Military Personnel
DOD Needs Better Controls over Supplemental Life Insurance Solicitation Policies Involving Servicemembers Gao ID: GAO-05-696 June 29, 2005Servicemembers are engaged overseas in hostile actions that threaten their lives and possibly the future financial security of their families, should they die. To address their financial security needs, some servicemembers have purchased additional life insurance to supplement that offered by the government. Concerns have been raised, though, about solicitation violations, as well as problems in the system for setting up payroll allotments for such insurance. The Department of Defense (DOD) recently published a revised draft directive on solicitation but will not implement the directive until at least 90 days following this GAO report. GAO addressed three primary issues: (1) the extent to which DOD solicitation regulations are being violated; (2) the extent to which DOD personnel are adhering to allotment regulations for the purchase of supplemental life insurance; and (3) the extent to which the new directive addresses ongoing problems in supplemental life insurance solicitation policies.
DOD does not know the extent to which life insurance agents violate on-installation commercial solicitation regulations and does not actively disseminate information on all confirmed violations to other parts of DOD or to state insurance regulators. GAO found that violations are occurring. For example, in responses to GAO's 2004 survey of personal financial management program managers, one-quarter said prohibited practices such as misleading sales presentations had occurred occasionally or routinely on their installations in the prior 12 months. Also, between October 2001 and October 2004, DOD revoked agents' on-installation solicitation approval at least 26 times. The reason DOD does not have complete data on violations is that it does not have adequate mechanisms for ensuring the systematic tracking of violations. The dissemination problem is attributable to a lack of oversight by the DOD policy office and an ambiguity in its guidance. DOD cannot develop an effective and efficient process for curbing violations without maintaining accurate data on the number, types, and severity of violations and disseminating confirmed violation data to relevant parties. DOD cannot determine the extent to which DOD personnel adhere to allotment regulations because of problems with DOD's payroll databases and the different ways in which regulations are implemented. DOD's Financial Management Regulations, among other things, restrict who can submit an allotment form for supplemental life insurance. GAO could not determine the number of servicemembers with supplemental life insurance allotments due to database limitations, such as all insurance allotments (for example, for life and automobile) sharing the same code. Contrary to regulations, GAO found finance personnel accepting allotment forms without confirming they came from authorized sources. Some said they did this to ensure that policies started promptly. Database problems limit DOD's visibility over prohibited practices, such as those for group solicitation and the acceptance of allotment forms without proper authorization. In addition, GAO could not substantiate the assertion that servicemembers are prevented from using allotments to purchase supplemental life insurance and has identified reasons why this is probably not a widespread problem. DOD's revised directive on commercial insurance solicitation practices on DOD installations adds new requirements, but does not fully address oversight deficiencies. The revised directive will incorporate the interim policy and practices now in place and, to partially address the problems cited above, will add requirements for gathering and disseminating information on confirmed violations. Those requirements, however, will focus on banned agents only, rather than all confirmed violations. The result will be DOD's continuing inability to identify the number, types, and severity of all violations, or to recognize patterns of violations. The directive will also add requirements that installation commanders inquire into alleged violations of the solicitation regulation.
RecommendationsOur recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.
Director: Team: Phone:GAO-05-696, Military Personnel: DOD Needs Better Controls over Supplemental Life Insurance Solicitation Policies Involving Servicemembers
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Report to Congressional Requesters:
June 2005:
Military Personnel:
DOD Needs Better Controls over Supplemental Life Insurance Solicitation
Policies Involving Servicemembers:
GAO-05-696:
GAO Highlights:
Highlights of GAO-05-696, a report to congressional requesters:
Why GAO Did This Study:
Servicemembers are engaged overseas in hostile actions that threaten
their lives and possibly the future financial security of their
families, should they die. To address their financial security needs,
some servicemembers have purchased additional life insurance to
supplement that offered by the government. Concerns have been raised,
though, about solicitation violations, as well as problems in the
system for setting up payroll allotments for such insurance. The
Department of Defense (DOD) recently published a revised draft
directive on solicitation but will not implement the directive until at
least 90 days following this GAO report. GAO addressed three primary
issues: (1) the extent to which DOD solicitation regulations are being
violated; (2) the extent to which DOD personnel are adhering to
allotment regulations for the purchase of supplemental life insurance;
and (3) the extent to which the new directive addresses ongoing
problems in supplemental life insurance solicitation policies.
What GAO Found:
DOD does not know the extent to which life insurance agents violate on-
installation commercial solicitation regulations and does not actively
disseminate information on all confirmed violations to other parts of
DOD or to state insurance regulators. GAO found that violations are
occurring. For example, in responses to GAO‘s 2004 survey of personal
financial management program managers, one-quarter said prohibited
practices such as misleading sales presentations had occurred
occasionally or routinely on their installations in the prior 12
months. Also, between October 2001 and October 2004, DOD revoked
agents‘ on-installation solicitation approval at least 26 times. The
reason DOD does not have complete data on violations is that it does
not have adequate mechanisms for ensuring the systematic tracking of
violations. The dissemination problem is attributable to a lack of
oversight by the DOD policy office and an ambiguity in its guidance.
DOD cannot develop an effective and efficient process for curbing
violations without maintaining accurate data on the number, types, and
severity of violations and disseminating confirmed violation data to
relevant parties.
DOD cannot determine the extent to which DOD personnel adhere to
allotment regulations because of problems with DOD‘s payroll databases
and the different ways in which regulations are implemented. DOD‘s
Financial Management Regulations, among other things, restrict who can
submit an allotment form for supplemental life insurance. GAO could not
determine the number of servicemembers with supplemental life insurance
allotments due to database limitations, such as all insurance
allotments (for example, for life and automobile) sharing the same
code. Contrary to regulations, GAO found finance personnel accepting
allotment forms without confirming they came from authorized sources.
Some said they did this to ensure that policies started promptly.
Database problems limit DOD‘s visibility over prohibited practices,
such as those for group solicitation and the acceptance of allotment
forms without proper authorization. In addition, GAO could not
substantiate the assertion that servicemembers are prevented from using
allotments to purchase supplemental life insurance and has identified
reasons why this is probably not a widespread problem.
DOD‘s revised directive on commercial insurance solicitation practices
on DOD installations adds new requirements, but does not fully address
oversight deficiencies. The revised directive will incorporate the
interim policy and practices now in place and, to partially address the
problems cited above, will add requirements for gathering and
disseminating information on confirmed violations. Those requirements,
however, will focus on banned agents only, rather than all confirmed
violations. The result will be DOD‘s continuing inability to identify
the number, types, and severity of all violations, or to recognize
patterns of violations. The directive will also add requirements that
installation commanders inquire into alleged violations of the
solicitation regulation.
What GAO Recommends:
GAO is making five recommendations to improve DOD‘s oversight of its
solicitation and allotment policies. DOD concurred with GAO‘s
recommendations.
www.gao.gov/cgi-bin/getrpt?GAO-05-696.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Derek Stewart at (202)
512-5559 or stewartd@gao.gov.
[End of section]
Contents:
Letter:
Results in Brief:
Background:
DOD Does Not Know the Extent of Solicitation Violations and Does Not
Disseminate Information on All Confirmed Violations:
Data on Payroll Allotments for Supplemental Life Insurance Unreliable
and Procedures for Submitting Such Allotments Are Not Always Being
Followed:
DOD's Revised Directive Adds New Requirements, but Does Not Fully
Address Oversight Deficiencies:
Conclusions:
Recommendations for Executive Action:
Agency Comments and Our Evaluation:
Appendixes:
Appendix I: Scope and Methodology:
Appendix II: Details on Selected Recent In-Depth Investigations:
Appendix III: Allotment Forms:
Appendix IV: Comments from the Department of Defense:
Appendix V: GAO Contact and Staff Acknowledgments:
Related GAO Products:
Tables:
Table 1: 14 Practices Prohibited by the DOD Directive on Personal
Commercial Solicitation on DOD Installations:
Table 2: Locations and Years That Commanders Banned Agents from an
Installation--October 2001 through October 2004:
Table 3: Installations in the United States where GAO Conducted Site
Visits from July to December 2004:
Figures:
Figure 1: Personal Financial Management Program Managers' Perceptions
of the Frequency with Which Selected Solicitation Prohibitions Were
Violated on Their Installation from January through December 2004:
Figure 2: States Where Installation Commanders Banned Agents from
October 2001 through October 2004, States Reporting Ongoing
Investigations of Supplemental Life Insurance Solicitation to
Servicemembers in December 2004, and the Number of Active Duty
Servicemembers in the States:
Abbreviations:
DFAS: Defense Finance and Accounting Service:
DOD: Department of Defense:
DODIG: Department of Defense Inspector General:
SGLI: Servicemembers' Group Life Insurance:
Letter June 29, 2005:
Congressional Requesters:
Military personnel are engaged overseas in hostile actions that
threaten their lives and possibly the future financial security of
their families, should they die. As a result, some servicemembers
purchase additional life insurance to supplement the benefits available
through the government-offered Servicemembers' Group Life Insurance
(SGLI) and other programs. In July 2004, we reported on the lump sum
benefits and annuities available to servicemembers' survivors as well
as the survivors of personnel employed by federal, state, and large
municipal governments.[Footnote 1] Recently, legislation was enacted to
increase the maximum SGLI coverage to $400,000 and the death gratuity
payment from $12,420 to $100,000.[Footnote 2] With the enactment of
this legislation, the number of policies and amounts of supplemental
life insurance sold to servicemembers could change from current levels.
The Department of Defense (DOD) and the services have regulations to
govern on-installation solicitation for supplemental life insurance, as
well as other types of commercial products. Among other things, an
installation must approve agents before they are allowed to solicit,
and the agents must agree to abide by regulations that include
prohibitions of 14 types of practices. Violation of the regulations can
result in the denial, suspension, or revocation of agents' or
companies' approvals to solicit on the installation. Hereafter such
agents are referred to as banned agents.
Servicemembers who elect to supplement SGLI's coverage may purchase
their additional coverage using payroll allotments or other types of
payments such as checks or electronic transfers from checking or
savings accounts. An important feature of the allotment process is a
DOD-wide regulation that requires either the servicemembers or their
representatives with a special power of attorney to submit the
allotment form for supplemental life insurance.
Some servicemembers have reported experiencing problems when purchasing
supplemental life insurance. For example, a soldier described
misleading sales presentations and other concerns during congressional
hearings in 2004. Similarly, DOD reports in 1999 and 2000 cited
problems that included deceptive sales practices, violations of DOD
policies regarding on-installation insurance solicitation, ineffective
state insurance regulation programs, and inadequate safeguards in the
allotment system used to pay for the supplemental life
insurance.[Footnote 3] Negative effects associated with activities such
as misleading sales presentations could include servicemembers'
purchasing a product that either can be bought elsewhere more cheaply
or does not meet their life insurance needs.
Recently, a different type of life insurance-related concern has also
been voiced. Some life insurance officials have asserted that
servicemembers' chains of command have prevented personnel who wanted
additional life insurance from actually purchasing it when they
attempted to set up a payroll allotment.[Footnote 4] If servicemembers
who truly want supplemental life insurance are prevented from obtaining
it, they may have less than their desired level of coverage.
The Office of the Under Secretary of Defense for Personnel and
Readiness is responsible for developing the policies and procedures
governing personal commercial solicitation; and the heads of DOD
components, or their designees, are responsible for ensuring
implementation of the regulations and compliance with their provisions.
The Defense Finance and Accounting Service (DFAS) oversees the
financial management regulations and the payroll computer systems and
databases.
In response to earlier problems and recommendations for change, the
Office of Morale, Welfare, and Recreation Policy--within the Office of
the Under Secretary of Defense for Personnel and Readiness--has been
revising the DOD directive that governs the marketing and sale of life
insurance and other commercial products on DOD installations.[Footnote
5] The Department of Defense Appropriations Act for Fiscal Year 2005
contained provisions indicating that the revised directive cannot be
implemented until at least 90 days after we issue the present report.
As agreed with your offices, this report addresses three issues: (1)
the extent to which agents are violating DOD's policies governing the
solicitation of supplemental life insurance to active duty
servicemembers on domestic installations; (2) the extent to which DOD
personnel are adhering to regulations that govern how active duty
servicemembers establish payroll allotments to purchase supplemental
life insurance; and (3) the extent to which the new directive addresses
ongoing problems in supplemental life insurance solicitation policies.
In conducting this review, we limited the scope of our work to
supplemental life insurance solicitations occurring on installations in
the United States and to active duty servicemembers.[Footnote 6]
Additional emphasis was given to findings pertaining to junior enlisted
servicemembers because DOD and insurance officials have indicated that
this subgroup is more likely to encounter problems with the marketing
and sale of supplemental life insurance as well as with establishing
payroll allotments for such purchases. Numerous methods were used to
gather and assess information for this review. We examined DOD,
service, and selected installation policies on personal commercial
solicitation on installations and the establishment of allotments for
supplemental life insurance, as well as oversight management principles
identified in the Government Performance and Results Act of
1993.[Footnote 7] We also reviewed GAO, DOD, life insurance industry,
and other reports. We interviewed officials from DOD, life insurance
companies and associations, and other organizations such as the
Consumer Federation of America to identify the many perspectives on the
issues being studied. In conjunction with our work on another report,
we sent a survey to all 175 managers of DOD's personal financial
management programs on installations in the United States.[Footnote 8]
We also surveyed the insurance commissioners for the 50 states, the
District of Columbia, and four territories: American Samoa, Guam,
Puerto Rico, and the Virgin Islands. In addition, we interviewed
personnel from the state insurance commissioner's office for 4 of the 6
states in which we conducted site visits to military installations, as
well as personnel from the state insurance commissioner's office in
Georgia. We also asked insurance companies and two national insurance
associations to identify agents and company representatives who could
be interviewed about solicitation and allotment practices at locations
near the six installations we visited.
