Proposed Regulation 187 (Suitability in Life Insurance and Annuity Transaction)

I am sure by now most of you have read the proposed revision to NY’s suitability regulation – or at least a news article about it. There have been quite a few. Because the comment period is still open, it is not too late to make your views known to NYSDFS. 

I have many opinions and thoughts about this proposal – some of which I wrote about in an earlier blog post. The longer I sit with it, the more thoughts and opinions I have. Here is one that I did not write about in my earlier post and that I have been ruminating on the last couple of weeks… 

Many of us who are involved in annuity filings, and have made DOL-related fee-only or reduced-commission filings, have heard from DFS in recent months that the DOL compliance obligations of producers should not impact what products are offered, by those producers, to consumers. They have pulled out a circular letter from 1955 and are once again focused on all individual products being “generally available.” They are adamant that they will not approve products that are developed for one distributor. Where they will allow some flexibility by distribution channel, they have stated in objection letters that a distribution channel means, for example, all banks in NY, not all Citizen Banks in NY. Absent a recognized distribution channel, our clients have been told, the product must be “generally available.” 

In that context, what does the definition of suitable mean? “Suitable means in furtherance of a consumer’s needs and objectives under the circumstances then prevailing, based upon the suitability information provided by the consumer and all available products, services, and transactions” (emphasis added). Does “all available products” mean all generally available products? Read with §224.5(c)(1)(i) of the Reg., it appears they do mean only those products, services, and transactions of a single company because that paragraph states that an insurer shall provide consumers with “all relevant policy information with respect to evaluating any transaction or proposed transaction, including a comparison, in a form acceptable to the superintendent, of all available policies of the same product type offered by the insurer; …”

Presumably the intent is for the information provided by the insurer to line up with the products considered by the producer for recommendation to the consumer. Leaving aside the question of how many insurers’ products must be considered and therefore how many disclosures must be provided to each individual consumer, what about all the distributor-specific products that one insurer might have? Is part of the intent of the regulation to bring us back to the days before the 2000 OGC opinion on class distinctions by making an onerous disclosure and suitability standard? Is this a way to go back to what the DFS has often waxed nostalgic for? That time when one company had only one UL policy or one FPDA because the DFS felt having two, unless the second fell into a small number of clearly recognized distribution channels, was unfairly discriminatory? Perhaps not, but the more I think about it the more it seems so to me. How else can these compliance burdens be met? And more than anything, doesn’t that limit product availability to consumers based on producer and insurer compliance burdens?