Annuity Suitability Introduction

New York



Suitability in Annuity Transactions Training Requirements 


  All states periodically add to existing law for a variety of reasons, but often to clarify the law or to add elements that have become relevant. This is the case for Insurance Regulation 187.

  Insurance Regulation 187 refers to Suitability and Best Interests in Life Insurance and Annuity Transactions. These changes under Part 224 of Title 11 of the Official Compilation of Codes, Rules and Regulations of the State of New York are effective August 1, 2019.

  The title of Part 224 is amended to read Suitability and Best Interests in Life Insurance and Annuity Transactions, so it is a new name. The underlined words were added to the title.

  New York has had suitability standards for annuities, but with the addition of life insurance, it now covers a larger number of insurance policies. The term, “best interests,” relates of course to consumers, not agents or insurers. The goals of new laws are often the best interests of those buying products. The new regulation becomes effective August 1, 2019 with respect to annuity transactions and February 1, 2020 with respect to life insurance policies.

  Specifically, under Section 224.0 Purpose, it reads in part: “Insurance Law article 24 permits the superintendent to regulate trade practices in the business of insurance to prevent acts or practices that are unfair or deceptive.”

 Regulation 187 clarifies the duties and obligations of insurers, including fraternal benefit societies, by requiring them to establish standards and procedures for recommendations regarding insurance policies sold and issued in New York, with the best interests of the buyers always a main focus.

 Under 224.2 Exemptions, this does not apply to transactions involving the purchase of a policy where the application is solicited and received from the insurer by mail, at the worksite, or under other methods without producer involvement, other than customer service, administrative support, or enrolment services, and where no recommendation was made.

  Under 224.4 Duties, the words “sales transaction” was added. This is worth noting since a sales transaction involves presenting products to buyers and the purchase that might follow. A large portion under (a) was deleted so that it now reads: In recommending a sales transaction to a consumer, the producer, or the insurer where no producer is involved, shall act in the best interest of the consumer. This replaced previous wording regarding reasonable grounds for believing the product is suitable for the buyer.

  The law goes on to say that acting in the best interest of the consumer means recommendations based on an evaluation of relevant suitability information. It reflects the care, skill, prudence, and diligence that a prudent person would use in similar circumstances. Only the interests of the buyer may be considered when making recommendations; any interests the producer or insurer may have are not a consideration. Obviously then, commissions cannot be considered when making consumer recommendations.

  Consumers must be reasonably informed of various policy features, whether the recommendation is for an annuity or other type of life policy. This means information has been provided by the producer regarding both favorable and unfavorable elements of the contract, including surrender charges, any secondary guarantee period, equity-index features, cash values, if any, tax implications, exclusions and restrictions. It also includes any differences in features among fee-based and commission-based versions of the policy and the manner in which the producer is compensated for the sale and servicing of the policy in accordance with the requirements.

  In making recommendations the producer or insurer, where no producer is involved, may weigh multiple factors that are relevant to the best interests of the consumer including (but not limited to) the benefits provided by the policy, premiums, the financial strength of the insurer being recommended, and other factors that differentiate products or insurers. It should be disclosed to the consumer in a reasonable summary format all relevant suitability considerations and product information, again both favorable and unfavorable, that provide the basis for any recommendations. Producers may not make recommendations to consumers to enter into a sales transaction unless the producer has a reasonable basis to believe that the buyer has the financial ability to meet the financial commitments required by the policy.

  Individuals may not use titles or designations of financial planners, financial advisors or similar titles unless he or she actually qualifies for the title being displayed or stated. Producers may say or imply that a sales recommendation is a component of a financial plan, but he or she cannot state or imply that the recommendation is comprehensive financial planning, comprehensive financial advice, investment management or related services unless the producer has a specific certification or professional designation in that area.

  These requirements apply to every producer who materially participated in the making of a recommendation and who received compensation as a result of the sales transaction, regardless of whether he or she had any direct contact with the consumer. However, product wholesaling or product support that was based on generic client information or the provision of education or marketing materials does not constitute participation.