In what can only be described as a big time warning shot from the State of New York Insurance Commissioner, Eric Dinallo, a letter has been sent to all licensed agents in the state regarding laws on the books that prohibit an agent or broker from making any misleading representation or misrepresentation regarding the financial condition of the insurer in order to induce the person to lapse, or surrender any insurance policy.
The exact law sections 2123 and 4226 are explict in their language.
This is clearly a response to the flood of web, print and broadcast commentary in which agents and others have been trying to alarm life insurance and annuity holders of AIG and American General into surrendering or cashing in their contracts. I've got to imagine this is also the opening of a potential battle between the insurance commissioner and factoring firms over the exceptionally aggressive tactics many have taken in the last few weeks to suggest people should cash out of their annuity contracts.
In short, the word from NY to it's agents, brokers and others is to tread very carefully right now as the state will be monitoring replacements and cash in's exceptionally closely and watching for a pattern of abuse or misrepresentation. Once the smoke of the first 48 hours on the AIG melt down came and went it became abundantly clear that the life companies and annuity contracts were never at risk, but that fact was not reported and many jumped at the chance to scare policyholders for their own purposes.
It's refreshing to see the State of NY roll out a long forgotten and rarely enforced law that has some teeth in it, but it's a shame it took the AIG situation for them to pay attention to what has been an on going issue with a lot of factoring companies and agents for years. Every rating agency downgrade has been a signal to these shady marketing firms to ramp up the factoring and annuity churning process over the years so maybe this is a sign that someone is taking enforcement seriously.
In any regards, it's a welcome trend by the state of NY.