1
Q
Employment insurance: Objectives (2)
A
- Provides individual with temporary income replacement as a result of interruptions
- Promotes active re-employment assistance to find jobs
2
Q
Employment insurance: Funding (3)
A
- Employer
- Employees
- Tax revenue
3
Q
Employment insurance: Tax Treatment for Employers and Employees (1 each)
A
Employers: Tax Deductible
Employees: Tax Credit
4
Q
Employment insurance: Disqualification reasons (3)
A
- Leaves jobs voluntarily
- Loses jobs due to misconduct
- Out of work because strike or lockout
5
Q
Employment insurance: Requirement for premium reduction (4)
A
In cases of disability, an employee benefit plan is deemed to be the “first payer” and
Employment Insurance (EI) is deemed to be the “second payer.” In recognition,
employer EI premiums are reduced if a short-term disability plan is approved.
- Employee Benefit >= Employment Insurance Benefit
- Payment start 15 days after disability
- Payment for at least 15 weeks for each occurence
- Payment with no reduction for Employment insurance during the same period
6
Q
Employment insurance: Ways to return premium reduction (3)
A
- Written mutual agreement
- Cash rebate = 5/12 savings split for all employees
- New or increased benefits
7
Q
Why employment insurance would not be viable without government involvement ? (3)
A
- Adverse selection
- Industry mechanism: Employer got no benefit to cover this risk if some employees work only mid-year
- Social need: High social burden if private (high premium)
8
Q
Work Comp: Individual Liability vs Collective Liability
- Description
- Funding
- Entities using it
A
Individual Liability:
- Description: Employers are assessed amount based on actual claims and expense for company.
- Funding: Employers (self-insured)
- Entities using it: Public agencies
Collective Liability:
- Description: Groups employers are divided into industry classes where they each contribute a portion of payroll into a pool which is then used to pay benefits
- Funding: Each class collectively based on claims history
- Entities using it: Non-public agencies
9
Q
Historical reasons for inception of Work Comp programs in Canada (2)
A
- Reduce burden on courts and congestion in courts
- Provides immediate assistance to injured workers
10
Q
Conditions for provincial health care program to be eligible for unreduced federal funding (5)
A
- Comprehensive (covers all services)
- Universal (covers all eligible residents)
- Public (non-profit)
- Portable (between provinces)
- Accessible (uniform terms and conditions)
11
Q
What are the priority areas for Emergency Management Strategy ? (5)
A
F : Focus on disaster prevention and mitigation
E : Enhance disaster response capacity and development of new capabilities
C : Collaboration to strengthen resilience
U : Understanding of disaster risks in all sector
S : Strengthen recovery efforts
12
Q
What are the strategies to reduce overall risk of flood ? (2)
A
- Relocation
- Building resilient infrastructure
13
Q
What are the main issues with flood insurance in Canada ? (3)
A
- High cost insurance
- Low risk Awareness (maps not accessible)
- Misaligned incentives
- Government always pays so no incentive to reduce risk
- Government approves land-use that create new flood risk
14
Q
Flood Risk Management : Roles of federal government (4)
A
- Minister of public safety
- DFAA program to help province with cost
- Minister of indigenous safety
- Minister of Environment (Regulation and monitoring of ressources)
15
Q
Flood Risk Management : Roles of provincial government (4)
A
- Regulations for land use
- Regulation for insurance sector
- Establish land use planning standards
- Regulation for natural ressource development
16
Q
Flood Risk Management : Roles of indigeneous Communities (3)
A
- Develop community emergency management plans
- Works with ISC to support structural mitigation
- CIRNAC provides funding for these communities
17
Q
Flood Risk Management : Roles of insurance industry (5)
A
- Financial transfer of risk from HO to insurer
- Data collection, research
- Incentivize policyholders to undertake risk reduction with lower premium
- Help shift some of burden away from government
- Compensates policyholders more fully and quickly than government
18
Q
Flood Risk Management : Roles of non-governmental and civil organisation (3)
A
- Canadian Red Cross
- Boots on the ground during incidents
- Attract, coordinate and harness emergent groups
19
Q
Flood Risk Management : Roles of communities and individual (2)
A
- Seek out information to help understand risk
- Undertake risk mitigation efforts (backwater valves, sump pump)
20
Q
** IMPORTANT **
What are the preconditions to enable private market to function for flood insurance ? (4)
*Preconditions for establishing strong flood risk management culture ?
