Crop Insurance:

USDA Needs a Better Estimate of Improper Payments to Strengthen Controls Over Claims

RCED-99-266: Published: Sep 22, 1999. Publicly Released: Sep 22, 1999.

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Pursuant to a congressional request, GAO provided information on crop insurance, focusing on: (1) the extent to which crop insurance claims are paid in error--either unintentionally or fraudulently--and, to the extent practical, a comparison of the rate at which claims are paid in error with rates for other types of insurance; (2) the insurance companies' and the Department of Agriculture's Risk Management Agency's (RMA) quality controls to 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 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.

Status Legend:

More Info
  • Review Pending-GAO has not yet assessed implementation status.
  • Open-Actions to satisfy the intent of the recommendation have not been taken or are being planned, or actions that partially satisfy the intent of the recommendation have been taken.
  • Closed-implemented-Actions that satisfy the intent of the recommendation have been taken.
  • Closed-not implemented-While the intent of the recommendation has not been satisfied, time or circumstances have rendered the recommendation invalid.
    • Review Pending
    • Open
    • Closed - implemented
    • Closed - not implemented

    Recommendations for Executive Action

    Recommendation: The Secretary of Agriculture should require the Administrator, RMA, to evaluate the costs of alternative methods for developing more accurate estimates of error rates for claims payments and implement an alternative that would improve the estimate at a reasonable cost to the federal government. Alternatives that could be considered include having RMA sample and analyze a sufficient number of claims to make an estimate.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: USDA's Risk Management Agency and the participating insurance companies concurred with GAO's recommendation and began implementation in early 2000.

    Recommendation: The Secretary of Agriculture should require the Administrator, RMA, to evaluate the costs of alternative methods for developing more accurate estimates of error rates for claims payments and implement an alternative that would improve the estimate at a reasonable cost to the federal government. Alternatives that could be considered include using the claims sampling done by the insurance companies under the quality control program to make the estimate.

    Agency Affected: Department of Agriculture

    Status: Closed - Implemented

    Comments: USDA's Risk Management Agency and the participating insurance companies concurred with GAO's recommendation and began implementation in early 2000.

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