Gov't and Industry Insurance Programs Flashcards
(125 cards)
1
Q
What are some reasons for government participation in insurance?
A
- Filling insurance needs unmet by private insurance
- Compulsory purchase of insurance
- Convenience
- Greater efficiency
- Social purposes
Govt Study Note pg1
2
Q
As compared to private insurers, how can the government (state or federal) be involved in an insurance market?
A
As exclusive insurer
or partner with private insurers
or compete with private insurers
Govt Study Note pg4
3
Q
What is an example of the federal government acting as exclusive insurer?
A
Social Security
Govt Study Note pg4
4
Q
What is an example of state governments acting as exclusive insurer?
A
Some state government-run workers compensation programs
Govt Study Note pg4
5
Q
How does the government partner with private insurance companies?
A
The government offers reinsurance coverage on specific loss exposures for which the private insurer may retain only a portion of the loss.
Govt Study Note pg4
6
Q
What are some examples of the federal government partnering with private insurance companies?
A
The National Flood Insurance Program
TRIA
Federal Crop Insurance
Govt Study Note pg4
7
Q
What are some examples of state governments partnering with private insurance companies?
A
Fair Access to Insurance Requirements (FAIR plans)
Workers Compensation
Windstorm plans
Residual Auto Plans
Govt Study Note pg4
8
Q
What is an example of state governments in competition with private insurance companies?
A
Some state’s workers compensation plans
Govt Study Note pg4
9
Q
Why was the National Flood Insurance Program established?
A
The private insurers were not supplying flood insurance to the private market
Govt Study Not pg4
10
Q
What is a guaranty fund?
A
A guaranty fund (also called a guaranty association) is a state fund that provides a system to pay the claims of insolvent insurers. It is generally funded by assessments collected from all insurers licensed in the state.
Porter 12.12
11
Q
What is a post-insolvency assessment?
A
It is an approach to funding claims in which a state guaranty fund estimates the claims it must pay after an insolvency and issues assessments for this obligation to solvent insurers operating in the state.
Porter 12.12
12
Q
What do guaranty funds pay for?
A
Most claims that would have been due under insolvent insurers’ policies and a portion of insolvent insurers’ unearned premium.
12.13
13
Q
What are some guaranty fund coverage limitations under the NAIC’s Post-Assessment Property and Liability Insurance Guaranty Association Model Act?
A
- Lines Covered. Most property-liability policies, if issues by insurers licensed to transact insurance in that state, are covered. Title, credit, mortgage, and ocean marine are almost always excluded, and all reinsurance and surplus lines contracts are excluded.
- Refunds of unearned premium. Most states cover the return of unearned premium, often with a stated limit per policy
- Maximum covered claim (cap). The model act calls for a stated limit per policy claim, except for workers compensation, which provides unlimited statutory benefits
- Claim deductibles. The model act requires a stated deductible per covered claim over any policy deductibles
- Large net worth deductible. Many states have adopted a special deductible for insureds with large net worth. The deductible is a stated percentage of those insureds’ net worth.
- Trigger of coverage. For most states, fund coverage becomes available for an insured only after a court has found that insurer to be insolvent and has put it into liquidation.
Porter 12.13
14
Q
How does the NAIC model act allow for guaranty fund boards to prevent insolvencies?
A
The guaranty fund board can make recommendations to the commissioner on insolvency protection and participate with the commissioner in the correction of a financially hazardous member insurer.
Porter 12.13
15
Q
Who is not covered by a guaranty fund?
A
Guaranty funds do not cover unlicensed insurers, such as excess and surplus lines insurers.
Porter 12.14
16
Q
Why do critics question the ability of post-insolvency guaranty funds to pay for CAT losses?
Why does the NAIC disagree?
A
In most states, annual assessments cannot exceed a small percentage, such as 2%, of premiums written in the state..
Although this percentage of premium cap is occasionally paid out quickly, as with payments for insolvencies caused by a record number of claims following natural disasters, industry and NAIC studies have found that state funds generally have had ample capacity to meet reasonably foreseeable insolvencies.
Porter 12.14
17
Q
How can insurers shift some of their guaranty fund assessment costs on to the public?
A
Insurers can attempt to pass on their assessment costs to their policyholders in their rates. Additionally, many states allow a credit for assessment against premium taxes owed by members of guaranty funds.
Porter 12.14
18
Q
They high costs of paying for insolvencies through guaranty funds motivate insurers to promote strong financial regulation. What are two reason the price for insolvencies is high?
