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HEARING TO REVIEW THE INTEGRITY 

AND EFFICACY OF THE FEDERAL 

CROP INSURANCE PROGRAM

HEARING

BEFORE THE

SUBCOMMITTEE ON GENERAL FARM 

COMMODITIES AND RISK MANAGEMENT

OF THE

COMMITTEE ON AGRICULTURE 

HOUSE OF REPRESENTATIVES

ONE HUNDRED TENTH CONGRESS

FIRST SESSION

THURSDAY, JUNE 7, 2007

Serial No. 110–25

(

Printed for the use of the Committee on Agriculture 

www.agriculture.house.gov 

COMMITTEE ON AGRICULTURE 

COLLIN C. PETERSON, Minnesota, Chairman 

TIM HOLDEN, Pennsylvania 

Vice Chairman 

MIKE MCINTYRE, North Carolina 

BOB ETHERIDGE, North Carolina 

LEONARD L. BOSWELL, Iowa 

JOE BACA, California 

DENNIS A. CARDOZA, California 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

HENRY CUELLAR, Texas 

JIM COSTA, California 

JOHN T. SALAZAR, Colorado 

BRAD ELLSWORTH, Indiana 

NANCY E. BOYDA, Kansas 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

KIRSTEN E. GILLIBRAND, New York 

STEVE KAGEN, Wisconsin 

EARL POMEROY, North Dakota 

LINCOLN DAVIS, Tennessee 

JOHN BARROW, Georgia 

NICK LAMPSON, Texas 

JOE DONNELLY, Indiana 

TIM MAHONEY, Florida 

BOB GOODLATTE, Virginia 

Ranking Minority Member 

TERRY EVERETT, Alabama 

FRANK D. LUCAS, Oklahoma 

JERRY MORAN, Kansas 

ROBIN HAYES, North Carolina 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

JO BONNER, Alabama 

MIKE ROGERS, Alabama 

STEVE KING, Iowa 

MARILYN N. MUSGRAVE, Colorado 

RANDY NEUGEBAUER, Texas 

CHARLES W. BOUSTANY, JR., Louisiana 

JOHN R. ‘‘Randy’’ KUHL, JR., New York 

VIRGINIA FOXX, North Carolina 

K. MICHAEL CONAWAY, Texas 

JEFF FORTENBERRY, Nebraska 

JEAN SCHMIDT, Ohio 

ADRIAN SMITH, Nebraska 

KEVIN MCCARTHY, California 

TIM WALBERG, Michigan 

PROFESSIONAL STAFF

ROBERT L. LAREW, Chief of Staff 

ANDREW W. BAKER, Chief Counsel 

WILLIAM E. O’CONNER, JR., Minority Staff Director

SUBCOMMITTEE ON GENERAL FARM COMMODITIES AND RISK MANAGEMENT

BOB ETHERIDGE, North Carolina, Chairman 

DAVID SCOTT, Georgia 

JIM MARSHALL, Georgia 

JOHN T. SALAZAR, Colorado 

NANCY E. BOYDA, Kansas 

STEPHANIE HERSETH SANDLIN, South 

Dakota 

BRAD ELLSWORTH, Indiana 

ZACHARY T. SPACE, Ohio 

TIMOTHY J. WALZ, Minnesota 

EARL POMEROY, North Dakota 

JERRY MORAN, Kansas 

Ranking Minority Member 

TIMOTHY V. JOHNSON, Illinois 

SAM GRAVES, Missouri 

CHARLES W. BOUSTANY, JR., LOUISIANA

K. MICHAEL CONAWAY, Texas 

FRANK D. LUCAS, Oklahoma 

RANDY NEUGEBAUER, Texas 

KEVIN MCCARTHY, California 

CLARK OGILVIE, Subcommittee Staff Director

(II) 

(III)

C O N T E N T S 

Page 

Etheridge, Hon. Bob, a Representative in Congress from the State of North 

Carolina ................................................................................................................ 1

Moran, Hon. Jerry, a Representative in Congress from the State of Kansas .... 2

Walz, Hon. Timothy J., a Representative in Congress from the State of 

Minnesota, prepared statement .......................................................................... 38

Peterson, Hon. Collin C., a Representative in Congress from the State of 

Minnesota, prepared statement .......................................................................... 39

Goodlatte, Hon. Bob, a Representative in Congress from the Commonwealth 

of Virginia, prepared statement .......................................................................... 41

WITNESSES

Brichler, Mr. Ron, President, Crop Insurance Division, Great American Insurance Company, Cincinnati, Ohio ........................................................................ 4

Prepared statement .......................................................................................... 43

Barnaby, Dr. G.A. (Art), Jr., Ph.D., Professor, Department of Agircultural 

Economics, Kansas State University Research and Extension, Manhattan, 

Kansas ................................................................................................................... 5

Prepared statement .......................................................................................... 56

Herring, Mr. David C., Jr., Branch Manager, East Carolina Farm Credit, 

Kinston, North Carolina ...................................................................................... 7

Prepared statement .......................................................................................... 67

Mock, Mr. Mike, Senior Risk Manager, The Andersons, Inc., Maumee, Ohio ... 8

Prepared statement .......................................................................................... 71

Little, Dr. Bert, Ph.D., Associate Vice President for Academic Research, Professor of Computer Science and Mathematics, Executive Director, Center 

for Agribusiness Excellence, Tarleton State University, Stephenville, Texas 10

Prepared statement .......................................................................................... 77

Ferens, Mr. Nick, Manager, U.S. Civil Market, DeticaDFI, Washington, D.C. . 12

Prepared statement .......................................................................................... 82

Submitted material .......................................................................................... 166

Gould, Mr. Eldon, Administrator, Risk Management Agency, U.S. Department 

of Agriculture, Washington, D.C. ........................................................................ 27

Prepared statement .......................................................................................... 97

Tighe, Ms. Gene, President, Farm Sanctuary, Watkins Glen, New York ........... 28

Prepared statement .......................................................................................... 111

Robinson, Mr. Robert A., Managing Director Natural Resources and Environment, Government Accountability Office, Washington, D.C. ........................... 30

Prepared statement .......................................................................................... 130

Submitted material .......................................................................................... 153

SUPPLEMENTAL MATERIAL SUBMITTED FOR THE RECORD

Independent Insurance Agents and Brokers of America, Inc., Washington, 

D.C. ........................................................................................................................ 157

(1)

HEARING TO REVIEW THE INTEGRITY 

AND EFFICACY OF THE FEDERAL 

CROP INSURANCE PROGRAM 

THURSDAY, JUNE 7, 2007

HOUSE OF REPRESENTATIVES, 

SUBCOMMITTEE ON GENERAL FARM COMMODITIES

AND RISK MANAGEMENT

COMMITTEE ON AGRICULTURE

Washington, DC. 

The Subcommittee met, pursuant to call, at 10:05 a.m., in Room 

1300 of the Longworth House Office Building, Hon. Bob Etheridge 

[Chairman of the Subcommittee] presiding. 

Members present: Representatives Etheridge, Marshall, Boyda, 

Herseth-Sandlin, Ellsworth, Space, Walz, Peterson (ex officio), 

Moran, Graves, Boustany, Conaway, Lucas, Neugebauer, and Goodlatte (ex officio). 

Staff present: Tyler Jameson, Clark Ogilvie, John Riley, Sharon 

Rusnak, Bryan Dierlam, and Jamie Weyer. 

STATEMENT OF HON. BOB ETHERIDGE, A REPRESENTATIVE 

IN CONGRESS FROM THE STATE OF NORTH CAROLINA. 

Mr. ETHERIDGE. This hearing of the subcommittee on General 

Farm Commodity and Risk Management to Review the Integrity 

and Efficiency of the Federal Crop Insurance will come to order. 

Let me say to our panelists and the ranking member, and I will 

be brief in my opening remarks, we have a pretty tight schedule 

today. 

And for that reason, we are going to ask you, when we do ask 

you to open with comments, stick to the 5-minute summation as 

much as possible and try to keep your answers fairly concise because we have another committee on our heels coming in for markup. And we are time limited in this committee today in our time, 

as important to this committee is. 

And I want to thank my colleagues for being here today, and you 

will see some move in and out because there is a lot going on. And 

I also want to welcome all of our witnesses, and in particular I will 

have more to say about Mr. Herring a little later on, one of our 

North Carolinians. It is good to have you with us today as well. We 

have several witnesses today, so I am going to keep my remarks 

short and to the point. 

A little more than a month ago, another committee of the House 

of Representatives held a hearing to examine the Federal crop insurance. Certainly we on the ag committee do not have a monopoly 

2

on oversight capability over crop insurance and their benefits, having fresh eyes take a look at what is happening in crop insurance 

in the industry. 

With that being said, any oversight of crop insurance must recognize that this line of insurance operates very differently from other 

lines of property and casualty insurance. I have no doubt that 

those differences were made clearly evident in the May 3 hearing 

by the oversight committee. The purpose of this hearing is twofold. 

One, it is to extend the tradition of oversight over the crop insurance industry. 

Since enactment of the Agricultural Risk Protection Act of 2000, 

this subcommittee, under the leadership of subcommittee chairman 

then Saxby Chambliss and his successor, my good friend to my left 

here, Jerry Moran, there have been 13 oversight hearings held on 

crop insurance. We have held hearings directly examining waste, 

fraud and abuse in the crop insurance program. We even held a 

hearing where a farmer from my district testified about problems 

with the pilot insurance program. His testimony led to changes 

which improved the programs integrity. 

Our second purpose is education. Although part of property and 

casualty insurance, crop insurance is a very different animal. 

Terms that apply to one do not necessarily apply to another. They 

operate differently, and they are regulated differently. Before anyone makes broad generalizations or comparisons of the Federal 

crop insurance program and before someone accuses the program 

of being wasteful, they not only need to have the facts right, they 

need to make sure that they are accounting for the uniqueness of 

the crop insurance system. 

And while some representations made of the crop insurance program remain questionable and hopefully will be correct at this 

hearing, one fact is undisputable. Premiums for crop insurance are 

increasing, and with them are projected administrative and operating costs for reimbursements. And as we are looking out for our 

farmers’ interests, members are asking tough questions about these 

increases, questions I hope our witnesses today will be able to answer. 

I look forward to hearing today’s testimony from our witnesses, 

and I know turn to the gentleman from Kansas, Mr. Moran, for his 

opening statement. 

STATEMENT OF HON. JERRY MORAN, A REPRESENTATIVE IN 

CONGRESS FROM THE STATE OF KANSAS 

Mr. MORAN. Mr. Chairman, thank you very much. I thank you 

for conducting this hearing. Thank you for your what I think is an 

insightful opening statement. Again with your request to be brief, 

I would only say that I worry that the crop insurance industry has 

become a target, simply because there is a perception that there is 

some money available within the crop insurance programs and 

therefore as we debate a farm bill and finalize a farm bill legislation, that crop insurance may become a target for those dollars. 

And I want to work to make certain that the crop insurance industry and the beneficiaries, the farmers in Kansas and across the 

country, do not suffer because of that mentality. 

3

I also recognize that crop insurance must be profitable in order 

for us to have the benefits that accrue to farmers across the country, farmers and producers. We do have an opportunity, because 

tax dollars are involved, to make certain that the tax payers are 

protected in all of our crop insurance programs. And we need to 

make certain we find the right balance between profitability and 

the crop insurance industry and protecting those who pay their 

taxes on an annual basis. 

Mr. Chairman, we just had a hearing, and I appreciate you coming to Kansas on Tuesday this week. We had a field hearing in Salina, Kansas. Interesting to me that the ag economist who testified 

from Kansas State University, based upon his survey of Kansas 

farmers, indicated that the number one priority for benefits that a 

farmer receives from Washington, D.C. is derived from crop insurance. That the highest priority of where money is most valuable 

comes from the crop insurance program. That is a reminder to me 

that the products that we have are valuable. They have increased 

in value over time. We need to make sure that continues into the 

future. 

I look forward to hearing our witnesses as they answer the questions that you have described. 

Mr. ETHERIDGE. Thank you, and I now yield to the gentleman 

from Virginia for an opening statement, Mr. Goodlatte, the ranking 

member of the full committee and former chairman. 

Mr. GOODLATTE. Thank you, Mr. Chairman. I appreciate your 

holding this hearing on this very important subject, and I am anxious to hear the witnesses’ testimony, so I will yield back. 

Mr. ETHERIDGE. Thank you, sir. You almost caught me off guard 

here. 

Mr. GOODLATTE. I do have a statement to submit for the record. 

Mr. ETHERIDGE. Without objection. 

Mr. ETHERIDGE. And the chair would respect this and request 

again that each of our members who are testifying stick as closely 

to 5 minutes as possible because of our timeframe. Your full statement will be included in the record. And for any member seated 

who would like to submit their statement for the record, we would 

do the same. We would like to welcome our first panelist to the 

table, Mr. Ron Brichler, president of Crop Insurance Division, 

Great American Insurance of Cincinnati, Ohio; Dr. Barnaby Jr., 

PhD professor, Department of Agro Economics at Kansas State 

University Research and Extension in Manhattan, Kansas; Mr. 

