Government
Compare automobile insurance plans, reinsurance facilities, and joint underwriting associations: Experience sharing mechanism
For assigned risk plans, the insurer takes all profits and losses from assigned risks. In JUAs and reinsurance facility, expenses and losses are shared by all insurers.
Compare automobile insurance plans, reinsurance facilities, and joint underwriting associations: Development of rates charged
In a reinsurance facility, insurers charge the same as their voluntary risks, which differ by company. For JUAs, pool experience is used to develop rates, and they are uniform. In an assigned risk plan, they are determined by the regulators and are uniform. For JUAs and assigned risk, the rates are typically higher than the rates in the voluntary market.
Identify two state government insurance plans. Describe the characteristics of the plans and the relationship to private insurance.
*Check Chart!
Describe the characteristics with which the social security program was designed.
1. Benefits based on balance between "individual" and "social" equity 2. Financing from participants makes program "self supporting" 3. Participation is mandatory
Regulators may be able to exploit conditions that insulate insurers from competition. Identify four structural factors that facilitate cross subsidization.
1. Entry and exit barriers 2. Market power 3. Special cost advantages 4. Value of a firm's reputation 5. Switching costs for consumers
Identify four justifications for the socialization of insurance costs.
1. Equal sharing more fair that pricing on relative risk or benefits 2. Risk-based pricing may harm low or middle-income individuals 3. Limit to what someone should pay, regardless of risk 4. Risk-based prices discourage some from buying insurance 5. Price should be affordable if insurance is compulsory
Identify and describe the three levels of government involvement in insurance. Give an example of each.
1. Exclusive insurer Reasons - By law; No private insurer offers a competing plan Function as primary insurer • Collect premiums, provide coverage, pay all claims and expenses • E.g., state government-run WC program Function as reinsurer • Providing 100% reinsurance to private insurers writing particular coverage 2. Partner with private insurers Reason - Private insurers no longer able to adequately provide coverage Examples TRIP and NFIP 3. Competitor to private insurers Reason - Private insurance hasn't failed, but not running efficiently E.g., competitive WC funds in some states
Identify and briefly describe two federal workers compensation programs
1. Federal Employee Compensation Act (FECA) - benefits to non-military federal employees for employment related injuries and disease 2. Longshore and Harbor Workers' Compensation Act of 1927 - benefits to maritime workers for employment related injuries and disease while on or near navigable waters 3. Black Lung Benefits Act - benefits for wage loss and medical provided to miners totally disabled from pneumoconiosis and eligible survivors
Identify and describe four beneficiaries of Social Security survivor benefits.
1. Unmarried children under 18 • Under 19 if in elementary or high-school 2. Unmarried disabled children as defined above 3. Surviving spouse caring for children under 16 or for unmarried disabled children as defined above 4. Surviving spouse 60 or older if deceased is fully insured 5. Disabled widow or widower, 55-59, under certain conditions if deceased is fully insured 6. Dependent parent 62 and older if the deceased is fully insured
Identify and briefly describe three reasons for government involvement in providing insurance.
1. Fill Unmet Needs - Government provides protection against loss that would otherwise not be provided - E.g., TRIA 2. Compel Insurance Purchase Facilitate compulsory insurance purchase - E.g., WC and Personal Auto - Since states require this insurance, must have mechanism to ensure availability at a reasonable cost 3. Obtain Efficiency and Provide Convenience - Similar because providing convenience reduces time and/or resources needed to expend to obtain coverage with adds efficiency. For compulsory insurance - marketing and commissions are unnecessary 4. Achieve Collateral Social Purpose - Insurance often seen as a social good. Can reduce risk to society. Beneficial both to society and to overall economy
State three reasons the NFIP had been considered successful before Katrina.
1. Financially self-supporting 2. Demonstrated cost-effective flood risk mitigation 3. Flexible in evolving to meet changing requirements
The National Catastrophe Plan is a comprehensive, multi-layered system of risk-bearing capacity. Describe the three proposed layers.