A
- Insurers are assessed directly for guaranty fund operation
- Competition is distorted. Insurers that are aggressively marketing or loosely underwriting can gain a greater market share, compared with more conservatively managed insurers.
Porter 12.17
19
Q
How do consumers benefit from guaranty funds?
A
For consumers with claims, instead of waiting their turn to receive a fraction of a dollar, as under federal bankruptcy laws, they get the total value of most claims paid promptly.
Some consumers benefit from risky underwriting behavior, such as the high-risk driver who obtains insurance at standard rates from an insurer aggressively seeking to expand.
Porter 12.17
20
Q
How do consumers pay for guaranty funds?
A
Consumers cost is hidden. Insurers pass on the cost of assessment to consumers in their rates.
Porter 12.17
21
Q
Why was the Terrorism Risk Insurance Act of 2002 (TRIA) enacted by Congress?
A
After 9/11, terrorism insurance was either extremely expensive or not offered at all by individual private insurers.
Webel Summary
22
Q
What change was made to TRIA when it was extended in 2007?
A
TRIA was amended to cover not only foreign terrorism but also domestic terrorism.
Webel Summary
23
Q
What did the Terrorism Risk Insurance Act of 2002 create?
A
TRIA created a temporary three year Terrorism Insurance Program in which the government would share some of the losses with private insurers should a foreign terrorist attack occur.
Webel Summary
24
Q
What does TRIA require of insurance companies?
A
TRIA requires that insurance companies make terrorism coverage available to commercial policy holders.
TRIA does NOT require policyholders to purchase terrorism coverage.
Webel Summary
25
How does the amount of government loss sharing vary by size of insured loss under TRIA?
* For a relatively small loss, private industry covers the entire loss.
* For a medium sized loss, the federal role is to spread the loss over time and over the entire insurance industry; the govt assists insurers initially but then recoups the payments through a broad levy on insurers afterward.
* For a large loss, the federal govt would cover most of the losses, although recoupment is possible in these circumstances as well.
Webel Summary
26
Has TRIA helped make commercial terrorism risk coverage available?
Yes. Since TRIA’s passage, the private industry’s willingness and ability to cover terrorism risk have
increased. According to industry surveys, prices for terrorism coverage have generally trended
downward, and approximately 60% of commercial policyholders have purchased coverage over
the past few years
Webel Summary
27
What are the 3 stated goals of TRIA 2002?
(1) create a temporary federal program of shared public and private compensation for insured terrorism losses to allow the private market to stabilize;
(2) protect consumers by ensuring the availability and affordability of insurance for terrorism risks; and
(3) preserve state regulation of insurance
Webel pg2
28
How did TRIA address it's second goal, to protect consumers?
By requiring those insurers that offer the lines of insurance covered by TRIA to make terrorism insurance available prospectively to their commercial policyholders. This coverage may not differ materially from coverage for other types of losses.
Webel pg4
29
Although TRIA's 3rd goal is to preserve state regulation of insurance, there are a few exceptions included in the initial legislation. What are they?
(1) the federal statute preempts any state definition of an “act of terrorism” in favor of the federal definition and
(2) state rate and form approval laws for terrorism insurance were preempted from enactment to the end of 2003.
(3) preempts state laws with respect to insurance policy exclusions for acts of terrorism
Webel pg5
30
How has the administration of TRIA program changed over time?
Originally, the administration of the TRIA program was left generally to the Secretary of the Treasury.
After the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010, this act created a new Federal Insurance Office (FIO) to be located in the Department of the Treasury, which assists the Secretary in the administration of the Terrorism Insurance Program
Webel pg5
31
Are Nuclear, Chemical, Biological, and/or Radiological (NCBR) terrorism events covered by TRIA?
TRIA does not explicitly include or exclude NCBR events. However, many underlying policies exclude NCBR events, whether terrorism or otherwise. Because TRIA only covers insured losses, the underlying policy exclusions would limit TRIA's coverage.
Webel pg5
32
Why do some believe that terrorism is not an insurable risk?
Terrorism losses are not fortuitous or accidental.
Terrorism losses can be catastrophic.
Webel pg6
33
How can a government create the financial capacity to subsidize losses that private insurers cannot?
Either by directly taxing taxpayers for the insurance program, even those who do not benefit from the program, or indirectly by charging less than the actuarial cost of providing insurance coverage for the exposure and making up the difference through government-provided funds (crop/flood).
