thedrifter
11-22-05, 12:50 PM
GAO: Action is ‘overdue’ to protect troops’ wallets
Agency report says financial scams continue
By Karen Jowers
Times staff writer
Some insurance and financial companies continue to violate military regulations for on-base sales and sell deceptive and costly policies and investment vehicles to service members, according to a new government report.
And senators are calling for more aggressive action to halt the practices.
The report by the Government Accountability Office says protective action is “overdue” and blames the Defense Department for failing to act more quickly to protect its troops.
The report recommends that Congress require state insurance regulators to take a more active role in ensuring that only legal products are being sold to military members and clarify the jurisdiction of state regulators over sales of financial products on federal military installations.
At a hearing before the Senate Banking, Housing and Urban Affairs Committee on Nov. 17, a GAO official said the Defense Department not only delayed taking action to protect troops, but its reluctance to forward complaints to regulatory bodies hindered regulators’ efforts.
“Clearly, more needs to be done,” said Richard Hillman, managing director of Financial Markets and Community Investment for the GAO and author of the report.
The Defense Department has been working on new policies to control commercial solicitation on military bases for more than a year. But Hillman said regulations already in place would help — if only they were enforced.
He said there are still cases where insurance and financial salespeople make group presentations to “captive audiences” of young troops, which is against regulations.
But Hillman also said the GAO could not quantify the frequency of such incidents.
The hearing and GAO report focused on two products: contractual investment plans, in which 50 percent of the first year’s investment is paid as a fee to the broker; and unnecessary or overpriced insurance policies that can be cloaked as savings or investment plans.
Hillman said the insurance products are often sold by agents with prior military service, “totally disarming” service members who believe the sales agents have their best interests at heart. And sometimes there’s an impression that the Defense Department endorses the product.
The Defense Department should “educate NCOs so they do not appear to endorse financial companies,” said Georgia Insurance Commissioner John Oxendine. He has seen agents gain access to service members through relationships with sergeants, sometimes because they provide units with Thanksgiving turkeys or other gifts or funds to support morale.
“While it’s not illegal, they have a relationship with a sergeant … young soldiers come to a conclusion on their own,” said Oxendine, who has ongoing investigations against companies in Georgia.
“We want service members to be informed consumers,” said John Molino, deputy under secretary of defense for military community and family policy. Molino said he has tried to strengthen the regulations since he took his job in 2001, despite “enormous pressure” from the insurance industry to limit the extent of those changes.
Molino said inquiries from lawmakers asking why defense officials were being so tough on the insurance industry have now changed to, “‘Why are you not doing enough?’”
Molino welcomes the change. “This is an issue on the road to a solution primarily because DoD decided to turn over some rocks that had been dormant for years,” he said.
But Sen. Richard Shelby, R-Ala., chairman of the committee, said the Pentagon had let the problem fester for too long. “Thirty-five years is a long time,” he told Molino.
Shelby said companies that do business the way the GAO described should be banned from military installations, but admitted he wasn’t sure how that would be done.
Sen. Paul Sarbanes of Maryland, senior Democrat on the committee, agreed. “I am very concerned that any insurance company or agent or stock broker or dealer would sell inappropriate financial products to our servicemen and women,” he said. Sarbanes said most reputable firms do not engage in this type of activity. “But there are enough that do it in such abusive terms that it casts a dark cloud over the entire economic sector,” he said.
The GAO acknowledged that only a limited number of companies use deceptive sales practices, but noted that regulators have said the companies still sell thousands of policies to military personnel each year.
Although military members can buy relatively inexpensive life insurance, at least six insurance companies have been selling a hybrid product that combines life insurance with a savings component, the GAO found.
The companies often target young, single troops who have no need for the extra, costly insurance; indeed, these service members may not even understand they’re buying insurance.
Although individual bases have been aware of some of these violations, base personnel have preferred to work directly with companies to resolve the issue, rather than report them to regulators, Hillman said. Some suggested that military attorneys were concerned that privacy and confidentiality issues limited their ability to even share service members’ complaints with regulators.
