New York State is lobbying for a higher standard of care for life insurance sales across the country, arguing that consumers need stronger protections from conflicted advice and building off a national dialogue set off by the Department of Labor fiduciary rule.
Maria T. Vullo, New York's superintendent of financial services, said in a letter to the National Association of Insurance Commissioners that a "best-interest" standard should apply to life insurance products.
The NAIC is a body that helps set insurance guidelines for states, which regulate life insurance and annuity products. In November, the group proposed a "best interest" standard for annuity sales, which is more stringent than the group's current "suitability" standard that's been taken up by roughly 40 states.
New York wants the NAIC to expand its net to cover life insurance, too. New York proposed its own rule in December to do just that — and now it's hoping to get the other 49 states to follow its lead.
If New York gets its wish, it would mark a big shift in the way life insurance companies, brokers and agents interact with consumers.
A spokesperson for the NAIC didn't return a request for comment on the New York proposal by press time.
The Department of Labor sparked a nationwide furor over investment-advice standards in 2015 when it proposed its fiduciary rule governing retirement accounts. The regulation, which partially went into effect in June, says brokers must give advice that's in investors' best interests.
But the Trump administration has thrown the regulation's fate into disarray by delaying major parts of the rule and calling for a review of its contents. States such as Nevada and New York are trying to impose their own fiduciary rules as a sort of backstop in case the DOL rule is watered down, as consumer advocates fear.
The Securities and Exchange Commission is currently working on its own fiduciary rule, as are other bodies such as the Certified Financial Planner Board of Standards Inc., which is trying to up the standard for financial planners with the CFP designation.
Even if the DOL fiduciary rule survives in its current form, it would have little effect on life insurance sales because such products aren't often held in a retirement plan or funded with retirement-plan money.
Ms. Vullo of New York said in her Jan. 22 letter that consumers purchasing term, whole, indexed universal and variable universal life insurance products "could be subject to the types of conflicted advice that the U.S. Department of Labor sought to eliminate with its Conflict of Interest Rule."
"In fact, insurers and producers frequently market permanent life insurance products … as providing tax-advantaged growth and the ability to provide retirement income in addition to a death benefit, blurring the line between insurance and investment products," Ms. Vullo said.