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Detail Outline for Exam 7 – 2007 Part C - page 13 / 28

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Nyce, Foundations of Risk Management and Insurance – SK

Achieve Collateral Social Purpose – Examples: WC helps to reduce injuries, and NFIP helps better construction.

Level of Government Involvement – Exclusive insurer, partner w/ private insurers, or competitor to private insurers.  Covered in other papers.

Federal Compared With State Programs – if govt involvement extends across state lines, it’s better for the Fed govt to run the program.  (Notable exceptions: windstorm, beach plans are state-run.)

Exhibit 8-12 Federal Programs

Plan

Characteristics

Relationship to Private Insurance

NFIP

Meets unmet needs for flood insurance.

Serves social purposes of amending and enforcing building codes and reducing new construction in flood zones.

Fed govt can act as primary insurer.

Fed govt can partner w/ primary insurer.  Privates sell the insurance and pay claims.  Govt reimburses insurers for losses not covered by premiums and investment income.

TRIA

Designed to temporarily meet unmet needs for terrorism losses.

Serves social purposes of preventing economic disruptions that market failures in terrorism cvg could have caused.

Privates are the primary insurer for terrorism.

Fed govt is the temporary reinsurer for terrorism.

Fed Crop Insurance

Provides crop insurance at affordable prices.

Covers most crops for drought, disease, insects, excess rain, hail.

Fed govt subsidizes and reinsures privates; privates sell & service the fed crop ins.

Privates also offer crop insurance independently for certain perils.

Exhibit 8-13 State Programs

Plan

Characteristics

Relationship to Private Insurance

FAIR Plans

Make basic prop ins available to owners unable to obtain ins because of location or other reason.

Varies by state.  Usually an insurance pool where privates collectively address an unmet need in urban properties.

Doesn’t replace normal channels of insurance; only for consumers unable to get insurance in private market.

WC

Helps employers meet their obligations to injured workers.

Private insurers provide most WC ins.

States can be an exclusive insurer, a competitor, or as a residual market.

Beach & Windstorm Plans

Make windstorm insurance available to owners unable to get insurance because of location.

Varies by state.  Some are insurance pools of privates; others are guaranteed w/ taxpayer funds.

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