But defense officials have told the GAO they intend to require their personnel to report violations to regulators in the future.
Agency report says financial scams continue
By Karen Jowers
Times staff writer
Some insurance and financial companies continue to violate military regulations for on-base sales and sell deceptive and costly policies and investment vehicles to service members, according to a new government report.
And senators are calling for more aggressive action to halt the practices.
The report by the Government Accountability Office says protective action is “overdue” and blames the Defense Department for failing to act more quickly to protect its troops.
The report recommends that Congress require state insurance regulators to take a more active role in ensuring that only legal products are being sold to military members and clarify the jurisdiction of state regulators over sales of financial products on federal military installations.
At a hearing before the Senate Banking, Housing and Urban Affairs Committee on Nov. 17, a GAO official said the Defense Department not only delayed taking action to protect troops, but its reluctance to forward complaints to regulatory bodies hindered regulators’ efforts.
“Clearly, more needs to be done,” said Richard Hillman, managing director of Financial Markets and Community Investment for the GAO and author of the report.
The Defense Department has been working on new policies to control commercial solicitation on military bases for more than a year. But Hillman said regulations already in place would help — if only they were enforced.
He said there are still cases where insurance and financial salespeople make group presentations to “captive audiences” of young troops, which is against regulations.
But Hillman also said the GAO could not quantify the frequency of such incidents.
The hearing and GAO report focused on two products: contractual investment plans, in which 50 percent of the first year’s investment is paid as a fee to the broker; and unnecessary or overpriced insurance policies that can be cloaked as savings or investment plans.
Hillman said the insurance products are often sold by agents with prior military service, “totally disarming” service members who believe the sales agents have their best interests at heart. And sometimes there’s an impression that the Defense Department endorses the product.
The Defense Department should “educate NCOs so they do not appear to endorse financial companies,” said Georgia Insurance Commissioner John Oxendine. He has seen agents gain access to service members through relationships with sergeants, sometimes because they provide units with Thanksgiving turkeys or other gifts or funds to support morale.
“While it’s not illegal, they have a relationship with a sergeant … young soldiers come to a conclusion on their own,” said Oxendine, who has ongoing investigations against companies in Georgia.
“We want service members to be informed consumers,” said John Molino, deputy under secretary of defense for military community and family policy. Molino said he has tried to strengthen the regulations since he took his job in 2001, despite “enormous pressure” from the insurance industry to limit the extent of those changes.
Molino said inquiries from lawmakers asking why defense officials were being so tough on the insurance industry have now changed to, “‘Why are you not doing enough?’”
Molino welcomes the change. “This is an issue on the road to a solution primarily because DoD decided to turn over some rocks that had been dormant for years,” he said.
But Sen. Richard Shelby, R-Ala., chairman of the committee, said the Pentagon had let the problem fester for too long. “Thirty-five years is a long time,” he told Molino.
Shelby said companies that do business the way the GAO described should be banned from military installations, but admitted he wasn’t sure how that would be done.
Sen. Paul Sarbanes of Maryland, senior Democrat on the committee, agreed. “I am very concerned that any insurance company or agent or stock broker or dealer would sell inappropriate financial products to our servicemen and women,” he said. Sarbanes said most reputable firms do not engage in this type of activity. “But there are enough that do it in such abusive terms that it casts a dark cloud over the entire economic sector,” he said.
The GAO acknowledged that only a limited number of companies use deceptive sales practices, but noted that regulators have said the companies still sell thousands of policies to military personnel each year.
Although military members can buy relatively inexpensive life insurance, at least six insurance companies have been selling a hybrid product that combines life insurance with a savings component, the GAO found.
The companies often target young, single troops who have no need for the extra, costly insurance; indeed, these service members may not even understand they’re buying insurance.
Although individual bases have been aware of some of these violations, base personnel have preferred to work directly with companies to resolve the issue, rather than report them to regulators, Hillman said. Some suggested that military attorneys were concerned that privacy and confidentiality issues limited their ability to even share service members’ complaints with regulators.
But defense officials have told the GAO they intend to require their personnel to report violations to regulators in the future.