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May 8, 2009

Michigan Supreme Court Will Consider Credit-based Insurance Scoring

In an order dated May 7, 2009, the Michigan Supreme Court agreed to hear the long-standing battle over credit-based insurance scoring. The court’s decision comes after years of dispute over the underwriting tool. The case will be heard in October 2009.

Four years ago, industry partners filed a complaint with the circuit court seeking injunctive relief from the Office of Financial and Insurance Regulation’s administrative rules to prohibit the use of credit-based insurance scoring. NAMIC has provided funding and substantive support to this effort from the outset. The court agreed that the use of insurance scoring was permissible under the code and granted the injunction.

In an Aug. 21, 2008, opinion, the Michigan Court of Appeals struck down on a 2-1 decision the lower court’s decision calling into question the process used by the original complainants, but not addressing insurance scoring as an underwriting tool. The injunction, however, remains in place until such time as the Supreme Court makes final determinations on the issue.

Since Gov. Jennifer Granholm’s state of the state address, when she called for a voluntary rate freeze of auto rates, OFIR has denied at least seven requests for rate increases citing that credit-based insurance scores are unfairly discriminatory. In a March 10, 2009, press release, the commissioner announced that rate filings made by automobile insurance companies that use insurance scores as a rating factor would be automatically denied on the ostensible basis that use of insurance scores is "unfairly discriminatory" and not permissible under the Insurance Code.

NAMIC and others in the industry believe that the rate denials are an effort to enforce Granholm’s call for a rate freeze and aim to continue the long-standing battle over credit-based insurance scoring. In the industry’s opinion, the rate denials and press release were in direct conflict with the injunction from the lower court. Responding to a petition by the industry, the original case’s Michigan circuit court judge ordered the OFIR commissioner to cease his recent denials of rate filings based on the use of credit-based insurance scoring. The opinion permanently enjoined OFIR from taking any action aimed at denying rates based on the use of credit as a factor in insurance scoring.

In yesterday’s order, the Supreme Court agreed to consider all issues brought forth by both parties to the case, including whether the original case was procedurally valid and whether OFIR’s proposed rules on credit-based insurance scoring were within the authority granted to the OFIR by Michigan’s Insurance Code.

NAMIC will join with industry partners to lend all necessary information to the court for its consideration, arguing that credit-based insurance scoring is a vital and valid underwriting tool that helps keep rates sound for all consumers.

Direct questions and comments to NAMIC State Affairs Manager Erin Collins.

Posted: Friday, May 08, 2009 12:00:00 AM. Modified: Friday, May 08, 2009 1:50:38 PM.

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