3- Rat ing and hull insurance cost . Miethcr insurers operate 

 efficiently or not caji be better tested by a coniparison of insurance 

 cost for vessels rated on the basis of their loss record. On the 

 average, insurance cost of vessels vith the best loss record should 

 be lower than the insurance cost of vessels mth vorst loss record, 

 since loss experience represented the realization of the previously 

 estiraaited expectation of loss. 



The cost of insurance during 1950-5^ in terms of premium ratio 

 and coverage for the four classes of vessels- -best active vco'^, vorst 

 active wood, active steel, and lost wood- -is shown in table 28. A 

 number of observations can be made which may help to find out whether 

 and to what extent insurers collectively were efficient in estimating 

 accurately the expectation of loss on hvill insurance. 



First, it is evident that insurers in most cases differentiated 

 between the four classes of vessels in terms of coverage, i.e., all 

 other contractual provisions shown in table 28 except the preniium 

 ratio. For instance, in New England the proportion of insurance 

 contracts on best active wood vessels with a franchise clause (J|6 

 percent) or \T±th a deductible average clause (52 percent) or \ri.th 

 provisions which excluded loss of equipment (76 percent) was lower 

 than the proportion of insurance contracts on worst active wood 

 vessels with the same provisions (6I percent, 60 percent and 80 

 percent, respectively). Also, best vessels had an average franchise 

 amount of $500 and a deductible of $292, both of which were lower 

 than the corresponding amounts of $523 and $353 on worst vessels. 

 Although the proportion of contracts on best vessels with full 

 coverage under the Inchmaree clause (88 percent) was lower than 

 the proportion on worst vessels (97 percent), as sho^m in table 

 28, a proportionately larger number of clauses on worst vessels 

 excluded negligence on machinery (table A- 53 Appendix A). All these 

 provisions indicate that, as a group, best active wood vessels in New 

 England enjoyed a relatively greater coverage than worst active wood 

 vessels. It is also seen that the coverage of active steel vessels, 

 on the average, is greater than the coverage of best active wood 

 vessels, while the coverage of lost wood vessels is as limited as 

 that of worst active wood vessels in many respects and \rith a con- 

 siderably larger deductible on all claims except collision ($893 

 compaxed to $353 on worst loss wood vessels). Similar observations 

 Indicate that insurers differentiated between the four classes of vessels 

 even more so in the Gulf Area and California than in New England. 



Second, the cost of insurance in terms of the premium ratio, 

 (gross or net premium- -Insurance amount ratio) Is higher on best 

 active wood vessels than on worst active wood vessels. For instance, 

 a New England owner of a vessel with best loss record paid, on the 

 average, $56 in net premium per $1,000 of insurance, while an owner 

 of a vessel with worst loss record paid only $50 per $1,000 of 

 insurance. (Gross premium ratios axe higher than the net premium 

 ratios quoted here, but the relationship is the same--cf . table 



119 