During our six site visits, we requested materials related to the
marketing and sale of supplemental life insurance and the establishment
of allotments for that purpose. Those materials included a list of life
insurance agents approved for on-installation solicitation, handouts
distributed to assist servicemembers in determining their need for
supplemental life insurance, documentation of violations of personal
commercial solicitation and insurance-related policies, and complaints
related to insurance solicitation and allotment processing. While on
site visits, we conducted interviews or focus groups with installation
leaders; the coordinator for the installation's personal commercial
solicitation program; servicemembers; legal assistance attorneys from
the Judge Advocate General corps; finance department personnel who
managed and processed allotments; family support center staff
responsible for personal financial management training and counseling
activities; staff from morale, welfare, and recreation; and
representatives of on-installation banks and credit unions. We observed
the methods used to process and enter allotments for supplemental life
insurance into the pay system. We assessed the reliability of allotment
databases, and we later note in this report, limitations associated
with the databases that prevented us from accurately estimating the
number of allotments or amount of payments for supplemental life
insurance. We performed our work from May 2004 through May 2005 in
accordance with generally accepted governmental auditing standards.
Additional information on our scope and methodology can be found in
appendix I.
Results in Brief:
DOD does not know the extent to which agents are violating DOD's
regulations governing the solicitation of supplemental life insurance
to active duty servicemembers on installations in the United States and
does not actively disseminate information on all confirmed violations
to other interested parties. DOD had not collected information on the
number, types, and severity of violations. Data from our survey of all
DOD personal financial program managers on domestic installations, our
interviews conducted on six installations, and cases where life
insurance agents had been banned from installations indicate that
solicitation violations are occurring. In response to our 2004 survey,
at least one-quarter of financial program managers responding to our
survey indicated that five types of prohibited life insurance practices
(such as providing misleading sales presentations) occasionally or
routinely occurred on their installation during the preceding 12
months. Also, at least 26 cases of banning agents for violations
occurred between October 2001 and October 2004. Prior to our request
for DOD to determine the number of enforcement actions when agents had
been banned, DOD had not actively disseminated violation information to
other parts of DOD or to state regulators. The absence of evaluative
and reporting requirements in DOD's solicitation directive contributed
to DOD's failure to assemble and disseminate such data. Failure to
gather comprehensive information on all violators and disseminate it to
all parts of DOD and appropriate state regulators limits the military's
ability to effectively and efficiently identify problem agents or
companies as well as patterns of violations.
DOD cannot determine the extent to which DOD personnel adhere to
allotment regulations because of problems with DOD's payroll databases
and the different ways regulations are implemented. Database
constraints prevented us from determining the number of servicemembers
using supplemental life insurance allotments or the amount of money
being paid to companies. We were unable to develop reliable estimates
because of database quality concerns that we have previously documented
as well as problems with the allotment forms. These problems limit the
visibility that DOD and the installations have over the perceived need
by servicemembers for supplemental life insurance. Second, contrary to
DFAS regulations, some finance personnel have accepted forms to start
the allotments without verifying that the person submitting the form
was authorized to do so. Finance personnel said they do so to ensure
that policies start promptly, but starting allotments without
servicemembers' awareness can negatively affect members' finances and
their unit's morale and readiness. The DOD solicitation directive
discusses a 7-day "cooling-off" period between when E1s, E2s, and E3s
sign a supplemental life insurance application and when finance
personnel certify the allotment. But ambiguity in the requirement and
the use of generic allotment forms can result in inconsistent
enforcement of this requirement. Finally, some insurance officials
maintain that chains of command prevent servicemembers from purchasing
life insurance by not processing their allotments. We were unable to
substantiate that assertion, based on our inability to obtain
sufficient participation in our servicemember focus groups.
Servicemembers may have decided not to purchase a particular policy for
other reasons such as buyer's remorse or finding a more economically
priced policy.
DOD's revised directive on personal commercial solicitation on DOD
installations adds new requirements, but does not fully address
oversight problems. The draft directive incorporates existing interim
guidance on financial education and current procedures pertaining to
advertising and commercial sponsorship by solicitors. The draft
directive also adds new requirements for gathering and disseminating
data on solicitation violations, including maintaining a list of banned
agents and disseminating such information to state regulators. However,
the focus of the new requirements is on banned agents only. As was
noted earlier, however, gathering and disseminating only the
information concerning violations severe enough to cause the banning of
agents will prevent DOD from identifying the number, types, and
severity of all confirmed violations, or to recognize patterns of
violations. The proposed new requirements also include having
installation commanders inquire into any alleged violations of the
solicitation regulation, and having insurance agents provide
servicemembers with a DOD-wide questionnaire to evaluate their
solicitation experience. The installation commander's inquiries could
improve DOD's oversight of solicitation violations if an additional
requirement existed for reporting all confirmed violations to higher-
level commands. The questionnaire may be of limited value because it
documents interactions that were not described as problems during our
site visits--that is, insurance agents complying with requirements by
soliciting in one-on-one prearranged appointments with servicemembers.
An additional change in the directive, requiring insurance agents to
clearly identify insurance products, could result in servicemembers'
having better information for making decisions on purchasing
supplemental life insurance.
We are making five recommendations to improve DOD's policies and
practices regarding supplemental life insurance solicitation on bases
in the United States and the allotment process to purchase such
products. Our recommendations pertain to enhancements to oversight
requirements for evaluation and reporting violations, clarifications of
ambiguous requirements, and improvements to the procedures used for
allotments to purchase supplemental life insurance. In commenting on a
draft of this report, DOD concurred with our recommendations.
Background:
DOD's directive on personal commercial solicitation establishes the
policies and practices governing supplemental life insurance sales on
installations in the United States and overseas.[Footnote 9] Each
service provides additional policies and practices regarding on-
installation commercial solicitation, and some installations further
specify how these DOD and service policies and practices will be
implemented locally.[Footnote 10] Importantly, DOD and the service
policies do not cover supplemental life insurance solicitation that
occurs off an installation. For example, servicemembers can obtain life
insurance through the Internet or from companies that advertise in
private-sector publications aimed at military personnel. Also, some
life insurance agents might sell supplemental life insurance off the
installation after (1) the agents initially generated leads on
potential customers through on-installation efforts such as sponsorship
of morale, welfare, and recreation events; or (2) other types of
initial contacts that include offering servicemembers a free meal at a
local restaurant.
Although the steps used to obtain permission to solicit on an
installation may vary, the DOD directive notes that solicitors must
meet the following requirements: be duly licensed, have the permission
of the installation commander, and have made a specific appointment
with a servicemember and conduct it in family quarters or other areas
designated by the installation commander. The supplemental life
insurance products offered on installations in the United States must
comply with the insurance laws for the applicable state, contain no
restrictions by reason of military service or occupation unless the
restrictions are clearly stated on the face of the contract, plainly
indicate any extra premium charges if they are imposed for reasons of
military service or occupation, and contain no variation in the amount
of death benefit or premium based on the length of time the contract
has been in force unless the variations are clearly described therein.
In addition to specifying requirements for the solicitors and the life
insurance products, the DOD directive identifies the 14 prohibited
practices, shown in table 1.[Footnote 11] Committing any of the
prohibited practices can result in an agent or an agent's affiliated
insurance company being banned. Among the other grounds for banning
agents are failure to be duly licensed to sell insurance products under
applicable federal, state, or local municipal laws; personal misconduct
while on the installation; possession or attempted possession of
allotment forms or their facsimiles;[Footnote 12] and substantiated
complaints or adverse reports regarding goods or services and the
manner in which they are offered.
Table 1: 14 Practices Prohibited by the DOD Directive on Personal
Commercial Solicitation on DOD Installations:
Prohibited Practices:
* Solicitation of recruits, trainees, and transient personnel in a mass
or captive audience;
* Making appointments with or soliciting military personnel who are in
on-duty status;
* Soliciting without appointment in areas utilized for housing or
processing of transient personnel, barracks areas used as quarters,
unit areas, family quarters, and areas provided by installation
commanders for appointed interviews;
* se of official identification cards by retired or reserve members of
the military services to gain access to installations for the purpose
of soliciting;
* Procuring, attempting to procure, or supplying roster listings of DOD
personnel for commercial solicitation purposes;
* Offering unfair, improper, and deceptive inducements to purchase or
trade;
* Using rebates to facilitate transactions or to eliminate competition;
* Using manipulative, deceptive, or fraudulent devices, schemes, or
artifices, including misleading advertising and sales literature;
* Using oral or written representations to suggest or give the
appearance that DOD sponsors or endorses any particular company, its
agents, or the goods, services, and commodities it sells;
* Full-time DOD personnel making personal commercial solicitations or
sales to DOD personnel who are junior in rank or grade;
* Entering into any unauthorized or restricted area;
* Using any portion of installation facilities, including quarters, as
a showroom or store for the sales of goods and services, unless
otherwise authorized;
* Using any portion of installation facilities, including quarters, as
a showroom or store for the sales of goods and services, unless
otherwise authorized;
* Advertising addresses or telephone numbers of commercial sales
activities conducted on the installation, except authorized activities
conducted by family members of military families residing in military
housing.
Source: DOD Directive 1344.7.
[End of table]
During the past decade, DOD issued two reports that addressed problems
with on-installation supplemental life insurance solicitation. In March
1999, the DOD Inspector General (DODIG) found that improper
solicitation practices occurred at all 11 of the sampled
installations.[Footnote 13] The improper practices included
presentations by unauthorized personnel, presentations to captive
audiences, solicitation during duty hours, solicitation in the
barracks, and subjecting servicemembers to sales pressure and
misleading sales presentations. The DODIG noted that the personal
commercial solicitation directive was adequate but that additional
controls were needed to administer and enforce the solicitation
process. Among other things, the DODIG suggested there was a need for
improved oversight at the installation level, stricter enforcement
procedures when improper solicitation practices are substantiated, and
additional interface with state regulatory authorities. In May 2000, a
report commissioned by the Office of the Under Secretary of Defense for
Personnel and Readiness reviewed insurance solicitation practices on
DOD installations and identified many of the same concerns and
recommendations contained in the DODIG report.[Footnote 14] In
September 2000, DOD's Office of Force Management Policy established an
insurance solicitation oversight working group to develop a strategy
for eliminating prohibited life insurance solicitation practices on DOD
installations. The working group's recommended improvements were
included in a draft revision of the directive on personal commercial
solicitation, and this draft revision was published for public comment
in August 2003.
An important step in purchasing supplemental life insurance is making
the arrangement to pay for it. Some servicemembers pay for the
insurance with a payroll allotment,[Footnote 15] a process that is
governed by the DOD's Financial Management Regulation and individual
service policies and is under the responsibility of DFAS. While the
process for starting an allotment for supplemental life insurance
varies across services and installations, it can be summarized in three
steps:
1. Servicemembers or their representatives with a special power of
attorney complete an allotment form and submit it either directly to
the installation finance office or to the finance office through the
servicemembers' unit administrative office.
2. The installation finance office processes the allotment requests and
electronically submits them to DFAS.
3. The first monthly payments are made to vendors more than a month
after the forms are submitted, because the processing of the allotment
requests takes time and the once-a-month payments result in the need to
wait for half of the payments to be taken out of each of the
servicemembers' next two payroll deposits.
The allotments for all types of commercial insurance are supposed to be
coded as an AI discretionary allotment when they are entered into a
DFAS database.[Footnote 16] The procedure for purchasing SGLI with an
allotment is different from that used to purchase private supplemental
life insurance with an allotment. One reason is active duty
servicemembers are automatically insured for the maximum SGLI coverage.
Servicemembers may subsequently elect to reduce their SGLI coverage, or
to cancel it entirely.
DOD's effort to revise the directive began in 2002 after
reports[Footnote 17] in 1999 and 2000 documented problems with
supplemental life insurance solicitation on installations and made
recommendations for improvement. In 2003, DOD obtained public comments
on a draft directive during a public forum available to interested
parties. Those comments and other input from sources such as DOD's
general counsel served as the basis for a draft directive published in
the Federal Register on April 19, 2005, and discussed during a public
hearing held on May 6, 2005, to obtain additional comments.
DOD Does Not Know the Extent of Solicitation Violations and Does Not
Disseminate Information on All Confirmed Violations:
DOD does not know the extent to which life insurance agents are
violating regulations pertaining to on-installation personal commercial
solicitation, and it does not actively disseminate information about
all confirmed violations[Footnote 18] to other portions of DOD and
state insurance regulators. Although many of the sources that we
contacted for our review identified violations, DOD does not know how
widespread the violations are because it has not collected information
on the number, types, and severity of the violations. Even when
violations have been severe enough to result in commanders banning
agents from their installation, DOD did not actively provide that
information to other installations or to state insurance regulators.
The absence of evaluative and reporting requirements in the
solicitation directive, as well as ambiguity in the directive about the
dissemination of information, are some of the reasons for these
situations that limit DOD's ability to provide oversight of
supplemental life insurance solicitation on installations and prevent
violators from having access to servicemembers on installations.
DOD Does Not Know the Extent to Which Life Insurance Agents Have
Violated Solicitation Policies on Domestic Installations:
Because of the absence of evaluation and reporting requirements, DOD
has not collected the data that it needs to monitor the number, types,
and severity of life insurance agents' violations of DOD's regulations
regarding on-installation solicitation. But data from our review
suggest that the violations are not restricted to a few installations.
Our data regarding alleged violations of the 14 prohibited practices
identified in DOD's commercial solicitation directive came from
multiple sources: perceptions expressed in a DOD-wide survey and
numerous interviews at six installations; information on the number and
geographical dispersion of cases where installation commanders had
banned agents during the past 3 years because of violations; and a
review of in-depth documentation for four of the cases serious enough
to result in banning agents.
