Crime, Law & Social Change 28: 111135, 1997. c 1997 Kluwer Academic Publishers. Printed in the Netherlands.

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Shipping and scuttling: Criminogenesis in marine insurance1

EEUWKE FABER
Willem Pompe Institute for Criminal Sciences, University of Utrecht, The Netherlands

Abstract. Among the instances of maritime fraud, the scuttling of ships, the deliberate sinking of a ship in order to collect the insurance money, stands out. It has been suggested that marine transport is prone to inltration by organized crime groups. These are suggestions that have never been substantiated, but they could point towards a criminogenic market-structure of the (marine) insurance industry. The Dutch marine insurance-industry has a reputation to lose. The insuring of ships requires skill, professionalism and money, but the practice of marine insurance has hardly changed since the Dutch Golden Age. Drawing upon the results of two years of eldwork in the Dutch marine insurance industry, it will be argued that the scuttling of ships is interlinked and intertwined with the practice of marine insurance and the way the marine insurance industry is commercially and legally organized. An analysis of the opportunity-for-fraud-structure of the (Dutch) marine insurance market will be made.

Marine insurance fraud does not stand in the spotlight of criminological attention, nor does it receive much media-coverage. Few criminologists have ventured into the maritime world, only skimming the surface of maritime fraud. Chambliss (1989) and Vagg (1995) have written about (contemporary) piracy, Van Duyne and Block (1995) about transatlantic oil swindles. A classic in the eld is Mueller and Adlers Outlaws of the ocean (1985). Journalists however have in the past twenty years uncovered a few rather spectacular cases of maritime fraud,2 suggesting that the world of marine transport and insurance is one of the economic sectors most prone to inltration by organized crime groups. These suggestions have never been substantiated. However, they point towards a criminogenic (Needleman and Needleman 1979) market-structure of the (marine) insurance industry.3 Such a market-structure would not only facilitate the possible inltration of organized crime, but would also inuence the occurrences of white-collar crime in marine transport and insurance. The following case-study a scuttling attempt and its aftermath is exemplary of the ways of the marine insurance world. At the same time it provides numerous leads for the argument that the structure of the Dutch marine insurance industry the way it is legally and commercially organized facilitates instances of marine insurance fraud, which I will develop in this paper.

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An attempted scuttling off the Spanish coast4 In the late summer of 1994, the large bulkcarrier John Elton, ying the Cypriot ag, was sailing some 200 miles south of the Canary Islands. The ship had departed from a Brazilian port some two weeks earlier with a cargo of soy beans and was heading for Lisbon. The northeasterly winds of 4 to 5 Beaufort, the good visibility and the fairly heavy swell were not unusual weatherconditions this time of year in this part of the Atlantic and should have proved no problem at all for the John Elton. Although not among the newest of ships it was built in 1976 it had recently been inspected by a class surveyor and was upon his approval classed with the Greek Hellenic Register of Shipping. The Spanish Coast Guard therefore were rather surprised by the mayday, calling for immediate help, sent out by the 230 meter long bulkcarrier. The ships engine-room was ooded, the rapidly rising water-level had stalled the main engine, pumping was no longer possible and the crew had to abandon ship immediately. The Spanish Coastguard succeeded in saving Master and crew (31 in all) by helicopter. They were brought to a hotel. The ship was left at sea. With a seven degree list to starboard, that was increasing quickly, it seemed lost. An astute Spanish salvor though had responded to the same mayday-call, found the ship still aoat, succeeded in boarding, closed a number of open valves and then towed the ship to port. There it was found that the tanks corresponding to [the open] valves [being] connected to the double bottom ones, such an action meant that, when the oatation reached that level, the water would have come in faster and, probably, the sinking process would have accelerated (excerpt from the report into the case from the Maritime Captaincy). When asked by the Maritime Captaincy of the port of Las Palmas did you receive orders from the owner to deliberately sink the ship?, the Greek chief engineer denied. No orders were received and no attempt was made to scuttle the ship, which was owned by a Cyprus-based company, chartered by a Brazil-based shipping agency and was carrying goods destined for several Western-European ports. The ships crew consisted of Greeks (master and engineers) and Filipinos. Its hull was insured in the London-market, its cargo in the Dutch insurance market. The Maritime Captaincy was not convinced by the Greeks denial: Its the opinion of the inspectors of the Spanish Administration that there are clear hints that the intention was to sink the ship deliberately. What can you say about this? The Filipinos are drunkards, they smoke marihuana, they dont know what theyre doing. Theres always problems with the Filipino crew and when I went down to the engine it was already ooded and saw nobody near the valve. Negligence of the cheaply recruited crew or a deliberate scuttling attempt by the Greek members of the crew? The latter, according to the Maritime

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Captaincy. Yet the Greeks had failed in their attempt. What had gone wrong? The crew had abided by all the rules of the scuttlers handbook, a loss-adjuster was later to say, with a hint of professional admiration, they must have been working at it for at least a month. They had forgotten but one basic rule of physics: the weight of the ships cargo. The ship was kept aoat by the cargo, for a period longer than was assumed by its scuttler-crew, thus giving the salvor time to reach, board and salvage the ship. One can imagine the crews dismay when the ship was towed in, with all the material scuttling evidence still on board. It has been proved that the fundamental cause of the ooding was the opening of the . . . pipe. . . .Clear signs exist to suspect that [the ship] suffered a deliberate sinking attempt, presumably carried out by members of its crew. A simple case, one would say. The crew will be prosecuted and put in jail, the owners will not be entitled to the insurance money and will be cast from the shipping community. Not so in the world of marine transport and insurance, If the hints that . . it was a deliberate sinking attempt presumably carried out by crew members, in Spain, prove to be true such an action would constitute a criminal offence . . . However, having the incident taken place in international waters, this Maritime Captaincy understands that, it will have to be the jurisdiction of the ships ag country (Cyprus) which will have to go on with the investigations . . . Nothing was heard again and the crew was released. The charterers were never found. And although the scuttling was attempted almost two years ago, the owners, the insurers from various countries and lawyers still argue whether the owners are entitled to claim their loss under the hull-insurance-policy. Points of dispute are whether the ship did actually suffer a scuttling attempt and more importantly whether the owners had anything to do with it. If they hadnt, they can claim even if it were proved that the crew had tried to sink the ship (Hazelwood 1982). If they had, they cant (Ford 1993). Chances are, that the owners of the ship will be paid by the insurers, that they wont be cast from the shipping community and that all involved will resume business as usual. It cant be easy to get away with, or can it? That would be inviting crime, crying out for it! Is the world of marine insurance a crime-facilitative, a criminogenic environment? And is this case exemplary of the ways of the marine insurance world? The contours of criminogenesis In the past decades a rather voluminous body of criminological literature has been developed on what is sometimes called criminogenesis (Needleman and Needleman 1979). Some criminal behavior . . . may be (usefully) viewed not as personal deviance, but rather as a predictable product of the individuals

