More Attention Needed in Key Areas of the Expanded Crop Insurance Program

Gao ID: RCED-84-65 March 14, 1984

GAO reviewed the Federal Crop Insurance Corporation's (FCIC) actuarial practices, the rates at which private sector companies were compensated for selling and servicing crop insurance, and the distribution of gains and losses on crop insurance sold by private companies and reinsured by FCIC.

Congress has expressed concern regarding FCIC progress in implementing the Federal Crop Insurance Act of 1980, the effectiveness of program changes when insurance losses in 1981 and 1982 are considered, and the annual increases in FCIC appropriation requests. GAO found that, following enactment of the legislation, FCIC made substantial progress in expanding the program and involving the private sector in selling and servicing crop insurance. However, FCIC did not give appropriate attention to ensure that its insurance was actuarially sound, did not carefully evaluate its actions involving the private sector, and did not make a detailed cost study when it established the compensation rates for the private sector companies' sales and service activities. Under the expanded reinsurance program, private insurance companies obtain reinsurance coverage from FCIC as protection against part of the risk of insuring crops. Allowed annual revisions to the standard reinsurance agreement have resulted in increased costs and risks to FCIC. GAO noted that FCIC has initiated numerous actions that should improve the insurance paperwork submitted by independent insurance agents and taken steps to develop a comprehensive quality control program and a plan for an independent audit of the reinsured companies.


Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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