A New York state court in Albany has upheld a rule that requires insurance agents and brokers to take consumers' best interests into account when advising them on life insurance products and annuities.
The New York chapter of the National Association of Insurance and Financial Advisors, or NAIFA, had filed a lawsuit in November 2018 challenging the standard, which had been promulgated by the New York Department of Financial Services. NAIFA argued that it would actually harm consumers because agents and other market participants would not want to expose themselves to new regulatory risks.
The ruling, issued Aug. 1, is likely to be appealed.
NYDFS Superintendent Linda Lacewell championed the decision during remarks at a recent National Association of Insurance Commissioners meeting.
"I am still trying to figure out why this was controversial," Lacewell said. "They said it couldn't be done, but this week a New York State Supreme Court upheld the [regulation] so yes, it's possible."
Lacewell said the NYDFS is the first insurance regulator to implement a best-interest standard and called for other states to join in "applying the best interest standard nationwide."
Nevada and New Jersey have proposed new standards or fortified existing best-interest standards that may change how advisers recommend annuities. A similar bill has been proposed in Maryland, but that measure has not advanced in the legislature.
Lacewell also said the NYDFS will be naming a consumer advocate to work across her department's divisions.
"The consumer must be at the center of everything we do," she said.