New York State insurance regulators are currently considering whether to issue a new suitability regulation for sales of annuities and life insurance. It’s about time New York finally got around to doing something more than 80% of U.S. states have already acted upon.
Forty-one states have already adopted a suitability regulation specific to annuities, proposed by the National Association of Insurance Commissioners (NAIC) in 2006. New York is in the process of holding public hearings this summer and fall on the matter. Hearings have already been held in Buffalo and Albany, and others are scheduled for Sept. 9 on Long Island and Sept. 16 in New York City. Written testimony will be accepted through Oct. 7, and state regulators will then analyze results, decide on a direction, and draft an initial version. That will be followed by informal discussions with consumer groups.
According to an Aug. 23 article in The Buffalo News, the recent hearing in Buffalo was “sparsely attended.” Apparently, with so much public and media scrutiny surrounding the health care debate, the issue of suitability in annuity sales – particularly involving seniors – has been far relegated to the proverbial back burner after becoming a hot topic following the infamous Dateline NBC report last year on sales tactics of allegedly unscrupulous advisors.
Fred Fadel, who runs Willink Asset Management LLC in East Aurora, N.Y., testified at the hearing in Buffalo. He was quoted in The Buffalo News article, saying, “The protections for consumers lag far behind. The products are too often sold, but not sought.”
That observation stems primarily from promotions with extremely high first-year commissions on many annuity products, sometimes prompting unprofessional agents to push a product rather than acting in the client’s best interest. Many carriers have already acted to address the issue of product suitability, but there is no single standard in place.
Perhaps what will turn out to be most interesting about what New York does is not that the state will finally adopt a regulation about annuity suitability, but that the Empire State is considering adopting tougher rules that may include all life insurance products.
We’ll keep an eye out to see what develops.