NY Financial Regulator Tightens Reins on Life Insurance Sales Practices
July 20, 2018 by Dan M. Clark
New York financial regulators on Wednesday issued a new directive for life insurance and annuity companies intended to protect consumers from being sold insurance based on a producer’s financial incentives.
Insurers will be required to supervise recommendations by agents and brokers to consumers on life insurance policies in an effort to avoid any financial conflicts of interest.
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The regulation establishes a “best interest” standard for life insurance companies after the federal Department of Labor’s rule governing a conflict of interest between sales and financial incentives was struck down in a ruling from the U.S. Court of Appeals for the Fifth Circuit in March, according to the Department of Financial Services.
“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 Maria Vullo, superintendent of the DFS. “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.”
The regulation will apply to sales of life insurance and annuity products, including retirement planning. The protections will apply before a sale when an insurance product is recommended and after the sale during the servicing of the product.
The Life Insurance Council of New York, a group representing the industry, celebrated the regulation from the DFS in a statement Wednesday.
We have consistently endorsed the DFS effort to extend a best interest standard to annuities and apply such a standard for the first time to life insurance, so long as compliance is fair, clear and simple,” said Mary Griffin, president and CEO of LICONY. “We are pleased that the Department listened to our concerns with certain provisions of the prior proposals and we find the final regulation greatly improved. We look forward to continuing to work with DFS over the next year to address the many challenges for insurers in regard to implementation.”
The new regulations are set to take effect in August 2019.
