Washington

As the House Financial Services Committee prepares to mark up legislation restricting sales of insurance on military bases, an investigation into the sales practices on Georgia military bases launched 5 weeks ago by state Insurance Commissioner John Oxendine appears to be rapidly mushrooming.

One immediate fruit of the investigation is a decision by companies owned by American Amicable Life Insurance Company of Waco, Texas, to refund premiums paid for the controversial policies to soldiers at Fort Benning, Ga.

Oxendine said the company agreed to make the refundsestimated at $1,000 per soldierafter he met with the companys CEO recently. Oxendine said that since the investigation has spread within a 5-week period from one company, American Amicable, in one state, to 3 companies in 3 different states, he believes that, “as a practical matter,” the refunds will be made on a “nationwide basis.”

He said that as a result of his decision to launch market conduct examinations of 3 companies, an “ad-hoc” group of commissioners from Texas, Florida and Illinois have joined in the probe. “We are all cooperating and sharing information, although each state is just looking now at protecting consumers in their state. Other states are likely to join in, and we welcome that,” Oxendine said.

Asked whether state regulators have authority to oversee sales of insurance at military bases at a Senate Banking Committee hearing last Wednesday on insurance regulation, New York Superintendent Greg Serio said, “We havent thought they were beyond our reach.”

Serio said there have been communication problems between regulators and the Department of Defense. As a result, “any effort [by Congress] to help clarify the issue of state regulation of sales practices on military bases would be helpful,” he said.

However, Serio said an outright ban of a company from a base “would only solve half the problem” and could lead to an “outside the gate” situation.

For his part, Oxendine explained that he began the market conduct investigation by asking to look at the books and records of American Amicable; an affiliate, Pioneer American Life, also of Waco; Trans World Assurance of San Mateo, Calif., an affiliate; American Fidelity Life Insurance Co. of Pensacola, Fla.; and the Madison National Life Insurance Company of Middleton, Wis.

Already, American Amicable has fired 3 agents, placed another on probation, rescinded a promotion to regional director of another agent, and barred an agency that has been selling its products from selling insurance on-site at military bases, Oxendine said.

The probes of Trans World, its affiliate, and Madison National just began last week, he said.

On the legislative front, Rep. Mike Oxley, R-Ohio, chairman of the House Financial Services Committee, said his committee would mark up legislation dealing with sales of life insurance on military bases after it marks up a bill extending the Terrorism Risk Insurance Act for 2 years. At the same time, the chairman and ranking minority member of the Senate Banking Committee released last Wednesday a letter to the General Accounting Office requesting a study of the scope and substance of sales on military bases.

The markup vehicle for the House bill will be the legislation proposed earlier this month by Rep. Max Burns, R-Ga., which clarifies that state regulators have authority over sales of insurance at military bases within their states, requires increased disclosure from agents selling insurance on military bases and bars contract mutual funds.

A staff official of the American Council of Life Insurers, which testified on the issue at the recent hearing before the House panel, said it supported the proposed legislation because “in concept” it dealt with curing the abuses cited at the hearing.

Rep. Oxley confirmed the markup plans in a speech accepting the inaugural Legislator of the Year award from the National Association of Mutual Insurance Companies. He said later that a managers amendment incorporating provisions of a bill drafted by Rep. Rahm Emmanuel, D-Ill., will also likely be included in the final bill.

Emmanuels bill would strengthen the provision in Burns bill barring sales of contract mutual funds on military bases.

Reacting to the decision to mark up the bill introduced by Burns, a staff official of the National Association of Insurance and Financial Advisers said the trade group “strongly supports” the bill except for concerns voiced by its CEO, David Woods, at a Sept. 9 hearing about the potential effect the bill would have on the sale of variable life insurance and annuity products.

“We are confident we can work
with the committee to strengthen this provision in order to allay our industrys concerns,” said Jim Edwards.

In the Senate, Sen. Richard Shelby, R-Ala., and Sen. Paul Sarbanes, D-Md., chairman, and ranking minority member, respectively, asked the GAO to expand its investigation into the sale of life insurance on military bases by researching “the manner in which financial products are marketed and sold to service members on U.S. military facilities.” The GAO already had been asked by members of the House to examine the military sales market.

At the Senate Banking hearing last Wednesday, Sen. Tim Johnson, D-S.D., said military sales are a “particular concern. “In these instances, not even the states have been able to regulate these sales,” Johnson said. “We ought to ensure that new recruits and active duty personnel are not a captive audience to these practices.”

Asked by Sarbanes about military sales abuses, a witness at the hearing, J. Robert Hunter, director of insurance at the Consumer Federation of America responded, “Theyve been there a long time. Theyve been ignored. Theyve been out of the reach of state regulators.”

The request by Shelby and Sarbanes asked that the report disclose “the manner in which financial products are marketed and sold to service members on U.S. military facilities.” Specifically, the 2 senators said in their letter, “We would like GAO to assess the regulatory oversight associated with the marketing and sale of financial products to service members on military installations [U.S. and abroad], and compare the regulatory oversight and consumer protections afforded to military personnel to those protections afforded to the general public.”

Finally, it asks the GAO to provide an assessment of the access military personnel have to a full range of financial products on U.S. military installations, and, “to the extent possible, assess the quality of such products.”


Reproduced from National Underwriter Edition, September 23, 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.