2005 1117 - GOV (Senate) - A Review of the GAO Report on the Sale of Financial Products To Military Personnel

  • Shelby - These companies should be banned
  • most reputable companies don't do this
  • John Oxendine - Georgia Insurance Company - some agents aren't trustworthy
  • Schumer - Read these stories and it sickens
  • [Bonk: miscommunication] - GAO and Colorado guy. Allard - Life Insurance v Periodic Payment Plans
  • Bunning
    • GAO - Selling as investment plans vs Gambling
    • (p6) - Jim Bunning (R-KY) - I do not know anyone who read The New York Times’ investigation of sales of financial products to the military personnel who was not at the very least appalled and concerned about the practices.
  • Allard - My point is that they aren't upfront about selling life insurance, this happened in the 70s, Investment
  • (p1) - Chairman Richard Shelby (R-AL) - With respect to insurance products, GAO identified six insurance companies that catered to the military market.
    • According to the report, insurance agents from these companies sell expensive life insurance that is oftentimes illegally marketed as a security.
  • (p2) - Paul Sarbanes (D-MD) Thank you very much, Mr. Chairman, for calling this hearing and for joining in asking for the GAO study.  [Chairman = Senator Richard Shelby (R-AL)
  • (p5) - Chuck Schumer (D-NY) - We all know the problems here, and when I first read the stories in The New York Times, it wrenches at your heart...
  • (p6) - Jim Bunning (R-KY) - I do not know anyone who read The New York Times’ investigation of sales of financial products to the military personnel who was not at the very least appalled and concerned about the practices.
  • (p9) - Richard J. Hillman, GAO - In summary, regarding sales of insurance products, we found that thousands of junior enlisted servicemembers had been sold a product that combines life insurance with a savings fund promising high returns.
    • (p11) - Another debilitating feature of the insurance products is that they had this automatic premium payment provision, as Senator Schumer mentioned in his opening remarks, which allows companies to deplete the savings fund to pay for any insurance premium should a servicemember stop making payments. 
    • Products also were associated with questionable sales practices where the agents were misrepresenting the products not as insurance but as an investment..
  • (p18) - GAO - Richard J. Hillman
      • But oftentimes what regulators are telling us is, that these insurance products that are being sold to military members are being not sold as an insurance product, but are being sold as an investment. 
  • (p20) - Wayne Allard (R-CO)
    • Same types of stuff we run into in the private sector.
    • We ran into them in the 1970’s particularly, if I recall, although they just had them as IRA accounts at that time, and they are deceptive.
      • The salesman persisted that this was not life insurance, but it was there in black and white if you read the fine print.
    • I can understand how they can get misled on that kind of stuff, and I think that it is a shame. 
  • (p21) - Paul SARBANES (D-MD). Is there not information from the companies, like internal memos and so forth, where they are relying in fact on these sales items not being carried through to get the benefit in the later years? It is all part of their calculation as to how to make a much larger profit out of what they are doing; is that not correct?
    • GAO - Cody J. Goebel. Yes, Senator, in our report we quote from some of the internal memos that were obtained through depositions in a previous court case, where one of the company officials was attempting to overcome objections within his own company as how can their firm could sell this and promise this high rate of return that is not feasible. And he told them: ‘‘No, no, do not worry about it, we won’t really ever have to pay that amount out, 40 percent will drop out in the first year.’’ And so the products, the way they were structured and designed seemed almost deceptive to us.
    • Chairman  Richard Shelby (R-AL) - I personally believe that companies that are doing business this way, as you describe, exploiting our soldiers, should be banned or something. You know, I do not know exactly how we are going to do it, but we are going to look seriously, Senator Sarbanes and I working with Senator Enzi and others, Senator Allard, on legislation. 
  • (p28) - John Oxendine, NAIC - Georgia Insurance Commission
    • The problem, of course, is that some agents are not trustworthy.
      • Sometimes they sell unsuitable products.
    • Most soldiers already purchased the affordable SGLI and may not need supplemental life products.
    • These supplemental policies are often sold to soldiers as investments rather than as insurance.
    • While it is true that an insurance policy can be one component of an individual’s investment strategy, the investment portion of the policy is, in some cases, being overemphasized and/or misrepresented.
    • Some soldiers have testified that they did not even realize that they had purchased life insurance. Some also testified they thought they were opening a savings account. 
  • (p34) - John M. Molino, Deputy Under Secretary of Defense for Military Community and Family Policy, U.S. Department of Defense
    • Let me just say one thing about—I alluded to it in my oral statement, but the conversations that I have had with Diana Henriques, who is The New York Times reporter who wrote the outstanding series of articles, began not with ‘‘I think you have a problem, let me ask you some questions,’’ it began with something akin to ‘‘I understand you have uncovered some problems and I want to write about it.’’
    • And we then opened a very aggressive dialogue to ensure that she had access and information so that she would be able to reflect an honest portrayal of where we were. 
  • [Documents]
  • 2005 11 - Report - GAO - Financial Product Sales: Actions Needed to Better Protect Military Members - 88p -  [link]
  • 2007 0329- Report - NAIC to GOV -  Report - Life insurance sales to members of the armed forces: report to Congress - 50p
  • (p2-3:  Sarbanes) - The New York Times published a series of articles on this subject last year.
    • The New York Times has reported that:  
  • Army Times has described similar issues in earlier articles.
  • Some military officials sought to alert Pentagon officials to the problems in a 1997 report.
  • A 1998 report of the Pentagon’s Inspector General, which looked into life insurance sales on 11 randomly selected military bases, found, ‘‘misleading sales presentations, presentations by unauthorized personnel, presentations to captive audiences, soliciting during duty hours, and soliciting in the barracks.’’
  • This was a Pentagon Inspector General’s report.
    A May 2000 Pentagon-ordered study by the former Chief Judge of the Army’s Court of Criminal Appeals found that DoD policies ‘‘have been routinely violated’’ in this area for the last 30 years. I might also note that the SEC many years ago recommended banning the sale of mutual fund contractual plans altogether.
  • (p5) - Enzi - The investigations recently completed by NASD and SEC helped to bring this issue into focus for Congress. 
  • 2004 0910 - NYT - Hearing Confronts Insurers Who Market to Soldiers, by Diana B. Henriques - [link]
    • 2004 0909 - GOV (House) - G.I. Finances: Protecting Those Who Protect Us - 176p
  • New York Times - Diana B. Henriques
  • 18 2004 0720 - NYT - Basic Training Doesn’t Guard Against Insurance Pitch to G.I.’s, by Diana B. Henriques - [link]
  • 18 2004 0721 - NYT - Insurers Rely on Congress to Keep Access to G.I.’s, by Diana B. Henriques - [link]