations, the informal mechanism of mutual aid gave way to black-owned legal reserve insurance companies.Footnote ⁶

Black-owned insurance companies endowed African American communities with modern financial organization, moving them beyond the sole-proprietorship model of grocery stores, beauty salons, and restaurants. Together with African American bankers, insurers invested in mortgages for black homeowners. Insurance companies also supplied white-collar jobs, offering black men and women an escape from manual and domestic labor. In cities with large African American populations, such as Birmingham, Savannah, Atlanta, Durham, Richmond, Memphis, Chicago, and Little Rock, insurers built modern office buildings that prominently anchored the black business section. North Carolina Mutual, for example, was located in the heart of Durham’s Hayti district, known nationally as the “Negro Wall Street.”Footnote ⁷

Because of their rich tradition with mutual aid societies and fraternal associations that provided burial benefits, African American consumers placed a high value on life insurance. A 1918 study showed that while approximately 82 percent of all Chicago workers had life insurance, black workers surpassed all other ethnic groups with 94 percent owning such coverage.Footnote ⁸ By 1921, black insurers had the economic strength to create an organization independent of the larger black business community: they split from Booker T. Washington’s National Negro Business League to establish the National Negro Insurance Association (later renamed the National Insurance Association). During the 1920s, a period that historian Robert Puth labeled “the fat years,” black-owned insurance companies experienced robust growth, increasing their insurance in force at a more rapid rate than the national industry.Footnote ⁹

Notwithstanding their achievements, black-owned companies did not have a monopoly on African American consumers. Black firms learned how to thrive in spite of the dominant white-operated industry. Most mainstream companies cited higher mortality rates among African Americans as a reason to either deny coverage to black applicants or to charge them higher rates.Footnote ¹⁰ Nevertheless, the white-operated firms that did underwrite black lives were industry giants that far outpaced black-owned companies. In 1927, the thirty-two largest black-owned firms, which accounted for 85 percent of the black-operated industry, had $316 million of insurance in force. Meanwhile, one white-operated firm, Metropolitan Insurance Company, underwrote approximately $900 million of benefits on black lives.Footnote ¹¹ As evidenced by their success alongside the national industry during the 1920s, reliance on a small segment of the population for their customer base did not preclude black insurers from surviving and competing in the insurance market after integration.

The economic crash of 1929 dealt the black insurance industry a serious setback. Black-owned insurance firms suffered a steeper downturn than white-operated companies because African Americans experienced higher unemployment rates. When they began to recover during the early 1930s, black-owned firms once again grew at a faster rate than white-owned companies.Footnote ¹² Nevertheless, this rapid growth papered over structural problems in the black-operated industry.

Scholars generally assert that black-owned insurance companies began to decline after World War II. However, the postwar period is when problems created by government policies began to manifest. During the 1920s, the largest American businesses began purchasing life insurance for their workers. The federal government indirectly subsidized these transactions, because the tax code granted write-offs to businesses that purchased employee fringe benefits. By the 1930s, group coverage still only represented a small portion of the life insurance market—about 10 percent of policies. During World War II, however, wage freezes coupled with tax breaks encouraged businesses to purchase life insurance for workers as a way to attract scarce labor. This development altered the nature of the life insurance market: by 1946, white-operated companies were selling approximately one-third of their life insurance policies in the form of group coverage.Footnote ¹³

In this way, federal tax policy created a program of white affirmative action: while the mainstream industry capitalized on tax write-offs to promote group insurance to business clients, racial discrimination prevented black insurers from even attempting to market contracts to white executives and labor leaders. Not only did white-owned businesses prohibit black-owned companies from underwriting group accounts, but the federal government excluded them as well. The lucrative Federal Employee Benefits Program, begun in 1954 to provide life insurance to government workers, was largely restricted to white-operated insurance firms.Footnote ¹⁴ Certainly, large, white-operated companies had the financial reserves and cross-regional presence necessary to service employee-group contracts from corporations and the federal government. Nevertheless, government policies helped bend the insurance market toward group products while discrimination excluded black companies—companies that had previously proven adept at navigating the private market—from participating in the newly emerging mixed economy.

Government policy delivered the black-operated industry another crippling blow: state regulations prohibited black insurance companies from underwriting group contracts for the very kinds of organizations to which they catered. Group coverage escaped strict governmental supervision because policymakers assumed that corporations and unions were “more sophisticated buyers of insurance” and because “of the social importance of facilitating the extension of protection to larger groups of people.”Footnote ¹⁵ Black organizations generally failed to qualify as group insurance buyers because of the way in which states defined such coverage. State regulations governing group contracts required the existence of an employer-employee relationship, thus excluding churches, fraternal associations, and mutual aid organizations. Black-owned businesses represented another important market for black insurance companies. However, firms with fewer than fifty employees, which generally characterized black enterprise, also failed to qualify as groups under most state laws.

