Michigan Insurance Committee Holds Hearing Today on Credit Use Ban

Indianapolis-based the National Association of Mutual Insurance Companies (NAMIC) recently announced that it opposes legislation to ban the use of credit-based insurance scoring in Michigan. The House Insurance Committee is scheduled to debate the proposal today.

“Headline grabbing proposals unveiled at press conferences during an election year is commonplace,” said Joe Thesing, NAMIC’s director of State affairs. “What is not common is the introduction of dangerous proposals that will increase insurance rates and ultimately harm Michigan’s already vulnerable economy.”

At a press conference earlier this week, Rep. Virgil Smith, D-District 7, unveiled the legislation that would, among other items, ban the use of credit-based insurance scoring. .

“Passage of this bill would send a clear message to perspective businesses that economic growth and job creation is not a real priority to Michigan policymakers,” Thesing said. “Placing more severe restrictions on insurers and banning credit-based insurance scoring for auto and homeowners’ policies will have two results: higher prices and less availability.”

The Washington, D.C.-based the American Insurance Association (AIA) expressed concern with the HB 4412 which would ban the use of credit.

“Credit-based insurance scoring has been proven to be an objective, strong indicator of how likely a person is to file a claim. A 2007 study by the Federal Trade Commission (FTC) found that: “credit-based insurance scores are effective predictors of risk under automobile policies,” said John Birkinbine, assistant vice president, Midwest Region. “They are predictive of the number of claims consumers file and the total cost of those claims.”

Birkenbine added that the FTC also found that such scores may make the insurance process “quicker and cheaper. In Michigan, credit can only be used to provide discounts.

Michigan law allows credit-based insurance scoring to be used only to provide discounts to customers for their home and auto insurance, not to determine if a person can be insured by the company or if a surcharge can be applied. Furthermore, all Michigan insurance carriers are required by law to submit their rates to the state, which has 60 days to reject them. None of those rates, which include discounts for credit scoring, have been rejected.

“Prohibiting Michigan insurers from utilizing this valuable tool would undercut pricing accuracy and would result in less competitive auto and homeowners’ insurance markets,” NAMIC’s Joe Thesing said.

Forty-eight states have taken some form of legislative or regulatory action on the use of credit-based insurance scores.

Source: NAMIC, AIA