Nevada’s Choice to Protect Consumers from Unfair Premium Hikes Was the Right One

By: Michael DeLong, Research and Advocacy Associate

Nevada consumers can breathe easier and have reason to be thankful. In a major victory for fair and affordable insurance, the Nevada Supreme Court just upheld a Nevada Division of Insurance regulation temporarily banning the use of credit information in insurance.

Why is this important? Because consumers are now protected from unfair premium increases that would result from the COVID-19 pandemic and its impact on their credit scores.

To understand how this happened, let’s rewind. Back in March 2020, the COVID-19 pandemic and the resulting state of emergency dealt a smashing blow to Nevada consumers. In its decision, the Nevada Supreme Court observed that “in Las Vegas, where the governor’s declaration effectively closed the city’s robust travel and leisure industry, unemployment soared by the highest over-the-year percentage in the country, and in the months that followed, temporary unemployment became permanent and consumer credit declined.” Without any say and an uncertain future, huge numbers of people lost their jobs—with severe implications for their credit.

This reality was made worse by the fact that auto insurance companies use credit information to unfairly charge consumers higher premiums. In Nevada, Consumer Federation of America’s (CFA) research found that Nevada consumers with a perfect driving record and excellent credit pay an average annual premium of $770. But consumers with the same driving record but fair credit pay an average premium of $1,044—36% more. And if those consumers have poor credit, their average premium is $1,348—75% or $578 more, even if their driving record is flawless! So, if consumers see their credit decline for any reason, their auto insurance premiums will likely go up—regardless of their driving behavior.

The Nevada Division of Insurance, the state agency in charge of making sure that insurance is affordable and fair, swung into action. They realized that it was unsound and unfair for consumers to pay higher insurance premiums because they became unemployed during the pandemic and struggled to pay their bills.

After public hearings and input, the Division issued Regulation R087-20, which banned insurance companies from using changes in consumer credit information to increase consumers’ premiums. This ban retroactively took effect from March 1st, 2020 (when the pandemic’s effects started really being felt) and will go on until May 20th, 2024, two years after the end of the COVID-19 state of emergency. CFA praised the rule, which protects consumers from unfair discrimination in the form of insurance premium hikes and gives consumers time to recover from the pandemic.

But greedy insurance companies were furious and couldn’t leave well enough alone. The insurance trade group, the National Association of Mutual Insurance Companies (NAMIC) sued to get this regulation invalidated. NAMIC claimed that the rule exceeded the Division’s power and that it was unconstitutional.

The case went all the way up to the Nevada Supreme Court. CFA and the Center for Economic Justice filed a detailed amicus brief in support of the rule, stating that “disruptions caused by the pandemic and the public policy responses to it made the use of credit history by insurers unfairly discriminatory as an actuarial matter and with respect to protected classes. As such, the rule promulgated by Commissioner Barbara Richardson is within her statutory authority and will protect consumers.”

Had the rule been struck down, unscrupulous insurance companies would be taking advantage of consumers who became unemployed and couldn’t pay their bills due to the pandemic. Consumers’ credit has gone down, and in response auto insurers would be able to hike premiums, earning greater profits and hurting already struggling families.

But last week the Nevada Supreme Court upheld the temporary ban use of credit scores to determine insurance rates, and protected Nevada consumers against premium hikes. NAMIC attempted to conjure up faulty arguments against the regulation, but thankfully the Court was not impressed with any of them. In its opinion, the Court noted that the Division found abundant evidence that the pandemic disrupted any correlation between someone’s credit information and how risky they are to insure, and that the regulation fell under the law prohibiting unfair discrimination.

NAMIC also argued that Nevada could only regulate intentional discrimination in insurance, but the Court firmly rejected this assertion. They concluded that the Division has the power to regulate this discrimination, whether it is intended or not. The Court also pointed out that while Nevada law normally allows insurance companies to use credit information in insurance pricing, Regulation R087-20 did not totally ban the practice. It was “tailored to address the discriminatory use of consumer credit information based on findings that NAMIC does not dispute.”

If a consumer’s credit information declines, their auto insurance premium will usually increase. Without this regulation hundreds of thousands of Nevada residents would be experiencing severe rate increases due to credit reductions. As a result of the Court’s decision, consumers are protected and will have fair auto insurance rates. For now, consumers no longer have to fear paying $200, $300, or even $500 more in premiums because of discriminatory insurance pricing.

We urge insurers to immediately comply with the Court order and urge the Nevada Division of Insurance to act against insurers that continue to impose credit-based penalties on Nevada customers.