The previously e:q)lained (Chapter V) rating of vessels whose 

 hull insurance vas studied on the basis of their loss record is 

 used again here. Tlae average rate, age, and gross tonnage of the 

 four classes of vessels--active vood vessels with best loss record, 

 active vood vessels \n.th worst loss record, active steel vessels, 

 and lost wood vessels — appear in table 27- 



These raeasurenents indicate that insurers collectively 

 emphasized age sJid gross tonnage because these characteristics 

 reflected fairly accurately the quality of the insurable risk. 

 The inverse relationship between gross tonnage and rate assumes 

 that the probability of loss decreases as the size of the vessel 

 increases. Othen/ise, the insurance rate sho\ild remain constant 

 to reflect the same proportion of insurance amount at stalie 

 (reflected in gross tonnage). Similarly, the direct relation 

 between age and rate assumes that the probability of loss 

 increases with the age of the vessel. Tlie efficiency of 

 insurers can be measured by the extent to which loss experience 

 verifies these assumptions. It mil be noted that the New 

 England wood vessels which were lost were, on the average, much 

 older (32 years old) than and almost as small (50 gross tons) as 

 the best wood vessels in the area (18 years old and 46 gross tono-- 

 table 27). Perhaps the fact that the New England worst active 

 wood vessels were younger (16 years old) and larger (8I gross 

 tons) than the best vessels may partly explain their lower 

 insurance rate. On the other hand, in the Gulf Area and 

 California, where no substantial differences in age and gross 

 tonnage existed between best and worst active wood vessels, 

 the average insurance rate of worst vessels was higher than 

 the rate of best vessels. Also, the fact that in California 

 no substantial differences in gross tonnage existed between lost 

 wood vessels (II5 gross tons) and best or worst active wood 

 vessels (126 and l45 gross tons, respectively) may account for 

 the low association between insurance rate and gross tonnage 

 in that area. 



Although the above findings may indicate that insurers as a 

 group were fairly efficient in rating their insurable risks, they 

 are not conclusive enough to test the insurer's efficiency in 

 estimating the expectation of loss. It has already been explained 

 that the insurance rate does not accurately measure the insurance 

 cost. The other major provisions of the insurance contract must 

 be taken into consideration and the effect of canpetition on risk 

 differentiation must be analyzed (see section B, subheading 2 

 this chapter) . 



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