A Different Fight: The Insurance Writings of General Gustavus Woodson Smith
ECW welcomes guest author Karl Miller
It seems incongruous that a former Confederate general would go on to become a significant business reformer, yet that is exactly the story of Gustavus Woodson Smith. While numerous military leaders of the Civil War such as John Bell Hood and Joseph E. Johnston went into the burgeoning life insurance industry after the conflict, none had the impact of Smith. Not only did he serve as Kentucky Insurance Commissioner and help found the organization that would become the National Association of Insurance Commissioners, but he also wrote extensively and influentially on the topic. An examination of his writings helps explain his metamorphosis from rebel military leader to insurance industry watchdog, and how his work changed an enormous part of the American economy.
Born in Georgetown, Kentucky in 1821, Smith graduated from West Point in 1842 and entered the regular army in the Corps of Engineers. His performance in the Mexican War earned Smith promotion but he left the military in 1852 to work in the civilian sector in New York City. While there, he became involved in Democratic Party politics. Appointed to oversee the Street Department in 1858, Smith worked to clean up a bureau mired in corruption, instituting reforms to reduce fraud in the bidding process and in contracting. When war broke out in 1861, Smith returned to his native Kentucky and enlisted in the Confederate army, eventually rising to the rank of major general. He saw action at the Battle of Seven Pines in 1862 before serving in several other roles including interim secretary of war and, for a single day, commander of the Army of Northern Virginia. Unable to remain in high positions of authority and often complaining of health issues, Smith spent the latter part of the war commanding Georgia militia. Back in civilian life when the war ended, Smith became involved in the business world, first in manufacturing then in insurance.
Starting from a relatively minor position in the American economy, life insurance grew exponentially in the middle of the nineteenth century. Much of this growth could be attributed to the development of more accurate mortality tables that were “indispensable for the calculation of the rates of interest to be paid by life insurance companies.” Propelled also by the liberalization of incorporation laws, the rise of aggressive sales techniques, and the war’s vivid demonstration of human mortality, life insurance expanded from $4.9 million in premiums written in 1861 to $21.6 million in 1870. With this boom, however, came abuses, primarily in the form of insufficiently capitalized companies that often failed, leaving policyholders with neither financial protection nor a refund of the premiums they had paid.
When Smith – due to political connections as well as to strong mathematics skills from his engineering background – was appointed Kentucky’s Insurance Commissioner in 1870, he dealt with these issues directly. Described as “a cautious and perceptive politician,” Smith seemingly did not approach insurance reform out of an overall political philosophy but rather in recognition of troubling industry practices and the economic damage they could do to individual buyers as well as the entire country. As he had done previously as street commissioner in New York City, Smith used his office to push back on corruption when he found it, requiring an annual detailed financial statement from each company as well as a valuation of all policies written.
His early government experience in Kentucky inspired him to write his first book on insurance, Notes on Life Insurance. In the introduction to this 1870 work, Smith expressed skepticism about the “mystery” of life insurance, stating that:
Life insurance will bear the closest scrutiny. It needs it. There is no magic in the art, and no mystery ought to exist in reference to a subject of such magnitude and serious importance. There are now more than $2,000,000,000 insured upon lives in this country; and the welfare of more than 600,000 families is largely dependent, in case of the death of their natural protectors, upon the prompt payment of the amounts insured.
Further, Smith argued that if such a large part of the economy was jeopardized, it “might injuriously affect all other values” and cause widespread damage to the entire economy. Smith began the first, largely theoretical, section of his book with an explanation of the recently improved mortality tables, showing why they were a solid statistical basis on which to create an understandable explanation of the business. From there, he developed a meticulous exposition of life insurance, showing the calculation for the present value of a dollar, explaining the probability of an insured person dying in an average year, and determining how much money would be needed to insure one person for $10,000 dollars for one year at age 40. Using that basic beginning, Smith began an increasingly complicated mathematical analysis that explained how insurance companies should determine sufficient financial reserves to pay their obligations. He claimed it was “absurd to speak of a large ‘reserve’ as evidence of riches or strength” since it showed only that a company had enough money to pay what it owed its policyholders. Smith advocated strongly for government to take responsibility for the safeguarding and proper handling of insurance company reserve funds.
In the second part of the book, Smith left the theoretical to make a more practical analysis of the topic. He discussed the surplus that insurers carried in their assets excess of what was needed to pay losses. In this, Smith showed his concern that insurers were needlessly complicating their business and withholding information that would make their operations more transparent and trustworthy. He alleged that insurance funds were “particularly liable to misapplication” and that insurers should “be forced to a full exhibit of all their affairs.”
In 1871, Smith was one of the founding delegates of the National Insurance Convention, a gathering of insurance officials from across the country. Working together to promote collaboration and consistency in government handling of the insurance industry, it would later become the National Association of Insurance Commissioners, an organization that remains a key part of regulating the business. In what would have been an almost inconceivable occurrence a short time earlier, Smith – the former Confederate general from Kentucky- introduced Elizur Wright – a leading abolitionist from Massachusetts – to speak to the 1871 assembly. Coming from opposite political sides in the past, the two were united in their post-war goal of seeing the insurance industry run responsibly.
