The New York Department of Financial Services (DFS) amended Insurance Regulation 187 (Reg 187) to elevate the existing suitability standards for both life insurance and annuity sales by expanding obligations to act in the customer's best interest, improving transparency in consumer disclosures, and establishing clear lines of accountability for producers and insurers in the sales of both life insurance and annuities. Reg 187 applies to both new sales recommendations and in force policy transactions, and also requires insurers to create internal procedures to recognize and prevent the financial exploitation of senior consumers.
Bottom line: Carrier and producer sales practices must prioritize the customer’s interest over sales commissions and should not allow compensation to influence a product or transaction recommendation.
Why was Reg 187 put in place?
Reg 187, entitled, “Suitability and Best Interests in Life Insurance and Annuity Transactions,” establishes standards of conduct for insurance producers, broker-dealers, and registered representatives licensed in New York to sell life insurance and annuity products, and requires them to act in a competent and trustworthy manner towards all consumers, keeping consumer best interests ahead of personal remuneration for any new or in-force transactions. This regulation was expanded in the state's efforts to ensure that insurance products sold to NY consumers appropriately address the insurance needs and financial objectives of the consumer at the time of the transaction.
What needs to be done to be in compliance?
The regulation applies to licensees authorized to transact life insurance and/or annuity business, and requires training on Reg 187 specifics to be completed within the following time frames:
As related to annuity contract sales and in-force transactions beginning August 1, 2019
As related to life insurance policy sales and in-force policy transactions beginning February 1, 2020
Resident producers in New York who hold non-resident licenses in any other state should be aware that completion of Regulation 187 training DOES NOT meet the NAIC Model’s definition of “substantially similar” annuity suitability training; and therefore, DOES NOT satisfy non-resident annuity suitability training requirements in any other state.
What does the training cover?
Best Interest Standard clarifications
Only the consumer’s interest can be considered—HOWEVER—the receiving of compensation itself does not violate the standard
Agent compensation can vary as long as recommendations are not affected
Created two Suitability Standards
Recommendations for a term life insurance product with no cash value
Recommendations for any other type of policy
Created two Standards for Insurer and Producer Duties
Is the recommendation for a sales transaction?
Is the recommendation for an in-force transaction?
Added a new requirement if both fee-based and commission-based versions of a policy are available
Disclosure to client - Suitability based on products available to the producer
Use of certain titles or designations - 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
Recognition of Diminished Capacity to avoid Financial Exploitation
Who is responsible for Reg 187 compliance?
Insurers—including fraternal benefit societies—have a duty and obligation to establish standards and procedures for recommendations to consumers, with respect to policies delivered or issued for delivery in New York, so that transactions defined in the Regulation are in the best interest of that consumer and appropriately address the insurance needs and financial objectives of the consumer at the time of the transaction.
A.D. Banker & Company offers 3 courses for insurance CE credit:
Life & Annuity Best Interests-Reg 187 (1-hour)
NY Annuity and Life Insurance Suitability (4-hour)
Life & Annuity Best Interests-Reg 187-Webinar (1-hour)
An additional training option, Reg 187 Best Interests, is available online. This non-CE course does not require a proctor and includes a shorter assessment exam, a perfect option for those interested in an online solution without the need for CE credit. Completions are verified with a certificate of completion and can be monitored in CE Tracking. Please contact customer service or your Account Manager for more information.