In the face of recent rules and guidance initiated by the Financial Industry Regulatory Authority (FINRA), insurance carriers and producers that sell their products should be mindful of certain relevant provisions of state insurance laws in New York and New Jersey. The rules codified below are based largely on the National Association of Insurance Commissioners (NAIC) model regulations, and are designed to prevent the fraudulent and misleading marketing of annuity products, provide standards for the disclosure of information about annuities and ensure that these products are suitable for the consumers that purchase them. Many of these products are also securities regulated by FINRA and, indeed, a large percentage of those to whom these products are marketed are seniors.

New York

The New York Department of Financial Services promulgated Regulation 187 (11 NYCRR 224), which requires insurers to set forth standards and procedures for recommendations to consumers with respect to annuity contracts so that the insurance needs and financial objectives of the consumers are appropriately addressed. Section 224.4 (g) & (h) holds the insurance company responsible for ensuring that every producer recommending its annuity products is adequately trained to make the recommendation.

Section 3209 of the New York Insurance Law establishes disclosure requirements in the solicitation, negotiation or procurement of life insurance, annuities or funding agreements. Section 3209 prohibits an insurance company from issuing a variable life insurance policy unless it provides to the prospective purchaser a copy of the most recent buyer's guide and the preliminary information as required by Insurance Law Section 3209(d). In addition, New York Insurance Regulation 34-A (11 NYCRR 219.4) prohibits an insurance agent or broker from making or issuing an advertisement that contains statements that are untrue or misleading with respect to life insurance and annuity contracts.

Regulation 60 (11 NYCRR 51)regulates the acts and practices of insurers, insurance agents/producers, insurance brokers and other licensees with respect to the internal and external replacement of certain life insurance policies and annuity contracts. Section 51.7(a)(1) of Regulation 60 prohibits an insurer, agent or broker from making or giving "any deceptive or misleading information in the ‘Disclosure Statement’ or in any proposal, including the sales material used in the sale of the proposed life insurance policy or annuity contract." An insurance producer must explain fully and accurately the consequences of any replacement of a life, accident and health, or property/casualty insurance policy or contract or any annuity contract so that the policy or contract holder can make an informed decision.

Lastly, regulators have also identified the use of senior designations in advertising and marketing materials as a possible risk to investors because a designation may be used to imply expertise or credentials, which may be inaccurate or misleading. In 2013, the Department of Financial Services adopted Regulation 199 (11 NYCRR 225), which effectuated standards to protect consumers from misleading and fraudulent marketing practices with respect to the use of senior-specific certifications and professional designations in the solicitation, sale or purchase of, or advice made in connection with, a life insurance policy or annuity contract. Regulation 199 prohibits the use of a senior-specific certification or professional designation by an insurance producer in such a way as to mislead a purchaser or prospective purchaser into believing that the insurance producer has special certification or training in advising or providing services to seniors in connection with the sale of life insurance and annuities.

In 2014, the New York Legislature supplemented Regulation 199 by amending the general business law to provide for mandatory disclosure in advertising using senior specific designations. Section 350-b-1. This is not limited to insurance transactions, but it directly impacts insurance producers who market themselves or their businesses as having credentials related to seniors. This law requires clear and prominent disclosure in advertising of the designation source. The law specifically allows designations that are self-created, but requires advertising disclose that the designation is created by the business or individual doing the soliciting. Even if an insurance producer is using an insurance-permitted designation, it still must disclose the source of the designation.

New Jersey

N.J.S.A. 17B:25-34 (the Act) prescribes marketing, information disclosure and product suitability requirements for annuity contracts solicited directly to consumers. The Act requires the New Jersey Commissioner of Banking and Insurance to approve an annuities buyer's guide and the standard form of an annuity contract disclosure statement to be used by an insurance producer, agent, representative of a fraternal benefit society not required to be licensed as an insurance producer, or an insurer in the solicitation, negotiation, or sale of an annuity. The Act also requires that those selling these products make reasonable efforts to obtain and record information about the suitability of the product for the solicited consumers and the consumer's acknowledgment of the information recorded.

The New Jersey Department of Banking and Insurance's rules on Life Insurance and Annuities Replacement, N.J.A.C. 11:4-2.1, regulate the activities of insurers and producers with respect to the replacement of certain existing life insurance and annuity contracts. The rules provide for notice and disclosure requirements that apply to the sale of life insurance and annuities where the applicant has existing policies or contracts in force. Life insurance and annuity contracts may be exchanged tax free, but insurance companies may charge fees for the exchange, which can lead to concerns about unnecessary replacements. See Jeff D. Opdyke, Annuity Sales Face Crackdown by Regulators, Wall St. J., Aug. 4, 2005. Seniors may be encouraged to switch from one life insurance or annuity to another, racking up big administrative costs and fees. That is why in 2005, New Jersey promulgated the Senior Citizen Investment Protection Act, which limits how long annuity sellers can impose surrender charges in the event the annuity owner wants to sell the product. P.L. 2005, c. 45 (amending N.J.S.A. 17B:25-20).

New Jersey has also restricted the use of professional designations and senior-specific certifications in the sale of life insurance and individual annuities, which helps ensure persons or entities selling these products do not mislead seniors as to their expertise in senior-related issues. N.J.S.A. 17B:25-36 provides that an insurance producer, or an agent, representative or member of a fraternal benefit society not required to be licensed as an insurance producer, or an insurer, if no producer or non-licensed society agent, representative or member is involved, shall not use a certification, professional designation, or form of advertising expressing or implying in an untrue, deceptive, misleading, or false manner that the producer, non-licensed society agent, representative or member, or insurer has special education, training or experience in advising or servicing senior citizens or retirees in connection with the sale of annuities. These limitations are consistent with the prohibitions upon unfair trade practices set forth in the Unfair Trade Practices Act (N.J.S.A. 17B:30-1).