Govt Study Note pg1
34
What makes Crop and Flood insurance available and affordable?
Crop and Flood insurance is available and affordable only because of subsidies from the federal government.
Govt Study Note pg2
35
What are some examples of state legislatures offering insurance to individuals who could not find a private market for compulsory insurance?
The workers compensation state funds established in several states and the Maryland Automobile Insurance Fund are examples.
Govt Study Note pg2
36
What are two reasons why some federal and state legislators believe that government should provide compulsory insurance?
1. Some individuals might not be able to find a private market.
2. private companies should make only limited profits, given the government guaranteed market; govt would act as a not-for-profit insurer to keep cost of compulsory insurance down.
Govt Study Note pg2
37
How is 'convenience' used as a justification for government involvement in insurance?
It is easier for the government to set up a program quickly as a legislature can appropriate funding for the new program, whereas the private market may take longer to find the necessary funding.
Also a govt program may already be set up to provide certain types of services needed by the insurance program; e.g. loss mitigation development and funding (Florida Hurricane Cat Fund)
Govt Study Note pg3
38
Why might the cost savings claimed for government insurance programs as compared to private insurance be overstated?
Other government departments may perform services on behalf of the govt insurance entity that are usually performed by insurance companies, including appraising property, administering claims, or making investments.
Govt Study Note pg3
39
What questions should be asked in assessing the effectiveness of government insurance programs?
* Is the provision of the insurance by the govt necessary or does it achieve a social purpose that cannot be provided by private insurance?
* Is it insurance or a social welfare program?
* Is the program efficient, is it accepted by the public?
Govt Study Note pg4
40
How does the Federal Crop Insurance Program work?
Operated by FCIC, wholly owned corp of the USDA. Private insurers sell and service the insurance policies, and the losses are reinsured by the federal govt.
In addition to reinsuring the losses, the govt subsidizes the premium paid by the participating farmers and reimburses the participating insurers for their administrative costs.
Govt Study Note pg5
41
What are some criticisms of the Federal Crop Insurance Program that led to its overhaul by the Agricultural Risk Protection Act of 2000?
Many farm groups felt that the crop insurance program did not provide adequate coverage when natural disasters occurred.
Opponents of the federal crop insurance program felt that the subsidies provided by the government encouraged overproduction.
Govt Study Note pg5
42
What changes did the Agricultural Risk Protection Act of 2000 (ARPA) make to the federal crop insurance program?
ARPA increased the portion of the premium paid by the federal govt and improved the coverage available to farmers affected by multiple years of natural disasters.
Govt Study Note pg5
43
Why did the Agricultural Risk Protection Act of 2000 (ARPA) increase premium subsidies for the federal crop insurance program?
ARPA increased premium subsidies for the federal crop insurance program to encourage higher levels of coverage.
Govt Study Note pg6
44
What goal did the Agricultural Risk Protection Act of 2000 (ARPA's) increase in subsidies accomplish?
The subsidies increased participation in the program at higher levels of coverage.
Govt Study Note pg6
45
What changes have been made and proposed to the federal crop insurance program since ARPA?
The Risk Management Agency (RMA) revised the reinsurance agreements to lower the reimbursement rate to insurers for administrative and operating expenses and a rebalancing of the risk shared by the govt and private insurers.
In order to receive farm program benefits a participant would need to purchase crop insurance protection for at least 50% of the expected market value.
Govt Study Note pg6
46
How do both employees and employers benefit from workers compensation insurance?
Employees do not have to sue their employers to get compensation.
Employers exchange an uncertain, potentially large payment, for a certain guaranteed benefit system.
Govt Study Note pg7
47
What is the Federal Employee Compensation Act (FECA)?
The Federal Employee Compensation Act (FECA) provides compensation benefits to non-military, federal employees for disability due to personal injury sustained while in the performance of duty and for employment-related disease.
The act is the exclusive remedy for federal civilian employees who suffer occupational injury or illness.
Govt Study Note pg7
48
What is the purpose of the Federal Employee Compensation Act (FECA)?
The program's purpose is to return individuals to work while containing the costs of the system.
Costs of the system are contained because no judicial review and limited employer ability to contest claims, ergo the program has limited administrative and litigation costs.
Govt Study Note pg7
49
Does the Federal Employee Compensation Act (FECA) achieve its goal of low administration costs when compared to similar state-run systems?
Yes. % administration costs are lower in the federal program than compared to similar state programs.
However, the average benefits paid within the FECA system are substantially higher than state WC systems, leading to relatively low admin percentages.