David Herring, branch manager of East Carolina Farm Credit in 

Kinston, North Carolina; Mr. Mike Mock, senior risk manager of 

the Anderson Incorporated in Maumee, Ohio; and Dr. Bert Little, 

associate vice-president for academic research, professor of computer science and mathematics, and executive director of the Center for Agribusiness Excellence at Tarleton State University in 

Stephenville, Texas; and finally Mr. Nick Ferens. Is that pronounced Ferens? Manager of U.S. Civil Market in Washington, 

D.C. Mr. Brichler, please begin when you are ready. 

4

STATEMENT OF RON BRICHLER, PRESIDENT, CROP INSURANCE DIVISION, GREAT AMERICAN INSURANCE COMPANY 

Mr. BRICHLER. Good morning, Chairman Etheridge and Ranking 

Member Moran. My name is Ron Brichler. I am a Senior Vice 

President of Great American Insurance Company and President of 

its crop division. I am also responsible for five other Great American divisions. Great American’s property and casualty insurance 

group is ranked by AM Best as the 33rd largest property and casualty operation in the United States. 

Great American is engaged in marketing and servicing a wide 

array of specialty property and casualty insurance products with 

crop insurance representing about 15 percent of our gross written 

premium. The crop division competes internally for capital with 

over 20 other Great American operating divisions. 

My testimony today is presented on behalf of the crop insurance 

industry, not any one organization or group. We, the private sector 

partners in the crop insurance program, appreciate this opportunity to testify. 

First, Mr. Chairman and members of the subcommittee, the crop 

insurance industry wants to clearly assert that the program is 

highly successful and has not failed at its primary purpose. The 

program is a risk management tool. Any statement claiming that 

the program has failed because Congress and the president have 

approved ad hoc disaster assistance laws in illogical. No program 

or law can deny a Congress and a president their constitutional 

rights and privileges. 

Mr. Chairman, I started my career as a CPA, and that is why 

it hurts me to see this latest GAO report. Anyone understanding 

insurance industry accounting would know that they cannot compare crop insurance pure loss premium with fully expense loaded 

premium for other property casualty lines of coverage. This has 

lead the GAO to state crop insurance companies have earned an 

average annual rate of return of 17.8 percent from 2002 through 

2006, versus a property and casualty industry 6.4 percent. This improper comparison was further compounded by using different 

years in the analysis. These errors have caused inaccurate comparisons on both a premium basis and an analysis period basis. 

Mr. Chairman, we have adjusted for these mistakes. After doing 

so, the appropriate property and casualty industry return is actually 17.4 percent versus the crop industry 17.8 percent. A mere 

rounding error, considering the inherent volatility of the crop insurance line of business. A difference of this magnitude is definitely 

not something worth a policy change. 

Additionally, the GAO work used crop insurance underwriting 

gain as reported to RMA to measure the industry’s profitability. 

The RMA reported underwriting gain cannot be equated to profit 

since it does not reflect all the industry’s delivery cost. 

Three separate profitability studies of crop insurance have been 

conducted over the last 10 years. One study concluded the return 

for crop insurance was reasonable. The other two concluded that 

the return for the crop insurance industry was actually below comparable property and casualty industry lines. 

Next, I would like to address the issue of the administrative and 

operating expense payments to crop insurance companies on behalf 

5

of the farmer. Although crop insurance companies are paid on average around 20 percent of the premium for selling and servicing expenses, the amount does not fully cover total delivery cost. The expense rate has been reduced by the government over time, and the 

proposals abound today including another by USDA to reduce this 

rate further. 

In comparison, the Insurance Information Institute data for the 

years 2001 to 2006 showed that for the PNC industry, the expenseto-earn-premium ratio averaged around 40 percent. When adjusting the PNC industry premium data to make it comparable to crop 

insurance premium data, the expense-to-premium ratio for the 

same period averaged more than 60 percent. A 1997 GAO report 

that examined this issue recognized that delivery and servicing expenses were in excess of the A&O, concluding at that time that the 

true percentage was closer to 26.5 percent. While the program is 

significantly larger today, the percentages may be different, companies still expend more today than the average 20 percent rate. 

In conclusion, I would like to make three points. First, the congressional vision of the crop insurance program was to provide an 

affordable risk management tool for agricultural producers. The 

public and private partnership we have today has made this a reality. To have the program become more inclusive, it has become 

more complex and expensive, but it is working. Now that we have 

built this risk management tool and over 1.1 million policyholders 

are using it, it is not the time to tamper with its funding. 

Second, with the new energy initiative, more and more will be 

expected from production agriculture. Crop insurance will be required to support the growers, lenders, and production system if 

farm products are to help us become less energy dependent. 

Third, commodity prices today are high; however, basing the 

2007 Farm Bill on the assumption that this is a permanent change 

would not be wise. Commodity prices are variable, and they will 

fall. It has taken 25 years to bring the crop insurance program to 

where it is today. Please don’t jeopardize it by looking to it for 

funding for other programs. 

Thank you, and I will be happy to respond to questions at the 

appropriate time. 

Mr. ETHERIDGE. Thank you. Dr. Barnaby. 

STATEMENT OF DR. G.A. (ART) BARNABY, JR., PH.D., PROFESSOR, DEPARTMENT OF AGRICULTURAL ECONOMICS, 

KANSAS STATE UNIVERSITY RESEARCH AND EXTENSION 

Dr. BARNABY. Thank you, Mr. Chairman. Good morning, Congressman Moran. Nice to see you again. Congressman Boyda from 

my state too, actually my district. 

I started this quest, when I was asked about this, with the question are insurance companies paid too much? So that was my starting point with this question, and I was trying to think about how 

to approach and do the comparison so it is side-by-side and not 

subject to creative accounting that Enron and some other folks 

taught us how to do. And the way I looked at it if this were a private insurance contract. You would have a dollar coming in the 

front door, and out the back door, you would pay a certain percentVerDate 0ct 09 2002 15:00 Jan 23, 2008 Jkt 000000 PO 00000 Frm 00009 Fmt 6633 Sfmt 6633 F:\DOCS\40255.TXT HAG2 PsN: JAMIE
6

age of that dollar in claims. And that number is a very hard number, and I didn’t think any way you could really vary it. 

So in order to get it on the same level, you will see in Table 1, 

that is exactly what I was up to. I took the A&O. I also included 

the company underwriting gain and loss, and I treated it as a cost. 

The insurance industry has taken a little issue with me doing that 

because it is sort of double accounting. But the way I was looking 

at it is if the government were to offer crop insurance through government employees and if they could operate at the same efficiency 

at the private sector, pretty big assumptions being made there, but 

if they could, then in theory, they would get to retain; although 

those underwriting gains would go back to the agency. So that is 

why I treated it as a cost rather than as embedded into the premium as paid itself. 

And then I broke out the premium subsidy and the farmer paid 

premium, so those are all the dollars that come in the front door 

of the insurance company. And I end up with a total premium dollars there, in ’06 for example, those wouldn’t be final in ’06 because 

those are still being updated, but about 6.2 billion in total dollars 

going in. 

And then I looked at the number of indemnity payments that are 

paid, and again these are straight off of the RMA website. And 

then I looked at it by year, and what I am showing there, for example, in ’93, for every dollar they took in, they paid out $1.80. You 

really don’t make any money with that year. But you can look at 

other years when they did very well. 1997, for example, every dollar went in. That year, they paid out 38.7 cents. And obviously 

profits would have been good that year. 

Anyway, over that whole period of time, roughly they took in a 

dollar, and if I equally weight these, the other thing is you have 

got increasing sales volume, which means the 2000 Arper program 

worked as proposed. We increased participation. We increased coverages so it did what it was supposed to do, but in any case if you 

treat each year as equally probable, in other words, a 1993 could 

occur again, it roughly works out to where for every dollar that 

comes in, they pay out about 75 cents. That means there is roughly 

25 cents left to cover the other operating expenses. 

So how does that compare with property casualty? Table 2, I 

went through the same process. This is for premiums on auto insurance. Unfortunately, when they report their numbers, they include the lost adjustment expense in with the claims, so I had to 

separate that out, and that is why I gave a range of numbers. But 

roughly, they pay out about 65 cents for every dollar that comes 

in. 35 cents goes to pay commissions, operating expenses of the 

company, loss adjustment expense, turning on the power and lights 

at the company, et cetera. 

Homeowners’ policies on Table 3. Very similar numbers, about 35 

cents left over. Private hail insurance is on Table 4. They retain 

about 30 cents out of every dollar. They pay out 70 cents. So a dollar is paid, and, of course, in the case of hail insurance, farmers 

pay the full dollar. So they don’t expect to get back more than they 

pay in, or at least they shouldn’t if they have looked at the actuarial numbers. 

7

The other possibility is perhaps the expenses are greater in the 

other lines of insurance. To do a proxy for that, what I looked at 

was the percent of policy with claims. In the case of Federal crop 

insurance, I should say the risk management program—they paid 

out on average about 24 percent of all their policies had claims. 

Now, those were paid claims. What is not well understood there are 

also claims that are filed, but after the loss adjuster does the loss 

adjusting, they discover they do not exceed the deductible and 

therefore there is no claim due so the company has incurred the 

expense of working the claim but there is no actual payment made. 

And if there is no payment made, then that claim is not reported 

to RMA so it does not show up in the RMA numbers. 

So when you look at the total ones, I come up with a number of 

about 30 to 40 percent of the policies actually have claims worked. 

The industry would argue that it is even higher than that. It is certainly higher than the 30 percent that is paid and we can document with an absolute hard number. Comparing that to other 

lines, you are looking at a percent of auto policies with claims 

about 4 percent, homeowners not quite 7 percent, and private hail 

is about 13 percent of their policies have claims. 

So in closing, one final comment. I have done a lot of educational 

work of combining crop insurance with marketing tools. And the 

point is that come harvest time, farmers will either have dollars to 

replace loss inventories at current market values. By the way, 

those values have doubled over a year ago. Premiums in Chicago 

put options at doubled, so the market is telling me the risk on price 

especially is doubled from what it was a year ago, and so if you 

do have claims, if we do have a disaster, they will not be paying 

those corn claims at $2 like we have in the past. It could be as 

much as $6 and $7 because of the tight supply. In fact, I have recommended people buy RA harvest price option for that very reason 

because there is no limit on the coverage. 

So the point is a lot of farmers have made plans based on it 

being there for ’08 and ’09 sales——

Mr. ETHERIDGE. Thank you, sir. 

Dr. BARNABY. —that is going to be in place. Thank you. 

Mr. ETHERIDGE. Thank you. Mr. Herring. 

STATEMENT OF DAVID C. HERRING JR., BRANCH MANAGER, 

EAST CAROLINA FARM CREDIT 

Mr. HERRING. Good morning, Chairman Etheridge and members 

of the subcommittee. My name is David Herring, and I work for 

East Carolina Farm Credit. I am a branch manager based in 

Kinston, North Carolina. East Carolina Farm Credit is a farmerowned cooperative and a member of the farm credit system. In addition to my branch manager duties, I am a licensed property, casualty, life, and health insurance agent. I am here today to talk 

about the importance of crop insurance to our customer owners and 

to the safety and soundness of our financial institutions. 

Farm Credit plays a unique role in the crop insurance industry. 

As a provider of crop insurance, we work to improve access to crop 

insurance products for our customers. As a financial institution, we 

rely on crop insurance as a backstop for many of the loans we 

make to farmers. As a farmer-owned cooperative, we work to proVerDate 0ct 09 2002 15:00 Jan 23, 2008 Jkt 000000 PO 00000 Frm 00011 Fmt 6633 Sfmt 6633 F:\DOCS\40255.TXT HAG2 PsN: JAMIE
8

vide the most efficient crop insurance delivery system for our farmer owners. 

Farm Credit’s net worth of nearly 100 customer-owned financial 

institutions provides crop insurance services to farmers throughout 

the nation. With approximately 10 percent market sharing crop insurance, Farm Credit institutions combine to sell more crop insurance to customers than any other single industry provider. 

I would like to take this opportunity to give my personal testimony as to the Federal crop insurance program and its importance 

to the financing of the farmers of eastern North Carolina. In reflecting back to the summers of 1977 and 1985, both years were 

disastrous due to drought. At the time, crop insurance was carried 

only by a small percentage of farmers. As crop losses accumulated, 

many family farms were forced into bankruptcy or foreclosure. 

Without crop insurance as safety net, many farmers couldn’t pay 

their debt. 

For many of our formal borrowers, we require insurance coverage 

to be in place as a condition of providing a loan. The guarantees 

offered through crop insurance gives stability to an individual 

farmer’s income and with assignments in place, a guaranteed 

source repayment to the lender. For many farmers and especially 

for young and beginning farmers, this is essential. 

