The Indianapolis-based National Association of Mutual Insurance Cos. (NAMIC) has submitted testimony to the Michigan Office of Financial and Insurance Services (OFIS) in opposition to a proposed rule that would ban the use of insurance scoring.
Following is a statement filed on July 30 by Neil Alldredge, NAMIC state affairs director:
“Insurance scoring benefits consumers. It allows insurance companies to price products in a way that accurately reflects risk. All the evidence is clear, consumers with low scores have higher, more frequent claims and those consumers should have premiums that reflect that experience. Banning insurance scoring removes that accuracy and forces good risks to subsidize bad risks, in that scenario everyone loses.
The commissioner has publicly stated that the rationale for this proposed rule is an effort to lower rates and that credit reports, which are the basis for insurance scores, are so error- riddled that their effectiveness is questioned.
However, banning insurance scores will not lower rates; in fact it will likely have the opposite effect. This would be like banning cars for the purpose of eliminating drunk driving. All drivers suffer the consequences. Similarly, consumers who currently receive a discount due to their insurance score would lose it.
Likewise, logic must be applied to the issue of errors. A great portion of this nation’s economy is built on the issuance of credit. Everything from mortgages to microwave ovens is sold each day, substantially based on information found in credit reports. How could these
transactions occur if credit reports are as rampant with error as suggested?
The central argument for not adopting this rule is the process by which this matter is being pursued, not the evidence affirming about the predictive nature of this tool or statistics about error ratios. This is a public policy question that should be debated and determined by the Michigan State Legislature. Legislators should determine this matter in a deliberative forum. Most every state in the country has adopted reasonable restrictions on the use of insurance scoring that allow for the practice to continue. Michigan could also find that balance.
No regulator’s tenure is permanent. The next commissioner could rescind this rule. Michigan consumers would be ill-served by sharp changes in direction due to regulatory discretion. We believe a better
answer is to leave this question to the legislature for a more complete public policy solution.”
In a statement, NAMIC said that its member companies write 42 percent of the state’s auto market and 50 percent of the
homeowners business in Michigan.
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