Continuing with my Wednesday tradition of highlighting comments from real readers, this comment comes Nancy, who is upset by the fact that Michigan auto insurance companies are allowed to use a person’s credit report to determine rates for policyholders. Most people don’t realize that responsible people who pay off credit cards are often the most penalized and punished when insurance companies use credit scoring. Plus, there are several logical fallacies in the argument for credit scoring that I address below Nancy’s comments.
Here’s what she has to say:
“Credit scoring has nothing to do with how a person will pay their premiums. In fact, if someone fails to pay premiums, the insurance company can cancel them. Credit scoring is a ruse to get more premiums in the hands of greedy executives. I have paid my premiums timely for 30 years. I’ve had Frankenmuth as my carrier for about 16 years. I have no tickets, no accidents and made no claims yet because I went through a divorce and don’t have stellar credit, they now charge me 15 percent more on my premiums.
Ironic that they took my timely paid premiums to fund lawsuits that would give them the right to use my credit score against me and charge me more for my auto insurance. I think this is a breach of their fiduciary responsibilities. I’m sure policyholders don’t want these insurance companies to use “our” surplus to fund litigation initiatives that allow them to charge us more. What a profit windfall for greedy executives taking advantage of the economy and suffering credit scores of millions of policyholders.”
Thanks for your comment, Nancy. As a No-Fault insurance lawyer, I couldn’t agree with you more. As I said in my previous blog about insurance companies in Michigan using credit scores to determine auto insurance rates, credit scoring using credit reports is discriminatory.
First, credit scoring operates on a discriminatory level of lumping correlation evidence into the same concept as causation, which is utter nonsense. For instance, saying that people with good credit ratings make fewer claims than people with bad credit ratings is not a logically persuasive argument. There may be correlation, but that is not the same thing as causation. It’s the same thing as saying that all heroin users started by drinking milk. Yes, there is a correlation, but it’s an example of false causation using a correlation. The “justification” is that poor credit score people have more claims, but that is because they also tend to have much lower deductibles, which also translates into more car accident claims.
More importantly, credit ratings are notoriously inaccurate and very hard to correct. This decision actually penalizes and punishes responsible people in Michigan. A decision by someone to pay off their credit cards and/or cancel a credit account does not make anyone a better driver or prevent more car accidents as far as I can tell, but now their insurance rates will also rise. In fact, one real shame about this decision is it hurts financially responsible people; because these are the same people who choose not to have credit card debt, avoid over reliance on multiple forms of credit, avoid owning surplus credit cards, or prefer to pay in cash for things they can afford. Their rates have risen now as well.
Like Nancy said, this law is really just a giant windfall to the auto insurance industry in Michigan, so they can further increase their already outrageously high profits in this state, which, according to the bipartisan Angoff study, is already the highest profit margins in the nation
It’s good to be an insurance company in Michigan.
– Steven M. Gursten is recognized as one of the nation’s top lawyers in serious car and truck accident injury cases and automobile insurance No-Fault litigation. He routinely writes about insurance company abuse and the No-Fault laws in Michigan, and is available for comment.
– Photo courtesy of Creative Commons, by Andres Rueda
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