Serving the financial needs of the agricultural community involves taking risks. Prudent management of a loan portfolio is necessary to manage this risk. For our financial institutions, a requirement that some farmers carry crop insurance is an important tool 

that helps us manage that risk. For some farmers, credit would not 

be available without protection that crop insurance gives the lender. Changes to the crop insurance program that increases costs or 

reduces coverage to the farmers would significantly weaken the 

safety net of our farmers. 

We encourage the subcommittee members, as you write this farm 

bill, to preserve the strength of the crop insurance program and ensure that farmers can continue to rely on it in years to come. 

Thank you for inviting me to testify today. I would be happy to 

answer any questions. 

Mr. ETHERIDGE. Thank you, Mr. Herring. Mr. Mock. 

STATEMENT OF MIKE MOCK, SENIOR RISK MANAGER, THE 

ANDERSONS, INC. 

Mr. MOCK. Thank you, Mr. Chairman, members. My name is Michael Mock. I am Senior Risk Manager at The Andersons, Incorporated. For more than 25 years, I have worked with producers assisting them with commodity-risk management. The majority of my 

clients are located in the eastern belt in our facilities, but we work 

with customers from Elgin, Nebraska to Lyle, Minnesota to 

Coldwater, Mississippi. 

The firm I represent, The Andersons, is diversified with interests 

in the grain, ethanol, and plant nutrients sectors of U.S. agriculture. In addition, we are involved in rail car leasing and repair, 

turf products production, and general merchandise retailing. The 

company is currently celebrating its 60th year in operation, having 

been founded in Maumee, Ohio in 1947. 

9

Last year, the company handled 170 million bushels of grain. We 

currently operate two ethanol plants with a third to come on board 

first quarter ’08. When completed, they will produce a total of 275 

millions gallons of ethanol annually. That equates to roughly 100 

million bushels of corn consumption per year. 

We are recognized as leaders in the ag industry as risk managers 

and grain originators. An integral part of our risk management 

strategy includes leveraging crop insurance. Our business structure 

includes a crop insurance agency, which will have premium sales 

approaching $10 million for the ’07 sale season. The Andersons actively promotes the use of crop insurance. We are unable to replicate the combination of price yield coverage it offers producers via 

other hedging vehicles such as exchange traded options. Echoing 

Mr. Moran’s opening comments, the company believes strongly that 

a high quality, revenue-based crop insurance policy is the single 

most important step a producer can take to effectively minimize 

risk for his grain production. 

The Andersons has demonstrated this stance to producers, bankers, insurance providers and others through our crop revenue 

profilers software program. Examples of the profiler are contained 

in our written statement, and they show the power of blending a 

crop insurance policy in combination with a good marketing plan. 

Producers who implement this risk mitigation approach have demonstrated consistent profitability. The financial strength of their 

businesses reflects the value of this methodology. 

As a result, these producers rely less on government marketing 

loans. They have less need for counter cyclical payments or disaster 

payments. What they do need is access to quality insurance providers who can deliver high quality crop insurance alternatives at 

affordable prices. 

With several grain and ethanol operations, The Andersons believe the use of revenue-based crop insurance provides a win-win 

both for our customers and for the company. Obviously crop insurance mitigates the client’s risk of lack of production. But it also instills confidence for producers to forward contract early in the cycle 

at profitable prices. I can state very emphatically alleviating the 

fear of lack of production leads to more forward contracting by our 

customers, particularly over multiple-year periods. For The Andersons, this works to ensure a source of inputs for our ethanol plants 

as well as fulfill the needs of food and animal feed customers. 

Another key point to consider in order to manage our own risk 

in doing business, The Andersons is a commodity input hedger. The 

cost of financing forward contracts is a significant expense and not 

without risk, especially in volatile market conditions. Our bankers 

know the company’s ability to maintain contract integrity is directly correlated with the producer’s ability to deliver on the contracts established with us. 

Knowing this, The Andersons and others in the industry seek to 

contract with producers who have quality protection in the event 

lack of production becomes an issue. Crop insurance provides such 

protection for both parties. As a result, this contributes to the financial health and stability of both farmers and the grain industry 

alike. 

10

This winter, producers were influenced by high commodity prices 

when making their crop mix decisions. The Andersons is convinced 

the unexpectedly large year-on-year increase in corn acres for ’07 

was due in large part to the crop insurance program. The ability 

to lock in excellent profitability provided both the farmer and his 

banker with the courage to invest significant dollars in additional 

high-cost corn acres. 

As the U.S. moves forward in providing a stable food, feed, and 

fuel supply for its citizens, both The Andersons and its customers 

will become more reliant on affordable high quality crop insurance 

tools to manage ever-growing risk. We expect crop reduction costs 

to increase significantly in future crop cycles, especially for corn. 

In addition, competition for crop land has resulted in sharply 

higher land rent cost. This will likely serve to pressure producer 

profit margins despite the relatively high value of grain prices. The 

ever-increasing costs of planting corn, especially corn after corn, 

may serve to encourage the farmer to explore other avenues with 

crops with less costly inputs. 

Ensuring a steady supply of grain to consumers, especially corn 

for ethanol facilities, require producers to establish financial stability without necessary financial risk. To accomplish this, productions must continue to have access to affordable crop insurance. 

In summary, our customers have embraced these products as 

their primary risk management tool. We strongly encourage clients 

to use these policies to assist us in managing our risk when writing 

forward contracts. The future promises high price opportunities but 

with an associated risk of a much higher cost structure. As we 

move forward, the need for an affordable, high-quality insurance 

program is greatly heightened both the producer as well as the 

grain and ethanol industries. Thank you. 

Mr. ETHERIDGE. Thank you, Mr. Mock. Dr. Little. 

STATEMENT OF DR. BERT LITTLE, PH.D., ASSOCIATE VICE 

PRESIDENT FOR ACADEMIC RESEARCH, PROFESSOR OF 

COMPUTER SCIENCE AND MATHEMATICS, EXECUTIVE DIRECTOR, CENTER FOR AGRIBUSINESS EXCELLENCE, 

TARLETON STATE UNIVERSITY 

Dr. LITTLE. Chairman Etheridge, Ranking Member Moran, and 

members of the subcommittee, thank you for the opportunity to appear this morning before the subcommittee. I am Bert Little, associate vice-president for academic research and professor of computer science and mathematics at Tarleton State University, a 

member of the Texas A&M University system. 

In this role, I also direct Tarleton’s Center for Agribusiness Excellence, CAE, with implements USDA’s mandate to use data mining and data warehousing to improve integrity in the Federal crop 

insurance program. Personally my own roots in agriculture run 

deep. My family obtained its first land grant in 1790 in southeastern North Carolina, and I worked on that same piece of land 

raising tobacco, corn, and soybeans, until I was almost 20 years 

old. I will use my testimony to give the subcommittee a fresh update on our program, Integrity Activities Involving Data Mining 

and Data Warehousing Approaches. 

11

At the outset, let me emphasize we are pleased with the success 

CAE has had in this effort. USDA’s risk management agency, in 

its annual program compliance and integrity reports to Congress, 

has conservatively estimated that over a period of 6 years, we have 

saved American taxpayers nearly a half a billion dollars by highlighting potential fraud and abuse in the program and as a result, 

helping RMA to avoid making improper payments. 

In the course of our analytical work, we have found that the 

farmers who participate in the Federal crop insurance program by 

and large are honest people who follow the rules. Our spot-check 

program, described in more detail below, designed to identify suspicious patterns indicating possible program abuse has consistently 

found fewer than 1 percent of producers falling into this category. 

It is a strong indicator of program integrity and rates much better 

than comparable lines of insurance in the property and casualty 

field, as my friend Dr. Barnaby, has noted. 

Each year with RMA staff, we use a database to identify multiyear patterns that signal suspicious or anomalous crop insurance 

claims. We use these results to produce what we call the spot-check 

list, an actual list of producers who will then become subject to increased compliance oversight. Most producers on the spot-check list 

react to the scrutiny by refraining from any contemplated abusive 

activities. The result is a visible, measurable reduction in indemnities paid. Simply put, growers change their behavior as a result 

of knowing they are being scrutinized. Over 6 years, 2001 to 2006, 

spot-check list initiative alone has produced measurable reductions 

in unneeded indemnities of approximately $479 million. 

The spot-check list that I have described is only one of more than 

100 research products that we at CAE produce annually, aimed at 

improving program integrity. For instance, we have provided assistance to other Federal offices including the USDA office of the 

inspector general, the government accountability office, and various 

Federal prosecutors and the Federal Bureau of Investigation. 

We believe the next logical extension would be to better include 

in the process the reinsured companies who deliver crop insurance 

to producers across the country, and we have begun this process 

with a good response so far. Most recently, CAE in collaboration 

with NASA Space Center Applied Sciences Division has begun integrating satellite data that measures the intensity of green light reflected by chlorophyll molecules in plants. And CAE has invested 

its own non-Federal resources to build a 42-terabyte data system 

to store satellite data for this use. Our preliminary results are exciting, indicating a better than 90 percent ability to evaluate crop 

production via satellite using this system. 

In the future, CAE hopes to incorporate in our system the common land unit data held by USDA’s farm service agency. We see 

many opportunities to improve our analyses with the inclusion of 

farm data reported to FSA, and we have been requesting FSA to 

provide this data to us for this purpose for a number of years. 

I had a chance to look at the testimony of the man to my left 

here, and I underscore their point, that data mining involves more 

than just looking for isolate anomalies but involves a highly integrated advanced, analytic discipline. And I appreciate their support 

for the more far-reaching innovations we have incorporated. 

12

Thank you again for this opportunity to address the subcommittee. Great strides have been made to improve the policing 

of the Federal crop insurance program since the adoption of ARPA 

in 2000, and we have been honored to be a part of the process. 

Thank you for your consideration this morning, and I would be 

happy to answer any questions you may have. 

Mr. ETHERIDGE. Thank you, Dr. Little. Mr. Ferens. 

STATEMENT OF NICK FERENS, MANAGER, U.S. CIVIL MARKET, 

DETICA DFI 

Mr. FERENS. Chairman Etheridge, Ranking Member Moran and 

members of the subcommittee, good morning. Thank you for the opportunity to appear before you today. My name is Nick Ferens, and 

I am the manager for the U.S. Civil Market for DeticaDFI. I am 

here today to talk to you about the importance of employing advanced data analytics to ensure the integrity and efficacy of the 

crop insurance program. 

But before I do that for context, please allow me to tell you very 

briefly about myself. I have been a consultant for a number of 

years and have been working with various government agencies for 

over 8 years. My particular area of interest has been in helping clients tackle the issues of fraud, waste, and abuse. Prior to joining 

DeticaDFI, I worked with both CSC and Booz Allen. Across my career, I have had a particular interest in deploying advanced analytical capabilities to help our government solve difficult problems. 

As I noted, I work for DeticaDFI. As a member of the Detica 

Group, DeticaDFI is a consulting organization that helps a wide 

range of public and private sector entities convert typically large 

volumes of data into actionable intelligence. We provide a broad 

spectrum of intelligence and analytic services with particular focus 

on the areas of fraud detection, risk management, security, and 

regulatory compliance. 

Although we are well known in the financial services arena, we 

have a 30-year heritage of working with national security and civil 

government clients to find organized fraudsters, traffickers, criminals, and terrorists. Perhaps the easiest way of helping you understand what DeticaDFI does is to provide an example, but before I 

do that, I would like to tell you a little bit about how DeticaDFI 

came to be here in the U.S. 

For several years, DeticaUK personnel were working with a Federal agency in the national security arena. At their request, we 

opened a U.S. office, incorporated in the U.S. and staffed entirely 

with U.S. personnel. Since then, we have leveraged our experience 

and now work with numerous U.S. agencies to help them deal with 

a variety of issues, including those related to fraud. 

As an example of the type of work we do, the Insurance Fraud 

Bureau is a body established in 2006 to detect and investigate serious and organized fraud in the UK. The IFB was established because the insurance industry needs to tackle distributed claims 

fraud. The insured in this example would collude using a variety 

of techniques and make multiple fraudulent insurance claims 

across multiple insurers. 

For example, individuals would insure a vehicle with multiple insurers using slightly modified information with each insurer. With 

13

multiple policies in place, they would then stage accidents resulting 

in a damaged vehicle and soft tissue injury claims. Many would 

then continue to stage another wreck with the same car and make 

claims again another one of their policies. Detica applied a series 

of advanced new data analysis techniques to detect patterns of 

fraudulent behavior in large data sets. 

The combined data is over 260 million records covering more 

than 32 million families. By combining multiple data sources to 

form the big picture, more accurate risk scores could be generated 

and delivered to investigators to maximize their capacity. This is 

in sharp contrast to traditional approaches which look for individual anomalies in data. 

Once we have helped our clients understand and articulate the 

problems they want to resolve and formulate a strategy to resolve 

it, we can then offer a range of technological solutions as appropriate. These solutions do not just include data warehousing and 

data mining, but include the full range of predictive analytics. 

