Allianz Life Insurance Co. of North America will pay $10 million to settle charges that it sold unsuitable annuities to thousands of senior citizens in California.
Allianz to pay $10 million to settle lawsuit
The insurer made a deal with California concerning sales of annuities to senior citizens there, but admitted no wrongdoing.
By THOMAS LEE, Star Tribune
February 15, 2008 at 3:14AM
The Golden Valley-based insurer also agreed to strengthen the way it reviews annuity applications and to better explain its products to customers, under the settlement reached with the California Department of Insurance.
"We made a business decision with this settlement that will allow us to focus on our priorities of providing first-class products and service to our consumers instead of concentrating our efforts on litigation," Allianz Chief Executive Gary Bhojwani said. Allianz admitted no wrongdoing.
Allianz has been the subject of legal and regulatory scrutiny concerning the way it sells and markets annuities to older people.
Critics say the company uses misleading promises of "upfront" cash bonuses to persuade senior citizens to buy complex financial products that don't serve their best interests.
Allianz maintains that it never intentionally misled investors and that the terms of its annuities were clearly spelled out in sales documents.
In December 2006, the California Department of Insurance named more than 100 people, all senior citizens, who made "financially disadvantageous" deals in swapping existing annuities for Allianz products.
"Allianz has failed to adequately train its agents as to what constitutes a proper and improper replacement annuity," the California regulators said in a court proceeding.
The settlement calls for Allianz to pay a $3 million fine and to contribute $3.75 million over five years to a fund that helps regulators and district attorneys prosecute financial abuse by life insurance agents. In addition, the company will give $3 million to the California Organized Investment Network, which aids underserved communities.
Certain conditions will now prompt the company to conduct an "elevated review" of annuity applications from people age 65 and older. Those conditions include the annuities' premiums exceeding 25 percent of an applicant's net worth or four times an applicant's annual income.
Allianz still faces several class-action lawsuits and an ongoing investigation by the Minnesota Commerce Department. Bill Walsh, a commerce spokesman, said regulators and Allianz are negotiating the terms of a proposed settlement.
In October, the company settled a lawsuit filed by state Attorney General Lori Swanson that could return millions of dollars to about 7,000 senior citizens who purchased annuities since 2001. Swanson estimates that 1,500 people have applied for refunds, which will include the original premiums, without a surrender charge, plus 4.15 percent interest. Requests for refunds will be "liberally construed" in favor of the consumer, court documents said.
Thomas Lee • 612-673-7744
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THOMAS LEE, Star Tribune
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