CAS.GovtIns

Question 1

Identify the LEVELS of government involvement in insurance (3) + examples

Answer 1

1. Government as SOLE provider (CPP)
2. Government as a provider in PARTNERSHIP with private insurance (crop reinsurance)
3. Government as a provider in COMPETITION with private insurance (WC in some states)

Question 2

Identify reasons for government participation in insurance (5)

Answer 2

1. for FILLING NEEDS unmet by private insurance (ex: terrorism)
   - Usually due to availability & affordability
   - May occur when private insurance is not economically viable
   - after 9/11 terrorist attack in NYC, private market withdrew coverage
2. when insurance is COMPULSORY (ex: BC Auto)
   - If compulsory but not offered by private market (for wtv reason) - government must provide (allows availability & affordability of coverage)
3. for CONVENIENCE (ex: flood)
   - Government may already have necessary structures in place
   - Government can quickly establish a program through legislation or province funding
4. for EFFICIENCY (auto)
   - Higher efficiency: lower cost than a privary market
5. for SOCIAL purposes (ex: medical, CPP)
   - Serve a social purpose that can’t be attained by private insurers
   - Private market is motivated by profit
   - This is sometimes at the expense of social purposes like universal medical coverage

Question 3

Why might government insurance succeed where private insurance fails + examples

Answer 3

Government insurance can SUBSIDIZE losses through taxes (ex: flood, terrorism, crop)

Question 4

How can government insurance subsidize losses? (2)

Answer 4

• General tax revenue (using that to subsidize high risks)
• Charge less than the actual cost of insurance & fill gap with special fund

Question 5

Why might government insurance exist when insurance is compulsory? (2)

Answer 5

If private insurance is NOT available:
- Government would be sole provider

If private insurance IS available:
- Profits should be limited due to guaranteed market that government created
- Government involvement could accomplish this

Question 6

Identify a private market mechanism that provides compulsory insurance to high-risk insureds

Answer 6

Risk Sharing Pools or Facility Association Residual Market (FA)

Question 7

Why may government insurance be more convenient to operate + 2 examples

Answer 7

May already have necessary structures in place

Example: DFAA (Disaster Financial Assistance Arrangements) already exists and dovetails with insurance for flood & terrorism

Question 8

Why may government insurance be more efficient for auto insurance?

Answer 8

Eliminates commissions, reduces expenses, which lowers premiums

Question 9

Why may efficiency of government insurance be overstated + 3 examples of costs to government

Answer 9

• Other government department may be performing services normally provided by insurer
• But the cost of these services may not be included in expenses (so true expenses may be understated, cost-saving may be overstated)

Example: investing, property appraisal, claims handling

Question 10

Why may convenience reason for participation not be accurate?

Answer 10

Competitive market is willing and able to create new coverages/programs

Question 11

Why may social burden reason for participation be overstated?

Answer 11

A strongly regulated private insurer with strict guidance or standards can do the same as the government

Question 12

Why may government insurance be better at social purposes (3) + 2 examples

Answer 12

MOTIVATION:
- Private insurance is motivated by profit not social purposes

COMPLEXITY (Ex: CPP)
- Some programs are too large & comprehensive for private companies

LEGISLATION:
- Enact building codes for risk mitigation

Question 13

Identify criteria that a government insurance program should satisfy (3)

Answer 13

1. Is it welfare or insurance?
2. Is it efficient or accepted by the public?
3. Is it necessary or serves a social purpose?

Question 14

What are the differences between insurance & social welfare

Answer 14

Insurance:
- Pays upon covered loss REGARDLESS of need
- Is funded by premiums/insureds

Welfare:
- Pays based on need
- Is funded by general tax revenues

Question 15

Identify reasons to SUPPORT public auto insurance (3)

Answer 15

1. FILLING UNMET NEEDS: coverage may not be available or affordable for everyone. With government operation this issue may be fixed
2. EFFICIENCY: eliminates commission, which reduces expenses, which lowers premiums
3. SOCIAL PURPOSES: ensures universal coverage and sustainability through general tax revenues, if necessary. Would not be possible under private insurance market

Question 16

Identify reasons to eliminate public auto insurance (3)

Answer 16

1. Having a private insurance market will lead to competition between insurers leading to appropriate prices for insureds
2. Private insurance offers more customizable policies
3. Efficiency of public auto insurance may be overstated (due to reasons mentioned in other card)

Question 17

Reasons for government participation in TERRORISM insurance (2)

Answer 17

1. Filing unmet needs
   - Private market withdrew terrorism coverage after 9/11
   - People expect assistance in recovering from terrorism
2. Convenience
   - Necessary structures are already in place (ex: DFAA in Canada - Disaster Financial Assistance Agency)