Insurance payers in Michigan soon may be paying less.
Gov. Jennifer Granholm and Office of Financial and Insurance Services Commissioner Linda A. Watters said last Wednesday they sent a legislative panel a set of proposed rules to reduce base insurance rates and prohibit insurers from using credit scores to determine insurance rates.
The proposed rules would require insurers to reduce the base premium rates charged to all policyholders. Granholm and other supporters of the change said base rates have increased in recent years to allow insurers to provide discounts to policyholders with better credit scores.
“A low credit score as a result of failure to pay the phone bill or being late on a mortgage payment does not make a person more likely to have his house struck by lightning or his car stolen,” Watters said in a news release.
The Insurance Institute of Michigan, however, said credit scoring allows insurers to provide discounts to about two-thirds of policyholders. The organization also argues that credit scoring discounts make insurance pricing more accurate.
“People less likely to file a claim in the future pay less; those more likely to have a loss pay more,” said Pete Kuhnmuench, executive director of the institute. “Just like similar factors such as years of driving experience, previous crashes … insurance credit scores are a way for insurance companies to differentiate between lower and higher insurance risks.”
The proposed rules require insurers, beginning July 1, to re-calculate premiums based on levels in the prior calendar year. Reduced base rates will mean lower premiums for the majority of consumers, Watters and Granholm said.
Insurers must certify to the insurance commissioner that they have re-calculated and reduced their base rates by May 1.
Granholm and Watters said the new rules would apply to all personal insurance policies, including auto, home and all others for personal, family or household use.
Michigan’s insurance code allows insurers to offer discounts, but they must be uniformly applied to all customers and must help keep insurance rates affordable.
The proposed rules now go to the Joint Committee on Administrative Rules for review, but they are expected to take effect.
The panel, made up of five state representatives and five senators, has 15 legislative session days to consider the proposed rules and file a notice of objection. If the committee doesn’t object, the rules will take effect.
If the panel has objections, the Republican-controlled Legislature has 15 session days to pass a bill through both houses rejecting the rules. But if lawmakers approve such a bill, it can be vetoed by the governor, which is likely because the Democratic governor supports the change.
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