The National Association of Insurance and Financial Advisors – New York State Inc. (NAIFA) has sued New York’s Department of Financial Services over a new regulation that requires insurance agents and brokers to take “only the interests of the consumer” into account when selling life insurance and annuity products.
According to an InvestmentNews report, NAIFA filed the lawsuit in the New York Supreme Court on November 16, arguing that the state’s Department of Financial Services exceeded its authority with the rule and placed insurance sales professionals in difficult legal waters by forcing them to prioritize their customers ahead of their firms.
NAIFA is not alone in fighting the regulation. The trade association joins the Independent Insurance Agents and Brokers of New York Inc. and the Professional Insurance Agents of New York State Inc. in filing a lawsuit against the insurance sales rule.
Donald Damick, an agent with Nationwide Insurance Companies and past president of NAIFA New York State, said in an affidavit accompanying the lawsuit: “This rule puts me in an impossible situation because as a licensed life insurance agent I am required by New York [insurance law] and by my contractual obligations to act as an agent of the insurer, not customers or insureds. In fact, I can lose my NYDFS license - and thus my livelihood - if I do not follow the state’s insurance statutes. And now I can also face penalties under [the regulation’s] best-interest standard.”
The new regulation is set to come into effect in August 2019. It will force brokers to prioritize the interests of the consumer and dictates that compensation to the sales agent will only be allowed if it “does not influence the recommendation”. According to InvestmentNews, NAIFA’s lawsuit argues that the insurance sales standard contradicts existing New York insurance law.
New York Financial Services superintendent Maria T. Vullo has described the regulation as “prudent, fair and reasonable – and just simply the right thing to do”. In a statement on November 16, she said: “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 interest.”
However, Damick argued the regulation enforces a standard of conduct that “effectively requires the agent to become a fiduciary to the consumer”. In his affidavit, he said: “"The regulation imposes a duty on the agent to recommend products based solely on what is suitable for the consumer, and mandating that no other interest, including an agent’s compensation, may be considered by the agent when providing that recommendation.”