Govt Study Note pg7
50
Why was the Longshore and Harbor Workers' Compensation Act of 1927 enacted?
The act was created to provide workers' compensation coverage for categories of workers who were not seamen and were injured while working on or near navigable water in the US and for which no state act coverage applied.
Govt Study Note pg8
51
What is the responsibility of the Division of Longshore and Harbor Workers' Compensation (DLHWC)?
DLHWC is responsible for adjudicating disputed claims and ensuring that employers and carriers pay benefits to longshore, harbor, or maritime workers who are injured or suffer occupational diseases while working on or near navigable water in the US.
Govt Study Note pg8
52
What was the purpose of the Black Lung Benefits Act?
The Black Lung Benefits Act provides wage-replacement and medical benefits to coal miners who are totally disabled due to pneumoconiosis (black lung disease) and to eligible survivors.
Govt Study Note pg8
53
Why was the Black Lung Benefits Act enacted by the federal govt?
State workers compensation systems rarely assisted victims of black lung disease.
Govt Study Note pg8
54
How is the Black Lung Benefits Act federal program financed?
The program is financed partly by federal general revenues and party by the Black Lung Trust Fund which is financed by coal mine operators through a federal excise tax.
Govt Study Note pg8
55
Is the Black Lung Trust Fund fully financed?
While excise tax revenue is now sufficient to cover the current cost of benefits and administration of the fund, the Black Lung Disability Trust Fund must borrow more each year to service its debt from prior years.
Govt Study Note pg9
56
What changes included in the Byrd Amendment of the 2010 Patient Protection and Affordable Care Act are expected to significantly increase the number of compensatable claims under the Black Lung Benefits Act?
* Mandated (retroactive to 2005) presumption that disability or death due to black lung is work related and compensable if the injured workers were employed for at least 15 years in coal mining.
* surviving dependents will automatically receive survivors benefits if the miner was reciving lifetime benefits at the time of death.
Govt Study Note pg9
57
How do workers compensation state government programs vary?
State programs vary concerning who is allowed to provide insurance, which injuries or illnesses are compensable, and the level of benefits.
Govt Study Note pg9
58
What are some fears employers and the state have about the compulsory nature of workers compensation insurance?
Emplyers fear they would be forced out of business if refused coverage by insurance companies.
Employers also fear that insurance carriers might impose excessive premium rates that would be a financial burden.
States fear that high premium rates could negatively affect a state's economy and ultimately limit opportunities for employment.
Because of the mandatory nature of the coverage reduces elasticity of demand, insurance rates might soar, enabling insurers to reap unfair profits.
Govt Study Note pg9
59
How can state governments be involved in workers compensation insurance?
The state government can act as a partner with private insurers, a competitor of private insurers, or an exclusive insurer.
Govt Study Note pg9
60
What have states without state fund workers compensation programs or exclusive state fund workers compensation programs done to ensure that WC insurance is available to employers the private market does not deem insurable?
States without state funds have set up residual market mechanisms to act as insurers of last resort.
Govt Study Note pg11
61
Describe how a state government may operate under a workers compensation program as a partner to private insurers?
The State government enacts statutes and/or legislation mandating workers compensation insurance which private insurers then provide.
2004 Q51b
62
Describe how a state government may operate under a workers compensation program as a competitor to private insurers?
In some states, there are competitive state funds competing with private insurers.
2004 Q51b
63
Describe how a state government may operate under a workers compensation program as an exclusive insurer?
In some states, there are exclusive state workers compensation funds.
2004 Q51b
64
Government workers' compensation programs act in competition with private insurers in some states. Briefly discuss whether or not these government programs provide a needed service that cannot reasonably be provided by private insurance.
In states without a state fund, private insurers appear to be meeting the needs of the public. This may indicate that state funds are unnecessary.
2006 Q4a
65
Briefly discuss whether or not government workers compensation programs are reasonably efficient.
Government programs are possibly more efficient than private insurers because they don't have to offer commissions to agents.
2006 Q4b
66
Briefly describe the rationale for the government involvement in insurance with the Federal Employee Compensation Act (FECA).
FECA - the government can provide WC benefits to federal employers more efficiently than private carriers.
This is for federal employees and the govt is effectively self insuring to lower costs.
2011 Q12
67
Briefly describe the rationale for government involvement in insurance for the Black Lunch Benefits Act.
Black Lunch Benefit Act - workers had numerous employers and long latency for issues leading to lack/denial of coverage since injuries were not caused by the current employer.