1. First Layer of Protection: The Private Insurance Industry • All-peril coverage provided by private insurers •• Priced on actuarially sound basis 2. Second Layer of Protection: State and Regional Catastrophe Funds •• Every state required to create either a state cat fund or participate in regional cat fund •• Responsible for creating and managing the insurance capacity of their jurisdications •• Up to costs expected for a 1 in 50 year cat loss level 3. Third Layer: Federally Funded Reinsurance Program •• Creation of new federal agency - National Catastrophe Insurance Commission •• Function as channel between state funds and U.S. Treasury to provide reinsurance to state funds for events beyond 1 in 50 year exposure
Identify two situations where socialization of insurance costs is difficult
1. Individuals have the choice to pick insurer or to not purchase insurance 2. Informed low-risk insureds avoid paying the subsidies for high-risk insureds 3. Insurers can circumvent the socialized insurance plan or withdraw from market
Identify three differences between reinsurance facilities and joint underwriting associations.
1. JUAs have limited number of servicing carriers 2. JUAs have greater control over operations 3. JUA rates are based on experience of drivers in plan 4. JUA rates are uniform 5. Drivers in reinsurance facilities do not know they're in residual market
Identify three situations where socialization of insurance costs is feasible
1. Participation is compulsory 2. Single entity providing insurance has no competitors 3. Government can expropriate the profits and equity of private insurer 4. It is believed that benefits outweigh costs of socialization
State two reasons standard insurance policies exclude flood.
1. Predictable nature of where floods will occur 2. Difficulty of charging actuarial sound rates for flood prone areas
Name four reasons why an insurer would find it difficult to or be reluctant to exit a market.
1. Prior notice requirements 2. Lose economies of scope in cross marketing lines 3. Lose the sunk costs in establishing operations 4. Regulators may require total exit from all lines in state 5. Insurers must balance costs of regulatory constraints with that of exiting
Government insurance programs can be grouped into three different types of plans. Identify these and give an example of each.
1. Property-casualty insurance plans - E.g., Terrorism Risk Insurance Program 2. Social insurance plans - E.g., social security, unemployment insurance 3. Financial security plans - E.g., FDIC
State the goals of the National Flood Insurance Program (NFIP)
1. Provide flood insurance for property owners 2. Reduce the costs of disaster relief funded by the taxpayers following a flood 3. Reduce flood damage through flood plain management and the enforcement of building standards
Identify three ways in which government insurance programs vary.
1. Purpose or rationale 2. Level of Government Involvement 3. Whether program run at state or federal level
Identify three mechanisms used by regulators to impose cross subsidies on insurers.
1. Rating constraints 2. Underwriting constraints 3. Residual market mechanisms (RMM)
In addition to the retired worker age 62 or older, identify and describe three other beneficiaries of Social Security retirement benefits.
1. Retired workers spouse if at least 62 • Divorced spouse eligible if marriage lasted at least 10 years and divorce in effect at least 2 years (waived if worker received benefits before divorce) 2. Retired worker's unmarried children under 18 • Under 19 if in elementary or high-school 3. Retired worker's unmarried disabled children 18 or older if severely disabled before 22 and continue to be disabled 4. Retired worker's spouse at any age if caring for dependent children under 16 or for disabled children as defined above
Identify the types of benefits the OASDHI program provides.
1. Retirement Benefits 2. Survivor Benefits 3. Disability Income Benefits 4. Medicare Benefits
Describe the reconditioning needs of the NFIP identified by the GAO.
1. Significant reduction in subsidies •• Reduce losses and return program to actuarial soundness 2. Increase property owner participation in the program •• Increase public awareness with aggressive education program •• Stronger minimum training requirements for agents 3. Develop accurate, digital flood maps •• Help communities develop appropriate building standards •• Help with developing policy rates •• Facilitate identification of special flood hazard properties by lenders 4. Provide effective oversight of flood insurance operations
Describe the two major advantages of the OASDI program being compulsory.
1. Social objective of providing a base of financial security to population is achieved more easily 2. Adverse selection controlled because all people are essentially covered
Identify three potential disadvantages of automobile assigned risk plans.
1. Stigma of being in the automobile insurance plan 2. Coverage may not be available for all coverages or higher limits 3. May be unfair distribution of losses among insurers
Briefly describe the open enrollment period for Medigap.
6-month period from date applicant enrolls in Medicare Part B and is 65 during which insurers cannot reject or charge higher premium due to health during period.
Describe what is meant by saying the Social Security program places an emphasis on social adequacy.
