Michigan’s Credit Scoring Ban Moves to State Supreme Court

The Michigan Supreme Court is set to consider whether the state’s Office of Financial and Insurance Regulation (OFIR) can administer rules banning the use of insurance credit scoring in rate setting. The hearing begins Oct. 7, the OFIR said in a news release, after more than four years of legal wrangling.

OFIR Commissioner Ken Ross asserted in the announcement that insurers rely too heavily “on surrogate underwriting schemes like insurance credit scoring.” He added that insurers in his state “need to get back to basics, basing premiums on relevant information such as driving record, experience, and miles – not whether a driver paid their phone bill late.”

In defense of its position, the OFIR argues that Michigan’s Insurance Code explicitly states that there must be reasonably anticipated reductions in losses in discounts, such as credit scoring discounts, offered by automobile insurance companies. During hearings on OFIR’s proposed rule to ban insurance credit scoring, more than one insurance company acknowledged that credit scoring is a redistribution of costs, and not a net reduction, the agency said. The same amount of money is collected, but it’s shifted between who is paying it among consumers.

One insurance agent testified he was able to get big discounts for a customer with “gold credit” even though the customer had a driving while intoxicated on his record. The agent, who disagreed with that policy, said he was hard pressed to explain to another customer with a clean driving record, but blemished credit, why she was going to see increases in her premium.

OFIR also argues that the Insurance Code states that automobile insurance rates shall not be “unfairly discriminatory.” The department asserts that rates using credit scores are unfairly discriminatory because they are based on insurance scoring, which depends on information that is unreliable. Credit information has been found to contain a high rate of errors, the OFIR noted.

In 2005, OFIR, under then-Commissioner Linda Watters, promulgated rules banning the use of insurance credit scoring. The Insurance Institute of Michigan, the Michigan Insurance Coalition, and others in the insurance industry challenged the rules in Barry County Circuit Court. The issue has been working its way through the legal system for the last four years.

Michigan Government Television will air the Oct. 7 hearing live at 9:30 a.m. For more information, visit: www.mgtv.org

Source: Michigan Office of Financial and Insurance Regulation

Topics Michigan