2011 Q12
68
Briefly describe the rationale for government involvement in insurance for the Longshore and Harbor Workers' Compensation Act of 1927.
The Longshore and Harbor Workers' Compensation Act was to address the numerous issues over responsibility of coverage due to employees working out of state jurisdiction on navigable water.
2011 Q12
69
Evaluate the effectiveness of the Federal Employee Compensation Act (FECA)
FECA has lower administrative expenses and is offered efficiently.
FECA is effective; its non-adversarial nature reduces litigation costs since it limits employer's ability to contest and eliminates judicial reviews.
2011 Q12
70
Evaluate the effectiveness of the Black Lung Benefits Act
The Black Lung Benefits Act provides for these workers from general revenues and with an excise tax on mine operations, which encourages mining companies to create safe working conditions.
Using mining operation taxes and fees assessed, the act can cover current payments and future costs, but needs to borrow to pay past claims.
2011 Q12
71
Evaluate the effectiveness of the Longshore and Harbor Workers Compensation Act
Longshore and Harbor workers compensation act provides for those workers through a combination of requiring employers to purchase private insurance and second injury funds.
Longshore and Harbor Workers Compensation Act is effective, since benefit is reduced if state benefit is available, this reduces costs.
2011 Q12
72
Describe advantages to having state governments rather than private insurers provide workers compensation insurance.
State govts would not be writing other lines of insurance like private insurers, therefore they would be more specialized and knowledgeable
State govts can specialize in WC and offer rehabilitation services and job retaining for injured workers
If state govt provides WC, they will not have to spend on commissions and marketing and this expense savings can result in lower prices
State govt does not need to charge for profit contingency, so cheaper premiums
State fund could be willing to ensure all employers, increasing availability.
2014 Q11
73
Describe advantages of having private insurers rather than state governments provide workers compensation insurance.
Private insurers have been shown to provide WC as efficiently as state funds.
Private insurers who exclusively write WC insurance may have more experience writing and can operate more efficiently with better claims handling practices
More competition and innovation. Competition should cause private insurers to compete with each other to provide best risk classifications and services.
The competition helps to keep costs lower and more affordable.
Can package policy with other coverages; all insurance is provided with one carrier; convenience and ease of doing business.
Increased incentive for loss control as premiums are more actuarially sound; fewer subsidies exist.
2014 Q11
74
For Crop Insurance, to what extent do private insurers provide coverage?
Private insurers write and service policies and the federal government reinsures.
2015 Spring Q7
75
For Terrorism insurance, to what extent do private insurers provide coverage?
Private insurers write and service policies, and the federal government reinsures.
2015 Spring Q7
76
Discuss the motivation for creating the Federal Crop Insurance Program.
Protect farmers from catastrophic loss to crops since affordable coverage was unavailable.
To protect farmers when the crop fails due to natural disaster. The govt had to act as a reinsurer to private companies because they were unable to provide coverage.
2015 Fall Q11
77
Discuss the motivation for creating the Longshore and Harbor Workers' Compensation Act of 1927.
Sometimes it's not clear which state's WC laws apply when employees are in navigable waters. Federal program ensures employees injured in waters compensated appropriately.
2015 Fall Q11
78
Discuss the motivation for creating the Assigned Risk Plan.
The Assigned Risk Plan was created to provide affordable and available coverage to insured who were rejected by the voluntary market. The govt had to ensure availability because auto insurance is compulsory.
To provide insurance for auto risks that could not get coverage elsewhere, usually drivers with poor experience.
2015 Fall Q11
79
Evaluate the effectiveness of the Federal Crop Insurance Program.
Critics say that it has caused over production and is not effective because private insurers have made money while the govt has lost money.
2015 Fall Q11
80
Evaluate the effectiveness of the Longshore and Harbor Workers' Compensation Act of 1927.
This has been effective as benefits are available to workers and are reduced if state coverage is available.
2015 Fall Q11
81
Evaluate the effectiveness of Assigned Risk Plans
Assigned Risk Plans are effective because everyone is able to receive coverage for compulsory insurance. One downside is that program participants have the stigma of being denied in the voluntary market.
2015 Fall Q11
82
Describe rationales for the existence of state funds for workers' compensation.
Employers feared they would be forced out of business if refused coverage by insurance companies. State funds serve as the insurer of last resort - do not deny insurance coverage to employers who have difficulty purchasing it privately.
