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Life Health > Life Insurance

GAO Report Slams Sales On Military Bases

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Legislation to ban certain insurance products and increase oversight of insurance sales on military bases received a boost last week from a critical Government Accountability Office report.

“Quite simply, the GAO’s findings are troubling,” Sen. Richard Shelby, R-Ala., chairman of the Senate Banking Committee, said at a hearing on the issue.

The GAO found that military personnel were being sold what Shelby called “costly, outdated and unnecessary” products often under the mistaken belief that these products have been endorsed by the Pentagon or their specific branch of the military.

These products also are generally significantly more expensive than the low-cost coverage the military also provides for soldiers to buy, which offers up to $400,000 in benefits, Shelby said.

“The need for definitive action to protect service members appears to be overdue,” added Richard Hillman, managing director of financial markets and community investment for the GAO, in his testimony to the committee.

Many of those attending the hearing took advantage of the opportunity to voice their support for legislation proposed by Sen. Mike Enzi, R-Wyo.

The legislation is designed to curb the abuses by banning so-called “contractual funds,” increasing communications between state regulators and the military, maintaining a registry of agents and brokers reprimanded for engaging in abusive or deceptive sales practices, and clarifying the authority of state regulators over bases in their jurisdiction.

Sen. Enzi’s bill is “very relevant toward solving the problems our service members are facing,” Hillman said, adding that each of the bill’s sections “have value” in the effort to eliminate these abuses.

The GAO found that thousands of soldiers, typically “junior enlisted personnel” who have just begun their service or just completed basic training, have been sold life insurance products and securities, or life products marketed as securities, that involve high initial fees and are designed to be held for the long term.

Additionally, some of them include an “automatic premium payment” system, in which savings built up through the product are automatically used to extend the coverage if payments stop being made. Because many service personnel move frequently or leave this service, this is often the case, and the GAO found that only 10% to 40% of these products are paid out over the full term.

Perhaps most troubling to some of the panel was the fact that military personnel have been facing these problems for decades without any help from Congress or the Department of Defense.

“I think it should be a matter of very deep concern that these are not new problems,” said Sen. Paul Sarbanes, D-Md., noting these abuses have been reported in several newspapers over the years, and were raised in reports from the Army in 1997 and the Pentagon’s Inspector General in 1998.

Some of these issues should have been acted on even before then, Enzi said. The Securities and Exchange Commission, he said, asked Congress to ban products known as “contractual plans,” but lawmakers did not act.

Enzi added, however, that he was “pleased that the GAO recognized several steps already in the bill” he has proposed, which is known as the “Military Personnel Financial Services Protection Act.”

Sarbanes recognized that “most of the reputable firms don’t engage in these abuses,” although he noted those who do have cast a “dark cloud” over the industry. If lawmakers truly have such great respect for the military and those serving in it, he said “it seems to me one way to show that respect is to move aggressively against these abuses.”

Although they offered no testimony at the hearing, life insurers also voiced support for working to end the abuses.

Frank Keating, president and CEO of the American Council of Life Insurers, noted the group’s support for similar legislation passed by the House in June and also known as the Military Personnel Financial Services Protection Act, or H.R. 458.

“The soldiers protecting us deserve no less than a full commitment to help them financially, which is why life insurers strongly support legislative efforts designed to ensure soldiers only get the financial products they want and need,” Keating said.

Jim Edwards, a spokesman for the National Association of Insurance and Financial Advisors, said that although NAIFA has not yet reviewed the GAO report, it consistently has supported “efforts to set high ethical standards for sales practices on military installations.

“We have assisted the Department of Defense for nearly 18 months to revise solicitation rules on bases to help provide the best environment for our soldiers to get the financial advice they need and deserve,” he added.

NAIFA also supports increased coordination between the military and state insurance regulators, he said, and has invited the Department of Defense to use materials produced by the Life and Health Insurance Foundation for Education to educate military personnel on the need for and uses of life insurance.


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