Crop Insurance:

Private Company Loss Adjustment Improving, but Overpayments Still High

RCED-90-32: Published: Nov 7, 1989. Publicly Released: Nov 7, 1989.

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Pursuant to a congressional request, GAO reviewed efforts made by private insurance companies reinsured by the Federal Crop Insurance Corporation (FCIC) to resolve their loss adjustment problems.

GAO found that: (1) FCIC-reinsured insurance companies decreased claims overpayments from 31 percent to an estimated 16 percent; (2) an estimated 25-percent fewer claims had large overpayments; (3) loss adjustment error frequency and distribution appeared unchanged, with reinsured companies committing 52 percent of adjustment errors through product guarantee determinations, 33 percent through actual production determinations, 10 percent while determining indemnity due, and 5 percent during eligibility determinations; (4) FCIC employees overpaid 12.6 percent of master marketer company claims, compared to a previously reported 1.1-percent overpayment rate, with the largest error frequency 39 percent for production guarantee determinations; (5) FCIC strengthened its Compliance Office through staff increases and regional office expansion; (6) FCIC established training and qualification guidelines for reinsured company adjusters, and was beginning computerized audits to monitor claims payments; and (7) FCIC drafted loss adjustment performance standards and planned to incorporate them into 1991 contracts and agreements with reinsurance and master marketer companies.

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