Michigan Court Overturns Ruling Against Ban On Credit Scoring
On Friday, a Michigan Appeals Court overturned a lower court which ruled that the state insurance commission exceeded it’s authority when it banned the use of credit scoring by insurance companies in determining premiums for auto and property insurance. This is a controversial topic across the country, the insurance industry feels that credit scoring is a viable determinate for risk in premium pricing while consumer groups feel that it’s use unfairly discriminates against low income and minority groups.
Insurers sued in 2005 to prevent then-insurance commissioner Linda Watters from implementing rules reducing base rates and barring discounts to policyholders with good credit ratings. Barry County Circuit Judge James Fisher declared the rules illegal and unenforceable.
In 2003, Congress mandated a Federal Trade Commission study on the use of credit scoring by the insurance industry. The study which was completed just last year concluded that credit scoring was an effective predictor of a consumer’s future claim filing probability.
Consumer groups slammed the study, stating that the use of credit scoring is no less than race profiling by proxy. It demanded that Congress reject the study as nothing more than “biased insurance industry propaganda”.
Congress convened hearings earlier this year over the subject but has been slow to act up to this point. Since the federal government doesn’t regulate insurance anyway, it will probably be up to each individual state regulator to make the determination on whether to ban the use of credit scoring.
