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New York’s New Annuity Rules

Do the new regulations out of the Empire State herald the future for sellers of annuities and life insurance?

New York is in the midst of implementing a "best interest" standard for agents licensed to sell annuities or life insurance products—the first state in the country to do so. Regulation 187 will affect how those agents handle conflicts of interest and how they’ll need to consider the client’s interests ahead of their own when recommending insurance. The rules on annuities sales began on Aug. 1, with regulations on life insurance transactions to follow in February 2020.

The move is meant to boost protections for those buying insurance and annuities; various permutations of these policies have evolved. Many pay generous commissions to the brokers that sell them and often come with less than transparent fees, dubious costly riders and complex restrictions that, critics contend, make them a toxic investment for often naïve, and frequently elderly, buyers. Abuses in the channel have made them regular prosecution targets for state attorneys general and securities lawyers. The Financial Industry Regulatory Authority has some oversight of brokers selling forms of variable annuities, but the self-regulatory organization usually focuses on offenders of the current suitability standard.

Michelle Richter, a managing director at actuarial firm Milliman, put the odds of other states following New York at 50-50.

“I think it’s very plausible as states see what happens in New York,” she said. “But I’d say that New York, because of its conservatism, is not always a bellwether, and it’s not clear that other states will do what it did.”

Crafting a New ‘Best Interest’ Standard

Before Regulation 187, New York agents selling annuities or life insurance products were subject to a suitability rule, but the new regulation states that “only the interests of the consumer shall be considered in making the recommendation.”

New York has a particularly pro-consumer regulatory reputation, according to Richard Roth, founder and partner at The Roth Law Firm. He says annuities and life insurance transactions were targeted in the state because the typical customers interested in those products are often “vulnerable buyers.”

“A 30-year-old married guy with a kid making $100,000 or $200,000 a year will be more aggressive than an 80-year-old who has no income and is relying on Social Security and investments,” Roth said. “We want that 23-year-old guy selling annuities to realize that when he’s speaking to an 80-year-old woman buying annuities, it has to be a serious analysis.”

But New York’s approach likely won’t be duplicated across the country, says David Lau, the founder of DPL Financial.

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