BILL NUMBER: S5238
SPONSOR: COMRIE
 
TITLE OF BILL:
An act to amend the insurance law, in relation to the replacement of
individual life insurance policies or individual annuity contracts of
any insurer
 
PURPOSE:
The purpose of this bill is to amend § 5 2123 and 4226 of the insurance
law to establish that the regulation governing replacements of life
insurance policies or annuity contracts with another policy or contract
should be consistent, to the greatest extent practicable and in the
public interest, with the replacements regulation adopted by the
National Association of Insurance Commissioners (NAIC).
 
SUMMARY OF PROVISIONS:
This bill amends § 5 2123 and 4226 of the insurance law so as to contin-
ue to establish that insurers and producers are prohibited from making
misleading or incomplete representations of any policy or contract for
the purpose of inducing a customer to lapse, forfeit or surrender a
policy or contract. This bill further provides that the superintendent
of insurance/financial services shall establish rules for the replace-
ment or life insurance policies and annuity contracts and that those
rules shall be, to the greatest extent practicable and in the public
interest, consistent with the replacement regulation adopted by the
NAIC; as amended from time to time. This bill would. also amend both
sections to remove the current requirement that the replacement rules
must contain a requirement that policies or contracts being contemplated
for replacement in New York can only be completed after a complex, cost
comparison of the replaced policy or contract to the replacing policy or
contract.
 
JUSTIFICATION:
The bill makes amendments to sections 2123 & 4226 of the insurance law
to provide that the regulation governing replacements of life insurance
products in this state should be consistent with the NAIC Life Insurance
and Annuities Replacements Model Regulation and to remove the require-
ment that there must be a detailed cost comparison of products before
you can replace one life insurance policy or annuity with another one.
These amendments leave in place the current provision of law that
prohibits insurers and producers from using a misleading or incomplete
representation to induce a customer to lapse, forfeit or surrender a
policy or contract.
The New York Insurance Department has used the existing provisions of
law as the basis for the implementation of the very complicated Regu-
lation 60 governing replacements of life insurance policies and annuity
contracts. Since its implementation in 1998, Regulation 60 has not prov-
en to work very well because, in some instances, it requires the compar-
ison of products that are not at all similar (such as a life policy to a
deposit-type annuity contract, or vice versa) and, in every instance,
results in a lengthy delay (sometimes up to a month) in completion of
the transaction. This delay is due to the fact that the producer selling
the new policy or contract and the customer seeking to buy it must wait
for the necessary information related to the product being replaced, so
that the producer can do the requisite comparison. Pursuant to the
current regulation, the information related to the policy or contract to
be replaced is supposed to be provided by the company whose policy or
contract is being contemplated for replacement-something that they are
not overly motivated, but are compelled by the regulation, to do. This
delay pas not always served the customer well. In some instances, they
have been unable to timely complete a transaction on an interest-sensi-
tive product and have, as a result, received a final product with less
favorable terms. During the recent economic down-turn, consumers who
were seeking to replace a variable annuity product with a fixed one were
forced to wait a month to consummate that replacement, resulting in an
even steeper decrease in the value Of their variable annuity before the
transaction could be completed. In other,ò less common instances, they
may have had a change in their health status or even passed away while
waiting to purchase a policy or contract with better terms than the
policy or contract they were seeking to replace Oftentimes, these delays
are totally unnecessary because the customer is fully aware of the
details of their transaction and are 'anxious. to complete their trans-
action.
New York is the only state in the nation that requires this level of
detailed comparison. of one product to another. The vast majority of the
states have implemented a version of the NAIC Model on Replacements,
which requires insurers to provide simple disclosure of factors that you
should consider when replacing one life or annuity product with another.
This simple disclosure model has proven to be sufficient to deter inap-
propriate replacements in other states. If this bill were to be enacted,
New York could amend their regulation on replacements so that it is
consistent with the NAIL Model disclosure requirement and the practice
in most other states. New York law would continue to prohibit misrepre-
sentations by producers or insurers for the purpose of inducing the
surrender of a policy or contract, as well as providing for a sixty-day
free look period after the replacement of a policy or contract with a
new one so that customers having buyer's remorse could reverse their
transaction. New York would also continue to require life insurers and
producers to conduct a review and determination as to the suitability of
every annuity transaction, including replacement transaction, before an
annuity purchase is made (Regulation 187). All of these requirements
would ensure the proper balance so that New York consumers are being
protected from inappropriate sales, yet are still able to complete a
desired transaction in a timely fashion.
 
LEGISLATIVE HISTORY:
S2817 of 2023-24;
S4041 of 2021-22;
S.3502 of 2019-20;
S.708 of 2017-18;
S.1170 of 2015-16;
S.3065 of 2013-14;
S.5024 of 2011-12
 
FISCAL IMPLICATIONS:
None.
 
EFFECTIVE DATE:
This act will take effect on the 180th day after it shall have become a
law.