Canadian Underwriter

Your Client’s Credit Score

June 18, 2010   by By Stefan Dubowski

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So far, Cathy Rollo hasn’t had to talk to any of her customers about the impact of credit scores on their insurance policies. But the president of Winnipeg Insurance Brokers Ltd. notes that these are early days; and in time, she and her staff members might face some awkward conversations.

You have to be careful, she says. “If that person doesn’t have a good credit score, they might be offended.” If the broker asks if the carrier can use the customer’s credit score to help determine the policy price, and the customer says no, that could be sticky,” says Rollo. The client may feel embarrassed, says Rollo, or indignant. Either way, they’re being asked to disclose information they didn’t have to before.

With more and more carriers using credit scores to help assess risk and support underwriting policies, brokers and customer service representatives might have to reassess their own business practices.

According to industry insiders, it’s increasingly important to mind the customer’s needs. It’s also a good idea to get a handle on just what credit scores are, and how to deal with them.

Focus on the Customer
Some say carriers shouldn’t use credit scores. Others say credit scores are excellent risk assessment tools. Regardless of what side you stand on in the credit score debate, front-line representatives have to focus on the client.

That starts with discussion about price versus coverage. While there is no doubt that credit scores can impact policy prices, brokers and agents need to re-focus the conversation; price has never been the only factor in the insurance purchase decision, and in this new credit scoring era, that doesn’t change.

“I had a customer who had an $800 premium with one company, a $600 premium with another company, and a $400 premium with another company,” Rollo says. “I thought, ‘There’s got to be something wrong here…’ You have to look at it. Is the coverage just as good? Maybe the $400 price included a ton of discounts that the $800 company didn’t offer…. You’ve got to check. The coverage is the most important thing.”

Also, brokers should remember that not all carriers use credit scores; so: “If the best price comes from a company that doesn’t use credit scores, then we don’t need to have the conversation,” Rollo says.

For those competing on price, be mindful that a cheaper price doesn’t negate the need to advocate for your client. Agents and brokers should investigate further to determine what is prompting higher or lower quotes for the same customer. There may be times when injecting the customer’s good credit score into the system will result in a further discount.

But that’s counterintuitive, says Rollo. “If a company is already $80 cheaper,” Rollo says. “Why would I bother the customer about the credit score when I can already write it for less?”

Getting a Grip on Credit
As head of Expert Mortgages-Victoria Ltd. in B.C., Allyson Foulis has to consider customer credit scores on a regular basis and has plenty of experience with those credit-score conversations.

Asked how she discusses credit scores with clients, Foulis highlights three main points:

  • Understand how credit scores work. Credit bureau computers factor in a number of lifestyle choices; for example, how often a person moves can impact their credit score. “When I was working for the bank, I was transferred every couple of years,” Foulis says. “I had a lower credit score–not a bad credit score–but lower than I do now…. To the computer, I looked transient.”
  • Avoid temptation. “A really bad one is being over limit,” she says, adding that some credit-giving retail stores won’t mention it to customers. “They’ll give you a $500 credit. Then you go in to buy something major. They allow you to do it, but they don’t show your credit as now being $1,000. They show your credit as $500, but you’re now at $1,000. The computer says, ‘This person is over limit.'” That can hurt your credit score, says Foulis.
  • Don’t lie. “It drives me crazy when people say, ‘I have fantastic credit,’ and the report comes back and they’ve got R9s on everything,” Foulis says. R9 is the worst rating a credit bureau can report–it means you never pay and, as far as the lender’s concerned, the loan’s worthless. “Tell me the truth and I’ll help you out if I can,” Foulis says.

Settling Up
Lorne Perry is the president of the Insurance Brokers Association of B.C. (IBABC) and a partner in Port Moody Insurance Services. He explains that front-line insurance workers in this province aren’t allowed to sell policies until customers settle provincial debts, such as outstanding toll bridge fees and payments that the customer owes to child or spousal support programs.

As embarrassing as it might be to talk to clients about these potentially personal issues, it isn’t all that bad, because of the way the system works, says Perry.

“We’ve done our best not to have those conversations,” Perry says, explaining that the provincial insurance provider usually informs people about the situation well before brokers get involved. “ICBC does an excellent job dealing with it before it becomes a [front-line] issue.”

Perry hasn’t been forced to consider the credit score issue on a face-to-face basis, but from the IBABC’s point of view, it is a concern.

“We don’t feel that credit scoring should be part of the underwriting process,” Perry says.

Randy Carroll, CEO, Insurance Brokers Association of Ontario (IBAO), agrees. His organization has been calling for a complete ban on credit scores in property and auto policies. He suggests that concerned consumers contact members of provincial parliaments and legislative assemblies.

“The majority of MPPs we talk to say, ‘Wow, I had no idea’ credit scores had anything to do with insurance,” Carroll says.

Frank Conversations
How can brokers conduct their business in this unsettled milieu? One of the most important things a broker can do is consider carriers that don’t use credit scores.

It’s one thing to have to tell a customer his rate has been impacted by his credit score, says Carroll; it’s another thing to say the same thing but then follow up with different options.

In the worst case, brokers should get ready to dodge the customer’s anger. “You need to be prepared to say, ‘No, I wasn’t aware that they were going to use your credit score,'” Carroll says, pointing out that although the rules around disclosure may be in place, not every insurer adheres to regulations.

Brokers should also consider contacting the Privacy Commissioner of Canada. “It’s a federal issue,” Carroll says.

On the Provincial Ground
Yet, the credit score debate happens at the provincial level. In Ontario, the government is moving ahead with new regulations, making it clear that carriers are not allowed to employ credit scores in auto insurance quotes and prices. The new rules are slated to come into effect in September 2010. In New Brunswick, the government has banned the use of credit scores in both home and auto policies.

Rollo, from Winnipeg Insurance Brokers, says she sees both sides.

“As a consumer, I panic, and I have a really good credit score!” she says. “As a broker, I say, ‘You know what, if we can explain it to the customer in a way that the customer can understand… that could be a good thing.'”

Credit Score Tips for Brokers and Service Reps

1. Understand how credit scores work and how carriers use them.

2. Don’t get stuck on prices — they’re still not the end-all and be-all.

3. Buddy up with the experts. Do you know a mortgage broker? Form a partnership.

4. Work the system: Tell the government your point of view.

5. Have alternative carriers at the ready.

© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the April 2010 edition of Canadian Insurance Top Broker magazine.

This story was originally published by Canadian Insurance Top Broker.