Crop Insurance

Federal crop insurance protects participating farmers against crop losses caused by droughts, floods, hurricanes, and other natural disasters. The program's loss experience is a major factor in determining the cost of federal crop insurance to farmers and to the government. This report discusses (1) the extent to which crop insurance claims are paid in error, (2) the insurance companies' and the Risk Management Agency's quality controls to help ensure that accurate claims payments are made, and (3) the proposals being considered to reduce insurance companies' administrative requirements and the potential impact of these proposals on the operations of the crop insurance program. GAO found that there are no precise estimates of the extent to which crop insurance claims are paid in error, the Risk Management Agency and the insurance companies have revised the process for examining the accuracy of claims, and the agency and the companies are considering proposals to simplify the administrative requirements.

GAO noted that: (1) there are no precise estimates of the extent to which crop insurance claims are paid in error; (2) while RMA estimated that about 5 percent of claims were paid in error in 1997, the agency's methodology for estimating errors was questionable in several respects; (3) specifically, the estimate was based on an inadequate sample size and did not include the results of timely, on-site reviews to detect errors resulting from fraud; (4) although information on payment errors for other types of property and casualty insurance is limited, a recent insurance industry study reported higher rates of fraud-related payment errors than RMA reports for crop insurance; (5) RMA and the insurance companies revised the process for examining the accuracy of paid claims in 1998; (6) previously, the agency has reviewed the claims of a few companies every year for accuracy, but available resources limited the number of claims that could be examined; (7) under the new process, the agency is able to get much broader coverage of claims activity by relying on the companies themselves to review an agency-selected statistical sample of their claims to detect erroneous payments; (8) the companies use agency guidance for ensuring that the sampled claims were properly paid; (9) the agency then reviews a sample of these same claims to determine whether the companies' review processes are adequate; (10) while it is too early to evaluate the effectiveness of this approach, success will depend heavily on how well the companies implement this approach and the quality of RMA's oversight of the process; (11) RMA and the companies are considering proposals to simplify administrative requirements in three principal areas: (a) developing alternatives to producers' actual production histories, which are used to determine the insured value of a crop; (b) simplifying the administration of one type of crop insurance--catastrophic; and (c) changing other administrative requirements, such as allowing farmers to self-certify claims below certain dollar amounts; (12) the agency and the companies do not agree on how these simplification proposals would affect program operations; and (13) for example, while some simplification proposals could reduce the companies' administrative costs, these proposals could also increase claims payments, which would increase government costs.

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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