NOTE: Offers of Settlement (OS) and Letters of Acceptance, Waiver, and Consent (AWC) are entered into by Respondents without admitting or denying the allegations, but consent is given to the described sanctions and to the entry of findings.

SECURITIES INDUSTRY COMMENTATOR™
2007
CASE ANALYSIS

By Bill Singer

New York State Insurance Department Regulation 60
In a Nutshell

On November 10, 1998, the New York State Insurance Department implemented Regulation 60 to regulate the “acts and practices” of licensees, including insurers, agents, and brokers, with respect to the replacement of life insurance policies and annuity contracts and to protect thIe public interest by establishing minimum standards of conduct to be observed in the replacement or proposed replacement of life insurance policies and annuity contracts. 11 New York State Codes, Rules and Regulations § 51.1(a) (2006). Regulation 60 prohibits unfair practices and requires you to make available "full and clear information on which an applicant for life insurance or annuities can make a decision in his or her own best interest; by reducing the opportunity for misrepresentation and incomplete comparison in replacement situations . . .” 11 NYCRR § 51.1(b) (2006). 

Under the regulation, agents are required to have two separate meetings with a customer before the agent completes a replacement annuity sale. This process is divided into Phase I and Phase II, during which various forms and documents must be provided to the customer. 

PHASE I/ First Meeting: 

The first form that you must provide to the client advises the customer that a replacement under Regulation 60 has occurred or is likely to occur if the customer answers, “Yes,” to any of the questions on the form. One such question asks the customer whether the existing coverage has been or is likely to be “lapsed, surrendered, partially surrendered, forfeited, assigned to the insurer replacing the life insurance policy or annuity contract, or otherwise terminated” as a result of the customer’s purchase of a new annuity contract. 

The second form authorizes the insurer selling the replacement annuity to collect information about the customer’s existing annuity from the insurer of the existing annuity contract. 

INTERIM/Compilation of Information:

Prior to the requisite Second Meeting with the customer, the agent is required to obtain information about the existing annuity from the insurer of the existing annuity contract, and to prepare a “Disclosure Statement” that includes a side-by-side comparison of the death benefits and surrender values of any existing and proposed replacement annuities. 

PHASE II/ Second Meeting: 

At the second meeting with the customer, the agent is required to give the customer a document entitled, “Important Notice Regarding Replacement or Change of Life Insurance Policies or Annuity Contracts” (“Notice Document”) and a Disclosure Statement (“Phase II”). 

• The Notice Document 

  • informs customers that the Disclosure Statement includes a comparison of the existing and proposed annuity contracts that sets forth the advantages and disadvantages of the transaction, and that they should carefully study the Disclosure Statement until they understand fully the effect of the proposed transaction; 

  • warns customers that “[a]s a general rule, it is often not advantageous to drop or change existing coverage in favor of new coverage, whether issued by the same or a different insurance company”; customers may be able to effect the desired changes more advantageously with the company or agent from whom they bought the existing life insurance policies or annuity contracts; and “[a]n existing life insurance policy or annuity contract often has more favorable provisions than a new life insurance policy or annuity contract in areas such as loan interest rate, settlement options, disability benefits and tax treatment;” and

  • advises customers that they have a right, within 60 days from the date of delivery of a new annuity contract, to return the new annuity contract to the insurer and receive an unconditional full refund, and that they “may” have the right to reinstate or restore any annuity contracts that were surrendered. 

• The second meeting is documented by having the customer sign the Notice Document and the Disclosure Statement. The customer’s signature acknowledges that he or she has received and read the documents.

Also, visit this link for more details on Regulation 60 cases: http://rrbdlaw.com/2004/0408Reg60.htm