MILITARY UPDATE
Military insurer to compensate policyholders

Military Update focuses on issues affecting pay, benefits and lifestyle of active and retired servicepeople. Its author, Tom Philpott, is a Virginia-based syndicated columnist and freelance writer. He has covered military issues for almost 25 years, including six years as editor of Navy Times. For 17 years he worked as a writer and senior editor for Army Times Publishing Co. Philpott, 50, enlisted in the U.S. Coast Guard in 1973 and served as an information officer from 1974-77.

By Tom Philpott

More than 100,000 current and former service members insured with Academy Life Insurance Co., which for years sold insurance on base allegedly with agents posing as benefit counselors for the Non Commissioned Officers Association, soon will see a bump in the value of those policies.

Another 110,000 people who canceled their Academy Life policies years ago will be able to file claims for small refunds, about $25 apiece.

It's part of a settlement that Academy reached with the U.S. Attorney in Philadelphia on condition the government drop a civil complaint that the insurer "engaged in a sophisticated scheme to defraud military service members who purchased life insurance policies from the company between 1991 and 1998."

Academy, while admitting no wrongdoing, agreed to:

• Pay a $1 million civil penalty.
• Pay $505,000 to cover the cost of the government's investigation.
• Raise the face amount of all policies written during the eight years covered in the agreement by 6.5 percent. That means policyholders with $100,000 in coverage will see it climb to $106,500. The cost to Academy is $11.7 million now, and over time, $160 million in added life insurance benefits.
• Pay a total of $2.7 million to people who canceled Academy policies. That roughly matches what NCOA was paid, back door, on those policies. But with 110,000 potential claimants, the average refund will be only $25.
• Stop selling insurance, which means go out of business. But policyholders shouldn't panic. There is money in reserve to cover life insurance obligations, said John Pease, assistant U.S. attorney for the Eastern District of Pennsylvania. Academy is headquartered in Frazer, Pa.

Despite Academy's claim that it did nothing wrong, Pease said the government stands by everything alleged in the complaint.

It says Academy sold insurance under a scheme to defraud: Insurance agents represented themselves as NCOA counselors. They claimed to be acting in the best interest of service members, but were trying to sell insurance using "false pretenses, material misrepresentations and material omission of facts," the government said.

One fact omitted, Pease said, was a secret arrangement. In return for endorsing only Academy products and allowing its agents to use NCOA's name, NCOA received an annual payment of $700,000, plus 1 percent of premiums.

Academy not only failed to reveal the NCOA payments to customers, but the NCOA-accredited counselors falsely told service members that NCOA had investigated other insurance and selected Academy as the "most appropriately priced," the complaint says.

The complaint also describes how Academy agents got access to service members to pitch their products. NCOA "membership developers," most of them military retirees, would ask base commanders for permission to brief groups of personnel on legislative issues or recent changes in benefits.

"These membership developers would have information cards that they would hand out to troops in the room, and they filled them out," Pease said. The cards were turned over to "counselors" who used them to set up appointments.

"They would call the soldier, sailor, airman, saying, 'Hey, you were at the briefing at Fort Hood, and you filled out that card. I would like to talk to you a little more about NCOA and membership benefits' — when, in fact, the real purpose was to get on the base and sell insurance," Pease said.

From 1993 through 1998 — six of eight years covered in the complaint — Academy sold 92,000 policies to service members and families and received more than $200 million in premiums. Based on an initial Defense Department investigation, Academy was banned in September 1999 from conducting business on U.S. bases for three years.

Cliff Davis, NCOA spokesman, had no comment on details in the complaint, except to note they first surfaced in 1999.

In a message posted on its Web site after the Dec. 19 settlement was announced, NCOA said it "was not charged with any civil violation whatsoever" and "denies any insinuation that it did anything wrong in its relationship with Academy."

Pease said a civil complaint was not filed against NCOA for several reasons, including weak finances that would have made a settlement unlikely from the 80,000-member association. Academy, on the other hand, is part of a publicly held company, acquired in 1997 by Aegon USA, a branch of AEGON N.V., an international insurance company based in The Netherlands.

Also, Pease said, NCOA did not have the same legal exposure as an insurance company. If Academy touted the NCOA endorsement without disclosing payments to NCOA, as alleged, it violated insurance laws in about 25 states, Pease said.

NCOA ended its relationship with Academy almost a year ago, Davis said. Six months ago, it began endorsing life insurance from the Armed Forces Benefit Association, whose board of directors includes, in unpaid positions, the Joint Chiefs. For its endorsement, Davis said NCOA does receive a monthly fee. The amount was not immediately available, he said.

NCOA said Academy policyholders with questions on the settlement should call the company's toll-free number, (800) 523-5625. Documents released by the U.S. Attorney can be found online at www.usao-edpa.com.

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