Gov. Blagojevich announces major insurance fraud settlement making thousands of service men and women in Illinois eligible for monetary relief

Illinois state regulators worked with SEC, Department of Justice and regulators in Texas and Georgia to refund $10 million nationwide to more than 90,000 members of the military

CHICAGO – Governor Rod R. Blagojevich today announced that more than 9,000 service men and women stationed in Illinois may be entitled to monetary relief as part of a multi-state regulatory settlement that will pay as much as $10 million to service personnel across the country.  The settlement is a result of a multi-state, multi-year investigation into potential fraud and abuse by three out-of-state insurance companies that targeted active military personnel, aggressively marketing death benefit products that duplicate what the military offers.  Illinois-based service personnel are expected to recover more than $1 million in restitution. 

“It’s inexcusable for insurance companies to take advantage of the brave men and women who are preparing to put their lives at risk to protect our freedom,” said Gov. Blagojevich. “This settlement will provide justice for military personnel who have been scammed out of millions of dollars in unnecessary insurance premiums, and will put other companies on notice that we will not tolerate the exploitation of our soldiers.”

Because the military already provides life insurance to all active duty personnel, the aggressive sales tactics of American Amicable Life Insurance Company of Texas, Pioneer American Insurance Company and Pioneer Security Life Insurance Company raised concerns among various state and federal investigators.  In Illinois, there were allegations that company representatives took new recruits to expensive restaurants and hired young women to entertain them.  Another tactic allegedly used was to have the senior instructor introduce a sales agent during basic training class sessions, leading the recruits to believe that purchasing insurance was part of their training. 

The policies purchased by military personnel generally had a $250,000 death benefit and required an Automatic Premium Payment mechanism through which the soldier often unwittingly agreed to allow the company to deduct the premium directly from his/her paycheck.  The companies then set up fictitious bank accounts in the soldiers’ names from which premiums would be withdrawn by and paid to the company. 

Illinois was among the first states to open an investigation about potential fraud and abuse of active duty personnel at military bases in Illinois. At the same time, insurance regulators in Georgia and Texas were dealing with similar complaints and had opened their own investigations.  About 18 months ago, Illinois determined that the best was to prevent future abuse was to join with the other states to reach a national settlement to refund money to policyholders and establish stringent guidelines to prevent future abuse.  As the state with the third largest number of participating personnel, Illinois participated in the settlement negotiations with the three insurance companies.  Nationwide, more than 90,000 Service personnel will be eligible to participate in the settlement. 

“Protecting consumers is the primary mission of our department, said Dean Martinez, Secretary of Financial and Professional Regulation.  “This settlement is particularly important because it creates long-term consumer protections and makes sure that these insurance companies will not be able to take advantage of Illinois’ military personnel.”

The settlement agreement requires insurance companies to:

• Distribute $10 million in returned premiums to service members with active or terminated policies.  It requires the companies to immediately cease the collection of automatic premium payments, which is estimated to cost insurers an additional $6 million.

• Increase the face value, or potential payment of benefits, of the policies. 

• Change the way supplemental life insurance policies can be marketed and sold to military personnel in the future.  It prohibits insurance companies from selling insurance products on U.S. military bases for 5 years.  It also bars them from having access to the forms needed to set up automatic withdrawals of premium payments and orders the insurance companies to cease the practice of creating fictitious bank accounts in service members’ names.

• Stop selling policies to service members who have not received military sponsored financial training classes and establish a free 90 day cooling-off period for service members so they can cancel any policy with no financial liability. 

• End the practice of providing gifts in amounts greater than $5.00 to military supervisory personnel.

Illinois had the third largest number of participating service personnel and accounted for 10.1% of the total 92,474 service members impacted. Texas had the largest share (14,344) followed by California (9,769), Illinois, Georgia (6,368) and North Carolina (5,473). The number of participating policyholders was in general a function of the number of military personnel stationed in a given state and the vast majority of Illinois policyholders were stationed at Great Lakes Naval Base.  The investigation and subsequent settlement negotiations were conducted in coordination with U.S. Securities and Exchange Commission and the U.S. Department of Justice.

Service members who purchased life insurance policies, or have questions about policies being offered to them while stationed here can call the Illinois Insurance Hotline at 1-800-444-3338 with any questions about insurance being offered to them.

Since 2003, Gov. Blagojevich has made it a priority to protect the rights and benefits of members of the military, and shield from fraudulent and abusive actions. The Governor’s actions include:

• Signing a law to protect health insurance benefits for service men and women returning from active duty.  The legislation protects military personnel and their families against the inadvertent loss of health insurance after a tour of duty or an honorable discharge from military service.

• Signing the landmark Payday Loan Reform Act (PLRA) that for the first time regulated the payday loan industry in Illinois, creating aggressive protections for consumers, especially working families and members of the military, against predatory and abusive practices.

• Enacting the Family Military Leave Act, which provides the spouse and parents of a soldier who has been called to more than one month of active duty with 15 to 30 days of leave time.

• Increasing penalties for individuals who fraudulently try to obtain state benefits reserved for veterans.

• Extending municipal hiring preferences to all veterans who served at least one year of active military duty.

• Affording veterans returning from active duty preference in keeping the jobs they had been offered before being deployed.

• Increasing the monetary death benefit given by the Illinois Department of Veterans' Affairs to families of soldiers killed in Iraq and Afghanistan, making Illinois the first state in the nation to offer soldiers additional monetary benefits than those provided by the federal government.

• Helping Illinois soldiers and their families maintain health coverage and childcare assistance when they are deployed on active duty.

 

To view a copy of the Multi-State Regulatory Settlement Agreement please click here.