State officials said today they have begun disapproving insurance rate requests made by automobile insurance companies that use insurance credit scoring as a factor in determining their premiums because the scores are unfairly discriminatory.
In 2005, state’s Office of Finance and Insurance Regulation set rules banning the use of insurance credit scoring. The insurance industry challenged the rules and the issue has been working its way through the legal system for the last four years. The issue is currently before the Michigan Supreme Court.
“Michigan consumers expect insurance companies to follow the law,” said OFIR Commissioner Ken Ross. “Rates filed with the agency are being evaluated carefully, on a case by case basis, to ensure they fully comply with Michigan law.”
OFIR has already disapproved seven rate filings that use credit scoring as a rating factor. Credit information has been found to contain such a high rate of errors that there is an unacceptable likelihood that persons will be misclassified, state officials contend, and insurance scoring discounts are not based on a reasonable classification system and sound actuarial principles.
Insurance credit scoring relies on behavior, including debt and bill payment history that is unrelated to the risk presented when purchasing an auto insurance policy. Instead of basing auto insurance premiums on factors such as a consumer’s driving record and experience, many insurers place huge weight on how high a credit score is, because statistics tell them that those with great credit file fewer claims.
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