A
- Limited post-disaster financial assistance
- Improved public awareness of risk
- Accurate and up-to-date flood maps
- Adequate and ongoing investments in public and private flood defences
21
Q
Why is estimate of damage from new report of flood risk higher than previous which is closer to 1-1,5 B$ ? (2)
A
- Prior undercounted true number of properties
- Current factors in tail events which are not captured in historical data
- Previous based on insured losses which does not capture flood damage borne by HO or not recorded centrally
22
Q
What are the themes to consider when setting up or design a flood program ? (4)
A
- Uncertainty (Risk Reduction, Map)
- Market penetration / Adverse selection (Bundle, Incentivize insurance, Collaboration)
- Affordability (Simple definition, risk-based prem)
- Moral Hazard (Exclusion, Min Deductible, Avoid development in high risk areas)
23
Q
Policy objectives for flood insurance (6)
A
M : Maximised participation
A : Affordability
R : Risk Reduction
A : Availability
C : Cost for governments and taxpayers
A : Adequate / Predictable compensation
24
Q
Models for flood actuarial costing (4)
A
- Flat cap high-risk pool
Optional with government funding support. Risk-based before cap.
- Tiered high-risk pool
Mandatory for those with mortgage with government funding support. Levels based on reconstruction cost.
- Public insurer
Crown Corporation for all risk and mandatory via bundling with property insurance. High risk are capped and private insurer are intermediaries.
- Public reinsurer
Layered Approach: 1 (Private) and 2 (Insurance Industry). Voluntary for first and mandatory through bundling for second. Crown Corp reinsurance for second layer.
25
*** IMPORTANT ***
Evaluation of flood actuarial costing models by policy objective.
- Maximised participation
- Affordability
- Risk Reduction
- Availability
- Cost for governments and taxpayers
- Adequacy compensation
Will be ask to evaluation high risk pool vs public insurer based on these characteristics.
The Flat Cap and Tiered High-Risk pool models require less funding; there remains a significant amount of residual risk. If a large-scale flood occurs, many homeowners will be at risk, with governments facing pressure to provide relief.
Evident as well is the cost associated with the Public Insurer model. This plan is most costly to governments in absolute terms; however, on a cost per-capital basis for high-risk households, it performs well according to costing metrics.
Layered insurance provides flexibility to homeowners and provides strong risk reduction incentives to homeowners. This model requires reduced funding to support the arrangement while retaining a high level of coverage for major and catastrophic events.
26
Calculation RSP : Loss Ratio if not ceding any losses
Revised Participation Ratio = Total Exposure / (Total not ceded + Previously ceded)
Revised Prem = Total Prem + % Part x (Prov prem ceded - Prem ceded)
Revised Losses = Total losses + % Part x (Prov ceded loss - ceded loss)
Revised Loss Ratio = Rev Losses / Rev Prem
27
Calculation RSP : Ceding loss ratio
Participation Ratio = Exposure not ceded / Total industry not ceded
Loss ratio = (%Part x Province ceded losses) / (%Part x Province ceded prem + Expense allowance x Ceded prem)
Total Loss Ratio = Same Formula + (Losses not ceded / Prem not ceded)
28
Sharing mechanisms for RSP
- Between member companies
- Premium from company into pool
- Premium from pool into company
Between member companies : Volontary share of exposure in jurisdiction
Prem from company into pool: End of month, report of how much is automatically transfer in pool. Insurer must pay or receive the diff.
Prem from pool into company: Premium commission so insurer can pay their acquisition expense
29
Objective of Facility Association
Ensure that mandatory auto insurance is available to every owner
30
Insurance mechanisms administered by Facility Association (3)
- In what province are they active ?
