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Seeking to assuage congressional concerns raised by media reports regarding improper sales of insurance products to enlisted military personnel on military base grounds, the life industry last week offered its own proposals to lawmakers.

In a hearing of a House Financial Services subcommittee, industry representatives told lawmakers they support efforts to root out bad insurance agents and sales on military base grounds but not at the expense of legitimate insurers and agents losing their place at the table.

“While we must be steadfast in guarding against unethicaland possibly illegalsales practices, we believe the importance of ensuring that military men and women have access to insurance products cannot be overstated,” said David Woods, CEO of the National Association of Insurance and Financial Advisors, noting further that life insurance is especially important for members of the military who face the risks of going to war.

“Our military personnel put themselves in harms way every day,” Woods said in his testimony. “They owe it to themselves and their families to be on sound financial footing. Because a financial plan without life insurance is simply a savings plan that dies when the owner does, it is critical that life insurance be included as a key component in the general financial plan of any service man or woman.”

Frank Keating, president of the American Council of Life Insurers, also spoke of the importance of ensuring access to life insurance products for members of the military. Keating noted that ACLI, along with NAIFA, already has made several recommendations to help reduce instances of inappropriate sales, and would continue offering proposals.

“No industry can endanger its fundamental enterprise by tolerating misconduct in its core activities. We surely do not want our many good companies and agents unfairly tarred by a brush intended for a few,” Keating said, adding that ACLI was “anxious” to help lawmakers sort out the regulatory system for military sales. “We are convinced that the reason these issues continue to come up is because of the lack of clarity over who has the authority to oversee such sales and the absence of clear procedures to ensure the highest standards for dealing with men and women in uniform.”

In opening the hearing, Rep. Mike Oxley, R-Ohio, chairman of the committee, said, “New military recruits brought in for basic training are often young and relatively inexperienced on financial matters. They are trained to obey commands without questions and sometimes operate on little sleep. It is unconscionable, if true, that groups of recruits have been marched into compulsory briefings on veterans benefits by salesmen pretending to be financial planners that quick-step them into signing up for what turns out to be long-term life insurance.”

Oxley said he doesnt support a complete ban on sales of financial products on base, noting that he doesnt want to tarnish the good reputation of the agents. “But Republicans and Democrats in Congress can no longer pretend that this is about a few bad apples.” Oxley said he expects the NASD to announce the results of its investigation “in the near future.”

Two members of the panel, Reps. Paul Kanjorski, D-Pa., and Rep. Jim Ryun, R-Kansas, talked about the unintended consequences of a complete ban on the sale of financial products on base. Rep. Kanjorski said he wanted the committee to act “in a deliberate manner” so that sales of legitimate products would not be affected.

Legislation on the issue recently was introduced by Rep. Max Burns, R-Ga., which would specify the authority of state regulators over sales that take place on military bases in their states, and ban certain products from being sold on military grounds. (See NU, Sept. 6.)

It was also disclosed at the hearing that besides the Burns legislation, Rep. Steve Israel, D-N.Y, had introduced a bill dealing with the issue, but that bill has been referred to the House Armed Services Committee. Rep. Rahm Emmanuel, D-Ill., also said at the hearing that he planned to introduce a bill whose co-sponsor will be Sen. Hillary Clinton, D-N.Y.

“We applaud Congressman Burns for his authorship of the bill,” Keating said. “At the heart of it is the genuine solution to many of the problems reported in the press-state regulation. That solution involves the realization of genuinely functional regulationin both the technical and common sense of the term.”

However, Keating took issue with the bills call for all state regulators to implement new regulations governing sales of insurance to military personnel. “It has been the absence of any kind of functional regulation of insurance sales on military installations that has created cracks through which misbehavior has reportedly taken root. Further, it is in the complete absence of effective enforcement of all relevant rules that has caused some of our soldiers to become victims of scams,” he said.

“Fifty new state rules in addition to existing rules will not better protect our servicemen and women if neither the states nor the Defense Department can enforce any rule.”

Instead, Keating called for an increased coordination between the states and the Defense Department, in which a military command would centralize the financial services data of all branches of the military and serve as a liaison with other regulators.

“Under this approach, an infraction by a sales agent or company on a military installation is not an isolated incident receiving an arbitrary evaluation,” Keating said. “Rather it becomes an incident reported to multiple regulators and multiple installation commanders; it is subjected to fair and certain adjudication; and it could result in license revocation or penalties that sting. The cracks in the system become sealed and misbehavior is rooted out, not to find fertile ground on another installation or in another state or foreign country.”

Additionally, Keating said that while the ACLI is generally supportive of Burns bill, it does have some concerns. Burns bill would ban the sale of a type of product known as contract mutual funds. The product is not a life product, and while the ACLI has no opinion on its ban, Keating said that the wording of the provision describing the product “goes far beyond contractual mutual funds to prohibit all kinds of insurance and annuities that have a variable element in them.” The ACLI already has submitted proposed changes to the language to clarify the ban provision, he told the committee.


Reproduced from National Underwriter Edition, September 9, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.