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membership in or contact with certain organizational systems, typically industries or professions. Such systems are said to be criminogenic in the sense that features of their internal structures economic, legal, organizational and normative play a role in generating criminal activity within the system, independent at least to some degree from the criminals personal motives, write Martin and Carolyn Needleman in their 1979 paper Organizational Crime: Two Models of Criminogenesis. Leonard and Webers Automakers and dealers: a study of criminogenic market forces (1970), in which the illegal acts of automobile dealers are explained by the pressure exerted on them by car manufacturers, can be considered as one of the pioneering studies. In the 1960s, they found, the four major US car manufacturers retained an oligopolistic control over the production of new cars and supplies and could (and did) therefore impose sales quotas on their franchised dealers. The only way for the dealers to meet the quotas was to engage in fraud a series of rackets , such as used car markups, service gouging and parts pushing (p. 414). The dealers were coerced into crime, since it result(ed) from the coercion of strong corporations whose ofcers c(ould) utilize the concentrated market power of their companies to bend dealer and mechanic to serve company objectives (p. 416). To recognize a crime-coercive marketstructure, according to Leonard and Weber, one should look at the degree of seller and buyer concentration, at the level of product differentiation, at the existence of entry barriers and at the price elasticity and the growth rate of demand. Nine years later Martin and Carolyn Needleman (1979) warn researchers to be aware of another variety of organizational criminogenesis: not only do crime-coercive corporate systems exist, but also crime-facilitative systems. In this second model of criminogenesis, system members are not forced to break the law, but rather are presented with extremely tempting structural conditions high incentives and opportunities coupled with low risks that encourage and facilitate crime, both by system members and by outsiders who seek to enter or use the system for criminal purposes (p. 517). Torching run-down buildings in order to collect insurance payments is one of the examples cited by the Needlemans. Opportunities are high, risks of nonpayment relatively low. This criminal activity is not an essential part of doing business, as it would be in a crime-coercive system, but it is an unwelcome but unavoidable cost of doing business, . . . since insurance companies . . . cannot remove the incentive . . . without seriously impairing the conditions necessary for legitimate insurance business activity. . . . So, reluctantly, the insurance industry suffers the losses and continues to invite and facilitate the crime of torching (p. 521). And, I argue, the crime of scuttling.

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According to Needleman and Needleman a number of elements may be characteristic of crime-facilitative systems. They use the white collar crime riddled securities industry as an example to arrive at three structural features . . . that work to facilitate fraud: the pattern of legal liability, the incentives for market ow, and the industrys traditions of commerce (p. 522). More than ten years before the Savings and Loan scandals5 broke, the Needlemans noticed in the securities industry a pattern of legal liability [that] facilitates not only the invasion of the system by con-men . . . but also the quiet collusion of legitimate members of the system. Bankers and brokers are under no obligation to check the validity of the securities they buy, yet run no risk, for they can always seek recovery from their insurers. Likewise, accountants are under no legal obligation to validate the legitimacy of securities in a nancial statement they check. The risks of aiding and abetting fraud are too minimal to function as a serious deterrent, note the Needlemans. A similar pattern of legal liability is a feature of both the business of marine insurance and the shipping industry it insures. The second market feature that the Needlemans consider to be crimefacilitative the need for market-ow will also recur when describing the marine insurance business. Money is made by moving money around, both in the securities industry and in the insurance industry. The Needlemans found that the opportunity to earn more money by keeping the market as uent as possible, as little regulated as possible, was considered far more important by the industry than the prevention and reduction of losses through fraud by regulatory measures. Archaic and medieval traditions of commerce form the third factor identied by the Needlemans Acknowledged in the securities industry to facilitate fraud, . . . however so deeply embedded in the industrys history and its competitive structure, they are not easily disregarded. The use of tangible certicates, the role of trust and the tradition of professional solidarity (seen as the trust members of a particular industry have in each other), are identied as crime-facilitating. In todays marine insurance business the two latter elements especially can be discerned as at least possibly criminogenic elements. The Needlemans have shifted the criminogenesis-debate from the necessity to commit crimes towards the opportunities for crime in a particular industry. According to James William Coleman (1987), opportunity is a conditio sine qua non for crime: no matter how strong an individuals motivation may be, if there is no opportunity, there will be no crime (p. 406). The point is: how are the opportunities distributed? Coleman identies law and law-enforcement as a rst element inuencing the distribution of opportunities. The law ultimately determines what is crime and what is not. But the law, and white-collar crime legislation especially, is often the product of negotiation between the

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industry and the legislator. The enforcement agencies are inuential in shaping compliance, but so are victims, who play an important part in determining the likelihood and severity of punishment for different types of white-collar offenses. (p. 427) Many white-collar crimes, Coleman continues, . . . victimize a large number of persons who individually lose only a small amount. . . . Few victims are likely to complain to enforcement agencies. It is not at all uncommon that as many as 100 insurers are involved in the insuring of one single ship; the number of insurers involved reduces the share of each in the (fraudulent) loss, thus making it less probable that one of the victimized insurers will complain. Trust and professional solidarity were seen by the Needlemans as crime-facilitating. Coleman extends their argument: the more clients are expected to trust the (industrys) professionals and the more (nancial) trust is placed by organizations on employees, the more opportunities for crime will exist. Now, to do business in this day and age will require ever more trust, according to Diane Vaughan (1983). Competition, economic success as a culturally approved goal, and erosion of norms supporting legitimate procedures for achieving it produce tensions for the organizations to seek scarce resources by illegal methods (p. 55). But, Vaughan stresses, these structural tensions alone [cannot explain] unlawful behavior. Opportunities must be available . . . (p. 67). Opportunities, created by structure, processes, and transaction systems (p. 68). To describe criminogenesis in markets, the internal structure of and the processes within an organization are of limited concern. Vaughans third element is all the more relevant: the nature of transactions, the way business is conducted. Vaughan: The nature of transactions contributes to opportunities for unlawful organizational behavior by (1) providing legitimate mechanisms that can be used to pursue scarce resources unlawfully and (2) further minimizing risk of detection and sanctioning. According to Vaughan, transactions between complex organizations have four distinguishing characteristics: 1. formalization, 2. complex processing and recording methods, 3. reliance on trust, 4. general, rather than specic, monitoring procedures (p. 76). With the growing complexity of corporations, the exchange between corporations has had to become increasingly formalized. Computer systems have become ever more present and accounting procedures ever more necessary. At the same time though, the monitoring of all transactions has become impossible: it has been replaced by sampling, tapping selected indicators and spot checks. Consequently, the need to trust has greatly increased. Modern society, with all its complexities, presupposes business transactions based upon a considerable amount of trust. . . . If strict controls were imposed on all corporate personnel, then embezzlement, management fraud, and other illegal conduct would be greatly reduced, but

