Understanding Credit Rating
By Frank M. Fitzgerald, Office of Financial and Insurance Services
Michigan has a very competitive insurance marketplace. My advice to consumers in all areas of insurance is to shop around. Evaluating coverage often and checking with multiple companies will yield the best possible price for the coverage purchased. It's important for consumers to understand insurance rating as they review their insurance options.
When an insurance company establishes criteria to set the appropriate premiums for a consumer, it is done within statutory requirements. Michigan law allows for premiums to be set in combination with uniformly applied discounts. A discount that has recently raised some concern is credit rating.
It is important to point out that not all insurance companies use credit ratings. There are a number of different methods to establish premiums and lowest price. Individual companies determine their own criteria and the Michigan Division of Insurance reviews the underwriting criteria for code compliance. As always, this regulation's purpose is to promote an insurance industry that is safe, reliable and entitled to public trust. Credit rating is not prohibited by law, but needs to operate within parameters established by the Insurance Code.
Credit rating does raise some concerns for agents and consumers...particularly for those consumers who are unwilling to give their social security number, do not have a credit history or have a poor credit rating. One concern that can be immediately eliminated is eligibility. In no instance does credit rating preclude a consumer from being able to obtain insurance.
By choosing a company that uses credit rating, a consumer is providing information to be eligible for discounts. A consumer who feels that he or she was improperly rated can have the insurance company review the rate and, if necessary, bring the review to the Insurance and Financial Services Commissioner.
A consumer who does not have a good credit history or would prefer not to provide a social security number should shop for companies that do not use that rating. Indeed, consumers should always shop for insurance and look for the best price for their circumstance. In this competitive marketplace, insurance agents serve as an important part by getting consumers the coverage that can best meet their need.
*Insurers may use your credit information (and other consumer reports such as motor vehicle records and claims), as part of their underwriting or rating process or to determine your payment options. These reports may be shared among affiliated companies and used to revise or renew your insurance. At your request, these companies will tell you the type and source of these reports.