Traditions of community self-reliance and the overlapping membership affiliations of sales agents created a strong link between black-operated insurance companies and other African American groups. Many early insurance leaders were church ministers seeking ways to provide social and economic uplift to their communities. Furthermore, insurance agents often took advantage of social networks to make sales presentations to church groups, mutual aid societies, and businesses. During the decades following World War II, African Americans not only had higher church attendance rates than white citizens, but they often had greater affiliation rates, depending on the geographical area, in fraternal organizations and lodges. Because would-be African American insurance consumers were overwhelmingly excluded from the very kinds of corporate and labor groups that state regulation sanctioned for group insurance sales, the churches, fraternal associations, and small businesses that such consumers did belong to provided an obvious market for black-owned firms to supply group coverage.Footnote ¹⁶

Indeed, many black-dominated organizations attempted to buy group coverage from African American insurance companies. Although these organizations lacked the federal tax subsidy that corporate-employee accounts obtained, they sought to pool risks and purchase protection at a uniform rate for all members. For example, representatives of the National Baptist Convention, Old North State Lodge, and the United Mutual Benefits Association, among others, requested that North Carolina Mutual sell them group life insurance. Yet North Carolina Mutual had to deny their coverage requests because state regulations required the existence of an employer-employee relationship. North Carolina Mutual also turned away many black businesses that inquired about employee-group benefits because they had fewer than fifty workers.Footnote ¹⁷

While these barriers have remained invisible to scholars, they could not have been more explicit from the perspective of black insurers. Industry leaders viewed with alarm their exclusion from the growing group market, which government policies had firmly bound to employer provision. One-third of nonfarm workers had group life insurance coverage through their employer in 1950; the proportion increased to two-thirds of the workforce by 1960. Yet out of fifty-one National Insurance Association (NIA) member-companies, only nine administered group contracts to black-operated colleges, newspapers, and banks large enough to qualify. The NIA’s chief actuary labeled these data “a warning” that clouded the industry’s future prospects.Footnote ¹⁸

During the 1950s and again during the early 1960s, several industry leaders recommended that NIA member-firms adopt a strategy of “collective security” through the establishment of a reinsurance company. Proponents of the plan hoped that by pooling finances and underwriting each other’s policies, companies could expand their underwriting capacity and vigorously pursue group accounts. NIA president, J. Leonard Lewis, asked insurers to combine their “resources, power, experience and influence” to “face the problem of survival.”Footnote ¹⁹ On each occasion, however, the NIA’s board of directors rejected the reinsurance plan as unwise because member-firms lacked the financial resources and expertise to direct such an operation. More important, the market for such a reinsurance company simply did not exist: even with expanded underwriting capabilities, black insurance agents could not hope to sell group contracts to white union leaders and corporate benefits managers.Footnote ²⁰ If black insurers had been permitted to sell group policies to African American organizations and small black businesses, then they could have increased their insurance sales and gained valuable experience in the group underwriting field.

The Political Origins of “Inferior” Goods and Services

Scholars often point to integration as the primary reason for the postwar decline of black business. These scholars argue that small, undercapitalized black firms lost their position of dominance among African American consumers once they had the ability to access the superior products of white-operated companies.Footnote ²¹ However, as we saw above, black-operated firms were never able to hold African American consumers captive—black-owned insurance companies were successful in spite of the fact that white-operated firms had always outsold them in the black community. Furthermore, limited access to capital and a narrow consumer base are typical features of small business and, in and of themselves, did not preclude black firms from succeeding after the end of formal segregation. In addition to illustrating that a vibrant economy exists outside the big-business paradigm, studies on small businesses, whether manufacturing firms or service providers, demonstrate that such operations have remained competitive by adopting flexible market strategies that permit them to serve a niche market. Indeed, by frequently pointing out that the black consumer market was comparable in size to the entire Canadian economy, African American businessmen contended that their target consumer base was large enough to support their products as well as those from white-operated firms.Footnote ²²

Viewed through the lens of market competition, black insurers failed because African Americans did not wish to purchase their inferior products. However, tracing the institutional consequences of exclusion from the group market demonstrates that government policies undermined the development of black insurance companies and pigeonholed them into the role of selling substandard insurance policies.

Although group insurance garnered small profit margins, it anchored the market because it had low administration costs and provided companies with a high volume of pooled, relatively stable risks. Because of their exclusion from the group market, black insurers were compelled to sell riskier, low-dollar individual policies that required high operational costs. A brief overview of the four major problems that the black-operated industry encountered during the postwar era illuminates the damage that segregation from the group market created while also revealing the politically constructed nature of black firms’ noncompetitive position.