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very little business would be done, state Cressey and Moore (1980, cited by Vaughan). One needs to become more trusting if one is to stay in business. The Needlemans (1979) indicated that criminogenesis is more likely to occur in markets with high levels of trust between contractual parties and between industry-members. Trust creates opportunities for illegal behaviour. Trust and agency In her 1990 paper Collaring the crime, not the criminal: reconsidering the concept of white-collar crime Susan Shapiro embarks on an ambitious adventure. Nothing less than the liberation of the concept of white collar crime is her goal. According to Shapiro white-collar crime researchers need to disentangle perpetrators from their misdeeds. Vehicle to this end is the third element of Sutherlands 1939 denition of white-collar crime: the violation of delegated or implied trust.6 Shapiro: I suggest that white-collar criminals violate norms of trust, enabling them to rob without violence and burgle without trespass (p. 346). Shapiro develops a conception of trust, inspired by legal denitions of duciary roles: trust as the absence of beneciary control in asymmetric relationships (p. 348). The legal concept of agency comes to mind. Agents can perform a great many services that their principals (on whose behalf they act) cannot usually perform, among which the provision of contacts, intermediation and brokering are most common. But the structure of agency relationships, notes Shapiro, is profoundly unbalanced. The agent is the expert and thus holds a monopoly of information, to which the principal has no access and which he therefore cannot control. The agent furthermore holds control over property of his principal, thus making the latter dependent upon him. Most importantly though, in the words of Shapiro, these acting-for roles are structurally ambivalent: they institutionalize conict between delity to principal interests and agent self-interest. To counter this, a number of risk-abatement strategies is available to principals, the most important of which are the selection of familiar agents and the limitation of agent-discretion. But, the very factors that drive principals into agency relationships impede the exercise of control. If a principal were in a position to check the selection of the agent and to evaluate his performance, he would hardly need the agent. Furthermore, the contractual way of putting a lid on too much agency-discretion tend(s) to erode the benet of agency. These duciary relationships, although structurally imbalanced a principal can exercise very little control on the better informed and expert agent nevertheless persist, for principals need agents, corporations need intermediaries, underwriters and assureds need underwriting agents and brokers. The whole point of trust as an alternative to contract is that agents must be trusted

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to dene the parameters of and to exercise their particular brand of service or discretion. Trust articulates generic procedural norms that seek to check the inherent opportunities and temptations for abuse. . . . They require (1) afrmative duties to disclose fully and honestly; (2) that duciaries place the interest of those they represent over their own so called disinterestedness; and (3) role competence and duties of diligence, prudence, or care (p. 350). According to Shapiro white-collar crime can be seen as the violation and manipulation of these norms of trust of disclosure, disinterestedness, and role competence. In a business-environment that is growing ever more complex, the monitoring of all transactions has become impossible, while the need for agents has increased. A growing degree of trust has allowed both developments. But, as trust norms take the place of caution, checks and control, the opportunities for abuse grow in proportion. The exploitation of the structural vulnerabilities of agency-relationships is easily possible through deception, self-interest and even incompetence, thus violating the norms of disclosure, disinterestedness and due diligence. We can easily agree with Shapiro though that complete disinterestedness is impossible. Role conicts are simply inevitable, and although numerous strategies can be devised to reduce them, trust relationships are structurally duplicitous: conict of interest represents an intrinsic vulnerability (Shapiro 1990, p. 353). Trust creates opportunity. The criminogenic features of trust-relationships are neatly summed up by Shapiro: principals are rarely able to observe their duciaries. They do not have access to vital information. They often lack the expertise to evaluate the conduct of trustees. Principals exchange symbolic proxies bank statements, . . . commodities futures contracts, etc. for tangible property. These pieces of paper or electronic impulses can be hidden, fabricated, or distorted more easily than the real commodities they represent. . . . These acts are embedded in long-term relationships that often require a considerable period of time before the principals realize that they have been deceived: indeed, some never learn of the deception (p. 353). To be able to understand white-collar crime it is necessary to understand the distribution of opportunities for trust-abuse. To be able to understand marine insurance fraud it is necessary to understand the role of trust as a criminogenic feature in the marine insurance industry. To depend on trust: criminogenesis in Dutch marine insurance In marine insurance, traditions business the way we know it conducted with people we know and trust are preferred to modernity. All insurance business is conducted on the explicit basis of good faith and the importance of trust is stressed time and again. The (Dutch) marine insurance industry

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is furthermore riddled with agents, creating numerous conicts of interest, challenging the various sometimes rather hastily erected chinese walls. The market-structure is agent-controlled. Insurance is, of course, bought by a great many shipping companies. The actual buying, though, is done by only a very limited number of insurance brokers, who represent the shipowners. The few brokers have their dealings with equally few underwriting agents. The actual risks are shared by numerous insurance companies, principals of the underwriting agents. Whether these features actually facilitate crime in marine insurance, remains to be seen. Nevertheless, if a shipowner were to dispose of his ship by scuttling it (somewhere off a West-African coast most likely) chances are that he will get away with it. And if a shipping agent were to forge a bill of loading, were to sell the forged bill to an unwitting buyer, who thinks he is buying the goods represented by the bill of lading, but who will be confronted by another buyer with another bill of lading at the docks claiming the same merchandise, most likely the agent will not be apprehended. Or consider the following example. A shipowner loses his ship, but according to his insurance broker, the sinking of his ship is, under the particular circumstances, not caused by an insured peril. The broker might at the same time have convinced the underwriters that the peril was insured against. The insurance money will be paid to the broker (it usually is), he will not pay the money on to the assured, and chances are that no one will ever know. Why not? Marine transport and insurance A photograph showing a canal-house with a tiny eld of wheat on its balcony recently appeared in a number of Dutch newspapers. The caption read: if it were not for us, youd have to grow your own wheat. The photo (part of a publicity-campaign of the Dutch Transport Association) advertised the need for transport for a modern society to function. Without transport, no commerce. There is probably not a country in the world more aware of this fact than the Netherlands. Almost completely dependent upon goods imported, the Netherlands have developed into a major transporting nation themselves. The port of Rotterdam immediately comes to mind, still the biggest in the world and a major engine of the Dutch economy. The fact that the Dutch Transport Association felt the need to stress the importance of its product in an expensive newspaper-campaign therefore probably had more to do with impending environmental legislation than with ignorance on the part of the Dutch public. No commerce without transport, yet no transport without insurance. Apart from goods to ship, there is another prerequisite for marine transport to exist: insurance. Insurance originated for the most part from sea-trade, is the opening-statement of every textbook on insurance

