A recent findings report on the use of credit scores to help determine insurance premiums in Ontario suggests that transparency in providing information to policyholders should be the primary concern for insurers who use the controversial tool.
In mid-December, the Office of the Privacy Commissioner of Canada reported its findings on a complaint launched in 2009 by an Ontario couple. The pair saw their home insurance premiums rise significantly from one year to the next and suggested that the use of their credit information by their insurance company was unjustified.
Read the full findings report here.
The OPC did find that “a reasonable person would consider the purpose of the collection and use of credit information in this particular circumstance to be appropriate.”
However, the transparency on how the information is used and how policyholders were informed by the insurer (unnamed in the report) were the larger issues.
The Ontario Consumer Reporting Act does allow for credit information to be disclosed for underwriting purposes, but the OPC stated that its concern lies with transparency, and most consumers being unaware about how their information is used.
“With regards to openness, we found that there was a lack of available and sufficient information regarding the company’s use of statistical score and credit score information,” the OPC stated in its report.
Related story: Draft PEI regulations, if enacted, would prohibit credit scoring
The OPC found the insurer’s application language to be too general. “An applicant reading that provision would not easily be able to infer that their credit agency credit score will be used to determine their policy premiums on an ongoing basis,” it noted.
The commissioner’s office also found information included in the company’s renewal notice to be misleading. “...we consider the notice misleading since it states that the company ‘… may [italics added] use the score as one of the rating factors to determine …premiums’. In fact, the company advised our Office that it obtains a statistical score at the first renewal of all policyholders in Ontario,” it stated.
The Insurance Bureau of Canada’s voluntary code of conduct also lays out instructions for obtaining consent, which the OPC says the insurance company in this situation failed to follow.
In earlier stages of its look at the complaint, the OPC had recommended the insurer change wording in its application form, inform its current policyholders about the use of their credit information, and update its website to explain the use of credit information more clearly.
The insurer did make changes to its website and notify policyholders, but application wording was a bigger barrier, since it is consistent with standards from the Centre for Study of Insurance Operations (CSIO). In the complaint situation, wording was based on the 2003 CSIO form, which is no longer in use, a CSIO spokesperson told Canadian Underwriter. "The current consent clause in our habitational form is much more explicit and transparent to the consumer on the uses of credit," CSIO says.
The Insurance Brokers Association of Ontario (IBAO), which encouraged the couple in the complaint case to raise their issues with their insurer back in 2009, said in a statement Thursday that it’s pleased by the OPC findings.
"We are extremely pleased with this significant finding, as it supports what we have been saying for years," Randy Carroll, IBAO’s CEO noted. "Consumers are not being protected under the current regulations, and we need the Ontario government to take action to ban the use of credit scoring in insurance.”
The credit scoring issue has been a controversial topic in Ontario. The practice is no longer allowed in some provinces, and some groups, including IBAO, have been lobbying for several years to have it banned in Ontario. The association argues that the practice of using credit information without meaningful consent is common industry-wide, and should be banned to protect consumers. Insurers, however, have argued that credit scoring is a useful tool in determining risk.
Last November, a working group from the Canadian Council of Insurance Regulators (CCIR) failed to reach any conclusion on the issue, stating that it was a government issue and to reach any definitive solution would require work beyond its own scope.
While the complaint from the Ontario couple has been conditionally resolved, the OPC stated that it plans to monitor the insurer’s practices going forward to ensure its recommendations were taken seriously.