State seeks “best interest” standard for consumers in life-insurance sales

The New York State Department of Financial Services has proposed new consumer protections that would adopt a “best interest” standard for those licensed to sell life insurance and annuity products in the state.

It’s a new requirement that would compel the seller to offer the product that “best reflects the customer’s interest” ahead of what is “most profitable” to the seller, the office of Gov. Andrew Cuomo said in a news release issued Dec. 27. 

The proposed regulation comes as the federal government has recently delayed by a year and a half implementation of similar, increased regulations on those who sell life insurance and annuities.

“As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field,” Cuomo contended in the release. 

“Given the key role insurance products play in providing financial security to middle class New Yorkers, it is essential that a provider adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer’s best interests,” Maria Vullo, New York’s financial-services superintendent, said.

Reaction to DOL delay

On Nov. 27, the U.S. Department of Labor (DOL) announced that it would delay by 18 months implementation of a fiduciary rule, adopted under the previous administration, which expands the definition of investment advice under the federal Employee Retirement Income Security Act, applies to certain annuity and life-insurance sales, and requires financial advisors to adhere to “enhanced” standards of conduct. The date of implementation has been pushed back from Jan. 1, 2018 to July 1, 2019.

During the 18-month transition period, “fiduciary advisers have an obligation to give advice that adheres to ‘impartial conduct standards.’ These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements,” the DOL said.

The proposed amendments to New York’s current suitability regulation would provide for a “best interest standard of care” for all sales of life insurance and annuity products, “beyond” the types of advice covered by the federal DOL rule. That includes retirement planning, and when recommendations are made prior to the sale of an insurance product, or after the sale — but during the servicing of the product — for the consumer. 

A transaction is considered in the best interest of a consumer when it assists a consumer’s needs and objectives and is recommended to the consumer “without regard to the financial interest of the product seller,” the state says. Insurers would also be required to develop and maintain procedures to “prevent financial exploitation of consumers.” 

The amendments “supplement” consumer protections already in effect in New York and that are “key elements” of the conflict of interest rule. They include setting limits on compensation and compensation transparency for the sale of a life insurance or annuity product in New York.

The proposed amendments are subject to a 60-day notice and public-comment period following the Dec. 27, 2017, publication in the New York State Register before its final issuance.

Industry reaction

In a Dec. 27 Bloomberg article, the Life Insurance Council of New York, expressed concern about New York’s proposed regulations putting the state’s life insurers at a competitive disadvantage against insurers from other states.

“We do have serious concerns about implementing any regulations that will result in an unfair playing field for New York’s life insurance companies,” the group said in an emailed statement to Bloomberg. “Any implemented regulation should be uniform across the country, so companies do not face different standards in different states.”

The New York State Department of Financial Services has proposed new consumer protections that would adopt a “best interest” standard for those licensed to sell life insurance and annuity products in the state.

It’s a new requirement that would compel the seller to offer the product that “best reflects the customer’s interest” ahead of what is “most profitable” to the seller, the office of Gov. Andrew Cuomo said in a news release issued Dec. 27. 

The proposed regulation comes as the federal government has recently delayed by a year and a half implementation of similar, increased regulations on those who sell life insurance and annuities.

“As Washington continues to ignore and roll back efforts to protect Americans, New York will continue to use its role as a strong regulator of the financial services and insurance industries to fight for consumers and help ensure a level playing field,” Cuomo contended in the release. 

“Given the key role insurance products play in providing financial security to middle class New Yorkers, it is essential that a provider adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer’s best interests,” Maria Vullo, New York’s financial-services superintendent, said.

Reaction to DOL delay

On Nov. 27, the U.S. Department of Labor (DOL) announced that it would delay by 18 months implementation of a fiduciary rule, adopted under the previous administration, which expands the definition of investment advice under the federal Employee Retirement Income Security Act, applies to certain annuity and life-insurance sales, and requires financial advisors to adhere to “enhanced” standards of conduct. The date of implementation has been pushed back from Jan. 1, 2018 to July 1, 2019.

During the 18-month transition period, “fiduciary advisers have an obligation to give advice that adheres to ‘impartial conduct standards.’ These fiduciary standards require advisers to adhere to a best interest standard when making investment recommendations, charge no more than reasonable compensation for their services, and refrain from making misleading statements,” the DOL said.

The proposed amendments to New York’s current suitability regulation would provide for a “best interest standard of care” for all sales of life insurance and annuity products, “beyond” the types of advice covered by the federal DOL rule. That includes retirement planning, and when recommendations are made prior to the sale of an insurance product, or after the sale — but during the servicing of the product — for the consumer. 

A transaction is considered in the best interest of a consumer when it assists a consumer’s needs and objectives and is recommended to the consumer “without regard to the financial interest of the product seller,” the state says. Insurers would also be required to develop and maintain procedures to “prevent financial exploitation of consumers.” 

The amendments “supplement” consumer protections already in effect in New York and that are “key elements” of the conflict of interest rule. They include setting limits on compensation and compensation transparency for the sale of a life insurance or annuity product in New York.

The proposed amendments are subject to a 60-day notice and public-comment period following the Dec. 27, 2017, publication in the New York State Register before its final issuance.

Industry reaction

In a Dec. 27 Bloomberg article, the Life Insurance Council of New York, expressed concern about New York’s proposed regulations putting the state’s life insurers at a competitive disadvantage against insurers from other states.

“We do have serious concerns about implementing any regulations that will result in an unfair playing field for New York’s life insurance companies,” the group said in an emailed statement to Bloomberg. “Any implemented regulation should be uniform across the country, so companies do not face different standards in different states.”