RMI 3501 Lecture Notes - Lecture 14: Eminent Domain, Moral Hazard, Market Failure

• School: Temple University
• Department: Risk Management and Insurance
• Course: RMI 3501
• Professor: Rob B.Drennan

Document Summary

Topic 2: the role of social insurance programs. Social insurance (si: oasdi + medicare, wc, unemployment (ui, temporary disability insurance (tdi) Individuals are myopic in their planning: private insurance market failure, moral hazard, failure to insure a particular risk. Issues with requirements of an insurable risk: catastrophic loss possibilities, moral hazard, loss is (cid:374)ot defi(cid:374)ite (cid:894)(cid:272)a(cid:374)"t easil(cid:455) deter(cid:373)i(cid:374)e if a loss o(cid:272)(cid:272)urred(cid:895, adverse selection. : prolong disability: target replacement ratio: sum of all disability income payments divided by pre- disability income, all disability income payments/pre disability income 66% (70% is over insured!, **must be integrated/coordinated into plan design. Major characteristics of si programs: compulsory purchase of insurance or compulsory participation in a program, (cid:862)b(cid:455)-la(cid:449)(cid:863) ers a(cid:374)d ees, go(cid:448)er(cid:374)(cid:373)e(cid:374)t e(cid:374)gagi(cid:374)g i(cid:374) a (cid:862)risk (cid:271)eari(cid:374)g(cid:863) (cid:272)apa(cid:272)it(cid:455, acting as an insurer (why? because private market failure, federal, state. Types of benefits: oa = old age (retirement, s = survivor (life ins. , d = disability ins.