History of US Government Involvement in Insurance

Why We're in the Insurance Business:

Like many government programs, the insurance program was established to meet a need that the private sector could not, or in our case would not, provide. The origins of today's insurance programs date back to 1914.

U.S. Government involvement in the insurance business began with the outbreak of war in Europe in 1914. Although the U.S. remained neutral in WWI until 1917, the United States was a major supplier of food and war materials to the allies. When German U-Boats began sinking our commercial vessels in the north Atlantic, ship owners and merchants needed affordable marine insurance for their ships and their cargoes. Unfortunately, private insurance carriers were either unwilling to provide insurance, or would do so only at a cost that was much too expensive from the merchants' and ship owners' perspective.

Consequently, to meet the need for affordable marine insurance, Congress passed the War Risk Insurance Act, which provided insurance protection for cargo and crew ships supplying allies.This Act also established the Bureau of War Risk within the Treasury Department. The Bureau ultimately paid claims for the losses of 61 ships. Coverage under the War Risk Insurance Act was eventually extended to the captains and crew members of these ships.

When the US entered the war in 1917, President Wilson asked the Secretary of Treasury to appoint a committee of experts from the insurance, social services and medical community to recommend legislation that would meet the financial needs of servicemen and their dependents both during and after the war. The result was an extensive amendment to the War Risk Insurance Act, which included a provision for voluntary life insurance on the lives of servicemen.

The reason for the amendment is simple, like the property and casualty insurance companies who were unwilling to assume the risk of insuring ships and cargo during a war, the private life insurance companies were unwilling to underwrite the coverage for members of the service. While actuaries are extremely accurate in predicting deaths during peace-time, it is almost impossible to estimate how many deaths there will be during a war. To avoid taking on this type of high risk insurance companies have traditionally added what is referred to as a "war clause" to their contracts during war time periods.

As a result of the amendments to the War Risk Insurance Act, the government soon became the largest life insurer in the US. The response to the program was in many respects overwhelming. Although the coverage was optional, over 93% of those eligible took the coverage, and most of those took the maximum amount of $10,000. Through each succeeding war and major military conflict the government, through the VA, has continued to provide life insurance to members of the armed services while they were on active duty and after they were separated.

Today we have 6 different programs that cover veterans of WWI, WWII, the Korean war and certain groups of disabled veterans. For more detailed information about each of these programs, see our Life Insurance Program Descriptions page.