A survey of personal financial management program managers[Footnote 19]
on installations in the United States indicated that six types of
prohibited solicitation practices were perceived to have occurred with
varying frequency on their installations during the prior 12
months.[Footnote 20] More than one-third of the managers indicated that
misleading sales presentations regarding supplemental life insurance
had occurred occasionally or routinely on their installations, and more
than one-quarter said that four of the other five prohibited practices
had occurred at least occasionally (see fig. 1). In interviews
conducted during our visits to six installations, multiple sources--for
example, solicitation coordinators, legal assistance attorneys,
servicemembers, and insurance agents--indicated that the types of
violations shown in figure 1 had occurred on their installations. For
three or more of the six installations, multiple sources told us of
agents inappropriately using their military retiree credentials to gain
access to servicemembers for life insurance solicitation purposes, life
insurance agents possessing or processing allotment forms, and life
insurance agents participating in military-sponsored training. The
installations had little or no documentation to show that the
violations identified in the interviews had been reported or
investigated.
Figure 1: Personal Financial Management Program Managers' Perceptions
of the Frequency with Which Selected Solicitation Prohibitions Were
Violated on Their Installation from January through December 2004:
[See PDF for image]
[End of figure]
After we asked DOD if it had a list of insurance agents and companies
whose solicitation privileges had been withdrawn, DOD requested the
information from the services and installations.[Footnote 21] As of
April 2005, DOD's request for information identified 51 cases that
occurred on installations in the United States from April 1998 through
October 2004. Some installations supplied information on enforcement
actions that did not result in the banishment of agents or companies.
Table 2 provides information on 26 cases in which commanders banned
agents--25 from DOD's list and one additional case we later identified-
-from October 2001 through October 2004.[Footnote 22] Examining only
the more recent cases minimizes the possibility that a case would have
been the basis for findings in the 1999 and 2000 DOD reports on
supplemental life insurance. Table 2 shows that the 26 cases occurred
on 11 installations in eight states. Our analysis additionally revealed
that agents from one life insurance company were involved in 9 (about
35 percent) of the 26 cases, and agents from another company were
involved in 6 (about 23 percent) of the cases.
Table 2: Locations and Years That Commanders Banned Agents from an
Installation--October 2001 through October 2004:
State: California;
Installation, listed by separate action: Beale Air Force Base;
Year: 2003.
State: California;
Installation, listed by separate action: Beale Air Force Base;
Year: 2003.
State: California;
Installation, listed by separate action: Camp Pendleton Marine Corps
Base;
Year: 2003.
State: California;
Installation, listed by separate action: Camp Pendleton Marine Corps
Base;
Year: 2003.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2003.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2004.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2004.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2004.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2004.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2004.
State: Georgia;
Installation, listed by separate action: Fort Benning;
Year: 2004.
State: Georgia;
Installation, listed by separate action: Fort Gordon;
Year: 2003.
State: Georgia;
Installation, listed by separate action: Fort Gordon;
Year: 2003.
State: Georgia;
Installation, listed by separate action: Fort Gordon;
Year: 2003.
State: Georgia;
Installation, listed by separate action: Fort Gordon;
Year: 2003.
State: Georgia;
Installation, listed by separate action: Fort Gordon;
Year: 2004.
State: Kansas;
Installation, listed by separate action: McConnell Air Force Base;
Year: 2002.
State: Illinois;
Installation, listed by separate action: Naval Station Great Lakes;
Year: 2001.
State: Mississippi;
Installation, listed by separate action: Naval Construction Battalion
Center Gulfport;
Year: 2003.
State: North Carolina;
Installation, listed by separate action: Fort Bragg;
Year: 2004.
State: North Carolina;
Installation, listed by separate action: Fort Bragg;
Year: 2004.
State: Texas;
Installation, listed by separate action: Fort Bliss;
Year: 2003.
State: Virginia;
Installation, listed by separate action: Fort Eustis;
Year: 2002.
State: Virginia;
Installation, listed by separate action: Fort Eustis;
Year: 2002.
State: Virginia;
Installation, listed by separate action: Fort Eustis;
Year: 2004.
State: Virginia;
Installation, listed by separate action: Naval Amphibious Base Little
Creek;
Year: 2003.
Source: DOD data, and GAO analysis.
[End of table]
Our review also examined the in-depth documentation for two cases from
Camp Pendleton, California, and two cases at Fort Benning, Georgia,
both of which are listed in table 2. The documentation, sometimes more
than 200 pages, illustrates the situations that led to the violations,
the types of violations occurring, and the amount of effort required to
conduct the investigations. The cases are summarized as follows, and
additional details on each are provided in appendix II.
* Camp Pendleton: In 2003, an insurance agent requested and obtained
authorization to teach a class on veterans' affairs benefits and
financial planning to Marines. During the class, the agent said very
little about veterans' benefits but spoke at length about investments.
The agent distributed cards for Marines to provide contact information.
Using this information, the agent later sold Marines insurance policies
at their homes and on duty, sometimes without appointments. During the
meetings, Marines were given the impression that the agent represented
the Department of Veterans Affairs. This agent's solicitation
privileges were suspended for 2 years by the installation.
* Camp Pendleton: In 2003, insurance agents requested and obtained
permission to teach veterans' affairs classes to Marines fresh from
boot camp. The classes, with required attendance, started as veterans'
benefits discussions but shifted to investment sales pitches after non-
commissioned officers left the classrooms. Agents distributed
applications, allotment forms, and statements of understanding,
encouraging participants to sign quickly, not read the forms, leave the
dollar amount lines blank, and provide signed photocopies of their
identification cards. The Marines were not allowed to take any
paperwork with them and were told that copies would be sent to their
home of record. The agents, including at least one retired Marine, were
fired by their employer. Refunds were offered to those who purchased
policies.
* Fort Benning: In 2003 and 2004, agents accessed soldiers in a basic
combat training brigade through unit non-commissioned officers for the
express purpose of providing financial planning classes. In unit
classrooms, the agents discussed the value of investing. At the end of
the presentations, soldiers who desired additional information
completed a form. Weeks later, the agents met with soldiers
individually or in small groups in the unit's area. The agents were
fired from the companies they represented, and several officers and
enlisted personnel involved in arranging the presentations were
reprimanded. The manager for DOD's personal commercial solicitation
program said that he was unaware of any other instance where
enforcement included punishment of installation personnel, but added
that his office does not track such information.
* Fort Benning: In 2002, two agents accessed soldiers in the infantry
training brigade through unit non-commissioned officers for the express
purpose of providing financial management classes. The classes were
included on the training scheduled in conjunction with other personal
financial affairs presentations and were conducted in unit classrooms.
Non-commissioned officers escorted the soldiers to the classrooms.
According to the investigation, some of the non-commissioned officers
had knowledge of the solicitation actions taking place. These agents
later had their solicitation privileges revoked by the installation,
and refunds were provided to those who purchased policies.
DOD-wide, service-specific, and installation-level factors contribute
to the lack of information on violations. The absence of evaluation and
reporting requirements in DOD's directive on personal commercial
solicitation is a primary reason why the services and installations do
not emphasize assessment and why DOD cannot estimate the extent to
which life insurance agents are violating the 14 proscribed practices
and other parts of the directive.[Footnote 23] The absence at the
installation level of documentation of confirmed violations by life
insurance agents is also caused by several other factors, including:
(1) the time it takes for personnel to lodge a complaint and other
personnel to investigate it; (2) reluctance to get either the agents or
installation personnel in trouble, especially when the agents appear to
have the support of someone in the chain of command; and (3) the lack
of knowledge about permitted and prohibited practices by both
individuals being solicited and other servicemembers who allow life
insurance agents to conduct financial training or perform other
prohibited practices.
The lack of documentation on confirmed violations can result in
negative outcomes for both DOD and the life insurance industry. For
instance, DOD is unable to identify the extent of specific types or
patterns of problems, such as multiple instances of the same violation
for agents from a single insurance company. Furthermore, DOD cannot
determine whether there are many agents violating the regulations on a
few occasions; a small number of agents violating the regulations on
many occasions; or many people talking about a relatively few, well-
publicized violations. Without knowing the extent of the problem, DOD
cannot develop an effective and efficient strategy for curbing the
violations. The lack of documentation could also negatively affect the
life insurance industry and its agents. "Broad brush" complaints create
a negative image of the industry. Some of the agents we interviewed
were concerned that the highly publicized cases are painting a negative
picture of them and their profession, even though they said they had
not violated the regulations on personal commercial solicitation.
DOD Does Not Disseminate Information about All Confirmed Violations and
Enforcement Actions to Other Parts of DOD or to State Life Insurance
Regulators:
The DOD policy office responsible for oversight of supplemental life
insurance solicitation on installations does not routinely disseminate
information on all confirmed violations to installations, to the
services, or to state life insurance regulators. Although the DOD
solicitation directive provides installation commanders with
discretionary authority to report banned agents to their military
department, they are not obliged to do so. Specifically, if
installation commanders believe it is warranted, they can recommend
extending or lifting actions taken against life insurance agents on
other installations to their respective military departments.
Additionally, the Office of the Secretary of Defense for Personnel and
Readiness could, when appropriate, extend or lift the actions for other
military departments.[Footnote 24] Notably, the current solicitation
directive does not require the installation commander to routinely
report information on all confirmed violations to state insurance
regulators.[Footnote 25] It merely requires installations to notify
appropriate state licensing authorities if the grounds for withdrawing
solicitation privileges involve the eligibility of the agent or company
to hold a state license or meet other regulatory requirements.[Footnote
26]
One indication that installation commanders and DOD policy officials
have had only limited communications about violations was the absence
of a DOD list of cases where agents had been banned from installations
for violating the personal commercial solicitation directive. The DOD
policy office did not generate its list of cases until we requested the
information for this review. This lack of information sharing occurred
even when policy violations were severe enough to warrant the banning
of agents. These communications-related problems continued despite
three recommendations in the 1999 DODIG report: (1) require that all
installations in the local area and the services' higher commands be
notified of "any adverse actions" taken against an insurance agent; (2)
require the services to track such actions and report the information
to the office with oversight responsibility; and (3) increase the
interaction with state life insurance regulators. During our visits to
six installations, solicitation coordinators told us that they did not
routinely interact with their counterparts on other installations, but
several of the insurance agents that we interviewed said they were
approved to solicit on multiple bases in multiple states.
We found a similar lack of communication between the various parts of
DOD and state insurance regulators. In our December 2004 survey of all
state insurance commissioners' offices, only one state reported that
DOD had notified it of disciplinary actions taken against a life
insurance agent during the prior 12 months, even though several of the
26 cases in table 2 occurred during the same period. Our survey also
revealed that 100 percent of the life insurance commissioners' offices
responding to our survey said it would be a good practice if DOD were
to notify their offices whenever it took a disciplinary action against
a life insurance agent, and 68 percent said they would like more
communications with the military.
Figure 2 shows the states where installation commanders took 26
enforcement actions to ban agents from October 2001 through October
2004; states where regulators indicated on our survey that the office
had an ongoing investigation involving life insurance sales to
servicemembers; and the number of active duty servicemembers in the
states. State regulators reported in our survey that they had ongoing
investigations in nine states: Alaska, California, Colorado, Georgia,
Illinois, Iowa, Kentucky, New York, and Texas. Regulators'
investigations were occurring in four states (California, Georgia,
Kentucky, and Texas) that have at least 30,000 servicemembers in them.
Four states (California, Georgia, Illinois, and Texas) had both an
ongoing investigation by the state insurance regulators in December
2004 and an installation where an agent had been banned between October
2001 and October 2004.
Figure 2: States Where Installation Commanders Banned Agents from
October 2001 through October 2004, States Reporting Ongoing
Investigations of Supplemental Life Insurance Solicitation to
Servicemembers in December 2004, and the Number of Active Duty
Servicemembers in the States:
[See PDF for image]
Note: We do not display results for the District of Columbia or for the
four territories because (1) state regulators indicated that they had
no ongoing investigations or they did not respond and (2) DOD's list
did not include banned agents in the five locations.
[End of figure]
Since the DODIG made recommendations to improve information sharing 6
years earlier that were not implemented, the absence of oversight by
the DOD policy office appears to be the primary reason for the past
lack of DOD-wide information sharing on banned agents and the continued
lack of information sharing on lesser confirmed violations. Ambiguity
in the solicitation directive about who should disseminate violations-
related information to state regulators and the types of information
that should be disseminated may have contributed to a lack of
information sharing. Another reason for the lack of contact relates to
uncertainty regarding the states' ability to govern what occurs on an
installation. Several state regulatory officials stated that they were
uncertain about whether they had jurisdiction over life insurance sales
on military installations. DOD officials informed us that they began
meeting with the National Association of Insurance Commissioners in May
2005 to address some of these issues, and legislation[Footnote 27] has
been introduced in Congress to require greater communication between
DOD and the association. Additionally, several installation officials
stated that their office considered the involvement of state regulators
only for serious complaints or problems that involved life insurance
products.
The failure to disseminate information to other parts of DOD or to
state insurance regulators about agents and companies who violate the
solicitation policy--especially when the violations were serious enough
to ban agents--can enable violators to continue operating on other
installations. State insurance regulators in North Carolina told us
that by not reporting violations to state regulators, installations
prevent the state regulators from determining whether further actions,
such as revocation of licenses, are warranted. Maintaining a list only
of banned agents does not allow DOD or state regulators to spot
patterns of violations by agents or companies that may have committed
multiple lesser violations on multiple installations. If present, such
patterns would be detectable only when solicitation coordinators are
able (1) to identify the other installations where the agents or
companies are approved to operate and (2) to communicate with their
peers on the other installations about violations committed there by
the agents or companies. Limited communications between installations
also hinders the promotion of best practices. For example, other
installations might be interested in Camp Pendleton's testing of agents
before approving them for on-installation solicitation. When
determining whether to ban some agents from Camp Pendleton,
investigators were able to show that the agents correctly answered test
questions about prohibited practices--yet still committed the
prohibited practices.
Data on Payroll Allotments for Supplemental Life Insurance Unreliable
and Procedures for Submitting Such Allotments Are Not Always Being
Followed:
We could not determine the extent to which servicemembers follow DOD's
and the services' allotment processing policies when purchasing
supplemental life insurance because of limitations in the allotment
databases and the different ways that finance offices were accepting
forms to start the allotments. Even with DFAS assistance, we could not
generate reliable monthly estimates of the number of servicemembers
with, or the amount of money allotted for, supplemental life insurance.
