Voluntary code on credit scoring not working: IBAO

The use of credit scoring for personal property insurance continues to result in consumer misunderstanding and unfairness in the marketplace, Ontario’s broker association said at an Apr. 4 press conference in Toronto.

In a poll commissioned by the Insurance Brokers Association of Ontario (IBAO) in February 2012, 78% of Ontarians were not aware insurers were using credit scores for their home insurance. Seventy-four per cent were in favour of banning the practice.

The results were similar to a survey IBAO conducted in November 2010.

“Clearly, insurers cannot be counted on to inform and protect customers on the matter of credit scoring,” says Rick Orr, IBAO president. “That is why the Ontario government must step in and ban this practice that is hurting consumers.”

Insurance Bureau of Canada (IBC) released a voluntary code of conduct for its member companies in January 2010. The code outlines several steps insurers should take when using credit scores, including obtaining prior consent from consumers and disclosing to customers when credit scores result in adverse action.

Orr calls the code “not worth the paper it is written on. It has been two years since the code was introduced and it is a complete failure,” he adds. “It is frustrating for us because IBC officially states it has no position on credit scoring, but it continues to defend a code that is simply not working.“

IBAO’s poll also showed 81% of Ontario residents want their MPPs to ban the use of credit scores in home insurance. “We are getting a lot of support from all three political parties, so it is confusing as to why the Ontario Minister of Finance is not moving more quickly on this,” Orr says. “We think Ontario should be a leader on this, not a follower.”

In 2005, the Ontario government ruled against the use of credit scores in auto insurance. Newfoundland also prohibited credit scoring in property and auto insurance in 2011. In December 2011, New Brunswick’s department of justice posted draft regulations for public consultation that would ban credit scoring in residential property and auto insurance lines.

The Canadian Council of Insurance Regulators (CCIR) published a paper in June 2011 requesting submissions on the risks inherent in credit scoring. Several insurers defend the practice as a legitimate risk classification tool when used with other underwriting criteria.