Auto Insurance Credit Scoring Ban Reaches Michigan Supreme Court

Michigan drivers will soon learn whether their auto insurance premiums will continue to be affected by credit scoring once the state’s Supreme Court makes a decision. The decision will be whether or not to ban the use of credit scoring when determining rates for policyholders. If the court approves the ban, base rates for auto insurance could drop drastically.

The process to have the practice often used by auto insurers banned started in 2004 when Governor Jennifer Granholm proposed a new state rule to reduce base rates for all homeowners and auto insurance customers. In the following years insurers have challenged the proposal and Judge James Fisher of Barry County Circuit Court even had the rules declared invalid. In 2008, the issue reached the Michigan Court of Appeals where the previous judge’s decision was overturned.

In February 2009, the Office of Financial and Insurance Regulation (OFIR) began disapproving filings that were made by auto and home insurance companies that used insurance credit scoring. The agency had determined that the use of credit scoring to determine premium rates relied on unreliable and unfairly-discriminatory information. However, Judge Fisher expanded his original injunction, which prevented the OFIR from enforcing its rules.

In May 2009, the Michigan Supreme Court granted applications from both sides of the fence to argue their points and determine whether Judge Fisher’s injunction should be enforced. The hearing is set for October 7, 2009. If the injunction is enforced, Michigan drivers will continue to have their premium rates determined via credit scoring.

The OFIR hopes for a victory because it will help decrease rates in the state. This is especially important since Michigan drivers are known for paying the highest auto insurance rates in the nation.

Do you think that judging auto insurance premiums based on credit scores is a fair practice?