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Soldier exploitation
A report next week will detail abuses by insurance agents. What can be done to right these wrongs?
November 23, 2005: 1:42 PM EST
By Shaheen Pasha, CNN/Money staff writer

NEW YORK (CNN/Money) - More details about the abuse of soldiers from misleading and overpriced insurance ploys will be reported by a government auditor next week, according to people who have seen the report.

The report by the Government Accountability Office will be released as insurance regulators, members of Congress and GAO representatives testify before the Senate Banking Committee. They'll push for a bill that will increase government oversight into the insurance sales practices at military bases, and will recommend changes to the types of complex supplemental insurance and financial products that are marketed to soldiers.

This issue, brought to light last year in a report by The New York Times, has been one of many examples critics cite to push for the U.S. government to do more for its soldiers.

The government did address some concerns by passing a number of reforms in the past year to provide soldiers with better life insurance benefits, and state regulators have been able to provide victimized soldiers with refunds from some of the companies involved in the miscondunct.

But while reformers call the moves a good first step, they want the government to take an even more active role in protecting servicemen and women from being scammed by unscrupulous insurance agents from private companies -- particularly as the death toll in Iraq steadily rises.


Military service members are provided with life insurance policies under the government-sponsored Servicemen's Group Life Insurance (SGLI).

Following reports that shed light on the poor government benefits packages offered to soldiers and blatant abuses by insurance agents, President Bush last May raised the maximum SGLI coverage to $400,000 from $250,000. He also increased the death gratuity for soldiers killed in the line of duty to $100,000 from $12,500 -- a win for military advocates who argued that the payouts were scandalously low in compensating families for the loss of their loved ones.

According to Pentagon statistics, 96 percent of service members have SGLI policies and over 160,000 military personnel pay for additional supplemental commercial life insurance, with total premiums of more than $190 million annually.

"Given the improvements in military insurance benefits, I don't think there's much need for more supplemental insurance," said John Oxendine, insurance and fire commissioner for the state of Georgia, who will testify before the Senate Banking Committee next week.

But prior to the Bush administration's benefits' boost, many soldiers bought supplemental insurance because government benefits were so low. Oxendine said some insurance agents took advantage of this need by selling young inexperienced soldiers policies with high premiums and low benefits -- an issue that was exposed by the Times in July 2004.

Oxendine said insurance agents also sold soldiers high-priced insurance policies that were touted as additional savings vehicles to help them build a financial nest egg for the future, but provided little explanation of the complexities of these hybrid products. He said some agents even befriended sergeants on military bases to build relationships with soldiers in order to lull them into a false sense of security.

Oxendine, who is leading the multi-state investigation into this issue, said significant progress has been made to crack down on these abuses. He said the Georgia Insurance Department won over $1 million (see correction) in refunds from companies, such as American Amicable Life Insurance Co., for soldiers affected by these sales tactics. (see correction)

He added that Georgia, along with some other states, banned the sale of Horizon Life, a combination life insurance and a fixed annuity product, on military bases.

But he said more work needs to be done to prevent these types of combination products -- which are marketed only to the military -- from being sold to young, impressionable soldiers who may not understand the high levels of fees they will have to pay and low level of benefits they receive.

And Brian Atchinson, executive director of the Insurance Marketplace Standards Association, said the Department of Defense should require life insurers that want to sell products to the military to be accredited by IMSA, a non-profit life insurance ethics group, to prevent abuses from reoccurring.

"My concern is that while light is being shone on the issue, these companies will behave. But what happens a year from now?" he said.

Bi-partisan effort

That's where the government comes in.

Earlier this year, Sen. Hillary Clinton, D-N.Y., and Sen. Mike Enzi, R-Wyo., introduced the Military Personnel Financial Services Protection Act. It would insure that state insurance regulators have jurisdiction over the sale of insurance products on military bases, require the Department of Defense to keep a list of individuals barred from military bases because of abusive sales tactics, and prevent investment companies from issuing periodic payment plan certificates, the mutual fund-like investment product with extremely high first-year costs.

The bill was approved by the House of Representatives and is now pending a vote by the Senate.

The bill was supported by an initial report from the GAO released in June. That report confirmed the abusive sales practices of insurance agents and indicated that payroll officers at certain military bases violated the Pentagon's rules by permitting insurance agents, rather than service members, to submit paperwork that allowed insurance premiums to be automatically deducted from military paychecks, said Derek B. Stewart, director of military and Department of Defense civilian personnel issues at the GAO.

Stewart added that the original study examined a half-dozen military bases, including Fort Bragg and Camp Pendleton, which were highlighted in media reports, and focused solely on supplemental term life insurance policies that were sold to soldiers who felt coerced into buying the expensive coverage before deployment.

The GAO report being released next week takes a broader view of the issue, according to those who have read it.

Clinton is also adding an amendment to the 2006 Department of Defense authorization bill requiring the Pentagon to provide consumer education for members of the armed forces and their spouses regarding public and private financial services, including life insurance and the marketing practices of these services, a spokeswoman for the senator said in a statement.

Steve Strobridge, director of government relations at the Military Officer's Association of America, said the government is on the right track towards improvement but still has a way to go.

He said there are concerns in the government that such reforms will be costly but he added that it's the job of the government to ensure that its military receives the proper benefits and is protected from harm.

"It's been a big embarrassment that people have been preying on a military person's naivet," he said. "We're in times of war and the sacrifices of the military career should be most evident now, especially when you're talking about people who are willing to give up their lives."


Correction: An earlier version of this story incorrectly said that the Georgia Insurance Department won over $1 billion in refunds from companies for U.S. soldiers. CNN/Money regrets the error.

Correction: An earlier version of this story erroneously referenced Trans World Assurance. regrets the error.  Top of page

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