Mich. Governor Moves to Ban Insurance Scoring

Michigan Gov. Jennifer Granholm and the state’s top insurance regulator have proposed a rule to completely ban the use of credit-based insurance scoring in the underwriting and rating of auto and homeowners insurance policies.

Granholm and Office of Financial and Insurance Services Commissioner Linda Watters argued that the move would reduce overall base rates for insurance between 10 and 45 percent.

Watters also said that the use of insurance scoring to offer rate discounts violated state law which requires that rate discounts be offered uniformly to all insureds. She further argued that the unreliability of credit reports violates Michigan’s insurance code.

The lack of a uniform insurance scoring model makes it impossible for consumers to understand how they’re credit report will be used by an insurer in its rating and underwriting, according to Watters. A group of Southeast Michigan state legislators who had first brought political attention to the use of insurance scoring was also present at the news conference announcing the governor’s position.

Michigan’s leading agent group and a national mutual insurer lobbying group have already come out against the rule.

Bob Pierce, CEO of the Michigan Association of Insurance Agents, called the governor’s decision “abrupt” in light of months of public hearings and legislative attempts to pass a law to restrict the practice along the lines of the National Conference of Insurance Legislators’ model act.

MAIA defended the validity of insurance scoring as a factor in rating and underwriting.

Meanwhile, the National Association of Mutual Insurance Cos. said the governor’s proposed rule, if enacted, would raise rather than lower consumers’ rates.

NAMIC Vice President of State and Regulatory Affairs Roger Schmelzer said that a number of studies have shown that the majority of consumers see reduced rates thanks to insurance scoring. He said that banning the practice would raise those consumers’ rates and force good risks to subsidize the bad.