From the punched card to the electronic computer: why were insurance companies interested in calculating machines so early?

What is an insurance company's main "raw material"? Not money, but information: who is insured, at what age, for what sum, and when they paid the premium. When there are hundreds of thousands of policies, sorting and counting this information by hand takes an enormous amount of work. That is why insurers became one of the most impatient customers of calculating technology.

Key points

1. The problem: a mountain of data. Halley and the actuaries after him had taught how to calculate the premium according to age and the probability of death. But each calculation required sorting the policies by age group, counting them and adding up the sums. Until the end of the 19th century this work was done mainly with paper index cards and a pencil.
2. The punched card enters insurance. According to the Smithsonian Institution, Hollerith's systems were first used on a large scale in the 1890 census. According to the same source, from 1895 the insurance executive John K. Gore developed punched card methods for compiling insurance statistics; his sorting machines were used successfully at the Prudential company where he worked, but were not put on general sale.
3. Influence in both directions. In her 1993 study the MIT historian JoAnne Yates examined how tabulators changed the working methods of insurance companies in 1890–1950 and, conversely, how insurers' requirements influenced the development of the machines. In other words, insurance did not only buy the technology, it also "ordered" it to fit its own needs.
4. The advocate of the electronic computer. According to Yates's 1997 article, the Prudential employee Edmund Berkeley actively promoted the idea of the electronic computer inside the company in the 1940s, and these efforts ended with Prudential signing a contract for a UNIVAC computer; the contract was later cancelled, but Berkeley influenced the computer's creators Eckert and Mauchly. The IEEE Computer Society recognizes Berkeley as one of the founders of the Association for Computing Machinery (ACM).
5. The Society of Actuaries' conclusion. A publication of the Society of Actuaries records that at the April 1952 presentation "Adaptations of Electronic Machines to Life Insurance Operations" it was stated that electronic computers could now be considered sufficiently reliable and versatile to be used effectively in the everyday office work of an insurance company.
6. The first installations. The 10 May 1954 issue of TIME magazine wrote that the UNIVAC electronic computer was entering the insurance business, that Metropolitan Life was installing it at its head office in Manhattan, and that the machine would take over routine actuarial work done by staff by hand. According to a Sangamon County historical source, Franklin Life in Illinois was the second insurance company to take delivery of a UNIVAC (the first being Metropolitan Life), and its computer was installed in December 1954; the list of UNIVAC customers, however, gives the delivery date as January 1955.
7. The continuation today. The path from the punched card and the valve computer to today's databases and online policies rests on one idea: to calculate risk quickly and without errors. Today an actuary analyses millions of records in an instant, yet the logic of sorting and counting by age group remains the same as in Gore's time.

Then and now

Example: sorting cards at "Ishonchli qanot"

The calculation below was compiled by the author; the figures are hypothetical.

The hypothetical insurance company "Ishonchli qanot" has 2 400 life insurance policies. To review next year's premiums, the actuary needs to count the policies by age group. In the punched card era there was one card per policy, and the machine sorted the cards into boxes according to the hole in the "age" column.

This table shows the actuary that about 21% of the portfolio (the 50–59 and 60+ groups, 510 policies in total) is at ages with a higher probability of death. Counting this by hand meant going through 2 400 index cards one by one; the machine, by contrast, automatically sorted the cards into boxes and counted each box. Today the same table is produced with a single query, but the question has not changed: "whom have we insured, at what age, and for what sum?"

Link with the previous period: Halley's table had provided the method of calculating the premium by age, and mechanical arithmometers had sped up the calculation; the punched card and the computer made it possible to apply this method to hundreds of thousands of policies. The next stage, the digital policy and online insurance of the 21st century, was built on top of these databases.