More Attention Needed in Key Areas of the Expanded Crop Insurance Program
RCED-84-65
Published: Mar 14, 1984. Publicly Released: Mar 14, 1984.
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Highlights
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.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to moderate any further expansion so that it will not detract from the actuarial division's ability to update the crop insurance offers. |
Closed – Implemented
FCIC completed its national expansion effort and made a number of program changes that, if properly implemented, should improve its ability to incorporate loss experience data in insurance offers on a more timely basis.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to correct any inaccuracies that may be found in the recently established county insurance offers of FCIC and, if necessary, correct its older county insurance offers that may be inappropriate in light of the increased risk that may be associated with implementing the legislative requirements for higher coverages. |
Closed – Implemented
FCIC took a number of actions that should correct the problems, including the development of a new premium rate-making model, implementing a new farmer production history program to use in establishing guaranteed yields, and increasing premium rates for higher-yield coverage levels.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to give increased attention to completing actuarial reports depicting crop year 1980 and 1981 insurance experiences in order that the review and updating of the FCIC crop insurance programs might be expedited. |
Closed – Implemented
As recommended, all of the 14 reports were developed.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to consider the potential for obtaining actual crop yield data and using such data to establish homogeneous risk groups and the proper relationships among each group's yields and risk rates. |
Closed – Not Implemented
FCIC agreed that homogeneous risk groups should be established; however, it will take a long time to obtain the necessary data to establish such groups. Thus, FCIC does not intend to take any action on this matter for several years.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to evaluate the rates established for compensating the private sector in relation to the current or expected premium base and the private sector's costs to provide such services. The rate structure should, if warranted, be adjusted to provide reasonable compensation to the private sector for its services and, at the same time, be cost-effective to the federal government. |
Closed – Implemented
Although FCIC contracted with two firms to evaluate private sector costs and rates, the study results were inconclusive because the private companies do not segregate their costs in such a way that a determination could be made of what it costs them to handle FCIC insurance sales and services.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to moderate further expansion of the reinsurance program until the operation of the current program can be evaluated to ensure that it is cost-effective for both the government and the insurance companies. |
Closed – Implemented
FCIC continues to expand reinsurance sales in its efforts to go to an all-reinsurance program. The review of reinsurance and direct sales showed that the study was inaccurate, incomplete, and unobjective.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Manager, FCIC, to tailor the reinsurance agreements to each company's area of operation and base the gain and loss formula on the loss experience for the geographic area in which the company operates. |
Closed – Not Implemented
FCIC revised its gain and loss distribution formula to provide for stop-loss provisions, which make regional formulas impractical. Hence, this recommendation is no longer valid.
|
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