Canadian Underwriter

CCIR seeks input on seven potential risks associated with insurers’ use of credit scoring

June 17, 2011   by Canadian Underwriter

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The Canadian Council of Insurance Regulators (CCIR) is seeking further discussion about seven potential risks to consumers identified in a CCIR paper on the use of credit scores by insurers.
“The CCIR would like to engage stakeholders in a discussion on the types of consumer harms or potential risks that may arise as a result of the use of credit-based insurance scores,” the CCIR says in its June 2011 issues paper.
The CCIR said the purpose of its paper is to be neutral, and therefore it does not comment on the correlation of credit scores and the filing of insurance claims, nor does it comment on the question of whether or not to ban the use of credit scores.
“It is up to policymakers in each jurisdiction to determine, based on their unique political and public policy objectives, their level of tolerance in relation to the risks identified, and whether or not specific restrictions or prohibitions are required so that the regulatory goals of fair treatment of consumers and compliance with laws can be met,” the CCIR says in its paper.
The CCIR said it is issuing its paper because it wants to hear from stakeholders about whether its list of identified risks is complete; whether the identified risks do in fact represent a potential harm to consumers; and whether current law addresses some of the risks already.
The seven potential risks identified in the CCIR paper are:
•Inadequate consent: “Consumers may not know they have given permission to an insurer to use their credit information or a credit score for determining a consumer’s eligibility for insurance and the premium to be charged.”
•Unreliable credit data: “The underlying credit data from which the credit-based insurance score is derived may be unreliable.”
•Availability and affordability of insurance: “Insurance may be unavailable or no longer affordable due to credit-based insurance scores.”
•Insufficient disclosure: “Consumers may not have sufficient information about how to modify their behaviour in order [to] reduce insurance costs.”
•Undue impact on certain groups: “Insurers may unduly penalize consumers who refuse to provide consent, or who do not have a credit history, or whose credit score has been negatively affected by extraordinary life circumstances.”
•Privacy breaches: “Insurers may breach confidential credit information.”
•Lack of understanding: “Consumers may not be sufficiently educated regarding credit-based insurance scores.”

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