March 16, 2021 by David Gambrill
Nova Scotia’s insurance regulator has approved RSA Canada’s proposed introduction of a “Quality Rating Factor” (QRF), which uses credit scoring for rating auto insurance.
RSA Canada’s proposed QRF, obtained with the client’s consent, will only apply to writing new auto business, not existing business. The board noted that it has already approved the use of the QRF by Unifund Assurance Company, an RSA subsidiary company, earlier this year (again, for new business, not existing business).
Discounts offered by RSA and Unifund based on the QRF will differ, the board observed.
“RSA’s proposal is similar to Unifund’s,” states the board’s decision, released Mar. 11, 2021. “However, despite the similarities in the rating variables, the discounts offered by Unifund and the proposed discounts for RSA clients differ. The selected discounts reflect differences in the chosen distribution networks and business strategies used by each company.”
Using credit scores to rate auto insurance risk is a controversial topic in the Canadian P&C insurance industry. Insurers cite evidence that high credit scores correlate with better auto insurance risk and fewer claims, while brokers are concerned about the transparency with which insurers are using the credit scores.
In green-lighting the use of auto insurance credit scoring by RSA, the Nova Scotia Utility and Review Board raised an issue with how companies intend to follow the Insurance Bureau of Canada’s voluntary Code of Conduct for Insurers’ Use of Credit Information.
Specifically, the board said, companies must ensure that the consent they receive from their clients to use credit scoring is specific and that a record of that consent must be retained, as per the IBC’s code.
The IBC’s credit scoring code of conduct states the following:
“Consent must be specific and the insurer must not presume consent will be given. Consent may be given verbally, in writing, or via an e-medium. E-medium consent should be a field that the policyholder can click on directly in order to give consent.
“Prior to an agent or broker collecting credit information, the customer consent field (agent’s or broker’s screen) must be clear and explicit for the user. The field must not default to yes.”
Unifund told the board that it intends to follow IBC’s code of conduct when introducing its QRF for new business, and the board is seeking more clarity around transparency.
“The board is concerned [that Unifund’s] proposed approach to obtaining consent to the use of credit information from its existing customers may not adhere to the code’s guidance that consent must be specific (in writing, orally or via an e-medium) and the code’s direction around retaining proof of consent,” the board wrote in Royal & Sun Alliance Insurance Company of Canada (Re).
“As Unifund has not yet proposed to extend the discount to existing customers, the board finds this does not need to be determined at this time. Given its commitment to follow the code, Unifund should be prepared to address this issue when the company applies to extend the discount to existing customers.”
The same goes for RSA, the board added. “The board’s view on this issue has not changed; therefore, the board will also expect RSA to be prepared to address this issue when the company applies to extend the potential discount to existing clients.”
Earlier this year, the board approved The Co-operators’ use of an insurance score that includes a credit score component. In its application to use the QRF, RSA observed that it did not want to be at a competitive disadvantage with other companies in the province approved for credit-scoring use.
Feature image courtesy of iStock.ca/tolgart