As shown in table 1, the federal government’s crop insurance costs  generally increased for fiscal years 2003 through 2013. From 2005 through  2013, government costs per dollar of crop value in areas with higher crop  production risks were over two and a half times the costs in other areas. However, RMA does not monitor and report on the government’s crop  insurance costs in these higher risk areas. RMA Premium Rate Changes in Areas with Higher Production Risks May Not Cover Expected Losses

RMA implemented changes to premium rates in 2014, decreasing some  rates and increasing others, but our analysis of RMA data shows that, for  some crops, RMA’s higher risk premium rates may not cover expected  losses. RMA made changes to premium rates from 2013 to 2014, but its  practice of phasing in changes to premium rates over time could have  implications for actuarial soundness. Many County Base Premium Rates Are Less Than the County Target Premium Rates

When county base premium rates are lower than county target premium  rates, RMA is required by statute to limit annual increases in premium  rates to 20 percent of what the farmer paid for the same coverage in the  previous year. However,  we also found that from 2013 to 2014, RMA did not raise county base  premium rates as high as the law allows for many of the higher risk  premium rates. For  example, in analyzing data on premium dollars for 2013, our analysis  showed that had the county base premium rates been aligned with the  county target premium rates in higher risk counties, the federal  government could have potentially collected tens of millions of dollars in  additional premiums. Conclusions

Federal crop insurance plays an important role in protecting farmers from  losses from natural disasters and price declines, and the federal crop  insurance program has become one of the most important programs in  the farm safety net. Without sufficient increases to premium rates, where applicable, RMA  may not be taking all the actions available to achieve greater actuarial  soundness. Recommendations for Executive Action

To better inform Congress in the future about crop insurance program  costs, reduce present costs, and ensure greater actuarial soundness, we  recommend that the Administrator of the U.S. Department of Agriculture’s  Risk Management Agency take the following two actions:
Monitor and report on crop insurance costs in areas that have higher  crop production risks. We continue to believe RMA can  and should do more to monitor and report on crop insurance costs in  higher risk areas, where we found government costs to be substantially  higher than in other areas. In addition, RMA commented on our analysis of the government’s cost of  the crop insurance program in higher risk areas. RMA agreed with our second recommendation that, as appropriate, RMA  increase its adjustments of premium rates in areas with higher crop  production risks by as much as the full 20 percent annually that is allowed  by law, saying it mirrors how premium rate adjustments are currently  administered. Appendix I: Objectives, Scope, and Methodology

Our objectives were to determine, for areas with higher crop production  risks, (1) the government’s cost of the crop insurance program and (2) the  extent to which RMA’s premium rates, as implemented, cover expected  losses. Finally, to address the first objective we interviewed RMA  officials, reviewed USDA’s and other studies that examined the costs of  the crop insurance program and the role of premium subsidies, and  consulted documents from other stakeholders, including farm industry  groups.
Why GAO Did This Study

The federally subsidized crop insurance program, which helps farmers manage the risk inherent in farming, has become one of the most important programs in the farm safety net. Since 2000, the government's costs for the crop insurance program have increased substantially. The program's cost has come under scrutiny as the nation's budgetary pressures have been increasing.
GAO was asked to identify the costs to the federal government for insuring crops in areas with higher production risks. This report examines, for these areas, (1) the government's cost of the crop insurance program and (2) the extent to which RMA's premium rates, as implemented, cover expected losses. GAO analyzed RMA crop insurance program data from 1994 through 2013 (the most recent year with complete program data) and premium rate data for 2013 and 2014; reviewed relevant studies, RMA documents, and documents from stakeholders including farm industry groups; and interviewed RMA officials.

What GAO Found

The federal government's crop insurance costs are substantially higher in areas with higher crop production risks (e.g., drought risk) than in other areas. In the higher risk areas, government costs per dollar of crop value for 2005 through 2013 were over two and a half times the costs in other areas. The figure below shows the costs during this period. However, the U.S. Department of Agriculture's (USDA) Risk Management Agency (RMA)—the agency that administers the crop insurance program—does not monitor and report on the government's crop insurance costs in the higher risk areas.
RMA implemented changes to premium rates in 2014, decreasing some rates and increasing others, but GAO's analysis of RMA data shows that, for some crops, RMA's higher risk premium rates may not cover expected losses. RMA made changes to premium rates from 2013 to 2014, but its plans to phase in changes to premium rates over time could have implications for improving actuarial soundness. USDA is required by statute to limit annual increases in premium rates to 20 percent of what the farmer paid for the same coverage in the previous year. However, GAO found that, for higher risk premium rates that required an increase of at least 20 percent to cover expected losses, RMA did not raise these premium rates as high as the law allows to make the rates more actuarially sound. Without sufficient increases to premium rates, where applicable, RMA may not fully cover expected losses and make the rates more actuarially sound. Furthermore, in analyzing data on premium dollars for 2013, GAO found that had RMA's higher risk premium rates been more actuarially sound, the federal government could have potentially collected tens of millions of dollars in additional premiums.

What GAO Recommends

GAO recommends that RMA (1) monitor and report on crop insurance costs in areas that have higher crop production risks and (2), as appropriate, increase its adjustments of premium rates in these areas by as much as the full 20 percent annually that is allowed by law.
RMA disagreed with GAO's first recommendation and agreed with the second. GAO continues to believe that RMA can and should do more to monitor and report on crop insurance costs in higher risk areas, where government costs were found to be substantially higher.