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Did you know consumers with bad credit could pay as much as 115% more for auto insurance?

December 16, 2015 by Steven M. Gursten

How much does it cost for insurance in your state, according to the latest WalletHub study?

Did you know consumers with bad credit can – and do – pay as much as 115% more for No Fault auto insurance than consumers with good credit? That’s one of the key findings from WalletHub’s recent credit-scoring study, “2015 Study: How Credit Scores Impact Car Insurance Costs By State.”

This can be especially relevant during the holiday season, when people with poor credit face hard times and debt on credit cards tends to spike for many families.

Today I’m talking about Michigan insurance rates, as I primarily practice auto accident law in this state. But you can refer to WalletHub’s study to see rates for those with bad credit in all 50 states.

Specifically, WalletHub, a consumer website, discovered the following about the “credit-based [auto insurance] pricing fluctuations” that occur in the Great Lakes State:

“Credit data has … the biggest impact in the Michigan” where there is a “115% fluctuation” between the prices that consumers with good credit and consumers with bad credit pay for auto insurance.

And significantly, WalletHub found that Farmers, Progressive, State Farm and Allstate –  which are four of the largest auto insurance companies in Michigan – charge considerably more to consumers with poor credit.

WalletHub made the following startling findings about the “extent to which credit data” and “credit scores” affect “insurance policy pricing” by those auto insurers – plus GEICO (which also does business in Michigan):

  • Farmers Insurance appears to rely on credit data the most, with the WalletHub Scenario revealing a 62% fluctuation in premiums between a consumer with excellent credit and a consumer with no credit.”
  • Progressive had an approximate 59% “average premium fluctuation” between “a consumer with excellent credit and consumer with no credit.”
  • State Farm had an approximate 55% “average premium fluctuation” between “a consumer with excellent credit and consumer with no credit.”
  • Allstate had an approximate 51% “average premium fluctuation” between “a consumer with excellent credit and consumer with no credit.”
  • GEICO … appears to rely on credit data the least, displaying a 32% premium fluctuation.”

To conduct its study, with the purpose of determining “the impact of consumer credit data on car insurance premiums” [i.e., “evaluat[e] the importance of credit to insurance underwriting”], WalletHub “collected [auto insurance] premium quotes from the websites of five of the largest insurance providers in the United States … for two hypothetical consumers, identical save only for their credit history. More specifically, one consumer has excellent credit while the other has no credit history.”

Credit-scoring laws in Michigan

Auto insurance companies often use drivers’ credit scores and credit information as factors in determining how much to charge drivers for auto insurance. In Michigan, this is a legal practice.

The effect of credit scoring auto insurance prices has long been a subject of debate … and proposed legislative action throughout the country and in Michigan. To learn more about the changes to the Insurance Code that specifically allow “credit-scoring” in Michigan, please check out Michigan Auto Law’s blog post, “8 things to know about how Michigan auto insurance companies can use your credit score.”

Notably, two bills have been introduced in 2015 which proposed eliminating credit-scoring as a factor in the auto insurance pricing process in Michigan:

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