Benefits should provide a certain standard of living to all beneficiaries. Therefore, the benefit formula is heavily weighted in favor of certain groups, such as low-income people, the aged, large families
Define "Full Funding" and identify three reasons full funding is unnecessary for Social Security.
Full funding exists when assets accumulated are sufficient to pay all liabilities accrued to date. Full funding considered unnecessary for Social Security for several reasons 1. Program expected to operate indefinitely and not terminate in future 2. Program is compulsory - new workers will pay taxes and support program 3. If program has financial problems, federal gov't can tax and borrow
There are three types of insured status to become eligible for various benefits. Identify these and briefly describe the requirements to qualify for each.
Fully Insured • 40 credits or have worked full-time for ten years Currently Insured • Earned at least 6 credits during last 13 quarters ending with the quarter in which death, disability, or entitlement to retirement benefits occurs Disability Insured • Disabled worker must earn a certain number of credits (depending on age) • 31 or older - Based on age (20-40), but at least 20 of the credits must be in past 10 years, unless worker is blind • 24-30 - Worker must have worked half the time between 21 and time when becomes disabled • Before 24 - Must have earned 6 credits in 3-year period ending when disability starts
Unemployment insurance program: Describe the funding
Funding is based solely on tax imposed on employers. A federal tax is levied with 90% returned to states and 10% used for admin and make loans to states when liquidity problems arise. Taxes must be experience rated - tax rates move in tandem with firm's layoffs. This acts to stabilize employment. Tax rate max, mins, and time lags in adjustment weaken response
Compare automobile insurance plans, reinsurance facilities, and joint underwriting associations: Relationship of the insured and insurer and b. Risk placement mechanism
In reinsurance facilities, insured does not know they're in residual market. The insurer cannot reject an insured, but cedes premium to facility. In JUAs and assigned risk plans, driver is assigned to a carrier after being rejected by voluntary carrier
State whether OASDI is self-supporting and identify from where the funds needed to run the program come.
It is financially self-supporting. Funds needed primarily from • Payroll tax contributions of covered employees, employers, self-employed • Interest on the trust fund investments • Taxation of part of the OASDI benefits
Describe how Medicare Part A and Part B are financed.
Medicare Part A is financed largely by a payroll tax percentage • Paid by both employee and employer • Self-employed pay double the employee rate • Payroll tax applies to all earned income (no cap like Social Security) Medicare Part B is financed largely by a monthly premium paid by insureds and general revenues of the federal government • Premium adjusted annually based on plan experience
Briefly describe what Medigap Insurance covers.
Pays part or all of the covered charges not paid by Medicare, such as exclusions, deductibles, cost-sharing provisions, limitations
State the requirement that a disability must meet to qualify a worker for disability income benefits.
Physical or mental condition that prevents him from doing any substantial gainful work, and the condition must be expected to last at least twelve months or result in death
Give a detailed description of the inpatient hospital care benefit period. Describe the benefits paid for the period.
Provided for up to 90 days for each benefit period • Benefit period starts when patient first enters hospital and ends after out of hospital or skilled nursing facility for 60 consecutive days Benefit • First 60 days, all expenses covered after deductible • 61-90th day, a daily coinsurance charge must also be paid • If patient still in after 90 days, may tap into lifetime reserve of 60 days ⇒ Subject to daily coinsurance charge
Briefly discuss the primary objective of private insurance versus government provided insurance.
Private insurance seeks to provide actuarial equity Public insurance programs typically aim to provide social equity
Describe the purpose of residual market auto insurance.
Program intended to make auto insurance more available and affordable to drivers who cannot otherwise purchase auto insurance
Describe the Hurricane Katrina and Hurricane Rita Flood Insurance Buy-in Act of 2005
Retroactive purchase of NFIP insurance by owners not in recognized flood plain • Must have had insurance covering wind damage • Limits lower than max under NFIP • Premiums 105% of what they would've been • Premiums deducted from loss payments • Owners required to maintain flood insurance coverage in future
Describe the Consumer Mortgage Coalition Plan differs from the Buy-in Act of 2005.
Similar but makes properties located in established flood zones eligible
Describe the financing problem with converting to an individual account system.
