Judge Nixes Michigan Credit Scoring Ban

By Steve Tuckey

NU Online News Service, April 26, 1:38 p.m.EDT?The property-casualty insurance industry scored afirst-round court victory yesterday in its effort to overturnMichigan's ban on the use of consumer credit records in personallines underwriting.[@@]

Barry County Circuit Court Judge James Fisher in Hastings,Mich., wrote that Commissioner Linda Watters' order banning creditscoring was illegal because it is an "attempt to rewrite theinsurance code through administrative lawmaking."

Commissioner Watters immediately announced plans to appeal."This decision will further delay Michigan consumers from receivingfairness," she said.

In his ruling, Judge Fisher backed industry claims about thepractice.

"Based on the evidence submitted, there is no question thatthere is a high correlation between insurance scores and theexpected risk and expenses associated with a policyholder," JudgeFisher wrote.

Washington, D.C.-based American Insurance Association assistantvice president David Snyder called the decision a "clear anddecisive ruling that leaves little room for interpretation."

Personal lines insurers have been using credit scores since 1999as a basis for premium discounts, said Michigan Office of Financialand Insurance Services spokesperson Andy Schor.

Ms. Watters issued a directive last October to not only ban theuse of credit scores but also lower the base rate insurers will usein setting rates on July 1.

The case pitted the Lansing-based Insurance Institute ofMichigan and several state property-casualty insurance companieswith national trade organizations, against the Michigan Office ofFinancial and Insurance Services.

While Hawaii has banned the practice, and Maryland has donelikewise for homeowners' insurance, Ms. Watters' action representedthe first administrative ban of the practice.

"The rules actually abrogate the code by ordering ratereductions without the findings required by law, ignoring the dueprocess requirements of challenging rules on an individual basisthrough a contested hearing subject to judicial review, andordering industrywide rate reductions," Judge Fisher wrote.

The credit score ban and rate reduction order has the effect ofraising premiums for lower-risk policyholders and lowering them forhigher-risk policyholders, his opinion stated.