Ontario regulator reminds insurers of prohibition on use of credit scoring for determining auto rates

Ontario’s insurance regulator, the Financial Services Commission of Ontario (FSCO), has issued a reminder to the province’s insurers that the use of credit scoring for the purpose of auto insurance quoting and underwriting is prohibited by law.
It is also considering revisions to the OAF 1, in which a consumer gives consent to an insurer to collect personal information, and expects to release a new version of this form later in the year. “This version will include new consent language to further clarify the purposes for which personal information may be collected and used by insurance companies,” FSCO states in a recent bulletin, posted online.
“Insurers should take appropriate action to implement any changes to their procedures that are necessary to conform to this bulletin,” FSCO says. “Failure to do so will result in FSCO taking action as necessary.”
Following media reports and presentations made to the regulator by the Insurance Brokers Association of Ontario (IBAO), FSCO says it has “received inquiries and complaints that suggest some consumers are experiencing difficulties in obtaining quotes for automobile insurance or delays in obtaining coverage because some insurers are requiring credit or lifestyle information before providing a quote, or are relying on credit or lifestyle information in determining how to process quote requests and insurance applications.”
In its bulletin, FSCO notes Ontario Regulation 664 “was amended in February 2005 to add certain financial information and other ‘lifestyle’ factors to the existing list of underwriting and risk classification criteria that are expressly prohibited.
“This includes factors based on credit history and credit rating in addition to other factors such as residence history, occupation, profession or employment status and level of income. None of these factors or surrogates for them is considered acceptable as underwriting or risk classification criteria.”
The bulletin goes on to note that insurers’ collection of personal information must conform to existing legislation including the federal Personal Information Protection and Electronic Documents Act (PIPEDA).
Principle 4.3.3 of PIPEDA states: “An organization shall not, as a condition of the supply of a product or service, require an individual to consent to the collection, use or disclosure of information beyond that required to fulfill the explicitly specified, and legitimate purposes.”
Once a consumer moves past the quote stage and expresses a desire to purchase an insurance policy, an insurer may seek consent from an applicant to collect and use credit information in accordance with the terms of the consumer’s consent as set out in Part 11 of the OAF 1.
“However, as expressly provided in the OAF 1, this information must be used only for purposes permitted by law,” the FSCO bulletin notes. “For example, to determine if an applicant has been cancelled in the past for non-payment of automobile insurance premiums, [or] if the insurer has an approved underwriting rule or risk classification element that is based on prior cancellation for non-payment of automobile insurance premiums.”