The State of Michigan, whose Supreme Court struck down an absolute ban on the use of credit information in insurance underwriting and rate-making decisions, has moved to slightly loosen its insurance scoring restrictions while still retaining significant consumer protections.
Republican Gov. Rick Snyder has signed a package of bills – House Bills 4593-4596 and Senate Bill 300 – that bring Michigan’s insurance scoring rules more in line with model legislation promulgated by the National Conference of Insurance Legislators, which has already been adopted by 26 states. Michigan currently only allows insurers to use credit information in offering “good credit” discounts, barring its use in underwriting decisions and in charging any sort of bad credit surcharge to a policy.
The new legislation would continue to bar the use of credit information in decisions to deny, cancel or non-renew auto, homeowners, casualty and fire and inland marine coverage. However, insurers would be permitted to use credit information and insurance scores to determine options and availability for premium installment payments.
The legislation requires insurers to notify insureds or applicants whenever they take adverse actions based on credit information, with detailed explanations of which credit factors were relied upon in making the decision. Consumers could protest if the decisions were based on incorrect or incomplete credit information.
Incorporating language from the NCOIL model law, consumers also could request exceptions from being subject to insurance scoring models due to certain life circumstances, including natural catastrophes; serious illness or injury of an immediate family member; death of a spouse, parent or child; divorce or interruption in alimony or child support payments; identity theft; temporary unemployment; or overseas military deployment.
“Insurance scoring has been shown to benefit consumers and Michigan has strengthened it law by adding protections for individuals experiencing extraordinary life circumstances based on the National Conference of Insurance Legislators model act,” Jeffrey Junkas, regional manager for the Property Casualty Insurers Association of America, said in a statement. “This approach to insurance scoring is well established and brings Michigan into the mainstream as most state laws or regulations are based, in whole or in part, on the NCOIL model.”
California, Hawaii and Massachusetts all currently ban the use of credit information in auto insurance underwriting and rate-making, while Maryland has banned its use in homeowner’s insurance. But where anti-credit scoring bills were rife a decade ago, they are becoming more infrequent, possibly in light of reports from the Texas Department of Insurance and Federal Trade Commission establishing firmly that there is a strong connection between credit and an insured’s likelihood to file claims.
For Michigan, this reform legislation – while it doesn’t provide quite the underwriting and rate-setting freedom we would prefer – has to be considered a step forward. Back in 2005, former Gov. Jennifer Granholm and the state’s Office of Financial and Insurance Regulation announced they were banning credit-based insurance scoring – including good credit discounts – and promised that this would result in lower base rates. In fact, rates rose for 60 percent of drivers as a result of the ban, as the use of insurance scoring benefits more people than it hinders.
The state Supreme Court ultimately ruled the administration exceeded its statutory authority when it implemented the ban, as the existing insurance code did not prohibit the use of credit information to calculate discounts.