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Michigan Supreme Court Decision on Insurance Rates a Win for Consumers

News Releases

Washington, D.C., July 9, 2010— The Supreme Court of Michigan this week reversed an initiative of Gov. Jennifer Granholm which would have barred insurance companies from considering the credit ratings of customers when setting rates for home and auto insurance.  This important decision has national implications regarding the use of credit scoring in economic transactions from job applications to bank loans to insurance policies. Citing empirical data showing that the use of credit scores has lowered insurance rates for most consumers, the court wrote that this practice was not “unfairly discriminatory” under Michigan law and “reflects reasonably anticipated reductions in losses or expenses.”


Statement of Michelle Minton

Director of Insurance Studies

Competitive Enterprise Institute

This is great news for every consumer in Michigan. Restraining insurance companies doesn’t actually reduce the cost of insurance and the current Governor’s hostile attitude toward the industry has done nothing but create inefficiencies and higher premiums for consumers. A vibrant insurance market is necessary for Michigan’s economic recovery and this court decision gives us reason to be optimistic.

Auto insurance is expensive in Michigan because drivers are required to buy the greatest amount of coverage in the nation. I hope the next governor – whoever that may be – learns from the mistakes the current one and realizes that the only way to reduce insurance premiums in the long term is to allow insurers to price rates accurately and to allow consumers the ability to choose how much or how little coverage they want.


Statement of John Berlau

Director, Center for Investors and Entrepreneurs

Competitive Enterprise Institute

The sound logic of the Michigan Supreme Court should resonate with policy makers across the nation and cause them to realize the benefits of credit scoring for Americans – rich and poor – who are responsible with their credit. The use of credit scoring can break down barriers and send information that enables true risk-based pricing. This approach looks beyond arbitrary factors such as what neighborhood a person lives in and focuses on the core question of whether a company’s potential customers have good habits with credit.

The Court cited the comprehensive study by the Federal Trade Commission which found that after Maryland banned credit scoring, homeowner insurance rates increased by 20 percent, and these rate hikes hit as many as 75 percent of policy holders. The Court concluded, “It is difficult to see how offering discounts…on the basis of good [credit] scores is inconsistent with the Insurance Code’s general purpose of availability and affordability of insurance for all consumers.”

We can only hope that politicians and policy officials at the local and national level will display this same wisdom the Court has shown.


CEI is a non-profit, non-partisan public interest group that studies the intersection of regulation, risk, and markets.