On June 22, 2011, New York Insurance Commissioner James Wrynn signed a statement re-adopting Regulation No. 197 governing suitability in annuity transactions (the “Regulation”) on an emergency basis.
The Regulation applies to any recommendation to purchase or replace an annuity contract made on or after June 30, 2011. It mandates that insurers establish procedures for making recommendations to consumers in connection with annuity contracts. The standards and procedures are similar to those set forth in the NAIC Suitability in Annuity Transactions Model Regulation, and the Financial Industry Regulatory Authority’s current National Association of Securities Dealers Rule 2310 for securities. The stated purpose of the Regulation is to apply these national standards to annuity contracts sold in New York.
Among other things, the Regulation requires the insurance producer, or the insurer where no insurance producer is involved, to have reasonable grounds for believing that the recommendation is suitable, and a reasonable basis for believing all of the following:
- the consumer has been reasonably informed of various features of the annuity, including applicable risks;
- the consumer would benefit from certain features of the annuity contract;
- the particular annuity contract is suitable for the consumer; and
- in the case of a replacement of an annuity contract, the replacement is suitable taking certain factors into consideration, such us the surrender charge.
Prior to making a recommendation, the insurance producer, or an insurer, must make reasonable efforts to obtain the consumer’s suitability information, such as the consumer’s age, annual income, financial needs, risk tolerance, and tax status, among other things.
Note that the Regulation places responsibility on insurers for making sure that producers appropriately trained to make annuity recommendations.
The Regulation was filed with the Secretary of State on June 22, 2011, and published in the state register on July 13, 2011. The Regulation was previously promulgated on an emergency basis on December 30, 2010, and March 25, 2011.