Two groups for property & casualty insurance producers have gone to court in an effort to block New York state’s new “best interest” sales standard regulations for sellers of life insurance and annuity products.
The Independent Insurance Agents & Brokers of New York Inc. (Big I NY) has joined with another P&C group, the Professional Insurance Agents of New York (PIANY), to file a lawsuit objecting to the new sales standard. The list of plaintiffs also includes Gary Slavin, a licensed New York state insurance agent and broker, and Testa Brothers Ltd., a New York state insurance brokerage firm.
The plaintiffs have filed a petition against the New York State Department of Financial Services, and against Maria Vullo, the department’s superintendent, in the Supreme Court of the State of New York, in Albany County.
The petitioners in the case, Independent Insurance Agents and Brokers of New York Inc. et al. v. The New York State Department of Financial Services et al. (Case Number 907005-18), say that New York’s regulation is arbitrary and unconstitutionally vague, and that it improperly extends the agent/broker relationship, by making the producer vulnerable to lawsuits based on how a product performs after the sale.
“The regulation improperly creates a continuing duty on the insurance agent or broker even after the contract of insurance is issued,” the petitioners say in their petition. “At its worst, the regulation forces insurance agents and brokers to act as insurance coverage counsel/attorneys, and to essentially guarantee the results of an insurance transaction.”
Common law holds that an insurance broker is not a fiduciary, and that an agent has a duty to act in the best interest of the principal that’s offering the product, the petitioners say.
The New York regulation would obliterate the traditional distinctions between insurance agents and insurance brokers, and it would put an insurance agent ”in the untenable position of serving two masters,” the petitioners say.
In a blog article about the suit, Big NY I acknowledges that the New York regulation now affects only life insurance and annuities.
“We have serious concerns that the [New York] department could later expand the ‘best interest’ standard to all insurance transactions,” the Big I says. “This would have serious consequences for every producer in the state.”
Vullo said in a statement that she believes New York state’s life insurance industry supports her effort to set a best interest standard for the recommendation of life insurance and annuity products.
The New York life insurance industry agrees with the department “that it is prudent, fair and reasonable — and just simply the right thing to do — to act only in the consumer’s best interests and obtain necessary financial and risk information from their clients in order to recommend a specific policy based on that data,” Vullo says in the statement. “Given the vital role that insurance products play in providing financial security to New Yorkers, it is essential that providers not be influenced by a producer’s financial incentives, adhere to a higher standard of care and only recommend insurance and annuity products that are in the consumer’s best interests.”
State insurance regulators have been using annuity suitability standard regulations. Suitability standard regulations require annuity sellers to collect information from would-be annuity purchasers, and to verify that the products the purchasers are buying appear to suit their needs.
Consumer groups want regulators to require financial services sellers to act in the “best interest” of their customers, by recommending the best available products, without thinking about their own sales commissions, sales contests or other incentives.