Why is Credit Scoring wrong?:
The use of credit scoring impacts consumers who can least afford it. Most affected are retired seniors, newcomers to Canada, the unemployed, single income families and small business owners utilizing lines of credit. The use of credit scoring to price home and other personal property insurance is hurting our consumers. IBAO believes the practice is unfair to consumers, not transparent and inappropriate as a rating tool. Banning the use of credit scoring in home and other personal property insurance is the number one priority of the IBAO.
Ontario does not allow this practice in auto insurance and it should not be allowed for home or other personal lines. Contact your MPP.
Background
- In 2005, the Ontario government banned the use of credit scoring to rate and underwrite auto insurance (Regulation 664)
- Because auto insurance is a mandatory product and because a person’s credit score is not related to the insured risk (as opposed to accident record, tickets, etc.), it was deemed to be unfair and not in the public interest
- Despite this, some insurers circumvented this prohibition by screening consumers based on their credit score
- In 2010, as part of the new auto reforms, the government listened to the IBAO and put a stop to these “objectionable quoting practices,” banning the practice entirely at every stage of the auto insurance transaction
- Home and other personal property insurance ARE NOT subject to this prohibition
- Home and auto insurance policies are often tied together with discounts offered to those who purchase their insurance from the same carrier
- Now, insurers are taking advantage of the fact that the use of credit scoring IS allowed on home policies
- To get around the prohibition on auto, some insurers are increasing rates or denying home insurance based on credit scores
- Result: rates are soaring and availability and dislocation issues in the market are growing.
Important information to know:
- Credit scoring has nothing to do with the insured risk. Credit scores are a factor that consumers have very little control over – most are unaware what their score is
- Evidence from the United States suggests that credit scoring has the effect of discriminating against those with low-incomes as well as certain ethnic groups
- The IBAO sampled property renewals from 12 different brokerages that deal with one specific insurance company known to be utilizing credit scoring aggressively.
- Of the 54 policies sampled:
- The average premium increase was 73%;
- The largest premium increase was 155% or $762, annually;
- The smallest increase was 11% – they noted no premium decreases;
- Seven policies included claims related increases and were excluded from the sampling.
Public Opinion
The IBAO conducted a scientific province-wide poll on credit scoring:
- 75% of Ontarians were not aware that insurers were using credit scores to price their home insurance
- 76% were in favour of extending the ban on auto insurance to home insurance
