News: 2008 Press Release

OAKLAND, BURBANK ― Continuing his work as a leading advocate for California's seniors, Insurance Commissioner Steve Poizner today announced a $10,050,000 settlement with Allianz Life Insurance Company for allegedly targeting thousands of seniors in deceptive annuity sales. Allianz, the largest seller of annuities in California, purportedly deceived elderly victims into purchasing confusing annuity products that were financially unsuitable for their needs. In addition to the sizable monetary settlement, Commissioner Poizner announced that Allianz has agreed to implement a groundbreaking suitability review process to further protect seniors.

"This landmark settlement ends years of aggressive and misleading marketing schemes targeted to our most elderly and vulnerable," said Commissioner Poizner. "The fact that Allianz used deceptive practices and high-pressure sales tactics to lure and cajole seniors into buying unsuitable policies is appalling. However, today's settlement represents a real sea change for the industry and is a tremendous victory for all California 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. My department will continue to actively track down insurance companies, agents and brokers who refuse to play by the rules."

An annuity is an insurance contract that is created when an individual gives a life insurance company money which may grow on a tax-deferred basis and then can be distributed back to the owner, either immediately or over a period of time.

Commissioner Poizner negotiated today's settlement based on findings from a Department of Insurance (CDI) market conduct examination. The examination revealed that Allianz had deceptively replaced 126 existing annuities for seniors who were between 84 and 85 years old. CDI's analysis determined that more than 97% of the annuities that Allianz replaced for this age group from January 2004 through July 2005 were financially unsuitable. The market conduct examination also uncovered that Allianz had been selling new annuities to seniors that were clearly unsuitable for the needs of the customers by using misleading marketing information. The CDI exam showed that Allianz used deceptive marketing materials that advertised "immediate" and "up-front" bonuses for consumers who purchased annuities, when in fact 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.

One victim was 85 years old when she was induced by Allianz to liquidate her existing annuities and pay a surrender charge of over $51,000. This victim did not understand the terms of the new annuity that was aggressively sold to her by an Allianz life agent. Another 85 year-old victim liquidated two existing annuities to purchase an Allianz policy and obtain the bonus represented to the senior as "immediate." After attempting to withdraw a large sum of money from his annuity, which an Allianz life agent told him was possible, this victim was informed that he would incur a sizeable surrender charge. Fortunately, after filing a complaint with CDI, this victim's money was returned to him. Had this victim not been deceived by a so-called "immediate" bonus and false representations that he could withdraw his money without penalty, he would not have liquidated his existing annuities.  

According to the terms of the settlement, Allianz will pay $3.3 million to CDI for monetary penalties, fees and costs. Allianz will pay $3.75 million over five years to the Life and Annuity Consumer Protection Fund, which provides funding to district attorneys and CDI to prosecute financial abuse by life agents. All of this $3.75 million will go to district attorneys. Allianz will also make $3 million in high impact investments qualifying under the California Organized Investment Network (COIN). COIN is a collaborative effort between CDI, the insurance industry, community affordable housing and economic development organizations, and community advocates that facilitates insurance industry investments that provide returns to investors and economic and social benefits to California's underserved urban and rural communities. 

As part of the settlement, Allianz has agreed to Commissioner Poizner's directive to implement a first-of-its-kind suitability review program for all potential senior customers. This program is the first of its kind in the California annuity sales industry, and an important step towards ensuring that seniors are not deceived into tying up their money in long term annuities when they cannot pay their living expenses, and are fully aware of the products they are purchasing. Allianz will also utilize more thorough mechanisms to ensure better senior protection. As part of this new program, Allianz must:

• Conduct an elevated review on all applications submitted from specified individuals 65 years and older
• Follow up by telephone with all applicants seventy-five 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
• Allow seniors impacted by Allianz's supposed unsuitable annuity sales, and named in the Order to Show Cause/Accusation and Notice of Hearing, to request the cancellation of their annuities 

On November 13, 2006, CDI formally accused Allianz of these allegations. Today's settlement resolves the major violations discovered by CDI, which are named in the formal accusation. (Order to show cause and settlement document attached below.) 

"Senior citizens have earned a place of honor and a special right to respect and recognition in our society," continued Commissioner Poizner. "California seniors have worked a lifetime to accumulate their assets and should take every precaution to protect them." 

Purchasing insurance and other financial products such as annuities that meet an individual's specific needs can be challenging. Since an individual's financial situation may change over time, it is important to review and understand any insurance policy or contract to decide if it is still appropriate. Commissioner Poizner offers the following tips to seniors who are considering purchasing a new or replacement annuity policy:

• Obtain all proposals in writing.
• Don't be pressured into buying any insurance product. Take enough time to review the information before making any decisions.
• Do not sign anything you do not understand.
• Consider having a trusted family member, friend or advisor participate in discussions concerning the purchase of any insurance product. 
• Make sure the agent, broker and insurance company are properly licensed to sell the product you are considering purchasing.
• Make sure you receive a full disclosure of all information relating to the benefits and possible negative consequences regarding the replacement of an existing annuity.
• Obtain a full disclosure of all surrender charges and related time frames in connection with an annuity prior to purchase.

This information provided is not all inclusive and does not negate or preempt existing California law. If a senior or anyone has questions or wishes to discuss any insurance matter, the officers at the CDI Consumer Hotline are available to help. Please call 1-800-927-HELP (4357) or visit www.insurance.ca.gov.   

For additional information about annuities, visit http://www.insurance.ca.gov/0100-consumers/0060-information-guides/0020-life/life-insurance.cfm.  

Copy of order to show cause can be found here.