NFCA STATEMENT ON FRATERNAL INSURANCE CONTRACTS

06/14/06

A recent national newspaper article on fraternal benefit societies (“fraternals”) asserts that fraternals unilaterally — and by implication, unfairly — change their insurance contracts.  This is not the case.

Fraternals are self-governing membership organizations with a common bond that are dedicated to the mutual aid of fellow members and their families.  Operating under a lodge system, these members have engaged in fraternal and charitable activities and have been a part of American society since the Civil War.  Mutual aid takes many forms, including modern life insurance.  As such, it is regulated by the same state agencies that regulate commercial life insurers.  As with commercial insurers, state insurance departments regulate fraternals appropriate to their governance structure.

The basic premise of mutual aid — members providing financial assistance to one another’s families in times of tragedy — remains the same as ever.  The insurance fraternals provide to their members is an integral part of their fraternal mission and purpose. 

Fraternals’ insurance contracts, known as certificates of insurance, always have been subject to change in certain limited ways, as stated in the contracts and required by law.  One primary purpose is to safeguard solvency, thus ensuring payment of claims.  Fraternals cannot “unilaterally” change their contracts, because any changes must be approved by the membership through the representative form of government that is characteristic of fraternals.  Changes to bylaws, in general, also are subject to review and approval by regulators. 

Some fraternals, with membership approval, have adopted mediation and arbitration to preserve their mission.  These fraternals believe that arbitration is in the best interests of their individual members.  If there is a disagreement over an insurance question, arbitration aims to make the individual member whole.  It also seeks to preclude excessive litigation, the cost of which would be passed on to all insurance members. 

NFCA member-societies have a long and proud record of serving their local communities.  Fraternalists, through a nationwide network of local lodges, give many tens of millions of hours and tens of millions of dollars to charity every year.  The local lodges perform the actual down-to-earth fraternalism, by uniting people via a common bond and related fraternal activity.  In this way they make huge charitable benefits to the common good possible.  As shown in times of critical need — most recently, the Hurricane Katrina relief effort — fraternal benefit societies respond to local needs quickly, and in a real, material way. 

Fraternal benefit societies are proud to serve as an integral part of America’s social safety net.