Under current system, each generation largely pays for benefits of preceding generation. Under individual account system, each general pays for own benefits. During transition, there will be transition generation paying for both
Define a severe repetitive loss property.
• 4 or more claims or 2-3 losses > insured value of property
Briefly describe the characteristics of pure individual account plans for Social Security.
• All contributions go into accounts • All earnings and expenses allocated to accounts • All assets are in accounts • Benefits paid exclusively from accounts
Describe two ways social security provides individual equity.
• Benefits based on age, employment history, occ of event - paid w/o regard to need • Benefit formula provides higher benefits to workers with higher earnings or longer careers - even if more likely to have saved more
Briefly describe the principal users of flood maps.
• Communities participating in the NFIP •• To adopt and enforce program's minimum building standards • FEMA •• To develop flood insurance policy rates based on flood risk • Federal regulated mortgage lenders •• To identify properties statutorily required to purchase federal flood insurance
Why would low-risk insured stay with company if they have a higher rate to pay cross subsidies?
• Cost of switching • Value reputation of their insurer • More likely if cost of subsidies is low relative to the cost of switching
Name two successes of the NFIP's mitigation efforts and two weaknesses identified from the period 1993 to 2003 Successes
• Dollar spent on mitigation saves society an avg of $4 in future losses avoided • FEMA mitigation grants are cost-effective and often lead to other non-federally funded mitigation activities, reducing losses • Dollar spent on mitigation saves $3.65 because of avoided post-disaster relief costs and increases in federal taxes Weaknesses 1. Discourage individual and state/local gov't responsibility to mitigate risk 2. Encourage expectation that federal gov't will reimburse disaster victims
Unemployment insurance program: Describe the eligibility of a worker
• Earn certain amount of wages or have worked certain amount of time during a one-year time period • Unemployed through no fault of own • Must be actively seeking work
Identify two reasons private or quasi-private organizations may pursue goals other than profit maximization.
• Enhance the welfare of their members by equalizing costs • Offer benefits that deter low-risk members from leaving • Enjoy special advantages or charters that insulate from competition • Low risk member must weigh the unique benefits against costs of switching
Describe the actions by FEMA targeting repetitive loss properties and how it may reduce future program losses.
• FEMA offer to purchase or mitigate affected buildings • If insured doesn't accept •• Phase out coverage •• Charge full actuarial rate
Describe why the NFIP is not financially sound.
• FEMA unlikely to pay $17.5 billion debt to U.S. Treasury •• Premium rates have been set to cover average loss year •• Until 2005, this did not include any catastrophic losses •• Some structures constructed before floodplain management regulations in their communities pay about 35 to 40% of true risk premium • Repetitive losses account for 25-30% of flood claims • FEMA creating new generation of "grandfathered" properties •• Properties mapped into higher-risk areas but receive discounted premium •• Get nonsubsidized rate for old risk designation
Identify and briefly describe two federal workers compensation programs.
• Federal Employee Compensation Act (FECA) - benefits to non-military federal employees for employment related injuries and disease • Longshore and Harbor Workers' Compensation Act of 1927 - benefits to maritime workers for employment related injuries and disease while on or near navigable waters • Black Lung Benefits Act - benefits for wage loss and medical provided to miners totally disabled from pneumoconiosis and eligible survivors
Name and describe three problems with the NFIP exposed by Hurricane Katrina.
• Financial Problems •• Total claims from Katrina and Rita is more than 11 times greater than annual premiums collected • Lack of Participation •• Failure to Buy or Renew NFIP Policies •• Not Enough Coverage •• Failure to Recognize Risk • Operational Problems •• Claims Processing •• Encouragement of Development in High-Risk Areas •• Flood Plain Management not Robust Enough
Discuss the Flood Disaster Protection Act of 1973.
• Mandated participation in the NFIP and purchase of flood insurance for many • Enforced by requiring all federally regulated lending institutions to require NFIP flood insurance for properties in floodplains to get mortgage • Participation in NFIP increased dramatically
Describe the three components of the NFIP used to accomplish its primary goals.
