February 14, 2003

Michigan Office of Financial and Insurance Services (OFIS) Commissioner Frank M. Fitzgerald today issued Bulletin 2003-01-INS, which requires insurance companies to provide consumers with more information about the use of credit to calculate insurance rates. Michigan insurance companies must begin implementing the changes on July 1, 2003 and complete actuarial justification by June 30, 2004.

“Consumers’ overwhelming concern about the use of credit information to set insurance rates is due to the lack of information available,” said Fitzgerald. “With the Bulletin I signed today, insurance companies doing business in Michigan that establish consumer credit scores to set insurance rates will have to recalculate scores annually or when a consumer corrects their credit history, provide detailed information about the company’s use of credit, and justify the company’s use of credit scoring.”

The Bulletin will require any Michigan insurance company using a discount based on consumer credit information to:

• Recalculate and then apply a policyholder’s insurance credit score at least once annually.
• Annually inform automobile and homeowner policyholders or applicants of the credit score used to apply an insurance credit scoring discount, and the discount tier in which the insured or applicant is placed.
• Recalculate an insurance credit score and apply an appropriate discount if a policyholder successfully disputes information in his or her credit history.
• Actuarially certify the discount granted to policyholders or applicants with no credit history (“no hits”), or whose credit history does not reveal all the credit factors used by the company’s formula (“thin files”) to determine the insurance credit score. This certification must occur for any new coverage or renewal coverage effective on or after January 1, 2004 and on an annual basis thereafter.
• File the formula used to apply the discount with OFIS. Filing must occur by July 1, 2003 for any new coverage or the renewal of coverage effective on or after that date.
• File the specific credit classification factors used to calculate an insurance credit score with OFIS. Filing of the factors must occur on or before July 1, 2003 in the rate manual. Re-filing of the credit classification factors must occur whenever the company adds, modifies, or deletes a factor used to calculate the insurance credit score.
• File an actuarial certification justifying the discount levels and discount tiers offered by the company with OFIS. The initial filing of the certification must occur between July 1, 2003, and June 30, 2004.

All insurance credit scoring information filed with OFIS is available for public inspection pursuant to the Michigan Freedom of Information Act (FOIA). FOIA requests can be emailed to OFISfoia@michigan.gov or OFIS can be contacted toll free at 877-999-6442 for more FOIA information.

Companies using credit scoring for insurance other than automobile or homeowners must also file their formulas with OFIS. The filing must occur by July 1, 2003 for new and renewal coverage effective on or after that date. Also, companies must file the specific credit classification factors used to determine the insurance credit score by July 1, 2003. Re-filing of the credit classification factors must occur whenever the company adds, modifies, or deletes a factor used to calculate the insurance credit score.

Also included in the Bulletin is a reminder to companies of their obligations under Section 615 of the federal Fair Credit Reporting Act (FCRA). Under the FCRA, insurance companies must advise policyholders of adverse actions caused by application of a company’s insurance credit score.

“By formally notifying insurance companies of their obligations under the federal Fair Credit Reporting Act, OFIS will be able to cite violations of the FCRA in investigations and enforcement actions,” added Fitzgerald. “If consumers feel their insurance company has inappropriately used credit information, a complaint should be filed with OFIS so an investigation can occur.”

The OFIS report on insurance credit scoring is available at www.michigan.gov/ofis by following the credit scoring graphic at the bottom of the page or typing in the key words ‘credit scoring’. OFIS complaint information is available at www.michigan.gov/ofis by following the consumer services link at the top left of the page. The direct link to OFIS complaint information is www.michigan.gov/cis/0,1607,7-154-10555 _12902_12907---,00.html. All OFIS information is also available by calling OFIS toll free at 877-999-6442.

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The Michigan Office of Financial and Insurance Services (OFIS) is responsible for the regulation of Blue Cross Blue Shield, 31 HMOs, 143 banks, 279 credit unions, almost 1,500 insurance companies, 1,583 investment advisers, 2,164 securities broker-dealers, 6,000 consumer finance lenders, 89,000 insurance agents, and 120,715 securities agents. OFIS is part of the Department of Consumer and Industry Services and is primarily fee-funded, requiring minimal public tax dollars for its regulatory and consumer assistance activities. OFIS has insurance, financial institutions and securities information available online at the OFIS web site, www.michigan.gov/ofis, or at the Michigan government home page, www.michigan.gov. All information is also available through the OFIS toll free number, (877) 999-6442. If you would like to receive OFIS press releases electronically, please email ppdavis@michigan.gov.