Ruling also could lead to more life insurance salesMarket commentary conducted and presented by A.M. Best.
OLDWICK, N.J., May 19, 2021—AM Best believes life insurance companies’ regulatory burdens and costs could be eased by a recent court ruling overturning regulations geared toward increased consumer awareness in New York life insurance and annuity sales.
The state’s Supreme Court Appellate Division recently struck down the rules known as Regulation 187 as being unconstitutionally vague. In a new Best’s Commentary, “Regulation 187 Overturned by Division of New York Supreme Court,” AM Best notes that the ruling also could lead to more life insurance sales, though N.Y. regulators could still appeal the decision.
Regulation 187 had been in effect since August 2019 for annuities and February 2020 for life insurance. The regulation applied to sales transactions, as well as transactions involving in-force policies, to insure that such transactions or recommendations are in the best interest of the consumer and meet their financial objectives. Regulation 187 identified suitability information needed at the time of transactions; defined the duties of producers—and of insurers where no producer is involved; and included insurer responsibilities and supervision requirements to assure compliance.
Best’s Commentary On Regulation 187:
On April 29, 2021, the Appellate Division of New York Supreme Court overturned the Suitability and Best Interests in Life Insurance and Annuity Transactions regulation (Reg 187), ruling that it was unconstitutionally vague and used subjective terms about the requirements of producers. This may ease insurers’ regulatory burdens and costs, and lead to more life insurance sales, but AM Best will continue to monitor the regulatory responses. The case was filed by the Independent Insurance Agents and Brokers of New York, along with other parties. The New State Department of Financial Services, which had won previous challenges to Reg 187, could appeal the case to the New York Court of Appeals, the state’s highest court.
Reg 187 had been in effect since August 2019 for annuities and February 2020 for life insurance. The regulation applied to sales transactions as well as transactions involving inforce policies, to insure that such transactions or recommendations are in the best interest of the consumer and meet their financial objectives. 187 identified suitability information needed at the time of transactions; defined the duties of producers—and of insurers where no producer is involved; and included insurer responsibilities and supervision requirements to assure compliance.
More States Adopting NAIC Suitability Model Regulation
The National Association of Insurance Commissioners (NAIC) developed a suitability regulation (Reg 275) that is similar to Reg 187, with the same purpose and intent. Reg 275 applies to annuity transactions at point of sale and does not include life insurance transactions. It recommends specific continuing education requirements for producers and requires that insures provide a report to senior management detailing review and testing to determine the effectiveness of the supervision process. Several states have adopted Reg 275.
The Securities and Exchange Commission developed its best interest (Reg BI), which went into effect June 30, 2020. Reg BI requires disclosure of all material facts relating to terms or relationships with customers, including material relating to conflicts associated with recommendations. Under the Biden administration, Reg BI may see more scrutiny and may be strengthened following reviews as to effectiveness in serving investors.
To access the full copy of this commentary, please visit here.
AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.