Blaine Home Insurance

Beyond your kid’s IQ, a woman’s dress size or a guy’s take-home pay, the most important number in your life may be your credit score. The mystical three-digit summation of your credit history decides everything from what kind of apartment you can rent to how much you pay for a Visa card.

But two items pending in Lansing may soon make your credit score off-limits when it comes to setting your car and home insurance rates.

Consumer advocates marched Wednesday from the Michigan Supreme Court to the Michigan House of Representatives Office Building in support of a bill that aims to limit the use of credit and other information in setting insurance rates, and to support an older state insurance regulation that tried to do the same thing but has been tied up in court for five years.

From The Detroit News: http://www.detnews.com/article/20100619/BIZ01/6190310/1001/Bill-aims-to-limit-use-of-credit-scores-by-insurance-firms#ixzz0rP0EmHlH

Now the Senate must decide if it will vote on the bill; a ruling in the court case is expected by the end of August.

Insurers argue that credit and other personal data unrelated to driving records or homeowner claims accurately predict who is most likely to make claims on auto and home insurance.

Taking that into account allows insurers to more accurately assess risk and set rates, they say, and allows insurers to discount rates to customers with better scores.

Opponents counter that such insurance scoring, as the practice is called, results in unfairly high rates for consumers who don’t qualify for the discounts. Studies in other states found the practice discriminates against minorities and low-income consumers.

“In Michigan, we have one of the most onerous of all credit scoring statutes in the country,” says state insurance consumer advocate Melvin “Butch” Hollowell. “Not only do they consider your credit score, but also your level of education and occupation.”

The effect of credit scoring, Hollowell and other critics say, is that at least half of Michigan consumers with good driving records and insurance histories pay more for insurance than they would if their credit, jobs and education weren’t used in calculating their rates.

Introduced in Michigan and other states in the mid-’90s, insurance scoring finds a strong relationship between factors such as how much debt an individual has and how likely he or she is to make a claim, argues Pete Kuhnmuench, executive director of the Insurance Institute of Michigan.

“There are tendencies and correlations,” Kuhnmuench says. “It’s one of the best — if not the best — predictors we have.”

Critics cite discrimination
Critics argue that the parallel relationship between credit woes and insurance claims isn’t proof that bad credit causes drivers and homeowners to have more accidents or make more claims. And even the insurance industry can’t prove any cause and effect, such as people who are careless paying their bills are careless drivers, Kuhnmuench admits.

“The theory is that higher-risk individuals tend to push the envelope more, whether it’s in driving habits or finances,” he says. “We don’t necessarily know the cause but we know the relationship exists. The statistics show us that.”

To critics and consumer advocates, the lack of a demonstrated link between credit and other background factors and insurance claims is flatly unfair. That includes state Rep. Woodrow Stanley, D-Flint, sponsor of H.B. 5634, to bar insurance companies from using credit history, education and occupation in setting insurance rates.

“Until that relationship can be explained convincingly, I reject it out of hand,” Stanley says. “I just don’t think you should be using factors that are not related to a person’s driving performance.”

Stanley finds other considerations even more objectionable.

“How can you say that if a person is a blue-collar worker they get rated one way, and if a person is a white-collar worker they’re rated a different way?” he asks. “That in my view is discrimination. Pure and simple.”

The state insurance office came to the same conclusion in 2004. Backed by Gov. Jennifer Granholm, the Office of Financial and Insurance Regulation issued rules banning insurance scoring for auto and homeowners rates in 2005. Those rules were quickly challenged by the Insurance Institute of Michigan and others who headed to court for an injunction. The matter made its way to the state Supreme Court last year, and a final ruling is expected this summer.

Uphill battle
In the meantime, Stanley hopes to bypass the court ruling with a law that is even stricter. His bill has passed the Democratically controlled state House and is now before the Republican-held state Senate, where Stanley admits it will face an uphill battle.

According to insurance trade publications, more than a dozen states are considering similar bans this year. So far, California, Hawaii and Massachusetts have banned insurance scoring for autos and Maryland bans its use for homeowner insurance.

The insurance industry backs more limited laws that specify how credit information can be used in setting rates, and several states have adopted those measures.

Whether the state Supreme Court or state Senate comes down against insurance scoring may well depend on how the judges and politicians view the economic turmoil that has roiled the state during the recession, notes Butch Hollowell.

“What happens when you get laid off through no fault of your own and your credit scores drops to 650 and your insurance premium goes up?” asks the state insurance consumer advocate. “By it’s very nature it’s arbitrary and capricious.”

From The Detroit News: http://www.detnews.com/article/20100619/BIZ01/6190310/1001/Bill-aims-to-limit-use-of-credit-scores-by-insurance-firms#ixzz0rOzns3Fo