Military Personnel:

DOD Needs Better Controls over Supplemental Life Insurance Solicitation Policies Involving Servicemembers

GAO-05-696: Published: Jun 29, 2005. Publicly Released: Jun 30, 2005.

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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.

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.

Recommendations for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD terminated initial efforts to develop a pay system that would potentially have addressed some of the issues with supplemental life insurance allotments raised in GAO?s review. The review of related regulations and forms has been moved under a separate DFAS review of standardizing business processes. We conclude that DOD will not take any action with this recommendation to modify regulations, forms, and procedures based on the planned actions in developing and implementing these new systems and processes.

    Recommendation: The Secretary of Defense should 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.

    Agency Affected: Department of Defense

  2. Status: Closed - Implemented

    Comments: Follow up for this recommendation was conducted and action taken by the Department resulted in a team accomplishment.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense for Personnel and Readiness, in revising DOD's solicitation regulation, 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. Addressing and eliminating the ambiguities that we have identified about what is required versus optional could result in better compliance with the directive.

    Agency Affected: Department of Defense

  3. Status: Closed - Implemented

    Comments: Follow up for this recommendation was conducted and action taken by the Department resulted in a team accomplishment.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense for Personnel and Readiness, in revising DOD's solicitation regulation, 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. 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.

    Agency Affected: Department of Defense

  4. Status: Closed - Not Implemented

    Comments: Information from DOD indicated no additional action even though it partially concurred with the recommendation. Action cited for the concur was the establishment of 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 can be found listed as the Personal Commercial Solicitation Report on the DOD Commanders Page Web. This action, addressing similar but not identical issues than those highlighted in GAO's recommendation, was implemented prior to the publication of this report.

    Recommendation: The Secretary of Defense should direct the Under Secretary of Defense for Personnel and Readiness, in revising DOD's solicitation regulation, to 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.

    Agency Affected: Department of Defense

  5. Status: Closed - Implemented

    Comments: Follow up for this recommendation was conducted and action taken by the Department resulted in a team accomplishment.

    Recommendation: The Secretary of Defense should 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.

    Agency Affected: Department of Defense

 

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