First, without group premiums, the cash flow of black firms was sluggish. This, in turn, limited their investment opportunities and hindered their ability to recover from the inevitable missteps that portfolio managers make. Second, flagging profitability limited black-owned companies’ ability to consistently target their niche market by advertising on radio programs and in black-owned newspapers and magazines. The third and fourth major problems for black-owned firms—expertise production and personnel quality—were related. The training budget cuts and salary retrenchment that accompanied deteriorating insurance volume after World War II occurred precisely when black-operated companies most needed expertise to modernize their operations. As the first generation of black insurance executives and managers aged, decreasing profitability made it difficult to find talented young employees to groom for leadership.Footnote ²³

In this way, exclusion from the group market created a downward industry spiral. Industry leaders’ frequent complaints about the quality of sales agents highlighted the process of deterioration. During the 1940s, black insurers responded to adverse business conditions by directing less income toward local agency expenses. Whereas most white-operated agencies had the resources to spend on applicant assessment testing and thorough training, black companies adopted a strategy of hiring as many agents as possible and letting experience and subscription numbers identify reliable salesmen.Footnote ²⁴ Agents who lacked proper vetting and training might only stay with the business for a short period, but they frequently harmed the company’s public image and damaged the firm’s risk portfolio by neglecting to scrupulously ascertain information about the applicant’s health.Footnote ²⁵ Furthermore, as the industry declined, it became easier for white-operated firms to hire the best sales agents away from black-owned companies.

These operational weaknesses prevented black-owned firms from transitioning, along with the mainstream industry, to selling more expensive life insurance products. During the nineteenth and early twentieth century, industrial coverage was the lifeblood of all insurance companies. Industrial policies provided subscribers with small dollar denominations, usually sufficient to cover burial expenses. Ordinary insurance had significantly higher payout values—insurers designed ordinary policies to replace a portion of the deceased subscriber’s income. During the twentieth century, consumers steadily adopted a more expansive view of life insurance. Rather than merely seeking to avoid a pauper’s funeral, consumers increasingly sought high-dollar ordinary polices that were capable of preserving a family’s middle-class status if the breadwinner died.

Life insurance required an enduring financial relationship between the company and consumer; thus, firms needed to cultivate a strong brand name to prove their ability to underwrite high-dollar ordinary contracts. A subscriber had to believe in the insurance company’s long-term viability and capacity to pay the promised benefits should he or she die many years in the future. Although African American consumers had sufficient confidence to purchase industrial policies from black-operated firms, they hesitated to buy ordinary coverage from them. In surveys conducted for the NIA in 1962, African American consumers rated black insurance companies less favorably as the value of the life insurance policy increased. The study’s lead author connected these responses to consumer perceptions about the companies’ fiscal stability: “The implication suggested by the findings is that the image [black-owned] insurance companies project regarding their strength, financial and otherwise, is perhaps good but much more needs to be done to develop and maintain a higher level of confidence in life insurance companies among people in the Negro market.”Footnote ²⁶

Moreover, as black companies attempted to increase the sale of high-dollar ordinary products, they required highly trained agents to present a positive image to customers. During the 1960s, as the insurance agent evolved into a “money doctor” who sold mutual funds, annuities, and financial-planning packages, the lack of a high-caliber sales force stifled black firms’ ability to offer new products. The NIA’s 1962 survey revealed that African American consumers had a negative view of agents representing black insurance firms in comparison with agents, whether white or black, who worked for mainstream companies.Footnote ²⁷

For these reasons, black insurance companies were increasingly confined to selling industrial coverage. White-operated companies had concentrated their efforts on the sale of industrial policies until more expensive ordinary protection began outpacing industrial coverage during the 1920s. By 1940, mainstream insurance companies had shifted approximately 75 percent of their business to ordinary policies. Meanwhile, black companies’ proportion of ordinary insurance fell from about 37 percent in 1930 to 21 percent in 1945. By 1960, black insurers managed to increase their ordinary policies to 34 percent, but that still represented a lower percentage of ordinary production than they had held during the 1920s.Footnote ²⁸

The high costs associated with servicing industrial policies further undermined the black insurance industry’s profitability. Subscribers who owned industrial life insurance generally could not afford the quarterly or semiannual installments that ordinary policyholders paid. To accommodate families with little disposable income, agents went door to door to collect premium payments on a weekly or monthly basis. Furthermore, because the policyholders had less income and experienced more unemployment, industrial coverage sustained significantly higher lapse ratios than ordinary policies. High lapse ratios ate away at company earnings: because of the agent’s commission, servicing fees, and initial administrative expenses, policies that lasted less than a year generally failed to realize a profit. Growing dependence on industrial coverage wreaked havoc on black-owned companies’ bottom line. In 1954, for example, the national market’s operating expenses were about 17 percent of income, while the black industry’s operating costs averaged 46 percent of total income. The cost of servicing industrial products led the “big three” among mainstream firms—Metropolitan, Prudential, and John Hancock—to withdraw completely from that market during the 1960s.Footnote ²⁹

