Boondoggle

"Prevented Planting" Insurance Plows up Wetlands, Wastes $Billions

April 28, 2015

Boondoggle: Insurance Companies in Charge

The Risk Management Agency must rely almost entirely on its approved insurance providers (AIPs) and the loss adjusters who work for them to apply and enforce the prevented planting rules and on growers to provide those adjusters with the documentation needed to adequately adjust his or her claim. Yet, the inspector general reported in 2013 that "loss adjusters did not document and support a required determination related to prevented planting eligibility for any of the 192 prevented planting claims we reviewed."

Since 1999 multiple audits by RMA's own Inspector General and the Government Accountability Office have contained broad criticisms of the performance of crop insurance companies and their loss adjusters and questioned whether RMA has the capacity to effectively oversee their work. Criticisms were leveled regarding performance in implementing the federal crop insurance program as a whole and specifically about the special problems created by prevented planting coverage.

For example:

  • A 1999 Inspector General's audit of prevented planting payouts in 1996 concluded that claims were paid on "lakes, potholes, and riparian areas (stream beds and similar terrain) that were under water or idle during 1996 and the 4 previous years." The report blamed the improper payouts on "conflicting requirements concerning acreages eligible for payments" and "untimely and inadequate adjustments of claims by the reinsured companies which were generally months after the prevented plantings occurred."
  • That 1999 audit cited two instances in which "loss adjusters who adjusted prevented planting claims for two of the insureds had conflicts of interest or close relationships with the insureds. In one case, two loss adjusters leased land to the insured and adjusted the 1996 prevented planting claims of the insured. In the second case, one loss adjuster was a first cousin of the insured."
  • In a September 2005 audit, the Government Accountability Office wrote that "as RMA and company officials told us, it is often difficult to determine whether the producer had the opportunity to plant a crop, hampering their ability to hold down fraudulent claims."
  • On May 3, 2007, Inspector General Phyllis K. Fong testified before the House Committee on Oversight and Government Reform that "we continue to believe that by assigning low overall risk to the AIPs, the AIPs have less incentive to administer the insurance policies in accordance with the Government's and taxpayers' best interest. That is to say, incentives are lacking for AIPs to effectively monitor risky policyholders, deny claims of questionable losses, and address inadequacies in their own practices. We concluded that the structural framework of the program had increased the risk or vulnerability to fraud, waste, and abuse."
  • Fong also testified that her office found weaknesses in the companies' oversight, including "conflicts of interest among sales agents, loss adjusters, and/or policyholders; inadequate verification of losses and errors by the loss adjusters… and inadequate or nonexistent quality control processes by AIPs and RMA."
  • A March 2012 GAO audit found that "RMA has made substantial progress over the past decade in developing data mining tools to detect and prevent fraud, waste, and abuse from a list of farmers who have received payments for anomalous claims, but RMA's use of these tools lags behind their development, largely because of competing priorities." Moreover, GAO found that USDA Farm Service Agency (FSA) field inspections of anomalous claims were often not completed, completed too late, not reported to RMA in a timely fashion and not reported to AIPs.

"Both the farmers and insurance companies are responsible for the abuses.

"'Some producers would cultivate in the fall, even if they knew they weren't going to plant, Hagel says (Doug Hagel, former RMA Regional Director, Billings, Mont.). 'Some of them would mow cattails, burn off sloughs, saying they were going to plant in the spring, but it was always too wet.' (Slough is another name for a wetland)

He says the small amount of prevent-plant payments made in 2008 were questionable because it was a drought year. He says 186,000 acres in North Dakota were prevented planting acres that year and were unplantable because they were 'on a slough' or wet acres.

Hagel says there have been arbitration cases in which companies have denied claims for farmers using questionable practices, only to have them overturned by arbitration cases, but he couldn't immediately offer details."

Mikkel Pates
AGWEEK, June 21, 2011

The Risk Management Agency has tried repeatedly to refine its guidance to the insurance companies and loss adjusters to ensure that prevented planting payouts are made only when the cause of a loss is truly unexpected and infrequent – not the natural state of the acreage on which a claim was made. However, the evidence from the government watchdog agencies and EWG's own analysis is clear. Without a much more robust compliance and quality assurance capability, it is unlikely that even the best guidance will stem the large annual prevented planting payouts to a handful of counties or the threats they pose to wetland resources and the environment.

"By law, however, Hoffmann (Tim Hoffman, RMA's Director of Products Administration and Standards Division) said that crop insurance is allowed only for two years for prevented plant acres, as determined by Congress.

"He pointed to one trouble spot in North Dakota where Devils Lake has been growing in size and flooding farmland for years because of high water and not enough natural drainage.

'"I had a farmer there say he pays the same taxes on the land and that it's some of his best land,' Hoffmann said. 'I know that, but you can't continue to pay on the same damaged carpet or bedroom year after year."'

Barry Amundson
Tri-State Neighbor, March 14, 2013