Judge Blocks Michigan’s Challenge to Insurance Rates with Credit Scores

April 10, 2009

Barry County Circuit Judge James Fisher issued an injunction on Friday, April 10, preventing Michigan insurance regulators from challenging insurance companies’ home and auto insurance rate filings that use credit scoring in determining their premiums.

The injunction against the Office of Financial and Insurance Regulation (OFIR) was hailed by insurers. Michigan Insurance Commissioner Ken Ross vowed to appeal.

In 2005, OFIR promulgated administrative rules banning the use of credit scoring. The insurance industry challenged the rules and OFIR has been prohibited from enforcing them while the issue has worked its way through the legal system over the past four years. Both parties have pending applications for leave to appeal in the Michigan Supreme Court.

Ross has refused to consider any filings with credit scores even though there has yet to be a final court ruling. He said he was not enforcing a broad prohibition against credit scoring as the court enjoined him from doing but was instead ruling on case-by-case review of the base rates proposed by insurers.

The new Fisher decision expands the 2005 injunction by preventing Ross and OFIR from challenging insurance credit scoring by enforcing the insurance code on a case-by-case basis as Ross said he would do last month on auto insurance filings.

Earlier this week, Ross attempted to expand his credit score challenge to home insurance filings on a case-by-case basis.

The Insurance Institute of Michigan (IIM), Michigan Insurance Coalition (MIC) and several member insurance companies filed the legal action in Barry County on April 31 contending that Ross’s recent actions to deny any home and automobile rate filings that utilize credit-based insurance scores violated the terms of the order issued by Fisher in 2005. According to the latest order, the ruling applies only to IIM and MIC members; they write the vast majority of auto and home insurance in Michigan.

By its own account, OFIR has challenged three rate filings from home insurance companies based upon the use of credit scoring in addition to its challenge to 17 rate filings from auto insurance companies.

According to Ross, insurance companies have inflated their base rates so that they can then offer discounts off of those rates to certain drivers with good credit scores. But, he argues, the base rates are unfair.

According to Jeffrey L. Junkas, director of Midwest public affairs for the American Insurance Association (AIA), Michigan only allows carriers to discount down from an approved, higher base rate, not just for credit scores but for any discount.

Insurers were pleased with Fisher’s new ruling.

“While not the final word, Judge Fisher’s ruling today restores stability to the homeowners and automobile insurance marketplace in Michigan, which had been thrown into chaos by the Commissioner’s recent actions,” said Pete Kuhnmuench, executive director of the Insurance Institute of Michigan.

David Snyder, vice president and associate general counsel for the industry’s AIA, also hailed the judicial development as a break for consumers who benefit from insurers’ use of credit scores. According to the industry, more than 60 percent of drivers benefit from discounts based on credit scoring.

“The circuit court’s ruling today to stop OFIR’s unlawful attack on a valid and legal rating/underwriting factor is welcome news for the majority of Michigan consumers,” Snyder said. “The decision also means the state’s executive branch can’t make up its own rules and then execute them by politically charged regulatory fiat. The administration’s continued attacks on the insurance industry do not serve anyone’s interests.”

But Ross said the battle isn’t over despite the injunction.

“Michigan consumers lost big today— but the fight isn’t over yet,” Ross said. “In spite of this ruling, I intend to press our case on appeal and continue to use every administrative tool at my disposal to ensure that each rate filing fully complies with Michigan law.”

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