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Everyone in the insurance industry – including the broker sales force – has a role to play in educating consumers about the use of credit scoring: IBC


April 5, 2012   by Canadian Underwriter


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Everyone in the insurance industry, including the broker workforce, has a role to play in educating consumers about the use of insurance-based credit scores, the Insurance Bureau of Canada (IBC) said on Apr. 4.

The IBC was responding to a press conference held on the same day in Toronto. At the press conference, Ontario’s broker association called for a ban on the use of credit scoring in homeowner lines. (The province already prohibits the use of credit scoring in auto lines.)

The IBC has a voluntary Code of Conduct in place related to the use of credit scoring for underwriting purposes. One of its many tenets includes the principle that an insurer cannot refuse to issue a quote or terminate a policy if a customer refuses consent to the give the insurer information about his or her credit score.

Insurers note that credit scores correlate strongly with a person’s risk of making a claim. Even so, not all insurer members of the IBC use credit scoring.

“From an industry perspective, we would expect, because the Code of Conduct calls for transparency and consumer education, that the brokers recognize a role in educating consumers on all of the risk or underwriting factors that the companies may use, including credit,” says Pete Karageorgos, IBC’s manager of consumer and industry relations.

“From an insurance consumer’s perspective, I would be looking to my broker to provide me with that information: ‘Here’s the application for the policy. There is a process whereby the insurer will underwrite this policy. And, by the way, this company requires authorization because they use insurance based credit scoring.’ So an authorization has to be given at that point of sale from the consumer.”

Karageorgos spoke following a press conference held by the Insurance Brokers Association of Ontario (IBAO) in Toronto on Apr. 4. At the press conference, IBAO released results of its own poll testing consumers’ knowledge about the insurers’ use of credit scoring for the purpose of underwriting home insurance in Ontario.

IBAO stated that because consumers continue to know little about the insurers’ use of credit scoring, the IBC’s voluntary Code of Conduct on credit scoring — which calls for transparency about its use — isn’t working.

But the IBC says brokers have a role to play in the consumer’s education. Also, the IBC notes, competition can help provide a solution for consumers without the need for a regulatory ban.

“Yes, there are companies out there that use credit-based scoring, and there are companies out there that do not insurance-based credit scoring,” Karageorgos says. “So hopefully brokers, when they are talking to customers, would look at and understand which of the companies they are representing do and do not use insurance-based credit scoring. Because if I am a consumer and I say, ‘Well I don’t feel comfortable giving this authorization — I just want insurance, I don’t want a credit card, and I’m not applying for a mortgage or a car loan,’ the broker should be able to say, “Well, okay. Then we are going to have to place your business with these other companies that don’t use credit.’

“The onus is on all the parties involved in the transaction, including insurers, through the code, and through the direction they are giving to their sales forces. That has to translate further down the line, from the frontline [brokers] to consumers. Brokers have a role in educating consumers.”


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