New York State May Set Its Own Best Interest Standard

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New York state regulators today proposed adding a best interest standard to the state’s annuity sales standards regulations.

The state may also apply the annuity sales rules to sales of life insurance.

The New York State Department of Financial Services has included those provisions in a new set of proposed amendments to the state’s Suitability in Annuity Transactions regulation.

(Related: State Insurance Regulators Could Set Their Own Best Interest Standard)

Links to several documents related to the proposed amendments are available here.

Comments on the proposed amendments are due Feb. 12.

Cuomo vs. Trump

Officials working under Maria Vullo, the New York State Department of Financial Services superintendent, developed the proposed regulation amendments.

But Gov. Andrew Cuomo, a Democrat, is using the proposal as a chance to show his approach to financial services regulation and the Trump administration’s approach.

“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 said in a statement included in the press release announcing the proposal. “With these commonsense reforms we are working to protect everyday New Yorkers and give them peace of mind when purchasing these products.”

DOL Standards Delay

Under former President Barack Obama, the U.S. Department of Labor developed a fiduciary rule standard for sales of retirement services. The standard requires advice providers to put the clients’ interests first. A best interest standard in the rule defines what it means to put the interests of the clients first.

When President Donald Trump came into office, his DOL team decided to let the best interest standard take effect, but the team put off applying related regulations, or “prohibited transaction exemptions” (PTEs), that set the procedures retirement services would have used to show they were acting in the clients’ best interest.

Insurers and annuity distributors have argued that the best interest PTEs are vague, unrealistic, and likely to encourage consumers to file lawsuits.

New York (Photo: Allison Bell/TA)

(Photo: Allison Bell/TA)

In most states, annuity sellers now have to abide by a suitability standard.

Under a suitability standard, an annuity seller must verify that an annuity sold to a client suits the client’s needs.

Some state insurance regulators have been talking about the possibility of establishing their own best interest standards while the DOL looks at its PTEs. The Life Insurance and Annuities Committee at the National Association of Insurance Commissioners has been asking for comments on a proposed model regulation change that would include a best interest standard. States could use an updated NAIC model as an example when writing their own best interest laws and regulations.

Proposal Details 

The drafters of the proposed New York state amendments would change the name of the state annuity suitability regulation to the “Suitability in Life Insurance and Annuity Transactions” regulation, and state that “producers must act in a competent and trustworthy manner.”

The drafters would also:

Apply the suitability and best interest standards to fraternal benefit societies. 

Require that “best interest” recommendations be based on “an evaluation of the suitability information of the consumer that reflects the care, skill, prudence, and diligence that a prudent person familiar with such matters would use under the circumstances without regard to the financial or other interests of the producer, insurer, or any other party.”

Require a producer acting in the best interest of the consumer to “disclose to the consumer all relevant suitability considerations and product information, whether favorable or unfavorable, that provide the basis for any recommendations.”

Deny that the regulation itself has any effect on payments to producers, or on the type or amount of compensation producers can receive.

Require insurers to establish procedures designed to prevent forgery, embezzlement, and other forms of abuse and exploitation.

Industry Reaction

The Life Insurance Council of New York says in statement that it worries about the possibility that the proposal could be unfair to New York’s life insurance companies.

“Any implemented regulation should be uniform across the country, so companies do not face different standards in different states,” LICONY says. “We would urge the [Department of Financial Services] to proceed in a deliberate manner and work with the industry to ensure that New York’s life insurers are not put at an unfair disadvantage related to other financial services providers, while still protecting consumers.” 

—Read Insurance Regulators May Update Annuity Sales Model Amid DOL Fiduciary Rule Uncertainty on ThinkAdvisor.

— Connect with ThinkAdvisor Life/Health on Facebook and Twitter.

Insurance regulators are seeking comments on a state-level best interest standard proposal.

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