The Alliance is right to condemn credit scoring & red-lining. If the goal is truly to slash auto insurance costs but save its protections, more needs to be done
On March 27, 2017, at the Salem Memorial Lutheran Church on Detroit’s east side, the “Detroit Alliance for Fair Auto Insurance” was born. Its mission is as follows:
“Our goal is simple: educate Detroit residents on the importance Michigan’s auto no-fault system and empower them to take action to help guide reforms that reduce [‘Detroit’s outrageous insurance rates’] without sacrificing the quality and level of care for [the car crash victims] who need and deserve it most.”
The Detroit Alliance for Fair Auto Insurance has several worthy ideas they plan to pursue to bring about lower auto insurance prices — but thankfully without Duggan’s horrific $25,000 cap on No Fault car insurance benefits and managed care ideas for Detroit car crash victims.
The Detroit Alliance’s ‘Fair Auto Insurance’ reform ideas
Noting that Detroit drivers “can pay up to $5,000 for an annual auto insurance policy,” which “far exceeds everywhere else in the state and across the country,” the Detroit Alliance for Fair Auto Insurance proposes the following reforms to bring prices down for Detroiters — but “not at the expense of auto accident survivors”:
- “Eliminate non-driving related rate-setting factors, like credit scores.”
- “Stop redlining in Detroit.”
- “Create a[n] anti-fraud authority.”
“The alliance’s leaders placed the blame on car insurers for Detroit’s high insurance rates, especially the insurance industry’s practice of using a version of motorists’ credit scores to set rates and basing rates on customers’ residential ZIP Codes, which the group called ‘redlining.’”
I’ve strongly condemned the practice of credit scoring, and explained why it is so flawed.
Here’s a sample of my blogs highlighting the injustice of using a person’s credit score — which has nothing to do with how they drive — to set their car insurance premiums:
- How do credit scores punish Detroit residents when paying for auto insurance?
- Did you know consumers with bad credit could pay as much as 115% more for auto insurance?
- Why State Farm and Allstate will charge you more for auto insurance if you have a poor credit score
- One More Reason Insurance Companies Shouldn’t Use Credit-Scoring to Set Prices
- Credit Scoring: Auto Insurance Companies Win Big, Michigan Residents Lose Big
- Reader responds angrily to auto insurance companies using credit scores to determine rates
Pastor Darrell Reed of Spirit Love Church on Mack Avenue in Detroit gave a nice summary of the problem of credit scoring when he told The Detroit News:
“Credit scores does not tell the story when it comes down to a person applying for insurance, whether they are a safe driver or whether they are a dangerous driver … These things have to stop.”
To lower prices but keep protections intact, more will need to be done
I’ve also made my own suggestions, many based upon my own practice as an auto No-Fault attorney for over 20 years, for how we can have both — how we can lower the cost of auto insurance significantly and the essential legal protections and benefits of our auto No-Fault laws. (And there are several reasons why Michigan citizens have the best deal around with our No-Fault laws.)
How can we have the best of both worlds?
I have previously suggested:
- Creation of a truly fair No-Fault medical-provider fee schedule. This would lower car insurance rates for drivers, but also preserve No-Fault PIP benefits and protections for car accident victims. It would eliminate a lot of the PIP fraud, lawyer ambulance chasing and personal injury lawyer solicitation that — despite the laws criminalizing it — seem to be only growing and becoming more pervasive in cities such as Detroit.
- Creation of a “Fraud Authority” that will punish and prosecute No-Fault fraud committed by Michigan’s auto insurance companies just as much as it will people who commit fraud. As an auto accident attorney, I’d like to see scrutiny into many of the notorious IME doctors that insurance companies use to cut off legitimate claims; claims adjusters who are unreasonably denying and cutting off PIP No Fault insurance benefits; withholding of information by adjusters; lying by claims adjusters and intentional underpayment of No Fault benefits.
- Empower Michigan’s Insurance Commissioner to stop auto insurers from charging “excessive” prices.
- Vigorously enforce the ambulance-chasing lawyer and anti-solicitation laws, which impose jail time and substantial fines on lawyers — and the runners these lawyers employ — who illegally contact car accident victim within 30 days of the accident date.
- Empower the Insurance Commissioner to regulate excessive profits by Michigan’s highly profitable No Fault automobile insurance companies. As I noted in my 2013 guest column in the Detroit Free Press: “Michigan auto insurance companies collected more than $2 billion more in auto premiums in 2011 than they paid out in claims. They brought in about $6.8 billion in private passenger and commercial auto premiums and paid out some $4.7 billion in losses on private and commercial auto claims, according to data provided to Michigan Auto Law by the National Association of Insurance Commissioners and the Michigan Office of Financial and Insurance Regulation. Michigan auto insurers pocketed the difference. That’s more than $2 billion in unused premiums in 2011 for the trouble of selling a product (auto no-fault insurance) that consumers in this state are required by law to purchase.”
- Prohibit Michigan No Fault car insurance companies from using “credit scoring” in the setting of rates, i.e., charging higher prices for car insurance to drivers with bad credit scores and lower prices to drivers with good credit scores. As I noted in my December 16, 2015, blog post, consumers with bad credit could pay as much as 115% more for car insurance than drivers with good credit.