Michigan Supreme Court Decision on Insurance Rates a Win for Consumers
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.