The unreliability of estimates stemmed from longstanding database and
computer system constraints, such as the coding used when gathering and
entering the life insurance allotments into the databases and computer
problems that we have documented in prior reports. Another problem area
with supplemental life insurance allotments is the lack of
certification that occurred when allotment forms were submitted to and
processed by some finance offices. Contrary to financial management
regulations, some finance personnel were accepting allotment forms
through the mail or from individuals without verifying that the
submitter was either the servicemember or that person's representative
with a special power of attorney. We could not substantiate insurance
officials' and agents' assertion that servicemembers were being
prevented from using allotments to purchase life insurance. Several
factors suggest that all servicemembers who want to obtain supplemental
life insurance can do so.
Databases of Allotment Information Cannot Be Utilized to Monitor
Servicemembers' Use of or Perceived Need for Supplemental Life
Insurance:
We, with assistance from DFAS, attempted but could not determine with
sufficient reliability either the number of servicemembers who have
allotments for supplemental life insurance products or the number of
dollars that servicemembers pay as allotments to life insurance
companies each month. Although DOD's Financial Management
Regulation[Footnote 28] supplies the primary guidance governing the
procedures used to gather allotment information and then electronically
enter and store the information, each service has a policy and
procedures directing how to implement the DOD regulations. Among other
things, the military services' policies and procedures specify how
allotments for supplemental life insurance and other products or
services are to be coded, the number of discretionary allotments that
each servicemember is allowed, and which forms can be used to initiate
allotments. Allotments to purchase life insurance are also governed by
the DOD directive on personal commercial solicitation. The directive
requires a 7-day cooling-off period between the time when E1s through
E3s sign a supplemental life insurance application and the time the
allotment is certified.[Footnote 29]
A variety of DFAS database-related constraints limit the visibility
that the DOD solicitation policy office, the services, and
installations have over servicemembers' use of and perceived need for
supplemental life insurance. These constraints include the following:
* Although the databases can be used to identify servicemembers with an
insurance allotment (an AI code), the allotment could be for
servicemembers' or family members' life, health, automobile, or other
insurance. Conversely, other servicemembers' insurance allotments are
not detectable if they are coded for savings (an AS code) or other
types of accounts that the servicemembers also have with the company
providing supplemental life insurance.
* Servicemembers are limited to six allotments in total and one
discretionary allotment per company, even if they have multiple
accounts (supplemental life insurance, savings, and so forth) with a
company.
* DOD and service regulations permit the use of at least seven
different allotment forms, but forms such as the government-wide
Standard Form 1199A or DOD-wide DD Form 2558 do not ask whether the
allotment is for supplemental life insurance. (See app. III for a copy
of each form.)
* The payroll databases cannot tell how many servicemembers pay
insurance companies directly by checks, electronic withdrawals from
personal accounts, and so forth.
* DFAS maintains separate databases for the different military
services, and the code used to identify an insurance company is not the
same for all services. Creating a DOD-wide list requires additional
work to merge the resulting information.
DOD was informed about some of these database constraints in the 1999
DODIG report, in which analysts noted that they could not determine
what portion of the allotments were made specifically for life
insurance.
A major cause of these database-related problems is DOD's systems
supporting servicemembers' pay. In our earlier reports, we documented
serious problems with these systems, noting that they were prone to
error and required manual data reconciliation, correction, and entry
across nonintegrated systems.[Footnote 30] While a significant system
enhancement project is under way to improve the administration of
military pay, DOD is likely to continue operating with existing system
constraints for several years. The continued use of forms that do not
require information and coding specific to life insurance could cause
allotment data to continue to be unreliable for oversight purposes,
even when the new computer system becomes operational. Information
obtained during interviews indicated another cause for data
unreliability. Some interviewees suggested that servicemembers might
use codes other than AI to avoid the additional requirements
encountered when starting allotments for supplemental life insurance.
The additional requirements include the cooling-off period and the
requirement to submit a paper form for all supplemental life insurance
allotments, rather than using the electronic MyPay system.
The absence of data regarding which servicemembers do or do not carry
supplemental life insurance limits the oversight that DOD policy
officials and installation solicitation coordinators can exert. For
example, the inability to obtain accurate data prevents the DOD policy
office from monitoring increased or decreased perceived needs for
supplemental life insurance, an important issue now that new
legislation has been enacted to almost double the lump sum death
benefits offered through the government. Also, the lack of accurate
data prevents the solicitation coordinators from easily checking
whether servicemembers on an installation submitted an unusually large
number of new allotments for supplemental life insurance during a short
period, a possible sign of mass solicitation to recruits or trainees or
other prohibited practices.
Allotments for Supplemental Life Insurance Have Been Started without
Verifying Required Authorization and the Elapse of the Cooling-Off
Period:
Contrary to regulations, some finance personnel have accepted allotment
forms to start supplemental life insurance without verifying that the
person submitting the form is authorized to do so or, if applicable,
that a cooling-off period has occurred. According to DOD's Financial
Management Regulation, establishment of, discontinuance of, or changes
to existing allotments for supplemental life insurance are to be based
on a written request by a servicemember or someone with a special power
of attorney on behalf of the servicemember.[Footnote 31] For junior
enlisted servicemembers, the DOD directive on personal commercial
solicitation provides an additional requirement: "For personnel in pay
grades E-1, E-2, and E-3, at least seven days shall elapse for
counseling between the signing of a life insurance application and the
certification of an allotment. The purchaser's commanding officer may
grant a waiver of this requirement for good cause, such as the
purchaser's imminent permanent change of station."
Nonetheless, DOD personnel and insurance agents indicated that some
offices accepted allotment forms personally submitted by insurance
agents or through the mail with only the signature on the form serving
as proof that the servicemember wanted to start an allotment for
supplemental life insurance. For example:
* A life insurance agent is alleged to have submitted allotment forms
at Fort Bragg for servicemembers who later said they had not wanted the
policies for which they were paying.
* Finance office personnel at Naval Station Great Lakes said that about
half of all insurance allotment forms submitted to and processed by
their office came from insurance agents.
* DFAS representatives who process allotments for Marines stated that
they accepted and processed allotment forms submitted directly from
Marines through the mail without the required certification.
* Finance office personnel at Lackland Air Force Base were concerned
about the high number of mailed allotment forms from insurance
companies or otherwise on behalf of servicemembers and requested DFAS
guidance on processing such forms.
Several reasons were suggested for DOD personnel's acceptance of
allotment forms that were not submitted personally by the
servicemembers or their representatives with a special power of
attorney. DFAS personnel representing the Marines said that they
accepted and processed mailed insurance allotment forms from Marines
who, due to their transitional status, were unable to properly certify
the forms, but wished to promptly initiate policies or to keep policies
from lapsing. In addition, Air Force personnel said that servicemembers
have tight training schedules that make it more convenient to mail the
forms than to hand carry them to the finance office. The Air Force has
recently clarified its policies to require contacting servicemembers
and verifying the request when allotment forms are received by mail.
The causes are different for noncompliance with the requirement to have
7 days elapse between the time junior enlisted servicemembers sign a
life insurance application and the time an allotment is certified. On
allotment forms such as the governmentwide Standard Form 1199A or the
DOD-wide DD Form 2558, no one is asked to certify that the required
cooling-off period and, possibly, counseling have occurred. Therefore,
these forms do not require finance personnel to determine whether the
full 7 days have elapsed before they certify the allotment. Other
causes for noncompliance with the required cooling-off period are
ambiguities in the directive. First, the requirement for a cooling-off
period may be for all life insurance allotments started by junior
enlisted servicemembers, but its inclusion in a directive governing
only on-installation solicitation could cause finance officials to
interpret the requirement as applying only to those allotments for
supplemental life insurance sold on an installation to junior enlisted
servicemembers. Second, it is unclear whether the counseling is
required or optional during the cooling-off period. Further, the
directive and the standard allotment forms do not contain procedures
for documenting whether the counseling took place. Third, it is unclear
when the commanding officer must sign a waiver for the cooling-off
period and/or counseling.
Starting a supplemental life insurance allotment for servicemembers who
do not want one or were not required to allow the cooling-off period to
elapse can result in extra expenses for servicemembers who may already
be financially challenged. Even if servicemembers receive premium
reimbursements like those promised by insurance companies following the
incidents at Fort Benning, Fort Bragg, Camp Pendleton, and possibly
other places, months can pass between the paying for the allotments and
the reimbursements. During that time, servicemembers are without a
portion of their income, and this decreased income could result in
budgeting difficulties and fees for such things as bounced checks and
late payments. As we pointed out in our April 2005 report on the
financial conditions of servicemembers and their families,[Footnote 32]
pressure from creditors, falling behind in paying bills, and bouncing
two or more checks were negative financial events reported by
approximately one-eighth to one-fifth of servicemembers on a 2003 DOD-
wide survey.[Footnote 33] In addition, more than 10 percent of
servicemembers answered "in over your head" or "tough to make ends meet
but keep your head above water" when the survey asked them to
characterize their financial condition. For servicemembers who were
already having financial difficulties, unplanned allotments and any
extra expenses could result in debt and bad credit histories for
servicemembers, as well as adversely affect unit readiness and morale
as the chain of command attempts to address any resulting financial
problems.
Assertion That Servicemembers Are Prevented from Purchasing
Supplemental Life Insurance Could Not Be Substantiated:
Some insurance officials and agents asserted that chains of command
prevent servicemembers from purchasing supplemental life insurance, but
we were unable to substantiate the assertion. As we have previously
mentioned, DOD's Financial Management Regulation requires that
servicemembers or their representative with a special power of attorney
complete and submit an allotment form if the supplemental life
insurance is to be purchased with a payroll deduction. Also, the
previously discussed requirement for a cooling-off period and possibly
counseling for junior enlisted personnel is important to examining the
life insurance officials' and agents' assertion.
During a meeting at the start of our review, officials from insurance
companies and national insurance associations asserted that some
servicemembers were being prevented from purchasing supplemental life
insurance. Also, a firm that sells supplemental life insurance on and
off multiple installations supplied us with documents[Footnote 34] on
1,344 servicemembers who completed insurance applications from October
2002 through September 2004 but did not subsequently start a policy
through the firm. During site visits to two of the installations where
the majority of the 1,344 servicemembers were based at the time of
completing their applications, we attempted to conduct focus groups
with subgroups of those servicemembers. Our points of contact on the
installations indicated that many of the servicemembers had rotated to
other installations or were in training that could not be missed.
Although we could not determine how representative these 1,344
applications were of all applications completed without a purchase
being made, this case study of the experiences at one firm provides
some insight into the viability of cost-related alternative reasons why
servicemembers might not follow through with the purchase of
supplemental life insurance coverage. Our analysis of the 1,344 cases
showed that 831 applications were for E1 through E3 servicemembers, and
the per person average monthly cost of the products in the applications
was $92.[Footnote 35] For those 831 junior enlisted personnel, 3
percent of the cases contained only an application for life insurance,
52 percent contained only an application for what an official from the
firm characterized as "a life insurance product with an accumulation
fund,"[Footnote 36] and 45 percent included both types of applications.
Military officials, servicemembers, and insurance officials and agents
identified reasons--in addition to being actively prevented from
processing a supplemental life insurance allotment form--why
servicemembers might not start a policy after completing an
application. These other reasons included:
* The counseling supplied during the 7-day cooling-off period could
have been misinterpreted as an implicit order from the chain of command
not to purchase the insurance, rather than as advice about the
advantages and disadvantages of purchasing supplemental life insurance
or a particular type of coverage.
* The counseling could have resulted in the servicemember's following
through on purchasing a supplemental policy but obtaining it from
another vendor, and possibly at a lower price.
* Some servicemembers may have developed buyers' remorse when they
later considered the competing demands on their compensation.
* Servicemembers may have completed the application because of high
pressure sales practices, knowing they would not later file an
allotment form.
* An allotment may not get started because of a lost or missing
allotment form.
Although we were not able to determine whether chains of command were
intentionally preventing servicemembers from purchasing supplemental
life insurance, information of four types suggests that the inability
to purchase supplemental life insurance coverage is probably not a
widespread problem. First, 85 percent of the state insurance regulators
in our survey indicated that no insurance company had filed a complaint
regarding the sale of life insurance to servicemembers on installations
from October 2003 through December 2004, and the other 15 percent said
they did not know. Second, most of the insurance agents identified by
the national insurance associations and interviewed during our six
installation visits indicated that they had not experienced a problem
with the allotment process. In contrast, agents for two life insurance
companies typically reported a problem, and the concerns related
primarily to the processing of allotments on two installations that
were served by the firm that supplied us with the more than 1,000
cases. Third, when we were able to talk with servicemembers identified
as having completed insurance applications without starting allotments,
they indicated that they did not purchase the supplemental life
insurance for reasons other than prevention by the chain of
command.[Footnote 37] Finally, if servicemembers wanted life insurance
and were actively prevented by the chain of command from filing
allotment forms to make the purchase, they could pay the premiums by
check, electronic withdrawals from other financial accounts, or some
other means, without further chain of command intervention.
DOD's Revised Directive Adds New Requirements, but Does Not Fully
Address Oversight Deficiencies:
DOD's revised directive on personal commercial solicitation practices
on DOD installations incorporates new requirements, but does not
address all oversight problems.[Footnote 38] Numerous changes have been
proposed. Some interim policy and practices that are currently in place
have been incorporated into the draft revision. Also, requirements for
gathering and disseminating information have been proposed, but they do
not fully address oversight deficiencies. Still other proposed
requirements address issues such as the type of information that life
insurance agents will provide to servicemembers to describe the product
being offered by the agent.
