vessel of kO gross tons or smaller, and $^ per $1,000 of insurance 

 for a vessel of 86 gross tons or larger. But this inverse relation- 

 ship is noticeably lower than the previous age-rate association, 

 particularly in California where vessels of Ul-85 gross tons 

 averaged higher (8.7 percent) than vessels of 40 gross tons or 

 smaller (7.3 percent). The inverse relationship means that, other 

 criteria being of equal importance, the expectation of loss decreases 

 with an increase in gross tonnage . 



2 . Und ue emphasis on age and tonnapce in rating vesse ls for 

 hull insurance ? Insurers reported that in addition to age and 

 gross tonnage of a vessel, other criteria already mentioned were 

 used in estimating the expectation of loss. Discussions in pre- 

 vious chapters have shown that, in general, the moral hazard (the 

 term is defined here broadly enough to include the human element 

 in contrast to physical hazard which refers to the physical 

 characteristics of the vessel and the natui'e of fishing operations) 

 was relatively more important than the physical hazard. A very 

 important question may be raised here. Is it likely that insurers 

 unduly emphasized age and gross tonnage in estimating the execta- 

 tion of loss? Vessel owners frequently express doubt about the 

 rating efficiency of insurers. One New England owner contended 

 that "Insurers should rate family-owned and operated boats in a 

 special class, i.e., rate according to merit." Another owner 

 from California pointed out that "the insiurance rate should not 

 be based on age of vessel alone. The way boat was built should 

 be considered as well as the record of the boat." The subject 

 deserves further consideration. 



Testing the rating efficiency of insurers presents almost 

 insurmountable difficulties. The owner's character, his financial 

 position, and quality of officer personnel and crew are very 

 important in estimating the probability of loss, but these are 

 also nonquantifiable variables. The problem is solved, however, 

 by using loss experience as an index with which vessels can be 

 rated. Loss experience not only represents the ultimate realiza- 

 tion of the estimates on the expectation of loss, but it also 

 expresses both quantitative and qualitative criteria in quantified 

 terms, i.e., in dollars and cents. Furthermore, the reliability 

 of loss experience for testing the rating efficiency of insurers 

 cannot be effectively questioned on grounds that it is an index 

 after the fact. On the contrary, if insurers collectively 

 estimated expectation of loss fairly accurately, the only 

 reliable criterion would be the one which measures the 

 realization of expectations. 



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