Crop Insurance

Additional Actions Could Further Improve Program's Financial Condition Gao ID: RCED-95-269 September 28, 1995

Since the 1930s, the federal government has offered subsidized crop insurance to farmers. After the program was expanded in 1980 to include more crops and locations, however, it paid out about $3 billion more in claims through 1994 than it received in premiums from farmers and the federal government. To correct this imbalance, Congress required that, by October 1995, the program reduce its projected ration to at least $1 in premiums to $1.10 in claims paid. In other words, insurance rates were to cover at least 91 percent of the anticipated claims--termed "91-percent adequacy." The Agriculture Department (USDA) estimates that the government's costs for the program will total $1.5 billion for fiscal year 1996. This report examines whether USDA (1) set the insurance rates to achieve the requirement of 91-percent adequacy, (2) reduced the losses caused by high-risk farmers, (3) based payments to farmers for claimed losses on their actual production history, and (4) set deadlines for farmers to buy crop insurance before planting their crops.

GAO found that USDA: (1) has improved the overall financial condition of the crop insurance program by raising the premium rates, but the basic rates still do not meet the requirement of 91-percent adequacy set by Congress; (2) sets higher rates for high-risk farmers to help reduce the government's losses; (3) has made changes to more accurately calculate farmers' production levels based on their historical experience; and (4) generally sets the same deadline for an area covering several states rather than considering the local growing conditions, and as a result some farmers are able to more precisely evaluate growing conditions at planting time and are more likely to purchase crop insurance when growing conditions are poor.

Recommendations

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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