Canadian Underwriter

Regulator allows Co-operators to use credit score for rating auto

February 9, 2021   by David Gambrill

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Following in Aviva Canada’s footsteps, Co-operators General Insurance Company has received approval from the Nova Scotia auto insurance regulator to use credit scoring as a rating factor to help price auto insurance rates for private passenger vehicles.

“The company proposed a new rating variable, Insurance Score, based on credit information obtained with the client’s consent,” the Nova Scotia Utility and Review Board noted in its decision to approve the Insurance Score, released Feb. 5. “Co-operators proposed differentials for this variable that would apply to bodily injury, property damage-tort, direct compensation property damage (DCPD), accident benefits, collision, comprehensive, and specified perils. Co-operators off-balanced the expected impact of the proposed rating variable to make it revenue neutral.”

The “off-balancing,” the regulator notes, will have the impact of “significant increases to base rates for some coverages,” even though Co-operators adjusted its proposed differentials to produce lower discounts than indicated in its actuarial analysis.

“This is similar to other cases where the use of credit information has been allowed and, although it tends to shift premiums from clients with the better credit ratings to clients with poorer ones, this is a result of an actuarial analysis that showed credit ratings can have a significant impact on Co-operators’ loss costs,” the Nova Scotia regulator wrote upon approving the use of the Insurance Score.

The Nova Scotia regulator noted that there is no specific provision in the province’s rules or regulations that preclude the insurers’ use of credit scoring for pricing auto insurance. The regulator’s decision also acknowledges the reality that once some insurers start using credit scores in the province, others will want to follow suit.

“Co-operators…noted several competitors had introduced credit information in their rating algorithms, and said it wanted to avoid being put at a competitive disadvantage,” the regulator observed in its decision.

“The company said individuals with poorer credit might decide to insure with Co-operators, while better credit risks, who should have lower claims experience, might seek out insurers who use credit information to offer discounts. Co-operators said if it attracted more of the poorer risks, its claims experience could deteriorate.”

Credit scoring has been a controversial method of rating risk. In some Canadian jurisdictions, the practice is banned for the purpose of determining auto insurance rates.

Insurers generally argue that there is a statistical correlation between clients who have good credit scores and those who are less likely to make an insurance claim. Some have argued that those who exercise care with their credit are also more likely to exercise care about looking after their property, maintaining their property in a state of good repair, etc.

Brokers, on the other hand, have historically called for bans on credit scoring, arguing that the rating process is not transparent to consumers. They have also expressed concern about insurers using credit scores in a discriminatory fashion — for example, offering auto insurance only to those in a certain tier of income, or if the person has a job, or denying a quote if the consumer does not consent to the use of a credit score.

Since then, the Insurance Bureau of Canada created a voluntary code of ethics around credit score use. The Nova Scotia regulator noted that Co-operators agreed to abide by IBC’s code of conduct.

In particular, the regulator noted that Co-operators would:

  • Ask each client to consent to the use of the client’s credit information to rate auto insurance. The company would ask auto insurance clients for consent, even if the clients already allowed the company to access credit information for property insurance in Nova Scotia.
  • Stop using credit scoring when the client revoked consent. Those who revoked consent would still be able to get insurance, but would not receive a discount related to the use of the insurance score.
  • Treat the Co-operators credit query as a “soft query,” which means the query would not affect the credit score of the client.
  • Protect the client’s privacy by only showing the Insurance Score segment and not the client’s actual credit score. Only employees whose job requires them to access the credit score would be able to do so.


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12 Comments » for Regulator allows Co-operators to use credit score for rating auto
  1. Harry says:

    Another intrusion into the privacy rights of people.
    At a certain point these insurers will amend their underwriting practices to refuse coverage to any applicant or existing client who will not consent to the release of their credit information.

    • Heather says:

      I agree, it is just one more way of the government letting the insurance companies reap more profit by giving us less for more money and then charging a premium for the basics that were always included before.

