Nevada Unfair Trade Practices

Nevada Revised Statutes Chapter 686A defines unfair trade practices that are prohibited in the insurance industry.

NRS 686A - Unfair Practices Act

Purpose and Scope

Legislative Intent:

• Protect insurance consumers
• Maintain ethical industry standards
• Ensure fair competition
• Prevent deceptive practices
• Promote public trust in insurance

Applies to:

• All insurers doing business in Nevada
• All insurance producers
• Adjusters and other licensees
• Unlicensed persons transacting insurance

Enforcement Authority

Commissioner Powers:

• Investigate suspected violations
• Issue cease and desist orders
• Impose fines and penalties
• Suspend or revoke licenses
• Refer criminal violations to prosecutors

Penalties:

• Civil fines: Up to $10,000 per violation
• License suspension or revocation
• Restitution to harmed consumers
• Criminal prosecution for serious violations
• Injunctions to stop ongoing violations

Exam Tip: The Commissioner can fine up to $10,000 PER VIOLATION. If a producer commits multiple violations, fines can accumulate (e.g., 5 violations = up to $50,000 in fines).

Prohibited Practices

Misrepresentation and False Advertising

Misrepresentation Defined: Making false, misleading, or deceptive statements about insurance.

Common Misrepresentations:

About Policies:

• Falsely describing policy benefits or coverage
• Omitting material exclusions or limitations
• Misrepresenting policy terms or conditions
• Exaggerating benefits beyond actual provisions
• Falsely claiming policy is something other than insurance

About Insurers:

• Misrepresenting insurer's financial condition
• Falsely claiming insurer's licensing status
• Making false comparisons with competitors
• Implying government or state endorsement
• Falsely representing insurer's history or ownership

About Premiums:

• Misrepresenting premium amounts
• Hiding fees or charges
• Falsely promising future dividends or rebates
• Misrepresenting payment terms
• False statements about premium increases

About Dividends and Profits:

• Falsely representing dividend history or projections
• Implying guaranteed dividends
• Misrepresenting insurer's profitability
• False statements about dividend factors

Exam Tip: Misrepresentation means making FALSE statements to induce insurance purchases. Even "little white lies" are serious violations. If unsure about something, don't make claims—verify facts first.

False Advertising Standards

Prohibited Advertising:

• Misleading headlines or clickbait
• Fine print contradicting main message
• Ambiguous language designed to confuse
• Unsubstantiated claims
• Untrue testimonials
• Deceptive illustrations or charts

Required in Advertising:

• Producer/agency legal name
• License number (in certain formats)
• Clear identification as insurance advertising
• Accurate representations
• Truthful statements only

Twisting

Definition: Using misrepresentation to induce someone to lapse, forfeit, or replace existing coverage.

Elements of Twisting:

1. Misrepresentation or incomplete comparison
2. Intent to induce lapse or replacement
3. Financial harm to insured or benefit to producer

Common Twisting Scenarios:

Example 1: False Comparison

• Producer tells client their existing policy is "terrible"
• Makes false claims about competitor's coverage
• Omits that replacement policy has higher premiums
• Client cancels good policy for worse coverage

Example 2: Incomplete Disclosure

• Producer emphasizes new policy benefits
• Fails to disclose loss of existing benefits
• Doesn't mention new contestability period
• Client unknowingly downgrades coverage

Example 3: Exaggerating Benefits

• Claims new policy is "much better"
• Compares maximum possible benefits to current guarantees
• Overstates improvements
• Replacement is actually detrimental

Red Flags Suggesting Twisting:

• Excessive policy replacements
• Replacements shortly after policy purchase
• Pattern of replacing competitor policies
• Producer focusing on commission rather than client benefit
• Failure to document replacement justification

Exam Tip: Twisting involves MISREPRESENTATION to induce replacement. Legal replacement is proper if client benefits—twisting occurs when misrepresentation is used.

Rebating

Definition: Offering or giving value NOT specified in the policy as an inducement to purchase insurance.

