On April 27, 2018, the New York Department of Financial Services (DFS) and its Superintendent, Maria T. Vullo, announced that DFS had updated its proposed regulation on life insurance and annuity suitability to require a “best interest” standard for those licensed to sell life insurance and annuity products. See the first amendment to 11 N.Y.C.R.R. 224 (Insurance Regulation 187) linked here. https://www.dfs.ny.gov/insurance/r_prop/rp187a1text.pdf The updated standard is intended to protect consumers from receiving conflicted advice from agents, brokers or insurers. The proposal requires insurers to establish standards and procedures with respect to solicitation of life insurance and annuity contracts issued in New York to assure that any sales transaction with respect to such policies is in the best interest of the proposed policyholder and fully addresses the insurance needs and financial objectives of the proposed policyholder at the time of the transaction. The standard will apply to any life insurance or annuity product, whether in the context of retirement planning or when recommendations are made to consumers prior to the sale of an insurance product or after the sale but during the servicing of the product for the consumer.

What is “Bests Interests” “Best interests” is defined in the proposed regulation as a product “in furtherance of a consumer’s needs and objectives made with the care, skill, prudence and diligence necessary.” Interests of the insurance agent, broker or insurer or any other party other than the consumer shall not be considered in any aspect of the sales transaction. Insurance carriers are also expected to develop and maintain procedures to prevent financial exploitation of consumers.

The Superintendent’s Authority The regulation is premised upon the Superintendent’s authority to regulate trade practices in the business of insurance, to protect acts or practices that are unfair or deceptive and in furtherance of provisions of the insurance law which establish standards of conduct for insurance agents and brokers, including those requiring that insurance professionals must act in a competent and trustworthy manner. See Insurance Law Sections 2103, 2104, 2110, 2123 and 2208. The law also applies to insurers whose products are sold by these insurance professionals. See Insurance Law Section 4226 which establishes standards of conduct for insurers.

Exemptions There are exemptions from application of the amended rules for: direct response solicitations, i.e., policies purchased where the application is solicited and received in response to a generalized offer by the insurer by mail or under other methods without producer involvement and where no recommendations are made. A policy used to fund the following are also exempted:

  • an employee pension or welfare benefit plan covered by ERISA;
  • a plan described by the IRS in Sections 401AK 43B, 408K or 408P (if established and maintained by an employer, i.e., certain pension plans);
  • a government or church plan defined in IRC Section 414;
  • a government or church welfare benefit plan, or deferred compensation plan of a state or local government or tax exempt organization under IRC Section 457;
  • a non-qualified deferred compensation arrangement established or maintained by an employer or plan sponsor or a settlement or assumption of liabilities associated with personal injury litigation or any dispute or claims resolution process (i.e., structured settlement annuities);
  • terminated employee pension plans or assumed liability of certain segments of ongoing plans, such as for terminated vested participants, or existing accrued benefits for currently active participants;
  • a corporate or bank owned policy authorized under New York Insurance Law Section 3205(d) where all benefits under the policy are payable to the corporate or bank policy owner;
  • any credit life insurance contract as defined at New York Insurance Regulation 27A sold on a group basis; or
  • any life settlement contract as defined in Article 78 of the Insurance Law.

The proposal will become effective after a thirty day comment period after publication in the New York State Register, unless DFS further amends the rules consistent with commentary received.