While these developments affected all black-owned insurance companies, the leading firms had more capacity to survive the worsening business environment. A comparison of the largest black-owned company, North Carolina Mutual, with Virginia Mutual Benefit Life Insurance, located in Richmond, reveals the differences between leading and mid-size companies. During the 1950s and 1960s, North Carolina Mutual responded to the industry’s downturn by buying out small, regional competitors. The Durham firm was the most aggressive company in seeking group accounts from black colleges and large black enterprises and also had a significantly higher percentage of ordinary policies than the NIA average. North Carolina Mutual placed a high value on agent training and even hired a few white agents in an attempt to penetrate the broader market.Footnote ³⁰ Meanwhile, Virginia Mutual focused solely on individual accounts, increasingly lost ground in the sale of ordinary policies, dramatically cut operating and training expenses, suffered higher personnel turnover, and endured low employee morale as executives continually implored them to “stop the bleeding.”Footnote ³¹ Companies like Virginia Mutual either merged with other mid-size firms, were bought out by larger competitors, or went bankrupt.

Despite the differences in size and strategy, black-owned insurance companies shared an industry-wide reputation. Consigned to selling inferior products, black insurance companies lost considerable ground in the African American market, especially among the middle class. “The key problem is how middle class blacks perceive the black companies, namely as small unsophisticated operations,” explained an industry observer.Footnote ³² During the 1950s and 1960s, as the incomes of black citizens rose and their mortality rates decreased, white-operated companies, including ones that had previously practiced blatant racial discrimination, increased efforts to attract middle-class African American subscribers. Furthermore, as African Americans gained entry into union and professional positions, their employers provided them with group coverage administered by white-operated insurance companies.Footnote ³³

African American insurers recognized that integration would further damage the industry’s ability to attract black subscribers. Integration by itself did not destabilize the black insurance industry; it did, however, highlight the industry’s weak competitive position. Black consumers viewed the opportunity to shop in white-owned department stores, eat at the counters of white-owned restaurants, and buy insurance from white-operated companies not only as progress toward integration but as an indicator of their ability to access superior goods and services. “For many years the Negro customer, out of extreme race loyalty supported many Negro businesses in spite of the fact that many of their products and services were inferior and second class,” observed an insurance executive. He went on to warn his colleagues that “today, Negroes are no longer interested in patronizing a business just because it is Negro owned.”Footnote ³⁴

Consumption preferences underscored class divisions among African Americans during the civil rights movement. While insurers bemoaned the decline of black-controlled institutions, some African American leaders charged that businessmen’s economic interests imbued them with an “ambivalent attitude towards the Negro masses.” Franklin Frazier’s well-known criticism of the black middle class displays the irony of black business, which, after suffering through decades of inequitable government policies, was then disparaged for peddling second-rate products to the African American community: “Many middle class Negroes have acquired vested interests in segregation. . . . The material nature of these vested interests is most clearly revealed in the Negro business enterprises. The owners of these business enterprises have always tried to convince the Negro masses that it is in the latter’s interest to pay higher prices even for inferior goods and services.”Footnote ³⁵

Although black businessmen were themselves victims of systematic discrimination, they nevertheless earned a reputation as bourgeoisie predators who marketed inferior products to black consumers. Leaving aside class tensions to describe the situation according to the language of consumption, black insurers sold substandard policies that failed to compete with coverage from white-operated companies. Indeed, Manichaean economic rhetoric, which positioned the “free enterprise” system in opposition to state-controlled Soviet economies, shielded consumers from the obscure and arcane political processes that relegated black businesses to the margins of the economy where they became purveyors of second-rate goods.

Black Power, Black Capitalism, and Affirmative Action: Formulating a New Ideology

The industry’s dramatic decline intersected with the Civil Rights movement to help shift the ideological position of black insurance executives. Black insurers had traditionally embraced conservative positions, not only opposing government interference in the economy but also curbing the demands of civil rights activists in order to maintain peaceful relations with the white power structure. By the end of the 1960s, however, mainstream civil rights leaders, Black Power advocates, and black businessmen, while differing on many points, nevertheless converged around the idea that government policies had created structural economic disparities between the races. African American insurers began to recognize that laying a political claim to black consumers and the group insurance market was a more practical means of solving industry problems than attempting to bolster profitability exclusively through the supposedly “free” market, where they had been confined to selling substandard goods. Industry leaders leveraged the intellectual and political environment to design three approaches to rescue their industry. They used the language of Black Power to persuade African Americans to buy their coverage, appealed for government funding through “black capitalism” programs, and launched an affirmative-action campaign to obtain group-employee accounts.

