July 18, 2018
Contact: Richard Loconte, 212-709-1691
DFS ISSUES FINAL LIFE INSURANCE AND ANNUITY SUITABILITY AND BEST INTERESTS REGULATION PROTECTING CONSUMERS FROM CONFLICTS OF INTEREST
New DFS Rule Will Ensure That Recommendations Related to Life Insurance and Annuities Are in Consumers’ Best Interest
DFS Continues to Protect New Yorkers as Federal Government Rolls Back Consumer Protections
Financial Services Superintendent Maria T. Vullo today announced that the New York State Department of Financial Services (DFS) has issued a final regulation adopting a "best interest" standard for those licensed to sell life insurance and annuity products to protect New York State consumers from conflicted advice. The new regulation requires insurers to establish standards and procedures to supervise recommendations by agents and brokers to consumers with respect to life insurance policies and annuity contracts issued in New York State so that any transaction with respect to those policies is in the best interest of the consumer and appropriately addresses the insurance needs and financial objectives of the consumer at the time of the transaction.
“As the federal government continues to roll back essential financial services regulations, New York once again is leading the way so that consumers who purchase life insurance and annuity products are assured that their financial services providers are acting in their best interest when providing advice,” said Superintendent Vullo. “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 high standard of care and only recommend insurance and annuity products that are in the consumer's best interests and not be influenced by a producer’s financial incentives. With this final regulation, New Yorkers can now be confident that the insurance agents, brokers and companies that they rely on are recommending the right products.”
The final regulation, which amends New York's current suitability regulation, provides for a best interest standard of care for all sales of life insurance and annuity products, including both in the specific context of retirement planning, 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 is in furtherance of a consumer's needs and objectives and where only the interests of the consumer are considered in making the recommendation. A producer’s financial compensation or incentives may not influence the recommendation. Insurers would also be required to develop and maintain procedures to prevent financial exploitation of consumers.
The regulation will fill in regulatory gaps to protect New York consumers from the elimination of the federal Department of Labor’s Conflict of Interest Rule, which the Trump Administration failed to protect on appeal after a ruling from the U.S. Fifth Circuit Court of Appeals and also supplements existing consumer protections that already exist in New York, including setting reasonable limits on compensation and compensation transparency for the sale of a life insurance or annuity product in New York State.
DFS carefully considered all comments submitted regarding the regulation during two notice and public comment periods following publication in the New York State Register.
A copy of the final regulation can be found here.