New York State Revises Best-Interest Reg For Annuities, Life Insurance

New York State officials are pushing ahead with a revised best-interest amendment that applies to annuities and life insurance.

State officials recently published an updated rule reflecting several changes produced from a 60-day comment period. The 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 regulation emerged after the Trump administration pulled back from the Department of Labor fiduciary rule, Empire State officials have said. The DOL rule is likely gone for good after the Fifth Circuit Court of Appeals tossed it out, and declined to grant an appeal this week.

“New Yorkers must be confident that the insurance agents, brokers and companies that they rely on are recommending the right products for them, and that the consumer’s best interests are paramount,” said Maria T. Vullo, superintendent of the NYS Department of Financial Services.

The reproposed amendment is subject to a 30-day notice and public comment period following publication in the New York State Register, DFS said in a press release. The department plans a March 1, 2019 effective date, after which insurers will have six months to comply.

The New York rules would:

• Require disclosure of all suitability considerations and product information that form the basis of any recommendation.
• Permit agents or brokers to make a recommendation only if they have a "reasonable basis to believe that the consumer can meet the financial obligations under the policy."
• Prohibit an agent or broker from telling a consumer that a recommendation is part of financial planning, investment advice or related services (unless the agent or broker is a certified professional in that area).

Additionally, the proposed regulation would require insurers to "establish and maintain procedures to prevent financial exploitation and abuse," disclose to customers all relevant policy information in order to evaluate a transaction, and provide to producers all relevant policy information in order to evaluate a replacement transaction.

Proprietary Products OK

In one of the significant changes made in response to comments, New York will allow product options to be limited to proprietary products, as long as the seller meets disclosure requirements informing the client.

The New York standard would continue to exempt policies/contracts used to fund qualified retirement plans, ERISA plans, and employer-sponsored IRAs. The proposal also would not apply to sales of mutual funds or other securities, unless related to an annuity or life insurance product.

For all other sales, the proposal would require licensees to apply a standard very similar to the DOL’s “best interests” standard, as well as the ERISA “prudent person” rule.

As such, a recommendation is in the best interest of a consumer if it furthers the consumer’s needs and objectives, and is made “without regard to the financial or other interests of the producer, insurer or any other party.”

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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