CAS: Government Insurer

Question 1

What are reasons to justify government participation in insurance?

Answer 1

• Filling insurance needs unmet by private insurers
• Compulsory purchase of insurance
• Convenience
• Greater Efficiency
• Social Purposes

Question 2

Describe the reason Filling insurance needs unmet by private insurers

Answer 2

• Because of unavailability or unaffordability
• Gov has the financial capacity to subsidize losses
1) By directly taxing taxpayers for the insurance program (TRIA)
2) Or indirectly by charging less than the actuarial cost and making up the difference through government provided funds (crops)

Question 3

Explain the reason Compulsory purchase of insurance

Answer 3

• Gov may require individuals or businesses to obtain insurance to meet social responsibilities (WC)
• Gov program would operate as a not-for-profit entity and the cost of the compulsory insurance would be lower than if offered by a for-profit insurer. However, within a purely competitive market excessive profits cannot persist in the long run

Question 4

Explain the reason Convenience

Answer 4

• Easier for the gov to set up a program quickly as legislature can appropriate funding faster than private market (flood insurance program)
• Allow for the integration/coordination of insurance with other related programs (loss mitigation development and funding, Florida Hurricane CAT Fund)

Question 5

Explain the reason Greater Efficiency

Answer 5

• Belief that gov can provide the service at a lower cost than the private market (no commission)
• Cost savings might be overstated because other gov departments may perform services that are usually performed directly by the insurance cie (making investments and administering claims)

Question 6

Explain the reason Social Purposes

Answer 6

• Main reason for gov insurance programs
• Some feel that these social purposes can only be fully achieved within government-owned insurance programs
Example:
• WC – Rehabilitation and vocational training of injured workers
• Loss mitigation in CAT insurance plans
• Social Security – Protecting the elderly and disabled

Question 7

What are the levels of government involvement as insurers?

Answer 7

• Exclusive Insurer (Social Security, WC for states)
• Partner with Private Insurers (NFIP) - gov offers Re coverage on specific loss exposures
• Competitor to Private Insurers (WC in some states)

Question 8

What questions should be asked to justify government participation in insurance?

Answer 8

• Is government insurance necessary for the given market?
• Is it insurance or social welfare program?
o Social welfare provides benefits based on demonstrable need, funded by tax resources
o Insurance is paid to all who suffer loss, funded by the contributions of insureds
• Is the program efficient? Is it accepted by the public?