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PCI Commends Michigan Court on Insurance Scoring Ruling

Source: PCI

Posted on 14 Apr 2009

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The Property Casualty Insurers Association of America (PCI) applauds a Barry County Circuit Court judge's decision Friday to issue an injunction stopping the Michigan Office of Financial and Insurance Regulation (OFIR) from challenging or denying insurance companies’ rate filings that use credit-based insurance scoring.

"We are pleased that Judge James Fisher issued this injunction," said Ann Weber, PCI vice president, regional manager and counsel. “The order allows insurers to continue using a tool that has proven to accurately predict the risk of loss. OFIR had adopted a position on this issue that would have hurt policyholders’ ability to secure discounts. In Michigan, credit-based insurance scoring is used only to provide discounts for insurance customers. It is not used to apply a surcharge or to determine whether a person can be insured by the company.”

Several insurers had filed the Barry County legal action contending that OFIR’s recent actions in denying home and automobile rate filings that use credit-based insurance scores violated the terms of previous court decisions that upheld insurers’ ability to used credit-based insurance scoring.

“With the turmoil in the financial markets, this is not the time for state government to take draconian measures that could have negative consequences, such as higher insurance costs for consumers,” said Weber. “The blanket denial of rate filings and other recent misguided proposals by the governor, consumer advocate and OFIR have the potential to discourage companies from competing in the market, which would likely result in higher insurance costs and prices. These actions do not promote consumer interests.”

Insurers use credit information in developing credit-based insurance scores to predict the likelihood of future insurance loss. Much like factors such as years of driving experience, previous crashes, and the age of a vehicle or home, credit scores are a way for insurance companies to differentiate between lower and higher insurance risks.

“Restricting insurers’ ability to collect and analyze risk information would severely undermine their ability to accurately price risk and would ultimately hurt consumers as lower risk policyholders would end up having to subsidize higher risks,” said Weber.