On December 27, 2017, the New York Department of Financial Services proposed an amendment to Insurance Regulation 187. If adopted, New York-licensed life insurers and producers would be subject to a heightened “best interest” standard for virtually all life insurance and annuity products (except for ERISA, 401-K, and similar plans) and insurers would be required to take specific steps to prevent financial exploitation and abuse.

The proposed regulation requires any recommended life insurance transaction to be in the best interest of the consumer and appropriately address the consumer’s insurance needs and financial objectives at the time of the transaction. Under the proposed regulation, a producer (or an insurer selling direct with no producer) acts in the “best interest” of a consumer when (1) the recommendation to purchase is based on an evaluation of the consumer’s “suitability information” that reflects the care that a prudent person would use in a similar situation without regard to the financial interests of any other party, (2) the transaction is in furtherance of the consumer’s needs and objectives under the circumstances, and (3) the consumer is reasonably informed of the consequences of the transaction. “Suitability information” includes, inter alia, a consumer’s age, income, financial needs, financial experience, financial objectives, existing assets and risk tolerance. “Suitability information” also must include the manner in which the producer is compensated for the sale and servicing of the policy, using the procedures required in the Department’s separate producer compensation regulation.

As amended, the regulation prohibits producers from (1) making a recommendation to purchase unless the producer has a reasonable basis to believe the consumer can meet the financial obligations under the policy, or (2) stating the recommendation is part of financial or investment planning unless the producer has the appropriate professional designation. Additionally, insurers must (1) establish and maintain procedures to prevent exploitation and abuse, (2) provide relevant policy information to a consumer for evaluating a transaction, and (3) provide relevant policy information (and information required by Insurance Regulation 60) to a producer for evaluating a replacement transaction.

There is a 60-day notice and public comment period for the proposed amendment.