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Reasons for gov participation in insurance & examples
- Filling needs met by private insurance (crop insurance, flood insurance, TRIA)
- Compulsory purchase of insurance (WC, auto liability in QCSK/MB/BC)
- Convenience (TRIA, flood insurance)
- Greater efficiency (TRIA, gov health insurance)
- Social purposes (WC, social security)
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Filling unmet needs by private insurance - Why & why not gov
- Why:
- Residual market where insurance is unavail and unaffordable
- gov req'ts for insurability dif from private; can subsidize thru taxation or charging less than actuarial cost (not-for-profit). e.g. Crop and Flood avail and affordable because of fed subsidies
- Why not:
- e.g. Fed Crime Program; coverage for h.o. in high crime areas, as insurance unaffordable from private. With proper loss prevention, became avail at rates < gov
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Compulsory Purchase of Insurance - Why & why not gov
- Why:
- Gov may feel obligated to provide coverage, esp to those unable to find private (WC state funds, auto TPL)
- Private should make limited profits from a gov guaranteed market
- Why not:
- With competition, excessive profits can't persist.
- private insurers can handle through a residual market or pool (FA)
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Convenience - Why & why not gov
- Why:
- Gov can set up program easily (funding from taxation)
- already have systems in place to provide certain services needed for insurance program (loss mitigation dev't)
- Why not:
- private market is willing and able to offer coverage (and more customizable)
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Greater efficiency - Why & why not gov
- Why:
- Lower cost (no commission)
- Why not:
- cost of private market and public market are really the same
- savings may be overstated (not factoring in costs for services done by other gov depts, e.g. claims handling, admin, advertising)
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Social purposes - Why & why not gov
- Why: social benefits not achievable thru private:
- WC: rehab and vocational training for injured workers (not just insure them also help them find jobs)
- CAT plans: loss mitigation aside from insurance
- Social security: protect the needy, elderly, disabled
- Why not:
- strongly regulated private insurer with strict standards can do the same
- some insurance could be provided by private and also fulfill social purpose. i.e. private WC
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Level of gov involvement
- Exclusive insurer: Social Security; state-run WC
- Partner with private: offers reinsurance on specific exposures, e.g. fed: National Flood, TRIA
- Competition to private, e.g.state-run WC
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How well have gov performed in providing insurance (qs to be asked)
- Is gov insurance necessary or does it achieve a social purpose that private can't?
- insurance or a social welfare?
- Is the program efficient?
- accepted by the public?
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Trigger of funding for insurance vs. social welfare
- Insurance: loss from a covered event
- Social welfare: become qualified due to the need for assistance
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Why gov shouldn't sponsor Flood insurance Program
- Gov rates aren't actuarial and result in cross subsidization
- Only flood-prone areas participate -> private can bundle into h.o.
- People who don't buy flood insurance still get fed assistance
- Private can provide with proper infrastructure (building codes, flood maps)
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Evaluate how well gov has provided TRIA
- gov insurance necessary? (Yes, avail reduced after 9/11)
- insurance or social welfare? (Insurance, insurers are reimbursed for a portion of their costs)
- efficient? (Yes, gov works with private who already have claims handling)
- accepted by the public? (No, demand for coverage has been lower than expected)
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Why EI not viable without gov
- social purpose. helps find work and without it, gov would still end up paying social assistance, making it more efficient for gov to just offer the coverage
- not necessarily fortuitous and can be easily manipulated by insured and subject to adverse selection that only high risks would purchase if they anticipate job loss
- can be catastrophic in eco crisis, an insurer’s solvency would be at high risk. more difficult for gov to be insolvent
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