Judge Nixes Michigan Credit Scoring Ban
The property-casualty insurance industry scored a first-round court victory last week in its effort to overturn Michigan's ban on the use of consumer credit records in personal lines underwriting.
Barry County Circuit Court Judge James Fisher wrote that Insurance Commissioner Linda Watters' order banning credit scoring was illegal because it is an "attempt to rewrite the insurance code through administrative lawmaking."
Ms. Watters immediately announced plans to appeal. "This decision will further delay Michigan consumers from receiving fairness," she said.
In his ruling, Judge Fisher backed industry claims about the practice. "Based on the evidence submitted, there is no question that there is a high correlation between insurance scores and the expected risk and expenses associated with a policyholder," Judge Fisher wrote.
American Insurance Association Assistant V.P. David Snyder called the decision a "clear and decisive ruling that leaves little room for interpretation."
Personal lines insurers have been using credit scores since 1999 as a basis for premium discounts, said a representative for the Michigan Office of Financial and Insurance Services, Andy Schor.
Ms. Watters issued a directive last October to not only ban the use of credit scores but also lower the base rate insurers will use in setting rates on July 1.
The case pitted the Insurance Institute of Michigan, several state p-c insurers and national trade groups against the Michigan Office of Financial and Insurance Services. While Hawaii has banned the practice, and Maryland has done likewise for homeowners' insurance, Ms. Watters' action represented the first administrative credit scoring prohibition.
"The rules actually abrogate the code by ordering rate reductions without the findings required by law, ignoring the due process requirements of challenging rules on an individual basis through a contested hearing subject to judicial review, and ordering industrywide rate reductions," Judge Fisher wrote. He added that the order has the effect of raising premiums for lower-risk policyholders and lowering them for higher-risk policyholders.
© Touchpoint Markets, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.