Data quality assurance, web integration, enterprise content management, text mining, search and retrieval, and communications 

monitoring. In short, what we do through our solutions is use the 

data, however voluminous it might be, to identify whether there 

are linkages or connections between people and entities. Once the 

linkages are created, the customer, in this case RMA, can then 

begin to understand whether the linkages are meaningful in terms 

of suggesting potentially wrongful behavior and then further investigate those patterns and linkages. 

The strength of the system is that it identifies networks, not just 

individuals. Equally important, it helps better direct taxpayer resources, not just investigate large populations but to focus investigators where there is a statistically high probability that bad behavior by multiple persons is occurring. Our vision for the RMA 

then is to employ a similar data-driven investigation approach to 

look holistically at data to find networks of suspicious activity. 

The approach I have outlined requires more than data mining 

but leverages data mining. The use of advanced analytics in network detection capabilities will be added. Advanced analytics provides the ability to look forward rather than looking at data to see 

what has happened in the past. We let the data tell the story and 

then use statistics to validate the story. This approach will benefit 

RMA through earlier and accurate detection of emerging patterns, 

lower cumulative losses from earlier detection, better intelligence, 

more targeted investigations with fewer false positives which waste 

time, money, and investigative resources. And it will deter additional networks from emerging. 

Furthermore, additional benefits beyond RMA will accrue to 

USDA, farmers, and the taxpayers. Some examples are that USDA 

will be able to maximize the use of data across departments and 

will achieve efficiencies in data applications. Farmers may enjoy 

the potential for lower premiums or at least stable premiums, and 

there may be an expansion of RMA’s assistance to other due to cost 

savings. Farmers will also benefit from our proposed approach in 

that fewer of them will be compelled to respond to investigations 

initiated as a result of false positives. Insurance companies will 

benefit from better oversight and control. And finally taxpayers will 

14

enjoy more efficient use and stewardship of resources. All of this, 

of course, requires adequate investment by Congress and the RMA. 

With that, I conclude my statement. Thank you for the opportunity to speak today. 

Mr. ETHERIDGE. Thank you, sir. Let me thank all the witnesses. 

And we have been doing—Mr. Cooper and without objection, they 

will be able to sit on the panel and listen in to the testimony. We 

welcome him. Now we will recognize members for 5 minutes, and 

the chair will recognize himself for the first 5 minutes. 

Mr. Brichler, the argument has been made that companies are 

making money hand over fist, but as you pointed out in your testimony, if that were the case, why are we not seeing many new companies get in the business? Can you briefly give a history of the 

number of crop insurance companies that have been in operation 

over the course of the program’s history and how that is growing, 

where we are? 

Mr. BRICHLER. Yes, Mr. Chairman. The number of companies involved in delivering the MPCI or the crop insurance program has 

varied over time, but it recently dropped by a few companies. And 

then within the last year, it has——

Mr. ETHERIDGE. What is that number? 

Mr. BRICHLER. There are 17 insurance providers, I believe, 16 or 

17. At one point, there were close to 50 companies initially in the 

1980s. And as far as systemic issues that have caused the reduction in the number of companies involved, I think, one, it is a very 

specialized line of business. It requires a sophisticated information 

system. It requires a group of employees that need to be trained 

in a unique line of coverage and for the company to build a unique 

field adjustment staff to service this business. 

In all the lines of coverage that I have been exposed to in the 

property and casualty industry, this is by far the most complex and 

the most paper intensive, and the most data transmitted to a regulator of any other line of coverage that I have been involved with. 

All those, I think, make a difference in how many people are willing to participate. 

Mr. ETHERIDGE. A common complaint we hear, Mr. Brichler, 

from crop insurance companies is that the A&O reimbursements 

for delivery expenses does not cover the cost. With crop prices 

going up, price selections on policies have gone up, raising premiums and consequently raising the A&O reimbursement. Is the 

statement that A&O is not covering costs still true in this new environment? 

Mr. BRICHLER. Well, without knowing where the final premium 

would end up this year, I couldn’t answer that with any definite 

response. But I will say that as prices increase and as our policies 

reflect a combined yield and revenue exposure, as Dr. Barnaby 

pointed out in his testimony, the more the price component is an 

impact, the more claims that we end up having. The comparison 

between the amount of work on the claims side versus this line of 

business and other property and casualty lines is immense. And so 

we look at more claims. We process more paper due to that, and 

that all impacts the cost. 

15

Mr. ETHERIDGE. Thank you. Mr. Herring, I believe I understood 

you to say that 100 percent of the farmers you deal with carry crop 

insurance. Is that correct? 

Mr. HERRING. No, sir. 

Mr. ETHERIDGE. Okay. Well, let me ask my question then in this 

way. What percent of the farm operating loans that you make carry 

crop insurance? And what are the characteristics of a farm in 

which your institution would require crop insurance? And finally, 

are there many such farmers? In other words, that you require to 

have it and you loan operating money to? 

Mr. HERRING. Typically, I would say 75 percent or more. It is not 

100 percent, but it well exceeds 75 percent of our operating loans 

are insured by crop insurance. And requiring crop insurance is not 

a yes/no answer. We have to look at everything from their repayment capacity to their equity position to other collateral we have. 

But typically on an operating loan, we do require it. 

Mr. ETHERIDGE. But you also look at that balance sheet? 

Mr. HERRING. Yes, sir. 

Mr. ETHERIDGE. How much liquidity is in that balance sheet? 

Mr. HERRING. Yes, sir, and that is with the young beginning 

small farmers, it is a major need because they are just beginning 

to grow their balance sheet. And they are starting off in a weaker 

position with low equity positions, and the insurance allows us to 

take risk and way to move the risk to the insurance companies and 

take it off of these young beginning farmers. 

Mr. ETHERIDGE. Okay, thank you, sir. 

Mr. MORAN. Mr. Chairman, thank you very much. Dr. Barnaby, 

I appreciate your testimony. I have always tried to find the outside 

expert who can analyze for me what it is that is happening as far 

as profitability or rate of return within the crop insurance industry. 

If I understand your testimony correctly, and I always struggle to 

understand your testimony, in this case, I think what you are telling us is straightforward, which is the operating margins, as compared to other sectors of the insurance industry, are in line, in fact, 

perhaps less, the operating margins are less than other areas of 

the insurance industry. And the expenses of delivery of the product 

are at least the same or more. Is that an accurate summarization 

of what you are saying? 

Dr. BARNABY. It is a correct summarization. That is exactly what 

the data says. 

Mr. MORAN. Is the operating margins, is that the appropriate criteria, the ingredient that needs to be judged? I sometimes think of 

this as like a monopoly in which it is a regulated industry and the 

commission in charge of regulating monopolies is desirous of finding a rate of return on assets that allows the industry to be profitable but not take advantage of the consumer. 

I know this is not a monopoly. There are 17 participants in this 

program. There is competition within the crop insurance industry, 

but I have always looked for that similar kind of standard that 

would tell me that the rate of return is such-and-such, such that 

the industry is viable, profitable. And is there a difference between 

operating margins and rate of return on investment? Is this the 

right standard that we should be looking at? 

16

Dr. BARNABY. It is the standard that is public, and I don’t have 

access to the financial statements of many of the individuals companies that are involved because they are privately owned. The 

first place I looked actually was on my State Farm policy, which 

is a mutual, this is my personal policy. They actually give you an 

income statement, and they break all these items out: the amount 

that goes to loss adjustment, the amount that goes to paying 

claims, et cetera. 

And as far as I can go with this data, it is basically to say exactly 

what you said. That the amount that is left over to operate the insurance company is not, in fact, smaller than it is with other property casualty lines. So I think basically you could argue that the 

crop insurance companies are at least as efficient as the auto insurance companies, the homeowners insurance companies, et cetera. 

Mr. MORAN. And if you were looking to enter the insurance industry, according to operating margins, it would make a better investment by investing in property and casualty or other lines of insurance than crop insurance? 

Dr. BARNABY. Well, apparently that was Fireman’s Fund judgment. They withdrew from this industry, and there is a company 

that has a lot of assets. These, for the most part, are very small 

insurance companies. One of the things you might not pick up on 

those auto polices, we are talking about $160 billion in premium 

versus $4 to $5 billion here to put those numbers in perspective. 

Great American is actually kind of an exception to that because 

they are a pretty good sized company too. But most of the crop insurance companies are not that large. 

Mr. MORAN. Let me ask a question. This is somewhat a followup of the chairman’s question. We have seen an increase in commodity prices for many commodities grown on American farms. The 

result of that is an increased premium paid by farmers. Is there 

a corresponding increase in administrative costs or risk associated 

with the increased price and premium? 

Dr. BARNABY. There clearly is an increase in risk exposure. I did 

a presentation in front of an industry group where I looked at the 

supply demand numbers. This is back in February, and as tight as 

these stocks are, as I was pointing out to them, if we have a ’93 

excess moisture and ’88 drought, I have no idea how high that 

price could go. And with these revenue products, the big risk is a 

short crop at high price. That is when you pay out the really big 

bucks. And it won’t be just the insurance companies getting tapped. 

USDA is going to get tapped too if that occurs, I should say when 

it occurs. I don’t think the weather has changed that we are 

through having disasters, so their exposure is substantially higher. 

The A&O, yes, I mean that clearly went up as a result of higher 

prices. But the premium, what they are calling underwriting gain, 

that is not exactly a correct definition of underwriting gain. But 

what they call underwriting gain, we don’t know where that comes 

out until we see what the loss experience is through the growing 

year. It is not going to be good in Kansas. 

Mr. MORAN. Yes, sir. Mr. Chairman, thank you for the time. Dr. 

Barnaby, I have run out of time, but I would welcome your critique 

or review of the GAO report at our mutual convenience perhaps. 

Thank you. 

17

Mr. ETHERIDGE. And if you would just submit that to the full 

committee in writing, that would be great. 

Dr. BARNABY. Yes, sir. 

Mr. ETHERIDGE. Thank you. The gentleman from Minnesota, the 

chairman of the full committee, Mr. Peterson. 

Mr. PETERSON. I thank the chairman. I want to thank he and the 

ranking member for their leadership. I am sorry. I had to step out 

a minute that I might have missed something. But apparently, Mr. 

Brichler, RMA has requested, and GAO and the OIG have also said 

that they think that RMA needs the authority to renegotiate the 

SRAs. Do you agree with that? I would like to know what terms 

you think. 

Mr. BRICHLER. My experience in the industry, I have gone 

through three renegotiation processes since 1994. While I think it 

is necessary that we always review what the contractual terms are, 

given the current set of affairs, one thing that is really difficult 

when you are a large company or a reinsurer of a large company 

or a small, privately owned company, not having an agreement 

that has multiple-year length makes it very difficult to manage any 

kind of operation. Why would you invest in a business for the future if next year they could change all the rules on you and it 

would be no longer worthwhile for you to stay in business? 

So I think if we are going to renegotiate the SRA, it needs to be 

for a duration long enough that there is a set time period where 

companies can react to whatever the terms are, reinsurers can be, 

you know, approached and explained what the differences in risk 

or return have been made in the agreement, and it is set and not 

every December, you know, the way the SRA works currently, 

there is no negotiation because by legislation, it is locked down. 

In the past, it could be cancelled at any December 31, so we always kind of sat on pins and needles until January 1 to know if 

the deal was going to change on us. So in response, I think it is 

appropriate to renegotiate it at some time, but not every year and 

certainly not every 3 years. 

Mr. PETERSON. Apparently the studies, I guess that you cited on 

the profitably, cover pre-ARPA dates. Are they still reliable, given 

the climate we are in today where we put in more government subsidy and we have a very different price situation now than we had 

back then? 

Mr. BRICHLER. I honestly couldn’t tell you. I think it would be 

appropriate to look at that, but if you look at the data that, for instance, Dr. Barnaby has analyzed or what we have access to in the 

public domain, there is clearly a close relationship between the returns on the crop insurance sector and what is normal on property 

and casualty lines. I don’t see a disparity there, and I think Dr. 

Barnaby’s testimony leads me to believe that there are other major 

companies that have actually taken a different approach in saying 

this isn’t a line of business that we want to be involved in because 

the volatility and the risk is too great for the amount of investment 

we need to make. He mentioned Fireman’s Fund. Hartford got out. 

INA got out during my tenure. There are a lot of large companies 

that were in this business that are no longer in it. 

Mr. PETERSON. For both you and Dr. Barnaby, I guess this A&O 

question, does it make sense to have a system where this is set by 

18

a percentage. We have this situation now where my farmers are 

telling me that policies are twice as much as they were last year. 

And some of the agents that I have talked to say there is some 

extra work because of the price situation. It is more complicated 

now to try to figure out what you ought to do. Does this make 

sense, or is there some better way to do this than having a percentage in the law? 