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law (Wery 1984; Hardy Ivamy 1979; Van Huizen 1988). Shipping in the 15th and 16th century (when overseas trade had become a growth-industry) was a very risky enterprise and the numerous perils of the sea caused many a bankruptcy. The chances that a ship would arrive at its destination and return home safely were far worse than they are today; the ships were less seaworthy than they are now, and the number of perils (pirates, wars, Acts of God and the like) higher. Shipowners needed to shift the enormous risks they ran to others. It is often said that, if it were not for the development of insurance, which created the possibility of others carrying the burden of the risk of nancial loss, the development of many new commercial enterprises would not have been possible (Wery 1984). True or not, both the beginning of modern shipping and the beginning of modern (marine) insurance can be situated in 16th century London. Of course, marine insurance by then had already existed for a very long time the Phoenicians already knew a form of marine insurance, as did many other seafaring nations yet the origins and the fundamental characteristics of modern marine insurance were laid down in those London days. The principles have not changed much since, nor has, oddly enough, the practice. Previously, writes Adam Raphael, the market . . . was conducted by insurers, who underwrote the risks, and brokers, who were called ofce keepers, broking being regarded as disreputable. It was an informal relationship, and the trade was wide open to abuse. Merchants tended to dabble in insurance as a side-line to their main business and regarded it as speculation (Raphael 1995, p. 35). Bribery and corruption seem to have been very common. With the development of world trade and world transport, the need for more reliable insurance, more reliable information, and more reliable nancial backup developed too. The informal relationship remained however, both in the London and the Dutch market. The merchants met in coffee houses in the City of London in order to put ships, cargo and money together. The most famous of these coffee houses has become Edward Lloyds. Offering reliable information, his establishment soon became the world centre of marine insurance, later to develop into the worlds leading (marine) insurance market Lloyds of London. Nowadays Lloyds of London is no longer necessarily associated with reliability. Scandal ridden is a qualication often used in regard of this part of the London insurance market, and although most nancial problems originated from a unusual number of natural disasters and an avalanche of US asbestos and pollution claims which affected the Lloyds market far worse than the rest of the insurance world on account of bad underwriting a large proportion of the losses is also said to be caused by frauds perpetrated by insiders. Frauds, never fully discovered and most certainly never prosecuted. This Lloyds of London white-collar crime merits a study of its own. The numerous

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journalistic accounts of what happened to Lloyds (see for instance Gunn 1993; Mantle 1993 and Raphael 1995), although very informative, do not provide much insight into the relations between the organization of the Lloyds market and the incidences of fraud. The Lloyds organizational structure is changing very slowly under the inuence of the enormous losses of the past years, but many a feature remains, that any criminologist would immediately recognize as calling out for crime and abuse. Most salient in this respect are the inherent conicts of interest that will continue to arise as long as individuals keep combining numerous often conicting functions such as brokering and underwriting. Lloyds shares this last feature with the Dutch marine insurance market. Agency: the absent contractual parties The actual parties to a contract of insurance are the assured and the underwriter(s). A contract of marine insurance then, will generally be made up between a shipowner and several marine underwriters. Between them, not by them, because in marine insurance the parties to the contract have relatively little to do with its content. Both are represented by intermediaries. The assured is represented by a broker and may sometimes not even know who his insurers are, neither, on occasion, will the insurers know who their assured is. Most underwriters, though not all, are in their turn represented by an underwriting agent, who deals with the broker on their behalf. Thus, two kinds of insurers operate in the Dutch insurance market: insurance-companies, that accept and carry the burden of risks themselves,7 and underwriting agents, that accept risks for their principals. These underwriting agents are paid a commission, a percentage for their services. Some twenty years ago an underwriting agent might have had as many as 30 principals, by whom he was instructed and given leave to underwrite on their behalf. Nowadays the relatively few remaining underwriting agents represent far fewer insurance-companies. The practice of underwriting-agency came into existence some four centuries ago. At the outset of the insurance-business in the Netherlands, the capacity to insure that is the maximum amount that can be insured by all active insurers taken together was rather limited and certainly less than was needed by Dutch shipowners. A number of foreign insurers were therefore very keen to participate in the Dutch insurance market (great demand, high prices), yet they did not consider it practicable or worthwhile to come to the market themselves. Unfamiliar with the trade, they chose representatives in the Dutch market to underwrite for them. This practice has persisted for centuries, although the (original) reasons have long ceased to exist. Foreign insurers have had easy access to the Dutch insurance market for decades,8 while the expertise in marine insurance the lack of which used to be a reason

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for insurers to make use of agents can easily be bought nowadays. These developments have heralded the end of the practice of underwriting agents in most parts of the Dutch insurance market, except in marine insurance. Most brokers nowadays deal directly with the insurance companies, but in marine insurance, by far the most traditional part of the insurance world, the practice of underwriting agencies still holds. The content of any contract of marine insurance will be formed by the agents. Assured and underwriters will most likely never meet.9 A shipowner then, in want of marine insurance, needs to approach one of the several brokers active in the marine insurance market. The actual number of brokers varies. All in all there are no more than twenty, of whom four or ve can be considered big, another four of ve of intermediate size, and the rest some ten brokerage rms small to very small. Of the twenty brokers perhaps half are active in marine insurance.10 It is estimated that as much as 70% of Dutch marine insurance broking is done by one large brokerage rm, thus almost establishing a de facto monopoly. The broker in his turn, will try to buy the best insurance available in the market. To this end, he will prepare a so-called slip or cover note, often not more than a piece of paper, stating, sometimes handwritten, the assured, the risk, the insured amount, the premium (usually a percentage of the amount to be insured) and the conditions he has agreed upon with the assured (usually a standard set of conditions). With this piece of paper he will approach the leading underwriting agents. The leaders have more faith in a handwritten slip, stated a broker in the course of an interview, the informality and the expedience appeals to them. They are called leading underwriting agents, for they will lead the other following underwriters in accepting the risk. Every type of insurance (be it marine, construction, aviation, etc.) has its own leading underwriters, considered leaders because of their special expertise in the eld. In the Dutch (Rotterdam) marine insurance (hull) market, two insurers are considered leaders, some twenty other insurers generally follow. The two leading underwriters have led the eld for a considerable length of time and it is upon their judgement that the other underwriters will take part in accepting a marine risk. The spreading of a marine risk: the absent victim The two leading underwriting agents will accept only part of a risk. The size of their accepted parts depends upon the size of the risk (the maximum amount that might have to be paid, combined with the likelihood of a loss occurring) and upon the number of principals of the underwriting agent (his capacity), and will usually be somewhere between 5% and 25%. After the leaders have accepted, the others will generally follow. One can easily imagine

