Objectives, Scope, and Methodology

Concerned about the financial condition of the crop insurance program, the Ranking Minority Member of the Senate Committee on Agriculture, Nutrition, and Forestry asked us to examine whether USDA (1) set insurance rates to achieve the legislative requirement of collecting premiums sufficient to cover 91 percent of the claims paid—termed “91-percent adequacy” in this report; (2) reduced the losses caused by high-risk farmers; (3) based claims payments on farmers’ normal production levels; and (4) set deadlines for farmers to purchase crop insurance before planting begins. As a result, the rates for both coverage and production levels are not aligned with risk. At the same time, because of concerns that farmers would stop purchasing crop insurance, USDA has failed to raise the basic rates promptly to ensure achievement of 91-percent adequacy. The dates are set for a several-state area rather than for local growing conditions. However, by not routinely setting these deadlines by crop-growing regions, USDA enables some farmers to better evaluate growing conditions and increases the likelihood that they will purchase crop insurance when growing conditions are poor.
Why GAO Did This Study

Pursuant to a congressional request, GAO examined whether the Department of Agriculture (USDA): (1) set insurance rates to achieve the legislative requirement of 91-percent adequacy; (2) reduced the losses caused by high-risk farmers; (3) based payments to farmers for claimed losses on their actual production history; and (4) set deadlines for farmers to purchase crop insurance before planting their crops.

What GAO Found

GAO found that USDA: (1) has improved the overall financial condition of the crop insurance program by raising the premium rates, but the basic rates still do not meet the requirement of 91-percent adequacy set by Congress; (2) sets higher rates for high-risk farmers to help reduce the government's losses; (3) has made changes to more accurately calculate farmers' production levels based on their historical experience; and (4) generally sets the same deadline for an area covering several states rather than considering the local growing conditions, and as a result some farmers are able to more precisely evaluate growing conditions at planting time and are more likely to purchase crop insurance when growing conditions are poor.