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Suitability scrutiny: A Minnesota lawsuit may influence how insurers sell deferred annuity products to senior citizens.

Article Excerpt
Barely a week after her swearing in, Minnesota Attorney General Lori Swanson filed a significant enforcement action against one of the world's largest insurers, Minnesota-based Allianz Life Insurance Company of North America. Swanson's intention was clear: She would use not only the state consumer fraud laws commonly enforced by state AGs, but also state insurance regulatory laws including Minnesota's bellwether "suitability" requirement. The insurance industry--agents and companies alike--will want to keep an eye on this lawsuit. It may yield the first clear indication of how far companies and agents must go to satisfy suitability requirements that can otherwise be vague and open to interpretation.

Suitability is the core concept at issue in Minnesota v. Allianz. The introductory sentence of the 22-page complaint filed in early January accuses Allianz of encouraging and supporting the "unlawful offer and sale of deferred annuity products to Minnesota senior citizens without regard for the suitability of the annuity to the seniors." The complaint cites policy maturity dates that sometimes exceed the senior's expected life span, high surrender charges up to 15%, and allegedly misleading "immediate bonuses" as evidence of violations. It also cites numerous hardship instances in which elderly individuals or couples with limited means were sold annuities without the ability...