Annuities Face-Off: Lori Swanson and Allianz Life Insurance took their fight over sales of the investments to seniors to hearing

Allianz Life Insurance Co. of North America, shortly before testifying in front of a congressional committee Wednesday that is scrutinizing sales of annuities to senior citizens by the insurance industry, announced a new slate of consumer protections designed to curb criticisms of one of its top-selling products.

The Golden Valley-based insurer announced that beginning sometime after October it will call every customer age 75 or older who purchases an annuity to make sure they understand the product. Allianz will then offer full refunds to customers who request them.

Still, the company's past practices have left it the target of a lawsuit by Minnesota Attorney General Lori Swanson as well as six class-action lawsuits in several states.

Testifying before the Senate Special Committee on Aging, Swanson said the company should be ultimately held responsible for agents who sell unsuitable annuities to the elderly. "Agents are not rogue insurance agents," she said. "None of the sales would happen without an insurance company. It's important that [the company] be held accountable because they are making the most money."

Gary Bhojwani, Allianz chief executive, said the company has stringent safeguards in place to protect consumers.

The purpose of the hearing, called by committee chairman Sen. Herb Kohl, D-Wis., was to examine how some investment firms falsely portray themselves as financial experts to the elderly with credentials like "certified senior advisers." But much of the hearing focused on annuities, financial contracts in which a consumer agrees to pay a lump sum to an insurance company in exchange for regular payments that last the duration of the contract or until the consumer dies.

Allianz, in particular, has been the subject of growing legal and regulatory scrutiny concerning the sale and marketing of deferred annuities to senior citizens.

Critics like Swanson say such products are bad for the elderly because they tie up money-sometimes until long after seniors would be expected to live- and make it difficult for the seniors or their heirs to access the money without paying significant penalties known as surrender charges.

Gertrude Berle, an 87-year-old from Hector, Minn., who was cited in Swanson's lawsuit, thought she was being a good steward of her life savings when in 2002 she put almost all of her liquid assets-about $50,000-into an annuity with Allianz.

She had received a notice in the mail inviting her to a meeting at a local restaurant for seniors wishing to invest. After four years, Berle could have access to all the money, an agent told her.

But when Berle tried to withdraw money in January, she discovered she couldn't touch it without paying high withdrawal fees.

"You get floored when a smooth-talking salesmen tells you how much better something is than something else," Berle said in an interview Wednesday. "Who wouldn't bite?"

Allianz frequently notes that fewer than 1 percent of the company's annuity customers have filed complaints. The company requires customers to sign a statement of understanding and provide financial data to determine suitability before they purchase an annuity.

Allianz says the vast majority of its agents behave responsibly, although a few agents might cross the line.

"The reality is that we are part of a larger company and a larger industry," Bhojwani said. "You are going to attract complaints just based on your sheer size and volume."

Over the past several months, Allianz's strategy has been to deny wrongdoing while enacting measures that it says go well beyond industry standards.

In July, the company said that it would hire a chief suitability officer who would report directly to Bhojwani and that it would require its independent agents to complete a training course and to follow a code of best practices in order to sell for Allianz. The company also promised to devote more staff and resources to gauging customer satisfaction.

Allianz's announcement came right before a prominent New York Times story that focused on annuity sales to senior citizens.

At the hearing, Bhojwani also said Allianz is working on a list of approved designations independent agents can use when selling Allianz products.

State regulators say companies are ultimately responsible for their agents' actions.

"There needs to be up-the-chain accountability," testified Joseph Borg, director of the Alabama Securities Commission. "We are putting out raging forest fires. We need to blow out the matches before they light the forest fires."