- FARM (All prov except BC, MB, SK, QC)
- Risk Sharing Pool (ON, AB, NB, NS)
- Uninsured Auto Fund (Atlantic)
31
Diff ON vs AB Risk Sharing Pool (3)
- ON has 1 RSP, AB has GRID and non-GRID RSP
- ON : Participation rate based on #Ceded and not ceded
AB: Based on earned exposure not ceded to pool
- Limit of ceded risk (5% in ON, no limit for AB GRID, limit of 5% for AB non-GRID risk)
32
Key purpose of RSP
Allows insurers to cede risks of their own books for which they consider premiums to be inadequate
33
Key purpose of FARM
Provide auto insurance to drivers who can't find it in voluntary market
34
*** IMPORTANT ***
Minimum requirements by Risk Sharing Pool (5)
- PPA only
- Can't be eligible for FARM
- Must satisfy statutory minimum coverage requirement
- Must use approved rates
- Must follow classification and rating and document
35
RSP vs FARM
- Rate charged
- Admission
- Awareness of customers
- Limit
- Type of risk
- Service provider
- Treatment of loss in ON
RSP :
- Rate charged : Ceding companies approved rates
- Admission : Ceding company own UW rules
- Awareness : Unaware
- Limit : Limited
- Type of risk : PPV only
- Service provider : Insurers
- Treatment of loss in ON : Include
FARM :
- Rate charged : FA rates
- Admission : Only if broker can't find coverage in private market
- Awareness : Aware
- Limit : Not limited
- Type of risk : Not a PPV declined by other insurers
- Service provider : Service carriers
- Treatment of loss in ON : Excluded
36
Identify class of business that determine a member's participation in FA (4)
- PPA non-pool business
- Business not in 1 and any sharing pool
- Business ceded to pool in AB, NB, NS or in RSP excluding ON
- Business ceded to pool in ON or RSP other than AB, NB, NS
37
Yield based vs Non-yield based in Agri Program + Examples for each (2)
Yield: Indemnity payment based on actual yield vs insured yield
- AgriInsurance (Pest, Hail, Wind, Flood)
- AgriStability (Increase input prices)
Non-yield: Triggers not based on yield
- Weather Derivative (Drought)
- Acre based (Fire)
38
Programs in Growing Forward Framework (6)
AgriInsurance : Production Loss
AgriInvest: Fund small losses
AgriStability: Margin decline
AgriRecovery: Disaster
Advance Payments: Low-interest loans for cash flow management
Western Livestock Price: Fluctuation in livestock prices
39
Stabilizing technique used in probable yields methodologies (4)
- Long-term average
- Capping in year-over-year changes
- Split basic and excess coverage
- Use transition rules after introducing new yield method
40
Adjustments to historical probable yield to estimate current probable yield (5)
- Changes in farming or management practices
- Change in insurance program design
- Change in data source
- Maturity or perennials
- Quality variation of crop
41
Similarity/Difference self-sustainability vs FCT (2 each)
Similarities:
- Both consider base and adverse scenarios
- Both use scenario testing
Differences:
- Fully stochastic simulation for self-sustainability
- Longer time horizon for self-sustainability
42
Objective of actuarial certification for self-sustainability in AgriInsurance program
Ensure that program have enough financial resources to operate without any others injections and that it take a reasonable time to regain surplus position after an adverse event.
43
Key elements of Canada AgriInsurance Regulations (4)
- Min Deductible = 10%
- Rates must be actuarially sound
- Max coverage = 90% probable yield
- Actuarial Certification required set by AAFC
44
Roles in AgriInsurance (2 each)
- Federal Government
- Provincial Government
- Producers
- Private Insurer
Federal Government :
- Develop guidelines
- Financing mechanism when program in deficit
Provincial Government :
- Determine probable yield and premium
- Manage claims
Producers :
- Pay premium
- Report yield
Private Insurer :
- Coverage for perils not covered by government (Fire)
- Reinsurance
45
Purpose of probable yield tests
Ensure probable yields (crop production per acre) accurately reflect the crops long-term production and the methodology doesn't result in over-insurance.
