Current through Register Vol. 46, No. 39, September 25, 2024
(a) In recommending
a sales transaction to a consumer, the producer, or the insurer where no
producer is involved, shall act in the best interest of the consumer.
(b) The producer, or insurer where no
producer is involved, acts in the best interest of the consumer when:
(1) the producer's or insurer's
recommendation to the consumer is based on an evaluation of the relevant
suitability information of the consumer and reflects the care, skill, prudence,
and diligence that a prudent person acting in a like capacity and familiar with
such matters would use under the circumstances then prevailing. Only the
interests of the consumer shall be considered in making the recommendation. The
producer's receipt of compensation or other incentives permitted by the
Insurance Law and the insurance regulations is permitted by this requirement
provided that the amount of the compensation or the receipt of an incentive
does not influence the recommendation;
(2) the sales transaction is suitable;
and
(3) there is a reasonable basis
to believe:
(i) the consumer has been
reasonably informed of various features of the policy and potential
consequences of the sales transaction, both favorable and unfavorable, such as
the potential surrender period and surrender charge, any secondary guarantee
period, equity-index features, availability of cash value, potential tax
implications if the consumer sells, modifies, surrenders, lapses or annuitizes
the policy, death benefit, mortality and expense fees, cost of insurance
charges, investment advisory fees, policy exclusions or restrictions, potential
charges for and features of riders, limitations on interest returns, guaranteed
interest rates, insurance and investment components, market risk, any
differences in features among fee-based and commission-based versions of the
policy, and the manner in which the producer is compensated for the sale and
servicing of the policy in accordance with Part 30 of this Title (Regulation
194) and Insurance Law section 2119;
(ii) the consumer would benefit from certain
features of the policy, such as tax-deferred growth of any cash values,
annuitization, or death or living benefit;
(iii) the particular policy as a whole, the
underlying subaccounts to which funds are allocated at the time of the sales
transaction, and riders and similar product enhancements, if any, are suitable
for the particular consumer based on the consumer's suitability information;
and
(iv) in the case of a
replacement of a policy, the replacement is suitable including taking into
consideration whether:
(a) the consumer will
incur a surrender charge, increased premium or fees, decreased coverage
duration, decreased death benefit or income amount, adverse change in health
rating, be subject to the commencement of a new surrender period, lose existing
benefits (such as death, living or other contractual benefits), be subject to
tax implications if the consumer surrenders or borrows from the policy, or be
subject to increased fees, investment advisory fees, premium loads or charges
for riders and similar product enhancements;
(b) the consumer would benefit from policy
enhancements and improvements, such as a decreased premium or fees, increased
coverage duration, increased death benefit or income amount; and
(c) the consumer has had another policy
replacement, in particular, a replacement within the preceding 36
months.
(c) In making a recommendation, a producer,
or an insurer where no producer is involved, may weigh multiple factors that
are relevant to the best interests of the consumer including, but not limited
to, the benefits provided by the policy, the price of the policy, the financial
strength of the insurer, and other factors that differentiate products or
insurers.
(d) Prior to the
recommendation of a sales transaction, a producer, or an insurer where no
producer is involved, shall make reasonable efforts to obtain the consumer's
suitability information.
(e)
(1) Except as provided under paragraph (2) of
this subdivision, neither a producer nor an insurer shall have any obligation
to a consumer under subdivisions (a) and (b) of this section or under section
224.6(a) of this
Part related to any transaction if:
(i) no
recommendation is made;
(ii) a
recommendation was made and was later found to have been prepared based on
materially inaccurate material information provided by the consumer;
(iii) a consumer refuses to provide relevant
suitability information and the transaction is not recommended; or
(iv) a consumer decides to enter into a sales
transaction that is not based on a recommendation of the insurer or the
producer.
(2) An
insurer's effectuation of a sales transaction with respect to its policies
subject to paragraph (1) of this subdivision shall be suitable based on all the
information actually known to the insurer at the time of the sales
transaction.
(f) A
producer, or an insurer where no producer is involved, shall at the time of a
recommendation:
(1) disclose to the consumer
in a reasonable summary format all relevant suitability considerations and
product information, both favorable and unfavorable, that provide the basis for
any recommendations;
(2) document
the basis for any recommendation made, subject to subdivisions (a) and (b) of
this section and the facts and analysis to support that
recommendation;
(3) document, if
relevant, the consumer's refusal to provide suitability information, if any;
and
(4) document that a sales
transaction is not recommended if a consumer decides to enter into a sales
transaction that is not based on the producer's or insurer's
recommendation.
(g) A
producer shall not make a recommendation to a consumer to enter into a sales
transaction unless the producer has a reasonable basis to believe that the
consumer has the financial ability to meet the financial commitments under the
policy.
(h) A producer shall not
make a recommendation to a consumer to enter into a sales transaction about
which the producer has inadequate knowledge.
(i) Neither a producer nor an insurer shall
dissuade, or attempt to dissuade, a consumer from:
(1) truthfully responding to an insurer's
request for confirmation of suitability information;
(2) filing a complaint with the
superintendent; or
(3) cooperating
with the investigation of a complaint.
(j) A producer shall not use a title or
designation of financial planner, financial advisor or similar title unless the
producer is properly licensed or certified and actually provides securities or
other non-insurance financial services. Although a producer may state or imply
that a sales recommendation is a component of a financial plan, a producer
shall not state or imply to the consumer that a recommendation to enter into a
sales transaction is comprehensive financial planning, comprehensive financial
advice, investment management or related services unless the producer has a
specific certification or professional designation in that area.
(k) Any requirement applicable to a producer
pursuant to this Part shall apply to every producer who materially participated
in the making of a recommendation and received compensation as a result of the
sales transaction, regardless of whether the producer has had any direct
contact with the consumer, provided that product wholesaling or product support
based on generic client information, or the provision of education or marketing
material, does not constitute participating in the making of a
recommendation.
(l) Nothing in this
Part shall be construed to prohibit the payment to a producer of any type or
amount of cash or non-cash compensation including pension and welfare benefits,
and any other form of compensation that is otherwise permitted under the
Insurance Law and the insurance regulations.
(m) A producer may limit the range of
policies recommended to consumers based on a captive or affiliation agreement
with a particular insurer, where the producer prominently discloses to each
consumer in writing prior to a recommendation, in a form acceptable to the
superintendent, the nature of the agreement and the circumstances under which
the producer will and will not limit the recommendations. For example, without
limitation, these circumstances may include where a producer primarily
recommends policies of a particular insurer and secondarily recommends policies
from one or more other insurers when:
(1) the
primary insurer does not offer a policy that meets the consumer's needs or
objectives;
(2) the type of policy
in the best interest of the consumer is not available from the primary
insurer;
(3) the underwriting
criteria of the primary insurer are not favorable for the consumer;
or
(4) the offer made by the
primary insurer is not acceptable to the consumer. The producer shall adhere to
the conditions in the disclosure with each consumer. The disclosure is
insufficient if it merely states that the producer may limit recommendations
without specific disclosure of the extent to which recommendations are, in
fact, limited.
