tho hazard on vjc/els hcuocenous . Of course, the adverse effect 

 of limited nuinbers v/as n-jt by nost insurers tlirouch the videly 

 prcctic'id principle of reinsurance . But the problem of the \ride 

 heterogeneity of the risks seems to have been appi'oached in a 

 less satisfactory manner. 



From the actuarial vievTpoint, the developments which took 

 place during 1950-5^ r!i3.y be partially explained in the follomng 

 tenns. Since the la^-r of averages assumes homogeneity of risks, 

 the insurer had to estimate the expectation of loss from com- 

 mercial fishing vessels on the basis of an average risk. Credits 

 vere given to risks which were better than the average aiid debits 

 irere given to risks iJhich were poorer than the average. But 

 departures from this average made by differentiating among 

 individual risks could not fluctuate beyond a fairly limited 

 and balanced range irl thout changing the average itself. Hence, 

 increases in the hazard evidenced during 1950-5^1- resulted in a 

 limited differeiitiation of the e:q)ectation of loss between risks 

 and, by comparison, in a substantial rise in the average ejrpecta- 

 tion of loss for all vessels. Most of the increase in losses 

 cojne from a minoi-ity of vessel o\mers, but the increase in 

 insurance cost had to be borne, to a large extent, by all insured 

 oimers. Without this averaging of the expectation of loss, 

 insurers -vrould have been unable to offer insurance protection 

 to o^mers of coimiicrcial fishing vessels. 



This principle iras little understood by the majority of 

 vessel oAmers who felt that insurers were unjust in failing to 

 differentiate adequately omong risl:s. Previous quotations from 

 o\-mers illustrat-- this point. For the record, however, a few 

 additional remarlii: .!' o\mers are cited here. A New Englander 

 contends that "better risks are thrown in with bad risks." 

 Another one from the saiiie area points out that "there is a need 

 for more consideration of a particular vessel, not over-all 

 pool i-rtting, " and he reaches the following conclusion about the 

 situation of insurrjice companies: "Oligopoly, not sufficiently 

 competitive." Statements such as the above were more frequent 

 ara £)ng owners in New England, the ai'ea which experienced the 

 widest spread in the hazard, than elsewhere. Consequently, 

 resistance of the Insured to higher insurance cost was not a 

 matter of cost alone but also a matter of attitude. 



2 . Comp etition rtmong insurers and risk differentiation . 

 Another reason for the failure of insurers to differentiate 

 adequately is the presence of strong competition ainong insurers. 

 In order to better understand the nature of this competition eind 

 subsequent discussions on the imperfections of the insurance 

 mai'ket, it is necessary to explain briefly some aspects of the 

 structuL^J of the insurancj industry. 



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