GAO urges cut in crop insurance rate of return; NCIS disagrees

The Hagstrom Report

The Government Accountability Office and the National Crop Insurance Services disagree about whether Congress should reduce the target rate of return for crop insurance.

“Congress should consider repealing the Agricultural Act of 2014 provision that any revision to the agreement with insurance companies not reduce their expected underwriting gains and direct (the Agriculture Department’s Risk Management Agency) to … adjust companies’ target rate of return to reflect market conditions and … assess the portion of premiums that companies retain and adjust it, if warranted,” an August report from the Government Accountability Office stated “GAO also recommends that (the Risk Management Agency) consider adjusting the method it uses to determine payments to insurance companies for expenses. (The Risk Management Agency) stated it will take steps to implement GAO’s recommendation.”

In a statement, the National Crop Insurance Services said in the farm crisis of the 1980s the accountability office recommended strengthening the crop insurance program, which Congress did.

“Given crop insurance’s success and popularity, it is disheartening that GAO recently recommended weakening farmers’ primary risk management tool,” NCIS said.

NCIS added:

» Insurance providers are not even achieving the returns targeted in the Standard Reinsurance Agreement with the USDA; the Government Accountability Office buried deep within its report the fact that actual returns have been 5 percentage points lower than USDA’s target from 2011-15.

» Government Accountability Office’s data do not take insurers’ full business expenses into account. Essentially, they are confusing gross and net returns.

» A 2017 study by economists from the University of Illinois and Cornell University noted that net returns for crop insurance providers were just 1.5 percent from 2011-15.