Black insurers earned a conservative reputation by channeling the spirit of Booker T. Washington to highlight business as a primary means for advancing the rights of African Americans. In 1943, C.C. Spaulding, one of the founders of North Carolina Mutual, explained in a Saturday Evening Post article, revealingly titled “They Call Him CO-OPERATION,” that “the Negro’s salvation is in his own hands.” Similarly, the president of Provident Home Industrial Mutual warned his peers in 1946 that the government was an untrustworthy ally in the campaign for black equality. Instead of seeking federal redress, he urged African Americans to strengthen black enterprise: “Too often we sit inertly waiting for others to give us rights and recognition which progressive men acquire by struggle and sacrifice.”Footnote ³⁶

In matters of economic policy, insurers’ conservative political standing reflected the attitudes of businessmen wary of an activist government. During the two decades following World War II, black insurers toed the same political line as the mainstream industry: they protested the expansion of Social Security and attempts to transfer insurance regulation from the state level to the federal level. “Government competition in its worst form would result in the socialization of our business,” one executive warned his NIA colleagues in 1953. He continued: “And don’t think for a minute that the Social Planners in Washington would not like to take over our business and put an I.O.U. in the cash drawer just as they have done with the Social Security funds they have collected thus far.”Footnote ³⁷

Furthermore, although black insurance executives assumed prominent roles in the civil rights movement, they were rarely at the vanguard of desegregation. NIA firms raised money to aid the NAACP, passed resolutions in support of the civil rights movement, and hosted Martin Luther King at their 1963 meeting. At the local level, insurance executives’ position as successful business leaders lent authority to student sit-ins and voter registration drives. However, black insurers often viewed themselves principally as businessmen who could collaborate with their “friends in the white community.” Asa Spaulding, C.C.’s son and an important player in the insurance industry after World War II, explained that “the best role you can play is that of a mediator, or arbitrator.” By remaining behind the scenes and translating the proactive goals of civil rights activists into more acceptable terms for white officials and businessmen seeking community stability, black insurers effected change. Nonetheless, insurance leaders’ attempts “to gain their ends through respectable means” irritated civil rights proponents, who sought a more rapid end to racial discrimination.Footnote ³⁸

Like their allies in the NAACP, the Southern Christian Leadership Conference, and the Urban League, black insurers frequently disagreed with Black Power advocates who stridently demanded immediate, fundamental political and economic change. Yet more moderate civil rights leaders and businessmen could not ignore the desperation that fueled calls for Black Power. After the 1954 Brown vs. Board of Education decision and similar victories failed to improve the economic circumstances of black citizens, many mainstream leaders began to question whether classical liberal conceptions of freedom and equality could help African Americans navigate the U.S. economy. Official, blatant discrimination receded, but such progress appeared purely symbolic to poor African Americans living in the ghetto, hemmed in by government and private organizations that had, for decades, developed with an institutional bias against blacks.

Thus, at the end of the 1960s, the movement for economic equality dovetailed with the black insurance sector’s weak competitive position to transform the political attitudes of industry leaders. As civil rights leaders recovered the history of how government policy had structured the economy to guarantee inequality, black insurers joined with them to seek sweeping economic reforms—beyond legal equality or the status quo framework of competitive markets.

Gunnar Myrdal’s influential An American Dilemma (1944) highlighted how black business had suffered from federal policies that favored white-operated corporations. Myrdal argued that while policymakers safeguarded and enhanced the white economy through a range of policies, from tariffs to agricultural subsidies, black enterprise remained outside the government’s protective fold.Footnote ³⁹ Two decades later, civil rights leaders reclaimed and publicized this history. Whitney Young, executive director of the business-oriented Urban League, noted that federal subsidies, ranging from oil-depletion allowances to research grants, had assisted white corporations and excluded black businesses. Young surprised many of his white allies when, during the early 1960s, he proposed a domestic Marshall Plan that embraced a guaranteed income and affirmative-action programs for black citizens. Anticipating that many voters would label the plan “radical,” Young emphasized the hypocrisy of whites who opposed funneling government resources into the black community: “Many of these [white] people are now middle-class, their rise made possible by a host of federal programs—the GI Bill, home loan insurance, road-building, and economic and employment policies.”Footnote ⁴⁰

As early as 1963, Martin Luther King began recommending that “just as we granted a GI Bill of Rights to war veterans,” America should “launch a broad-based and gigantic Bill of Rights for the Disadvantaged.” King envisioned liberal access to bank loans and special employment consideration for black applicants. King asked that businesses prove their fealty to civil rights through numbers—only quantitative results would prove that employers were committed to hiring blacks rather than hiding behind claims that African American applicants lacked sufficient education and training. “For it is obvious,” stated King, “that if a man is entering the starting line in a race three hundred years after another man, the first would have to perform some impossible feat in order to catch up with his fellow runner.”Footnote ⁴¹

