Andrew Frye of Bloomberg.com has reported that the North American subsidiary of Allianz, Europe’s largest insurer, has agreed to a settlement with California’s insurance regulator under which it will pay $10.1 million and change its annuities sales practices. California alleged that Allianz misled investors and pushed unsuitable products onto thousands of elderly persons. In a statement, Commissioner Steve Poizner noted, “The fact that Allianz used deceptive practices and high-pressure sales tactics to lure and cajole seniors into buying unsuitable products is appalling.”
Page Perry has reviewed the California settlement document. In sum, the settlement requires Allianz to (1) pay a $3,000,000 monetary penalty, (2) pay $300,000 in attorneys fees, (3) make a $3,750,000 contribution over five years to the Life and Annuity Consumer Protection Fund special account within the California Insurance Fund, (4) make a $3,000,000 “High Impact” investment in the California Organized Investment Network, (5) establish annuity suitability systems, standards and procedures, and (6) conduct a claims review process for current or former owners of certain annuities. The claims review process will give policyholders (regardless of age) the opportunity to request rescission of their policies or receive “other specified restitution” from Allianz.
Allianz recently settled another case brought by a state regulator over variable annuities. In October 2007, Allianz agreed to pay $500,000 and review refund requests from elderly investors to settle a lawsuit brought by Minnesota Attorney General Lori Swanson on behalf of Minnesota seniors.
Allianz is also facing three class-action lawsuits in the U.S. on behalf of customers who purchased fixed annuities. Allianz may face damages of $2 billion in a class action brought by Page Perry (along with its co-counsel: Kansas-based The Nygaard Law Firm and Minnesota-based Chestnut and Cambronne) and set to go to trial in Minneapolis next year. In a telephone interview with Mr. Frye, Alan Perry explained that this calculation was based on full damages awarded to all eligible customers nationwide. Since 2000, more than 400,000 policyholders paid premiums to Allianz in excess of $20 billion on its most popular annuity products.
At issue in that class action is the payment of an “upfront” bonus that the policyholders were told that they would receive when they purchased the annuity. According to Perry, instead of an immediate payment, the bonus was credited to the annuitization value that is unavailable for free withdrawal and not accessible unless certain onerous conditions are met. “The customer expected upfront bonuses. At the earliest, it will take 15 years to get the full value of the bonus,” Perry said.