Failing soldiers at home, too

It’s well known that Secretary of Defense Donald Rumsfeld failed to protect the nation’s soldiers during the invasion of Iraq. Numerous news accounts and congressional reports have established that soldiers in Iraq fought without sufficient body armor, armored vehicles, bullets and even food. But a multi-million-dollar settlement this month between the federal government and American Amicable Life Insurance Company glaringly demonstrates that Secretary Rumsfeld failed to protect soldiers on the home front, too.

American Amicable agreed to pay $70 million to settle federal and state government complaints that it engaged in deceptive sales practices to sell questionable life insurance to thousands of young soldiers. As part of the settlement, the company was banned from selling its products on military bases for five years, which is one the lengthiest suspensions ever imposed in the military market. At issue was the company’s “Horizon Life” insurance product. It required payments over a period of 20 years. But its value wouldn’t surpass the total premiums until near the end of the policy, at which point a large number of the policies would have lapsed.

Last November the Government Accountability Office, the nonpartisan investigative office of Congress, released a report detailing how six insurance companies were selling high-cost insurance policies to thousands of young service members at military bases across the country. The policies combined life insurance with a savings fund that supposedly had high returns, but included clauses that actually reduced the chance that soldiers would ever benefit. As a result, the GAO found that soldiers “were left with little or no savings in exchange for a small amount of expensive insurance coverage.”

What’s really troubling is that the report disclosed that Secretary Rumsfeld’s Defense Department allowed these companies to sell their products on military bases in violation of Pentagon policies. And although many soldiers complained after purchasing the life insurance policies, the Defense Department never informed the Securities and Exchange Commission or state insurance regulators.

Young soldiers, no doubt fearing death in Iraq, and not realizing that they received $400,000 in life insurance as part of their military benefits, wanted a life insurance policy to leave behind for their families. The Defense Department aided insurance companies in their efforts to profit from the fear of these newly enlisted service members.

The GAO found that some of the companies selling the insurance policies had been subject to previous disciplinary actions for violations of Defense Department regulations. Yet the Pentagon continued to give these companies access to military bases. Also, the report noted that the Defense Department didn’t inform insurance regulators of the problems, so regulators didn’t know that these dubious policies were being sold. Yet the GAO “found evidence that concerns over inappropriate sales to service members exist widely at various military installations.”

GAO investigators surveyed 175 Defense Department managers who supervise personal financial management offices on military bases. These offices provide soldiers with financial literacy and counseling services. They found that 25 percent of the managers believed that insurance companies were making misleading sales presentations on their bases. In some instances, the companies were pitching insurance policies to captive audiences in military housing or barracks. Yet this was a flagrant violation of Pentagon policy.

The Defense Department is required to protect soldiers from deceptive sales. Department of Defense Directive 1344.7 places various restrictions on financial corporations who market products on bases. Among other provisions, the directive explicitly prohibits sales from occurring as part of group meetings and requires that sales presentations be made by appointment with individual service members. If a company is found to be in violation of this policy, Defense Department officials can temporarily suspend solicitation privileges, or even ban the companies from operating on a base.

The life insurance companies selling these products were clearly in violation of the directive. Yet Defense Department officials were unwilling to stop them. In fact, rather than disciplining the companies, most were rewarded. Last summer, five of the six companies selling the dubious policies were approved by the Defense Department to begin conducting business on military bases overseas.

In recent years many new recruits to the military have come from financially strapped, if not poor, circumstances. Joining the armed services has been a way to provide for their families and pay their bills. Yet these young and financially inexperienced recruits have been the very soldiers that Rumsfeld, as the head of the Defense Department, helped unscrupulous insurance companies take advantage of. The nation certainly doesn’t need another reason to ask for Secretary Rumsfeld’s resignation, but it has one.