On November 20, the Government Accountability Office (GAO) released a new report on climate change and the federal flood insurance and crop insurance programs. This report is similar to one GAO released in 2007 that found that climate change could increase the financial risks associated with the federal government’s insurance programs.

The new report focuses on what has happened since 2007, including the 68 percent increase in the federal exposure to losses from the crop insurance program between 2007 and 2013.

This report specifically examines several pertinent questions:

• How federal and private exposure to losses has changed since their 2007 report on flood and crop insurance and how climate change may affect insured and uninsured losses;
• How public insurers are preparing for climate change and associated challenges; and
• How selected private insurers and reinsurers are preparing for climate change and associated challenges, if any.

GAO reviewed scientific studies, interviewed agency and private sector experts and examined agency and private sector documents and reports to construct the report.

GAO Conclusions

GAO concluded that the federal crop insurance program may be sending inaccurate pricing signals to farmers about their exposure to risks associated with climate change because of the subsidized premiums that farmers receive. Premium subsidies hide the true cost of risk from the farmers, which increases the likelihood of farmers engaging in risky practices.

As well, the GAO concluded that the federal crop insurance program’s “good farming practices” (GFP) requirements may actually encourage shortsighted farming practices that increase a farmer’s exposure to long-term climate change risks.

Since GFP requirements are linked to achieving average historical yields over the short policy term (one year), farmers may engage in practices such as inefficient water usage and conventional tillage that decrease long-term resiliency through erosion and decreased soil health.

GAO recommends that USDA work with agricultural experts to incorporate more resilient practices in the definition of good farming practices.

The GAO findings echo’s what NSAC and many others have long been saying; that the federal crop insurance program, while critically important, also distorts risk and is ripe for reform. NSAC encourages USDA and Congress to take this report to heart as they examine the consequences of the changes made to crop insurance by the 2014 Farm bill.