Allianz suit settlement may bring full refunds

The agreement on suitability of annuities for older people could set a national precedent.

Minnesota Attorney General Lori Swanson reached a settlement Monday with Allianz Life Insurance Company of North America that could return millions of dollars to about 7,000 senior citizens who purchased annuities since 2001.

Under the terms of the deal, Minnesotans who were age 65 or older when they bought an Allianz deferred annuity on Jan. 1, 2001, or later can submit a claim for a full refund without penalty. Over the past six years, Minnesota consumers in that age group invested about $325 million in such annuities, which are financial contracts that guarantee a stream of income over time.

Requests for refunds will be "liberally construed" in favor of the consumer, court documents said.

The documents were filed in Hennepin County District Court. If it is determined that the sale was unsuitable or based on misrepresentations, the consumer will be offered a refund of premium, without a surrender charge, plus 4.15 percent interest.

The company also agreed to set specific numerical benchmarks to help determine whether it sold a suitable annuity. The settlement, which requires Allianz to closely scrutinize a greater percentage of applicants, may prompt insurance companies across the country to adopt the same measures, experts say.

While the settlement technically covers only Minnesota, Allianz-one of the largest sellers of annuities in the United States-said it will change its practices in all 50 states.

"There are lessons to be learned for the rest of the industry," Swanson said in an interview. "It has been a 'Wild West' environment in selling these annuities."

In a statement, Allianz chief executive Gary Bhojwani described settlement talks with Swanson as "difficult."

"But it soon became clear that the common ground we share is a sincere desire to protect the needs of consumers in the State of Minnesota," Bhojwani said. "With this settlement, Allianz is taking yet another step to continue to earn the trust and confidence that our consumers place in us every day."

Swanson sued Allianz in January, claiming that the Golden Valley-based company used misleading sales and marketing tactics to sell unsuitable annuities to senior citizens. The company offered false promises of up-front cash bonuses to get older investors to buy long-term annuities that locked up their money, the lawsuit claimed.

Allianz still faces five other lawsuits and investigations from insurance regulators in California and Minnesota. The Minnesota Commerce Department, which regulates insurance, has been quietly negotiating a settlement with Allianz that could cover 10 states, said spokesman Bill Walsh. Swanson's settlement "definitely helps," he said.

Last week, Allianz settled a class-action suit in which the company agreed to make cash payments to 60,000 investors across the country who purchased cash bonus annuities.

Monday's agreement calls for Allianz and the attorney general's office to jointly review requests for refunds. If the two sides can't agree on a case, an independent third party will decide.

Under a new screening system, investors with liquid assets of less than $75,000, or who want to buy an annuity that exceeds 25 percent of their net worth, automatically trigger "a heightened, elevated review" from the company. The attorney general's office estimated that 50 percent of Allianz's applicants who are 65 or older will undergo an elevated review, compared with 5 percent today.

The company then must obtain and document more detailed information from buyers before selling them annuities. The information includes anticipated significant changes in household monthly income, living expenses, or liquid assets.

Some experts are unimpressed with the settlement terms.

J. Robert Hunter, director of insurance for the Consumer Federation of America, said the changes that Allianz has agreed to make are "relatively modest," and should have been put in place years ago.

But while the changes may seem like common sense to some industry analysts, they still represent a "dramatic departure" from the way insurance companies traditionally have screened annuity buyers, said Joseph Belth, professor emeritus of insurance at Indiana University and editor of the Insurance Forum newsletter.

A number of states, including Minnesota, have suitability rules, but they are "vague and difficult to enforce," Belth said. "This is a landmark agreement [that] will change the ballgame altogether, by providing an elevated review" of annuity sales, he said. "It has the potential to be a model for other states."

Other companies, eager to show regulators that they are serious about preventing unsuitable annuity sales, are likely to step forward with practices similar to those outlined in the settlement, said Steven Weisbart, chief economist for the Insurance Information Institute. Doing so might "quiet some of the drumbeat for additional regulation, which could be more onerous," he said.

In any case, Matthew Little would just be happy to get his money back. The 86-year-old Maplewood resident invested $50,000 in an Allianz annuity last year but now says the agent didn't fully explain the product to him.

"I hate the idea of my money being locked away for that long," Little said. "With health costs what they are today, I certainly would like to be able to afford rising health expenses."