• Flood insurance •• Federal gov't assumes liability for insurance coverage and establishes rates and limits •• Sale of flood insurance under NFIP is subject to rules and regulations set by FEMA •• In a given year, if claims paid > premiums collected, NFIP may borrow up to $1.5 billion from the U.S. Treasury • Floodplain management •• Implemented though community-operated programs that identify and implement controls to prevent or minimize flood damage •• When a community agrees to adopt and enforce floodplain management, then NFIP flood insurance becomes available to property owners in the community • Flood hazard mapping •• FEMA identifies flood hazard areas throughout the U.S. •• Flood Insurance Rate Maps show base flood elevations, insurance risk zones, and floodplain boundaries
Describe two ways social security provides social adequacy.
• Formula for the primary insurance amount (PIA) favors lower-paid employees • Examination of PIA formula shows benefits replace a higher % of pre-retirement earnings for lower-paid workers than higher-paid • System also favors less healthy workers and workers with spouses and dependent children
Briefly describe the socialization of insurance costs
• Governments attempt be constraining rate differences between low and high risk insureds
Explain why accurate flood maps are importing for the NFIP.
• Identify the areas at greatest risk of flooding •• Show extent of flood risk across country •• Allow program to determine high-risk areas for designation •• Both as special hazard zones and as areas that can benefit most from mitigation
Describe how the Flood Insurance Reform Act of 2004 addressed repetitive loss properties.
• Implemented to reduce the claims from these properties • Provide assistance to mitigate risk - elevate, relocate, demolish • If refuse to take action, premiums are raised commensurate with the risk •• Premiums no longer subsidized
Briefly describe the types of properties that are considered uninsurable under FAIR plans and Beach and Windstorm plans. Both FAIR plans and Beach and Windstorm plans
• In poor physical condition or with unrepaired previous damage • Subject to poor housekeeping • In violation of law or public policy • Not built in accordance with building and safety codes FAIR plans also consider the following properties uninsurable • Vacant or open to trespass
State three arguments against using individual accounts for Social Security.
• Inability of most workers to take total control of own retirement planning • Greater uncertainty of benefits tied to performance of securities markets • Shift in emphasis from social adequacy toward individual equity
Briefly describe three tax changes that would reduce the social security deficit.
• Increase the Payroll Tax across the board - could solve entire problem • Increase the Limit on Taxable Earnings - Could also apply some of payroll tax to all income as for HI, or remove the limit completely • Increase Taxation of Benefits - If AGI exceeds a specified threshold, a portion of the SS benefit is added to taxable income - treated entire amount as ordinary income • Expand Coverage - cover excluded groups such as state/local gov't and religious organization
Describe how the "carve-out" approach may reduce the Social Security deficit.
• Increased investment return on individual accounts allows an increase in benefit reduction from current program. This will decrease costs with keeping similar total benefits.
Describe four limitations on claim payments by guaranty funds in property and casualty insurance company insolvencies and explain the rationale behind each of these four categories.
• Individual claims are limited to $300,000 to limit burden on industry by single insurer • Net worth limitation- High net worth organizations should be able to absorb such losses • Certain lines of insurance are exempt - unique risks (e.g., ocean marine) and investment and financial risks (e.g., surety) deemed inappropriate under focus of P/C • The reinsurers/insurers are exempt: they are sophisticated and knowledgeable consumers and should be able to determine which companies may have solvency problems.
Identify and briefly describe the benefits included in Medicare Hospital Insurance (Part A).
• Inpatient Hospital Care - provided for up to 90 days for each benefit period • Skilled Nursing Facility Care - atient must be hospitalized for at least three days and must require skilled nursing care - max of 100 days are covered in a benefit period • Home Healthcare Services - covered if patient requires skilled care for an injury or illness - prior hospital stay not required • Hospice Care - Physician certified terminally ill beneficiaries covered in Medicare certified hospice • Blood Transfusions furnished by hospital or skilled nursing facility • Additional Benefits - include mammograms, Pap smears, diabetes glucose monitoring and education, colorectal cancer screening, bone-mass measurements, prostate-cancer screening
Describe three other alternatives within the defined benefit structure that would reduce the social security deficit.
• Investment of Trust Fund Assets - Invest 40% of trust fund assets in equities, phased in over 15 years • Means Testing - would reduce or eliminate benefit payments to participants whose income or assets exceed specified thresholds • General Revenue Financing - from general treasury funds
Briefly describe the characteristics of individual "add-on" account plans for Social Security.
