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  1. 5 reasons for government’s participation in insurance:
    • filling needs unmet by private: (unavailability or unaffordability) e.g., crop, flood
    • compulsory purchase of insurance: auto insurance (normally not the answer), WC
    • convenience: government can set up program quickly, e.g. Florida Hurricane Cat Fund
    • greater efficiency: some services can be provided at a lower cost
    • social purposes: rehab and vocational training of injured workers, Social Security
  2. Evaluation of a government insurance program
    • is it necessary or does it achieve a social purpose?
    • is it insurance or a social welfare program?
    • is the program efficient, is it accepted by the public?
  3. Insurance vs welfare programs
    • benefits:
    • insurance - those who contributed and suffer a loss, regardless of need
    • welfare - those who need it, regardless of contribution
    • social welfare is usually financed by general tax resources, not premium
  4. Insurers response to 9/11
    • attempted to exclude coverage for terrorism losses where possible
    • substantially increased prices where coverage could not be excluded (e.g. WC, fire)
    • reinsurers (largely unregulated) restricted coverage quickly (January renewals)
    • primary insurers were not able to restrict coverage as rapidly due to regulatory constraints
    • 45 states + Puerto Rico and DC had approved terrorism exclusion by 2/22/2002
    • "large risk" rule of many states allowed insurers to restrict coverage without reg approval
  5. Impact of terrorism coverage availability
    • numerous construction projects would be delayed or canceled, since owners / lessors would have difficulty meeting legal or contractual obligations, such as full insurance
    • affect investing activity since many types of securities are backed by collateral assets that would no longer be insured
    • after an act of terrorism, impact would be borne by commercial businesses and citizens
    • federal govt mitigation would result in a substantial delay compared to private insurers
  6. Conditions for an event to qualify under TRIA
    • insured property and casualty losses must exceed $100M
    • event must be dangerous to human life, property or infrastructure
    • damage must occur inside the U.S. or U.S. mission / flagged vessels / air carriers
    • must have been committed by an individual as part of an effort to coerce the civilian population of the U.S. or influence the policy or conduct of the U.S. government
  7. Conditions for private insurers
    • must offer coverage on the same terms and conditions as relates to other perils
    • government reimburse each insurer subject to the conditions that insurer paid more than its deductible and insurer retains 15% of the losses exceeding the deductible
    • if aggregate insured losses reaches $100B in a year, only deductible
    • if industry < aggregate retention, surcharge on all inforce policies remitted to Treasury
  8. Arguments to end TRIA
    • private market could supply the required coverage
    • tends to create an indifference to loss control
    • catastrophe bonds can be used to supplement the market
    • demand is not as great as initially expected (<50% commercial)
  9. Arguments to continue TRIA
    • private insurance market is not equipped to provide coverage
    • cat bond market is too small to provide capacity required
    • availability has improved substantially under TRIA
  10. Concerns about TRIA
    • it has some characteristics of a government indemnity program (no premium for insurers)
    • concern about amount of time required to certify event and distribute payments
    • does not cover personal lines
    • does not cover attacks involving nuclear, biological, radiological events
    • lack of public acceptance suggested by low penetration
Card Set:
2014-04-15 23:28:09
Misc Govt Programs
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