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the degree of spreading of a marine risk if a leading underwriting agent, commissioned by for instance ten underwriters, accepts on their behalf only 5% of the risk. In that case the insurance companies will only carry 0.5% of the risk.11 This would be an exceptional situation though. More common is the involvement of some thirty insurers, either through their agent (underwriting for them), or bound directly (by their own signature so to say). Nevertheless, even thirty insurers per risk renders marine insurance very different from the types of insurance we all have our dealings with. In household-insurance one underwriter will most likely sufce. Not so in marine insurance. The reasons for spreading the risk of a marine adventure are obvious. The sheer size of the risks in marine transport are one. Both ship and cargo can be so valuable, that no insurer in the world would want to carry any such loss by itself. Another factor is just as important. The risks that are incurred by shippers and their insurers are far less predictable than are the risks in household insurance. A major household-insurer knows fairly well what risks he is running: he holds insured a great many households of the same type, keeps statistics of the losses incurred, and can very easily go out and check whether all possible loss-prevention-measures have actually been taken by the assured. In marine insurance the predictability of the risks is far less: a ship is at sea. Marine insurance requires tailor-made policies, it is often said. Every risk is different, every ship is different, every shipowner is different. The two factors high value and low predictability make it almost impossible for insurers to operate alone in the marine insurance market; they will accept small parts only and will thus run only relatively small risks. The interesting consequence of the spreading of a marine risk among so many insurers is, that in fraud-cases for example the scuttling of a ship the victim of the perpetrated marine insurance fraud is not a single insurance company, but a great many insurers. All to a very limited extent only. None of the victimized insurers is very likely to complain to the police.12 It is hardly worthwhile. Most insurers will only follow their leading underwriters, leaving them with little to no knowledge of the risks underwritten and the reasons for which claims are paid, and therefore in no position to go to the police. But by far the most important reason for not complaining is that it is not in their best interests to do so. Neither is refusing to pay a claim on the grounds of (suspected) fraud. Although a distinction must be made between leading underwriters and those only following the latter are contractually not even allowed to refuse to pay their share in a claim if their leaders have consented to pay13 , it can generally be said that any aberration of the principle that insurers should pay up and shut up is likely to reduce business-ow. In marine insurance, business needs to be offered to be done.

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Bargaining-power and dependence The broker occupies a very powerful position, since his is the initiative. He is instructed by the assured and the insurers cant do much but wait for a broker to come by, offering risks to them, thus generating business and producing premium for the insurers. Whereas in most lines of insurance business the insurance companies try to be as active as possible to win over new clients, marine insurers can only try to convince brokers of their suitability. And although it is of course essential for a broker to convince the leading underwriters of the acceptability of a certain risk, of the premium and the conditions if the leaders are not willing to bear part of a risk, no insurer will and although this seems to give the underwriters rather a lot of bargaining power, in reality their power is only very limited. The Dutch marine insurance market is controlled to a very large extent by just one broker. Thus, although there are quite a lot of shipowners14 wanting to buy marine insurance, and although they could in theory turn to at least 10 marine brokers to buy this insurance for them, in reality the buying of marine (hull) insurance is done almost exclusively by one broker. This particular broker retains an almost monopolistic control of the market, enabling him to impose premium-level and conditions on the selling underwriting agents. Obviously the sellers dont agree to just any condition imposed. The two leaders especially might try to bargain. Their major weapon is the opportunity to refuse to underwrite a certain risk, causing the broker an enormous problem. An ever increasing level of internationalization however has not made their bargaining position any easier, since a broker can always look abroad for insurers who are willing to accept his offer on his terms. Recent marketdevelopments indicate that these insurers are rather easily found. But even if no foreign insurers were to be found, one can wonder who has the bigger problem: the refusing underwriting agent or the refused broker. Insurers need to underwrite if they are to make money. Most brokers therefore play on the appetite for premium, as it is sometimes called, of insurers and threaten to leave them without risks. Now, such a threat expressed by a small time broker, with very few strings to pull and very little premium on offer, is obviously less imposing than the same threat expressed by a broker who effectively controls the market for marine insurance, holds a large stake in several other elds of insurance and divides most of the premium-cake. In most cases the two leading underwriting agents therefore succumb to the broker and accept his offer, loudly complaining, to be extorted. The two leading underwriters, and in their wake the other sellers of marine insurance, are (economically) dependent on brokers and on this one broker in particular. As much as 80% of our business is brought to us by this one broker, stated an underwriting agent in an interview.

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But if the buyer-concentration in the Dutch marine insurance market can be said to be semi-monopolized, so can the concentration of the sellers. Although there are many insurers active in the marine insurance market, most of them are not underwriting themselves, but have hired an agent to underwrite for them. Of the perhaps ten marine underwriting agents, two are considered leaders.15 Their opinion decides what the other underwriting agents and what the insurers that are not represented16 will do. The decision on the premium and the conditions, to be attached to the insuring of a major marine risk, is therefore generally made between one broker and two underwriting agents. The three of them tailor marine insurance policies. Tailor-made implies rather more than the usual personal touch, and requires the business to be a people business. Broker and underwriting agent deal with each other personally. It isnt that the brokerage rms and the underwriting agencies are in business together, but the persons (mostly men) working within these companies. More often than not they have known each other for years, tend to favour each other when necessary and tend to rely upon each other to a very large extent. Thus, they might rely more upon the word of their long-time business-partner than upon the actual content of a contract made up between them. Situations of this kind furthermore easily arise. The traditions cause most contracts still to be prepared orally. What the parties have agreed upon, is considered far more important than what is put down in writing. Business the way we know it, conducted with people we know and trust, is stated time and again.17 Anecdotal and possibly apocryphal evidence abounds. A marine broker urgently needed to buy insurance for an important client of his, but the risk was considered a bad risk and chances were that the leading underwriters might refuse to underwrite it on conditions acceptable to the assured. He therefore made a phone call to the leading underwriting agent and long-time friend of his and invited him to a local bar to talk things over: we will not be talking shop. The invitation was accepted, the two men spent most of the afternoon at the bar, got drunk and came to talk about how wonderful it was to be able to trust each other completely after so many years in business together. The broker then suggested to formalize this feeling of mutual trust and to put it in writing. He produced an empty sheet of the brokerage rm stationary and dared the underwriting agent to put his signature at the bottom. The sheet would, after signing, be lled with an insurance-policy at the brokers discretion. The agent could thus express his utmost trust in his friend and business-partner. The agent indeed expressed his trust, signed and . . . has been paying claims since. According to many members of the insurance industry the oral way of conducting marine insurance business is not a remnant of ancient history and has not persisted for so long because of the inherent traditionality of

