Cases involvins litigation are not frequent, but they represent 

 a very large amount of all paid losses by the insurer. In New England 

 only about 9 percent of the claims dui'ing 1950-5^4- required litigation, 

 but they represented 68 percent of all paid losses. In California 

 these percentages were 26 percent and 76 percent, respectively (table 

 A-I23 in Appendix A) . Claim expenses \rere higher than for hull 

 insuraxice claims mainly because of legal fees. In New England claim 

 expenses were 16 percent and in California 17 percent of paid losses 

 (table A-I2U in Appendix A). Litigation may partly explain why the' 

 settlement of protection and indemnity insiurance claims required a 

 longer time than in the case of hull insurance claims. For American 

 insurers the average waiting period was 5-9 months in New England 

 and 9.9 months in California; and for alien insurers 5-6 months in 

 New England and 11.6 months in California (table A-128 in Appendix A). 



D. SU1#IARY aWD CONCLUSIONS 



Insurance rating, competition among insurers, and some insurance 

 practices have contributed to the insurance pi-oblem, on the one hand 

 by limiting the revenue of insurers, and on the other hand by increas- 

 ing the claim expenses and incidence of claims among insurers. 



1. ^Thether insurers operate efficiently in accurately estimating 

 the expectation of loss was tested by a corapai'ison of insurance cost 

 of vessels rated on the basis of their loss record. Insurers 

 differentiated between various insurable risks as far as the coverage 

 was concerned. However, whether differentiation in terms of coverage 

 was adequate, especially among active wood vessels, is questionable. 

 Additionally, coverage differentials were largely offset by the 

 premium ratio, especially between best and worst active vessels. 

 Relatively speaking, insurers differentiated more in terms of 

 coverage which determined the scope of the insurers* obligation 



to indemnify the insured and less in terms of the premium ratio 

 which determined the revenue from which obligations must be paid. 

 Finally, failure of insurers to differentiate between best and 

 worst vessels is more pi-onounced in protection and indemnity insurance 

 than in hull insurance . 



2. The failure of insurers to differentiate among risks 

 adequately is partly due to the severe limitations under which the 

 law of averages operates in the undearwriting of commercial fishing 

 vessels. Since the law of averages assumes homogeneity of risks, 

 increases in the hazard during 195O-5U resulted in a limited 

 differentiation of the expectation of loss between risks and, by 

 comparison, in a substantial rise in the average expectation of loss. 



144 



