New York State May Set Its Own Best-Interest Standard

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

(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.

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