FarmPolicy

January 26, 2020

Crop Insurance; Biofuels; CFTC Issues; Climate Change; and Mexican Tariff Issues

Categories: Miscellaneous

Crop Insurance

Yesterday, the U.S Government Accountability Office (GAO) released a report entitled, “Crop Insurance: Opportunities Exist to Reduce the Costs of Administering the Program” (Full report, 43 pages; One-page recap).

An overview of yesterday’s report, which was completed in April and posted yesterday at the GAO Online, noted in part that, “The U.S. Department of Agriculture (USDA) administers the federal crop insurance program with private insurance companies, which, in turn, work with insurance agencies that sell crop insurance. In 2008, according to USDA, the program cost $6.5 billion, including about $2.0 billion in allowances to insurance companies to cover their administrative and operating (A&O) expenses, such as salaries and sales commissions to agencies. GAO was asked to examine (1) the reasons for recent substantial increases in A&O allowances, and the purposes for which insurance companies use these allowances, and (2) insurance agencies’ expenses for selling federal crop insurance policies, and questionable practices, if any, that agencies use to compete for business among farmers. GAO analyzed USDA and private insurers’ data, among other things.

“Between 2000 and 2009, companies’ A&O allowances nearly tripled, primarily because USDA’s calculation method for A&O allowances considers the value of the crop, rather than the crop insurance industry’s actual expenses for selling and servicing policies, which generally remained stable. This increase in the A&O allowances occurred without a proportional increase in the number of policies, acres, or amount of insurance coverage purchased. The higher A&O allowances occurred because of higher crop prices since 2006.”

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