Prohibited Rebating Examples:

• Giving cash rebates of premium
• Offering gift cards or valuable merchandise
• Paying client's premium with producer's funds
• Sharing commissions with non-licensed persons
• Offering non-insurance services (free tax prep, free financial planning)
• Valuable entertainment (expensive dinners, event tickets)

Allowed Promotional Items:

• Items of minimal value (typically under $25)
• Advertising specialty items (pens, calendars, notepads)
• Educational materials
• Available equally to all insureds in same class

Why Rebating is Prohibited:

• Undermines rate structure (rates assume no rebating)
• Creates unfair competition
• Discriminates between insureds of same class
• Encourages purchasing on price alone rather than coverage quality
• Violates insurer's filed rates

Penalties for Rebating:

• Civil fines
• License suspension or revocation
• Restitution of rebates
• Criminal charges possible

Exam Tip: Rebating is offering valuable inducements NOT specified in the policy. Small promotional items (under $25 like pens, calendars) are typically OK. Large gifts, cash rebates, and valuable services are prohibited.

Unfair Discrimination

Prohibited Discrimination: Unfairly discriminating between individuals of the same class and similar risk.

Protected Classes (Cannot Discriminate Based On):

• Race, color, national origin
• Religion or creed
• Sex or gender
• Age
• Marital status
• Disability
• Sexual orientation
• Gender identity

Examples of Unfair Discrimination:

• Charging different rates for same risk based on protected class
• Denying coverage based on protected class
• Offering different terms based on protected class
• Redlining (denying coverage by geographic area to discriminate)

Permitted Distinctions:

• Actuarially sound rating factors
• Risk-based pricing
• Legitimate underwriting criteria
• Factual differences in loss exposure

Example - Unfair vs. Fair:

• Unfair: Charging higher rates because applicant is Hispanic (race discrimination)
• Fair: Charging higher rates because applicant has poor loss history (risk-based)

Exam Tip: Unfair discrimination means treating people DIFFERENTLY who are in the SAME CLASS and have SIMILAR RISK. Risk-based distinctions are allowed; discrimination based on protected classes is prohibited.

Defamation

Definition: Making false, malicious statements that harm the reputation of another person, insurer, or producer.

Types:

• Libel: Written defamation
• Slander: Spoken defamation

Examples:

• Falsely claiming competitor is insolvent
• Spreading false rumors about competitor's business practices
• Making false statements about competitor's claims practices
• Falsely claiming competitor engages in illegal activities

Requirements for Defamation:

1. False statement
2. Published to third party
3. Identifies the victim
4. Damages victim's reputation
5. Made with malice or reckless disregard for truth

Defenses:

• Truth (true statements aren't defamation)
• Opinion (not factual statement)
• Privilege (certain protected communications)

Unfair Claims Practices

Prohibited Claims Practices (NRS 686A.310)

Nevada law prohibits specific unfair claims settlement practices:

Misrepresenting Coverage:

• Misrepresenting facts or policy provisions
• Making false statements about coverage
• Concealing policy provisions
• Falsely denying coverage

Failing to Acknowledge Communications:

• Not responding to claims communications
• Failing to acknowledge claims promptly
• Not providing reasonable explanations

Failing to Investigate:

• Not conducting reasonable investigation
• Failing to adopt reasonable standards for investigation
• Not attempting to make fair settlement

Delaying Settlement:

• Unreasonably delaying investigation
• Failing to settle promptly when liability is clear
• Not attempting good faith settlement
• Compelling insureds to litigate to recover

Low-Balling Offers:

• Making unreasonably low settlement offers
• Refusing to pay claims without reasonable investigation
• Failing to offer reasonable compromises

Requiring Unnecessary Proof:

• Demanding excessive documentation
• Requiring proof beyond what's reasonable
• Creating unnecessary hurdles

Exam Tip: Unfair claims practices include misrepresenting coverage, failing to investigate, delaying settlement, and forcing insureds to sue to recover amounts due. Time is often of the essence in claims.

