Opinion ID: 830914
Heading Depth: 1
Heading Rank: 8

Heading: chapter 24 and chapter 26

Text: Chapter 24 and Chapter 26 of the Insurance Code allow insurers greater authority in setting premiums than does Chapter 21. [29] MCL 500.2403(1) [30] and MCL 500.2603(1) [31] provide the limitation on setting rates at issue here. Plaintiffs argue that under MCL 500.2426 and MCL 500.2626, defendant may not disapprove rates that are based on insurance scores because insurance scoring is actuarially sound. Defendant counters that insurance scoring is not a reasonable classification system under MCL 500.2403(1)(d) and MCL 500.2603(1)(d). A reasonable classification system is defined as a system designed to group individuals or risks with similar characteristics into rating classifications which are likely to identify significant differences in mean anticipated losses or expenses, or both, between the groups, as determined by sound actuarial principles and by actual and credible loss and expense statistics or, in the case of new coverages or classifications, by reasonably anticipated loss and expense experience. [32] Thus, defendant claims that rates set based on insurance scores are unfairly discriminatory because they are not likely to identify significant differences in mean anticipated losses or expenses. An examination of both the circuit court record and the administrative record reveals the reasonableness of defendant's conclusion that rates based on insurance scores are unfairly discriminatory. First, the accuracy of credit reports, on which insurance scores are based, is unclear. The GAO report cited by the majority concluded that a comprehensive assessment of overall credit report accuracy using currently available information is not possible. [33] As defendant noted, the evidence on this point is inconclusive. [34] The majority appears to concede that the reliability of credit reports is subject to question. Yet it proceeds by effectively requiring defendant, rather than plaintiffs, to show that the unreliability [in credit scores] would have to result in a `differential between the rates' that `is not reasonably justified....' [35] I would conclude the contrary and hold that the uncertainty surrounding the accuracy of credit reports is evidence per se that a classification system based on those reports is unreasonable. It should be plaintiffs' burden to rebut this conclusion by producing evidence that such a classification is reasonable. To do so, plaintiffs would need to demonstrate that classifying persons on the basis of insurance scores is likely to identify significant differences in mean anticipated losses or expenses. [36] The record simply does not establish that credit scores correlate with the risk of loss in a way that makes insurance scoring a reasonable classification system under MCL 500.2403(1)(d) and MCL 500.2603(1)(d). Defendant reasonably rejected some of the studies submitted at the public hearings in opposition to the OFIS rules because they used univariate analysis [37] and analyzed data from states other than Michigan. [38] The only study not conducted by plaintiffs that included data on Michigan automobile policies, which plaintiffs cited often as supporting their position, showed a total lack of correlation. [39] Moreover, defendant noted that the agency is not aware of any study at all ... that includes data on Michigan home policies. [40] The majority entirely ignores these findings and picks and chooses from among the available data to independently consider whether a classification system based on credit scores is reasonable. [41] However, the circuit court record provides little that undermines defendant's factual findings made at the public hearings. Plaintiffs continued to rely heavily on the studies that defendant reasonably rejected. The new evidence introduced in the circuit court consisted primarily of affidavits from various insurance industry executives. These cite statistics that purportedly show a correlation between credit scores and risk. While generally supporting plaintiffs' position, the affidavits are insufficient to rebut defendant's conclusion that the use of insurance scoring to set rates is not a reasonable classification system. The statistical data in the affidavits, like the studies in the administrative record, are based on a univariate analysis. For reasons cited previously, it was not unreasonable for defendant to reject this analysis. [42] Finally, I do not address the majority's discussion of sources outside the administrative and circuit court records because the majority improperly relies on them. [43] Reference to statutes that are not applicable to this case may be appropriate when discerning the proper interpretation of a statute; however, it is not warranted simply as a means of bolstering the evidence that is on the record. As with Chapter 21, defendant's interpretation of the applicable statutory provisions in Chapters 24 and 26 is entitled to respectful consideration under In re Rovas Complaint. Because setting rates using insurance scoring is not clearly permissible under any chapter, I conclude that the OFIS rules do not violate the legislative intent behind the Insurance Code.