Insurance Industry Files Appeal to Michigan High Court on Credit Ruling

Insurance industry parties today filed an appeal to the state Supreme Court in response to an August ruling by the Michigan Court of Appeals that would prohibit the use of credit-based insurance scoring.

The August ruling would reverse a lower court decision allowing the use of credit-based insurance scoring to provide discounts to policyholders. The case stems from a March 2005 rule by the Office of Financial and Insurance Services (OFIS) banning the use of credit scoring to provide discounts in automobile and homeowners insurance. The insurance industry filed suit in response to the rule, and a circuit court ruled that the OFIS ruling was illegal, invalid and unenforceable. OFIS then pursued litigation by appealing that ruling.

The Property Casualty Insurers Association of America (PCI) supports the industry’s appeal to the Michigan Supreme Court.

“We disagree with the August decision in the Insurance Institute of Michigan et al v. Office of Financial and Insurance Services (OFIS) case, because credit scoring has been shown to greatly benefit consumers,” said Ann Weber, PCI vice president and regional manager. “Credit information is more likely to help consumers secure lower insurance costs. PCI supports the ability of insurers to use this tool because it has proven to be a very accurate predictor of the risk of loss.”

Insurers use credit information in developing credit-based insurance scores to predict the likelihood of future insurance loss. Much like factors such as years of driving experience, previous crashes, and the age of a vehicle or home, credit scores are a way for insurance companies to differentiate between lower and higher insurance risks.

“The appeals court decision would hurt policyholders’ ability to secure discounts, because it would deprive insurers of one of the most predictive underwriting tools at their disposal,” said Weber. “The use of credit information allows insurers to provide more coverage and create financial benefits for policyholders with good credit. We look forward to the opportunity to have this issue revisited in the state Supreme Court.”

In Michigan, credit-based insurance scoring is used only to provide discounts for insurance customers. Credit-based insurance scores are not used in Michigan to apply a surcharge or to determine whether a person can be insured by the company.

Opponents say the use of credit scores discriminates against drivers and homeowners in lower economic brackets and refute the position that the scores are predictors of loss in Michigian.

Source: Property Casualty Insurers Association of America