MIC Supports Credit Scoring Reform


March 4, 2010

After fighting the industry and their Republican counterparts on a measure to ban the use of credit scores in setting insurance premiums, House Democrats appeared to be trying a new tactic Thursday as the Insurance Committee took up legislation that would regulate use of those scores.

The legislation, HB 5297, is modeled after policy by the National Conference of Insurance Legislators and received support from various insurance industry representatives.

While the bill still appears to be going through some drafts, it would prohibit insurance companies from using a credit score to deny, cancel or not renew a person’s policy. But insurance companies could use the score in rate setting or underwriting if several conditions were met.

A person who doesn’t have a credit score couldn’t be adversely reviewed by an insurance company and consumers could ask their company to reexamine their credit score, which could lead to a recalculation of their insurance score.

In recalculating an insurance score, companies couldn’t negatively view inquiries into a credit report, either by the person seeking insurance or another auto, insurance or home mortgage company. Collections because of medical bills, or bankruptcies that are more than 10 years old, also could not be viewed in a negative light as insurance companies recalculate a person’s insurance score.

And the legislation calls for insurance companies to provide “reasonable exceptions” to a person’s premium rate if his or her credit report has been affected by a serious illness or injury, catastrophic event, death of an immediate family member, identity theft, loss of job for more than three months or military deployment.

Rep. Andy Neumann (D-Alpena), who is sponsoring the bill, said family medical bills forced him to declare bankruptcy about six years ago and while he’s gotten his credit back on track, insurance companies still look unfavorably at his record.

“There is always some formula insurance companies are going to use, but this is one avenue, if we do this piece of legislation, we can control it,” he said.

There was still some pushback among Democrats in challenging the validity of tying people’s credit reports to whether or not they’ll get in car accident.

“All a credit card score shows is a proxy for someone’s income,” said Rep. Bob Constan (D-Dearborn Heights).

And Rep. Ellen Cogen Lipton (D-Huntington Woods) noted the state’s high court is set to rule on the use of credit scores by insurance companies after hearing oral arguments last fall (See Gongwer Michigan Report, October 7, 2009).

But Dave Williams, Michigan product manager for Progressive, noted, “The car you drive, a lot of people drive the same car. Your credit report is all about you.”

According to his research, about 65 percent of customers would see an increase in their insurance premiums without the review of their credit report because companies use that to discount policies.

The Democratic-controlled House passed legislation in December banning the use of credit scores in setting insurance rates, but even then the chamber dropped efforts to pass the entire package (See Gongwer Michigan Report, December 16, 2009).

Chair Rep. Barb Byrum (D-Onondaga) commented that perhaps the best option for consumers at this point is to regulate the use of credit scores, as opposed to an outright ban. She said all sides would have to compromise as the bill moves through the process.

Teri Morante, representing the Michigan Insurance Coalition, said the national policy was crafted to fit with the way Michigan currently regulates the insurance industry. Twenty-six states have some type of law in place because of the national policy, she said. About 40 states allow for the use of credit scoring in setting insurance rates.

The legislation also received support from the Michigan Association of Insurance Agents, the Insurance Institute of Michigan, Farmers Insurance, Property Casualty Insurers, Auto Owners Insurance and AAA of Michigan.

While there was no testimony in opposition to the bill, the state’s Automobile and Home Insurance Consumer Advocate Butch Hollowell indicated opposition to the measure, as did Michigan Citizen Action, the AFL-CIO and the Coalition Protecting Auto No-Fault.