An insurer has resolved a West Coast annuity investigation by agreeing to offer refunds to some customers, add a screening process for future buyers, and pay $10.5 million in fines and charitable contributions.
Allianz Life Insurance Company of North America, Golden Valley, Minn., a unit of Allianz S.E., Munich, has accepted the terms of the settlement to resolve a California Department of Insurance administrative action.
The California department issued an order objecting to Allianz Life deferred fixed annuity marketing practices in November 2006, after a market conduct examination found that Allianz had “deceptively replaced 126 existing annuities for seniors who were between 84 and 85 years old,” California department officials say.
California department officials contend that about 97% of the annuities that Allianz Life replaced for consumers ages 84 and 85 from January 2004 through July 2005 were financially unsuitable.
In many cases, department officials say, Allianz Life implied that older consumers would get “immediate” bonuses.
The consumers could not collect the “immediate” bonuses in the form of cash unless they held on to the annuities for 5 years and then received their money back in the form of periodic payments for 10 years or life, officials say.
Under the terms of the settlement, Allianz Life will pay $3.3 million in penalties, fees and costs to the California department; $3.75 million over 5 years to a fund that helps district attorneys represent life insurance and annuity owners; and $3 million to a California fund that invests in projects that help urban and rural communities.
Allianz Life also has agreed to review applications from older consumers more carefully; call annuity buyers in assisted living facilities and those ages 75 and older to make sure they understand what they have bought; make annuity contracts easier to understand; describe the terms of premium bonuses more clearly; and allow a few hundred seniors affected by potentially unsuitable annuity sales, who were named in the original California order and hearing notice, to ask for the cancellation of their annuities.
“The new suitability review process Allianz has adopted through this agreement represents a new era in annuity sales, and should be the prototype for annuity insurers throughout the state,” California Insurance Commissioner Steve Poizner says in a statement about the settlement agreement.
Allianz Life is emphasizing that the settlement “includes no admission of violation of California law and no formal finding by the department of violations of California law.”
Allianz Life settled the suit so that it could focus its efforts on “providing first class products and service” rather than on litigation, and it believes that the low complaint rate for its products shows that the sales force does an excellent job of explaining the products, Allianz Life President Gary Bhojwani says in a statement about the agreement.
“Allianz Life and the California Department of Insurance share a common goal,” Bhojwani says. “We want to ensure that consumers purchase only those products that meet their financial needs and objectives.”
The new annuity sales suitability review program builds on the kinds of safeguards Allianz Life itself has been adding in the past few years, the company says.