Michigan's Office of Financial and Insurance Regulation (OFIR) is disapproving auto insurance rate filings that use credit information as a factor in determining premiums as the issue continues to wind its way though the state's court system.
Although Michigan law permits the use of credit scoring, OFIR Commissioner Ken Ross announced in a statement that he has determined premiums developed using insurance credit scoring are unfairly discriminatory and do not meet the requirements of Michigan's Insurance Code.
In making his case, Commissioner Ross pointed to studies conducted by consumer groups U.S. PIRG and the Consumer Federation of America. The reports highlight mistakes in the credit reports of many Americans.
Commissioner Ross also is relying on Executive Directive No. 2009-1, issued by Governor Jennifer Granholm last month, which directs the OFIR to utilize every administrative tool at the agency's disposal to assure the auto insurance company provides insurance at fair and equitable rates, including, but not limited to disapproval of rate increases or rejection of rate filings.
The issue is also currently on appeal to the Michigan Supreme Court.
In 2005, the OFIR said it promulgated rules banning the use of insurance credit scoring, and the insurance industry challenged the rules in the courts.
Neil Alldredge, vice president of state and regulatory affairs for the National Association of Mutual Insurance Companies, said the district court agreed with the industry that the OFIR did not have the authority to issue its regulation because of the existing law that allows insurance scoring and governs its use.
The court issued an injunction against the OFIR, preventing it from moving forward with its regulation.
The decision was appealed, and the appeals court reached a "very split" decision, Mr. Alldredge said, with the three justices hearing the case arriving at three different conclusions. One justice agreed with the department, and one agreed with the industry, Mr. Alldredge explained, but a third justice determined the issue should never have been heard by the district court because the OFIR never actually disapproved a rate filing under its new rule.
The result of that decision overturned the district court's decision, Mr. Alldredge said.
He said it is unknown what the Supreme Court will do, whether it will hear the case, remand it to the lower courts now that the OFIR has disapproved rate filings, or if insurers who have been disapproved will bring separate actions challenging the OFIR's authority.
Regarding the OFIR's reliance on the PIRG and CFA studies, Jeffrey Junkas, spokesman for the American Insurance Association (AIA), said the PIRG study in particular has long been discredited by the credit industry. He noted the study counts many mistakes that do not affect the accuracy of the credit report, such as listing "street" instead of "drive" in an address.
Ann Weber, vice president and regional manager and counsel for the Property Casualty Insurers Association of America (PCI), noted that while there are occasional errors in credit reports, many industries use credit information, and insurance should not be singled out.
Dave Snyder, vice president and assistant general counsel of the AIA, said the personal lines market in Michigan is probably one of the few elements of the economy that is functioning well in the state, and added it is not in the public interest for the OFIR to deliberately go out of its way to create disarray in one of the few markets that is functioning well.
Mr. Snyder and Mr. Junkas also noted the commissioner seems to be doing the bidding of the governor, who has long been opposed to the use of credit information in setting rates.
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