Credit Scoring Fight ‘On Again’ in Michigan

The simple fact is that now insurance companies in Michigan no longer will be able to use customers’ credit scores to set home and auto insurance premiums — if the state Court of Appeals ruling stands.

Just when insurers thought it was safe — the Michigan Court of Appeals upheld a ruling to ban credit scoring in the state of Michigan. This is an old fight on an old issue. It started with Insurance Commissioner Linda Watters who has now left the insurance department.

The 2-1 decision released August 22 reversed a 2005 ruling by a lower judge who blocked the state insurance office’s ban against credit-based insurance rates.

Insurers sued in 2005 to prevent then-Insurance Commissioner Linda Watters from implementing rules reducing base rates and barring discounts to policyholders with good credit ratings. Barry County Circuit Judge James Fisher declared the rules illegal and unenforceable.

But the appeals court said Fisher wrongly considered additional evidence instead of limiting his review to the administrative rule-making record. The fractured panel found little else to agree on in three separate opinions, including whether the trial judge even should have heard the lawsuit because there is another way to challenge regulatory decisions.

The simple fact is that now insurance companies in Michigan no longer will be able to use customers’ credit scores to set home and auto insurance premiums — if the state Court of Appeals ruling stands.

Most large insurers in Michigan use some form of credit scoring to give premium discounts. Generally, the better one’s credit score, the lower a customer’s insurance premium will be. One with a worse score usually pays a higher rate.

Insurers will continue using credit scores pending the outcome of an appeal to the Michigan Supreme Court.

Ruling Opens Door Again

This fight has already taken place in many states and been resolved in a number of ways. Some states have either limited the use of credit scoring by insurers or required that credit scores not be the “sole” factor upon which a person is rejected by a company or have premiums increased.

The real problem as far as insurers are concerned is that this issue was silently going away. However, with this recent ruling — in a large industrial state like Michigan — the issue just took center stage again. Will this ruling influence other states to reconsider the laws already in place? The Michigan Supreme Court ruling will be one watched closely by the industry and will likely have some impact … depending on which way the ruling goes.

Topics Carriers Michigan