Consumer Groups Knock Mich. Insurers’ ‘Dishonesty’ on Credit Scoring

Two consumer advocacy groups released a statement criticizing Michigan auto and homeowners insurers for “false statements” about insurance credit scoring and Gov. Jennifer Granholm’s proposed regulation to ban the practice.

The insurers criticize Insurance Commissioner Watters for stating that the proposed ban on credit scoring will lower base rates with the new rule—at the same time the insurers are claiming that consumers will lose their discounts.

“The dishonesty of the insurer trade associations—Michigan Insurance Council and Insurance Institute of Michigan—is breathtaking,” said Brian Imus, a lobbyist with the Public Interest Research Group in Michigan (PIRGIM). “Commissioner [Linda] Watters is precisely correct—base rates will drop with the ban on credit scoring. This occurs because credit scoring is essentially a zero sum game—one consumer’s discount must be paid for with other consumers’ surcharges. Insurers raised everyone’s base rates when they introduced credit scoring because there is no reduction in losses with credit scoring, unlike other rating factors.

“You can give someone a discount for an anti-theft device in the home or auto and you don’t have to raise rates for anyone else because the discount pays for itself with lower rates,” Imus added. “In fact, credit scoring not only has no effect on claim costs, it adds expenses to the system to get the credit reports, run the scores and comply with the Fair Credit Reporting Act. Credit
scoring raises overall premiums for consumers.”

The Austin, Texas-based Center for Economic Justice (CEJ), meanwhile, called industry’s arguments against the proposed rule Orwellian.

“The insurers’ statement that the governor and commissioner are trying to do something by rule that they can’t do legislatively is right out of George Orwell,” said Birny Birnbaum, CEJ’s executive director. “Insurers’ use of credit scoring is clearly prohibited by current Michigan law. The Michigan Essential Insurance Act states that may only use certain rating factors, like credit scoring, if the rating factor ‘reflects reasonably anticipated reductions in losses or expenses.'” (Section 2110a) Credit scoring doesn’t result in lower claims or expenses and, therefore, doesn’t qualify. It was because the prior industry-friendly insurance commissioner and governor let insurers violate the law that insurers are using credit scoring now. It’s like a bank robber finally getting caught, being told to give the money back and saying the money belongs to him now!

Imus said the two groups welcomed any legal challenge of the rule by insurers, which he said were sure to fail. Birnbaum, meanwhile, praised Granholm’s “political courage” for standing up to the “fearsome” financial and political power of the insurance industry.

Topics Carriers Michigan