Mr. BRICHLER.I think it was two SRA negotiations ago, we 

kicked around, different ways of compensation for overseeing and 

managing this business. But we always came back to the industry 

in general works off of commission numbers off of a base premium. 

And that is where we always ended up. If there is another suggestion, as long as it is equitable for all parties, I think the industry 

would, you know, listen to that. 

But again it has to be commensurate with what the returns are 

or the expense components are for other lines of business, or you 

will have people fall out of the program. 

Mr. PETERSON. I think my time is up. Do you have anything to 

add, Dr. Barnaby? Have you looked at that? 

Dr. BARNABY. Yes, I have a little bit. Obviously I don’t think very 

many people were forecasting $4 corn 6 months ago or 9 months 

ago. And so if you want to argue that was sort of a windfall on the 

A&O, you could certainly make that argument. Now, it is also true 

that if we had $2 prices, then that A&O drops too. And so one of 

the things I thought about is one alternative, if you want something more stable, is to base it on a long run price rather than the 

current price as far as A&O. Now, that is totally different when 

you get over to the premium that your farmers are paying. The 

premium is substantially higher because the risk is just substantially higher, and that is measured by the Chicago Board of Trade. 

Mr. PETERSON. I understand that. Could I ask one more question? This should just take a second. Okay, I think, Dr. Barnaby, 

I think Dr. Collins stated that they get a lower the loss ratio from 

the 1.075 to 1 without having much impact on premiums. Do you 

agree with that? 

Dr. BARNABY. That they can lower the loss ratio? 

Mr. PETERSON. Yeah, from 1.075 to 1.0. I think in the hearing 

we had here a while ago that was stated. 

Dr. BARNABY. I have broken these out by state, and nationally 

the book, I would agree, is pretty close to the actuarially sound 

number. But it is certainly different by state, and the fact is my 

state is one of those that has a loss ratio that exceeds one. So that 

means there are some states that don’t like Iowa and Illinois, and 

that is why it is a very competitive markets, why there are a lot 

of insurance companies there. 

Mr. PETERSON. But nationally it is pretty close to——

Dr. BARNABY. Nationally, I won’t argue over three points. I am 

not an accountant. I am an economist. You know, 3 or 4 percent 

doesn’t mean anything to me, in the ballpark. It is close. I won’t 

argue with him over three points. 

Mr. ETHERIDGE. All right. I thank the gentleman. 

Mr. PETERSON. Thank you very much, Mr. Chairman. 

Mr. ETHERIDGE. Thank you. Mr. Boustany, 5 minutes. 

19

Mr. BOUSTANY. Thank you, Mr. Chairman. Mr. Ferens, could you 

please explain further how what you are recommending is different 

from what RMA currently does to identify waste, fraud, and abuse? 

Mr. FERENS. Certainly. Our approach is to take data mining and 

leverage it further. We use a systematic approach where we take 

in all available data, and we let that data tell us a story. We do 

that through the statistical methods that we have developed over 

time with a number of different clients, both in national security 

and civil market spaces. 

But it really is a story that the data tells us. It is not looking 

for individual anomalies. It is not the human bias. It is not the hypothesis-driven approach. We try to understand what the linkages 

are between entities and individuals from that, and then using the 

statistically-based approach, measure those linkages in terms of 

strength. That gives us an ability to prioritize investigations. 

If a network of individuals seems suspicious, we can pull in subject matter experts and say does this seem appropriate. We can 

then retrain the data and look for additional anomalies in large 

groups of individuals based on that subject matter expertise. Or if 

that anomaly turns out to be, well, what we would expect, we sort 

of set that aside, and we train the data a different way to ensure 

that those false positives don’t continue to emerge. 

But all in all, you get a prioritized profile of the bad behavior. 

You actually get a case built before you. All of the data is available 

at your fingertips. You don’t have to go to each of the multiple disparate databases and pull in information. You know who the people 

are, how they are related, what the entities are, whether it is a cooperative, whether it is a group of farmers, whether it is a bad corporation. We can tell all that information quickly. 

Mr. BOUSTANY. Thank you. Based on what you know at CAE at 

Tarleton, how would you rate their work? And are you suggesting 

that what they are doing is now one way to conduct oversight, but 

there are certainly other ways to go further with it? 

Mr. FERENS. I am suggesting that what they do is quite good, 

and what we do is again to take that and leverage it. In some instances, the data mining results would be superior to what we 

might find. If the data sources are well mined, we would probably 

find no incremental benefit. However, when we pull together all of 

the data sources, we would look at probably seeing incremental 

benefit accruing across the board. 

Mr. BOUSTANY. Thank you. And, Dr. Little, based on your professional experience and testimony that you have heard from Mr. 

Ferens, is it possible for you to use more of these analytical techniques as part of your work with RMA? 

Dr. LITTLE. Congressman, the techniques that Mr. Ferens is talking about are things that have been published and have been 

around for a very long time. They are basically the foundations of 

matrix algebra and multi-varied analysis. 

And, if I may, I would like to address what he was talking about 

in terms of linking entities together. My group won the best paper 

in economics in 2004 for doing exactly what he just described. It 

was published in ‘‘The American Journal of Applied Economics’’. So 

I don’t see the difference here. What he described is exactly what 

we do. We try to integrate as much data as possible. I mean I just 

20

told you that we are building a 42-terabyte system to hold all the 

satellite data from 2000 until now, to yesterday, for immediate use. 

And we are going to share that with the crop insurance companies 

also. I really don’t see the difference. Thank you. 

Mr. BOUSTANY. Thank you. Mr. Ferens, do you have anything 

else you want to add? 

Mr. FERENS. I think that there are differences. I think that we 

can work together to illustrate those differences. Oftentimes what 

we as an organization do is perform proof concept, again working 

with subject matter expertise of the individuals. There is certainly 

opportunity for us to explore if what we have done is aggregate information across numerous agencies in the past. And without fail, 

we have found improvement across the board. 

Mr. BOUSTANY. Thank you. Are you suggesting that you use different analytical techniques than what Dr. Little and his group are 

doing? 

Mr. FERENS. I think we use a combination of techniques that 

may be innovative in the way we combine them. 

Mr. BOUSTANY. Okay, thank you. That is all I have. 

Mr. ETHERIDGE. I thank the gentleman. The gentlelady from 

Kansas, Ms. Boyda. 

Ms. BOYDA. Thank you, Chairman. Dr. Barnaby, thank you for 

your testimony. It is actually the apples-to-apples comparison that 

is quite helpful for those of us who really don’t understand the ins 

and outs of all of this. And I wanted to ask you a couple of questions. My guess is, like you, I am real happy to pay my taxes, but 

I am not interested in paying any more than we just have to. So 

with all the different options that are available to us, the current 

system being obviously the one on the table today, is this the way 

that you would use my tax dollars and yours? Anything that you 

would recommend to make the use of our tax dollars more efficient? Basically what I am asking is from your perspective, are the 

taxpayers getting a good value for this? Anything that you would 

change that would make it a good deal for our farmers and a better 

deal for our taxpayers, or is this the optimum? 

Dr. BARNABY. Well, first of all, maybe you are not aware I created the crop revenue coverage contract. That revenue contract is 

mine. 

Ms. BOYDA. See, I love this job. I love this job. 

Dr. BARNABY. And obviously that started back in 1990. I have 

been at this for a while, and, no, I think that created a lot of marketing opportunities. We have some really good corn prices right 

now where farmers can take advantage of those. And it gives you 

the financial backing and the comfort level to make those decisions. 

Having said that, there is one new theory that I have kicked 

around with Congressman Moran just yesterday, but I will gladly 

share it with you too. Looking at the idea that, on the government’s 

spent dollars, is a general statement don’t take over what can be 

insured. In other words, target the government dollars to the uninsured part of the revenue distribution rather that duplicate what 

can be insured. One reason for that is obviously it is still cheaper 

to do it under an insurance program regardless of who administers 

it if farmers are paying a share of the premium cost. 

21

When we talk of things like loan deficiency payments and all the 

other kinds of payments that may come to farmers, those are essentially just variations of revenue insurance. But 100 percent of 

the premium is paid by the government. So if you are going to target those, target to the part that you can’t insure. I haven’t really 

fully pulled that document together yet, but I will gladly send it 

to you when I get it done. 

Ms. BOYDA. I would appreciate that. The GAO report that Mr. 

Brichler was speaking about earlier, again I am not up to date on 

that. I know a little bit about it, but could you summarize what 

that said. And again basically what Mr. Moran was saying is 

what—just give me—we have got 2 minutes and 9 seconds now. 

Can you help me understand that report? 

Dr. BARNABY. I am going to have to come back to you on that. 

I have not read the report. I saw it just a few minutes ago. I was 

comparing my numbers to make sure they agreed with theirs, and 

just doing some spot checks, I think I agree on the numbers. Now, 

we probably don’t agree on the interpretation though, but I have 

not read the report. But I will send an email to your staff. 

Ms. BOYDA. All right, I would certainly appreciate that. I had a 

question then for you, Mr. Brichler. This is the wonderful part of 

getting to learn about the whole process here. So I don’t come to 

it with any preconceived idea. When we are talking about when we 

have lost so many of our companies, the big companies, when they 

get out of that business, do they sell that book of business to somebody else? Or is everybody just picking it up bits and pieces? How 

is the market accommodating from going from 50 down to 17? 

Mr. BRICHLER. Congresswoman, the events, I guess, are unique 

to each one of those circumstances. Most of the time a company 

that currently is operating in the crop insurance sector will buy the 

renewal rights for the policies that the exiting company has. But 

we also have had issues in the past where some companies just 

have gone bankrupt, and their business has gone out and been absorbed by the direct competition among everybody in the industry. 

So it works best if there is a planned renewal rights purchase, but 

in the absence of that, if there is business on the table, the companies that are in this space will go after and compete for it. 

Ms. BOYDA. All right. Thank you very much. I yield back. 

Mr. ETHERIDGE. Thank the gentlelady. The gentleman from 

Texas, Mr. Neugebauer for 5 minutes. 

Mr. NEUGEBAUER. Thank you, Mr. Chairman. Dr. Barnaby, I 

want to go to your chart, Table 1, I guess, and as you know, the 

USDA is proposing to increase the amount of underwriting gains 

retained by RMA in the farm bill proposal to kind of rebalance the 

risk sharing. And so in 1997, according to Table 1, that would have 

been a good deal. 

Dr. BARNABY. For the government, yes. 

Mr. NEUGEBAUER. Yeah. 

Dr. BARNABY. Yeah, um-hum. 

Mr. NEUGEBAUER. How would that deal have been in 1993? 

Dr. BARNABY. Well, they would get a share of the underwriting 

loss. 

Mr. NEUGEBAUER. Yeah, a pretty substantial share, as well as 

also in 2002, right? 

22

Dr. BARNABY. As I understand that proposal, their proposal is to 

take 25 percent of the underwriting gain/loss, so whatever it is. 

Again I sort of cringe when we say underwriting gain or loss. It is 

really margin on the gross premium is what it really is, but yes, 

sir. 

Mr. NEUGEBAUER. And so what, you know, and then maybe in 

the last few years, that could have been a good deal for the government. What happens to the industry though if the Federal government starts trying to pick those years or to anticipate going into 

those years and taking a greater participation in that. Does that 

— what happens to the companies long term? Do they begin to say 

since the government is getting into the interest business we are 

getting out? 

Dr. BARNABY. Eventually that would be the case. I don’t know 

where that point occurs. One thing I might point out to you just 

over the last 4 years, the government effectively had a billion dollar underwriting gain over that period. 

Mr. NEUGEBAUER. Um-hum. 

Dr. BARNABY. So they didn’t pay in to those numbers. They are 

not listed here on this table. Now, in other years, the government 

effectively had an underwriting loss. So, you know, this is just the 

different sharing arrangements. So it kind of depends on what year 

happens. If this were to go into effect next year, and we get an ’88 

drought next year, why the government wouldn’t only have underwriting losses, but then they would have a share of the company’s. 

And they would probably be glad that you they have a share of it 

at that point. 

Mr. NEUGEBAUER. Um-hum. Mr. Herring, one of the things that 

I think I am most concerned about, I am recently from the private 

sector. And some people think that profit is a 4-letter word. I always remind them that loss is a 4-letter word actually, and that 

to the degree we have healthy insurance companies, particularly in 

relation to crop insurance, that is vital to the agricultural industry. 

And quite honestly, in my part of the world, if you don’t have crop 

insurance, you probably couldn’t get a loan for your crop production. 

Mr. HERRING. Yes, sir. That is the general rule, but sometimes 

there are other factors that we look at. But typically you have to 

have it. 

Mr. NEUGEBAUER. Would you say that the current coverages 

available for some producers is adequate? 

Mr. HERRING. Yes, sir, I would. I mean in eastern North Carolina, I feel like——

Mr. NEUGEBAUER. In your part of the world. In my part of the 

world, because of some of the production history, we have people 

who are not able to actually take out enough insurance to cover the 

cost of planting that commodity. 

