Crop Insurance: Federal Crop Insurance Corporation Needs To Improve Decision-Making
RCED-87-77
Published: Jul 23, 1987. Publicly Released: Jul 23, 1987.
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Highlights
In response to a congressional request, GAO reviewed the Federal Crop Insurance Corporation's (FCIC) financial viability and operations to determine whether it based key management decisions on complete and accurate data, specifically those decisions affecting: (1) forecasts of income and indemnities FCIC used in budget requests; (2) a proposal to rely on reinsurance rather than both reinsurance and direct insurance; (3) rates of payments to, and gains and losses shared with, private companies selling crop insurance; and (4) actions to improve the Federal Crop Insurance Program's actuarial soundness.
Recommendations
Matter for Congressional Consideration
| Matter | Status | Comments |
|---|---|---|
| In view of congressional concern over the administration's move toward an all-reinsurance program, Congress should consider what the proper balance of sales to be handled through reinsured companies and master marketers should be and, if necessary, amend the Federal Crop Insurance Act of 1980 to specify the system or systems FCIC should use to deliver crop insurance to farmers. |
Closed – Not Implemented
|
Congress has not pursued this issue. There are no plans to do so as far as GAO could determine. |
| Congress should consider the actions taken by FCIC which continue to tilt the sharing of gains and losses in favor of the reinsured companies and, if necessary, amend the Federal Crop Insurance Act of 1980 to provide more specific guidance on how FCIC and reinsured companies should share in gains and losses. |
Closed – Not Implemented
|
No action has been taken by Congress, and none is planned to GAO knowledge. |
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Agriculture | The Secretary of Agriculture should direct the Manager, FCIC, to develop a computerized model to forecast premium income and indemnities. The model should be developed so that, to the extent feasible, objective and quantitative data can be used to make the forecasts. |
Closed – Implemented
FCIC revised its forecasting methodology along the lines recommended by GAO.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Manager, FCIC, to either: (1) base reinsured companies' compensation rates on the costs FCIC covers on the insurance policies it sells directly to farmers, as required by section 508(e) of the Federal Crop Insurance Act of 1980; or (2) propose legislation to amend the act to allow FCIC to continue to establish the compensation rates through negotiations with the reinsured companies. |
Closed – Not Implemented
FCIC disagreed with this recommendation. No action is intended.
|
| Department of Agriculture | The Secretary of Agriculture should direct the Board of Directors and Managers, FCIC, to either: (1) revise subsequent reinsurance agreements by deleting the provision requiring FCIC to reimburse the reinsured companies for state premium taxes; or (2) propose legislation authorizing FCIC to reimburse reinsured companies for such taxes. |
Closed – Not Implemented
FCIC does not plan to act on this recommendation.
|
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Topics
Accounting proceduresComputer modelingDisaster relief aidFarm income stabilization programsFinancial managementInsurance lossesInsurance premiumsProgram managementProjectionsProperty lossesCrop insurance