CHAPTER III 



THE COST OF INSURANCE PROTECTION 

 AND LOSS EXPERIENCE OF INSURERS 



The vessel owner -vrtio decides to caxry insurance on his vessel 

 becomes burdened by a semifixed cost on his fishing operations. In 

 this chapter evidence will be presented to show whether or not 

 insurance cost has risen during 1950-5^ and in what ways it is 

 burdensome. Following this, the loss experience of insurers is 

 discussed. 



A. DEFINITIONS AND MEASUREMENT OF INSURANCE COST 



1. The meaning of insurance cost . From the standpoint of the 

 vessel owner the payment of premiums for either hull or protection 

 and indemnity insurance or both may be viewed in two different ways: 

 (a) as part of the cost of fishing and (b) as an expense which 

 purchases a given amount of protection against certain insurable 

 risks . 



2. Measuring insurance cost . Under the first view, the cost 

 of insurance may be measured in terms of gross premium. The 

 principal reason for using gross instead of net premiijm is that 



we are interested more in what the owner contracted to pay for 

 insurance protection than in \fha.t he actually has paid. Other- 

 wise, the common denominator of the twelve-month period for which 

 the contractual provisions axe usually negotiated would have been 

 lost. Use of the net premium would have created more measurement 

 problems than it would have solved. For example, assuming a 

 twelve-month contract, the net premium -j- amount of insurance 

 ratio woiold have included a numerator (net premium) vrfiich would 

 have represented a period of less than twelve months, depending 

 on the premium returned, and the cost of insurance wovild have 

 been understated. 



However, in order to measure the cost of insurance under the 

 second view, the amount a vessel owner pays for insurance must be 

 compared with the amount of protection he receives, i.e., the 

 coverage which the insurer promises to give in return. Coverage 

 refers to the amount of insurance, the franchise clauses, the 

 deductible average clauses, the latent defects, the exclusions, 

 and the numerous other provisions ajid qualifications of the 

 insurance contract which specify the types of hazards against 

 which the insured vessel owner is protected and the conditions 

 or circumstances under which the insurer is liable. 



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