Officials: Insurance companies con soldiers

Some insurance companies selling supplemental life policies on military bases have repeatedly violated Defense Department regulations, fleecing some members of the armed forces, according to officials.

House Government Reform Committee Chairman Tom Davis, R-Va., released a statement Thursday saying that the panel had "learned of instances of uniformed men and women purchasing insurance coverage they did not need or spending more money than necessary due to unscrupulous insurance agents."

The military offers life insurance policies worth up to $400,000. The supplemental policies are meant to function on top of that amount.

The cases of fraud happened because of Defense's inability to regulate insurance solicitors, according to a June 29 report (GAO-05-696) by the Government Accountability Office. The report found that the Pentagon failed to keep track of which service members bought supplemental life insurance policies, in part because their database lumps all insurance policies together, including health, home, car and life.

GAO also found that insurance agents who are banned because of violating Defense regulations are not tracked properly. If an agent is banned from one military base, he or she could "go right up the street to another one," said Derek Stewart, the director of defense capabilities and management at GAO.

In a letter to Stewart, included in the report, Charles Abell, principal deputy in the Office of the Undersecretary of Defense, wrote that the "department believes this [report] contains misrepresentations and factual errors. The department is concerned the report uses survey data to present unsubstantiated perceptions as fact."

Georgia State Insurance Commissioner John Oxendine is investigating five insurance companies for "questionable practices" on military bases in his state. They are American Amicable and its sister company, Pioneer American, Trans World Assurance and sister company American Fidelity, and Madison National Life. Oxendine's office also is leading other states in a national investigation.

So far, American Amicable has agreed to refund $1.3 million in premiums collected from soldiers at Fort Benning, Ga. Madison National Life agreed to refund up to $1.125 million for policies sold at Fort Benning and Fort Gordon.

"It's nothing more than war profiteering," Oxendine said. Young recruits are "hundreds of miles away from home, they're away from their mom and dad for the first time, they know in a manner of months they'll be put somewhere where people will be trying to kill them, and we've got people out there trying to take advantage of that situation."

Oxendine's study found that soldiers were misled a number of ways about their policies. Some were told their money was being deposited into a savings account or that the policies were investments. Insurance sales pitches were sometimes given in training and classroom situations which, Oxendine said, was deceptive.

"The insurance products were much more expensive than what you could buy on the street," he said.

According to GAO auditors, Defense had weak safeguards in place to prevent these incidents. For example, many in the military pay for insurance policies through payroll deductions. Defense requires the service member or a legal proxy to submit the request for a deduction. However, GAO found that at Naval Station Great Lakes in Illinois, half of these requests came from insurance agents themselves.

Stewart says that in these cases, the financial office has "no way of knowing that the service member in fact wants a policy. There were a number of allegations where the service members were saying that they didn't submit a form, they didn't sign anything."