The New York State Department of Financial Services (DFS) announced Dec. 8 that it is conducting an industry-wide review of annuity replacement practices in New York – and has warned that it will take “appropriate action” with respect to life insurers, producers, and distributors found to have engaged in “improper replacements.”
It said that it has found that certain life insurance companies and fraternal benefit societies (collectively, “insurers”) and life insurance agents and brokers (collectively, “producers”) “are not complying with disclosure and suitability requirements when replacing a deferred annuity contract with an immediate income annuity contract.”
In new guidance, the DFS reminded life insurers, producers and distributors of their obligations under New York Insurance Law and regulations “to perform an adequate suitability review when recommending the sale or replacement of an annuity.”
According to the DFS, a suitability review requires sellers to determine the appropriateness of the sale or replacement of any annuity contract when recommending such a transaction to a consumer. Through examinations and investigation, the DFS said, it has identified “troubling practices” in annuity replacements that can cost New Yorkers thousands of dollars in retirement income.
“Annuities are crucial products for consumers to obtain retirement security,” said DFS Superintendent Maria T. Vullo. “Compliance failures among advisors, distributors, and insurers allowed improper replacement practices to occur. DFS will take decisive action to prevent industry practices that deprive consumers of the maximum amount of retirement income to which they are contractually entitled.”