New York’s Department of Financial Services is taking its fight for NY Regulation 187 to the state’s highest court.
As expected, the DFS has appealed a lower court’s decision overturning NY Reg 187 to the New York Court of Appeals, InsuranceNews.Net reported. The Supreme Court Appellate Division struck down the controversial best-interest standard for the sales of life insurance and annuities in April.
The DFS implemented the best-interest standards for annuity sales on Aug. 1, 2019, and for life insurance sales on Feb. 1, 2020. But insurance industry associations, an insurance agency, and a registered representative sought to overturn the standards by suing the DFS.
A state Supreme Court judge ruled in regulators’ favor in August but the Supreme Court Appellate Division overturned NY Reg 187 on April 29, siding with the remaining plaintiffs, Independent Insurance Agents of New York (Big I NY) an industry trade association, and Testa Brothers, one of its members, in their appeal. InsuranceNews.Net reported regulators’ subsequent appeal to the state’s highest court on June 10, citing a source with the DFS.
“Though some uncertainty remains around NY Reg 187, we expect that most insurance companies will follow it until the state’s highest court decides its fate,” said Brandi Brown, senior vice president of regulatory affairs for RegEd.
Lower court cites “vagueness” in overturning NY Reg 187
In siding with the plaintiffs in April, the appellate court wrote that NY Reg 187 failed to meet the two-part test that is used to evaluate “a vagueness challenge,” noting that the regulation was not sufficiently defined and standards for enforcement were not specific enough.
“While the consumer protection goals underlying promulgation of the amendment are laudable, as written, the amendment fails to provide sufficient concrete, practical guidance for producers to know whether their conduct, on a day-to-day basis, comports with the amendment’s corresponding requirements for making recommendations and compiling and evaluating the relevant suitability information of the consumer,” the justices wrote.
Furthermore, “given the resulting ambiguities in the language employed, coupled with its lack of clear standards for how these provisions will ultimately be enforced, respondents have ‘virtually unfettered discretion’ in determining whether a violation has occurred,” the justices continued.
Industry groups largely welcomed the lower court’s ruling because they favor a National Association of Insurance Commissioners (NAIC) model regulation on annuity transactions. The NAIC model regulation requires financial professionals to act in the best interests of consumers during annuity transactions and aligns with the Securities and Exchange Commission’s federal Regulation Best Interest, the National Association of Insurance and Financial Advisors New York Chapter (NAIFA-NY) noted in expressing its support. However, the NAIC model does not apply to the sale of life insurance as does NY Reg 187.
The NAIC explains that its annuity suitability and best interest standard requires agents and carriers to act with “reasonable diligence, care, and skill” in making recommendations. Eleven states have adopted revisions to the model and the NAIC continues to work with regulators nationwide.
Insurance companies will continue to need training on NY Reg 187 until the New York Court of Appeals rules, Brown said. RegEd offers three courses that insurers may use for this purpose.
- NY Reg 187: Suitability and Best Interest of Clients in Life Insurance and Annuity Transactions (484_NY)
- Best Interest of Clients in Life Insurance Transactions: NY Reg 187 Course(484_NY_L)
- Best Interest of Clients in Life Insurance or Annuity Transactions: NY Reg 187-1 Hour Course (485_NY)
Visit our website to learn more about RegEd’s Insurance CE solution, or RegEd’s CE Authority website to learn more about continuing education (CE) courses for insurance professionals.
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