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marine insurers, but has survived out of necessity. Speed is needed in marine insurance. There is no time to be formal. There is no time to put everything in writing rst. Shippers dont wait, the goods are on board already. An agreement must be struck immediately. No time to lose. Expediency not rules, speed not bureaucracy, trust not lose controls, are the essence of marine insurance business. Uberrima des and beyond: conicts of interest abound The Lloyds credo uberrima des applies industrywide to the relationship between insurer and assured and inuences all aspects of marine insurance. The utmost good faith-doctrine was originally developed as the industrys answere to the enormous opportunities for abuse that every insurance contract entails. Franc ois Ewald (1986) has argued convincingly that insurance is at the heart of modern society. But, say the editors of the European Journal of Criminal Policy and Research, at the same time it is most vulnerable to abuse and fraud (Editorial 1995; see generally in the same issue: Arnold 1995; Niemi 1995; Litton 1995). In Carter v. Boehm (1766), 3 Burr. 1905 at p. 1909, (cited by Hardy Ivamy 1979), p. 129, Lord Manseld made the following often cited statement with regard to the principle of utmost good faith: Insurance is a contract upon speculation. The special facts, upon which the contingent chance is to be computed, lie more commonly in the knowledge of the insured only: the underwriter trusts to his representation, and proceeds upon condence that he does not keep back any circumstance in his knowledge, to mislead the underwriter into a belief that the circumstance does not exist, and to induce him to estimate the risque as if it did not exist. A century and a half later Scrutton L.J. (in Greenhill v. Federal Insurance Co., Ltd., 1927, 1 K.B. 65 at p. 76, cited by Hardy Ivamy 1979, p. 130) says: Now, insurance is a contract of the utmost good faith, and it is of the gravest importance to commerce that that position should be observed. The underwriter knows nothing of the particular circumstances of the voyage to be insured. The assured knows a great deal, and it is the duty of the assured to inform the underwriter of everything . . . Since insurers have very few means of controlling the conduct of the assured, a doctrine has been developed in wich full disclosure of information and complete faith in the veracity of statements is expected of the parties to the contract. Any breach of either duty can make the contract avoidable. But how is one to know that the other has not disclosed a material circumstance? Especially if one is expected to trust each other completely? For what essentially seems to have happened is that trust has not only lled the gap that was left by the uncontrollability of the conduct of the insured to the marine insurer, it also seems to have actually

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rendered undesirable any demand for control in marine insurance. Control is no longer just considered difcult, it is considered unwanted as well. Next to being the basis for marine insurance in se (utmost good faith), two other instances of trust can be identied: trust as the basis for the many agency-relationships that exist throughout the market and trust as the essential lubricant in a market in which formal control of either party to a contract of the conduct of the other is considered both difcult and undesirable, while checking becomes ever more difcult with the growing complexity of the transaction-system. We need to consider two agency-relationships and one inter-agent-relationship: the broker is the agent of the assured, the underwriting agent is the agent of the insurer(s), and broker and underwriting agent deal with each other on behalf of the actual parties to a contract of marine insurance. The principle of trust applies to all three relationships. The broker is hired by the assured for essentially two reasons. Necessity: a shipowner cannot buy marine insurance without the intermediation of an insurance broker. And expertise: a shipowner will want the help and advice of a professional agent in buying marine insurance. The broker will know the possibilities and the intricacies of marine insurance. The shipowner will not. The broker knows the sellers of marine insurance and can pull strings. The shipowner cannot. Most shipowners then, lack the expertise to control whether their interests are served in the best of ways by the hired broker, and are more often than not kept informed only to a limited extent of the activities of the insurance broker on their behalf. This imbalance may best be seen when the assured is about to hire a broker. If his is a large eet of ships, he will need a sizeable broker,18 of which there are ve at most. The competition between them will generally be price-related: each broker will state his weight, his pull with underwriting-agents, his ability to force prices down (and get claims paid). These are uncontrollable characteristics: a shipowner will not be able to check the substance of these assertions but has to choose anyway. The imbalance can also be seen in the claims-handling process. A characteristic of many a marine loss is its obscurity. The causes cannot be readily ascertained, neither can the size of the loss. Most marine losses therefore require a degree of negotiating between parties. The actual negotiators are the intermediaries: the broker for the assured, the underwriting agent for the insurers. A broker will understandably always try to convince his client the shipowner that the deal struck with the insurers is the best possible deal, but the shipowner will never know whether this is true. He lacks the necessary expertise, was not present at the negotiating table; he is in the hands of his broker, whom he is forced to trust. One can imagine the thin line between a bona de broker, maybe exaggerating the negotiating-result a trie, and the mala de broker, lying to his client (and pocketing the difference). On the other hand the imbal-

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ance must not be exaggerated. Large shipowners especially are fought over by brokers, thus presenting the astute shipowner with some tools to control content and nature of the brokers activities. Trust instead of control. Trust in the absence of control. The conict between the interests of the broker and those of the shipowners can be readily discerned. Acting-for roles are structurally ambivalent: they institutionalize conict between delity to principal interests and agent self-interest, wrote Susan Shapiro (1990). She added that trust articulates generic procedural norms that seek to check the inherent opportunities and temptations for abuse. Disclosure, disinterestedness, and role competence are the norms to which marine insurance brokers ought to adhere. But do they? Their principals will never know, for [shipowners] are rarely able to observe their [brokers]. They do not have access to vital information. They often lack the expertise to evaluate the conduct of trustees (Shapiro 1990). Even more visible is the conict of interests between underwriter and underwriting agent. Put rather bluntly: the fact that (the two leading Dutch marine) underwriting agents dont insure with their own money but with somebody elses, puts them in a rather peculiar position. Chosen and renowned for their expertise, they earn their money not as ordinary insurers do (the invested premium minus the claims paid makes up the core of their annual results), in laymans terms: by good underwriting. Instead, their income consists primarily of commission for their services, in laymans terms: they make money by underwriting a lot, irrespective of the quality of the risks underwritten for their principals. The sanction applied to an underwriting agent, who is only thinking about his own commission without giving too much consideration to the interests of his principal, is said to be that the principal will cease to make use of the services of the agent. The market considers this sanction to be very effective. The industrys argument runs basically like this: agents cant afford to be found out putting their own interests over those of their principals. Once found out they will be out of business, not only with the principal concerned, but with all possible principals in the market. What condence in the mechanisms of social control within the market! A conict of interest between the agent and the principal of course does exist, for the interests of the agent and those of the principal dont necessarily coincide. A principal might therefore want to make use of one of the risk-abatement-strategies suggested by Susan Shapiro (1990, p. 348). Choosing an agent familiar to him will prove difcult, if the principal is determined to underwrite marine risks, since there are only very few agents available in the eld. Limiting agent discretion is of course a viable option, but, as Shapiro already argued on theoretical grounds, chances are that by doing so the advantages of the use of an agent instead of dealing directly

