Suitability and Best Interests in Life Insurance and Annuity Transactions
The New York State Department of Financial Services (NYDFS) best-interest Regulation 187 (NY 187) is effective February 1, 2020 for life insurance transactions, and August 1, 2019 for annuity transactions within the state of New York.
What is NY 187?
NY 187 imposes a best-interest standard on recommendations to purchase, replace, or alter life insurance and annuity products sold in New York state. According to the NYSDFS, a goal of the amended regulation is to “fill in regulatory gaps” resulting from the elimination of the Department of Labor’s Fiduciary Rule.
Compliance with the duties and obligations connected with life and annuity product transactions fall on both producers and insurers. The new regulation significantly expands the producers’ duties and obligations by imposing a best-interest standard on all life and annuity products recommended to consumers. In general, producers must act in the “best interest” of the consumer with respect to purchase and replacement recommendations, and to post-issuance transactions of in-force products, including the exercise of any contractual provisions. Those transactions of in-force business that do not result in a commission are subject to “best-interest lite” standards.
The overarching theme of the regulation is to redefine the client’s best interest in insurance product recommendations in alignment with other fiduciary rules. Only the consumer’s interest can be considered when making a product recommendation. According to NY 187, this recommendation must reflect the care, skill, and diligence of a prudent person, and must not be influenced by a “producer’s receipt of compensation or other incentives.”
A dominant emphasis in the regulation is written documentation—disclosing the range of products recommended after an evaluation of the client’s needs based on relevant suitability information and consistent with the client’s risk tolerance. (A summary of the information required to support a product recommendation can be found at the end of this article.)