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The GAO found that military personnel were being sold what Shelby called “costly, outdated and unnecessary” products often under the mistaken belief that these products have been endorsed by the Pentagon or their specific branch of the military.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