B - Government Insurers Study Note

Question 1

GOVERNMENT INSURERS STUDY NOTE

5 reasons for govt participation in insurance

Answer 1

1) TO FILL INSURANCE NEED UNMET BY PRIVATE INSURANCE
- Residual market (govt offers insurance in market where private insurance is not available nor affordable)
- Insurability requirement less for govt than for private insurer
- Govt has the capability to subsidize the loss
- Ex : Crop and Flood Insurance.

2) COMPULSORY PURCHASE OF INSURANCE
since purchasing insurance is sometimes mandatory, govt obliged to offer insurance to people not able to find it from private market
-Ex : FARM

3) CONVENIENCE
govt can set up a program quickly as they can get funding easier than private market
-Ex : TRIA Program

4) GREATER EFFICIENCY
belief that govt can provide service at a lower cost than private market

5) SOCIAL PURPOSES
can only be achieved through govt insurance (rehab, vocational training)
-Ex : social security

Question 2

GOVERNMENT INSURERS STUDY NOTE

3 levels at which a govt insurer can play a role

For each, give an example.

Answer 2

1) EXCLUSIVE INSURER
(Social Security)
2) PARTNER WITH PRIVATE INSURER
(Terrorism Risk Insurance Program)
3) COMPETITOR WITH PRIVATE INSURER
(Workers Comp)