CAS.GovtIns

Question 1

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

Answer 1

• government as SOLE provider (CPP)
• government as a provider in PARTNERSHIP with private insurance (crop reinsurance)
• government as a provider in COMPETITION with private insurance (WC in some states)

Question 2

Identify the 5 REASONS for government participation in insurance

Answer 2

1. FILLING NEEDS unmet by private insurance (terrorism)
2. When insurance is COMPULSORY (BC auto)
3. CONVENIENCE (flood)
   - government may already have necessary structures in place
4. EFFICIENCY (auto)
   agent commissions eliminated ? lower expense ratio ? lower premiums for consumer
5. SOCIAL purposes (medical)
   - 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?

Answer 3

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

Question 4

Identify 2 ways used by government insurance to subsidize losses.

Answer 4

• general tax revenue
• charge less than the actual cost of insurance & fill gap with special fund

Question 5

Identify the 3 criteria that a government insurance program should satisfy

criteria to evelaute gov program

Answer 5

• is it social welfare or insurance ?
• is it efficient or accepted by the public
• is it necessary or serves social purpose

Question 6

Compare insurance v social welfare

Answer 6

INSURANCE:
- pays upon covered loss REGARDLESS of need (funded by insureds)
WELFARE:
- pays BASED on need (funded by general tax revenues)

Question 7

Identify 3 reasons to ELIMINATE public (gov) insurance

Answer 7

• private insurance can do it
• private insurance offers more CUSTOMIZABLE policies
• efficiency may be OVERSTATED (true expenses may be understated)