THE FLINT JOURNAL FIRST EDITION
Tuesday, July 27, 2004
By Melissa Burden

FLINT-Consumers can voice their opinions Wednesday in Flint on a proposal by state Insurance Commissioner Linda A. Watters to ban insurers from using credit scores in setting automobile and homeowners insurance rates.

The public hearing, the last of four across the state, begins at 1 p.m. in the Flint City Hall council chambers, 1101 S. Saginaw St.

Since the 1990s and widely by 1999, insurers have used credit scores in creating insurance scores for credit-related discounts on premiums, said Marilyn Maloney, a spokeswoman for the state Office of Insurance and Financial Services.

The office says base rates - a rate set before discounts are added - have skyrocketed since insurers began using discounts.

Watters said she believes insurers shouldn't use credit scores in setting insurance rates because many credit reports are unreliable. And credit discounts violate the state insurance code because they are not uniformly applied, Maloney said.

Watters, who has proposed the ban take effect Jan. 1, estimates insurers will have to roll back base rates 10 percent to 45 percent.

But those in the insurance industry say studies have shown those with higher insurance credit scores file fewer claims and lower claims.

The Insurance Institute of Michigan, which opposes the ban and represents many of the state's property and casualty companies, says about two-thirds of Michigan's insurance policyholders receive a discount for maintaining good credit.

A credit scoring ban would mean many policyholders would see their rates increase, and for those receiving large discounts, that could mean up to a few hundred dollars a year more, said Dyck Van Koevering, the institute's general counsel.

"The ban would have a tremendous negative impact on the people of Genesee County," said Morrall Claramunt, executive vice president of Frankenmuth Mutual Insurance Co., which has used insurance credit scores in discounting policies since 2001.

"Our policyholders in Genesee County stand to lose over $2 million in credit if the discount were eliminated."

On homeowners' policies, good credit can save an individual 5 percent to 30 percent off a base rate, Claramunt said.

For example, an individual with home valued at $100,000 in Grand Blanc might start with a base yearly premium of $627. If they fell into the company's best credit tier, they could save $188 off that rate, he said.

While James Hudson of Flushing gets a credit-related discount on his auto and homeowners insurance policies, he supports the ban, even though his rates could go up.

He's spent hours trying to figure out how to improve his credit rating after GMAC Insurance in March sent him a notice that with a score of 808 he fell into the company's second-best tier for discounts.

"I think it's unfair not only to the people with poor scores, but it's also unfair to the people like me, with good scores," said Hudson, 75.

Mortgage Rates News, Mortgage News, Financial News