46
Calculation Agricultural : Indemnity paid to producer
Indemnity = max(0, Production Guarantee - Actual Production) x Insured Unit Price
Production Guarantee = Area x Probable Yield per unit x Coverage level %
47
*** IMPORTANT ***
Calculation Agricultural : Liability
Liability (Yield based) = Production Guarantee x Price
Liability (Non-yield based) = Number of insured units x Price
48
Calculation Agricultural : Premium
1. Indemnity Rate = Indemnity / Liability
2. Premium Rate = Indemnity Rate + Loadings (5)
3. Premium = Premium Rate x Liability
49
Loadings to add to indemnity rate to obtain premium rate for AgriInsurance and briefly describe (5)
- Uncertainty margin : Account uncertainty in estimates, model assumptions
- Balance-back factor : Aggregate premium to correct for individual discount / surcharge
- Individual Discount/Surcharge
- Reinsurance Load : Account for reinsurance cost
- Self-sustainability Load : Recover deficits and maintain surplus to sustain volatility in loss
50
Purpose of Growing Forward 2 (6)
- F : Foster competitiveness
- A : Availability and affordability of insurance
- R : Risk mitigation to promote industry stability
- M : Market Development
- S : Support innovation/research/development in industry
- S : Sustainable growth
51
Process of self-sustainability assessment
- Type of simulation
- Lenght projection
- Possible adverse scenarios under testing (4)
- Criteria of self-sustainability (2)
Type of simulation : Fully stochastic simulation
Lenght projection : 25 years
Possible adverse scenarios under testing :
- Increase liabilities : More liability, more exposure
- Decrease liabilities : Right after CAT event, vulnerable capital position
- Adverse claim experience
- Catastrophic event
Criteria of self-sustainability :
- Recovery from 95th fund balance within 15 years
- Recovery from 95th fund balance with 80% chance with 25 years
52
Why Canada government should not be involved in flood insurance ? (5)
- Commercial flood insurance already available
- Private insurance can be provided by bundling, risk-based pricing
- Subject to adverse selection (can't bundle)
- Tax burden (cross-subsidization)
- Business opportunity for private market
53
Insurance vs Social welfare programs
- Source of funding
- Trigger payment
Insurance :
- Source of funding : Premiums
- Trigger payment : Loss covered by insurance contracts
Social welfare:
- Source of funding : Tax revenue
- Trigger payment : When people need money
54
Ways which government involved as insurance provider (3)
- Direct competition
- Partnership
- Sole insurer
55
Criterias used to evaluate government insurance programs (3)
- Insurance or welfare -> Premiums, Assessment fees
- Necessary -> Social purpose
- Efficient -> Already in place, self-sustainable, public acceptance
56
Explain efficiency of government insurance is sometimes overstated
Government may rely on other departments for certain task (claim handling), the cost saving may be overstate (other department assume cost).
57
Reasons for government participation in insurance (5) + Examples for each (1)
- Filling need unmet by private insurance (Terrorism)
- When insurance is compulsory (BC auto)
- Efficiency (no commission = lower prem) (Auto)
- Social purpose (non-profit) (Medical)
- Convenience (Existing structure) (Flood)
58
Loss subsidization for government insurer (3)
- Tax revenue
- Charge less than actual cost
- Increase public debt
59
Key drivers of Flood risk in Canada (2)
- Population growth and urban development (flood-areas)
- Climate change (warming, rising sea level)
60
Variables used by IBC to categorize approach for financial management of flood risk (4)
- Optional / Mandatory coverage
- Publicly administered vs privately administered
- Bundling
- Subsidization of high risk by tax payers or policyholders
61
*** IMPORTANT ***
What is the probable yield in Agricultural Programs?
The probable yield is the average production yield for the farmer over the appropriate experience period.
*Be able to calculate it based on a full dataset
62
*** IMPORTANT ***
What is the difference in Alberta in RSP Grid vs Non Grid for
- Limits on exposure ?
- Limits on ceded claims ?
Grid Pool :
- Allows to transfer PPV exposure that are subject to statutory maximum premium
- No limit on the number of risks to transfer (since they must accept any risk in AB)
- 100% of losses are covered by pool (retains 0% of risk)
Non-Grid :
- Allows to transfer any PPV exposure which exhibits higher risk characteristics
- Max allowable : 5% of written exposure that are not transfer to GRID
- 100% of losses are covered by pool (retains 0% of risk)
63
*** IMPORTANT ***
What are the 2 main issues when modeling flood insurance in Canada ?
- Inconsistent and Outdated Flood mapping (not avaliable public flood map)
- Extreme premium for those who need insurance (Need subsidize high-risk but low risk will leave, price spiral)
64
*** IMPORTANT ***
Why we must not remove high risk house for flood insurance modeling ? (3)
- **Solvency :**
Risk identification (dont remove true expected loss)
- **Market Stability :**
Adverse Selection (attractive for those who do not need it)
- **Public safety :**
Incentivize mitigation and adaption by identifying high premium on high risk
Exam 6C
flashcards
Decks in class (3)
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