Insurers are preparing to appeal a ruling by a Michigan appellate court prohibiting the use of credit-based insurance scoring in underwriting. The appellate decision reversed a lower court ruling allowing the use of what the industry calls a valuable and accurate underwriting tool. The case got to the appellate court when the state Office of Financial and Insurance Services appealed the circuit court decision.

Both the Property Casualty Insurers Association of America (PCI) and the American Insurance Association (AIA) expressed disappointment in the appellate ruling.

A model act adopted by NCOIL in 2002 has been adopted in 26 states. Its consumer protections include the requirement that insurers disclose to consumers their use of credit scores in the underwriting process and notify the policyholder in compliance with FCRA when credit is the basis for an adverse action. It also prohibits the use of credit information as the sole basis for refusal to insure, and in nonrenewals or cancellations. It also encourages insurers to take into account extraordinary life events, such as catastrophic illness or the death of a spouse.

August 26, 2008