Thus, within the civil rights movement, affirmative-action policies and federal programs tailored to favor black interests were gaining legitimacy as tools for achieving economic equality. Here I employ the term “affirmative action” to describe the broad range of economic remedies that black leaders sought—not simply opportunities for individuals in the labor force, but rather all government and private programs that, in an attempt to counter centuries of racial discrimination, favored black concerns.Footnote ⁴² Among civil rights activists, the primary issue was not whether affirmative action should take place, but what form affirmative action should take.Footnote ⁴³

Mainstream civil rights leaders sought affirmative action for blacks within the white economy. Integrationists, including Young and King, scoffed at the idea that black enterprise could lift up more than a few well-placed businessmen. “I’m not underestimating the importance of having more black-owned businesses,” stated Young. He continued, “But no one should be fooled into thinking that such modest ventures represent ‘black capitalism.’” Andrew Brimmer, the first African American to serve as a Federal Reserve Board governor, derided policy proposals to encourage black enterprise as deceptive since “the only really promising path to equal opportunity for Negroes . . . lies in full participation in an integrated, national economy.”Footnote ⁴⁴

In contrast, many Black Power proponents advocated black ownership and organizational control. Thus, although black insurers constituted part of the opposing “responsible leadership,” they identified with some principles of Black Power. Scholars advocating black separatism such as Nathan Wright, who championed nonviolence, and Harold Cruse, who questioned the influence of European Marxism on the movement, sanitized Black Power for businessmen by moving it out of burning ghettos and into the academy.Footnote ⁴⁵ Black executives, long accustomed to making appeals to racial pride, drew on Black Power rhetoric in marketing campaigns.Footnote ⁴⁶ For example, the Chicago-based Metropolitan Assurance Company circulated a promotional brochure in 1967 titled “Buy Black, Bank Black, Save Black, and Insure Black.” The president of Universal Life Insurance in Memphis, A. Maceo Walker, questioned the sincerity of consumers who “talk blackness and insure with white.”Footnote ⁴⁷ “Considering the apparent one-sided economic nature of 1960s racial desegregation, it is not surprising that . . . black companies welcomed the development of ‘Black Power’ sentiment,” states historian Robert Weems.Footnote ⁴⁸ Most Black Power advocates, however, were not about to welcome African American businessmen into their ranks. Even as they asserted the need for black-operated organizations, many Black Power supporters accused African American businessmen of being accessories to the dominant white power structure and of appropriating nationalistic slogans merely as a superficial ploy to sell their products.Footnote ⁴⁹

Insurers’ willingness to adopt the language of Black Power, however selectively, demonstrates how they mingled various strands of black economic thought to craft pragmatic solutions to their industry’s rapid deterioration. Thus, when Jesse Hill Jr. launched an industry-wide campaign for affirmative action, he positioned the move not as an appeal to black nationalism but as part of the movement to assimilate African Americans into the larger economy: “We must seek a blend of special government and private sector support for minority firms, with a strategy to encourage the integration of black businesses into the nation’s total small business community.”Footnote ⁵⁰ Hill, an executive at the Atlanta Life Insurance Company, used his 1969 tenure as NIA president to initiate an affirmative-action crusade that petitioned white-operated corporations for a portion of their employee-group accounts.

Hill’s career illustrates the political evolution of black insurers. Like many insurance executives, Hill assumed a major role in local civil rights campaigns. Frequently, he served to moderate the demands of younger student activists in Atlanta, relying instead on the “traditional alliance between white civic-and-business leaders and the black community” to solve discrimination issues.Footnote ⁵¹ Yet in 1969, we find Hill at the forefront of civil rights battles, no longer simply seeking legal equality for African Americans but also pressing for economic redress from both the government and private corporations.

Moreover, the political environment encouraged black insurers to begin supporting government intervention in the economy and in the life insurance industry. Presidents Lyndon Johnson and Richard Nixon both tailored their political agendas to demonstrate support for black economic opportunity. As part of Johnson’s War on Poverty, the Economic Development Administration and Small Business Administration began funneling subsidies and loans to enterprises that were located in economically troubled regions or that implemented jobs programs for unemployed and unskilled workers. As urban rioting and racial division intensified at the end of the 1960s, public policymakers and corporate executives created an assortment of alliances and task forces charged with black-business boosterism and creating jobs for the “hard-core unemployed.”Footnote ⁵²

Nixon expanded upon these programs with his “black capitalism” drive, designed to encourage “more black ownership, black pride, black jobs, black opportunity, and, yes, black power, in the best, the constructive sense of that often misapplied term.”Footnote ⁵³ In 1969, Nixon created the Office of Minority Business Enterprise (OMBE) within the Commerce Department. The same year, the president signed a memo urging federal agencies to set aside contracts for minority businesses. Nixon’s administration also implemented the “Philadelphia Plan,” which required construction companies that serviced federal contracts to set numerical goals for minority hiring.Footnote ⁵⁴

