Crop Insurance

Increases in Insured Crop Prices and Premium Rates Raise the Administrative Expense Reimbursement Paid to Companies Gao ID: RCED-98-115R March 20, 1998

GAO reviewed: (1) the relationship between insured crop prices and the premium rates paid to insurance companies that sell and service crop insurance; and (2) alternative reimbursement methods that were presented in its April 1997 report and that the Federal Crop Insurance Corporation is considering.

GAO noted that: (1) average insured crop prices and premium rates have increased more since GAO's April 1997 report; (2) these increases have generated a 16-percent increase in the total crop insurance premiums paid since 1995; (3) because the administrative expense reimbursement paid to crop insurance companies is calculated as a percentage of total premiums, the increase in premiums will result in even higher payments in 1998 without a commensurate increase in workload; and (4) unless the current reimbursement percentage is reduced and the method for calculating reimbursements is modified, companies' reimbursement for administrative expenses will continue to exceed their workload.



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