Producer Responsibilities

Duty of Good Faith and Fair Dealing

Implied Duty:

• Act honestly and fairly
• Avoid misleading or deceiving clients
• Disclose material information
• Put client interests first
• Maintain professional standards

Examples of Good Faith:

• ✓ Explaining coverage options honestly
• ✓ Disclosing limitations and exclusions
• ✓ Recommending adequate coverage
• ✓ Following through on commitments
• ✓ Responding promptly to client needs

Examples of Bad Faith:

• ✗ Hiding policy limitations
• ✗ Recommending inadequate coverage to save commission
• ✗ Failing to bind coverage as promised
• ✗ Ignoring client communications
• ✗ Prioritizing commission over client needs

Disclosure Obligations

Must Disclose:

• Producer status (that you're an agent/broker)
• Which companies you represent
• Commission structure (if asked)
• Conflicts of interest
• Material policy information
• Changes affecting coverage
• Reasons for recommendations

Must NOT:

• Conceal material facts
• Omit important exclusions
• Hide compensation arrangements creating conflicts
• Misrepresent your role or authority

Maintaining Competence

Continuing Education:

• 24 hours every 2 years
• 3 hours ethics required
• Stay current on products and regulations
• Understand emerging risks

Professional Development:

• Learn new products and markets
• Understand technology changes
• Study regulatory updates
• Attend industry seminars

Admitting Limitations:

• Don't pretend to know what you don't
• Refer complex situations to specialists
• Research before advising
• Consult with carriers and experts

Exam Tip: Part of professional competence is knowing your limitations. If you don't know the answer, research it or refer to a specialist—don't guess or make up answers.

Penalties and Enforcement

Civil Penalties

Administrative Actions:

• Warning letters
• Fines up to $10,000 per violation
• License suspension (temporary)
• License revocation (permanent)
• Probation with conditions
• Cease and desist orders

Factors Increasing Penalties:

• Intentional violations
• Pattern of misconduct
• Harm to consumers
• Prior violations
• Refusal to cooperate with investigation

Factors Reducing Penalties:

• First offense
• Self-reporting
• Cooperation with investigation
• Making restitution
• Implementing corrective measures

Criminal Penalties

Criminal Violations:

• Insurance fraud
• Embezzlement or misappropriation
• Willful violations causing harm
• Conspiracy to commit insurance crimes

Penalties:

• Felony charges possible
• Prison sentences
• Criminal fines
• Restitution orders
• Permanent license revocation

Consumer Restitution

Restitution Orders:

• Repay harmed consumers
• Return improperly collected premiums
• Pay for damages caused
• Compensate for losses

Civil Lawsuits:

• Consumers can sue producers
• Breach of contract claims
• Negligence claims
• Fraud claims
• Errors & omissions claims

Exam Tip: Violations can result in BOTH administrative penalties (fines, license suspension) AND civil liability (lawsuits from harmed consumers). Having E&O insurance doesn't protect against license discipline.

Ethical Best Practices

Professional Standards

Always:

• ✓ Tell the truth
• ✓ Act in client's best interest
• ✓ Maintain confidentiality
• ✓ Disclose conflicts of interest
• ✓ Follow through on commitments
• ✓ Stay current on laws and products
• ✓ Document important communications
• ✓ Provide complete information

Never:

• ✗ Misrepresent coverage or benefits
• ✗ Pressure clients into unnecessary purchases
• ✗ Hide exclusions or limitations
• ✗ Engage in deceptive practices
• ✗ Discriminate unfairly
• ✗ Misappropriate funds
• ✗ Compete unfairly
• ✗ Defame competitors

When in Doubt

Ask Yourself:

1. Is this legal under Nevada law?
2. Would I be comfortable if this became public?
3. Is this in the client's best interest?
4. Would I want someone to do this to my family member?
5. Does this meet professional standards?

If Unsure:

• Consult compliance officer
• Review Nevada statutes and regulations
• Contact Division of Insurance
• Seek legal counsel
• Choose the more conservative approach

Building Trust

Long-Term Success Requires:

• Honesty and integrity
• Professional competence
• Client-first mentality
• Ethical conduct
• Building reputation
• Community respect
• Industry standing

Exam Tip: Ethics isn't just about avoiding violations—it's about building trust and reputation. The most successful producers are known for integrity, honesty, and putting clients first.

Reporting Violations

Duty to Report

Producers Should Report:

• Suspected insurance fraud
• Unlicensed persons transacting insurance
• Serious violations by other licensees
• Consumer protection concerns

How to Report:

• Contact Nevada Division of Insurance
• File complaint online at doi.nv.gov
• Call Consumer Services: (888) 872-3234
• Provide details and documentation

Whistleblower Protections:

• Protected from retaliation
• Confidentiality to extent possible
• Good faith reports protected
• Cannot be punished for reporting violations