• Leave program essentially intact and supplemented it with individual "add-on" • Additional funds used for add-on may be voluntary or mandatory • May include matching contributions from general revenues
Identify three considerations with requiring the conversion of funds to an annuity as opposed to receiving a lump sum upon retirement.
• Limit freedom of choice • Favor people with a longer life expectancy • Ensure that retirees do not outlive their resources • Address widespread lack of investment skills • Reduce cost of annuities • Make unisex pricing feasible due to being compulsory
Briefly describe the terms "Earned Right" and "Universality" as they relate to Social Security.
• Link between taxed earnings and benefits establishes an earned right • Program has paid benefits to all those who have worked for sufficient period without regard to income established universality • Twin concepts have distinguished SS program from other gov't programs that provide benefits to more narrowly define populations
Describe the NFIP Write Your Own program.
• NFIP policies sold and administered by selected private insurance companies • Write flood coverage under own name, handle sale, processing and claim payment • Companies paid a fee for this service • Federal government responsible for underwriting losses
With Beach and Windstorm plans, cancellation is commonly subject to a 30-day statutory notice with three exceptions. State the three.
• Nonpayment of premium • Material misrepresentation • Evidence of arson at direction of or by the owner/occupant
Identify the best example of social insurance in the U.S. and why it works.
• OASDI - because participation is compulsory
In addition to the original Medicare Plan, identify and briefly describe three other options under Medicare + Choice (Part C).
• Original Medicare Plan with Supplemental Policy Can purchase 1 or 10 standard supplemental policies (Medigap) from private insurers Supplemental policy may provide additional benefits not covered by Medicare Beneficiary pays premium for the supplemental policy • Medicare Managed Care Plan Must use Medicare-approved network of physicians, hospitals, and providers for a fixed monthly fee Managed care plans include HMO, POS, PPO, PSO • Private Fee-for-Service Plan Beneficiaries can buy a private health insurance policy Medicare pays premium to private plan for covered Medicare services Private plan determines premium Beneficiary responsible for amount excess of what Medicare pays • Medicare Medical Savings Account (MSA) High deductible plan Medicare pays premium and deposits money into MSA Beneficiary uses money in MSA account to pay for medical expenses Providers can charge beneficiaries above what is paid by Medicare MSA plan
Under what circumstances may cross subsidies be possible when insurers are not insulated from competition.
• Owners must be willing to relinquish a portion of normal profits or equity • Requires some barriers to exit from the market that subject an insurer to expropriation
Identify the sources of revenue for the social security program.
• Payroll tax contributions of covered employees, employers, self-employed • Interest on the trust fund investments • Taxation of part of the OASDI benefits
Identify the benefits included in Medicare Supplementary Medical Insurance (Part B).
• Physicians' services in a hospital, office, or elsewhere • Medical supplies and durable medical equipment • Clinical laboratory services, such as blood tests and urinalyses • Home healthcare visits if the beneficiary is not covered by Part A • Outpatient hospital services for the diagnosis or treatment of illness or injury • Blood, except for the first three pints • Ambulatory surgical services
Briefly describe the "carve-out" approach to implementing individual accounts for Social Security
• Portion of payroll taxes (typically 2% from both employer and employee) is diverted from the defined benefit trust funds to individual accounts • An offset, or carve-out, reduces a worker's benefit under the current program • The offset is calculated assuming worker's individual account earns a specified target
Explain how repetitive loss properties continue to be a drain on the NFIP.
• Problematic due to •• Vulnerability of properties to flooding •• Costs of repeatedly repairing flood damages • Properties account for 1% of NFIP covered properties but 25-30% of losses
Briefly describe how a FAIR plan operates.
• Property owner unable to get coverage through voluntary market applies to FAIR plan through authorized agent or broker • FAIR plan may write business or contract with voluntary writers to service business for a percentage of the premium. Servicing carrier underwrites, services, and settle claims
Give two arguments in favor of state workers compensation funds and two counterarguments.
• Proponents of state funds argue they are specialists in WC and offer higher levels of services than a multiline insurer •• However, there are private insurers that specialize in providing only WC • Overhead expense ratios may be lower than private carriers. Absence of some admin costs such as agency commissions and other marketing costs •• Evidence suggests both state funds and private insurers can provide WC in efficient manner
Briefly describe the objectives of the National Catastrophe Plan.