Mr. HERRING. Yes, sir. 

Mr. NEUGEBAUER. So one of the things that I think makes more 

sense rather than trying to limit the amount of money that crop 

insurance companies make is working at making sure that we have 

a crop insurance program that covers the needs of the folks that 

are relying on it. Because as you know, and I am sure in your part 

of the world as mine, the small family farm is unfortunately becomVerDate 0ct 09 2002 15:00 Jan 23, 2008 Jkt 000000 PO 00000 Frm 00026 Fmt 6633 Sfmt 6633 F:\DOCS\40255.TXT HAG2 PsN: JAMIE
23

ing extinct and that agriculture is really big business and that 

these producers are taking big risks. And to the extent we have a 

well-funded, healthy crop insurance market will really in a lot of 

ways determine what the future of agriculture is in this country. 

Would you agree with that? 

Mr. HERRING. Yes, sir, operating expense is now at a higher ratio 

than they have ever been with the fuel prices and everything. And 

the margin is smaller, and that we can’t handle any more risk. 

Mr. NEUGEBAUER. And when you look at what we spent on ad 

hoc disaster programs, I notice someone alluded to that. But really 

when you look at what we spent on ad hoc disaster programs over 

the last few years in this country. The ability to enhance our crop 

insurance programs really would have been able to limit what we 

would have had to pay out had we had a better crop insurance program. 

And just I know Ranking Member Moran would be disappointed 

if I didn’t bring up the fact that I do have introduced some legislation that would actually increase the ability for producers to carry 

higher levels of coverage without really, even Dr. Collins who is 

going to testify later on, has scratched those numbers out. 

And let me tell you when Dr. Collins scratches some numbers, 

he scratches them pretty hard. Is that really it is a very cost effective program, and so, I think, as we look at this issue of who gets 

what and how much money people get to make, I think what we 

need to do is make sure that we are looking after the interest of 

the producers in this country. 

Mr. ETHERIDGE. We thank the gentleman for his comments, but 

he is getting long-winded. 

Mr. NEUGEBAUER. I am sorry, Mr. Chairman. I apologize. I yield 

back the balance of time that I don’t have. 

Mr. ETHERIDGE. We thank the gentleman. The gentleman from 

Georgia, Mr. Marshall. We are running short of time. We got a 

vote. 

Mr. MARSHALL. Thank you, Mr. Chairman. 

Mr. ETHERIDGE. Just to let everyone know, we got a vote coming 

very shortly, and we are going to try to get everybody in before we 

have the vote. 

Mr. MARSHALL. Mr. Chairman, in response to Mr. Moran and 

Ms. Boyda, Dr. Barnaby indicated that he is going to be willing to 

take a look at the GAO report and provide them both with his comments. Is it possible for the record remain open and let Dr. Barnaby take a look at the GAO report and submit something for our 

record in regard to that so we will all have it and it will be in the 

record permanently? 

Dr. Barnaby, Ms. Boyda mentioned that it is nice to be able to 

look apples to apples, and taking a look at Table 1 and comparing 

the subsequent tables, there are two columns, I think, effectively 

two columns that don’t appear. And one is this underwriting gains 

column, and the other is the premium subsidy column. Could you 

help me out in better understanding your analysis? The reason 

those two columns don’t appear in your comparisons, obviously one 

column doesn’t appear because there are no premium subsidies provided by the government with regard to that kind of insurance, but 

the underwriting gains? 

24

Dr. BARNABY. Yes, well, that is the problem. Underwriting gains, 

I put it in quotes because what USDA is calling underwriting gains 

is not what is called underwriting gains in private property casualty. They start off in private property casualty with a dollar coming in and then from that, they subtract the marketing cost, which 

is primarily insurance agent commissions. They subtract off the 

loss adjustment expense. They subtract off the claims that are paid 

out to policyholders, and then the overhead of the company, you 

know, turn on the power and the lights, et cetera. And after you 

deduct all those from your gross premium, then you get something 

called underwriting gain, and then from that, they add investment 

income, which there really isn’t any here 

What I have done is simply take all those dollars and say if I 

am a private company, I have to get all my expenses plus pay my 

claims out of that $1 that comes in. And that total dollar coming 

in is that combined A&O underwriting gain, and I am treating it 

as a cost rather than something that is at risk. I know it is at risk, 

but I am treating it as a cost, plus the premium subsidy, plus the 

farmer paid premium. That dollar comes into the insurance company, and then out of that dollar, over a period of years, you can 

pick out individual years, as Congressman Neugebauer did, and 

you would have paid, you know, 60 cents out of it. Other years, you 

would have paid a dollar out of it. But the long-run average you 

have got about 75 cents. 

Mr. MARSHALL. Well, what——

Dr. BARNABY. And 30——

Mr. MARSHALL. —I wound up doing is taking the total number 

of years that you have here——

Dr. BARNABY. Um-hum. 

Mr. MARSHALL. —and I deleted two outlyers, which would be a 

fairly standard statistical technique, and I came up with 66 percent 

just as I was sitting here. But it is pretty close to the figures that 

you have as far as average is concerned, so I have no quibble with 

that. In your mind, does it make any difference in comparing—

again it is this apples-to-apples analogy that was used earlier. Does 

it make any difference in comparing any returns to this industry 

with returns to the other industries, that 30 to 40 percent of the 

premiums——

Dr. BARNABY. Um-hum. 

Mr. MARSHALL. —are pretty much guaranteed. They just come in 

the form of checks from the government. 

Dr. BARNABY. Well, one of the things you need to look at, I would 

suggest to you, is how much variation there is in the annual payout 

out of that dollar. You say you deleted a couple of the outlyers. 

Well, there are two other outlyers that are not in here, 1988 and 

1983, very long-run insurance. If you look at the property casualty, 

it doesn’t vary that much annually. 

Mr. MARSHALL. So that was going to be another one of my questions. You don’t use very many years in statistical analysis normally. You take at least 19 samples, and you have got about 5 or 

6 years for each of the others. And you did that simply because it 

is pretty standard. It is just with the others——

Dr. BARNABY. All the data that is available to me. If RMA wants 

to make the data public, I would be glad to work with it. 

25

Mr. MARSHALL. No, I was referring actually to your comparison. 

Dr. BARNABY. The——

Mr. MARSHALL. Your comparisons are pretty short on years. 

Dr. BARNABY. On the auto policy for example? Yes, but again 

they don’t change a lot from year to year. 

Mr. MARSHALL. So basically your testimony is that we can go 

ahead and rely on that even though the sample number of years 

is pretty brief? 

Dr. BARNABY. Yes, I don’t think that is going to change very 

much. In fact, that is——

Mr. MARSHALL. I am going to have to interrupt you because I am 

running out of time. Real quick question. We mentioned this notion 

of changing the way the government participates in underwriting 

this risk and maybe the government getting more involved. If the 

government gets more involved. It is a bad year, then the government is going to experience some loss. If it is a bad year, don’t we 

do disaster payments anyway? What would be a better deal, from 

the government’s perspective, if we were able to restrain ourselves 

where disaster benefits are concerned and make crop insurance 

even more available? Net, how would the taxpayers come out? 

Dr. BARNABY. Well, it is pretty much a hypothetical. I don’t know 

exactly what this new program is going to look like. I have looked 

at the one that Congressman Neugebauer mentioned, primarily 

using a county yield number to design an insurance program that 

would tied to the individual that was based off of county yields. 

The only thing I would question on that, you need to make sure 

that those expected county yields are correct, and I would take 

issue that they are probably not. But in any case, I don’t know the 

answer to that without doing more analysis that I have got at this 

point. 

Mr. MARSHALL. Yield back what I don’t have. 

Mr. ETHERIDGE. Thank the gentleman. Gentleman from Texas, 

Mr. Conaway. 

Mr. CONAWAY. Thank you, Mr. Chairman. Dr. Little, I know this 

is a crop insurance hearing, but would you give us a couple of 

thoughts on use of your data mining techniques and work being applied to other disbursement areas within USDA, such as the nutrition program used to apply what you do on looking for waste, 

fraud, and abuse in the nutrition program? 

Dr. LITTLE. I think it has a wide application there, and we have 

discussed this with the FNS folks, and they feel that it has a great 

potential also. One of the data issues with FNS is that the vendors 

for the food stamp program are monitored by the Federal government, and the recipients are monitored by the states. That is a 

mistake, and those things need to be brought together so that you 

can do the kind of link analysis that has been mentioned here. And 

once you do that, I think that you will be able to recover quite a 

bit of maybe it is slop, maybe it is waste, fraud, abuse or all of it. 

But something that accounts for over half the USDA’s budget certainly needs better oversight. 

Mr. CONAWAY. Okay, give us a couple thoughts on how would 

you fix that disconnect between the state oversight and the Federal 

oversight? What would be your plan there? 

26

Dr. LITTLE. I would consolidate the data. I would require the 

states to report the recipients. You have got California, for example, that won’t report to USDA OIG on request who the recipients 

are. They give them aggregate county numbers, masking any possible abuse. 

Mr. CONAWAY. Okay, so this field might be ripe for harvest, to 

use a phrase. 

Dr. LITTLE. Sir, it is overripe. 

Mr. CONAWAY. Okay, thank you. Mr. Barnaby—or Dr. Barnaby. 

I apologize. Or Mr. Brichler. Getting back to the differences between property and casualty insurance companies, they get the 

premiums up front in advance, and then they invest those premiums over some period of time in an attempt to make money, 

which as my good colleague from north of Texas said is not all bad, 

versus how the crop insurance. Would you flush that out a little 

bit? 

Dr. BARNABY. Well, you don’t pay for your crop insurance policy 

until after the growing season is over, not at the start over the coverage. Whereas with an auto policy, you pay for the premium up 

front before you have any—in fact, if you don’t pay it right away, 

they will cancel your policy within——

Mr. CONAWAY. Right. 

Dr. BARNABY. —30 days. So, yes. And if you look it is significant, 

again because State Farm is a mutual company, I get an income 

statement along with my premium notice. And you look down their 

income statement, the investment income is a significant part of 

their net returns to the company. 

Mr. CONAWAY. If you had a similar approach under crop insurance, what would that do for the program itself? In other words, 

what is that impact of that? I mean I know the answer, but I want 

you to tell us what the impact would be if we had a similar circumstance in crop insurance. 

Dr. BARNABY. If you paid the premium up front? 

Mr. CONAWAY. Yes. 

Dr. BARNABY. Yeah, well, you would add investment income to 

the industry. 

Mr. CONAWAY. To the——

Dr. BARNABY. I might add that I have been involved in developing private insurance contracts, and that is two things I always 

do. Let us get the premium up front, and the expense load usually 

is 40 percent when it is done privately. 

Mr. CONAWAY. All right, and again, this is for Mr. Brichler. Is 

this percent of premium the best way, the most reasonable way to 

determine the administrative subsidy pay on behalf of farmers to 

companies? 

Dr. BARNABY. Congressman, as I said this earlier in response to 

Chairman Peterson’s question, we have talked whether there are 

other ways to do that, but the entire industry always ends up focusing as a percent of premium. So while there may be better solutions, I don’t know of one. It is certainly the industry standard. 

And if I could take one second to comment on your investment income, just to kind of put four corners around that, the estimated 

underwriting gain for the whole property and casualty industry in 

2006 was $15.7 billion. Now, the investment income for that same 

27

period of time was $54.6 billion. So, as Dr. Barnaby said, there is 

a gigantic difference between this line of coverage not having any 

investment income and only relying on underwriting gain. 

Mr. CONAWAY. All right, thank you, sir. And, Mr. Chairman, I 

will yield back time that I have. 

Mr. ETHERIDGE. I thank the gentleman very kindly. Let me 

thank each member of the panel for being with us today. It is a 

little unprecedented that our government witnesses are second 

rather than first, but I want to thank them for waiting and ask 

them if they would come to the table. Today we want to do it this 

way so they would have an opportunity to have their comments on 

what they heard from the first panel. We are going to try to get 

started with the second panel. 

Please understand that we may have a vote called any time. We 

have been notified that any time from 11:30 on, we could have a 

vote. Maybe we can get through the testimony before we get started. I am asking Administrator Gould, if he would please, Administrator of the Risk Management Agency for the Department of Agriculture. 

Okay, well, we will let you take a break, the vote is ongoing. I 

didn’t get a buzz on it. How much time do we have? We have 11 

minutes left on the vote, so we will have two votes. We should be 

back in about 20 minutes maybe if we can rush back, and I will 

try to come as soon as the second vote starts. 

Administrator Gould would come to the table. He will be accompanied by Dr. Keith Collins, Ms. Tighe accompanied as a Deputy 

Inspector General of the Office of Inspector General, and Mr. Robert Robinson, Managing Director of Natural Resources. 

And if you don’t mind, we will stand in recess until we get back, 

and as soon as we get back, we will get started. We won’t have to 

start with introductions at that point. 