Within this political milieu, African American insurers acted boldly to revive their industry. Charles A. Davis, president of the NIA, personally lobbied Congress to provide aid for minority businesses in the inner city. When white-owned insurance companies pledged billions of dollars to renew urban areas, Davis explored, to no avail, whether NIA-member firms could receive servicing fees in exchange for underwriting mortgages in depressed areas.Footnote ⁵⁵ Meanwhile, federal resources permitted the NIA to keep its doors open. The Economic Development Administration subsidized NIA training institutes and offered technical expertise to member-companies, while the OMBE granted the association funding for basic operating costs.Footnote ⁵⁶

Davis, Hill, and other black insurance leaders met with President Nixon in 1970 to discuss ways that the government could aid the industry’s survival and its strategy to acquire group contracts. Insurance leaders stressed that black capitalism programs should not overlook “long-established black business enterprise” in favor of funding “instant black entrepreneurs.” For, they argued, their industry had long employed black professionals and sold policies to inner-city consumers discriminated against by white-operated firms. Nixon appeared sympathetic to insurers’ goals and assigned Special White House Assistant Robert Brown to serve as a liaison between the NIA and government agencies.Footnote ⁵⁷

Black insurers also allied with government administrators to request assistance from private companies. Federal officials in the Small Business Administration and OMBE lobbied corporate leaders to aid black enterprise. The mainstream insurance industry responded to the increasing political clout of black insurers. In 1971, NIA leaders met with representatives from the American Life Convention and Institute of Life Insurance to discuss how white-operated firms could help black-owned companies achieve profitability. In a program designed “on a ‘Peace Corp’ basis,” national insurance companies sent consulting teams to black insurance firms to advise them on how to solve operational problems.Footnote ⁵⁸

What black insurance executives really wanted, however, was to attain the very object that had eluded them since World War II—a piece of the fiercely competitive group market that white-operated firms had dominated as a result of government policies and racial discrimination. Working with Commerce Department officials, the NIA sent letters to ten major corporations requesting that they direct their life insurance supplier to pass along a percentage of the employee contract to black firms. NIA leaders also contacted major white-operated insurance companies to appeal for a portion of their group accounts.Footnote ⁵⁹

African American insurers promoted the affirmative-action campaign as a way for the broader industry, after decades of discriminating against black applicants and unjustly monopolizing the employee group market, to strengthen “the institution of life insurance against allegations of unfairness or exploitation.” Hill asserted that such gestures of corporate social responsibility were crucial “to increasing minorities’ stake in the economy.” Despite such arguments, a spokesman for the Institute of Life Insurance expressed the mainstream industry’s wariness, telling the Wall Street Journal that companies “aren’t going to give up the insurance business to other competitors.”Footnote ⁶⁰

Jesse Jackson’s Operation PUSH (People United to Save Humanity) provided additional pressure by threatening to boycott corporations unless they employed blacks in professional positions, deposited money in black-owned banks, and purchased coverage from black-operated insurance companies. Founded in 1971, Operation PUSH was symptomatic of the broader evolution of the civil rights movement from pursuing legal equality to seeking on-the-ground results. “PUSH is on the offensive,” commented Jackson, “The movement has changed from traditional civil rights to social justice.”Footnote ⁶¹

These affirmative-action campaigns, combined with business leaders’ desire to create positive publicity, soon reaped tangible benefits for NIA members—although eagerness to demonstrate social consciousness came more from businessmen purchasing employee-group benefits than from the leaders of white-operated insurance companies. Large corporations and universities began instructing their insurance providers to direct a portion of the group contract, usually 5 percent or 10 percent, to a black-owned firm. Under these reinsurance agreements, the black company assumed a fraction of the contract’s risks and profits, while the white-operated insurance firm performed the administrative duties associated with servicing the account. Among national insurance companies, John Hancock became particularly adept at handling such arrangements.

Responding to pressure from Jackson’s PUSH organization, Schlitz agreed to allocate $15 million in employee life insurance benefits to black companies. The largest black-owned insurance firms, including Golden State Mutual, Supreme Life, Metropolitan Assurance, and Atlanta Life, obtained reinsurance agreements with corporate giants such as General Motors and Kraft Foods. Within the industry’s broader campaign, North Carolina Mutual launched “Operation Big Push” to obtain group accounts. North Carolina Mutual underwrote contracts with Michigan Bell Telephone Company, Sperry Rand, and Westinghouse Electric. After North Carolina Mutual negotiated an agreement with Harvard, MIT instructed John Hancock to direct 5 percent of its group life insurance contract to the Durham firm as a way to demonstrate the college’s commitment “to help minority companies play a greater role in America’s majority businesses.”Footnote ⁶²