Draft Directive Proposes to Incorporate Existing Interim Policy and
Formalized Practices Already in Place:
One of the larger sets of additions to the draft directive proposes to
incorporate interim policy that DOD issued in 2002 about on-
installation financial education presentations.[Footnote 39] Those
additions generally prohibit representatives of commercial loan,
finance, insurance, or investment companies from providing such
presentations. With certain restrictions, the presentations may,
however, be provided by representatives of the following types of
organizations: credit unions and banks located on military
installations,[Footnote 40] nongovernmental, noncommercial
organizations expert in the field of personal financial affairs, and
those that are either tax-exempt (under 26 U.S.C. 501(c)(3) or (c)(23))
or under a contract with the government. Among other things,
restrictions require that the presenter and educational materials use
disclaimers to indicate clearly that they do not endorse or favor any
commercial supplier, product, or service. Also, the installation
commander shall consider the company's history of complying with on-
installation commercial sales instructions if the presenting
organization is affiliated with a company that sells or markets
insurance or other financial products.
An additional change to the draft solicitation directive incorporates
procedures pertaining to advertising and commercial sponsorship that
were already in place at some of the installations we visited.[Footnote
41] For example, the draft directive notes that solicitors are allowed
to provide commercial sponsorship of DOD morale, welfare, and
recreation programs or events on installations but are not to contact
participants without their written permission. Interviews with
insurance agents and installation personnel during our site visits
indicated that agents were already generating lists of future contacts
through the use of forms that program or event participants completed,
indicating their permission for the future contact.
Proposed Evaluation, Reporting, and Dissemination Requirements Do Not
Fully Address Oversight Deficiencies:
DOD has taken some positive steps to improve its oversight of personal
commercial solicitation on installations by proposing to add four new
sets of requirements that pertain to gathering and disseminating
evaluative data. Each of the requirements has associated problems that
could limit the usefulness of the gathered and disseminated data.
Two sets of proposed changes add requirements for gathering and
disseminating information about violations on banned agents. As we
noted earlier, continued gathering and disseminating information on
only those violations severe enough to result in banning an agent will
result in DOD's continuing to be unable to (1) identify the number,
types, and severity of all violations and (2) recognize patterns of
violations. Failure to disseminate information on all confirmed
violations to all parts of DOD and to state regulators can allow
violators to continue operating on installations.
As the result of another proposed addition to the draft directive,
installation commanders will be required to inquire into any alleged
violations of the solicitation regulation or questionable solicitation
practices.[Footnote 42] This step could increase the DOD's oversight of
the number, types, and severity of confirmed violations occurring
throughout all military installations if there were also an additional
requirement to report all confirmed violations to higher-level
commands. Some factors that could keep the number of inquiries into
potential violations artificially low are the lack of knowledge about
which solicitation practices are prohibited, the steps required to
report a violation, and whom to contact when a suspected violation
occurs. We reported in April 2005 that only the Army is monitoring the
completion of required personal financial management training for
junior enlisted personnel, and it estimated that about 18 percent of
that group had not received the required training. Our earlier review
did not assess the amount or the types of life insurance-related
training provided, but we noted that each service administered its
personal financial training differently.[Footnote 43] When we
recommended additional DOD oversight by requiring the services to
develop and implement plans to monitor the training, the Under
Secretary of Defense for Personnel and Readiness partially concurred
with our recommendation but noted that the DOD instruction governing
personal financial management training had sufficient procedures to let
the military departments accomplish their responsibilities.
Another proposed addition to the draft directive would require an
insurance agent to provide a servicemember with a new DOD-wide
questionnaire that would contain questions about the servicemember's
experiences during the prearranged appointment with the agent for
solicitation.[Footnote 44] The value of information obtained from this
assessment instrument may be very limited, and might even create an
erroneous impression of what has occurred during the typical
solicitation appointments. The questionnaire will document interactions
that were not described as problem areas during our visits to six
installations--that is, life insurance agents who were complying with
the requirement to prearrange one-on-one solicitation meetings. Also,
the voluntary completion of the forms will result in a lack of
transparency, since some forms may not be turned in for a variety of
reasons: For example, they were never distributed by an agent, or the
servicemembers did not want to take the time to fill in and drop off
the form. In addition, the directive includes no requirement to submit
the data to higher levels so that service-wide and DOD-wide information
can be developed.
Other Changes Will Result in Better Explanation or Clarification of
Existing Requirements:
Another change merits special mention because it could result in
servicemembers' having better information for making decisions about
whether or not to purchase a specific amount or type of supplemental
life insurance coverage.[Footnote 45] All financial products that
contain insurance features must clearly explain the insurance features
of those products. The draft regulation elaborates further about
insurance products, stating that if there is a savings component to an
insurance product, the agent shall provide the customer written
documentation, which clearly explains how much of the premium goes to
the savings component per year, broken down over the life of the
policy. This document must also show the total amount per year
allocated to insurance premiums. The customer must be provided a copy
of this document that is signed by the insurance agent. One problem
that might be encountered in implementing this proposed requirement is
the absence of any guidance about what types of information must be
contained in the written description and who (for example, the
installation's solicitation coordinator or the National Association of
Insurance Commissioners) would judge whether the information is
conveyed clearly.
Three other changes in the draft also merit mention. First, solicitors
are prohibited from contacting DOD personnel by calling a government
telephone or by sending an e-mail to a government computer unless the
parties have a pre-existing relationship. Second, solicitors with
military identification cards and/or vehicle decals must present
documentation issued by the installation authorizing solicitation when
entering the installation for that purpose. Third, commercial sponsors
may not use sponsorship to advertise products and/or services not
specifically agreed to in the sponsorship agreement.
A DOD official informed us that DOD plans to review the findings and
recommendations of our report and then request more public comments
after our report is issued. He also indicated DOD will not publish a
final revised directive until at least 90 days after the issuance of
our report, consistent with the provisions of Section 8133 of the
Department of Defense Appropriations Act for Fiscal Year 2005.[Footnote
46]
Conclusions:
DOD cannot identify the extent to which life insurance agents are
violating solicitation policies or procedures, the types, severity, or
patterns of violations. A proposed new provision in the draft directive
would require DOD to maintain and disseminate a master file on banned
agents, but this new provision will still not provide DOD with a full
picture of the important but missing data outlined in the prior
sentence. For example, DOD's current list (1) is not searchable to help
solicitation coordinators quickly check on agents who want to be
approved or re-approved for on-installation solicitation, (2) does not
provide the same information on every case as is evidenced by the
absence of dates for 6 of the 51 cases, (3) does not identify the
specific types of violations that occurred--data critical for
identifying patterns of violations, and (4) probably does not contain
information on all agents who installation commanders have determined
violated regulations but have not done something severe enough to be
banned. The continued absence of these important data will force DOD,
the services, and installations to take actions based on isolated
incidents, anecdotes, and other possibly insightful, but non-optimum
information. DOD has, however, taken a positive step by including a
requirement in the draft directive to maintain a list of contacts for
state insurance regulators, but it does not require installation
commanders to keep state regulators generally informed about all
confirmed solicitation violations occurring on their installation. This
ambiguity could result in some relevant violations not getting reported
to state regulators. Similarly, ambiguity is present in the wording of
the requirement for the cooling-off period for junior enlisted
servicemembers who want to purchase supplemental life insurance. While
DOD's draft directive clarified that the period is 7 calendar days,
other ambiguities were identified earlier in this report. Failure to
address these issues during the current revision could result in
inconsistent enforcement of that requirement.
The quality of the information in the DFAS payroll databases limits the
ability of other parts of DOD in their efforts to (1) monitor
servicemembers' perceived need for supplemental life insurance and (2)
detect prohibited group presentations as evidenced by large numbers of
new allotments for supplemental life insurance. Continued reliance on
multiple generic allotment forms and a generic data entry code that
does not distinguish different types of insurance products (for
example, life versus automobile) will perpetuate existing data
reliability problems. Furthermore, the continued use of generic forms
to start a supplemental life insurance allotment results in a missed
opportunity for DOD to institute steps to address solicitation
requirements whose enforcement has not been assessable. For example,
DOD has no current forms or other assessment methods for documenting
that the required cooling-off period for junior enlisted personnel
occurred, servicemembers received required documents from life
insurance agents, and the finance or administrative staff who accepted
the allotment form for supplemental life insurance also verified that
the person submitting it was either the purchaser or the
servicemember's representative with a special power of attorney. With
regard to this last enforcement and documentation issue, our review
found some noncompliance with the requirement that only servicemembers
or their representatives with special power of attorney could start
supplemental life insurance allotments. Even though some of the reasons
for the noncompliance may be well-meaning, some of the instances where
finance officials have accepted such allotment forms from unauthorized
persons have resulted in banning agents, diverting valuable resources
away from the military mission to conduct investigations, and possibly
placing servicemembers and their families at financial risk when
unanticipated allotments begin for unwanted products. Adherence to
existing regulations would go far to eliminating these negative
effects.
Recommendations for Executive Action:
We are making five recommendations. We recommend that the Secretary of
Defense direct the Under Secretary of Defense for Personnel and
Readiness to take the following actions in revising DOD's solicitation
regulation:
* Develop and implement, with the services, a DOD-wide searchable
violations database that uses consistent data elements and coding
across services. Solicitation coordinators or others at the
installation would then be required to enter the installation name,
violating agent's name, insurance company supplying the product,
type(s) of violation(s), date and type of action taken, and other
information important for identifying patterns of violations and
facilitating efficient data collection and dissemination of information
on confirmed violators to all installations and state insurance
regulators.
* Specify in the revised directive that the installation commander is
responsible for notifying state insurance regulators, the service
secretariat, and DOD, when the commander has determined that agents or
companies have violated DOD, service, or installation policies.
Requiring installation commanders to contact appropriate state
officials regarding all confirmed violations of DOD's commercial
solicitation directive increases the likelihood that state insurance
officials will be provided an opportunity to determine if further
action such as revocation of a state license is warranted.
* Clarify the portion of the revised directive that pertains to the
cooling-off period that must elapse before junior enlisted personnel
can start an allotment to purchase supplemental life insurance.
Addressing and eliminating the ambiguities that we have identified
about what is required versus optional could result in better
compliance with the directive.
We recommend that the Secretary of Defense direct the Defense Finance
and Accounting Service to take the following actions:
* Determine what current and future modifications should be made to the
regulations, forms, and procedures used to initiate and electronically
capture supplemental life insurance allotments so that more useable
data are available to the DOD, service, and installation offices
responsible for overseeing supplemental life insurance solicitation.
This step might include developing and implementing a single code and
form that would be used for supplemental life insurance allotments and
to document compliance with requirements that DOD has previously had
little visibility over.
* Issue a message to all finance offices and the Defense Finance and
Accounting Service offices that process allotments for supplemental
life insurance to remind personnel that DOD's Financial Management
Regulation indicates that only servicemembers or their designated
representatives with special power of attorney for the prescribed
purpose are authorized to start, stop, or modify financial allotments.
If deviations from the policy are warranted to allow mailed allotment
forms, the Defense Finance and Accounting Service should specify the
additional verification required in those situations.
Agency Comments and Our Evaluation:
DOD's comments are included in this report as appendix IV. DOD
partially concurred with our first two recommendations and fully
concurred with the three remaining recommendations.
In commenting for DOD, the Principal Deputy for Personnel and Readiness
raised three issues concerning the thoroughness and accuracy of our
review.
First, DOD incorrectly stated that our review was only to look at the
complaints of the insurance industry and that after we did not
substantiate these complaints, we instead looked at DOD's oversight of
commercial insurance solicitation on DOD installations. While we were
aware of the industry's complaints, we focused our review on broader
systemic issues, like the implementation of DOD and service poliies,
procedures, and regulations governing the marketing and sale of
supplemental life insurance on domestic military installations.
Focusing on these systemic issues, however, allowed us to determine
whether the complaints had merit. At every stage during our review, we
emphasized that we were asked to review compliance with DOD's
regulations and policies on both the marketing and sale of life
insurance on installations and the processing of financial allotments
for such products. For example, in the letter notifying the Secretary
of Defense that we were beginning our review and at our first meeting
with DOD and service representatives, we listed the following three
researchable questions:
1. What are DOD's and the services' policies and procedures for the
marketing and sale of life insurance policies to military personnel and
the processing of financial allotments for military personnel?
2. How do DOD and service regulations affect the marketing and sale of
life insurance policies and the processing of financial allotments to
military personnel?
3. How are the processes and procedures for the marketing and sale of
life insurance policies and the handling of financial allotments,
especially for commercial products like life insurance policies,
implemented at Fort Bragg, Fort Lewis, and other military
installations?
Our report fully addressed solicitation and allotment issues in
addition to providing our congressional requesters with an update on
the revision of DOD's personal commercial solicitation directive, as
they also requested. Further, DOD stated that our report makes only
minor mention of the fact that we did not substantiate the insurance
industry's assertions that servicemembers were being prevented from
using allotments to obtain life insurance. To the contrary, we devoted
a section of our report to the issue, but that issue was only one of
many allotment-related concerns that we addressed in that portion of
the report.
Second, DOD expressed concern about our use of survey data in examining
the extent to which insurance solicitation violations were occurring on
installations. The most significant reason for using the survey was the
incompleteness and other problems associated with the data that DOD
maintains on violations. The problems with those data are addressed
more fully in our later response to DOD's partial concurrence with our
first recommendation. Because we were aware that survey data are
unsubstantiated, we supplemented that information with data gathered
from other sources such as DOD's list of banned agents and information
gathered from a wide variety of individuals during our six visits to
military installations. DOD similarly conduits surveys to monitor other
personnel issues. For example, the Office of the Under Secretary of
Defense for Personnel and Readiness conducted a survey of over 75,000
servicemembers asking for unsubstantiated perceptions about
racial/ethnic discrimination and harassment[Footnote 47] and these data
could be combined with compliance-related information from DOD's
investigations of alleged violations to give the department a more
complete view of the issue. DOD also stated that we should have
disclosed the wording used in the survey. The information that DOD
reviewed in our figure 1 is the exact wording of our survey items.
