The Big I and the Professional Insurance Agents of New York filed a lawsuit today against the best-interest regulation approved by New York officials this summer.
New York finalized its best-interest standard in July for both annuity and life insurance sales. The state's best-interest regulation is considered one of the toughest in the country, one that New York officials are lobbying the National Association of Insurance Commissioners to endorse.
The Big I/PIANY lawsuit describes the regulation as an "overreach" that threatens the livelihood of good insurance agents.
"This amendment, which is of great concern to our members, would impose a vague standard of 'best interest' on the sale of life insurance and annuities. The suit seeks to have the amendment voided in full," a press release reads.
"This new standard is extremely troubling and would significantly alter the agent/broker-customer relationship. The amended regulation would require agents and brokers to obtain detailed financial and risk information about their customers, and then recommend a specific policy based on that data—similar to the way financial investment products are offered.
"This would overturn decades of well-established case law which holds agents and brokers have no duty to recommend, and consequently significantly increase the risk of E&O lawsuits."
Big I NY and PIANY called the new standard "wildly subjective" and said it fails to instruct agents/brokers whose best interest they must consider; be it the policyholder, beneficiary, or owner of a policy.
"The new standard will not protect consumers, but instead be detrimental by potentially driving business out of the state and leaving the insurance-buying public with reduced access to affordable coverage," the press release reads.
The New York rules come with an effective date of Aug. 1, 2019, for annuity contracts, and six months afterward for life insurance contracts.
The New York rules would:
- Require disclosure of all suitability considerations and product information that form the basis of any recommendation.
- Permit agents or brokers to make a recommendation only if they have a "reasonable basis to believe that the consumer can meet the financial obligations under the policy."
- Prohibit an agent or broker from telling a consumer that a recommendation is part of financial planning, investment advice or related services (unless the agent or broker is a certified professional in that area).
Additionally, the proposed regulation would require insurers to "establish and maintain procedures to prevent financial exploitation and abuse," disclose to customers all relevant policy information in order to evaluate a transaction, and provide to producers all relevant policy information in order to evaluate a replacement transaction.
The New York standard would continue to exempt policies/contracts used to fund qualified retirement plans, ERISA plans and employer-sponsored IRAs. The proposal also would not apply to sales of mutual funds or other securities, unless related to an annuity or life insurance product.
InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.
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