Combest Reviews Crop Insurance Implementation

September 28, 2000

House Agriculture Committee Chairman Larry Combest convened a hearing yesterday to review the implementation of the Agricultural Risk Protection Act. The focus of the hearing was to determine whether the new law's provisions against fraud, waste and abuse are being implemented. The Committee heard testimony from the Secretary of Agriculture, Dan Glickman, as well as and industry panel.

Agriculture Secretary Dan Glickman says revenue insurance plans will be much more affordable and the changes to the actual production history (APH) system will help producers suffering multiple year losses retain a reasonable amount of insurance protection as USDA implements crop insurance reforms passed earlier this year by Congress.

He also said USDA. s Farm Service Agency (FSA) has made nearly all the $5.5 billion in supplemental AMTA payments to about 1.4 million producers authorized under the law. The payments were part of a $7.1 billion relief package.

USDA's "immediate priority" once the bill was signed into law was to promulgate a package of administrative actions that lowered 2001 farmer-paid premiums, increased yield coverage, and amended administrative fees as provided under Title I, he said. These changes, all finalized by Risk Management Agency before the June 30 contract change date for fall-planted crops, made about 90% of the $8.2 billion in new benefits authorized under the act available to farmers for the next five years.

New APH provisions allow producers to substitute 60% of the applicable transitional (county average) yield when their actual yields are lower than 60% of that transitional yield. "This change can increase yield guarantees and protect producers who have suffered multiple losses by providing more coverage while continuing to assess premiums proportional with the additional risk," said Glickman.

RMA has begun implementing many of the more "complex and forward-reaching provisions of Title I aimed at expanding the crop insurance system, facilitating innovation, and improving program oversight. Some of these will unfold over the next several months, some over the next several years," Glickman said.

The agency is developing a proposed rule outlining the process for submitting risk management products and the reimbursement schedule for bringing acceptable products to RMA for use in the program. This rule will be given full public exposure through the regulatory process before it is published as a final rule.

RMA also is preparing to announce a major expansion of the Dairy Options Pilot Program for the coming year, Glickman added. The revised program will reach 300 counties in 40 states and include training for dairy operators on using options to cover price risk .

"We appreciate your (Congress) working with us throughout the legislative process to make program integrity a major priority for this new act," said Glickman. "Insurance abuse is a difficult issue throughout the commercial insurance world, not just crop insurance. But because it is backed by public funds, taxpayers dollars, crop insurance must be held to the very highest standard. Any over-payment of public funds based on fraud, abuse, or program error is unacceptable."

He added, "I feel confident in assuring you that taxpayer funds are being properly safeguarded and that the level of integrity in the Federal crop insurance program is high. The vast majority of our farmer-customers, our agents and loss adjustors, company officials, and agency staff are honest people who work hard and play by the rules. Where cases of abuse arise, they are investigated and addressed. Program errors are fixed promptly within the bounds of our legal system. Where the system has had weaknesses, we have worked with Congress, our inspector general, and our private insurance company partners to strengthen it."

Ben Latham, vice president, Producers Lloyds and chairman, American Association of Crop Insurers, told the committee the industry "takes fighting fraud and abuse seriously. No member of this trade association willingly or purposefully pays a fraudulent claim. Companies have a strong incentive to ensure that the program works properly. Not only do we have a substantial financial incentive, but we face compliance reviews and enforcement actions if we make mistakes."

The reasons for fraud are myriad, he said, "but certainly there are common themes across different insurance lines of business. We agree with the Coalition Against Insurance Fraud that the top four reasons are public attitudes, insufficient penalties, low law enforcement priority, and insurer claim practices."

Insurance fraud is perceived as a high-return, low-risk undertaking, Latham said. "Many view insurance fraud as a victimless crime - only the insurance company pays for the crime. Of course we know that not to be the case: premiums for everyone in a similar risk pool rise due to fraud. The victims are, as usual, law-abiding citizens."

In crop insurance, "we all have anecdotes and stories about how fraud and abuse is perceived to permeate the crop insurance program. The truth is we can. t agree on the significance of the problem because we do not have a baseline measurement system in place. It clearly is a problem in some parts of the country and for some crops. But is this indicative of the entire country? We don't think so," he added.

Robert E. Fulwider, executive vice president, Ray Wuestenberg Insurance Agency Inc., West Liberty, IA, testified for the Independent Insurance Agents of America, Inc. (IIAA), of which he is chairman.

He also urged the committee to monitor carefully implementation of crop insurance reforms as well as the regulations governing related legislation. "It is very important that the authority and expertise of our state insurance departments be recognized in the sale and delivery of crop insurance," he said.

Chairman Combest charged the Department of Agriculture and the crop insurance industry to take responsibility for eliminating fraud, waste and abuse in the program.  "At best, if fraud, waste and abuse are permitted to fuel premium inflation, our farmers stand to lose the benefit of lower insurance costs conferred on them by the legislation we have passed," Combest said.  "And, at worst, if fraud, waste and abuse are permitted to undermine public confidence, our farmers stand to lose a program they can scarcely do without."