Analysis of Certain Operations of the Federal Crop Insurance Corporation

In response to a congressional request, GAO reviewed certain operations of the Federal Crop Insurance Corporation (FCIC).

GAO found that because of the normal lag of FCIC in adjusting premium rates and its decision to concentrate its staff resources on expanding program coverage, FCIC has not made extensive changes in its premium rates since the passage of the Federal Crop Insurance Act amendment of 1980. As a result, the significant losses which occurred in 1980 have not yet been reflected in the premium rates of FCIC. These losses will be reflected in the premium rates of 1983. FCIC methodology in assembling and updating data for establishing an actuarial basis for insurance has also not changed since the passage of the amendment. Of 30 private insurance companies which initially indicated an interest, only 19 companies entered into reinsurance agreements for crop year 1981. Six other companies entered into agency sales and service agreements. Despite nationwide advertising of the credit permitted when hail and fire insurance is excluded from FCIC coverage and purchased from private firms, the producers have applied to exclude hail and fire insurance coverage from only about 3,000 of the approximately 500,000 policies which have been written. FCIC estimates that total costs for fiscal year 1981 will amount to $333 million. This amount included the estimated net deficit of $203 million for crop year 1980. Preliminary data show that premiums for crop year 1981 will be about $316.5 million, about a 108 percent increase from 1980. The number of acres insured increased to 47.7 million, or about an 81 percent increase.