Allianz Life Insurance Company (ALIC), a
US unit of European insurer Allianz, has reached a $10.05 million
settlement with Californian Insurance Commissioner Steve Poizner.
The payment by ALIC followed an investigation into what the
California Department of Insurance (CDI) termed “the alleged
targeting of thousands of seniors in deceptive annuity sales”. ALIC
is the largest seller of annuities in California.

“This landmark settlement ends years of aggressive and
misleading marketing schemes targeted to our most elderly and
vulnerable,” said Poizner. “The fact that Allianz used deceptive
practices and high-pressure sales tactics to lure and cajole
seniors into buying unsuitable policies is appalling.”

Poizner negotiated the settlement based on findings of a CDI market
conduct examination that revealed ALIC had, according to the CDI,
“deceptively” replaced 126 existing annuities for seniors who were
between 84 and 85 years old.

CDI’s analysis determined that more than 97 percent of the
annuities replaced for this age group between January 2004 and July
2005 were financially unsuitable.

The CDI also noted that its examination revealed ALIC had been
selling new annuities to seniors that were “clearly unsuitable for
the needs of the customers by using misleading marketing
information”. The CDI alleged that ALIC had also used “deceptive”
marketing materials that advertised immediate and up-front bonuses
for consumers who purchased annuities. However, in reality,
consumers would not receive the immediate bonuses in the form of
cash unless they held on to the annuity for five years and then
received their money back in periodic payments for ten years or
life.

Suitability review

In addition to the monetary settlement, ALIC agreed to implement
what Poizner said was a “groundbreaking” suitability review process
to further protect seniors. “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,” said Poizner.

As part of the new review ALIC must:

• conduct an elevated review of all applications submitted
from specified individuals 65 years and older;

• follow up by telephone with all applicants 75 years of age
or older, and those living in assisted living facilities, to
confirm their thorough understanding of the purchased
product;

• amend annuity contracts to make them more understandable to
consumers;

• clearly, plainly and conspicuously disclose the terms of
premium bonuses being offered; and

• allow seniors impacted on by Allianz’s supposed unsuitable
annuity sales, and named in the CDI’s order, to show
cause/accusation and notice of hearing, to request the cancellation
of their annuities.

According to industry body the American Council of Life Insurers,
total annuity premium income of $28.36 billion was generated in
California in 2005. This made California the US’s biggest annuity
market (by state) and represented 10.1 percent of total US annuity
premium income in 2005.