The National Association of Insurance and Financial Advisors' New York chapter filed a lawsuit to stop the state's controversial best-interest rule slated to take effect in August.
New York finalized its best-interest standard in July for both annuity and life insurance sales. The state's best-interest regulation is considered one of the toughest in the country, one that New York officials are lobbying the National Association of Insurance Commissioners to endorse.
The NAIFA-NY lawsuit claims the New York Department of Financial Services acted in defiance of the state legislature, which failed in two separate attempts to regulate the life insurance industry.
"It is well settled that the Legislature may not delegate to an agency its responsibility to set policy," the lawsuit reads. "To the extent the Legislature empowers an agency to promulgate regulations implementing a policy, the Legislature must place limits and safeguards to ensure that the agency is merely carrying out legislative policy—not making new policy."
In addition, NAIFA-NY claimed the best interest amendment does not include any factual basis and that DFS "refused to consider evidence from parties commenting on the proposed regulation."
"DFS acted solely on its own ideas of sound policy without any legislative or statutory guidelines, choosing to favor consumers at the insurance industry’s expense—which ironically harms consumers as much as insurers, brokers, and agents," the lawsuit reads.
In a statement, DFS Superintendent Maria Vullo touted the support the agency has received from "New York's nation-leading life insurance industry" for the regulation.
"Given the vital role that insurance products play in providing financial security to New Yorkers, it is essential that providers not be influenced by a producer’s financial incentives, adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer's best interests," the statement reads.
NAIFA-NY filed its lawsuit in New York County and is asking the court for a declarative judgment and an injunction preventing the best-interest amendment from taking effect.
'Unfair Playing Field'
The NAIFA-NY lawsuit includes an affidavit from Donald Damick, a 39-year insurance agent doing business in Geneva, N.Y. The New York regulations exempts life insurance and annuity products sold directly to consumers, he pointed out.
"The direct sales exemption creates an unfair playing field as it gives those insurers a competitive advantage over producers, who must meet Regulation 187' s compliance burden for each sale," Damick said. "I believe that over time more insurers will continue the trend of moving more products to their direct sales platform simply to avoid Regulation 187's burdens, thus driving more producers from this business.
The losers from such a move would be "low-income, less sophisticated consumers who would benefit most from in-person agent advice about other available products or options," Damick added.
The Big I and the Professional Insurance Agents of New York filed their own lawsuit against the best-interest rule.
Big I NY and PIANY called the new standard "wildly subjective" and said it fails to instruct agents/brokers whose best interest they must consider; be it the policyholder, beneficiary, or owner of a policy.
"The new standard will not protect consumers, but instead be detrimental by potentially driving business out of the state and leaving the insurance-buying public with reduced access to affordable coverage," the press release reads.
The New York rules come with an effective date of Aug. 1, 2019, for annuity contracts, and six months afterward for life insurance contracts.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.
© Entire contents copyright 2018 by InsuranceNewsNet.com Inc. All rights reserved. No part of this article may be reprinted without the expressed written consent from InsuranceNewsNet.com.