Both the Property Casualty Insurers of America (PIA) and the American Insurance Association (AIA) hailed a Michigan Supreme Court’s 4-3 decision stating that the Michigan insurance commissioner does not have the authority to arbitrarily ban the use of credit-based information by insurers in pricing and underwriting. The decision, which arose from the Insurance Institute of Michigan, et al v. Commissioner, Michigan Financial and Insurance Services, Department of Labor and Economic Growth, plays forward in positive ways for insureds, notes David Snyder, vice president and associate general counsel of the AIA.
The 4-3 decision makes invalid the rules against credit scoring as proposed by the Granholm Administration; further, it halts their enforcement permanently.
The ruling, written by Justice Maura Corrigan, states: "The Commissioner has the authority to insure that insurers' practices comply with the Insurance Code. Nothing about the practice of insurance scoring, however, amounts to a violation of the Insurance Code per se. The Commissioner exceeded her authority by enacting a total ban on a practice that the Insurance Code permits.”
David Snyder, AIA VP and associate general counsel, said his organization is encouraged by the decision. “At issue in today’s decision was the authority of the insurance commissioner to arbitrarily prohibit insurers from using insurance/credit scoring for the underwriting or pricing of car insurance. The court ruled that the insurance commissioner’s attempt to prevent the use of insurance scoring was invalid and unenforceable. In addition, the court ruled that insurance scoring accurately predicts risk and is not unfairly discriminatory.”
Ann Weber, PCI VP, state government relations, said, “We are very pleased with the court's decision."
Snyder noted that the vast majority of states (46) permit insurance scoring subject to regulation, including Michigan. “In reality, the majority of consumers benefit from the use of insurance scoring through lower insurance rates. Insurance scoring is highly predictive of risk and helps increase the availability of insurance products because this tool enables insurers to accurately write virtually any risk. Insurance scoring is subject to close regulation including non-discrimination provisions and actuarial standards.”
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