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Military Sales Woes Persist

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Insurers may be continuing to sell unsuitable products to members of the military services, according to U.S. Government Accountability Office officials.

Congress has been working with state insurance regulators to ensure that servicemembers understand their military life insurance benefits before buying additional life insurance, and to protect servicemembers from high-pressure life insurance and annuity sales practices.

But the U.S. Department of Defense has only limited controls available to detect and prevent insurance payroll allotments that involve violations of state and federal suitability rules, Jack Edwards, a GAO director, writes in a report on GAO findings prepared for members of the House Financial Services Committee.

The GAO has detected 40,000 transactions initiated in 2006, 2007 and 2008 that may violate rules governing use of the military payroll system to pay for insurance products, Edwards writes.

“While the computer screens that a servicemember accesses to create an allotment include an advisement to the servicemember that the system is not to be used for allotment changes tied to insurance, few other controls that could detect or prevent insurance allotments are in place,” Edwards writes. “According to [payroll service] officials, the system checks allotment information against a list of approved bank routing numbers and accepts any bank account number as long as it contains the proper number of characters. In addition, the system does not attempt to determine if the name of a dependent entered by a servicemember is actually a person’s name.”

Defense Department officials have noted that the need for instituting better controls must be balanced against the need to have a flexible, automated allotment system, Edwards writes.

A copy of the GAO military sales report is available here.


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