**GAO-09-445**                      Published: Apr 29, 2009. Publicly Released: Jun 01, 2009.                  

-   
-   
-   
-   

    Jump To:  
-  Elder Abuse 
-  Services for Older Adults 
-  State and Local-Level Drivers and Trends 
-  State and Local Fiscal Projections 
-  Federal Borrowing 
-  Managing the Debt 
-  Summary of Funding Provisions 
-  Auditing the Government's Books 
-  Unpacking the Financial Report 
-  Highlights 
-  Recommendations 
-  Background 
-  About This Work 
-  About This Work 
-  Trends 
-  About the Center 
-  Why It's High Risk 
-  What Remains To Be Done 
-  Key Reports 
-  Newest COVID-Related Reports 
-  AI Use Cases 
-  Flood Insurance 
-  Past Pandemic-Related Reports 
-  CARES Act Oversight Reports 
-  All COVID-19 Reports 
-  Report Suspected Fraud 
-  Subjects 
-  How to Get Notified 
-  Past Reports 
-  Public Health Threats 
-  Explore the FY 2022 and 2023 Funds 
-  Status of FY22 Projects 
-  Lessons Learned 
-  Agency Reports 
-  Recent Reports 
-  Recommendations 
-  Supplemental Material 
-  Full Report 
-  Additional Data 
-  View Decision 
-  Downloads 
-  Previously Identified Actions 
-  Related Pages 
-  Associated Agencies 
-  Tough Choices and Opportunities Ahead 
-  Americas Fiscal Future Key Areas 
-  Retirement Security Key Areas 
-  Current List 
-  About The High Risk List 
-  Area Ratings 
-  Previous High Risk Products 
-  Search Federal Vacancies 
-  Past Federal Vacancies 
-  Violation Letters 
-  About the Yellow Book 
-  Advisory Council 
-  Related Resources 
-  Comment Letters 
-  Related Publications 
-  Contacts and Resources 
-  Major Issues Facing the Nation 
-  Meeting Strategic Challenges 
-  Additional Resources 
-  Resources 
-  GAO Contacts 
-  Mission Teams 
-  Operations and Staff Offices  
-  Organization Chart  
-  Why a Career at GAO? 
-  Am I Qualified? 
-  Company Culture 
-  Reasonable Accommodations 
-  Video Gallery 
-  Paid Internships 
-  Student Volunteers 
-  Professional Development Program 
-  Advancement 
-  Executive Candidate Program 
-  Summer Associates 
-  Externships 
-  Benefits 
-  Contacts 

Skip to Highlights

## Highlights

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

Between 2000 and 2009, companies' A&O allowances nearly tripled, primarily because USDA's calculation method for A&O allowances considers the value of the crop, rather than the crop insurance industry's actual expenses for selling and servicing policies, which generally remained stable. This increase in the A&O allowances occurred without a proportional increase in the number of policies, acres, or amount of insurance coverage purchased. The higher A&O allowances occurred because of higher crop prices since 2006. Per policy, the allowance rose from a national average of $836 in 2006 to an expected $1,417 in 2009. Companies have used most of the higher allowances to raise commissions, in an effort to compete for insurance agencies' portfolios of crop insurance policies. USDA data show that commissions increased more sharply in states with historically larger insurance underwriting gains, which add to company profits. For example, the average commission paid per policy in 5 Corn Belt states increased by 86 percent from 2006 to 2007, and by 43 percent in the other 45 states. Companies reported to USDA that their expenses to administer the program in 2007 exceeded their allowances. However, GAO determined that these expenses exceeded allowances largely because of the higher commissions paid to insurance agencies. According to GAO's analysis, crop insurance agencies' sales commissions have outpaced their expenses for selling policies. Commissions per policy increased by an average of about 16 percent per year from 2000 to 2009, compared with an increase of about 3 percent per year for insurance agents' wages, which are the largest factor in agencies' expenses. For 2007 through 2009, commissions will exceed wage-adjusted commissions by $2.87 billion. According to USDA officials, higher commissions can create more incentive for rebating, which is the practice of offering something of monetary value to farmers to attract their business. USDA prohibits this practice, as do most states. USDA and state insurance regulators are working to reduce the potential for this practice.

## Recommendations

## Recommendations for Executive Action

## Full Report

Highlights

Full Report (43 pages)

Accessible Text 

## GAO Contacts

### 

Anne-Marie Fennell
Fennella@gao.gov

(202) 512-3841

## Office of Public Affairs

### Media Inquiries

Sarah Kaczmarek
kaczmareks@gao.gov

(202) 512-4800

### Public Inquiries

Public Affairs
PublicAffairs@gao.gov

(202) 512-4800

## Topics

Agriculture and Food

Administrative costsAgricultural industryAgricultural policiesAgricultural productionAgricultural productsAgricultural programsAllowancesCrop insuranceExpense allowancesExpense claimsFederal agenciesInsuranceInsurance companiesInsurance lossesInsurance premiumsPolicy evaluationPrices and pricingProgram evaluationProgram managementSalesPolicies and procedures