[Recess.] 

Mr. ETHERIDGE. Mr. Gould, if you would please. 

STATEMENT OF ADMINISTRATOR ELDON GOULD, RISK MANAGEMENT AGENCY, U.S. DEPARTMENT OF AGRICULTURE, 

ACCOMPANIED BY DR. KEITH COLLINS, CHIEF ECONOMIST, 

U.S. DEPARTMENT OF AGRICULTURE 

Mr. GOULD. Mr. Chairman, I guess I can still say good morning, 

Mr. Chairman and I will cross out the portion here ‘‘members of 

the subcommittee’’. I am Eldon Gould, Administrator of the USDA 

Risk Management Agency. I am also a lifelong Illinois farmer who 

values crop insurance program that makes the best use of taxpayer 

dollars. I am fortunate to have with me today Dr. Keith Collins, 

Chairman of the Federal Crop Insurance Corporation Board. 

The FCIC board and RMA have established overall program integrity as a high priority. RMA maintains program integrity within 

the Federal crop insurance program by the use of prevention, detection, and enforcement. The Federal Crop Insurance Program is 

meeting its mandated target loss ratio. That is not to say that more 

cannot be done, with regard to reducing program fraud, waste, and 

abuse. 

We estimate that in 2007, we will reach $68 billion in insurance 

protection for American agriculture. In a program of this magVerDate 0ct 09 2002 15:00 Jan 23, 2008 Jkt 000000 PO 00000 Frm 00031 Fmt 6633 Sfmt 6633 F:\DOCS\40255.TXT HAG2 PsN: JAMIE
28

nitude, we must be diligent in order to deliver a flexible, fair, and 

fraud-free program. RMA completed the second year of a structured 

random policy reviews in 2006. It is noteworthy that RMA’s observed error rate from reviews on 600 randomly selected policies 

was 2.68 percent. We initially projected five percent on the first reports, so this number is lower than we expected. 

Essential to the Federal crop insurance program are the 16 private insurance companies who actually deliver insurance to America’s farmers and ranchers. There has been recent criticism of the 

profits that companies make by selling crop insurance. There is no 

question that in recent years insurance companies have benefited 

from this program. Moreover, we agree that rebalancing of the program should be a priority to allow a redistribution of the underwriting gains so that the Federal government would receive an increased share. In fact, this is one of the administration’s Farm Bill 

proposals. 

In addition, permitting RMA to renegotiate the terms of the 

standard reinsurance agreement every 3 years would give it the 

flexibility to routinely monitor program performance and maintain 

the proper risk sharing balance. That being said, the reimbursement of the company’s A&O expenses and the underwriting gains 

made by the companies is a complex matter, and any analysis must 

include data specific to the crop insurance industry. 

Recent underwriting gains by crop insurance companies have 

tended to be higher than other similar lines of insurance within the 

industry primarily because of an unusually good run of favorable 

weather over the past few years. It won’t always be that way. If 

next year happened to be an extremely dry year, as 1988 was, at 

today’s level of liability, the companies would lose $980 million in 

underwriting. On the other hand, if next year happened to be a significantly wet year like 1993, companies would stand to lose an estimated $440 million. It is not a matter of if but when similar 

kinds of weather events will occur in the future. 

RMA has preempted millions of dollars worth of expected payments, and we continue to find ways to reduce program abuse. We 

continue to use data mining to identify anomalous producer, adjuster, and agent results, and with the assistance of FSA officers, 

conduct growing season spot checks of anomalous producers. Reduced indemnities on spot check policies over the past 5 years total 

approximately $430 million. 

I thank you for this support and cooperation provided by the 

committee to help improve the Federal crop insurance program, 

and I appreciate the opportunity to participate in this important 

hearing. And if we have time, at the appropriate time, I look forward to answering questions. 

Mr. ETHERIDGE. Thank you, sir. Ms. Tighe. 

STATEMENT OF KATHLEEN S. TIGHE, DEPUTY INSPECTOR 

GENERAL, OFFICE OF INSPECTOR GENERAL, U.S. DEPARTMENT OF AGRICULTURE 

Ms. TIGHE. I think it is officially good afternoon, Chairman 

Etheridge, Ranking Member Moran, and Congressman Cooper. 

Thank you for inviting the Office of Inspector General to testify 

today concerning our views on the Federal crop insurance program. 

29

The crop insurance program represents a significant investment by 

the Department of Agriculture and Congress to support and 

strengthen the Federal safety net for America’s producers. 

We at the Office of Inspector General have conducted substantial 

audit and investigative work pertaining to the crop insurance program and its participants. I am pleased to be able to share with 

you our findings and recommendations. My written statement contains my full testimony, so I will just briefly summarize a few highlights. 

There is clearly a significant upward trend in Federal payments 

to approved insurance providers for their expenses in underwriting 

gains. From 2000 to 2006, total payments to insurance providers 

increased to record levels to over $1.8 billion an increase of over 

120 percent. The Federal reimbursement to insurance providers for 

administrative and operating expenses for each producer policy has 

increased to almost 100 percent during that period. 

While Congress has successfully broadened the safety net for producers, we believe it is time to reassess what constitutes an acceptable cost to the government. To have an effective crop insurance 

program, we believe three elements are essential: proper assignment of risk between the insurance providers and the government, 

effective management controls including particularly a strong quality control system, and aggressive enforcement actions to address 

fraud. 

In contrast to other insurance programs, the approved insurance 

providers that participate in this program face very low risks. Since 

RMA is underwriting most of the risk for the crop losses, the insurance providers have less incentive to vigorously administer Federal 

crop insurance policies in accordance with the best interest of the 

government and the taxpayers. 

To ensure that Federal funds are used more responsibly and efficiently, the insurance providers need to consistently monitor policyholders, deny questionable claims, and address weaknesses in their 

own practices. We have reported on concerns such as conflicts of interest among sales agents, loss adjusters, and policyholders, and inadequate verification of losses by loss adjusters. 

While RMA has taken positive steps to strengthen its quality 

control review system, more can be done to evaluate the private 

sector’s delivery of the crop insurance program and prevent improper crop insurance payments. In addition, the full implementation of a common information system between RMA and FSA is 

critical, in our view, to improving integrity within the farm programs and reducing the risk of improper payments. 

In the enforcement area, the Office of Inspector General works 

closely with RMA, FSA, and the Department of Justice to aggressively pursue fraudulent crop insurance schemes that undermine 

the program and burden taxpayers. Compared to fraud affecting 

other USDA farm programs, these cases are particularly complex 

in their details and time consuming to investigate. Since fiscal year 

’99, our investigations have resulted in 70 indictments, 53 convictions, and over $54 million in money recoveries. 

Some of the common schemes our investigations have revealed 

include losses claimed on crops that were never planted and collusion between program participants to fabricate or inflate crop 

30

losses. While the great majority of participants and beneficiaries of 

this program are honest and faithfully comply with its requirements, there have been a few participants whose improper conduct 

has tarnished the program’s reputation. 

My full statement details our recommendations for steps that the 

department and Congress can consider to improve the program. 

Legislatively, we do support the crop insurance proposals contained 

in the department’s 2007 Farm Bill proposal. Other actions that we 

believe are critical to providing effective management of the crop 

insurance program and to prevent fraud waste and abuse include, 

as I mentioned earlier, accelerating the full implementation of a 

comprehensive information system, finalizing conflicts of interests, 

policies, and procedures, and expanding RMA’s data mining activities. 

This concludes my testimony. I would be happy to answer questions at the appropriate time. 

Mr. ETHERIDGE. Thank you, ma’am. Mr. Robinson. 

STATEMENT OF ROBERT A. ROBINSON, MANAGING DIRECTOR, 

NATURAL RESOURCES AND ENVIRONMENT, GOVERNMENT 

ACCOUNTABILITY OFFICE 

Mr. ROBINSON. Thank you and good afternoon. 

As we in GAO have pointed out in many forums, the Nation’s 

bleak financial condition should be a cause of great concern to all 

Americans. In this financial context, it is vital that every federal 

program be operated as effectively and as efficiently as possible, 

and that major spending leakages be plugged when they have been 

identified. 

We have recently identified federal crop insurance as one such 

program in need of attention to better protect tax payer interests. 

Based on our most recent work, additional attention is needed in 

two areas. First, tightening procedures to reduce fraud waste and 

abuse in the payment of insurance claims, and second, adjusting 

excessive compensation insurance companies are paid to sell and 

service crop insurance policies. 

Let me start with the fraud waste and abuse. On this front, RMA 

has taken a number of steps, as Administrator Gould has pointed 

out, to reduce previously identified problems. In particular, its use 

of data mining enabled it to identify producers with claim patterns 

consistent with fraud and abuse that warranted heightened inspection activity. Combined with other related actions taken by it and 

FSA, RMA has reported over $300 million in avoided payments between 2001 and 2004. That is certainly good news. 

Still, in our most recent work, we found that a number of important vulnerabilities open the system up to well over perhaps $100 

million a year in potentially fraudulent claims. Specifically, first, 

FSA was not conducting all the field inspections RMA requested to 

identify suspicious claims; second, RMA’s data analysis of the largest farming operations was incomplete, reducing its ability to identify potential fraud. RMA and FSA started to do the information 

sharing to improve this analysis, but has now stopped because of 

privacy concerns. 

Third, RMA was not effectively overseeing insurance company 

quality assurance programs, which are an important component of 

31

the fraud detection system. And finally, RMA has infrequently used 

its full sanctioned authority to address identified program abuses. 

Likewise, we found out the basic program design components laid 

out in both regulation and statute contribute to increased chances 

for abuse. In particular, allowing farmers the option of insuring 

fields individually rather than as one unit enables farmers to 

switch production among fields either to make false insurance 

claims or to build up higher yield histories to increase eligibility for 

future insurance guarantees. Yield switching could be at the root 

of 10 to 12 percent of irregular claims. 

Also, offering prevented planting coverage opens up a significant 

exposure to claims of loss whose legitimacy can be difficult to determine. RMA pays about $300 million annually in such claims. 

My second main point this morning, and obviously the one that 

drew the most attention in the earlier panel, is that compensation 

to insurance companies has been excessive. To this end, over 40 

percent of the $16 billion in Federal program costs over the last 5 

years were payments to insurance companies, not benefits to farmers. In the last 3 years, this percentage is appreciably higher. Any 

system frankly that requires $2 to deliver $1 of net benefits would 

seem to have some efficiency problems. 

In this regard, USDA pays the insurance companies participating 

in Federal crop insurance both underwriting gains and cost allowances. Underwriting gains total $2.8 billion from 2002 through 

2006. These gains represent an average annual return of about 

17.8 percent. This rate is nearly 2-1/2 times the benchmark for 

other insurance lines, and I suppose that is what we are going to 

be discussing a lot more in the next few minutes. 

USDA had a one-time authority to renegotiate the financial 

terms of its SRA with the companies which took effect in 2005. 

Nonetheless in 2005, insurance companies received a rate of return 

of 30 percent, and in 2006, the return was 24 percent. In addition 

to underwriting gains, USDA paid a cost allowance to the insurance companies of $4 billion to cover administrative and operating 

expenses for program delivery from 2002 through 2006. USDA expects these expenses to increase by about 25 percent by 2008 because of higher crop prices. 

Mr. Chairman, this means that the companies will receive a 

higher cost allowance without a corresponding increase in expenses 

for selling and servicing the policies, creating a windfall of sorts. 

Let me close by offering this observation. Congress has an opportunity in authorizing the farm bill to provide USDA with the authority to periodically renegotiate the financial terms of the SRA so 

that the company’s cost of reimbursement is not overly generous, 

and its overall rate of return is more in line with private markets. 

It also has the opportunity to address several statutory provisions that have proven to place the program at greater risk of 

fraud, waste, and abuse. We hope that Congress will take full advantage of this opportunity. Thank you very much for this opportunity to give our views. 

Mr. ETHERIDGE. Thank you, sir. We now will turn to the members for their questioning. You each will have 5 minutes, and I will 

yield myself the first 5 minutes. 

32

Administrator Gould, Deputy Inspector General Tighe states that 

you all believe that full implementation of a comprehensive information management system is not expected until 2012. What are 

the reasons for the delay, and is this just a question of resources, 

and what are the fundamental problems that are delaying the implementation? And finally had Congress not repeatedly cut the 

funds for it in the appropriations bill for the department in previous years, would we already have a CIMS system in place? 

Mr. GOULD. Yes, thank you for the question. I would be happy 

to respond to that. Actually, the information about that not being 

fully implemented, the CIMS project, a comprehensive information 

management system, will be implemented long before 2012. That 

date has been used for full implementation, but in fact, there is 

some implementation already underway. And it is anticipated that, 

if we can get the system of records sorted out between RMA and 

FSA, that there will be much of the implementation done for the 

2008 crop year. And then as time goes along, and we gain more experience, that CIMS project will come along nicely. And hopefully 

by 2012, it is fully functional. 

