CAS.GovtIns

This reading describes the reasons for both federal and state governments to participate in insurance. It also covers the extent or level of government participation.   Forum

Pop Quiz

Given that this reading is about governmental insurance programs, do you remember the 6 Business Risk Management programs from Growing Forward 2? (Agricultural or crop insurance is a prime example of government participation in insurance to fill a need not fully met by the private market)

BattleTable

Based on past exams, the main things you need to know (in rough order of importance) are:

• reasons for government participation in insurance [Hint: FCC(ES)]
• examples of government participation in insurance
• why government efficiency in providing insurance may be overstated
• levels of government involvement in insurance
• criteria for evaluating government programs [Hint: W/I-SEAN]

Some of the old exam questions are straightforward, such as reasons for government participation in insurance. Others require more interpretation, an example being (2015.Spring #16). This paper will take you a longer than you think to learn given its low rank. You can see from the BattleTable that there is a tie-in to several other papers on they syllabus, namely those that deal with government insurance programs like flood and terrorism. Other examples are agriculture through Growing Forward 2, and auto insurance in some provinces.

If you only have 10 minutes, learn the reasons and levels. You can then take educated guesses on anything else they might throw at you.

 Outdated   → questions highlighted in orange are outdated because they are from material no longer on the syllabus

Top Questions ← Questions you absolutely need to know!

Questions held out from Fall 2019 exam: #9. (Skip these now to have a fresh exam to practice on later. For links to these questions, see Exam Summaries.)

reference	part (a)	part (b)	part (c)	part (d)
E (2019.Spring #10)	criteria: - evaluate govt insurance 1	(i) PACICC.Comp (ii) IBC.Flood
E (2018.Spring #10)	reasons: FCC(ES) - for govt participation	government efficiency: - overstated?	criteria: see Morn.Pension - evaluate WC insurance 1
E (2017.Fall #10)	government subsidies	reasons: FCC(ES) - for govt participation	government efficiency: - overstated?	compare: - insurance v social welfare
E (2016.Spring #10)	reasons: FCC(ES) - for govt participation	levels: - of govt involvement
E (2015.Spring #16)	public auto insurance: - reasons to support	public auto insurance: - reasons to eliminate
E (2014.Fall #10)	reasons: FCC(ES) - for govt participation	see IBC.Flood
E (2014.Spring #12)	government efficiency: - overstated?	reasons: FCC(ES) - for govt participation
E (2012.Fall #13)	reasons: FCC(ES) - for govt participation	examples: - of govt participation	criteria: - evaluate govt insurance 1	see Webel1.TRIA

¹ There is a forum thread regarding the answer to part (c) of #10 in the examiner's report. It appears they were unreasonably strict in their interpretation of the reading. See this forum thread. Note that the answer in the examiner's report for 2018.Spring #10c contradicts the answer in the examiner's report to 2012.Fall #13c. This is explained later in this wiki article when we look at the W/I-SEAN criteria for evaluating government insurance programs.

In Plain English!

Most Important Facts

You're responsible for only the first 5 pages. Awesome! It's an easy paper to read so I would suggest taking the time to skim it over.

The first few pages explain why government needs to get involved in the business of insurance and how it fills needs not covered by private insurance. The last two pages explain the levels to which government can be involved in insurance in relation to private insurance.

Based on previous exam questions, you need to know the answers to the questions in the grey boxes:

Question: describe 5 reasons for governmental participation in insurance and provide examples [Hint: FCC(ES)]

for FILLING NEEDS unmet by private insurance (Ex: terrorism)

- may occur when private insurance is not economically viable (after 9/11 terrorist attack in NYC, private market withdrew coverage)

when insurance is COMPULSORY (Ex: BC auto - see the wiki article ICBC.Affordable ← reading was removed from syllabus but it's still a valid example)

- if insurance is compulsory but not offered by the private market (for whatever reason) then government must be the provider

for CONVENIENCE (Ex: flood)

- government may already have necessary structures in place (government already provides disaster relief after floods)

for EFFICIENCY (Ex: auto)

- agent commissions eliminated → lower expense ratio → lower premiums for consumer

for SOCIAL purposes (Ex: medical coverage)

- private market is motivated by profit, sometimes at the expense of social purposes like universal medical coverage

By now, you know that the red acronym FCC(ES) is a memory trick for remembering these 5 reasons. I have a rude way of remembering this: If you say it out loud, it sounds like feces, which kind of makes sense since the government is often full of crap!

There is another very basic question from this paper, although it hasn't appeared as often on the exam:

Question: what are the 3 levels of government involvement in insurance

• government as SOLE provider (Ex: CPP)
• government as a provider in PARTNERSHIP with private insurance (Ex: crop reinsurance)
• government as a provider in COMPETITION with private insurance (Ex: WC in some states)

Note that these 3 levels of participation are distinct from the government's usual role as the regulator of insurance.

mini BattleQuiz 1 You must be logged in or this will not work.

Miscellaneous

This next mini BattleQuiz is an assortment of old exam problems and miscellaneous facts. (Note that it contains further material for you to learn that isn't specifically included in this wiki article. This is to avoid duplication and to keep the wiki article short.)

mini BattleQuiz 2 You must be logged in or this will not work.

Just in case you think I'm kidding about how often FCC(ES) has been asked, I've provided the references below. Check Top Questions button on near the top of this article. (There is a 50% chance that this question will appear on any given exam.)

E (2018.Spring #10a)

E (2017.Fall #10b)

E (2016.Spring #10a)

E (2014.Fall #10a)

E (2014.Spring #12b)

E (2012.Fall #13a)

(You can also see how predictable the exam format is. Look how often this question appears as #10 on the exam.)

