New York’s Regulation 187 inspires dread in many insurance professionals who don’t even operate in that state. The rule represents greater momentum toward tighter restrictions spreading nationally.
Insurance companies have pulled products from New York in advance of the rule, and agents are reshaping their practices because of the new requirements, which went into effect this month for life insurance. Annuities fell under the reg in August.
Andy Villa of 1789 Wealth Strategies in Rochester said he expects fellow New York insurance agents will be leaving the business. But he is OK with that. In fact, he is a rare insurance advisor admitting publicly that he is looking forward to the reg.
“I think 187 is great because it forces insurance professionals to actually act in the best interest of the client,” Villa said, “but also to be educated globally on all the products that are in the space.”
Villa put his finger on one of the issues for many insurance companies, marketing organizations, broker-dealers, agents and advisors. The rule treats insurance sales as something resembling a fiduciary standard where sellers must look at a wide range of options for clients.
Because independent agents tend to sell a small number of products they know well, the best-interest model is a fundamentally different way of doing business. In New York, agents would be required to show that they recommended a product because it was in the best interest of their client.
How do agents show they acted in the client’s best interest? That is not entirely clear. How many products should an agent consider? And if they expanded that scope of products, would their independent marketing organization or broker-dealer sell it? If they are company agents, how wide are their product horizons?
Villa said those questions demonstrate the friction between a fiduciary-like best-interest standard and an industry built on the suitability standard.
“If you work at a career shop, that is a whole life producer, and your contract is predicated on how much core product you sell,” Villa said. “Well, the carrier’s going to have to produce products that they typically don’t want to sell.”
Insurance companies are on the hook for the seller’s behavior under New York’s rule, which “requires insurers to establish standards and procedures to supervise recommendations by agents and brokers to consumers with respect to life insurance policies and annuity contracts issued in New York State so that any transaction with respect to those policies is in the best interest of the consumer and appropriately addresses the insurance needs and financial objectives of the consumer at the time of the transaction,” according to the state’s Department of Financial Services.
That sounds a lot like a fiduciary standard, which is music to Villa’s ears. Consumers and wealth are changing and so should their management, he said.