New York’s Regulation 187 May Cause Problems For Insurance Agents, Brokers And Their Clients

When you purchase insurance from a broker, investment advisor or insurance agent, shouldn’t they have your best interests at heart?

New York’s Regulation 187 was designed to do just that, and could take effect as early as August of 2019. In it, agents and brokers are required to have the “best interest” of the consumer in mind when offering recommendations for their life insurance policies and annuities. Agents and brokers are not to consider any financial incentives or compensation that they might receive as a result of the financial products they offer while discussing different options for annuities and policies.

While Regulation 187 is intended to supplement New York’s existing consumer protection laws and “fill in the gaps” of regulations, it isn’t being met with resounding applause by Wall Street. According to one trade industry group, a number of issues exist with the new law that can be problematic.

For one thing, insurance agents and brokers are being referred to collectively as “producers.” Agents and brokers are two distinctly different professions that are subjected to different rules and regulations, but are lumped into a regulation that intends to be one-size-fits-all according to one trade group.

The National Association of Insurance and Financial Advisors-New York State Inc. is seeking to have Regulation 187 invalidated. The group has argued that the NY State Department of Financial Services does not have the authority to pass and promote Regulation 187. The group also claims that the law’s terms aren’t clear, and could lead to enforcement actions that will have a “chilling” effect on the services that agents and brokers can provide to their clients.

“Consumers will be left worse off because of Regulation 187, which will disrupt the quality of services provided to New Yorkers as agents and other market participants become reluctant to expose themselves to new regulatory risks,” the association argued.

In their petition, NAIFA-NYS claim that none of the statutes the DFS cited in drafting the legislation actually gave them the authority to do so. They also don’t mention any industry-wide fiduciary duties for the “producers.” Additionally, DFS also exceeded their authority by drafting and creating Regulation 187 without any input from the New York State legislature, who has been unsuccessful in proposing similar legislation.

The NY Department of Financial Services disagrees, emphasizing that a consumer’s choice should not be influenced by the agent or broker’s financial incentives to sell a particular product. DFS Director Maria Vullo claims that Regulation 187 will fill in the “regulatory gaps” after the Fifth Circuit struck down the US Department of Labor’s fiduciary rule, which would have done much the same thing, and set limits on compensation for the sale of these financial products. Wall Street successfully opposed legislation which would hold them to a fiduciary standard.

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