Mich. Legislative Panel Hears Testimony on Benefits of Credit Scores

Testifying before a Michigan House committee, a spokesperson for the Alliance of American Insurers said a bill being considered by state legislators that would prevent insurers from using credit scores to determine premium discounts would place unwarranted restrictions on an insurer’s ability to price risks, and would result in numerous policyholders having to pay higher premiums.

Like many states, Michigan is considering restricting insurers’ ability to consider credit. Of immediate concern is HB 5882, which would prevent insurers from using credit scores to price personal insurance policies.

“Credit-based insurance scoring is an effective risk determinant for insurers and a fair one for consumers,” said Bill Schroeder, vice president of the Alliance’s Midwest Region, during testimony before the Michigan House Committee in Insurance Financial Services. “Michigan law already precludes insurers from considering credit in underwriting decisions, therefore, it is critical to preserve insurers’ right to consider credit information in pricing decisions. It also is critical to allow consumers the right to seek out insurers that offer actuarially-justified rate discounts based on favorable credit history.”

The Alliance’s testimony also took issue with the prevailing attitude that credit history results only in premium increases.

Schroeder recounted the experience of one insurer that uses credit scores in determining personal insurance rate levels in more than 20 states. “In those states where the company has applied credit scores to rates. More than 90 percent of its policyholders receive a discount based on their credit history,” Schroeder commented. “This means that, if prohibited from establishing a discount plan based on credit information, that same majority of policyholders would likely see a premium increase.

“Credit-based insurance scoring is an effective tool for insurers-and a fair one for consumers. To protect competition and consumer choice, it is imperative that insurers be permitted to fully price risks using all nondiscriminatory and statistically valid tools available to them.”

Topics Carriers Michigan