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with the broker will for the most part vanish with the risk of abuse. It will generally prove difcult for a principal to ascertain whether his interests took precedence over those of the agent. Most likely, he lacks both the necessary information and means of control, since that was the reason for the duciary relationship between principal and agent in the rst place. To this can be added that the relationships between underwriting agents and their principals are usually extremely long-term. Whereas many a shipowner switches brokers every once in a while, insurers stick to their underwriting agents. Have to stick, for there is very little choice in marine agents. But, writes Shapiro (1990), [acts of abuse] are embedded in long-term relationships that often require a considerable period of time before the principals realize that they have been deceived: indeed some never learn of the deception. The need for insurance companies to have agents underwrite for them, has largely disappeared, resulting in a de facto abolition of this practice in the entire insurance market, except in marine insurance. Consequently, the process of buying intermediaries, in wich all parties insurers, underwriting agents and brokers have taken part, largely went by the marine insurance market. It is nevertheless expected, that marine insurance will have to follow eventually. The purchase of intermediary by insurance companies has had the paradoxical consequence of actually enlarging the number of parties on the risk-accepting side of the market. Previously, a broker only had to convince a limited number of underwriting agents to bind a number of insurance companies, now, he has to convince all the leading companies. It is argued by many insurance-industry executives that the market will become more transparent by the disappearance of the underwriting agents. It will end the conicts of interest between the insurer and his underwriting agent, and, they argue, one of the most poignant characteristics of the Dutch insurance market will consequently disappear. One has to wonder whether this will really be the case. Certainly, the buying of an underwriting agent by an insurer will silence the conict of interest between the two, but it will cause new conicts to arise. Although Dutch insurance-regulation does not allow brokers to underwrite (to prevent the conict of interest that would inevitably arise if the agent of the assured would also be his insurer), a number of brokers have bought underwriting agencies, both in the past wave of mergers and before. To prevent conicts of interest, chinese walls have sometimes rather hastily had to be erected between the two operating divisions. It is easily understandable why brokers would want an underwriting agent: it saves costs when risks can be placed with a befriended agent, without too many questions asked. A marine broker, interviewed after having sold his underwriting agency, admitted to having exerted enormous pressure on his underwriting agent to accept certain risks.

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Although these developments will eventually touch upon the marine insurance market as well, the market will not necessarily become more transparent, or less, probably nothing much will change. For next to the market structure described so far assured and broker on the one hand, underwriting agent and insurer on the other numerous situations already exist in which brokers de facto act as underwriters. Most poignant in this respect is the long standing practice of the largest brokers in the market acting as agents for insurers and underwriting agencies. They are permitted to accept certain risks on behalf of these underwriters; within certain parameters and upon certain conditions, of course. The conict of interest is obvious: the broker is required to serve the best interests of both the assured and the insurers. This practice (thus) would seem wide open to abuse. Especially when considering that supervision by the underwriters is lacking completely. When asked why, an insurer answered: if I did not trust the broker I have authorized to accept risks on my behalf, I wouldnt have done so. Checking would mean not trusting him completely, so . . . The checks are usually done in the following way: at the end of each underwriting year the results are reviewed. If a prot has been made, we go to our pub, if not, we might want to reconsider the parameters of the authorization, . . . and then go to the pub. The interviewed underwriter was obviously exaggerating, but he does have a point: its the results that count, not the game played. Equally obvious is the conict of interest that arises on account of yet another long standing practice. Brokers are sometimes permitted by an insurer to handle claims on their behalf. Small claims usually, but nevertheless, the agent of the assured is allowed to decide upon the claims of the assured. And again, controls are mostly lacking for the reason already mentioned: trust has taken their place. To trust or to depend? In the above-cited examples the reason for relying on trust instead of control is not the impossibility of control (as was the original rationale for the uberrima des doctrine) but expediency. The whole array of mandates given to brokers by insurers are instigated by the need for speed and justied by trust. It is said that the market needs these admittedly conict-generating measures and that to control all discretionary powers would prove impossible while rendering the system worthless, exibility being one of its cornerstones. The interviewed executives would certainly agree with Diane Vaughan (1983) citing Cressey and Moore (1980) in this respect: (i)f strict controls were imposed . . . then embezzlement, management fraud, and other illegal conduct would be greatly reduced, but very little business would be done.

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Since the marine insurance industry is to a large extent agent-controlled, it is essential that the various principals and agents trust each other. The system wouldnt work otherwise. Firstly, because there is simply too ample possibility for abuse by the agent and too little opportunity for control by the principal: the principal has no choice but to trust. Secondly, because too much control would hamper the market-ow, would interfere with the requirement of expediency: the principal needs to trust to stay in business. The industry doesnt seem to consider this extensive relying on trust a problem or a risk. On the contrary, because of the ample trust throughout the market, the marine insurance industry has been able to meet the ever increasing demands of insured shipowners. The numerous time-saving delegations of insurers to brokers are cases in point. Transaction costs are thus kept low. Now, because of this special relation of trust, it becomes ever more difcult for a principal to require proof, to check, to formalize his control. It would be a motion of distrust touching upon the very basis of the system. Even if it were possible to control no need for speed or market-ow , we must wonder whether more checking would take place. To check means to distrust. To admit to distrusting, would be to strike at the roots of marine insurance. But if this is so, should the much acclaimed trust both in the two agencyrelationships described and in the inter-agent-relationship identied , not be rather termed inter dependence? Between broker and underwriting agent an imbalance exists, that is comparable to the unbalanced agency-relationship between shipowner and broker and between insurer and underwriting agent: lack of information, lack of control. And as trust, said to perform the tasks of monitoring in principal-agent-relationships, can be better understood as a product of one party depending on the other, than as a mutually agreed upon lubricant, also the control-replacing trust in the relationship between broker and underwriting agent can only be understood when considering that there is structural imbalance of power between the two. In conclusion: the crimino genes of marine insurance fraud Can the Dutch marine insurance market be said to be criminogenic? In marine insurance traditions are preferred to modernity. An oral business tradition, in which as little as possible is put in writing, still persists. One might say be it with some exaggeration that in marine insurance the Dutch Golden Age has not ended. All insurance business is still conducted on the explicit basis of uberrima des. The actual parties to a contract of marine insurance shipowner and insurance companies are largely absent. The market is riddled with agents, and controlled by brokers. The actual buying of marine insurance is done by only very few insurance brokers, who represent the shipowners.

