$5 million fine sought against insurer Allianz Life Insurance Co. charged with duping customers.

SACRAMENTO, Calif.--(BUSINESS WIRE)--Sept. 25, 1995--The California Insurance Department will seek a record $5 million fine against the Allianz Life Insurance Co. for engaging in deceptive sales and marketing practices that induced consumers to buy life insurance believing that they were investing in retirement savings plans.

The Department will also demand full restitution for those who were victims of the company's sales tactics.

"Evidence obtained by the Department suggests chicanery on a scale that demands forceful and exhaustive regulatory action," Insurance Commissioner Chuck Quackenbush said.

"This company is charged with taking advantage of working people who thought they were investing in their future. Instead they unwittingly bought life insurance they may have neither wanted nor needed. Sales practices like this give the entire insurance industry a black eye and will not be tolerated."

According to Insurance Department investigators, Allianz launched a "worksite marketing" program in 1990, which was designed to encourage employees to authorize payroll deductions to enroll in benefit programs with such titles as "Employee Security Program," "Employee Savings Plan," "Universal Retirement Enhancer," "Retirement Plan," "Savings Protection Plan," and "Personal Retirement Life Builder."

In reality, according to the complaint filed against Allianz, enrollees were buying a universal life insurance policy, and internally the company referred to the policies as "payroll deduction life insurance products."

The policy contains a death benefit and accumulates cash value over time subject to commissions, fees, penalties and other costs. Department investigators found that the company's sales force would target small businesses with typically high employee turnover -- such as automobile dealerships -- so that few policyholders would ever build up a significant cash value before changing jobs and dropping the policy.

The Department will present evidence that agents would routinely overstate the interest paid on the policies.

Allianz marketed the policies in conjunction with Cafeteria 125 Plans, which allow employees to set aside pre-tax dollars for retirement, medical, child care and other permissible expenses. Allianz, it is alleged, characterized the reduction in an employee's withholding taxes as "savings" that would offset the employee's "contribution" to the program.

The contributions were, in fact, premiums and other costs related to the policy. It was common for sales personnel to falsely represent that participation in the so-called "Employee Security Program" was required to enroll in other benefits offered by the Cafeteria Plan, according to evidence obtained by the Department.

Employers were encouraged to participate on the basis that the plan offered a benefit to employees at no costs to the employer, and employee participation in the program meant a lower taxable payroll for the business.

Once the employer agreed, Allianz would represent the program as a benefit provided by the employer. Employers would promote the program in employee communications and by scheduling sales meetings and allowing Allianz representatives access to employees during working hours .

Allianz is also charged with multiple violations of the California Insurance Code for failure to file and certify the accuracy of advertisements relating to the program, failure to apply premiums to the policies on a timely basis, failure to deliver copies of individual policies and other disclosure information, using unlicensed agents to sell the policies and failure to respond to inquiries, complaints and requests to cancel the policies.

The largest fine collected by the California Insurance Department to date has been $1.1 million, which was paid last year as part of a multi-state settlement with the Metropolitan Life Insurance Company for deceptive sales practices involving annuities.

A hearing will be scheduled before an administrative law judge to give Allianz the opportunity to show cause why the fine and restitution order should not be imposed. The judge's ruling will be submitted to the Insurance Commissioner for a final decision, which may be appealed to the Superior Court.

Consumers who enrolled in programs such as those described should contact the Insurance Department's Consumer Services Bureau through its toll-free hotline at 800/927-HELP (or 213/897-8921 outside California). It is important to retain any and all documentation to verify eligibility for restitution.

Allianz Life Insurance Company of North America is based in Minneapolis, and is owned by Allianz AG Holding Company of Germany. In 1994, the company had assets of $7.7 billion and $2.8 billion in direct written premium.

"Insurance companies that offer sound products at fair prices are welcome to do business in California," Quackenbush said. "But those that think they can make a quick buck by skirting the law will pay the consequences."

CONTACT: Richard Wiebe, 916/324-2515

Candysse Miller, 213/346-6367