Busy with convention activity and duties as commissioner, Smith published only an updated version of his original Notes on Life Insurance – including endorsements from fellow Confederate generals Simon Bolivar Buckner, A.P. Stewart, and Robert Toombs – before writing Life Insurance – The Practical Business in 1878. Back in New York City after ending his term as commissioner in 1876, Smith continued to champion more reform of the industry. Drawing on his governmental experience, Smith wrote particularly against the practice of total forfeiture of already-paid premiums in the event of a policyholder discontinuing payments, showing by mathematical argument that the refund of a surrender value was proper and warranted. He also outlined his thoughts on the proper capitalization of insurers, stressing again that reserves must be adequate to pay a company’s obligations.
Also in 1878, Smith published two thin volumes on life insurance. The first, Life Insurance – Algebraic Discussion, was, as the title suggested, a largely theoretical mathematical explanation of the business. In contrast, Life Insurance – How to Find Out What a Life Insurance Company Owes You, was aimed directly at the insurance consumer, giving a concise, less mathematically detailed summary of how to determine the proper amount of surrender values. Smith suggested that policyholders who are not fairly treated in such circumstances “advise with a competent counselor” and obtain a fair settlement via litigation if necessary.
In 1879, Smith issued his final work on the topic, Life Insurance Legal Net Values, a collection of articles previously published in The Spectator, a New York newspaper. Again, he wrote on his themes of insurance company transparency, proper financial accounting, and the payment of fair surrender values. He argued that funds are only “entrusted” to the insurance company, and that “a trust business involving such immense amounts cannot reasonably be expected to permanently thrive and flourish upon the ignorance of the people.”
Smith died at his New York City home in 1896. Oliver Pillsbury, Insurance Commissioner of New Hampshire, wrote that Smith’s writings “had literally turned the mysteries of Life Insurance inside out, and rendered them susceptible of comprehension by ordinary reflecting minds.” The National Cyclopedia of American Biography gave Smith credit for having “done much to enlighten the public in regard to the elementary principles upon which calculations in life insurance are founded.” While unusual, Smith’s path from a Confederate military leader to a business reformer had a significant impact not only in promoting life insurance as a crucial social institution, but also in making certain that government intervened to stop abuses and to properly regulate what remains a key part of the American economy.
Karl Miller has history degrees from the University of Florida (B.A.) and Florida Atlantic University (M.A.). While he works in the insurance industry, he’s had articles published in several historical periodicals, including Florida Historical Quarterly and FCH Annals (forthcoming).
 Leonne M. Hudson, The Odyssey of a Southerner: The Life and Times of Gustavus Woodson Smith (Macon: Mercer University Press, 1998), 56.
 “Calculations About Human Life,” Scientific American, September 11, 1869.
 J. Owen Stalson. Marketing Life Insurance: Its History in America (Cambridge: Harvard University Press, 1942), p. 277.
 Hudson, The Odyssey of a Southerner, 64.
 Ibid, 198-99.
 Gustavus W. Smith, Notes on Life Insurance (Frankfort, KY: Kentucky Yeoman Office, 1870), 7.
 Ibid, 41.
 Ibid, 97.
 Official Report of the Proceedings of the National Insurance Convention of the United States, (New York: J.H. & C.M. Goodsell & Co., 1871), p. 43.
 Gustavus W. Smith, Life Insurance-How to Find Out What a Life Insurance Company Owes You (New York: D. Van Nostrand, 1878), 18.
 Gustavus W. Smith. Life Insurance Legal Net Values. New York: The Spectator Company, 1879, p. 28.
 Gustavus W. Smith. Notes on Life Insurance (Third Edition). New York: D. Van Nostrand, 1876, p. 6.
 The National Cyclopaedia of American Biography. New York: J.T. White, 1898, p. 516.
7 Responses to A Different Fight: The Insurance Writings of General Gustavus Woodson Smith
“It seems incongruous that a former Confederate general would go on to become a significant business reformer, yet that is exactly the story of Gustavus Woodson Smith.” It is not incongruous to anyone with a more than passing interest in U.S. and Southern history. But, for those with a stereotyped view of Southern U.S. history, yes that would be incongruous. Virtually every reformer in the South had some Confederate background. Look at John H. Reagan in Texas, Pierre G.T. Beauregard in Louisiana, William Northen in Georgia, and others. That should not be surprising given how common Confederate service was during the war.
Completely agree with irishconfederates comment above. The new history of the Civil War would have us believe that all Confederates were actually monsters incapable of any good. In fact, it is no more incongruous that a former Confederate could become a significant reformer than it would be to believe that a former Union soldier could become a contributor to society. Other than the opening comment, he article was actually very good and informative.
Well-written and fascinating. I am almost inspired to go out and purchase life insurance.
Agreed! Good post.
ironic, since the idea of insurance is that the company bets that they will not have to pay out….and get profit… reform of a for-profit organization?
Very interesting article. But it brings to mind a nagging question I have had for years about how Smith was maneuvered around to make Lee the CG of the ANV. The standard excuse is “health issues” taken pretty much at face value.
Thanks for this very interesting article, Karl!