New law rattles insurance industry in Michigan
Michigan insurance industry balks at new law
A new law has gone into effect in Michigan that will change the way the state’s insurance industry prices coverage. The law was passed on March 28 of this year and changes the way insurance companies can use a consumer’s credit information to deny or cancel auto, home, health, and other kinds of insurance coverage. In many states, insurers are barred from using socio-economic information to price coverage at all. In Michigan, however, the insurance industry claims to rely on this information as a way to adequately price policies.
Law bars use of credit information to deny or cancel coverage
According to the new law, credit information is not an acceptable indicator of whether a consumer can or cannot be covered. This has long been a controversial subject in Michigan, where the insurance industry has traditionally been allowed to use credit scores to price policies. In the wake of the 2008 economic crisis, credit became a very problematic issue for many. Those that lost their jobs due to the economic downturn saw their credit rating begin to slip into unfavorable territory. This meant higher insurance rates for many people, which was considered dubious by consumers due to the state of the state and country economy.
Insurers must inform consumers of changing prices based on credit information
The new law not only prevents insurers from denying or canceling coverage based on credit score, they must also inform consumers if their credit information is used to adjust prices in any way. Much of the insurance industry operates on risk and insurers are constantly trying to minimize their exposure to a wide assortment of risks. In this continuous endeavor, credit information plays a significant role. As risks change, so too does credit, in many cases. Credit itself exists as a form of risk measurement, detailing the financial risk that is associated with a particular consumer. In Michigan, if insurers use credit information to changes prices, policyholders must be provided with detailed information concerning this practice.
New law find opposition throughout insurance industry
Former Governor Jennifer Granholm attempted to ban the use of credit information in the insurance industry, but this practice was upheld by the Michigan Supreme Court in 2010. Michigan’s new law has won almost universal approval from lawmakers and consumers alike. The insurance industry, however, considers the measure inappropriate, suggesting that credit information, as well as other socio-economic information, is needed to fully understand risk exposure and price policies appropriately.