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IBAO says IBC credit scoring principles “create a false sense of security”


February 10, 2010   by Canadian Underwriter


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The Insurance Brokers Association of Ontario (IBAO) says the Insurance Bureau of Canada (IBC)’s voluntary Code of Conduct for Insurers’ Use of Credit Information, posted online in late January 2010, “will do little but create a false sense of security to the regulator and the consumers.”
IBAO president Bryan Yetman said the IBC’s document, which contains guidelines for insurers on how to use credit-scoring for quoting or underwriting, “is not at all reflective of how credit is currently being used in the marketplace today and is therefore very misleading.”
The IBC’s code of conduct contains 10 general principles.
Yetman pointed to at least four principles in the IBC code that he says do not accurately depict the way credit is currently being. In particular, he points to the 10th guideline, which would cause insurers to cease using credit to underwrite the risks of policyholders experiencing extraordinary life circumstances.
These would include a job loss, a disaster, a divorce, identity theft or the death of a spouse, child or parent, to name a few.
“We know from past experience that, if anything, those people have been most affected by the use of credit,” Yetman says. “And to our knowledge, there is no market out there that is employing or embracing such exceptions to those rules.
“By making this statement, when it’s not reflective of anything taking place in the marketplace today, I think the Canadian Council of Insurance Regulators (CCIR) can easily be misled to become more comfortable with the [credit-scoring] process.”
Yetman said the IBAO would not support the CCIR enforcing the IBC’s principles, since the association does not believe credit should be used as an underwriting tool at all. Even so, Yetman said the voluntary nature of the code was problematic.
“In the past, IBC has developed voluntary codes of conduct and, because they are voluntary, there is no guarantee that members will adhere to them nor any consequence if they do not.”


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