Washington, D.C.—The Consumer Federation of America (CFA) and Center for Economic Justice (CEJ) endorsed a proposed regulation by the Nevada Division of Insurance (NDI) that would prohibit adverse credit-based rescoring for the duration of the COVID-19 pandemic and for two years after the state of emergency is lifted. This proposal will make insurance more affordable for families encountering financial challenges brought on by the pandemic.
This afternoon NDI is holding a public workshop on the proposed regulation, R087-20. The rule will prevent insurers from using information about a consumer’s deteriorating credit report to increase consumer premiums, and it applies to any credit score changes since March 1, 2020. This ban would extend until two years until after the end of Nevada’s current declaration of emergency, and any use of this information would be unfairly discriminatory. The rule would additionally require insurers to issue refunds to consumers who have already been surcharged due to credit scores that fell during the pandemic.
“We support the proposed ban on insurers raising auto and home rates because of a deteriorating insurance credit score because the pandemic has destroyed any actuarial relationship – if it ever existed – between credit scores and claims,” said Birny Birnbaum, Director of CEJ. “The pandemic has deepened the economic divide based on race and income with communities of color suffering higher unemployment and greater financial stress. It is obscene to raise a consumer’s auto or home insurance rates because of an economic crisis outside of a consumer’s control. Insurance credit scores have always reflected and perpetuated systemic racism and the pandemic will make that worse in the absence of actions like that proposed by Commissioner Richardson.”
In supporting the rule, CFA and CEJ note that credit scores have an outsized impact on consumer rates and unfairly discriminate against many low-risk policyholders. An auto insurance customer with a low credit score, even if they have a perfect driving record, can pay two, three or four times as much as a policyholder with a better credit score. In light of the financial stresses created by the pandemic, many low-risk customers will face significant credit-driven rate hikes without protections such as that proposed in the Nevada rule.
“Credit scoring has never been a fair tool for setting insurance premiums,” said Doug Heller, CFA’s Insurance Expert. “In this crisis, with so many people out of work, struggling to keep their businesses alive, and struggling to pay bills, the use of credit scores for insurance pricing is even more insidious. The Division of Insurance proposal will provide an important consumer protection at this particularly tough time.”
The Nevada workshop begins at 1:30 PM Pacific Time and is intended to hear comments from the public on the proposed regulation to prohibit the use of credit scores and to determine whether the regulation will impose any burden on small businesses. Interested parties can find more information here.
The Consumer Federation of America is an association of more than 250 nonprofit consumer organizations that was established in 1968 to advance the consumer interest through research, advocacy, and education.
The Center for Economic Justice is a nonprofit organization that works to increase the availability, affordability and accessibility of insurance, credit, utilities, and other economic goods and services for low income and minority consumers. Birny Birnbaum, Director of CEJ, has been a designated consumer representative at the NAIC for nearly 20 years.
Doug Heller, CFA, 310-480-4170
J. Robert Hunter, CFA, 703-731-6353
Birny Birnbaum, CEJ, 512-912-1327