In conducting their operations, farmers are exposed to financial losses because of production risks—droughts, floods, and other natural disasters—as well as price risks. The federal government has played an active role in helping to mitigate the effects of these risks on farm income by promoting the use of crop insurance. RMA has overall responsibility for administering the federal crop insurance program, including controlling costs and protecting against fraud, waste, and abuse. RMA partners with 15 private insurance companies that sell and service the federal program’s insurance policies and share a percentage of the risk of loss and opportunity for gain associated with the policies. Through the federal crop insurance program, farmers insure against losses on more than 100 crops. These crops include major crops—such as corn, cotton, soybeans, and wheat, which accounted for three-quarters of the acres enrolled in the program in 2011—as well as nursery crops and certain fruits and vegetables. For the purposes of this report, we generally refer to participants in the federal crop insurance program as participating farmers. Most crop insurance policies are either production-based or revenue- based. For production-based policies, a farmer can receive a payment if there is a production loss relative to the farmer’s historical production per acre. Revenue-based policies protect against crop revenue loss resulting from declines in production, price, or both. The federal government encourages farmers’ participation in the federal crop insurance program by subsidizing their insurance premiums and acting as the primary reinsurer for the private insurance companies that take on the risk of covering, or “underwriting,” losses to insured farmers. A common measure of crop insurance program participation is the percentage of planted acres nationwide for major crops that are enrolled in the program. In addition, the federal government pays administrative expense subsidies to insurance companies as an allowance that is intended to cover their expenses for selling and servicing crop insurance policies. In turn, insurance companies use these subsidies to cover their overhead expenses, such as payroll and rent, and to pay commissions to insurance agencies and agents. Companies also incur expenses associated with verifying—adjusting—the amount of loss claimed. These expenses include, for example, loss adjusters’ compensation and their travel expenses to farmers’ fields. The financial relationships among the federal government, private insurance companies, agents, and farmers are illustrated in figure 1. For 2011, the federal government’s subsidy costs were about $7.4 billion for crop insurance premiums and about $1.3 billion for administrative expenses. Crop insurance premium subsidies are not payments to farmers, but they can be considered a financial benefit. Without a premium subsidy, a participating farmer would have to pay the full amount of the premium. The administrative expense subsidies also can be considered a subsidy to farmers; with these subsidies, crop insurance premiums are lower than they would otherwise be if the program followed commercial insurance practices. In private insurance, such as automobile insurance, these administrative expenses typically are included in the premium that a policy holder pays. ARPA and the 2008 farm bill set premium subsidy rates, that is, the percentage of the premium paid by the government. Premium subsidy rates vary by the level of insurance coverage that the farmer chooses and the geographic diversity of the crops insured. For most policies, the statutory subsidy rates range from 38 percent to 80 percent. Table 1 shows the total costs of subsidies for all crop insurance premiums and administrative expenses for 2000 through 2011. The table shows that premium subsidies have generally increased since 2000, both in dollars and as a percentage of total premiums. The premium subsidy rates, authorized by ARPA, became effective in 2001. Premium subsidies increased, as a percentage of total premiums, from 37 percent in 2000 to 60 percent in 2001. In addition, premium subsidies rose as crop prices increased. As crop prices increase, the value of the crops being insured increases, which results in higher crop insurance premiums and premium subsidies. For example, the prices of major crops were substantially higher in 2011 than in 2006, and premium subsidies in 2011 (about $7.4 billion) were substantially higher than in 2006 (about $2.7 billion). USDA forecasts that the prices of major crops—corn, cotton, soybeans, and wheat—will continue to be substantially higher than 2006 prices through 2016. Administrative expense subsidies also increased because of higher crop prices. However, RMA capped administrative expense subsidies in the 2011 standard reinsurance agreement (SRA), a cooperative financial agreement between USDA and insurance companies. These changes became effective in 2011. As a result, administrative expense subsidies were lower in 2011 than they otherwise would have been. The federal government provides crop insurance subsidies to farmers in part to achieve high crop insurance participation and coverage levels, which are intended, according to USDA economists, to reduce or eliminate the need for ad hoc disaster assistance payments to help farmers recover from natural disasters, which can be costly. For example, under three separate congressionally authorized ad hoc crop disaster programs, USDA