April 22

USDA's office of inspector general's (OIG) report on the crop insurance program was severely criticized Wednesday by the private crop insurance industry.  Company officials called it "flawed and filled with errors."  Senate Agriculture Committee Chairman Richard Lugar (R-IN) again questioned the validity of the entire program.

Ron Brichler, chairman of National Crop Insurance Services, testified before the Senate Agriculture Committee and said the report "is a disservice to the insurance industry and the employees of the (USDA's) Risk Management Agency."

"The report relies on unsupported generalizations, faulty analysis and factual errors to support predetermined conclusions," Brichler said.  "I find it hard to believe that a report by federal auditors would contain as many factual errors as this report does."

He said "a basic public fact" is that the crop insurance program cost roughly $1.5 billion for crop year 1998.  "But the (report) claims the program cost to be $2.1 billion for 1998.  I do not understand how an auditor could misstate the cost of the program by over one-half billion dollars or over 33%," Brichler added.  "Unfortunately, many of the conclusions of this report are based on this type of faulty analysis."

The report also suggested that the federal government might deliver crop insurance better than the private sector.  To that, Brichler noted the government did deliver part of the crop insurance program in 1995, 1996 and 1997.

"It was a disaster.  Policies with losses were not adjusted on a timely basis, and farmers' yields were calculated incorrectly.  When my company received insurance policies from the government as part of the transfer process in 1998, names and addresses were incomplete, many policies were duplicated, and some farmers were unaware that they even had a policy with the government.  It has taken two years to clean that mess up.  The inspector general seems to ignore all of these facts as he put his report together."

RMA Administrator Ken Ackerman also criticized the report for factual errors and for presenting "only part of the picture."  He asserted that several of the “abuses” referred to in the OIG report had already been corrected.

In his opening statement, Sen. Tom Harkin (D-IA) said he was concerned about the report's "one-sided nature.  It is my understanding that this report was released before the RMA or the private insurance companies were given an opportunity to read the report or offer rebuttal to the main points.  I find the omission of such a review process rather disturbing."

The report "implies" that the RMA is able to impose "unilateral changes in the risk-sharing load between the insurance companies and the government," said Harkin.  "In fact, risk allocation occurs through the standard reinsurance agreement, a negotiated document which cannot be easily changed...it is unfair to characterize the profitability of the crop insurance industry based on the years between 1995-98, because that period does not include a year in which a widespread natural disaster occurred."

Senator Ken Conrad (D-ND) was critical of the OIG for not granting the Risk Management Agency an exit interview.  Conrad, a former state regulator, pointed out that he had run an audit agency and knew that the proper way to conduct an audit was to grant an exit interview to the agency being audited.  Viadero responded that no exit interview was granted because the audit was simply a “roll-up” or summary of previous audits.  However, Ackerman responded that the report went far beyond any previous audit report in its assertions and conclusions.

In response to sharp questioning from members of the committee, Viadero responded that the fact that Congress appropriated $6 billion for crop insurance last year proved the program was not working.  Members of the Committee informed him the $6 billion appropriation was not for crop insurance.

James Ebbit, USDA assistant inspector general for audits, told the committee the OIG found "instance after instance throughout the country" of errors and abuse in the program.

For Lugar, the question was whether crop insurance truly can provide a safety net for farmers.  "The crop insurance program seems to be developing into a program in which many high risk farmers participate, but a growing number of farmers are not participating either because it is not economically valuable or because of its complexity.

"I have to question whether crop insurance is the most efficient way to provide a safety net to farmers," he said.