New York Court of Appeals Restores Strict Standard for Life Insurance and Annuities – InsuranceNewsNet


The New York State Court of Appeals sided with regulators in a decision Thursday to reinstate the nation’s toughest state annuity sales standard.

Regulation 187, passed in 2018 by the New York State Department of Financial Services, requires producers of life insurance and annuities to base their sales recommendations on the best interest of the consumer, regardless of the compensation of the advice or other inducements.

The settlement was quickly challenged in court by New York’s Independent Insurance Agents and Brokers (the Big I-NY) and New York State’s professional insurance agents. The National Association of Insurance and Financial Advisors-New York filed a separate complaint.

A 2019 ruling by Judge Henry Zwack found that the New York State Department of Financial Services was within its jurisdiction when it issued Rule 187. Only the Big I-NY appealed the decision Zwack. Last year, the state Supreme Court’s appellate division overturned Zwack’s decision.

Regarding the court’s latest overturn, Lisa Lounsbury, president and CEO of Big I-NY, told Reuters they “respect the court’s position” but “strongly disagree with the decision.”

Regulation 187, often described as similar to a fiduciary standard, went into effect in 2019 as state officials circumvented efforts by the National Association of Insurance Commissioners to create a model standard for annuity sales. New York regulations also apply to life insurance sales and set the bar high for a sale to be in the “best interest” of consumers.

Plaintiffs have advanced several arguments, including that By-law 187 is in conflict with the current legislative scheme and exceeds the power of taxation of the defendant; it is unreasonable, arbitrary and capricious and lacks a rational basis; and it is unconstitutionally vague.

The Court of Appeal disagreed: “We reject plaintiff’s argument that DFS has crossed the line into ‘impermissible legislative policymaking’.” The legislator has given DFS the power to control “persons providing financial products and services” and to establish “professional standards of conduct” for insurance producers.

The New York rules include several requirements, including:

  • Require disclosure of all suitability considerations and product information that forms the basis of any recommendation.
  • Allow agents or brokers to make a recommendation only if they have a “reasonable basis to believe the consumer can meet the financial obligations under the policy”.
  • Prohibits 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 field ).
  • Additionally, the regulation requires insurers to “establish and maintain procedures to prevent financial exploitation and abuse,” disclose all relevant policy information to customers in order to assess a transaction, and provide producers with all relevant information. on the policy to assess a replacement transaction.

Some derogations

The New York standard exempts policies or 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 they are tied to an annuity or life insurance product.

For all other sales, the proposal required licensees to apply a standard very similar to the Department of Labor’s best interest standard, as well as the ERISA prudent person rule.

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

Editor-in-chief of InsuranceNewsNet, John Hilton has covered business and other beats in more than 20 years of daily journalism. John can be reached at [email protected]. Follow him on Twitter @INNJohnH.

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