provided $7 billion in disaster assistance payments to farmers whose crops were damaged or destroyed by natural disasters from 2001 through 2007. Congress established a standing disaster program in the 2008 farm bill— the Supplemental Revenue Assistance Payments Program. Under this program, Congress funded a $3.8 billion permanent trust fund and directed the Secretary of Agriculture to make crop disaster assistance payments to eligible farmers who suffer crop losses on or before September 30, 2011. USDA—through FSA—began making disaster payments under this program in early 2010 for crop losses incurred in 2008. To qualify for a disaster assistance payment under this program, a farmer must have purchased either federal crop insurance coverage or be covered under the Noninsured Crop Disaster Assistance Program for all crops of economic significance on their farming operation. Without reauthorization, the Supplemental Revenue Assistance Payments Program will not make payments on losses caused by natural disasters that occurred after September 30, 2011. Farmers’ participation in the federal crop insurance program and spending on ad hoc disaster assistance have been policy issues for more than 30 years. According to a 2005 USDA publication, Congress passed the Federal Crop Insurance Act in 1980 to strengthen participation in the crop insurance program with the goal of replacing the costly disaster assistance programs.acres enrolled in the program, the percentage of eligible acres of major crops and the percentage of a crop’s market value insured—the coverage level. According to the USDA publication, the government has historically Crop insurance participation can be measured by attempted to increase participation by subsidizing premiums. Under the 1980 law, the government offered premium subsidy rates of up to 30 percent. However, by 1994, less than 40 percent of eligible acreage was enrolled in the program, and Congress had passed ad hoc disaster assistance totaling nearly $11 billion. In order to increase participation, according to the USDA publication, the Federal Crop Insurance Reform Act of 1994 increased premium subsidy rates. Farmers responded by enrolling more acres. Enrollment was about 100 million acres in 1993 before the act and about 182 million acres in 1997. Under ARPA, premium subsidy rates increased again in 2001. Farmers subsequently purchased more insurance at higher coverage levels. With the increases in acres enrolled and coverage levels, premium subsidy costs increased. The 2005 USDA publication noted that by 2004 premium subsidies totaled nearly $2.5 billion and had become an increasingly costly way of encouraging participation. As shown in table 1, premium subsidies reached $7.4 billion in 2011. From 2008 through 2010, annual payments to farmers for their crop insurance claims averaged about $6 billion. Most claims are legitimate, but some involve fraud, waste, or abuse, according to RMA’S data mining contractor. USDA’s Office of the Inspector General has reported that fraud is commonly perpetrated through false certification of one or more of the basic data elements, such as production history, essential for RMA to determine program eligibility or validity of claims. Crop insurance fraud cases can be particularly complex in their details and correspondingly time-consuming to review. These fraud cases sometimes involve multiple individuals working together, such as farmers, insurance agents, and insurance loss adjusters. Claim payments based on fraudulent crop insurance losses sometimes result in comparatively large monetary costs to USDA. Waste is incurring unnecessary costs as a result of inefficient or ineffective practices, systems, or controls. Waste includes improper payments that may be caused by errors in data upon which claim payments are based. Abuse occurs when a participating farmer’s actions defeat the intent of the program, although no law, regulation, or contract provision may be violated. For example, under the Federal Crop Insurance Act, RMA must offer coverage for prevented planting—that is, if farmers cannot plant a crop for specified reasons, prevented planting coverage enables them to receive a claim payment. In 2005, we noted instances in which FSA county officials stated they believed that some farmers in their counties who claimed prevented planting losses never intended to plant or did not make a good faith attempt to plant their crop but still received prevented coverage claim payments. In 2011, RMA issued guidance to its field offices and insurance companies to address abuse involving prevented planting. RMA uses data mining—a technique for extracting knowledge from large volumes of data—to detect potential cases of fraud, waste, or abuse by (1) developing scenarios of potential program abuse by farmers, insurance agents, and loss adjusters and (2) querying the database containing crop insurance data and information on weather, soil, and land surveys to generate reports and lists of participating farmers with anomalous claim payments. RMA has contracted with the Center for Agribusiness Excellence, located at Tarleton State University in Stephenville, Texas, to conduct data mining since 2001. Following USDA written procedures, RMA and the insurance companies are to use data mining results to conduct reviews of the claims to determine if there is actual fraud, waste, or abuse. The data mining tools that RMA uses include the following: List of farmers with anomalous claim payments.