Michigan's Top Court to Rule on Credit-Based Insurance Scori

The Michigan Supreme Court will determine whether the state may ban the use of credit-based insurance scoring in underwriting, addressing a four-year-old dispute between insurance companies and state regulators.

The court will hear arguments in the case pitting insurance companies and the Insurance Institute of Michigan against the state Office of Financial and Insurance Regulation. An August 2008 state Court of Appeals ruling overturned a lower-court decision preventing the state from banning the practice.

In March, state regulators began challenging rate filings that use credit-based insurance scoring as a factor. The state blocked 17 automobile insurance rate filings and three homeowners filings before being blocked by a ruling from Barry County Circuit Court Judge James H. Fisher (BestWire, April 10, 2009). The insurance institute and the Michigan Insurance Coalition had filed to prevent the state from denying rate filings while appeals continue; both insurers and the state had petitioned the Supreme Court to take the case.

"The Supreme Court recognized that both parties asked the court to take the case, that this case deserves some immediate attention," said Jeffrey Junkas, public affairs director, Midwest Region for the American Insurance Association.

Court proceedings are scheduled for October 2009. Insurance scoring has been a legal issue in Michigan since 2004, when Gov. Jennifer Granholm and then-Commissioner Linda Watters proposed a new state rule to reduce base rates by prohibiting the use of insurance scoring for homeowners and auto insurance.

"This is good news for Michigan consumers," OFIR Commissioner Ken Ross said in a statement. "After four years of waiting, we are hopeful that the court resolves this issue in favor of Michigan drivers.?

The OFIR has said it regards rates and premiums developed using insurance scoring as unfairly discriminatory and not in compliance with Michigan's Insurance Code. Insurers have defended the use of credit-based insurance scoring as an accurate and fair tool.

The top five writers of homeowners multiperil insurance in Michigan in 2008, according to A.M. Best state/line data, were: State Farm Group, with 20.4% market share; Auto-Owners Insurance Group, 14.5%; Auto Club Group, 10.2%; Hanover Insurance Group, 9.3%; and Allstate Insurance Group, 8%.

The top five writers of private passenger auto insurance in Michigan in 2008, according to A.M. Best Co. state/line product information, were: State Farm Group, with 18.6%; Auto Club Group, with 16%; Auto-Owners Insurance Group, with 9.5%; Progressive Insurance Group, with 8.6%; and Hanover Insurance Group Property and Casualty Cos., with 7.8%.

(By Sean P. Carr, senior associate editor, BestWeek: Sean.Carr@ambest.com)