Michigan Clash On Credit Scoring

By Daniel Hays

NU Online News Service, July 2, 12:30 p.m.EDT?A state trade group is threatening to sue, and aconsumer organization is comparing insurers to bank robbers in anangry clash between Michigan regulators and insurance carriers overa proposed underwriting rule.

At issue is a proposal by the Michigan Office of Financial andInsurance Services to ban insurers' use of credit records toevaluate and set rates for auto and home coverage customers, whichis due for a round of public hearings beginning July 19.

Eric Henning, president of the Detroit-based property-casualtyinsurers group, the Michigan Insurance Coalition, said his group iscurrently deciding whether to file suit prior to the hearings,after the hearings or after a rule takes effect.

Michigan, he said, already has one of the strictest lawsgoverning use of credit scoring by limiting it to discountingrates.

He said the credit scoring helps assess risk of loss. "If you'vegot a very effective tool why shouldn't you be able to use it?" heasked.

Reacting to Mr. Henning's threat of legal action MarilynMaloney, a spokesperson for the Office of Financial and InsuranceServices said, with four public hearings scheduled, "For anybody tobe talking about a lawsuit is tantamount to trying to stifledebate."

She said the Office was hopeful they would appear at thehearing, "we're listening."

Dyck Van Koevering, general counsel for the Insurance Instituteof Michigan, a group representing 80 p-c insurers, said it was "alittle early" to say there would be a law suit and that his groupwould present testimony because "we think the information is on ourside." Companies have invested a lot of money in credit scoring as"an extremely predictive tool."

Not waiting for the start of the hearings, two consumer groupsissued a release attacking insurers for "credit scoringdishonesty."

The Public Interest Research Group in Michigan and the Austin,Texas Center for Economic Justice said that credit scoring has noeffect on claim costs and adds expenses to the system and violatesstate law.

Insurers have only been allowed to use the process, the groupssaid, because, the prior "industry-friendly insurance commissioner[Frank Fitzgerald] and Governor [Republican John Engler] letinsurers violate the law" and their objections are "like a bankrobber finally getting caught, being told to give the money backand saying the money belongs to him now!"

Mr. Fitzgerald responded that the "inflamed rhetoric" of CenterDirector Birny Birnbaum "does a disservice to the very consumers heprofesses to protect. His misreading of Michigan law and conclusorystatements cast a fog onto an issue that is of central importanceto the citizens of Michigan."