Michigan Supreme Court rules credit scores can be used to set insurance rates

LANSING — The Republican majority of the Michigan Supreme Court ruled Thursday that Michigan insurance companies can use credit scores to determine insurance premiums.

In a closely divided 4-3 opinion with Justice Maura Corrigan writing for the majority, the court ruled that the state’s Office of Financial and Insurance Services did not have the authority to ban the use of credit scores in determining insurance premiums.

Corrigan noted that the insurance company provided evidence it claimed showed a correlation between low credit scores and likelihood of a person filing a claim. That, the 27-page majority opinion held, gave insurance companies the right to charge people more based on the risk of their using the services.

In a dissenting opinion, Justice Marilyn Kelly wrote:

As the discussion of the merits of plaintiffs’ claims demonstrates, much conflicting evidence exists on whether insurance scoring is predictive of loss. The majority appears willing to overrule defendant’s decision simply because it disagrees with it. However, when the proper level of deference is applied, it is irrelevant whether the majority would decide the issue differently. Rather, after examining the conflicting evidence, one can only conclude that defendant did not exceed her authority by promulgating the rules banning the practice.

Kelly argued that the majority was ignoring the plain text of Michigan law, noting that the stated purpose of the state Insurance Code is “to provide for the continued availability and affordability of automobile insurance and homeowners insurance in this state and to facilitate the purchase of that insurance by all residents of this state at fair and reasonable rates.”

That, Kelly argues, means that setting a rule to prohibit credit scores in setting insurance rates is well within the purview of the Insurance Commissioner and authorized by the law governing insurance regulation in Michigan.

OFIR officials and activists responded to the ruling with deep disappointment.

“Affirming the unbridled use of credit scores by insurers is bad for Michigan consumers, who expect and deserve their rates to be determined by factors such as driving record,” said Ken Ross, Commissioner of the Office of Financial and Insurance Regulation.

Linda Teeter, Executive Director of Michigan Citizen Action, has been leading the charge over the issue. She says the ruling will have a detrimental impact on drivers with credit issues. She said that in this economy many Michigan residents are facing economic peril as a result of the collapsed economy, job losses and layoffs. The result of the ruling, she said, could be to provide a person with a poor driving record a lower premium than some one with a good record.

“As an example, some one who has a DUI (Driving Under the Influence) or an OUI (Operating Under the Influence) and a good credit score can pay less than some one with a perfect driving record and a challenged credit history,” Teeter said.

The majority opinion was immediately seized upon, and condemned, by progressives and the Democratic party.

“We believe it’s unfair and discriminatory,” said Michigan Democratic Party Chair Mark Brewer in a phone interview. “It’s very disappointing, but not surprising.”

“I think it’s wrong,” said Sen. Gilda Jacobs (D-Huntington Woods). “Insurance rates should be based on the driving record and, frankly in my opinion, the age of the driver.”

“An activist Michigan Supreme Court has sided with powerful insurance industry CEOs and special interests and against Michigan’s consumers. This opinion is just wrong,” said David Holtz, executive director of Progress Michigan. “It’s wrong on the law, as Justice Kelly eloquently stated in her dissent. And it’s wrong that credit scores should decide car insurance rates, which is like saying the price of your health insurance should be based on whether your dog is healthy. The two things just aren’t related. It’s now up to the Legislature to move quickly to protect consumers, and if lawmakers refuse to act, then voters must elect people in November who will protect them against the predatory insurance industry.”

But Jacobs said that might not happen. The reason? She says the Republican leadership in the Senate have prevented hearings on pending legislation that would provide the explicit authority to ban the practice.

“It’s been time to have these hearings for two years,” Jacobs said. “I think this gridlock will continue.”

Holtz says the Senate Republicans are beholden to insurance industry lobbyists, and that is interfering with the legislative drive to address the issue.

“To know which side Senate Republicans are on you only have to follow the money. For two years now they have refused to take up auto insurance reform and they have been rewarded with more than $20,000 in campaign contributions from the Automobile Club’s PAC this year alone,” Holtz said.

Teeter agrees with Sen. Jacobs and urges consumers to make their feelings known to legislations, saying that “the Senate today does not look like it will move legislation. It will take a groundswell of pressure on senators to make that happen.”