If you don’t sell annuities and life insurance in New York, you might think New York’s enhanced Regulation 187 doesn’t matter to you. But because it’s one of the first to be finalized in a tide of expected state “best interest” regulations, it could hint at what’s to come for producers elsewhere in the country — most likely, new documentation, disclosure and training requirements.
It’s also part of a broader best-interest movement, further indicating the direction of change. In June 2019, the U.S. Securities and Exchange Commission (SEC) adopted the Regulation Best Interest, which starting June 30, 2020, calls for brokers to act in the best interest of their clients when making investment recommendations. The National Association of Insurance Commissioners also is working on its own version, and several states are working on best interest regulations on the securities side.
What Is Regulation 187?
The New York Department of Financial Services (NYDFS) amended and renamed its Insurance Regulation 187 to include duties for both producers and insurers to ensure that annuity and life insurance transactions are in the best interest of the client. Among other things, acting in the best interest requires that a recommendation to buy (or not to buy) a particular product be based upon an evaluation of the consumer’s relevant suitability information, and that the recommendation reflect the care, prudence and diligence that are fitting in each particular circumstance. Now titled “Suitability and Best Interest in Life Insurance and Annuity Transactions,” the enhanced regulation became applicable to annuity transactions in the state as of Aug. 1, 2019. It will apply to life insurance transactions beginning Feb. 1, 2020.
New York insurance producers can anticipate new training requirements, updated forms and additional documentation, in each case to be implemented by the carriers with whom they do business.
New carrier forms will prompt the collection of additional information for the purpose of making a best interest determination. In some cases, forms will require both the agent and the client to attest that they have made certain disclosures that are required under Regulation 187.
Compensation and Titles
While there are no particular prohibitions on compensation or incentives under Regulation 187, agents will need to comply with existing rules and must ensure that compensation does not unduly influence their recommendation.
The regulation also states that producers cannot use titles such as “financial planner” or “financial advisor” unless properly licensed or certified for their use and the producer actually provides securities or other non-insurance financial services.
Filling in Regulatory Gaps
The final version of the New York regulation was designed to fill in regulatory gaps perceived by the NYDFS after the death of the Labor Department’s fiduciary rule June 21, 2018, when the U.S. Fifth Circuit Court of Appeals officially vacated the rule, effectively killing it. The New York regulation “applies only to those broker-dealers licensed as insurance producers in the state of New York for the purpose of distributing life and annuity products,” and “applies only when broker-dealers make recommendations to residents of the state of New York involving annuity and life insurance products.”
The SEC’s Regulation Best Interest that followed the fiduciary rule’s demise applies to advisors and brokers making investment recommendations, not insurance-only agents who don’t sell securities. But insurance agents could soon be affected by best interest standards adopted by state governments such as New York and by the NAIC’s expected standard.
Senior Market Sales® (SMS) is closely monitoring developments in best interest regulations, as well as how insurers are responding, as part of our ongoing efforts to help you prepare for any changes ahead.
Preparing for Anticipated Changes Ahead
If other state regulations resemble New York’s and are passed, you might need to collect more information from the client, provide them more information — such as disclosures — upfront, explain the advantages and disadvantages of replacing an existing annuity and explain the basis for your recommendation. You also may have to document the basis for any recommendations made.
Having technology and a defined process that takes clients through how you came to your recommendation not only enhances the customer experience but also provides the documentation that future regulation may require. SMS’ Income ArchiTechTM tool can help improve your process, demonstrate your advice and document your recommendations.
If you have any questions on best interest regulations or would like to learn more about Income ArchiTech, call an SMS marketing consultant at 1.877.645.4939.