Federal crop insurance could be costing more in high-risk areas

Federal crop insurance could be costing more in high-risk areas

Government Accountability Office report finds federal government has lost out on millions in premiums because it isn't charging enough in high-risk areas

The USDA Risk Management Agency could be charging farmers in "higher-risk" areas more for crop insurance, a Government Accountability Office report said Wednesday.

Related: Legislators, ag groups say unified support will solidify crop insurance

The report examined RMA's lawful abilities to charge producers for crop insurance service in areas that are prone to higher crop production risks, determining that the federal government has missed out on tens of millions of crop insurance premiums because it is not following these rules closely.

Government Accountability Office report finds federal government has lost out on millions in premiums because it isn’t charging enough in high-risk areas

According to the report, USDA is required by statute to limit annual increases in premium rates to 20% of what the farmer paid for the same coverage in the previous year. GAO determined that in some cases where the 20% increase was required, RMA didn't raise the rates.

Without sufficient increases to premium rates, RMA may not fully cover expected losses, the report said.

The report was requested as the government's share of program costs for crop insurance as a whole have increased between 2003 and 2013. These costs averaged $3.4 billion annually between 2003-07 and $8.4 billion between 2008-13.

Estimated costs for crop insurance between 2015-24 are at $8.9 billion per year.

Federal crop insurance could be costing more in high-risk areas

Costs to the government, the report added, are indeed higher in areas with higher risk. GAO said that from 2005-13, 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. RMA doesn't report on these costs in higher risk areas, however, which GAO said would identify potential cost savings and be consistent with USDA's strategic objectives.

Related: Farm bill programs and federal crop insurance aren't the same

In its conclusions provided to RMA, GAO said the agency should monitor and report on crop insurance costs in areas that have higher crop production risks, and increase premium rate adjustments as allowed by law.

RMA agreed with the second recommendation on raising rates, however it disagreed with the first recommendation regarding monitoring of costs in higher-risk areas.

RMA said it currently provides information necessary to determine crop insurance costs in all areas. It also challenged GAO's determination of a "high-risk" area, suggesting the RMA's determination is narrower.

Read the GAO report: In Areas with Higher Crop Production Risks, Costs Are Greater, and Premiums May Not Cover Expected Losses

TAGS: USDA
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