State has denied auto insurance rate increases for seven companies that considered drivers' credit histories to determine their premiums, even as the practice awaits a ruling by the Michigan Supreme Court.
State insurance Commissioner Ken Ross said the rate denials will send a message that credit scoring unfairly discriminates against motorists and that it allows insurers to inflate the cost of auto insurance.
Insurance companies have argued that drivers' credit scores are good indicators of their risk to file a claim.
The rate denials inflamed political tensions between insurance companies and Gov. Jennifer Granholm, who has called for lower insurance rates, especially in urban areas such as Detroit.
In 2005, Granholm imposed a state ban on the use of credit scores as a factor in setting auto insurance rates. The ban was challenged by the insurance industry, and the case is before the Supreme Court.
Last week, a dozen insurance companies followed Granholm's plea to freeze auto rates in Michigan until the Legislature enacts insurance reforms. Nearly 100 other insurers did not agree to a freeze.
Ross said his decision to deny the rate increases circumvents the court battle over credit scoring and will help consumers.
"Insurance credit scoring does not comply with Michigan law," Ross said. "This is another means by which we will vindicate that position."
Ross said auto insurance rates should be based on driving, not unrelated personal issues such as consumer credit history, which can contain errors.
Lori Conarton, spokesperson for the Michigan Insurance Institute, said credit scores allow insurers to accurately price their policies so that people who are low risks do not subsidize those who are greater risks.
Insurers also consider a driver's age, type of vehicle and miles driven to set rates.
Conarton said the companies may challenge Ross' decision in court.
Jeffrey Junkas, a spokesman for the American Insurance Association's Midwest Region, said many insurance companies use other factors to help set insurance rates that Granholm and Ross have not challenged, such as students' grades and buying multiple insurance policies from the same company.
Those factors, and credit scores, are used as discounts to reduce premiums.
Michigan law prohibits insurance companies from using race, gender or marital status to set auto insurance rates.
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