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Insurance companies, brokers and agents who mislead consumers by misrepresenting the financial condition of competitors are subject to disciplinary action, the New York State Insurance Department warned in an advisory bulletin, known as a “circular letter” directed to the insurance industry.

“Any misleading and deceptive representation of the financial condition of an insurer is illegal. The Department will continue to make sure that insurance companies and their sales representatives satisfy the requirements of the Insurance Law. Insurers must make certain that consumers understand that replacing or liquidating a life insurance policy or annuity can have heavy hidden costs and tax consequences,” Superintendent Eric Dinallo said.

Prompted as a consequence of last month’s federal stabilization of American International Group (AIG), the advisory stated that AIG subsidiaries licensed in New York State are meeting – and are expected to continue to meet – their obligation to pay insurance claims.

The advisory to the industry is outlined in Circular Letter #22 (2008), which is available on the Department’s website,

The Department urged insurers licensed in New York to review their advertisements, pamphlets, circulars and other public communications to make sure they comply with the New York Insurance Law.

The Department is currently investigating a number of allegations of improper sales and marketing practices. The Department said it will continue to closely monitor competitive practices and pay particular attention to replacement policies and contracts issued to consumers to ensure that legal requirements are met.

Under the law, authorized insurers writing life, accident and health insurance policies and annuities must meet specific requirements covering the sale of insurance policies and annuities.

For example, insurance companies and their sales representatives must fully and accurately advise consumers of the consequences that may occur when a consumer agrees to replace a policy. These could include surrender charges, tax consequences, new contestable periods, short rate cancellations, new underwriting reviews and requirements, and the loss of premium discounts.

Insurance companies, brokers and agents who violate the law are subject to penalties by the Department, ranging from fines to license suspension or revocation.

The Insurance Department urged consumers to contact the Department immediately at 1-800-339-1759 in the event they are approached by an insurer, broker or agent who improperly suggests they replace their policies or contracts on the basis that AIG or any other insurer will be unable to pay claims.


Department of Financial Services


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