by reinsurers. There are no sharp lines of demarcation between the 

 three groups, however, and overlapping of functions is not infrequent. 

 The insurance market consists of insurers and brokers with wide 

 differences in the volume and type of risks, or in the scope and 

 nature of operations. They range from well established and con- 

 servative concerns which follow sound insurance practices to the 

 fly-by-night, opportunistic or superficial concerns which, accord- 

 ing to an underwriter, "violated every principle in the book" during 

 the period under study. Of course, in the long run these marginal 

 operators tend to drop from the scene. But from the market stand- 

 point as a whole, in the long-run the ideal underwriting situation 

 never comes since other insurers or brokers continually enter the 

 field. 



While the above -de scribed market situation had several adverse 

 effects on the^loss experience of insurers (to be discussed later), 

 from the viewpoint of rating, competition among insurers resulted 

 in a failure to differentiate adequately among risks. Just as 

 averaging (arithmetic mean) had the effect of evening out the 

 extremes of insurance costs from both ends in the array distribu- 

 tion (cf . discussion in Chapter III), so did competition among 

 insurers have a similar effect in evening out the differences in 

 the cost of insurance among risks. Thus, a vessel which was 

 considered a poor and unacceptable risk by a conservative insurer 

 was an acceptable risk by another either more venturous or large- 

 volume insurer. 



Failure to differentiate adequately among risks indicates also 

 a failure on the part of the market to respond to the changes in 

 hazard effectively. Emphasis on age and gross tonnage of vessels, 

 rather than other factors can be partly explained by the fact that 

 loss experience indicated proportionately larger losses from small 

 or aged vessels. Nevertheless, in view of the operational charac- 

 teristics of the market and cost considerations, undue reliance 

 should not be placed on age and tonnage for underwriting purposes. 

 In fact, a case was reported from California (see quotation in 

 following subtopic) whereby loss experience of the vessel owner was 

 entirely disregarded and the vessels were rated in classes on the 

 basis of age and value (which is directly related to gross tonnage) 

 of vessel alone. In a sense, failure to differentiate among the 

 risk measures the inability of the market to reflect the changes 

 in hazard. In turn, this failure indicates how little loss 

 experience is considered in rating "commercial fishing vessels. 



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