In July, the Michigan Supreme Court ruled that a five-year-old set of regulations promulgated by the Michigan Office of Insurance and Financial Regulation (the “OIFR”) banning the use of credit scores in setting personal insurance premiums was an over extension of the insurance regulator’s statutory authority.  In its 4-3 decision, the court also determined that the use of credit scores does not violate the Michigan Insurance Code.  This decision brings an end to the OIFR’s attempt to ban a controversial practice it deems discriminatory to racial minorities and the economically disadvantaged by overturning a 2008 appellate court ruling.

Insurance industry representatives say that the decision will lower rates for Michigan motorists, since credit scoring allows for discounts to drivers with pristine credit scores.  Opponents claim that statistical data shows credit scoring merely shifts the costs of auto insurance from those with high credit scores to those with lower scores, such as recently laid-off workers.  Further, critics contend that information gleaned from credit reports, such as high credit card balances and late payments, have little bearing, if any, on a motorist’s driving ability.

Michigan State Representative Shanelle Jackson (D-Detroit) has been quoted as stating that it is now up to the state legislature to pass legislation to ban the use of credit scores.  A current bill banning the use of credit scores in setting auto insurance premiums, sponsored by Representative Woodrow Stanely (D-Flint), passed the Michigan House last year and has been referred for consideration to the Michigan Senate Committee on Economic Development and Regulatory Reform.

We will continue to monitor developments relating to credit scoring here at InsureReinsure.