Michigan Clash On Credit Scoring

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 a consumer organization is comparing insurers to bank robbers in an angry clash between Michigan regulators and insurance carriers over a proposed underwriting rule.

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

Eric Henning, president of the Detroit-based property-casualty insurers group, the Michigan Insurance Coalition, said his group is currently 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 laws governing use of credit scoring by limiting it to discounting rates.

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

Reacting to Mr. Henning's threat of legal action Marilyn Maloney, a spokesperson for the Office of Financial and Insurance Services said, with four public hearings scheduled, "For anybody to be talking about a lawsuit is tantamount to trying to stifle debate."

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

Dyck Van Koevering, general counsel for the Insurance Institute of Michigan, a group representing 80 p-c insurers, said it was "a little early" to say there would be a law suit and that his group would present testimony because "we think the information is on our side." 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 groups issued a release attacking insurers for "credit scoring dishonesty."

The Public Interest Research Group in Michigan and the Austin, Texas Center for Economic Justice said that credit scoring has no effect on claim costs and adds expenses to the system and violates state law.

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

Mr. Fitzgerald responded that the "inflamed rhetoric" of Center Director Birny Birnbaum "does a disservice to the very consumers he professes to protect. His misreading of Michigan law and conclusory statements cast a fog onto an issue that is of central importance to the citizens of Michigan."