Related Bloom's Taxonomy Questions

Usually, the question on this reading will also test your understanding of what you've memorized. This section highlights questions that involve more than just memorization.

From (2014.Fall #10b) E

Question: why should the government not be involved in flood insurance. (This is actually from the old flood insurance paper, but it's a good question.)

• commercial flood insurance is already available
• private flood insurance can be provided by (bundling, risk-based pricing)
• government flood insurance is subject to adverse selection since government plan can't bundle with standard homeowner's policies if HO is provided privately
• cross-subsidization between high-risk and low-risk creates a tax burden on the general public
• it's a business opportunity that shouldn't be taken out of the private market

From (2014.Spring #12a) E

Explain: efficiency of government insurance programs is sometimes overstated (The answer to this was in mini BattleQuiz #2 above.)

The answer is basically that other government departments may already be performing certain insurance-related functions, but not including them as insurance expenses. (In other words, the true expenses may be understated.)

From (2018.Spring #10c) E

The CAS has turned criteria for evaluating government programs into a very confusing question. The reading on government insurance has not changed, but the CAS has changed what is considered an acceptable answer. If you are asked to list the criteria for evaluating a government insurance program you should write the following:     → is it welfare or insurance     → is it necessary (or serves a social purpose)     → is it efficient (or accepted by public) This answer is consistent with the most recent acceptable answers given in the examiner's report.

WC: evaluate WC (Worker's Compensation Insurance) using the criteria for evaluating government performance in insurance

This is a cross-over with the Morn.Pension paper which covers WC insurance: The CAS.GovtIns wiki article provides the criteria (see below) but then you have to relate this to what you know about WC insurance. You should check the examiner's report for the answer because it isn't hard. But note that the given answer contradicts the answer given for the 2012 problem on terrorism. In particular:

Criteria to consider: W/I - SEAN (dogechow & JC have an alternate hint, WINE, based on the currently acceptable answers for this question!)

• is the program one of WELFARE or INSURANCE (This answer is accepted in both 2012 & 2018.)
• does it achieve SOCIAL purposes (This answer is accepted in both 2012 & 2018.)
• is it EFFICIENT (This answer is accepted in both 2012 & 2018.)
• is it ACCEPTED by the public (This answer is not accepted if you already provided the E reason. The examiner's report said these 2 reasons are equivalent, whereas in 2012, they were accepted as different reasons.)
• is it NECESSARY (This answer is not accepted if you already provided the S reason. The examiner's report said these 2 reasons are equivalent, whereas in 2012, they were accepted as different reasons.)

This contradiction is very, very bad. If you had studied the 2012 exam and then gave the same answer on the 2018 exam, you would not have received full credit. There is no way anyone could have known that the examiner's had changed their minds about what was acceptable. The reading hadn't changed so why did the answer change???!!! This is one of the many issues about Exam 6 that really gets Alice steamed!!!

The reading on TRIA (Terrorism Risk Insurance Act) has been deleted from the syllabus so you don't have to know the answer to the exam question below.

From (2012.Fall #13d) E

TRIA: evaluate TRIA (Terrorism Risk Insurance Act) using the criteria for evaluating government performance in insurance

This is a cross-over with the Webel1.TRIA paper on terrorism insurance: The CAS.GovtIns wiki article provides the criteria (see below) but then you have to relate this to what you know about terrorism insurance in the U.S.

Criteria to consider: W/I - SEAN

• is the program one of WELFARE or INSURANCE
• does it achieve SOCIAL purposes
• is it EFFICIENT
• is it ACCEPTED by the public
• is it NECESSARY

Evaluation of TRIA: Yes, TRIA satisfies several of the criteria set out for a government program.

• Efficient: partnership between government & private insurance LEVERAGES insurer expertise with government ability to coordinate relevant government bodies
• Accepted: people expect reimbursement
• Necessary:

• affordability & availabiity dropped after 9/11 terrorist attack in New York City
• lack of availability may have adversely impacted economy (insurance is required for large construction projects)

mini BattleQuiz 3 You must be logged in or this will not work.

BattleCodes

• Memorize:
  • 5 Reasons for governmental involvement in insurance. FCC(ES) (with explanation & examples)
  • 3 Levels of government involvement in insurance (sole provider, in partnership with private insurers, in competition with private insurers)
  • 5 Criteria for evaluating the performance of a government insurance program W/I-SEAN

• Conceptual:
  • This reading discusses general concepts related to government insurance. But for this reading to be useful, you have to understand how it relates to specific programs.
  • When you're studying the readings on IBC.Flood, Chev.Agric, Webel1.TRIA, Webel2.TRIA and the Morneau reading on social programs (WC, EI,...) Morn.Pension, always try to relate them back to this reading.
  • As you can see from past exams, a good source of questions is the relationship between all of these readings.

• Calculational:
  • none

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  Forum

POP QUIZ ANSWERS

The 6 Business Risk Management programs in Growing Forward 2 are:

BRM #	BRM program	Description
1	AgriIns (Agricultural Insurance)	protects against...production loss
2	AgriStability (Agricultural Stability)	protects against...margin decline
3	AgriInv (Agricultural Investment)	an investment fund...for small losses
4	AgriRecov (Agricultural Recovery)	protects against...disaster
5	AdvPmtsProg (Advance Payments Program)	provides...low-interest loans for cash flow management
6	WLPIP (Western Livestock Production Insurance Program)	protects against...fluctuation in livestock prices