could be counted on the fincers of one hand. A few insurers stated 

 that in 1955 or later, steps were being taken to cope with the 

 problem of overinsurance . However, it seems that internal controls 

 between insurers and their brokers or agents were less than perfect. 

 The following New England incident experienced by a local broker is 

 a case in point. A vessel was refused l|il5,000 insurance in the 

 local office and was accepted for $30,000 in the central offices 

 of the same company. 



In view of the fact that the hull insurance contract is a value 

 and not an indemnity contract, the probable consequences of over- 

 insurance are not difficult to guess. Comments of owners offer 

 some evidence of the importance of overinsurance as a probable 

 factor contributing to total losses. A New England owner remarked: 

 "Vessels should be insured according to their valuation. We have 

 to pay for the boats that are lost. An owner sinks his boat and 

 collects for it. Tlien the rates go up for the rest of the owners. 

 A boat's valuation decreases every year. Therefore, it should be 

 insiu'ed for its valuation and the rates adjusted accordingly." An 

 owner from the Gulf Area was less explicit: "They are insuring the 

 boats for more than they are worth.' Finally, a Californian remarked 

 pointedly: "With the high values placed on boats as compared to 

 market value, there is little incentive to save boats that had an 

 accident." 



k. Surveying, settlement of claims, and losses of insurers . 

 A number of imperfections in surveying vessels and in adjusting 

 claims for hull insurance are worth mentioning since they tave con- 

 tributed to the losses and claim expenses of insui'ers. 



There is evidence that a few vessels were insured without being 

 previously surveyed. On the basis of the o-vmer's response, 7 percent 

 of the insured vessels in New England, l8 percent in the Gulf Area, and 

 1 percent in California were not surveyed fcr hull insurance. These 

 percentages for protection and indemnity Insurance were 10 percent, 19 

 percent, and 8 percent, respectively (table A-19 in Appendix A). The 

 practice of not paying the surveyor unless the vessel is accepted by 

 the insurer is equally important to, or perhaps more dangerous than, 

 failing to survey the vessel. Reportedly, the no-surveying practice 

 was widely used in the Gulf Area during 1950- 5^^. This is the way a 

 field supervisor described the probable dangerous consequences of 

 this practice: "Interviewed surveyors feel that pressure is great 

 to give a favorable survey if the insurance company pays only for the 

 vessels they insure. I-Jhen the vessel is not accepted, the possibility 

 of collecting from the oimer is not good. Hence, surveyors under such 

 a system tiy to get the vessel accepted." No further comments need be 

 made in pointing out the importance of the surveyor to the efficiency 

 of insurers in their risk selection and in accurately estimating the 

 expectation of loss. 



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