• Protect homeowners by ensuring the affordability and availability of insurance against the financial consequences of natural catastrophic events • Spread catastrophic risk broadly among individual insureds, insurers, reinsurers, states, and federal government • Reward mitigation of hazards
Briefly describe four benefit changes that would reduce the social security deficit.
• Reduce Benefits Across the Board • Raise the Normal Retirement Age • Change the Benefit Formula: PIA Formula Percentages - Reduce the 90/32/15% proportionately (e.g., 0.99 each year), or could reduce only the 32/15% to make formula more progressive • Change the Benefit Formula: Bend-Point Indexing - Index bend point using CPI instead of changes in national avg wage level • Change the Initial Benefit Formula: AIME - Increase averaging period to 38-40 years • Reduce Cost-of-Living Adjustments (COLAs) • Double-Deck Benefit Formula - First deck provides a flat dollar amount for all workers to insure adequacy, second deck provides a specified percent of AIME to insure equity • Change Auxiliary Benefits - Reduce benefit to nonworking spouse to 33%
Four Major Challenges facing NFIP
• Reducing losses to the program from policy subsidies and repetitive loss properties • Increasing property owner participation in program to include both high-risk areas and less flood-prone areas still at risk • Developing accurate, digital flood maps • Providing effective oversight of flood insurance operations
Unemployment insurance program: Identify two ways the program may be considered unsuccessful.
• Research suggested payments slightly prolong unemployment spells • Only about 2/3 bother to collect, which raises social adequacy questions
Briefly describe three ways social adequacy can be explicitly designed into a system of individual accounts.
• Retain current program benefits as a minimum for the lower-paid workers • Retain current program auxiliary benefits • Minimum guaranteed benefits • Above-market interest rates and/or more favorable annuity purchase rates to lower-paid workers
Identify and briefly describe two different types of state workers compensation programs.
• State Funds •• State funds established to address fears of businesses not being able to get WC insurance and/or facing high rates •• Usually serve as the insurer of last resort • Competitive State Funds •• Compete with private insurers and make coverage available and affordable •• May or may not be last resort • Exclusive State Funds •• Has exclusive right to sell insurance in a state
Discuss the amendments to the NFIP via the National Flood Insurance Act of 1994.
• Stronger mandatory flood insurance purchase requirement to increase compliance by lenders • Increased coverage limits • Provided flood mitigation grants to assist communities to help reduce flood damage • Required FEMA to reassess flood hazard maps every 5 years
Describe the three reasons for shortfall in the NFIP premiums.
• Subsidized Insurance Rates •• Authorized by Congress to encourage communities to participate in flood insurance program • Basis in Average Annual Losses, not in Potential Catastrophic Losses • Repetitive Loss Properties
Briefly describe how a Beach and Windstorm plan operates.
• The plan issues and services policies, except for LA and MS which use single servicing carrier for u/w, services, and claims • In all plans, property insurers share in plan losses according to premium volume • Plans offer coverage only in designated coastal areas
Briefly describe the increase in program costs with making individual accounts voluntary.
• Tracking workers' choices and maintaining parallel systems for workers opting-in and optingout • Handling initial and ongoing communications with workers about alternatives • Paying additional costs caused by workers who opt-in or out to maximize their benefits based on particular circumstance
In addition to disabled beneficiaries, identify who else may receive disability income benefits.
• Unmarried children under 18 • Unmarried disabled children as defined above • Surviving spouse caring for children under 16 or for unmarried disabled children as defined above • Surviving spouse 62 or older, even if not caring for child
Other than the financing problem, identify three other issues with using individual accounts for Social Security.
• Voluntary or Mandatory Accounts • Managing Individual Accounts • Payout of Funds
Briefly describe three issues with a voluntary program that do not arise under a single, mandatory plan for using individual accounts for Social Security
• What benefits would those who stay in traditional SS receive? • Should workers who opt out of individual accounts get reduced benefits? • Should workers be told program they choose is subject to unspecified changes? • Is decision to participate one-time and irrevocable
State three arguments for using individual accounts for Social Security.
• Workers have direct control and ownership of accounts • Workers would be able to obtain better return on their SS contributions • Additional investment would give economy a boost
