Update: New York Department of Financial Services Issues Proposed Changes to its Suitability Regulation

On December 27, 2017, the New York Department of Financial Services (“DFS”) published a Proposed Amendment to New York Insurance Regulation 187, Suitability in Annuity Transactions, in the New York State Register (“DFS Proposed Amendment”). The DFS Proposed Amendment was introduced against the backdrop of the National Association of Insurance Commissioner’s (“NAIC”) recent proposed revisions to its’ Suitability in Annuity Transactions Model Regulation (“NAIC Proposed Revisions”), the United States Department of Labor’s Fiduciary Rule “best interest” standards and the American Council of Life Insurers’ (“ACLI”) “Uniform Standard of Care” proposal.

The DFS Proposed Amendment contains a number of provisions which will likely be of concern to life insurers doing business in New York. Additionally, the DFS Proposed Amendment appears to differ significantly from the NAIC Proposed Revisions which would make it difficult for insurers to develop standard procedures and technological systems on a nationwide basis.


While there are a number of changes contained in the DFS Proposed Amendments, some of the most significant modifications are:

  • Life insurance, including group life insurance, would be subject to the regulation.
  • In-force policies, as well as proposed policies, would be covered under the regulation.
  • The suitability analysis would focus on the “recommendation” of any “transaction” and whether such recommendation is in the “best interest” of the consumer and is, as a result, “suitable”, rather than restricting the suitability analysis to when a consumer purchases or replaces a policy.
  • The definition of “suitable” would include a review of “all available products, services and transactions” in connection with the consumer’s suitability information.
  • The consumer’s tolerance as to non-guaranteed elements in the policy would be added as a part of the suitability information required to determine whether the recommendation is suitable.
  • The producer would be prohibited from (i) making a recommendation to the consumer to enter into a transaction unless they have a reasonable basis to believe that the consumer has the financial ability to meet the financial commitment under the policy and (ii) stating or implying that a recommendation to enter into a transaction is part of financial planning, investment management or related services unless the producer has a specific designation in these disciplines.
  • Every producer in the transaction would be subject to the regulation.
  • Insurers would have to establish and maintain procedures designed to prevent “financial exploitation and abuse” as defined in the DFS Proposed Amendment.
  • Insurers would have to provide complete policy comparisons of all available policies of the same product type to consumers and would have to provide producers, where a policy is being replaced, with all relevant policy information in order for the suitability evaluation to be completed.


While the NAIC Proposed Revisions also incorporate a “best interest” standard, the changes, some of the more important of which are described below, are not as expansive as the DFS Proposed Amendment:

  • The suitability analysis would apply to any solicitation, negotiation, recommendation or sale of an annuity.
  • A “best interest” standard, which is defined in terms of what does and what does not constitute “best interest”, would be added.
  • New provisions defining “material conflict of interest”, “cash compensation”, “non-cash compensation” and “reasonable cash compensation” and imposing disclosure requirements as to these issues would be included.
  • Producers, or the insurer where a producer is not involved, would have to undertake a number of steps before recommending an annuity, including but not limited to, evaluating the types of financial products that correspond to the consumer’s disclosed suitability information and disclosing to the consumer the producer’s licensing information and the type of financial products that can be provided.
  • Producers, or the insurer where a producer is not involved in the sale, would be prohibited from engaging in certain practices, including but not limited to, basing any recommendation on the producer’s or the insurer’s own financial interest.

We will continue to monitor developments regarding the DFS Proposed Amendment and the NAIC Proposed Revisions. For more information about this, contact Sandy McDermott at sandy.mcdermott@srclawoffices.com or 518-407-5800.