Mr. ETHERIDGE. So 2008 to begin, but 2012 still for full implementation? 

Mr. GOULD. That is right. 

Mr. ETHERIDGE. Okay, so the statement is not that far off. Ms. 

Tighe, in your opinion, what is the level of fraud in crop insurance 

program in terms of percentage of policies or percentage of premiums? Is Dr. Little’s measure of 0.02 percent of the claims that 

he has detected through data mining an accurate representation of 

fraud in the system in your opinion? 

Ms. TIGHE. Mr. Chairman, we don’t have a good basis for evaluating the total fraud in the program in terms of number of claims, 

and I can’t speak specifically to Dr. Little’s data. I can point out 

that RMA has itself has an error rate in improper payments of 

something just under 3 percent. Those are payments also that can 

give rise to fraud. We don’t sort of track or evaluate that way. All 

we know is anecdotally, we have a lot of cases dealing with fraud 

in crop insurance. And we know, you know, the statistics I gave 

you in terms of dollars recovered and everything, but we really 

have no good way of evaluating the totality of the program. 

Mr. ETHERIDGE. Okay, thank you. Mr. Robinson, has GAO conducted a profitability or rate of return analysis on crop insurance? 

And if not, are you aware of any studies that have? 

Mr. ROBINSON. We certainly have looked at it as part of our work 

for the hearing in May. We certainly did a comparison of underwriting gain and profitability for this line of insurance and using 

the AM best averages for both 5 years and 10 years I might add. 

And that is where we came up with the, you know, roughly 2-1/2 

times over that full 10-year period. That is where we came up with 

that number. 

Mr. ETHERIDGE. Well, let me follow that up a bit. And as you use 

that over that 2-year period though, does it go far enough back to 

cover where you have those anomalies where you would have heavy 

drought and heavy losses as it relates to flood, et cetera geographically? 

33

Mr. ROBINSON. Mr. Chairman, I think underwriting losses have 

been experienced under this program twice in the last 17 years, 

once in the last 10. So by having a 10-year analysis, we certainly 

cover one of those years. Yes, sir, and that is why we tried—obviously the most relevant comparison in looking at this program is 

since ARPA because so many rules changed. When you go way 

back, you are analyzing something that is not exactly the current 

situation. So that is why we started out with a 5-year period. But 

just to be on the safe side, we went ahead and did it over 10 years 

as well. And that 10-year period would have covered the 1 year 

where underwriting losses were. 

Mr. ETHERIDGE. Where you had heavy losses. Thank you. I yield. 

Mr. MORAN. Mr. Chairman, thank you very much. Part of the difficulty I have in trying to sort this out is the continued use of the 

phrase underwriting gain. Is that the correct standard by which we 

ought to be judging the profitability of the crop insurance industry? 

And does that allow for a satisfactory comparison to other insurance or other companies involved in trying to earn a profit? Is underwriting gain the standard by which we ought to be discussing 

these issues? 

Mr. GOULD. Well, I am going to defer that question to Dr. Collins. My opinion is that it is a little bit like comparing apples to 

oranges because the crop insurance program is kind of a unique entity between the private sector and government. But I am sure Dr. 

Collins has got a good handle on that. 

Mr. COLLINS. Thank you, Administrator Gould. Mr. Moran, I 

think underwriting gains is probably not the best way to be comparing returns from one business or one industry to another. There 

are lots of different measures that can be used. There are rates of 

return on equity, rates of return on assets, rates of return on sales. 

Those are typically the kinds of metrics that we use in comparing 

profitability across companies and industries. 

The problem with crop insurance, as Dr. Barnaby noted, is there 

is problems with access to data. Crop insurance is a line of business sometimes in big companies. When you look at other lines of 

insurance, there are many different lines of insurance they have in 

those companies. So there are allocations of cost that have to be 

made. 

There have been some studies on rates of return that have tried 

to move away from underwriting gains and look at a measure of 

profitability. The ones that have most often been quoted are the 

Price Waterhouse Cooper study, which covered data through 1995. 

There was the Milliman study, which we contracted for, to help us 

get prepared for the SRA negotiations. That had data through 

2001. There was also the Deloidin 2 Study that NCIS contracted 

for that had data through 2002. So there are three studies right 

there that tried to move away from just the concept of underwriting gains and look at the concept of profitability. Now, all three 

of those studies, you could argue, are dated. They don’t capture the 

post-SRA world, the low loss ratios of the last couple of years. 

I still personally look at underwriting gains, understanding that 

underwriting gains are a complicated concept. They have to cover 

a lot of things. They have to cover, as noted earlier in the other 

panel, excess costs over reimbursement. And we believe that the 

34

costs of delivering a program do exceed the reimbursement for most 

companies. 

You know our data for 2006 suggests that out of 14 companies 

for which we have data, 12 of them have delivery costs in excess 

of the reimbursement rate. So underwriting gains have to go to 

that. They have to cover the excess cost. They also have to go to 

cover a policyholder surplus. You have to have capacity to sell crop 

insurance. 

We require companies to have 2 to 2-1/2 years worth of basically 

policyholders surplus to cover 2 to 2-1/2 years of 500 percent loss 

ratio years. We have to have policyholder surplus to cover that. So 

they have to build up that surplus. So there is a lot of things that 

underwriting gains are going for, as well as profit. 

Having said all that, we still use the simple concept that GAO 

used of looking at underwriting gains as a percent of premium, and 

when we started the SRA negotiation in 2004, we had in mind a 

goal there of 12 to 13 percent would be a goal that we thought was 

a reasonable measure of underwriting gains relative to premium. 

And if you look at the crop insurance program from 1981 to 2006, 

that is 26 years, the average of underwriting gains to premium is 

9.6 percent. So it was less than what was had as our goal going 

into the SRA. 

Now, look at the last 3 years, 2004, 2005, 2006. That measure, 

underwriting gains to premium, is 26 percent. So it is way beyond 

what we had set as a goal for the SRA negotiation, and it is way 

beyond what the historical performance of the program is. 

So the question becomes difficult. You know, what do you read 

into that? Are the companies making too much money, or is that 

just simply the reflection of 3 good years of really unusual weather. 

So there is an uncertainty here about how to draw the line when 

you have an industry that has potential for very big losses, systemic losses, system-wide losses should we get a natural disaster. 

Mr. MORAN. Mr. Chairman, I should never anticipate being able 

to ask more than one question when Dr. Collins is answering the 

one question. My time has expired——

Mr. COLLINS. Sorry. 

Mr. MORAN. —some time ago, and the list is still on the piece of 

paper. What I would like to follow up with you, Doctor, is does that 

measure, underwriting gain, correlate with rate of return on assets 

or rate of return on investments, which is something that is much 

more understandable, at least for me, as to what the measure is? 

And so when you say we are shooting for 12 to 13 percent, we are 

significantly higher than that, would that also say that if we are 

shooting for a certain rate of return, that same increase, that corresponding increase, would be true for rate of return? Or does underwriting gain mask the difference? And Chairman has got his 

finger on my light. So we can talk, sir. 

Mr. COLLINS. My guess is that they correlate. 

Mr. MORAN. Okay. 

Mr. ETHERIDGE. Thank you. The gentleman from Georgia, Mr. 

Marshall. 

Mr. MORAN. It is a disadvantage of no longer being the chairman. 

35

Mr. MARSHALL. Mr. Robinson, thank you for your testimony, and 

I have not read your report. And I actually stumbled into this hearing unaware of this big dispute, and so I am learning a lot. And 

what would be helpful to me, I suspect the committee as well, is 

if you could comment on Dr. Barnaby’s analysis. You heard his testimony. I suspect you have read it. I have his Table 1 in front of 

me. There is a stark difference of opinion, I think, between you and 

Dr. Barnaby about whether or not this industry is functioning appropriately. And if you could help us by commenting on his testimony. 

Mr. ROBINSON. Yes, I hope you can appreciate I heard Dr. Barnaby’s comments for the first time a few moments ago. 

Mr. MARSHALL. Have you seen the written testimony? 

Mr. ROBINSON. I have not. 

Mr. MARSHALL. Okay. 

Mr. ROBINSON. But what I was going to suggest doing is we 

would love to have the opportunity to give you something in writing to give some real kind of analysis rather than some off-the-cuff 

instant analysis that I could give here today. 

Mr. MARSHALL. And, as a matter of fact, it certainly would be 

helpful to me, and I suspect the committee as well, if we have already asked Dr. Barnaby to comment on what you have prepared, 

and he is going to do so and supplement the record. And Chairman 

just nudged me. We would be very interested in your comments on 

his testimony and having those submitted for the record. But I 

think what would be most helpful is for the two of you to talk with 

one another so that you can narrow your differences of opinion. We 

are lay folks at least with regard to some of the more esoteric 

points that the two of you can make. And if you could agree that 

you are on the same page then we don’t have to wade through understanding all of that. We can get to the nub of the conflict between the two of you. 

Mr. ROBINSON. I think it is a good idea, and also to shed the 

maximum sunshine on something which is admittedly not like falling off a log in terms of difficulty. I think that is an excellent idea. 

I took some note of Dr. Barnaby’s comment that I don’t know that 

we disagree so much on the facts but on the interpretation of the 

facts. So hearing that comment, I think a good conversation between us would be good. 

Mr. MARSHALL. I am not sure who to address this—well, actually 

one of the things I would like to do, Mr. Chairman, if I am permitted to do it, I see that Mr. Cooper is here, and I was going to 

yield time to Mr. Cooper. If that—it is not. So, Mr. Cooper, you will 

remain mute in this hearing. But I will have a second round here, 

so you can go ahead and whisper in my ear, and I will ask it. We 

will not? You have decided not to? Okay. Dr. Little, in his testimony, made reference to spot checks and then a spot-check list and 

improved behavior by the farmers on that spot-check list. And I am 

sure that is of real interest to RMA and to the department. To me 

it is a rather unusual way of going about things, and it would be 

quite telling to me, if the improvement in behavior by these folks 

who have been identified is pretty significant. I would wonder to 

what extent behavior could be improved throughout the entire sample. Are these folks that unique? And is Dr. Little’s testimony that 

36

there is about 1 percent fraud—I thought it was a little higher 

than what you mentioned. Mr. Chairman is that accurate? I am not 

quite sure who to address that to, but that spot-check list seemed 

pretty interesting to me. 

Mr. GOULD. I will make a brief comment. Actually, I have had 

the opportunity to look at the data and the subsequent behavior of 

the people that were on the spot-check list, and it is really telling 

that people—I should mention that the people that are placed on 

the spot-check list get a notice from their local FSA office that they 

are on a list. They are not accusing them of anything, but just say 

that some of their losses or behavior is an anomaly and just the 

fact that they are being watched causes a dramatic difference in 

their behavior. And we have tracked that over time, and they kind 

of tend to have less losses over time. And also then we have also 

tracked when they go off the list, they tend to revert back to their 

original behavior. 

Mr. MARSHALL. Too bad we can’t put the entire country on a 

spot-check. 

Mr. GOULD. Well, that is——

Mr. MARSHALL. Members of Congress included. 

Mr. GOULD. And we frankly would like to enhance the spot-check 

list and do more of it, but that is kind of a compromise between 

what we have with our resources and FSA has with their resources 

at the moment. 

Mr. MARSHALL. Thank you, Mr. Administrator. Thank you, Mr. 

Chairman. 

Mr. ETHERIDGE. I thank the gentleman. Let me thank each of 

you for your patience. There is no need to, we will apologize but 

only for the fact that we couldn’t continue straight through because 

you understand how this system works. If they ring a bell, we have 

got to go. And they expect us to be there and vote, but thank you 

very much for taking your time and being here for your testimony. 

Mr. Robinson, let me follow up on the gentleman from Georgia’s 

question. I would ask that you submit to us, if you would please, 

in writing after you have had a chance to comment on his question. 

I think it would be helpful to have that for the record. 

And before I adjourn, I would invite the ranking member for any 

comments he might have. 

Mr. MORAN. No, sir. 

Mr. ETHERIDGE. Under the rules of the committee, the record of 

today’s hearing will remain open for 10 days to receive the additional material and supplemental written response from the witnesses to any questions posed by members of the panel. The ranking member has asked that we extend that for 30. We would like 

to tighten it as we can. Would that be too much of an imposition 

on you, Mr. Robinson, 10 days since we are going to be moving to 

do something? If not, we will make it 30. 

Mr. ROBINSON. We work for you, sir. We will do what you ask 

us to do so——

Mr. ETHERIDGE. Let us stick to 10 days. 

Mr. ROBINSON. Okay. 

Mr. ETHERIDGE. Okay, because I think that will help us have the 

information we need. If you could, that would be very helpful. With 

that, let me again thank each of you and the previous panel for 

37

being here. With that, the Federal hearing on the Subcommittee on 

General Farm Commodities and Risk Management stands adjourned. 

[Whereupon, at 12:33 p.m., the Subcommittee was adjourned.]

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