One may now ask, axe premiums more Important than other operational 

 costs? Premiums may influence the owner's decision both ways: either 

 to carry or not to carry insurance on his vessel. On the one hand, 

 although premiums, in contrast to other operational costs, are fixed, 

 they axe also postponable. In addition, the benefits which the owner 

 expects to receive for insuring his vessel are neither immediate nor 

 definite. In a sense, he buys an intangible commodity; a protection 

 against certain risks. The tangible benefits which the owner expects 

 to receive from the payment of premiums are contingent upon the ful- 

 fillment of a number of conditions provided by the insurance contract. 

 Moreover, apai't from other considerations related to the adjustment of 

 claims, etc., when these conditions axe realized the benefits received 

 are not supposed to exceed the damage sustained minus the deductible 

 because the marine insuraJice contract is considered to be ein indemnity 

 contract. Thus the owner may decide against insuring the vessel for 

 either or both kinds of insurance if he thinks that the expected 

 benefits are likely to be less than the cost of paying insurance or 

 that payment 6f premiums is merely a prepayment of expected losses. 

 Vessel owners* comments along these lines were: "Too expensive up to 

 present time; if premiums were paid, they would have been the value of 

 vessel. Now the vessel is paid for with savings." or "Protection and 

 indemnity insurance is too expensive, easier to pay doctor bills," or 

 "too much for the chance you take." The rather frequent cancellation 

 of insurance contracts may be partly explained by the fact that 

 premi\ims, as an operational cost, axe postponable for either or 

 both kinds of insurance . 



Hull Insurance 



On the other hand, an owner may decide to caxry hull insurance on 

 his vessel if the payment of premiums is considered as a means of over- 

 coming his impending financial difficulties partially or wholly. 

 Frequently, his decision to insure may arise from sheer misvinderstanding 

 or misinterpretation of the insurer's contractual obligation to indemnify. 

 Whether repairs of the vessel are covered by hull insurance or not is 

 very frequently a purely definitional matter or a matter of circimistances 

 subject to a wide range of interpretation. Perhaps the following remarks 

 of an owner illustrate this point: "Premiums are higher than cost of 

 making repairs." Later we shall see how the structure of the insurance 

 maxket allows room for the fulfillment of the owner's speculative 

 expectations, including selling his frozen assets to the undei-writers. 

 M. present, it is interesting to notice that the proportion of lost 

 wood vessels which carried insurance before they were lost is higher 

 than the sample percentage in all areas, especially in New England 

 (table 5). 



3h 



