CAS.GovtIns

Question 1

identify levels of government involvement in insurance and examples

Answer 1

• gov as sole provider (CPP)
• gov as a provider in partnership with private insurance (crop)
• gov as a provider in competition with private insurance (WC in some states)

Question 2

identify 5 reasons for government participation in insurance

Answer 2

FECCS
- Filing insurance needs unmet by private insurance
- greater Efficiency: eliminate agent commission
- Compulsory purchase of insurance, but not offered by private market
- Convenience: gov may already have infrastructure in place
- Social purposes: private market is motivated by profit

Question 3

identify examples for each reason for government participation in insurance

Answer 3

• Filing needs: flood, terrorism, crop
• Efficiency: flood, auto
• Compulsory: BC auto
• Convenience: flood, terrorism
• Social purpose: medical, CPP

Question 4

why might government insurance succeed where private insurance fails and examples

Answer 4

government insurance can subsidize losses through taxes
ex: flood, terrorism, crop

Question 5

how can government insurance subsidize losses?

Answer 5

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

Question 6

why might government insurance exist when insurance is compulsory?强制性的

Answer 6

if private insurance is not available:
- gov should be sole provider
if private insurance is available:
- profits should be limited due to guaranteed market that gov created

Question 7

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

Answer 7

rsp or residual market

Question 8

why may government insurance be more convenient to operate? +2exs

Answer 8

• may already have necessary structures in place
  ex: DFAA already exists and dovetails with insurance for flood and terrorism
  dovetail: fit together well with something else
  DFAA: Disaster Financial Assistance Arrangements

Question 9

why may government insurance be more efficient for auto insurance?

Answer 9

eliminate commissions -> reduces expenses -> lower premiums

Question 10

why may efficiency of gov insurance be overstated

Answer 10

• other gov departments may already be performing services normally provided by insurer
• but the cost of these services may not be included in expenses so true expenses are understated

Question 11

why may gov insurance be better at social purposes?

Answer 11

• motivation: private insurance motivated by profit not social purposes
• complexity: some programs are too large and comprehensive for private companies (CPP)
• legislation: enact building codes for risk mitigation

Question 12

identify criteria that a government insurance program should satisfy

Answer 12

• is it welfare or insurance
• is it efficient
• is it necessary

Question 13

what are the differences between insurance and social welfare?

Answer 13

• insurance: pays upon covered loss regardless of need ( funded by insurance)
• welfare: pays based on need (funded by general tax revenues)

Question 14

identify 3 reasons to support public auto insurance

Answer 14

• filing unmet needs: coverage may not be available or affordable young males
• efficiency: eliminates commission -> reduces expense -> lowers premiums
• social: ensures universal coverage and sustainability through general tax revenues

Question 15

identify 3 reasons to eliminate public auto insurance

Answer 15

• private insurance can do it, they can form a residual market for high risk drivers
• private insurance offers more customizable policies
• efficiency may be overstated

Question 16

2 reasons for government participation in terrorism insurance

Answer 16

1) filing unmet need:
- private market withdrew terrorism coverage after 911
- people expect assistance in recovering from terrorism
2) convenience:
- necessary structures already in place (DFAA)