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MI Credit Based Car Insurance Upheld

Michigan's system of credit based car insurance scoring was upheld following a majority decision by the state Supreme Court. Under the terms of the decision, auto insurance providers selling policies in the state of Michigan can continue using credit as a factor in the determination of rates for insurance policies sold to state residents. By a vote of four to three the Michigan Supreme Court ruled that the insurance commissioner for the state exceeded his legal authority when he banned the practice among insurers.

Support for the practice among political leaders across the state has been divided. Notable among its opponents is Gov. Jennifer Granholm, who has voiced the common opinion that credit scores are not related to insurance risk. But in their presentation to the state appellate court, industry lawyers presented evidence demonstrating that credit scores are a useful predictor of risk. If you're looking to lower your car insurance bills in Michigan, you should read up and learn more about this credit based scoring system.

Credit Based Insurance Scoring Overview

The practice of credit based insurance scoring has been in use across the domestic auto insurance industry since at least the 1980s. It operates on the premise that an analysis of the credit history of an individual driver can be used as an accurate predictor of future claims. In other words, the industry researched the connection between credit score and driving history and found that the demographic with poor credit scores had on average more frequent claims that cost insurance companies more money than the demographic with good credit reports.

The industry takes credit information from the various reporting bureaus and assimilates it into a single factor or insurance score that enters into their calculation of rates. In this way it is similar to the scores assigned to different vehicles on the market. Each vehicle gets scored based on risk and drivers pay more for vehicles that tend to produce more claims than for those that are safer on average.

Credit scoring is one of the ways the auto insurance industry deals with the limitations that exist given the fact that they can only look at group demographics and not monitor the behaviors of individual drivers. This, of course, is something that is changing a bit as well as some drivers submit to various devices being placed on their vehicles that track things like driving speed, hard braking, and time of night when the car is being driven. But by and large, the only information the industry has to help them predict future driving performance for individuals is their past performance. To round out this profile they rely on many other factors that they have been able to positively correlate with certain behaviors. Among these factors are age, gender, experience, vehicle type, and credit history.

Significance of MI Supreme Court Ruling

The ruling handed down by the Michigan Supreme Court on the state insurance industry's use of credit based insurance scoring is not necessarily an endorsement of the practice, but rather a statement to the insurance department in the state regarding their limits of power in deciding these matters. It remains to be seen whether the issue will die down within the state or if other groups will take up the cause and attempt to pick up where the insurance commissioner left off.

Across the country there has been tremendous political tension regarding credit based insurance scoring. On one side of the debate are critics who charge that the practice relies on the use of statistics that have absolutely nothing to do with the driving record of Michigan policy holders. They also quite frequently lament the situations of certain drivers who because of unfortunate circumstances have seen their credit scores plummet. In some states legislators have successfully placed limits on the use of this system in such cases, granting consumers a temporary reprieve and auto insurance discount while they get their credit situation back in order.

But on the other side of the debate are insurance industry leaders who demonstrate through countless years' worth of data that credit history is an accurate and efficient predictor of driving performance and auto insurance claims. Motorists with pristine credit histories show a strong historical tendency toward better than average driving records and fewer claims than the average population. And those auto owners with poor credit ratings historically show a strong tendency toward higher rates of accidents, citations and claims on their insurance policies resulting in larger expenditures by the insurance providers.

Credit Scoring Debate Not Over

One thing is certain in Michigan and around the country. The debate over credit based car insurance scoring is far from finished. Debate rages on in various pockets of the country and different states are dealing with the situation in different ways. Without a federal mandate, it is likely that it will be up to the individual states to decide the fate of credit based car insurance scoring.


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