INDIANAPOLIS (March 20, 2008) –– The National Association of Mutual Insurance Companies (NAMIC) opposes legislation to ban the use of credit-based insurance scoring in Michigan. The House Insurance Committee is scheduled to debate the proposal today.
“Headline grabbing proposals unveiled at press conferences during an election year is commonplace,” said Joe Thesing, NAMIC’s director of State affairs. “What is not common is the introduction of dangerous proposals that will increase insurance rates and ultimately harm Michigan’s already vulnerable economy.”
At a press conference earlier this week, Rep. Virgil Smith, D-District 7, unveiled the legislation that would, among other items, ban the use of credit-based insurance scoring. .
“Passage of this bill would send a clear message to perspective businesses that economic growth and job creation is not a real priority to Michigan policymakers,” Thesing said. “Placing more severe restrictions on insurers and banning credit-based insurance scoring for auto and homeowners’ policies will have two results: higher prices and less availability.”
Michigan law allows credit-based insurance scoring to be used only to provide discounts to customers for their home and auto insurance, not to determine if a person can be insured by the company or if a surcharge can be applied, Thesing explained. Furthermore, all Michigan insurance carriers are required by law to submit their rates to the state, which has 60 days to reject them. None of those rates, which include discounts for credit scoring, have been rejected.
“NAMIC strongly supports the right of insurers to use credit information in making underwriting and rating decisions,” Thesing said. “Credit-based insurance scoring is a strong predictor of insurance loss that benefits policyholders directly through better rates and more choices in the market place. Prohibiting Michigan insurers from utilizing this valuable tool would undercut pricing accuracy and would result in less competitive auto and homeowners’ insurance markets.”
Forty-eight states have taken some form of legislative or regulatory action on the use of credit-based insurance scores.
"Contrary to what the author of this legislation asserts, this bill is not in the best interest of consumers," said Neil Alldredge, NAMIC's vice president for state and regulatory affairs. “Rather than lowering insurance rates, this bill would interfere with the efficient functioning of the insurance market, leading to cross-subsidization and higher prices for insurance consumers with good credit histories.”
Alldredge pointed to an ever growing body of research that demonstrates that credit-based insurance scoring is an accurate predictor of future claims. “Study after study has unquestionably demonstrated the benefit of credit-based insurance scoring as a predictive tool for rating and underwriting,” he said. “Studies conducted by the Arkansas Insurance Department found the use of insurance scores resulted in discounts or no change for nearly 90 percent of auto insurance policyholders. Studies conducted by the Insurance Department of Texas and the Federal Trade Commission have both confirmed the predictive power of insurance scoring. These studies have also found that insurance scoring is not unfairly discriminatory.”
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Posted: Thursday, March 20, 2008 12:00:00 AM. Modified: Thursday, March 20, 2008 9:27:46 AM.
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