After decades of steering lucrative employee benefits to white insurance companies, federal and local governments also responded to the black industry’s campaign for group accounts. “We must demand a larger part of the action,” NIA president Wardell Croft stated. “We must not stand by and let governmental agency heads decide that employee group plans will be awarded to non-black firms as they were during the sixties,” he continued. The Small Business Administration employed title 8(a) of the Business Development Program to urge federal agencies seeking vendor services to relax competitive bidding requirements for minority-owned enterprises. During the 1970s, three black-owned companies began underwriting portions of the Federal Employees and Servicemen’s Group Life Insurance Programs. Black insurance companies also lobbied for and obtained portions of local government employee contracts.Footnote ⁶³

To build upon these successes, the NIA introduced the “Five Billion Dollar Group Insurance Drive” in 1976. Secretary of Commerce Elliot Richardson wrote to executives of the top Fortune 1000 companies and all fifty governors requesting that they redirect a share of their employee group contracts to black insurers. “This program,” black executive Edward D. Davis explained to his peers, “should not be understood in terms of charity, but of justice.”Footnote ⁶⁴

Recognizing that most NIA member-companies lacked the organizational capacity to underwrite group contracts, industry leaders held seminars and conferences to educate the officers of smaller firms on how to enter the group market. NIA officials also acquired a grant from the Minority Enterprise Small Business Investment Corporation (MESBIC) program to establish an organization that would supply member-firms with capital to expand their operations. Policymakers in the Small Business Administration and OMBE created the MESBIC program as a tool for private groups and companies that wanted to aid minority-owned businesses. Under federal guidelines, MESBICs could borrow $3 of government funds at subsidized interest rates for every $1 of privately invested capital. After several years of attempting to launch a MESBIC, NIA leaders received a charter for the National Insurance Corporation in 1976. Within a year, however, the corporation folded for lack of NIA-member investments to match federal funds. Executives of companies struggling on the margins of profitability had little desire to underwrite a cooperative arrangement that could only invest meager resources into a few firms.Footnote ⁶⁵

The National Insurance Corporation’s failure illustrates the inadequacy of government aid to black business during the height of such federal activities. For all the agencies working on the problem of black enterprise—from the Economic Development Administration to the Small Business Administration and OMBE, among others—federal officials lacked the funding and expertise to ameliorate the structural problems plaguing black enterprise. One example illustrates the shortcomings of federal policy: instead of focusing substantial resources on the insurance industry, which had the potential to hire additional employees and invest in local communities, OMBE officials emphasized the quantity of projects they funded, subsidizing “beauty parlors, short-order operations, and one- or two-man retail outlets which really promised very little in terms of growth.”Footnote ⁶⁶

Most significant, however, decades of decline hampered the industry’s ability to access the most valuable form of federal aid—the kind that was built into the structure of the insurance economy through tax subsidies and first-mover advantages in the regulated group market. Thus, by the 1960s, a majority of NIA member-companies lacked the resources to finance association activities, participate in cooperative business ventures, or tap into federal programs. The NIA even lacked the funds to hire a D.C. lobbyist who could have petitioned Congress and worked with agency administrators to increase subsidies for industry projects.Footnote ⁶⁷ Private affirmative-action programs also failed to improve industry fortunes. Only the five largest black-owned companies had the operational capacity to enter reinsurance agreements for corporate group accounts.

If black-owned companies had been permitted to issue contracts to churches, fraternal societies, mutual aid organizations, and small black businesses earlier in the century, then they likely would have developed the requisite expertise and institutional capacity to convert government funding and affirmative-action programs into long-term stability. Among black insurance firms, North Carolina Mutual had the longest history in the group market and consequently had the most success acquiring and managing group business during the 1960s and 1970s. In 1974, Jesse Jackson exhorted life insurers to begin covering church groups: “If you don’t make that kind of move, then the reverend is going to be picked off . . . by New York Life, and the other will buy ‘a piece of the rock’ [Prudential] and you’ll still be going behind with that fifteen cent policy.” Jackson’s advice came several decades too late for black insurers.Footnote ⁶⁸

After decades of federal investment in white-operated insurance companies, black insurers finally gained access to government funding and private group coverage. It was a superficial victory. Federal and state policies that favored white-operated firms had left the black insurance industry too feeble to take full advantage of government or private affirmative-action programs. Today, with less than a handful of the legacy firms in existence, the black-owned insurance industry is a shadow of its former self.Footnote ⁶⁹

This account of the deterioration of black-owned insurance companies informs two themes in the nation’s broader history. First, these findings challenge scholars who study black enterprise to reevaluate sociocultural factors and integration as the primary causes of its decline—the interplay of public and private power and its influence over the evolution of black business should also be considered. Second, this narrative illuminates political battles over affirmative action. African Americans were forced to make explicit their requests for public support, thus triggering a tidal wave of conservative opposition in subsequent decades. By contrast, white insurance companies, as first movers, got in on the ground floor of the mixed economy and have never looked back. They capitalized on tax and regulatory policies that created a foundation for their business at the same time that they congratulated themselves for their business acumen and credited the “free” market for their success.