Although the wording for the overall question, "During the past 12
months, how often have the following practices concerning supplemental
life insurance taken place on the installation?" was changed to a
declarative sentence to increase readability, our paraphrasing is a
true representation of what we asked. Finally, the response rate of 75
percent for our survey of all personal financial management program
managers on U.S. installations is higher than the rate obtained on
recent DOD-wide surveys such as the August 2004 survey which had a
response rate of 40 percent. Given these facts, we believe that our
discussion about the extent of solicitation policy violations was
appropriate, especially since DOD had information on only the subset of
violations serious enough to merit banning an agent from an
installation.
Lastly, DOD maintained that we made a false statement about the
department not knowing the extent of personal solicitation policy
violations. DOD's point is incorrect on several grounds. First, early
in our review in May 2004, we asked DOD officials whether a DOD-wide
database existed that the services could use to report to DOD insurance
agents or companies that have had their solicitation privileges
withdrawn. DOD officials told us that while there was such a system, it
was up to the services to provide updated information. DOD officials
said at the time there was no comprehensive information available to
document such actions. In October 2004--approximately 5 months after we
asked for a list of all banned agents--DOD provided us with information
similar to that provided on its Commanders Page Web site as of April
2005. At the time we received this information, the Director of the
program that oversees personal commercial solicitation told us that the
list may not be complete and accurate--which we found to be true--but
that it provided all of the information that the services had reported.
Second, DOD's list of banned agents did not include all cases where
insurance agents or companies were banned. As we reported, personnel at
Fort Bliss, Texas, indicated that the installation commander had banned
an agent who was not included on DOD's Commanders Page Web site as of
April 2005. Third, unless DOD bans every agent who violates in any way
the solicitation policy regardless of the severity of the violation,
its data on banned agents are not equivalent to knowing the extent of
all confirmed violations.
Regarding DOD's comments about our recommendations, DOD partially
concurred with our first recommendation to develop and implement a
searchable violations database, but DOD's explanation of its partial
concurrence does not identify any additional steps to address the
deficiencies that we identified with their current procedures. As we
noted in our report, the monitoring system should focus on all
confirmed violations of solicitation policies and not just on those
severe enough to result in agents being banned. By establishing a
database on all confirmed violations, DOD would have a more complete
picture of solicitation violation activities to better identify
patterns, types, and severity of confirmed violations. If patterns are
found, they could serve as the basis for identifying actions to
eliminate the recurring or systemic problems. Our proposed database
would also provide installation solicitation officers with a resource
to check whether agents requesting solicitation approval or re-approval
at their installations were involved in prior violations at other
locations.
DOD partially concurred with our second recommendation that
installation commanders notify state insurance regulators of confirmed
violations of solicitation policies. DOD's position is that such
reporting by installation commanders should only be required when the
violations involve the eligibility of the agent to hold a state license
and to meet other regulatory requirements. We believe that DOD should
report all confirmed violations to state regulators. Installation
commanders and their legal advisers may not have the expertise needed
to determine whether a solicitation violation involved license-
eligibility or regulatory requirements. Having installation commanders
report all confirmed violations to state regulators would allow the
regulators to decide whether further action is appropriate. As we
pointed out in our report, state insurance officials from North
Carolina were concerned that DOD's lack of reporting violations
prevented them from determining whether further actions, such as
revocation of licenses, are warranted.
DOD concurred with our third recommendation and stated that it had
identified an additional ambiguity in the current revised directive
regarding who is responsible for monitoring and enforcing the cooling-
off period for supplemental life insurance purchases. DOD's proposed
revision addresses the concerns that we raised.
DOD concurred with our fourth recommendation and stated that they will
consider our proposed changes for a future enhancement of their pay
system. In addition, DOD said that it will review its regulations and
forms to determine what current and future modifications should be
made.
DOD concurred with our fifth recommendation and stated that it will
issue a message identifying who can start, stop, or modify allotments
to all finance offices and Defense Finance and Accounting Service
offices that process allotments.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its issue date. At that time, we will provide copies of this
report to interested congressional committees and the Secretary of
Defense. We will also make copies available to others upon request.
This report will be available at no charge on GAO's Web site at
[Hyperlink, http://www.gao.gov].
If you or your staff have any questions regarding this report, please
contact me at (202) 512-5559 or [Hyperlink, stewartd@gao.gov]. Contact
points for our Offices of Congressional Relations and Public Affairs
may be found on the last page of this report. GAO staff members who
made major contributions to this report are listed in appendix V.
Signed by:
Derek B. Stewart:
Director, Defense Capabilities and Management:
List of Congressional Requesters:
The Honorable Tom M. Davis:
Chairman:
Committee on Government Reform:
House of Representatives:
The Honorable Duncan L. Hunter:
Chairman:
Committee on Armed Services:
House of Representatives:
The Honorable Christopher Shays:
Chairman:
Subcommittee on National Security, Emerging Threats and International
Relations:
Committee on Government Reform:
House of Representatives:
The Honorable Jim Cooper:
The Honorable Martin T. Meehan:
The Honorable Ellen O. Tauscher:
House of Representatives:
[End of section]
Appendixes:
Appendix I: Scope and Methodology:
In addressing the objectives of our engagement, we reviewed reports
that had been issued by GAO, DOD, and others, including the life
insurance industry. We interviewed officials from DOD, life insurance
companies and associations, and other organizations, such as the
Consumer Federation of America, to identify the many perspectives on
the issues being studied. In connection with another report, we
constructed, pre-tested, and administered insurance-and allotment-
related survey questions to all 175 installation-level managers of
DOD's personal financial management programs located in the United
States.[Footnote 48] We received completed surveys from 131
installations, yielding an overall response rate of 75 percent, which
ranged from a low of 62 percent for the Air Force to 93 percent for the
Marine Corps. We also constructed, pre-tested, and administered an e-
mail survey to the insurance commissioners for the 50 states, the
District of Columbia, and four territories: American Samoa, Guam,
Puerto Rico, and the Virgin Islands. We received completed surveys from
46 states, the District of Columbia, and one U.S. Territory, yielding
an overall response rate of 87 percent. We did not receive surveys from
four states (California, Delaware, Florida, and Idaho) and three
territories (American Samoa, Guam, and the Virgin Islands). We later
contacted the four non-responding states to verify if they had any
investigations on insurance sales practices on military installations,
and only California responded to our inquiries. In addition, we
interviewed personnel from the state insurance commissioner's office
for four of the six states where we conducted site visits to military
installations, as well as personnel for the commissioner's office in
Georgia. We also asked insurance companies and two national insurance
associations to identify agents and company representatives who could
be interviewed about solicitation and allotment practices at the six
installations. During site visits, we requested materials related to
the marketing and sale of supplemental life insurance and the
establishment of allotments for that purpose. Those materials included
a list of life insurance agents approved for on-installation
solicitation, handouts distributed to assist servicemembers in
determining their need for supplemental life insurance, documentation
for violations of personal commercial solicitation and insurance-
related policies, and complaints related to insurance solicitation and
allotments. While on the site visit, we conducted individual interviews
or focus groups with the following types of individuals: installation
leaders; the coordinator for the installation's commercial solicitation
program; servicemembers; legal assistance attorneys from the Judge
Advocate General corps; finance department personnel who managed and
processed allotments; family support center staff responsible for
personal financial management training and counseling activities; staff
from morale, welfare, and recreation; and representatives of on-
installation banks and credit unions.
We limited our scope to the sale--marketing, solicitation, and
purchase--of life insurance to active duty servicemembers on
installations in the United States. Emphasis was given to findings
pertaining to junior enlisted servicemembers since DOD and insurance
officials have indicated that this subgroup is more likely to encounter
problems with the marketing and sale of supplemental life insurance and
establishment of an allotment for such a purchase. During the course of
our work, we visited six installations (see table 3). We selected the
installations based on inputs from DOD and insurance officials, and
with due consideration for the large number of Army personnel deployed
to Iraq and Afghanistan. We did obtain additional information on
completed and ongoing large-scale investigations of violations that
occurred on other installations: Fort Benning, Georgia, and Fort
Stewart, Georgia, although we did not conduct site visits to these
installations.
Table 3: Installations in the United States where GAO Conducted Site
Visits from July to December 2004:
Service: Army;
Installation: Fort Bragg, North Carolina.
Service: Army;
Installation: Fort Campbell, Kentucky.
Service: Army;
Installation: Fort Lewis, Washington.
Service: Navy;
Installation: Naval Station Great Lakes, Illinois.
Service: Marine Corps;
Installation: Camp Pendleton, California.
Service: Air Force;
Installation: Lackland Air Force Base, Texas.
Source: GAO.
[End of table]
To address the extent to which agents were violating DOD's policies
governing the solicitation of supplemental life insurance to active
duty servicemembers on domestic installations, we reviewed and analyzed
DOD, service, and selected installations' policies and directives
governing personal commercial solicitation, primary among these was the
DOD directive on personal commercial solicitation on DOD installations.
We also reviewed DOD reports on commercial life insurance
sales;[Footnote 49] materials provided by insurance association and
company officials, as well as insurance agents; and state government
announcements such as those from the office of the Georgia state
insurance commissioner about investigations of and enforcement actions
against some companies and agents who sold supplemental life insurance
to servicemembers. We contacted the Federal Trade Commission to
ascertain whether its Military Sentinel system contained any
information on complaints or investigations on supplemental life
insurance sales to servicemembers. We obtained a wide range of
perspectives about the sale of supplemental life insurance to
servicemembers during meetings with DOD and service headquarters
officials, officials from companies and two life insurance associations
(the American Council of Life Insurers and the National Association of
Insurance and Financial Advisors), and a representative of the Consumer
Federation of America. In addition to interviewing staff from the
insurance commissioners' offices in four of the six states where we
visited installations and in the state of Georgia, we constructed, pre-
tested, and administered an e-mail survey to the insurance
commissioners for the 50 states, the District of Columbia, and four
territories. We also used responses about supplemental life insurance-
related issues from a survey of all DOD personal financial management
program managers, professional staff employed on most installations who
were responsible for coordinating the financial management training,
counseling, and other assistance provided to servicemembers. During our
site visits, we asked that the command point of contact provide us with
the following types of materials: a list of life insurance agents
approved for on-installation solicitation, handouts distributed to
assist servicemembers in determining the need for supplemental life
insurance, documentation for violations of personal commercial
solicitation and insurance-related policies, and complaints related to
insurance solicitation. While on the installation, we conducted
individual or focus group interviews with the following types of
installation personnel or offices: installation leadership, the
coordinator for the installation's commercial solicitation program,
legal assistance attorneys from the Judge Advocate General corps, and
family support center staff responsible for financial training and
counseling activities. We also asked the life insurance associations
and company officials for the names of agents that we could interview
while on our site visits. As part of our site visits, we conducted
interviews with on-installation bank and credit union officials, asking
about current and planned efforts to offer supplemental life insurance
through their financial institution.
To address how effectively DOD personnel are adhering to DOD's
regulations that govern how active duty servicemembers establish
payroll allotments to purchase supplemental life insurance, we
interviewed officials from DFAS at their headquarters and field offices
associated with each service. We also reviewed and analyzed guidance
documents governing servicemembers' use of allotments that DFAS, the
services, and selected installations provided to us. We interviewed
finance officials at the installations we visited and observed the data
entry process used to electronically transmit data from the
installation to the payroll accounting system maintained by DFAS. At
several installations, we also interviewed officials at administrative
units that serve as intermediaries in the processing of servicemembers'
allotments and asked questions as personnel demonstrated the procedures
used in submitting, processing, and confirming allotment transactions.
To assess the extent to which the draft revision of DOD's directive
will address ongoing problems with supplemental life insurance policies
on DOD installations, we reviewed the Department of Defense
Appropriations Act for Fiscal Year 2005[Footnote 50] to determine the
restrictions on when the draft directive could be issued. We conducted
interviews with DOD program officials to discuss proposed changes, the
reasons for the proposed changes, and other issues related to the draft
directive. Also, DOD provided us with a copy of the draft directive as
of January 2005 so that we could compare and contrast it to the current
version of the directive. We compared that version to the one printed
in the April 19, 2005, Federal Register announcement.[Footnote 51] We
subsequently contacted DOD policy officials to determine whether DOD
intended to again request comments after our report was issued.
We performed our work from May 2004 through May 2005 in accordance with
generally accepted government auditing standards.
[End of section]
Appendix II: Details on Selected Recent In-Depth Investigations:
We are providing synopses of the reports that investigators prepared
after they completed gathering data on alleged violations. We did not
independently attempt to verify the allegations or the weight of the
evidence supporting decisions reached by installation commanders.
Instead, we merely summarize the information provided in the
investigative reports.
Installation: Camp Pendleton, California:
Period when the violations occurred: October through November 2003:
Description of the violations: An insurance agent approached an officer
requesting authorization to teach a class on veterans' affairs benefits
and financial planning to squadron Marines. The officer believed the
class would benefit Marines and included the agent on the training
schedule. During the class, the agent spoke little about veterans'
benefits, focusing more on investments. The agent distributed cards to
obtain contact information and later met with Marines while they were
on duty or in their homes to sell them policies. The agent described
the policy as an investment plan, rather than an insurance policy,
guaranteed, as stated by the agent, to provide Marines "$500,000 to
$1,000,000 by the time they reached their sixties." The agent also
tried to sell the investment plan to Marines without appointments.
During the meetings, Marines were given the impression that the agent
was a representative of the Department of Veterans' Affairs and was
able to assist them in obtaining their benefits. On one occasion, the
agent tried to obtain a MyPay personal identification number from a
Marine.
Investigators determined that these actions violated prohibited
solicitation practices including providing financial planning and
insurance classes without prior approval; attempting to solicit or sell
insurance without an appointment; attempting to sell insurance in an
unauthorized area; using unfair, deceptive, misleading, or fraudulent
schemes to encourage sales; and soliciting to trainees.
Documentation to assess the scope of the problem: The investigation
report included sworn statements from 12 Marines who met with the agent
as well as two other Marines approached by the agent.
Estimated number of affected servicemembers: The initial class included
15 to 25 Marines, and the agent conducted the class at least one other
time.
Actions taken:
* By the installation: Solicitation privileges for the agent were
suspended for two years for all Western area Marine Corps
installations.