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In Dutch marine insurance one of these brokers has furthermore established a de facto monopoly. The brokers have their dealings with equally few leading underwriting agents. The actual bearing of risks is nevertheless done by numerous insurance companies, principals of the underwriting agents. On the agent-level where the action takes place the market-structure is very concentrated. On the level of the actual parties where the real interests lie the structure of the market is far less concentrated. Risks are spread among a great many insurers. Legitimate claims as well as frauds therefore victimize many, but to a very limited extent only: a victim likely to complain to enforcement agencies (Coleman 1987) is largely absent. Trust permeates all aspects of marine insurance and has effectively replaced monitoring and control. Marine risks are to a large extent uncontrollable: trust between the contractual parties has had to ll the control-gap. Trust has furthermore enabled the marine insurance market to respond to the ever increasing need for expediency. The consequence: monitoring and control are largely lacking. But the extent to which the market relies on trust can only be understood when considering the various structurally imbalanced agency and inter-agency relationships, in which shipowners depend to a very large extent on brokers (a broker), insurers on their underwriting agents and these underwriting agents in their turn on brokers. The answer should therefore be yes, the Dutch marine insurance is a criminogenic, a crime-facilitative environment.

Notes
1. A rst draft of this paper was presented at the 1996 annual meeting of the American Society of Criminology in Chicago. Thanks to Chrisje Brants, Freek Bruinsma, Frank Bovenkerk and Roan Lamp for comments on earlier drafts. 2. The scuttling of the supertanker Salem of the West-African coast on January 17th 1980 is the best known example the story was broken by Daily Telegraph reporter Barbara Conway (Conway 1981, 1990; Klinghoffer 1988; Bose and Gunn 1989; Ellen and Campbell 1981) but it is certainly not the only case and maybe not even the most infamous scuttling ever. Take for instance the scuttling of the freighter Lucona in the Indian Ocean on January 23rd 1977: espionage, corruption and murder in the government-atmosphere, according to the Austrian journalist and publisher Hans Pretterebner (1989). 3. See Brady (1983) and Szasz (1986) for more substantiated accounts of organized crime groups entering legitimate economic sectors, linking business practice and economic circumstances to criminogenesis. Szasz: (c)rimes that are functional for a particular industry are committed by actors that are not only not of that industry but are of a totally different economic world, the underworld. One may . . . call it externalizing criminogenesis (Szasz 1986, p. 23). 4. Privacy reasons have necessitated a somewhat altered account of the facts of the case. 5. Crime and fraud were central factors in the savings and loan crisis. . . . Thrift deregulation in the early 1980s, in conjunction with federal insurance on thrift deposits, produced a criminogenic environment in which opportunities for fraud were extensive and risks were minimal, write Henry N. Pontell and Kitty Calavita in 1993.

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6. Sutherlands presidential address to the American Sociological Society (December 1939, Philadelphia) was published in 1940. 7. They will nevertheless in some cases consider it necessary to reinsure the risk they have accepted, thus shifting the burden of the risk to other (re)insurers. 8. Such easy access, that it is even argued by some, that the oncoming liberalisation of trade in the services-sector in the European Union will not have any notable effect in the Netherlands. The market already is completely open. The foreign companies supposed to enter the market have already done so, thus effectively closing the market in an economic way for new competitors (KPMG 1994). 9. A recent dispute in the Rotterdam hull insurance market though could only be resolved in a face to face meeting of the leading underwriting agent and the shipowner. Characteristically: the underwriter already knew the shipowner from a previous occupation. We speak each others language, we know we can trust each other, the underwriter said afterwards. Understandably the brokerage rm involved did not look very favourably upon this development. The brokers made it clear that it would not be bypassed again. In this respect the Dutch marine insurance market hardly differs from Lloyds, where the shipowner will also approach a broker, who will then contact the syndicates underwriters. The actual underwriters, the so-called names, will only hear what they have underwritten and which are the results some three years later. The shipowner will never know which syndicates actually underwrote his eet of ships. 10. The actual broker-participation in marine insurance depends both on the number of brokers and on the denition of marine insurance. Several brokers almost exclusively intermediate in the forming of insurance contracts for inland waterways shipping. This line of insurance business is very similar to that of marine insurance, but the insured line of business is hardly comparable with that of marine transport. 11. Of course dependent upon the size of their authorization to the agent. 12. Marine insurance fraud is policed by the ordinary police forces and by a special insurance fraud branch. Both are accused by many insurers of not doing enough about insurance fraud and of incompetence. Many insurers feel that while the police need only put before a judge the numerous fraud-cases that are delivered to them to secure a conviction, nothing much is being done. Many police-ofcers feel that they are not hired to do the job insurance companies ought to do themselves and when asked to choose between apprehending a drugsdealer or going after some insurance-fraudster, the choice is rather easily made. Generally insurance fraud is felt to be a difcult speciality. This is even more so with regard to marine insurance fraud, to which can be added that the need for the Dutch police to go after the more often than not international fraud rings is only felt to a very limited extent. 13. On the grounds of the so-called to follow clause, which every marine insurance contract contains. 14. No statistics are being kept of the number of shipowners insured in the Dutch insurance market. A number of Dutch shipowners are not insured in the Netherlands but in a foreign market, most likely London or Norway, and a number of foreign shipowners are insured in the Netherlands. The actual number shermen excluded will not exceed 200. 15. The Dutch Underwriters Association (Verbond van Verzekeraars) every year publishes Verzekerd van cijfers, Dutch Insurance Industry in Figures. The 1992 statistics (published in 1994) consider 34 insurance-companies to be more or less specialised in marine insurance. The company most specialised in marine insurance (CIGNA) only earns 37.7% of its premium income in marine underwriting. The biggest marine insurer in the Netherlands (UAP Nieuw Rotterdam) only earns 10.3% of its premium in marine underwriting. 16. Some insurance companies do both. They are represented (and underwritten for) and underwrite themselves. 17. Cf. Stewart Macaulay (1963): a lawyer interviewed by Macaulay was told time and again by his clients: We can trust good old Max, no need for a contract. Im sick of it, the lawyer added.

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18. Not only does a broker buy insurance, he also performs a major role in the claims-handling process. The insured will report the losses incurred to his broker, the broker will forward the claim to the insurers, but will also have appointed a loss adjuster and will have hired lawyers. These tasks especially, require personell and expertise and thus size.

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