Reg 187 is causing carriers, producers, and brokers to have nightmares. In this era of an impending best interest regulation, New York has taken a leap further and implemented a regulation that requires all annuity and life insurance recommendations be in the best interest of the consumer and must document the many details of the regulation. Each producer must complete carrier-specified training on all products offered. The definition of producer means an insurance agent or insurance broker, so this regulation impacts both retail and wholesale representatives.
The primary requirement is all recommendations be made in the best interest of the customer. The rule states that a producer does that when: (1) the producer’s or insurer’s recommendation to the consumer is based on an evaluation of the relevant suitability information of the consumer and reflects the care, skill, prudence, and diligence that a prudent person acting in a like capacity and familiar with such matters would use under the circumstances then prevailing. Only the interests of the consumer shall be considered in making the recommendation. The producer’s receipt of compensation or other incentives permitted by the Insurance Law and the Insurance Regulations is permitted by this requirement provided that the amount of the compensation or the receipt of an incentive does not influence the recommendation; (2) the sales transaction is suitable; and (3) there is a reasonable basis to believe: (i) the consumer has been reasonably informed of various features of the policy and potential consequences of the sales transaction, both favorable and unfavorable; (ii) the consumer would benefit from certain features of the policy; (iii) the particular policy as a whole, the underlying subaccounts to which funds are allocated at the time of the sales transaction, and riders and similar product enhancements, if any, are suitable for the particular consumer based on the consumer’s suitability information; and (iv) in the case of a replacement of a policy, the replacement is suitable. (More details of the rule are available here).
Other noteworthy documentation requirements:
- At the time of a recommendation, a producer shall: Disclose to the consumer “in a reasonable summary format” all relevant suitability considerations and product information, both favorable and unfavorable, that provide the basis for any recommendation;
- Document the basis for the recommendation and the facts and analysis to support that recommendation;
- Document, if relevant, the consumer’s refusal to provide suitability information;
- Document that a sales transaction is not recommended if a consumer decides to enter into a sales transaction that is not based on the insurance producer’s recommendation.
- A producer shall not make a recommendation about which that producer has inadequate knowledge.
This rule, like Regulation Best Interest and many state regulations, prohibits an agent from using a title or designation of ‘financial planner,’ ‘financial advisor’ or similar title unless the producer is properly licensed or certified and actually provides security or other noninsurance financial services. Although a representative or agent may state or imply that a sales recommendation is a component of a financial plan, a producer shall not state or imply to the consumer that a recommendation to enter into a sales transaction is comprehensive financial planning, comprehensive financial advice, investment management or related services unless the producer has a specific certification or professional designation in that area.
The requirements under this regulation are applicable to any producer who:
- Materially participated in the making of the recommendation and;
- Received compensation as a result of the sales transaction, REGARDLESS of whether the producer has had any direct contact with the consumer.
EXCEPT: Product wholesaling or product support based on generic client information, OR product support based on generic client information, OR the provision of education or marketing material does not constitute participating in the making of a recommendation.
A Producers Duty on In-force Transactions
A Producer must act in the best interest of the consumer when recommending the in-force transaction. They must not allow compensation to influence the recommendation. They must inform the consumer of favorable and unfavorable consequences. They must not use an unauthorized title or designation. They must have adequate knowledge about the transaction; they must look beyond the illustration to make sure recommendations are based on a careful, skilled, prudent, and diligent evaluation of costs, performance, and risks relative to benefits and applies to any transaction with almost any connection to the State of New York.
Training Requirements you must be aware of before you may conduct business
Not only must a producer complete the generic Reg 187 training (available in January through Quest CE if you have not completed it yet), a producer must complete the product-specific training for each carrier they represent in New York.
Please watch our Compliance Bulletins and Leaders Weekly for additional guidance and a schedule of calls concerning Reg 187 and Reg BI.
Jane Riley, Chief Compliance Officer