Wednesday, March 7, 2012

Michigan lawmakers discuss how bad credit scores should affect your insurance rates

Michigan residents with bad credit scores wouldn’t necessarily pay more for their personal insurance under proposed consumer protection rules.
State lawmakers, government officials and insurance companies have been debating for several years whether insurance companies can and should use credit reports to determine home, auto and other personal insurance rates.

Gov. Jennifer Granholm’s administration sought to ban the practice, which it deemed discriminatory. But in 2010 the Michigan Supreme Court ruled 4-3 that credit-based insurance scoring is legal.

Four House bills and a Senate bill are headed to the full Senate that would regulate the use of credit information by insurers. It passed the Senate insurance committee on Tuesday. The House passed its four bills in October.

The Office of Insurance and Financial Regulation, which previously opposed the use of credit-based insurance scoring, supports the legislation. Several insurance industry groups also back the bills.

Credit history can make a big impact on how much consumers pay. Discounts for good credit scores can range from 10 percent to 80 percent of the policy, Hummel said.

The legislation would prohibit insurers from denying, cancelling or not renewing a policy based on a poor credit report or insurance score. It would require an insurer to notify customers if their credit information results in any adverse action.

Another bill allows consumers to request an exception to the credit-based pricing under certain circumstances, such as a catastrophic event, serious illness or injury, death in the family, divorce, identity theft, temporary unemployment or other factors that could lower a credit score.

Customers also could dispute an insurer’s discount determination based on incorrect or incomplete credit information. And people who don’t use credit cards or don’t have an extensive credit history can’t be punished for that reason alone.

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