Fearful that insurance carriers might impose excessive premium rates that would be a financial burden. High premium rates could negatively affect a state's economy and ultimately limit opportunities for employment.
Due to the mandatory nature of the coverage, this reduces elasticity of demand, so insurance rates might soar, enabling insurers to reap unfair profits
State funds are specialists in wc so they can be expected to offer more intensive levels of rehabilitation and other services than some private insurers whose wc plan is one of several types of coverage offered.
2015 Fall Q12
83
Briefly describe two reasons why state funds for workers' compensation might not be necessary
States without state funds have set up residual market mechanisms to act as insurers of last resort.
There are private insurers who also specialize in providing only WC coverage and may offer the same level of service and expertise as state funds
Competition may encourage adequate and affordable rates
Competition with the private insurer or among private insurers increases the availability of coverage options and fosters environment for more innovation in both coverages and service.
2015 Fall Q12
84
Hamilton and Ferguson discuss mechanisms for providing auto insurance to the residual market. State three of these mechanisms and state how insured are placed in each
JUAs - Joint Underwriting Associations - Service carriers write the business of the residuals and service all claims. The industry shares in the costs based on voluntary market share. Rates are set by pooled experience.
Assigned Risk Plans - drivers assigned to voluntary insurer based on market share.
Maryland Auto Fund - Insured must be canceled once and rejected twice. Serviced by state owned insurance company.
Reinsurance Facilities - for risks not wanted by voluntary insurer, premium ceded to facility. When claims paid, facility reimburses insurer. All insurers share in the expense and deficit of facility, formula based. Rates are the voluntary market rates.
2000 Q103
85
Describe how residual market mechanisms create cross subsidies.
If the rates charged those risks in the residual market are less than the associated costs, the loss is passed on to the insurers of the standard market who then build it into their costs and ultimately the premium charged to their standard market insureds. Good risks ultimately subsidize the bad risks.
2003 Q22
86
Who issues policies, collects premium and pays claims in a Reinsurance Facility
The insurer who receives the application will issue policies, collect premiums, and pay claims.
2003 Q34
87
Who issues policies, collects premium and pays claims in an Auto Insurance Plan?
The insurer who is assigned will issue policies, collect premiums, and pay claims.
2003 Q34
88
How do the insured select and/or get distributed among insurers in a Reinsurance Facility residual market program for auto insurance?
Insureds apply to insurer like a normal insurance application. The insured doesn't know if he/she would be assigned to the residual market. There is no stigma attached.
2003 Q34
89
How do the insured select and/or get distributed among insurers in an Automobile Insurance Plan residual market program for auto insurance?
Insureds are assigned by the AIP. These insured are those who may have been rejected in the voluntary markets. They then apply to the AIP and AIP assigns them to insurers based on the insurer's voluntary market share in that state.
2003 Q34
90
How are the profits and losses distributed in a Reinsurance Facility residual market program for auto insurance?
The profit/loss is shared with all insurers based on a formula.
2003 Q34
91
How are the profits and losses distributed in an Automobile Insurance Plan residual market program for auto insurance?
No sharing of loss experience. The insurer is responsible for the profit/loss associated with the risk.
2003 Q34
92
Identify objectives that states attempt to achieve by implementing a reinsurance facility rather than an assigned risk plan.
Avoid the stigma of being in the residual market.
Better service to residual market.
Fairer distribution of profit/loss to voluntary market.
2006 Q5
93
Describe two similarities between the National Flood Insurance Program (NFIP) and Automobile Assigned Risk Plans.
Rates are set by the govt (FEMA for NFIP, DOI for AIP)
Private insurers market and service the policies.
2005 Q18
94
Describe two differences between the National Flood Insurance Program and the Automobile Assigned Risk Plans.
1. NFIP - govt retains profit/loss. AIP - company retains profit/loss.
2. NFIP - company writes as much business as they want. AIP - business assigned based on market share.
3. NFIP - federal program.
AIP - state program
2005 Q18
95
For a state that has material restrictions on the use of risk classification in the setting of personal auto insurance rates, explain why Joint Underwriting Associations would be an effective involuntary market mechanism.
JUA
1. Rates will be determined by the JUA so the impact of inadequate rates will be known.
2. The insured in the JUA will receive better servicing of claims than in an AIP since servicing carriers are used.
3. It would be easier to charge a price that was closer to the true costs since JUAs can make rates based on involuntary market experience.
2007 Q15
96
Describe how the profit or loss is distributed for Fair Access to Insurance Requirements (FAIR) plan residual market programs.
