Your Credit Doesn’t Matter in Michigan

The Michigan Court of Appeals has decided that insurance companies can no longer use credit scores to determine premiums for auto and home insurance.  Some are celebrating that this means lower rates for people with poor credit, but ultimately it could cost every Michigan resident even more for insurance. 

Organizations like the Property Casualty Insurers Association of America and the Insurance Institute of Michigan maintain that low credit scores show a pretty direct relationship with things like car accidents and homeowners claims. 

Of course there are many other studies which don’t support that as well.

Insurance companies need to find ways to evaluate risk, then set premiums accordingly.  If they lose a tool like credit scores, and thus have a chance at more risk, both the home insurance and auto insurance companies will want to charge higher premiums to cover that risk. 

If the state’s insurance commission restricts companies from charging more, and the insurance providers start losing money, then they will quit selling insurance in Michigan.  That’s what happened in New Jersey when the state imposed strict limits on rates and other things – auto insurance companies quit selling policies because it just wasn’t worth doing business there.  Ultimately consumers had a tough time finding insurance, and were desperate to buy a policy at any cost.

While short term benefits for people with lousy credit will come from this ruling, ultimately everyone is going to pay more for insurance in Michigan.  Don’t be fooled, Michigan residents, doing business in Michigan is not so attractive that companies will offer auto or home insurance policies at any cost.  Ultimately you’ll have fewer choices of insurance companies, and your rates may actually go up.