Ip view of the previous discussion on the structure of the 

 insurance industry, limited reliance on loss experience of the 

 insurable vessel and its owner for rating purposes becomes under- 

 stajidable. The loss experience of individual insurers was extreme- 

 ly restricted because of the limited number of vessels Insured from 

 each port so that no actuarial statistics of some reliability could 

 be compiled. High mobility of insurable risks from one to another 

 insurer prevented observations over a period of years. Possible 

 conflict of interests between the broker seeking a commission and 

 the insurer seeking an acceptable risk contributed in no less 

 amount to the same result. But this is not all. Assuming that 

 the best channels of acquiring a risk and estimating its expecta- 

 tion of loss are used, no one can easily detect the future changes 

 in the character of the insured or the crews on board. 



Furthermore, whatever risk differentiation was present 

 occurred largely in terms of coverage rather than in terms of 

 the premium ratio. As a matter of fact, in many cases poor 

 risks had a lower premium ratio than good risks (cf . tables 

 28 and 29). This development is consistent with the insurance 

 practice followed by many insurance brokers or agents, namely, 

 emphasizing the premium by lowering the rate and Increasing the 

 amount of insurance. For similar reasons, differentiation of 

 risks in terms of covez-age was easier since it was less dis- 

 cernible or less objectionable to the insured. 



3. Competition and the premium . Besides narrowing risk 

 differentials, competition among insurers had ajiother more 

 important effect. The premium was kept lower than might have 

 been possible otherwise. In addition, vessels representing 

 very poor risks were able to buy insurance which may not have 

 been otherwise available. The above effects are shown here 

 by a comparison of loss experience and insurance premium 

 between American and alien insurers. 



Highly significant differences occurred between the loss 

 experience of American and alien insurers for both kinds of 

 insurance (table 30). During 1950-5^, the loss ratio for hull 

 insurance of alien insurers was higher (83.4) than the loss 

 ratio of American insurers (63.I) in New England but was lower 

 elsewhere. The loss ratio of alien insurers in the G\ilf Area 

 is not reliable because of small sample size. The profitable 

 loss experience of alien insurers for hull insurance in 

 California may be explained by developments which took place 

 during 1950-54 in that area. The leading American underwriters 

 were organized in a pool which established rate classes of 

 vessels on the basis of age and value only. The owner with a 

 good record did not benefit because loss experience was not 

 considered in rating a vessel, llie rates were high enough to 

 allow acceptance of poorer risks. According to the field 



129 



