Michigan Gov. Jennifer Granholm’s proposal to ban the use of credit-based insurance scores for automobile and homeowners insurance is out of step with the 20 states that have adopted a variation of the model law developed by the National Conference of Insurance Legislators (NCOIL), a lobbyist for the insurance industry charged in Senate testimony last week.
“The NCOIL model provides many consumer protections while preserving an important and fair rating tool,” said Michael Harrold, assistant vice president and regional manager for the Property Casualty Insurers Association of America (PCI) in testimony before the Senate Business and Financial Institutions Committee. “That is why, with the recent passage of legislation in New York, 20 states have enacted the NCOIL model or a variation of it. Michigan should, too.”
Harrold criticized the Office of Financial Insurance Services (OFIS) for failing to tell consumers that most of them will see rate increases if credit scoring is banned.
“OFIS keeps talking about reductions in base rates, but most people don’t pay a base rate; they pay an insurance premium,” he said. “There is a dramatic difference between the base rate in any territory and the average premium in that territory. Most Michigan consumers with good credit enjoy a percentage premium discount which is larger than any reduction in base rates that will be created by banning the use of insurance scoring.”
He also attempted to debunk OFIS’ contention that the issue of correlation of insurance scores to the potential for future loss is still unsettled.
“The reality is that there is little or no debate on the correlation question,” Harrold said, pointing to what he said were independent studies conducted by the University of Texas, EPIC Actuaries and Tillinghast that concluded there was a clear correlation.
Although OFIS cites a General Accounting Office (GAO) report claiming that upward of 70 percent of credit reports contain errors, Harrold said that the GAO report actually criticizes the shortcomings of the U.S. Public Interest Research Group study from which OFIS pulls its error numbers. Furthermore, the GAO report states that “a comprehensive assessment of overall credit report accuracy using currently available information is not possible,” and that “the lack of comprehensive information regarding the accuracy of credit reports inhibits any meaningful discussion of what could or should be done to improve credit report accuracy.”
A sensible alternative to a credit ban would be to follow the lead of other states and adopt a bill like H.B. 5803, which is a variation of the NCOIL model, Harrold said.
The Department of Labor and Economic Growth and OFIS are conducting a series of public hearings to determine the feasibility of a credit ban scheduled throughout July in Lansing, Grand Rapids, Detroit, and Flint.
PCI members write $154 billion in annual premium, 38 percent of the nation’s property/casualty insurance. Member companies write 47.1 percent of the U.S. automobile insurance market and 37 percent of the homeowners market.
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