Department to Hold Four Hearings on Suitability of Life, Annuity Sales

• by New York State Insurance Department

Is new oversight or regulation required to protect consumers now that purchases of life insurance and annuity contracts have become increasingly complex financial transactions? The New York State Insurance Department will hold four public hearings across the state to help find out, Acting Insurance Superintendent Kermitt Brooks announced today.

The hearings will gather information about life insurance and annuity sales transactions from the public, consumer groups, industry representatives, expert witnesses and other interested parties. They are scheduled for August 6 in Buffalo, August 13 in Albany, September 9 on Long Island and September 16 in New York City.

"Consumers of all ages and seniors in particular need to know if the products they're buying are right for them," said Brooks. "So many new life insurance and annuity products have come onto the market and some are so complex, it may be hard for someone to figure out what the right product is and why."

The hearings will focus on "suitability" - whether a particular product is the right one for an individual consumer. At the hearings, the Department will try to find out if there is a problem concerning unsuitable sales of life insurance and annuities in New York, and if so, what should be done about it.

In recent years, life insurance and annuities purchases have become increasingly complex financial transactions. Indeed, there has been a proliferation of new products, particularly in the area of annuity contracts, which are now offered to consumers of all ages. Concerns over sales of annuities, particularly to senior citizens, have led regulatory agencies nationwide to investigate whether insurers and insurance producers are sufficiently evaluating the suitability of life insurance policies and annuity contracts for particular consumers and recommending to consumers only policies and contracts that meet their particular needs (based on the consumer's financial status, investment objectives, tax implications and other relevant information).

The National Association of Insurance Commissioners (NAIC) adopted a Suitability in Annuity Transactions Model Regulation, and more than 30 states have implemented some form of the NAIC model by statute or regulation. Recently, the NAIC circulated a proposed draft revision to the model regulation. The Financial Industry Regulatory Authority (FINRA) also regulates the sale of variable annuities.

New York has not adopted the NAIC Model and does not currently have a regulation or statute that specifically bans unsuitable sales. Current New York insurance regulations try to make sure life insurance and annuity sales are suitable by mandating certain disclosures and comparisons, but as a 1998 Insurance Department report noted, "the law assumes that an informed consumer is the best judge of what may be suitable or appropriate for himself or herself. As products become more complex and sophisticated, the need for professional advice and assistance increases and this assumption can be questioned." The hearings will seek to determine the effectiveness of the current regulations and whether the Department should promulgate new regulations that specifically bar unsuitable sales of life insurance and annuities.

The hearings will also explore if any new regulation should apply to all life insurance and annuity sales or just a certain portion, and whether the Department should pattern any regulation on the current NAIC model, FINRA's rules or the draft NAIC revised model.

"We want to hear from everyone," Brooks said. "Only by hearing from consumers, producers, companies and everyone else involved in the process can we fully understand what needs to be done."

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About the hearings:

The purpose of the hearings is to gather information from the public relating to life insurance or annuity sales transactions, and to hear any concerns that the public may have about sales practices. The Department welcomes input from consumers and consumer representatives, insurance companies and their trade associations, insurance producers and their trade associations, senior citizen organizations, academics and members of the general public with experience or expertise on the subject of suitability in the sale of life insurance or annuities. Oral and written testimony should focus on the consumer experience with the sale of annuities or life insurance in New York.

Any member of the public may testify at these hearings or submit written comments. Information on the hearings is available at the Department's website, www.ins.state.ny.us. Testimony can be scheduled and written testimony submitted through the website.

Written comments for the hearing record may also be submitted to Suitability Hearings, Public Affairs Bureau, New York State Insurance Department, 25 Beaver Street, New York, NY 10004, or e-mailed to PublicHearingsComments@ins.state.ny.us with the subject line "SUITABILITY HEARINGS." Comments will be accepted by the Department for up to 15 business days after the public hearing.

In accordance with the Americans with Disabilities Act, the Insurance Department will provide a reasonable accommodation, including interpreter services for the hearing impaired, at no charge to any covered individual wishing to testify at these hearings, provided that such a request is received at least five business days prior to the particular hearing date and either communicated in writing to Suitability Hearings, Public Affairs Bureau, New York State Insurance Department, 25 Beaver Street, New York 10004, or by calling the Insurance Department at (212) 480-5262.

The hearings will be webcast live. Information on the hearings, including directions to the locations and how to watch the webcast is available on the Department's website at www.ins.state.ny.us.

The public hearings are scheduled as follows: