For example, we found loss adjusters did not properly establish the insureds' actual production in loss years which resulted in inflated indemnity payments. We subsequently determined that the claim was false. In a summary report of 11 audit and 17 investigation reports, we determined that RMA needed to improve its reviews of large loss claims. Our audits and investigations consistently find this type of weakness in the loss adjustment process. Developed RMA needs to better research and review crop insurance policies before those policies go into effect.
Flawed policies increase moral hazard risks.
Policies that encourage program abuse by producers are said to create a moral hazard risk. RMA issued flawed policies for three crops, pima cotton, popcorn, and corn, in three respective separate areas in Texas. The insurance provided non irrigated coverage when, in the insured areas, the crops could realistically only be grown with irrigation. However, it was known from the outset that the crops were to be grown on non-irrigated land. RMA's own field personnel advised them not to issue these policies, but RMA issued them anyway.