Since the late 1990s, information contained in the consumer’s credit report is one factor utilized by Michigan’s insurance industry in setting premiums for automobile, home and other personal lines of insurance. Some studies have shown a link between credit history and the likelihood of an insurance claim. However, others believe this practice results in unfair rate setting and are spearheading efforts to ban the use of credit scores as a rating factor.

Chapter 21 of the Michigan Insurance Code requires rates for automobile and home insurance “shall not be excessive, inadequate, or unfairly discriminatory.” The Office of Financial and Insurance Services (OFIS), the state agency that regulates the insurance industry, believes insurance credit scoring is doing exactly that. OFIS Commissioner Linda Watters has, through Michigan’s rule process, proposed banning the use of insurance credit scores as a rating factor for all types of personal insurance, underwritten on a group or individual basis, beginning with new or renewal policies on or after July 1, 2005.

The Joint Commission on Administrative Rules, a legislative committee comprised of both House and Senate members, has since met and voted to oppose Watters’ proposal. However, legislation must be passed by both chambers and signed by Governor Jennifer Granholm in order to prevent the rule from taking effect – an unlikely scenario given Granholm is sympathetic to the insurance credit scoring issue.

To date, it remains to be seen where this debate will end. Some pundits even believe this may end up being a political trade-off for certain provisions of the Governor’s Single Business Tax restructuring proposal (see related story) that has the insurance industry gaining tax liability.

Either way, as a professional and a taxpayer, this debate could result in adjusted (higher or lower) insurance rates for you, your family, your firm, company, friends and colleagues.

A section of the OFIS web site provides information on the insurance credit scoring issue, including the proposed rule, frequently asked questions and more. In addition, other information is available through the Insurance Institute of Michigan and the Michigan Association of Insurance Agents.

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