Crop Insurance:

FCIC Needs to Improve Its Oversight of Reinsured Companies

RCED-89-10: Published: Oct 19, 1988. Publicly Released: Oct 28, 1988.

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In response to a congressional request, GAO evaluated certain Department of Agriculture Federal Crop Insurance Corporation (FCIC) oversight activities over private companies that insure farmers against crop losses from natural disasters.

GAO found that: (1) FCIC is considering ways to expand the scope of its oversight reviews, since many of its reviews are limited because of its desire to cover as many companies as possible; (2) many of the reviews were not statistically valid for drawing reliable conclusions about the quality of a company's overall adjustment practices because of the manner in which FCIC selected its samples and the limited sample size; and (3) FCIC did not establish basic criteria for determining reinsured companies' acceptable loss adjustment performance.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: FCIC has drafted a handbook that addresses this and other issues. An accomplishment report will be drafted.

    Recommendation: To improve the effectiveness of FCIC oversight of the loss adjustment activities of reinsured companies and to provide a better basis for judging the overall performance of individual companies, the Secretary of Agriculture should require the Manager, FCIC, to emphasize the use of statistically valid random sampling techniques and appropriate sample sizes, where it is cost-beneficial, in selecting claims for review.

    Agency Affected: Department of Agriculture

  2. Status: Closed - Implemented

    Comments: FCIC adopted a set of performace standards for use in evaluating results of its compliance reviews. An accomplishment report is being drafted.

    Recommendation: To improve the effectiveness of FCIC oversight of the loss adjustment activities of reinsured companies and to provide a better basis for judging the overall performance of individual companies, the Secretary of Agriculture should require the Manager, FCIC, to develop criteria to use in evaluating the results of compliance reviews and for determining the acceptability of a company's loss adjustment performance. The criteria should explicitly state when FCIC will suspend a company's operations and the circumstances under which FCIC will assume a company's loss adjustment function.

    Agency Affected: Department of Agriculture

 

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