Bartlett, "Attempts to Socialize Insurance Costs in Voluntary Insurance Markets: The Historical Record," – SK
Changes in Blues Practices
Groups w/ more favorable experience began leaving Blues.
Competitive forces caused Blues to begin experience rating.
Territorial Constraints on Auto Insurance Rates
Socialization of Property-Liability Insurance Costs – attempts include regulatory restrictions on class rate relativities, banning use of certain U/W-ing criteria, residual markets. These mainly affect WC, personal auto and dwelling insurance.
Michigan’s Essential Insurance Act – an effort to limit geographical differences in auto and HO insurance.
Effective in 1981, this imposed:
1. An insurer could not have more than 20 differential territorial base rates.
2. An insurer’s lowest base rate couldn’t be less than 45% of its highest.
3. For adjacent territories, rate of lower-rated could not be less than 90% of the higher-rated.
It also required insurers to accept all eligible. And prohibited the use of gender/marital status in rating. At the same time, MI moved from prior approval to file-and-use.
Auto insurance was considered to be essential, since auto owners were required to purchase it and because MI had one of the most stringent no-fault laws.
Also, there appeared to be unfair discrimination against Detroit.
In 1986, the rating constraints were suspended and replaced by an alternate approach: premiums collected in Detroit were not allowed to increase more than 4% + CPI changes in any 12-mth period.
In 1991, the 1986 laws sunset – thus reinstating original restrictions.
In 1996, Republicans repealed the restrictions.
Territorial Rating and Marketing
Effects of the EIA – analyses show that central Detroit received substantial cross subsidies.
Assessment of Territorial Rating Restrictions – resulted in market-skewing and availability problems.
Rejda, "Financing the Social Security Program," – SK (1999)
Partial-Reserve Financing – 3 alternatives to consider:
current-cost financing: pay-as-you-go, plus a relatively small contingency fund. There is no prepayment and no large reserve fund.
full-reserve financing: fully funded – a prepayment system of financing. The dollar amt of all payments into the fund plus investment income should cover all guaranteed/promised benefits.