Michigan Commissioner Says Proposed Insurance Scoring Ban Would Reduce Rates

Customers could see lower premium rates if Michigan prohibits insurers from offering discounts to people with good credit, the state insurance commission told a state Senate committee.

Linda Watters, head of the state Office of Financial and Insurance Services, said using credit scores to determine rates unfairly penalizes the poor and others with bad credit.

The state would require companies that use credit scoring to lower their base rates by an average amount, which would drop rates 10 percent to 45 percent statewide, depending on the insurer, Watters told members of the Senate Banking and Financial Institutions Committee.

But she acknowledged, under questioning from Republican senators, that some consumers who currently have lower rates because they have good credit could end up paying higher rates if the practice is outlawed.

The base rate is the premium before discounts are factored in for a number of different reasons.

Gov. Jennifer Granholm has proposed a rule that would prohibit home and car insurers from using credit history to determine consumers’ premiums. The rule would take effect in January unless both the House and Senate vote to reject it.

Insurers and some Republicans argued that credit history is a useful indicator of whether a customer will file a claim. They also said credit scoring generates discounts for two-thirds of Michigan customers.

Sen. Michael Bishop, R-Rochester, pointed to studies he said show that policyholders with low credit scores file more claims. He also questioned whether rates would go down if insurers are forced to drop discounts based on credit history.

“How do (consumers) get relief if you’re removing a discount?” he said. But Democrats argued poor people essentially subsidize other customers with better credit.

“I want some relief,” said Sen. Irma Clark-Coleman, D-Detroit. “And I don’t care where it comes from.”

A few Republican senators said Thursday that they are worried a ban on credit scoring would force insurers to take their business elsewhere, giving consumers fewer choices and hurting competition in the state.

But Watters said credit scoring is error-prone, lacks uniformity among insurers and penalizes consumers who suffer economic or medical catastrophes. The credit scoring bill is House Bill 5803.

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