* By the insurance company: The insurance company returned the agent's
solicitation pass and ceased all operations on the installation with no
plans of reopening.
Installation's interaction with state insurance commissioner's office:
The installation recently provided copies of the investigation to the
state insurance commissioner.
Installation: Camp Pendleton, California:
Period when the violations occurred: May through September 2003:
Description of the violations: Under the guise of presenting
information on veterans' affairs benefits, two insurance agents
obtained permission from a commanding officer to provide the classes to
Marines arriving from boot camp, at which attendance was required. Four
people conducted the classes, including three insurance agents and the
wife of one agent. According to participants, the classes started with
normal veterans' benefit discussions, but shifted into an investment
and life insurance sales pitch after non-commissioned officers left the
room. The product was identified as a "can't lose proposition" and
participants were told that participation would earn them about
$500,000 in just over 21 years. During the sales pitch, agents
distributed paperwork, including applications, allotment forms, and
statements of understanding, to the Marines. Participants were
encouraged not to read the forms and sign them quickly, leave the
amounts on the allotment forms blank, provide the insurance company
representatives access to MyPay personal identification numbers, and
provide signed photocopies of their identification cards. The agents
brought portable printers to the meetings to obtain the necessary
information. The Marines were not allowed to take paperwork with them,
being told that copies would be sent to their home of record.
Investigators determined that these actions violated prohibited
solicitation practices including soliciting military personnel who are
in an on-duty status; soliciting without appointment in areas utilized
for the housing and processing of transient personnel and in unit
areas; using manipulative, deceptive, or fraudulent devices, including
misleading advertising and sales literature; soliciting recruits,
trainees, and other personnel while in a "mass" or "captive" audience;
and violating the requirement that at least seven days elapse between
the signing of a life insurance application and the certification of an
allotment for personnel in pay grades E1 through E3.
Documentation to assess the scope of the problem: The investigation
report included interviews from 26 Marines in the five classes.
Additional information, such as direct deposit forms and statements of
understanding, was also included.
Estimated number of affected servicemembers: 345:
Actions taken:
* By the installation: Solicitation privileges for the agents were
revoked for Camp Pendleton and all Western region Navy and Marine Corps
installations.
* By the insurance company: The insurance company shut down its
operations at Camp Pendleton and has no plans to reopen. The company
terminated the three agents involved, at least one of whom was a
retired Marine. Refunds were provided to 110 Marines before the June 8,
2004 cutoff date.
Installation's interaction with state insurance commissioner's office:
The investigation report recommended the California Department of
Insurance be notified of the report results. The installation recently
provided copies of the report to the state insurance commissioner.
Installation: Fort Benning, Georgia:
Period when the violations occurred: December 2003 through July 2004:
Description of the violations: Four agents, two who were on Fort
Benning's list of authorized insurance and investment agents, gained
access to soldiers in the Basic Combat Training Brigade through unit
non-commissioned officers under the pretext of providing financial
planning or financial management classes. The agents conducted their
briefings in unit classrooms, discussing the value of investing and
providing examples of wealth accumulation. At the end of these
presentations, soldiers wanting additional information were asked to
complete an informational form. Following up on leads generated from
the forms, the agents returned to the unit area a few weeks later and
met individually or in a small group with soldiers. These follow-on
meetings, involving the use of laptop computers and direct deposit
forms, took place in unit classrooms or unit dayrooms. Fort Benning
officials found that officers and non-commissioned officers contributed
to the solicitations and a number of drill sergeants knew of the
insurance presentations in the unit area.
Investigators determined that these actions violated prohibited
solicitation practices including soliciting during enlistment or
induction processing or during basic combat training; soliciting to
mass, group, or captive audiences; and misusing the allotment of pay
system.
Documentation used to assess the scope of the problem: The
investigation report included sworn statements from a number of
soldiers who met with the agents. Additional information, such as
direct deposit forms, was also obtained.
Estimated number of affected servicemembers: 377:
Actions taken:
* By the installation: Installation solicitation privileges for the
agents were revoked. Three officers and seven enlisted personnel
involved were reprimanded for failing to adequately safeguard the
soldiers for whom they had responsibility.
* By the insurance company: The agents involved were fired from the
insurance companies they represented. The insurance company from which
most of the policies appear to have been sold has agreed to provide
refunds to soldiers.
Installation's interaction with state insurance commissioner's office:
The investigation report recommended that findings be shared with the
state licensing agencies. Installation officials have provided
information to the state of Georgia regarding these incidents.
Installation: Fort Benning, Georgia:
Period when the violations occurred: July 2002 through October 2002:
Description of the violations: Two agents conducted financial
management briefings to soldiers in the infantry training brigade. The
agents gained access to soldiers through unit non-commissioned officers
under the pretext of providing financial management classes. The
classes were imbedded into the training schedule with other personal
and financial affairs presentations and were conducted in unit
classrooms on the installation. The soldiers were escorted to the
classrooms by non-commissioned officers, and according to the
investigation, some of the non-commissioned officers had knowledge of
the solicitation actions taking place. In addition to the financial
management classes, one of the agents allegedly made insurance
presentations in training areas to non-commissioned officers. During
these presentations, some trainees met with the agent and subsequently
purchased life insurance policies.
Investigators determined that these actions violated prohibited
solicitation practices including soliciting during enlistment or
induction processing or during basic combat training; soliciting to
mass, group, or captive audiences; making appointments with or
soliciting military personnel who are in an "on duty" status; and using
manipulative, deceptive, or fraudulent devices or schemes to sell
products, including misleading advertising and sales literature.
Documentation used to assess the scope of the problem: The
investigation report included sworn statements from involved non-
commissioned officers, soldiers who attended the briefings, and Army
community affairs officials who received complaints from two of the
soldiers involved.
Estimated number of affected servicemembers: 906:
Actions taken:
* By the installation: Installation solicitation privileges for the two
agents were revoked.
* By the insurance company: The agents involved were fired from the
insurance company they represented. The insurance company offered
refunds to affected persons, and as of May 2005, about 20 percent of
the soldiers received refunds.
Installation's interaction with state insurance commissioner's office:
Installation officials have provided information to the state of
Georgia regarding these incidents.
[End of section]
Appendix III: Allotment Forms:
[See PDF for image]
[End of figure]
[End of section]
Appendix IV: Comments from the Department of Defense:
OFFICE OF THE UNDER SECRETARY OF DEFENSE:
PERSONNEL AND READINESS:
4000 DEFENSE PENTAGON:
WASHINGTON, D.C. 20301-4000:
JUN 20 2005:
Mr. Derek B. Stewart:
Director:
Defense Capabilities and Management:
U.S. Government Accountability Office (GAO):
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Stewart:
This is the Department of Defense (DoD) response to the GAO draft
report, "MILITARY PERSONNEL: DoD Needs Better Controls over
Supplemental Life Insurance Solicitation Policies Involving
Servicemembers," dated May 27, 2005 (GAO Code 350536/GAO-05-696).
Congress requested GAO to conduct this audit in response to complaints
from several insurance companies and a national insurance association.
These complaints alleged military members were ordered to cancel their
supplemental commercial insurance and that the Army failed to process
hundreds of valid insurance allotments. These complaints also alleged
several military personnel killed while serving in OIF/OEF were ordered
to cancel their supplemental life insurance policies prior to their
deaths. The GAO could not substantiate these allegations and this
report makes only minor mention of that fact. Instead, this report is
critical of the Department's oversight of commercial insurance
solicitation on DoD installations.
The Department believes this report also contains misrepresentations
and factual errors. The Department is concerned the report uses survey
data to present unsubstantiated perceptions as fact. The report does
not disclose the survey questions or how they were presented. However,
this survey data is used to draw broad conclusions critical of DoD's
insurance solicitation oversight. The report also claims the Department
had no record or idea of the extent of personal solicitation policy
violations until the GAO asked for them. This claim is false.
The Department has been statutorily prohibited from implementing needed
changes to personal commercial solicitation policy until 90-days
following final release of this GAO report. Therefore, the Department
does not want issuance of this report to be delayed in any way.
However, the Department requests the concerns identified above be noted
in the final report.
Sincerely,
Signed by:
Charles S. Abell:
Principal Deputy:
GAO DRAFT REPORT - DATED MAY 27, 2005 GAO CODE 350536/GAO-05-696:
"MILITARY PERSONNEL: DoD Needs Better Controls over Supplemental Life
Insurance Solicitation Policies Involving Servicemembers"
DEPARTMENT OF DEFENSE COMMENTS TO THE RECOMMENDATIONS:
RECOMMENDATION 1: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness to
develop and implement, with the Services, a DoD-wide searchable
violations database that uses consistent data elements and coding
across Services in revising DoD's solicitation regulation. (Page 40/GAO
Draft Report):
DOD RESPONSE: Partially concur. The GAO recommended the Department's
database contain any enforcement action ever taken by an installation
against an insurance company or agent. Although the Department has
records of personal commercial solicitation enforcement actions taken
over the past 13 years, the Department's position is this database
should only include suspensions and barments that are currently in
force. The Department has already established a DoD-wide database with
consistent data elements for reporting insurance and financial product
agents currently barred or suspended from soliciting on DoD
installations. This information is identified as the Personal
Commercial Solicitation Report and is posted on the DoD Commanders Page
Web site at http://www.commanderspage.com. This information is
accessible by installation officials, military members, State and
Federal regulators, insurance and investment companies, and the general
public. The Department's rationale for this approach, versus the GAO's
recommendation, is to comply with provisions contained in S. 418 and
H.R. 458, which the Department anticipates will soon become law.
Section 11 of these identical pieces of legislation would require the
Department to keep a current list of insurance or securities agents who
have been barred, banned, or otherwise limited and to inform
appropriate regulatory agencies of inclusions or removals from the
list. Therefore, the Department's interpretation of congressional
intent is that the list should only contain information on agents who
are currently barred, banned or otherwise limited. ECD: Closed (if GAO
accepts the DoD's recommended alternative).
RECOMMENDATION 2: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness to
specify in the revised directive that the installation commander is
responsible for notifying state insurance regulators, the Service
Secretariat, and DoD, when the commander has determined that agents or
companies have violated DoD, Service, or installation policies. (Page
40/GAO Draft Report):
DOD RESPONSE: Partially Concur. The GAO recommends DoD report any
violation of DoD, Service, or installation policies by insurance agents
to State insurance regulators. DoD's position is such reporting should
only be required when the violation involves the eligibility of the
agent to hold a State license or meet other regulatory requirements or
if the agent has been barred or suspended from soliciting on the
installation. Current DoD policy requires installation commanders to
notify the appropriate regulatory authorities if the grounds for an
enforcement action taken against a commercial solicitor involve the
eligibility of the agent or company to hold a State license or meet
other regulatory requirements (ref: DoDD 1344.7, para 6.5.2.2.) The
rationale for this policy is that other grounds for DoD enforcement
actions, such as soliciting without an appointment, soliciting groups
of trainees, use of a military ID card to gain access to an
installation to solicit, etc., do not violate State insurance
regulations and would be of little concern to State insurance
regulators. Current DoD policy also requires installation commanders to
notify an agent and their company when solicitation privileges have
been withdrawn (ref: DoDD 1344.7, para 6.5.2.1.) Furthermore,
provisions in Section 10 of S. 418 and H.R. 458, would prohibit an
insurer from entering into or renewing a contractual relationship with
a producer that solicits or sells life insurance on a military
installation unless the insurer has implemented a system to report to
the State insurance commissioner, disciplinary actions taken against
the producer with respect to the producer's sales or solicitation of
insurance on a military installation. If this provision becomes law,
the responsibility for reporting DoD enforcement actions to State
insurance regulators will rightfully fall upon the insurance companies
whose agents have been disciplined. If provisions in Section 11 of S.
418 and H.R. 458 become law, DoD would be required to issue regulations
to establish and maintain a list of barred and banned securities and
insurance agents and to ensure appropriate Federal and State agencies
responsible for securities and insurance regulation are promptly
notified upon inclusion in or removal of an agent from the list. DoD
currently maintains such a list on the Commanders Page Web site, which
is already accessible to State insurance regulators. Assuming Section
11 of 5.418 and H. R 458 will become law, the Department intends to
revise the directive to require installations to notify appropriate
State insurance or Federal securities regulators when an insurance or
securities agent has been barred or suspended from soliciting on an
installation. Finally, changes already proposed in the revised
directive would require installations to inform the Military Department
concerned of any denial, suspension, or withdrawal of solicitation
privileges and require the Military Department to inform the Office of
the Principal Deputy Under Secretary of Defense for Personnel and
Readiness. ECD: NLT 120-days following final release of this audit
report (GAO 05-696).
RECOMMENDATION 3: The GAO recommended that the Secretary of Defense
direct the Under Secretary of Defense for Personnel and Readiness to
clarify the portion of the revised directive that pertains to the
cooling off period that must elapse before junior enlisted personnel
can start an allotment to purchase supplemental life insurance. (Page
40/GAO Draft Report):
DOD RESPONSE: Concur. The GAO identified three ambiguities that
currently exist in DoD policy regarding the supplemental life insurance
allotment cooling-off period for enlisted personnel in grades E-3 and
below. These are: 1) it is not clear if the cooling-off policy only
applies to supplemental life insurance sold on the installation; 2) it
is not clear whether counseling is required during the cooling-off
period; and 3) it is unclear when the commanding officer must sign a
waiver for the cooling off period and/or counseling. In addition, DoD
believes there is an additional ambiguity regarding who is responsible
to monitor and enforce the cooling-off period. To remove these
ambiguities, paragraph E3.3.2. to Enclosure 3 of the proposed policy
will be changed to read as follows: "For personnel in pay grades E-1, E-
2, and E-3, in order to provide an opportunity to obtain financial
counseling, at least seven calendar days shall elapse between the
signing of a life insurance application and the certification of a
military pay allotment for any supplemental commercial life insurance.
