Regulators to Seek $5 Million From Unit of Insurer Allianz : Consumers: Officials say company misrepresented life insurance policies as retirement plans. Firm denies it.
State insurance regulators said Monday that they will seek a record $5-million fine against a unit of German insurance giant Allianz for allegedly hoodwinking Californians into buying universal life insurance under the guise of retirement savings plans.
Regulators say that Minneapolis-based Allianz Life Insurance Co. of North America--working through a Dallas-based agency--deceptively sold about 20,000 insurance policies at small-business workplaces, mainly in Southern California, between 1990 and early this year.
According to investigators, salespeople encouraged employees to authorize payroll deductions for benefit programs with titles such as “Employee Security Program,” “Universal Retirement Enhancer” and “Savings Protection Plan,” but which in fact were universal life policies.
Some of the people who bought the policies were led to believe they were setting aside pretax dollars for retirement, but the payroll deductions were actually insurance premiums and fees, investigators say.
“This company is charged with taking advantage of working people who thought they were investing in their future,” state Insurance Commissioner Chuck Quackenbush said in a statement. “Instead they unwittingly bought life insurance they may have neither wanted nor needed.”
One of the large employers where the policies were sold is Robert F. Kennedy Medical Center in Hawthorne. Human resources director Lou Gregorio said 171 of the hospital’s approximately 600 employees enrolled in the Allianz program beginning in August, 1993. Many employees were surprised and upset to discover that it was a life insurance policy, he said.
The sales were mostly made before Gregorio arrived at RFK, but he said employees told him they involved “high pressure and a lot of fast talking.”
Gregorio said he contacted Allianz’s agent, Corporate Benefits Design of Dallas, but the firm refused to let the employees out of the contracts. Gregorio said he then complained to the California Insurance Department, which brought pressure on Allianz and got the insurer to provide refunds for all policyholders.
The proposed Allianz fine would nearly quintuple the highest fine ever levied by the Insurance Department. The current record is the $1.1 million that Metropolitan Life Insurance Co. paid last year as part of a multistate settlement involving deceptive annuity sales practices.
Allianz denies trying to deceive consumers but acknowledges that “it could have done a better job of overseeing the program,” said Bob Hogeboom, a Los Angeles lawyer representing the insurer.
Hogeboom said that earlier this year--after learning of the Insurance Department investigation--the company mailed letters to 5,000 of its California policyholders describing their insurance program and asking whether they had been adequately informed when they purchased it. “They got only 12 responses,” he said.
He called the proposed $5-million fine “ridiculous” and said Allianz looks forward to defending itself in a hearing to be scheduled on the case later this year before an administrative law judge.
