The Rise of a Reg
As you are likely aware, Algren Associates is based in New York. A substantial part of our business is in New York, so we understand the quirks of dealing within the state.
For this reason, we are often called on by several out-of-state competitors of ours to handle their advisors’ New York replacement cases since they do not understand or want to deal with Regulation 60.
This scenario is likely to extend to all their New York cases as Regulation 187 is implemented. This is obviously better for Algren’s bottom line; however, it has implications that are worse for New York consumers.
If an Advisor outside of New York does not want to deal with Regulation 187, they might just refer the business to an advisor in New York like they currently do for replacements. That puts the client in a situation where they are dealing with someone that they are unfamiliar with, who is not as familiar with their financial situation and insurance needs as their own advisor. Even following Best Interest protocol there is a serious problem with putting clients in that situation.
The coming months – and possibly longer – will be incredibly painful for everyone involved in the sale of Life Insurance in NY – including consumers – as everyone works to figure out exactly how to comply with the new law.
It does not stop here though. While we may have been the first to implement a Best Interest Standard, there are currently more than a half dozen other states working on their own versions. All of them have variations. It is very likely that two years from now we will be required to adhere to different “Best Interest” sales practices when dealing with clients in New York than with clients in Texas which would be different than Florida which would be different than California, etc.
As this spreads, you will see less advisors willing to open themselves to the liability of advising clients in states they are not as familiar with. Many will stop offering insurance advice altogether. This will force clients to work with advisors they are less familiar with. This is not in any client’s Best Interest.
Here are some ideas that would be in the Best Interest of Life Insurance Consumers:
Federal Regulation: No more State Regulators filled with political appointees who have no experience in the industry. Let’s get people in charge of us who know us, who understand what we do, how we do it, and how to improve it for the American public.
Standardized Forms: One form should afford a client to apply for any product with any carrier. If there is an issue during the underwriting process or if the client changes their mind, that form should be valid for another carrier and/or product.
Medical Records Regulation: Requiring Doctors’ offices to comply with a standard HIPAA form when requests are made for medical records. If a Doctor’s office creates a barrier by requiring their own form, requiring the insured be present when signing a form, or dragging their feet in any other way before releasing records, they should be considered liable if anything adverse happens to the insured during the process.
Overhaul Illustrations: Everyone acknowledges that illustrations have been weaponized for decades. Everyone acknowledges that most figures on illustrations are speculative. Everyone agrees that illustrations are cumbersome. Let’s finally work together to create a system that accurately depicts products, expected performance, internal costs, etc., in a better way.
Here is what is not in the Best Interest of a Life Insurance Consumer:
Exemptions: Regulation 187 exempts most policies being sold in a conjunction with retirement planning as it pertains to qualified plans and nonqualified deferred compensation. This is mind boggling as these are some of the most complex cases, have large premiums, and restrictions. To put it in other terms, if I sell a client two policies on February 1st, the first is a million dollar twenty year term policy the second is a whole life inside their 401K plan using forty-nine percent of their contribution to fund the premium, I will face a more stringent Best Interest Standard on the Term sale.
The implementation of Regulation 187 by the New York State Department of Financial Services is a textbook case of the worst way to enact new standards. It will hurt consumers as less advisors will be willing to deal with the increased liability. Add this to New York’s average commission being twenty percent less than out of state, higher premiums than the same products in other states, and less products to sell; you have the recipe for less consumers getting the coverage they need.
And that is in no one’s Best Interest.