  2. Frank says:

    Credit scoring penalizes lower income people or people who have gone through economic trauma such as divorce, bankruptcies, consumer proposals, etc with higher insurance rates. Since when were discriminatory practices okay? What’s next actuaries can find a numerical correlation to support anything. Will hair colour be used next?

    • Res Ispa Loquitur says:

      Good point

    • Scott says:

      I strongly agree with this statement. There are so many things in the world that cause people with less money to pay more.
      If you have a bank account you have to pay monthly fees if you don’t maintain the banks minimum balance, usually 5 thousand.
      NSF fee if you are living month to month and payments don’t come in or out of your account at the right time.
      If you have a smaller home because of the cost of real estate you can’t get the saving from buying bulk at stores like costco,
      If you don’t have rooming for cooking facilities in your smaller home, you also can’t buy cheaper ingredients you have to buy more pre-made food that is also more expensive.
      You qualify for worse interest rates which cost you to pay more on any loan. This is especially bad with payday loans.
      This is even seen in good likes shoes, if you can afford a more expensive durable good, they will last you longer than if you just have to buy the cheapest thing you can afford that month.
      The whole goal of the insurance industry is to share the risk of property loss over a large group of people so we can help each other out. This burdens poor people with more of the premium. I’m not saying its not statistically valid, but I am saying its possibly immoral. You have to also remember that because of other structural problems in Canada, people are more likely to have less money if they are black, indigenous or, if they have mental health issues, addictions issues, disabilities ect. so the effect of policy’s like this are also targeting the most vulnerable in our society. I don’t think regulators should be allowing us to use credit scores for anything we don’t have to, especially in the case of auto insurance, which is legally mandatory to buy.

  3. Eric says:

    IMF wants your credit score to be based on your internet search history. Coming soon to you, price you out of survival for wrong think.

  4. Chris says:

    I see that the insurance industry is doing it’s best to ensure that poor people become poorer. Great optics guys!

  5. Kal Haikola says:

    Rest assured that this credit score will be used in the claims adjustment process to triage/delay/low-ball the claimants with the lower scores, to
    to break these unfortunates, under the guise of investigating fraud.

  6. Res Ispa Loquitur says:

    “This (issue) has always been controversial,” said Finance Minister Vic Fedeli. “It was left unattended by the Liberals for 15 years and we’re going to take some real action on it.” CBC Jan 10, 2019.
    “When it comes to driving, it is clear that Ontario’s auto insurance is broken, and drivers deserve better,” said Finance Minister Vic Fedeli in his speech to the legislature, where he called the plan “transformative.” CBC April 11, 2019
    “Ford has broken his promise to fix rocketing auto insurance premiums
    NDP MPPs have demanded Doug Ford explain why Ontarians are being forced to pay some of the highest auto insurance premiums in North America, with rates being jacked up every single year. Does the premier think it is acceptable that Gordon is seeing his auto insurance rates go up by 21 per cent in one year? Ford’s Conservative government approved rate increases as high as 11 per cent for this year – despite campaigning on a promise to lower auto insurance rates. “When the Liberals promised to reduce auto insurance rates by 15 per cent and failed – they turned around and called it a ‘stretch goal’. Why is this Conservative government continuing the Liberal’s disastrous record on auto insurance?,” Wawa News

    You just can’t make this stuff up!

  7. ken savignac says:

    what’s next how many teeth
    you have in your head ???

  8. Trevor Townsend says:

    Since credit scores have been proven to correlate to claims experience, this makes sense it is fair to policyholders who simply want to be charged a fair price based on the level of risk in the policy.

  9. Stephen B says:

    I am not surprised IBC allows such practices. Mind you, Banks generate billions of profit from fees, and NSF they are charging low-income customers. Insurance companies, likewise, want one most subjective moral hazard to play to a rating factor, this time the CS. “Actuarial” correlation of income level, thus CS, to claims frequency is rather more of status profiling and discriminatory. Provincial governments must intervene and stop such practices. The auto insurance price is already excessively high and penalizing drivers with low income is unwarranted

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