Auto insurers in Nevada have refunded over $20 million to more than 160,000 drivers who faced premium increases during the pandemic simply because of their low or declining credit score. During the pandemic, the Nevada Division of Insurance issued a rule – R087-20 – that prohibited companies from increasing any auto insurance customer’s premium due to credit information in the wake of the COVID-19 pandemic, and required them to provide refunds to customers who were improperly surcharged because of their score. The refunds were reported by the Division at the Wednesday meeting of the Nevada Property and Casualty Advisory Committee, of which Consumer Federation of America (CFA) is a member.
“Punishing safe drivers with higher premiums just because they don’t have perfect credit has always been unfair. The $20 million in refunds helped undo the unfair credit score penalties insurance companies imposed during the pandemic, when so many Nevadans faced significant financial pain and were not even driving, because they were stuck at home,” said Douglas Heller, CFA’s Director of Insurance. “We applaud both former Insurance Commissioner Barbara Richardson, who crafted this consumer protection, and Commissioner Scott Kipper, who implemented it after the Nevada Supreme Court upheld the rule.”
During the pandemic, the Division found that insurers’ credit score-based premium increases were unfairly discriminatory and in violation of state law. Its regulation banned companies from using consumer credit information to increase consumers’ premiums after March 1st, 2020. The regulation also required insurance companies to provide refunds to consumers whose insurance premiums were increased because of their credit information before the regulation was adopted in early 2021. According to the Division, as of February 1st, 2024, $20,960,078.02 in refunds have been provided to 163,975 Nevada consumers because of this rule, for an average refund of $127.82.
After an insurance industry challenge to the regulation, the Nevada Supreme Court sided with the Division, CFA and the Center for Economic Justice (CEJ), which jointly submitted a friend of the court brief in the case, and upheld the rule. The temporary consumer protection, which expires this spring, also prevented millions of dollars in additional credit score penalties that were never charged because of the regulatory prohibition, which was made fully effective after the Nevada Supreme Court victory in February 2023.
The consumer groups warned that many Nevadans could face significant premium hikes on consumers – including many with perfect driving records – due to their credit scores when the protection lapses in May. Noting that other data sources insurers use, for everything from marketing and pricing to claims handling and anti-fraud efforts, can also lead to unfair discrimination and higher prices for safe drivers, the groups said that the Nevada legislature should adopt reforms similar to a 2021 Colorado law that requires algorithm bias testing to root out unfair discrimination in insurance.
“The pandemic made clear that one type of data used by insurers could be unfair and unfairly discriminatory,” said Birny Birnbaum, Executive Director of CEJ. “In the case of consumer credit information, the pandemic resulted in different prices for consumers with the same risk profile — the actuarial definition of unfair discrimination. Insurers should be required to routinely test these non-traditional sources of data for unfair discrimination and racial bias.”
At the Property and Casualty Insurance Advisory Committee meeting, CFA’s representative, Michael DeLong highlighted that the end of this protection and the continued use of other socioeconomic factors in pricing – such as a driver’s education level, job title, or marital status – will exacerbate the pain of skyrocketing insurance premiums in the state. It is clear, he noted, that reforms are needed to end the unfair discrimination that makes it difficult for many Nevadans to comply with the state’s mandatory insurance law.
“Nevadans are facing huge premium hikes as it is,” said Delong, a Research and Advocacy Associate with CFA. “State legislators need to step in, not only to continue the protection that refunded consumers $20 million, but to prevent other industry strategies that punish drivers simply because of their socioeconomic status. That would not only prevent further financial pain; it will help people avoid being priced out of coverage and possibly having to drive uninsured, which puts everyone at risk.”