Each insurer operating in the state is assessed to pay for the rate loss in the plan.
2008 Q18
97
Is the insured aware of their placement in a Joint Underwriting Association residual market program?
Maybe.
i'll look further into this.
2008 Q18
98
How are insureds placed in the Automobile Insurance Plan programs?
Consumer is rejected by voluntary market & applies to plan for placement. Plan then assigns the consumer to companies based on market share.
2009 Q20
99
How are insureds placed in the Reinsurance Facility residual auto market program?
Private insurers decide to either retain the insured or cede the risk to the facility.
2009 Q20
100
How are insureds placed in the Joint Underwriting Association residual auto market program?
Private insurers forward the application to the JUA servicing carrier who writes the policy.
2009 Q20
101
How are insureds placed in the Maryland Automobile Insurance Fund (MAIF)?
After an applicant has been cancelled by at least one insurer and rejected by at least two other insurers, they can be insured with the state owned fund.
2011 Q9
102
How are the costs of the residual market associated with the Maryland Automobile Insurance Fund (MAIF) allocated?
The MAIF carries its own losses and profits (rates reflect experience).
2011 Q9
103
How are rates assigned in a Joint Underwriting Association (JUA)?
In JUA, rates are set based on pool experience and are uniform.
2012 Q13
104
How does the government impose cross subsidies in obtaining personal auto insurance?
Cross-subsidies are imposed by residual market mechanisms and restricted rating variables.
2014 Q8
105
Identify advantages of reinsurance facilities over other residual market mechanisms.
* Provides improved service
* Charges more socially equitable rates
* Removes the stigma of knowing you're in a residual market.
* Policy holder doesn't have to get rejected to participate, so it's less trouble for consumers
* Insurers have more control over rates than in traditional residual markets
* Stabilizes UW results compared to the Assigned Risk plan, as insurers in the pool share experience.
2015 Q8
106
Guaranty funds are not set up to provide complete protection for insureds in the event of an insurer insolvency. Describe situations where the guaranty fund protection is not as broad as the protection offered by the original insurance policy.
- Lines covered - most direct P/C policies if issued by insurers licensed to transact insurance in the state (excl. title, credit, mortgage, ocean marine, reinsurance, and surplus lines)
- Refunds of unearned premiums often with stated limit
- Maximum covered claim, except WC which is unlimited
- Claim deductible in addition to policy deductible
- Large net worth deductible - many states have adopted and is stated as percentage of the insured's net worth
- Trigger of coverage - most state fund coverage only available for an insurer after a court has found it to be insolvent and placed in liquidation.
2003 Q28
107
The law gives guaranty funds priority treatment in recovering their costs from the insolvent insurer.
true. priority compared to whom? page 12.12
108
Describe two actions a guaranty fund board is authorized to perform that could help prevent an insolvency.
1. Guaranty fund board can make recommendation to state regulator about actions needed to take to prevent insolvency.
2. Guaranty fund board can actively participate in the correction activities for those companies which show financial difficulties.
2006 Q11
109
What was stipulated in the Medicare Secondary Payer Act of 1980?
Medicare was secondary not only to Workers Compensation insurance (already the case) but also secondary to liability insurance, like drivers liability insurance.
Govt Study Note pg13
110
What are "conditional payments" as specified in the Medicare Secondary Payer Act of 1980?
In many cases, persons begin incurring medical costs before eligibility to collect insurance has been determined. In such cases, Medicare will make "conditional payments" to medical providers, subject to later reimbursement by an insurer subsequently determined to be primary.
Govt Study Note pg 14
111
Why did federal regulators introduce the Medicare Set-Aside Allocation (MSA)?
In some cases WC claims are closed via a settlement which provides compensation to the injured worker for anticipated future medical payments. Worker not currently Medicare eligible could become Medicare eligible over period the settlement anticipates to cover.
All parties to a settlement would agree to "set aside" a portion to be primary over Medicare for future treatment after the injured party became Medicare eligible.
Govt Study Note pg14
112
What were some initial problems with the Medicare Set-Aside Allocation (MSA)?
Medicare administrators did not know if medicare eligible parties were collecting workers compensation or liability payments.
Parties had little incentive to agree to MSAs
Govt Study Note pg14
113
What did the Center for Medicare and Medicaid Services (CMS) do to combat the initial problems with the Medicare Set-Aside Allocation (MSA)?
-Established new guidelines for the review and approval of MSAs.