Installation Finance Officers are responsible for ensuring this seven-
day cooling-off period is monitored and enforced. The purchaser's
commanding officer may grant a waiver of the seven-day cooling-off
period requirement for good cause, such as the purchaser's imminent
deployment or permanent change of station." ECD: NLT 120-days following
final release of this audit report (GAO-05-696).
RECOMMENDATION 4: The GAO recommended that the Secretary of Defense
direct the Defense Finance and Accounting Service to determine what
current and future modifications should be made to the regulations,
forms, and procedures used to initiate and electronically capture
supplemental life insurance allotments so that more useable data are
available to the DoD, Service, and installation offices responsible for
overseeing supplemental life insurance solicitation. This step might
include developing and implementing a single code and form that would
be used for supplemental life insurance allotments and to document
compliance with requirements that DoD has previously had little
visibility over. (Pages 40 and 41/GAO Draft Report):
DOD RESPONSE: Concur. Although we concur with the recommendation, we
are heavily involved in the development of the Forward Compatible Pay
System, which once implemented, will have the same restrictions of not
being able to distinguish supplemental allotments from other insurance
allotments or those that are being deposited into specially established
financial institution accounts for the purpose of paying premiums. The
capability does exist in the Forward Compatible Pay System to add
additional allotment codes to specify more detailed information on the
type of insurance a Service member is electing; however, due to the
number of systems that the change would affect and the impact on the
Forward Compatible Pay System development timeline, this change cannot
be made at the onset of the Forward Compatible Pay System, but be
considered for a future enhancement. In addition, we will review the
regulations and forms to determine what current and future
modifications should be made. ECD: Forward Compatible Pay System
schedule is being reassessed.
RECOMMENDATION 5: The GAO recommended that the Secretary of Defense
direct the Defense Finance and Accounting Service to issue a message to
all finance offices and the Defense Finance and Accounting Service
offices that process allotments for supplemental life insurance to
remind personnel that DOD's Financial Management Regulation indicates
that only servicemembers or their designated representatives with
special power of attorney for the prescribed purpose are authorized to
start, stop, or modify financial allotments. If deviations from the
policy are warranted to allow mailed allotment forms, the Defense
Finance and Accounting Service should specify the additional
verification required in those situations. (Pages 40 and 41/GAO Draft
Report):
DOD RESPONSE: Concur. Military Pay Operations will issue a message to
all finance offices and the Defense Finance and Accounting Service
offices that process allotments for supplemental life insurance to
remind personnel that DoD's Financial Management Regulation indicates
that only Service members or their designated representatives with
special power of attorney for the prescribed purpose are authorized to
start, stop or modify financial allotments. ECD: June 20, 2005.
[End of section]
Appendix V: GAO Contact and Staff Acknowledgments:
GAO Contact:
Derek B. Stewart (202) 512-5559:
Acknowledgments:
In addition to the individual named above, James Cook, Jack Edwards,
Lynn Johnson, David Mayfield, Terry Richardson, Arnett Sanders, Cheryl
Weissman, and Kristy Williams made key contributions to this report.
[End of section]
Related GAO Products:
[End of section]
Military Personnel: DOD Comments on GAO's Report on More DOD Actions
Needed to Address Servicemembers' Personal Financial Management Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-638R]
Washington, D.C.: May 11, 2005.
Defense Base Act Insurance: Review Needed of Cost and Implementation
Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-280R]
Washington, D.C.: April 29, 2005.
Military Personnel: More DOD Actions Needed to Address Servicemembers'
Personal Financial Management Issues.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-348]
Washington, D.C.: April 26, 2005.
Military Personnel: DOD's Tools for Curbing the Use and Effects of
Predatory Lending Not Fully Utilized.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-349]
Washington, D.C.: April 26, 2005.
Credit Reporting Literacy: Consumers Understood the Basics but Could
Benefit from Targeted Educational Efforts.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-223]
Washington, D.C.: March 16, 2005.
DOD Systems Modernization: Management of Integrated Military Human
Capital Program Needs Additional Improvements.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-189]
Washington, D.C.: February 11, 2005.
Highlights of a GAO Forum: The Federal Government's Role in Improving
Financial Literacy.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-05-93SP]
Washington, D.C.: November 15, 2004.
Military Personnel: Survivor Benefits for Servicemembers and Federal,
State, and City Government Employees.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-04-814]
Washington, D.C.: July 15, 2004.
Military Personnel: Active Duty Benefits Reflect Changing Demographics,
but Opportunities Exist to Improve.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-02-935]
Washington, D.C.: September 18, 2002.
Military Banking: Solicitations, Fees, and Revenue Potential.
[Hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO/NSIAD-99-72]
Washington, D.C.: April 15, 1999.
(350536):
FOOTNOTES
[1] See GAO, Military Personnel: Survivor Benefits for Servicemembers
and Federal, State, and City Government Employees, GAO-04-814
(Washington, D.C.: July 15, 2004). Additional information on the
benefits provided to survivors of deceased servicemembers is available
in Congressional Research Service, Military Death Benefits: Status and
Proposals, RL32769 (Washington, D.C.: Feb. 16, 2005).
[2] Emergency Supplemental Appropriations Act for Defense, the Global
War on Terror, and Tsunami Relief, for the Fiscal Year Ending September
30, 2005, Pub. L. No. 109-13, sec. 1012-1013 (May 11, 2005).
[3] See Final Report: Insurance Solicitation Practices on Department of
Defense Installations (May 15, 2000), and DOD Office of the Inspector
General, Commercial Life Insurance Sales Procedures in DOD, Report No.
99-106 (Arlington, Va.: Mar. 10, 1999).
[4] See, for example, Amy Klamper, "Life Insurance for Troops in Iraq
Nixed," National Journal (Apr. 3, 2004).
[5] DOD Directive 1344.7, Personal Commercial Solicitation on DOD
Installations (Feb. 13, 1986).
[6] An ongoing GAO effort is examining the characteristics of the
commercial products being marketed to servicemembers and the regulation
of those products.
[7] Pub. L. No. 103-62 (Aug. 3, 1993).
[8] See GAO, Military Personnel: More DOD Actions Needed to Address
Servicemembers' Personal Financial Management Issues, GAO-05-348
(Washington, D.C.: Apr. 26, 2005).
[9] DOD Directive 1344.7, Personal Commercial Solicitation on DOD
Installations (Feb. 13, 1986).
[10] Army Regulation 210.7, Commercial Solicitation on Army
Installations (Apr. 22, 1986); Secretary of the Navy Instruction
1740.2D, Solicitation and Conduct of Personal Commercial Affairs (Apr.
27, 1987) for the Navy and the Marine Corps; and Air Force Policy
Directive 36-29, Military Standards (June 1, 1996).
[11] DOD Directive 1344.7, sec. 6.4.
[12] DOD Directive 1344.7, sec. 6.5. This DOD directive authorizes an
installation commander to deny or revoke permission to an insurance
agent or affiliated insurance company in possession of or attempting to
possess allotment forms or their facsimiles to solicit on military
installations.
[13] See DODIG, Report No. 99-106.
[14] See Final Report: Insurance Solicitation Practices on Department
of Defense Installations.
[15] DOD, Financial Management Regulation 7000.14-R, Vol. 7A,
Definitions, page xliv, indicates that an allotment is the definite
portion of the pay and allowance of a person in the military service,
which DFAS is authorized to pay directly to a person or an institution.
[16] DOD, Financial Management Regulation 7000.14-R, Vol. 7A, Chapters
41 and 42 (February 2002), contains the policies and procedures for
allotments. Each military service also has additional allotment
processing policies and practices. See, for example, Army Regulation 37-
104-4, Military Pay and Allowances Policy and Procedures--Active
Component, Chapter 24 (Sept. 30, 1994).
[17] DODIG, Report No. 99-106, and Final Report: Insurance Solicitation
Practices on Department of Defense Installations.
[18] Confirmed violations are acts that an installation commander has
determined, after consideration of the entire record to include any
information submitted by the insurance company(s) and agent(s)
involved, are violations of DOD's commercial solicitation policies and
procedures.
[19] The personal financial management program manager is a
professional staff member designated and trained to organize and
execute financial planning and counseling programs for the military
community. See GAO-05-348 for additional details on the managers, the
program, and other findings from the survey.
[20] The six types of violations used as survey items were based on
findings from the 1999 DODIG report (see DODIG, Report No. 99-106). The
report showed that seven types of prohibited practices occurred on the
studied installations. Because supplemental life insurance solicitation
was one of many issues covered in our survey, the other types of
violations were excluded to limit the time required to answer the
survey.
[21] After gathering the data for this review, DOD posted information
about the 51 cases on a DOD Web site.
[22] It is likely that more than 26 enforcement actions resulted in
commanders banning agents from their installation during the period of
interest. DOD acknowledged that its list was probably incomplete; and
we found an additional case at Fort Bliss, Texas. Also, 6 of the 51
cases did not include a date for the commander's actions, but the
actions may have occurred during our restricted period of interest. In
addition, some of the cases in DOD's list, such as those at Beale Air
Force Base, California, indicate that events occurred in multiple
years, but we only counted the events as one case. Finally, since DOD
told us that its request for information pertained to banned agents
only, additional cases would probably result if DOD made another
request for all enforcement actions.
[23] The Army is the only service with a regulation requiring that
violations be reported to the service level.
[24] DOD Directive 1344.7, sec. 6.5.2.4.
[25] It is important to involve state insurance authorities because in
accordance with the McCarran Ferguson Act, 15 U.S.C. sec. 1011-1015
(1948), the life insurance industry generally is regulated under state
laws. The Military Personnel Financial Services Protection Act, S. 418,
109th Congress, sec. 6 (2005) was introduced in Congress this year and
would, if enacted into law, make it clear that state law shall apply to
insurance activities conducted on military installations.
[26] DOD Directive 1344.7, sec. 6.5.2.2.
[27] Military Personnel Financial Services Protection Act, S. 418,
109th Congress, sec. 6 (2005).
[28] DOD, Financial Management Regulation 7000.14-R Vol. 7A, Chapters
41 and 42; DFAS-INM (Army), Part 6, Chapter 1; DFAS-DE (Air Force)
Manual 7073-1, Chapter 57; DJMS Procedures Training Guide (Navy), Part
6; DFAS-KC 7220.31-R (Marine Corps), Chapters 23-25 and appendixes N,
O, P, and Q.
[29] DOD Directive 1344.7, encl. E3.3.2.
[30] See GAO, DOD Systems Modernization: Management of Integrated
Military Human Capital Program Needs Additional Improvement, GAO-05-189
(Washington, D.C.: Feb. 11, 2005), and GAO, Military Pay: Army National
Guard Personnel Mobilized to Active Duty Experienced Significant Pay
Problems, GAO-04-89 (Washington, D.C.: Nov. 13, 2003).
[31] DOD, Financial Management Regulation 7000.14-R, Vol. 7A, Chapter
41, sec. 410801. This regulation allows most financial allotments to be
established though MyPay, DOD's automated payroll program. MyPay allows
servicemembers to start, stop, or change allotments with financial
institutions when the funds are directed to be sent to a savings or
checking account. MyPay is not intended to be used for allotments to
purchase supplemental life insurance. Use of MyPay to establish a
supplemental insurance allotment makes it impossible for installation
officials to monitor or enforce the proper use of insurance allotments
and other parts of the on-installation personal commercial solicitation
requirements.
[32] See GAO-05-348.
[33] Sampling errors of estimates for servicemembers do not exceed +/-
5 percentage points. These sampling errors do not include errors due to
other sources, such as potential bias attributable to the overall 35
percent response rate. DOD conducted research to assess the impact of
this response rate on overall estimates. We have no reason to believe
that potential non-response bias in the estimates not otherwise
accounted for by DOD's research is substantial for the variables we
studied in our earlier 2005 report.
[34] Approximately 65 percent of the files included an allotment form
with a servicemember's signature.
[35] At the time that applications were completed, coverage through the
government-offered SGLI was $16.25 per month for $250,000 of coverage.
During our review, insurance officials stated that they too offered
similar term-life policies for approximately the same amount.
[36] GAO has another review under way that is examining, among other
things, the quality of the financial products--including supplemental
life insurance--offered to servicemembers.
[37] It is impossible to determine whether the installation directed us
only to servicemembers who chose not to purchase the policies for
reasons other than active prevention. We did, however, receive written
statements from two junior enlisted servicemembers and we contacted one
on his personal cell phone. He confirmed that he did not want the
policy after completing the application. In addition, to lessen the
likelihood that other servicemembers would not answer truthfully when
speaking in a focus group, we administered an anonymous survey before
the focus group sessions to promote honest responses about each
individual's experiences in the solicitation and allotment processes.
[38] 70 Fed. Reg. 20316 (2005).
[39] 70 Fed. Reg. 20316 (2005), part 50.11 (g).
[40] The draft directive also requires banks and credit unions
operating on DOD installations to provide financial counseling services
as an integral part of their financial service offerings. Banks and
credit unions operating on DOD installations are subject to additional
requirements specified in other DOD policies (for example, DOD
Directive, 1000.11, Financial Institutions on DOD Installations (June
9, 2000); DOD, Financial Management Regulation 7000.14-R, Vol. 5,
Chapter 34 (September 2000).
[41] 70 Fed. Reg. 20316 (2005), part 50.11 (f).
[42] 70 Fed. Reg. 20316 (2005), part 50.11 (c) (3).
[43] See GAO-05-348.
[44] 70 Fed. Reg. 20316 (2005), part 50.11 (a) (iii).
[45] 70 Fed. Reg. 20316 (2005), part 50.11 app. A.
[46] Pub. L. No. 108-287, sec. 8133 (Aug. 5, 2004).
[47] See Defense Manpower Data Center, Armed Forces Equal Opportunity
Survey, DMDC Report No. 97-027 (Arlington, Va.: August 1999) p. 40.
[48] See GAO-05-348.
[49] Final Report: Insurance Solicitation Practices on Department of
Defense Installations, and DODIG, Report No. 99-106.
[50] Pub. L. No. 108-287 (Aug. 5, 2004).
[51] 70 Fed. Reg. 20316 (2005).
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