New York best interest standard for life and annuity sales (Reg 187) and senior-specific designations (Reg 199)

Best interest, not just suitability

New York holds life insurance and annuity sales to a best interest standard. Insurance Regulation 187 (11 NYCRR Part 224) says that when a producer recommends a sales transaction to a consumer, the producer, or the insurer where no producer is involved, shall act in the best interest of the consumer. The standard covers life insurance policies, annuity contracts, fraternal benefit certificates, and certificates under group life or group annuity contracts.

Regulation 187 applies to any transaction or recommendation about a proposed or in-force policy. A consumer is the owner or prospective purchaser of a policy. The rule enforces a standard of conduct; it does not guarantee or warrant an outcome.

What counts as a recommendation

A recommendation is a statement or act that reasonably may be read by the consumer as advice and results in the consumer entering into, or refraining from, a transaction, or that is intended to have that result. It does not include general factual information: advertisements, marketing materials, general education about insurance or financial products, or routine administrative services.

The four parts of best interest

A producer acts in the consumer's best interest only when all of these are true:

1. Care. The recommendation is based on the consumer's suitability information and reflects the care, skill, prudence and diligence of a prudent person acting in a like capacity.
2. Only the consumer's interests. Only the consumer's interests may be considered. The producer may still be paid commissions or other permitted incentives, as long as the amount does not influence the recommendation.
3. Suitable. The sales transaction is suitable.
4. Informed consumer. There is a reasonable basis to believe the consumer was told the favorable and unfavorable features, such as surrender periods and charges, fees, riders, market risk and how the producer is paid, and would actually benefit from the policy's features.

For a replacement, the producer weighs surrender charges, new surrender periods, lost benefits and tax consequences against any improvements, and must consider whether the consumer has had another replacement, especially one within the preceding 36 months.

Duties at the point of sale

• Make reasonable efforts to obtain the consumer's suitability information before recommending.
• At the time of the recommendation, disclose the basis for it in a reasonable summary format, favorable and unfavorable, and document the basis and analysis.
• Document a consumer's refusal to provide information, and document when a consumer buys something the producer did not recommend.
• Do not recommend unless the consumer has the financial ability to meet the policy's commitments, and never recommend a product you have inadequate knowledge of.
• Never dissuade a consumer from answering the insurer's suitability confirmation, filing a complaint with the superintendent, or cooperating with an investigation.
• A captive producer may limit recommendations to one insurer only after a prominent written disclosure of that arrangement before recommending.

The duties also reach in-force transactions, meaning changes to an existing policy that do not generate new sales compensation. They also bind every producer who materially participated in a recommendation and was paid, even without direct contact with the consumer.

Titles and senior designations

Regulation 187 bars a producer from using the title financial planner, financial advisor or a similar title unless properly licensed or certified and actually providing securities or other non-insurance financial services.

Regulation 199 applies the same idea to seniors. A producer may not use a senior-specific certification or professional designation, such as one combining "senior," "elder" or "retirement" with "certified," "specialist" or "advisor," in a way that misleadingly implies special training in advising seniors. Prohibited uses include a designation the producer did not actually earn, a nonexistent or self-conferred one, and one from an organization that is primarily a marketing outfit or that requires no real coursework, examination, continuing education or disciplinary process. A plain job title within the producer's own firm, which does not imply specialized senior training, is not a designation.

The insurer's role

The insurer must keep a system of supervision to monitor producers, make sure producers are trained, and maintain procedures to prevent financial exploitation and abuse. Records are kept under Regulation 152.