Medicare would refuse payment if MSAs were not submitted or not approved
Medicare would become more aggressive about seeking reimbursement for past conditional payments
CMS will review many MSAs, and can reject or revise the MSA proposals.
Govt Study Note pg14
114
What types of MSAs will the CMS review?
CMS will review all MSAs where:
* The claimant is already a Medicare beneficiary and the settlement exceeds 25K, or
* The claimant is expected to be a Medicare eligible within 30 months and the settlement or the expected future medical costs & lost wages exceeds 250K
Govt Study Note pg14
115
How have the Center for Medicare and Medicaid Services' (CMS's) guidelines affected insurance companies?
Insurance companies must use specialists to review their MSA proposals and guide them through the process. This increases administrative costs.
Govt Study Note pg15
116
How have the Center for Medicare and Medicaid Services' (CMS's) guidelines affected insureds?
After the MSA is approved, the worker must comply with the reporting requirements and use the MSA appropriately. Claimants must agree to
* Pay the WC related medical bills using the MSA
* Complete the reporting of the payments
Govt Study Note pg15
117
What are two areas of concern regarding Medicare Set-Aside Allocations (MSAs) that remain even after the Center for Medicare and Medicaid Services' (CMS's) guidelines?
Pharmacy Costs
* The MSAs originally priced the drugs at retail value, ignoring the negotiated price agreements of the insurer.
* Many of the common pain management drugs are not covered by Medicare
Life Expectancy
*MSAs were based on the claimant's actual age, instead of the "rated age" (impaired age)
Govt Study Note pg15
118
How did the Center for Medicare and Medicaid Services (CMS) address the concern insurers had regarding pharmacy costs as they relate to Medicare Set-Aside Allocations (MSAs)?
Medicare issued language to indicate that the provision does not need to be made in the MSA for drugs not covered by Medicare.
Govt Study Note pg15
119
Under the New Reporting Requirements, for Medicare Set-Aside Allocations (MSAs) what are the responsibilities of the claim payers to the Center for Medicare and Medicaid Services (CMS)?
the claim payers are responsible for reporting data to the CMS.
Also the claim payers must determine the Medicare-enrollment status of all claimants and report certain information about those claims.
Govt Study Note pg15
120
Due to a reporting deadline, what sort of P&C Actuarial implications can be observed for Medicare Set-Aside Allocations (MSAs)?
Distorting paid and reported losses, 2008-2010 there may have been an increase in:
* Claims closing
* Lump-sum payments
Post 2010, there may have been a slowdown in claim settlement rates due to the change in MSA procedures.
*CMS approval of MSAs usually takes 60 to 90 days.
Govt Study Note pg16
121
How will MSAs requirement for settlements to be attributed between both medical and indemnity affect WC medical trends?
Expect to see increasing WC medical trends due to this new MSA requirement.
Historically, settlements may have been attributed fully to indemnity instead of being segregated into medical vs indemnity.
Govt Study Note pg16
122
What new MSA requirements would cause you to expect to see increasing WC medical trends/
* MSAs will require a correct division of settlements between medical vs indemnity.
* Insurers may have increased the settlements to account for the future medical considerations, like prescription drug costs, lack of medicare coverage for the loss.
* Injured workers who are currently receiving Medicare may have the payments reclassified as WC after an audit (3 year statute of limitations). This will increase WC loss counts.
Govt Study Note pg 16
123
Who is eligible for a FAIR plan?
Generally, insurance cannot be refused because of environmental hazards (beyond the control of the property owner)
Property might be subject to inspection for acceptance
Under most plans, the following considered uninsurable property:
* Vacant or open to trespass
* In poor physical condition or has unrepaired fire damage
* Subject to poor housekeeping (including overcrowding, storage of trash, flammable materials)
* In violation of law or public policy
* Not built in accordance with building and safety codes
Hamilton
124
What sort of eligibility requirements are there for properties under Beach and Windstorm plans?
Plans offer coverage only in designated coastal areas
Each plan requires buildings that are constructed or rebuilt after certain date to conform to applicable building code.
Plans will not insure the following types of property.
* In poor physical condition or with unrepaired previous damage
* Subject to poor housekeeping
* In violation of law or public policy
Plans reject applications when potential storm damage is imminent.
Properties subject to inspections
Hamilton
125
What are three objectives of Reinsurance Facilities?
1. Achieve more equitable pricing
2. Improve service
3. Avoid stigma associated with being in assigned risk plan
Hamilton
