Brains and Brawn

There is an archetypal scene in the movies when a brainy guy and a brawny guy head into a sensitive negotiation with a thoughtful nemesis. Prior to the meeting, the brainy guy, worried that his hot-tempered brawny buddy will muck everything up, says: “Let me handle this.”

Inevitably, however, the nemesis says something that offends the hair-trigger sensibilities of the brawny guy. The brawny guy then goes on a rampage, flipping tables and chairs, and the sensitive negotiations are left in a smoking ruin.

Now imagine the Canadian Council of Insurance Regulators (CCIR), an association of provincial insurance regulators, and the New Brunswick government cast in a movie about the use of credit scoring.

The CCIR is cast here as the brainy guy, who wants to take some time to look at all of the potential intricacies of credit scoring for the purpose of underwriting insurance. In fact, the CCIR is currently discussing the possibility of putting out a consultation paper, which will presumably acknowledge both the pros and the cons of insurers using credit scoring to price risk accurately.

This is a delicate negotiation, because there are cogent reasons both for and against insurers’ use of credit scoring.

New Brunswick, on the other hand, sees no nuance in this debate. It sees a cut-and-dried ban as the only solution. Such a ban would apply across all classes of insurance.

The government’s brawn is demonstrated in the way it has applied a legislative sledgehammer — Bill 43, which bans credit scoring in any underwriting activity — to the credit scoring debate.

Alas, the hair-trigger, brawny approach of the New Brunswick government has made a mockery of any of the CCIR’s more reasoned deliberations in the credit-scoring debate. No matter what might come out of the CCIR’s future proposals about credit scoring, the damage done by the New Brunswick government’s response is tangible.

For one thing, as it stands now, the credit scoring debate reveals the CCIR to be a paper tiger. The CCIR’s recommendations on credit scoring will only be voluntary. The CCIR does not have any statutory authority to impose any of its recommendations on its provincial members.

Secondly, we have yet another example of how difficult it is to harmonize insurance legislation across the country. To wit: now we have New Brunswick, given its hasty proposal of an outright ban, going on what novelist William Gaddis might term ‘A frolic of its own.’ Essentially New Brunswick’s proposed ban, which happened before the CCIR even met at its Spring 2010 meeting to discuss the issue, threatens to undo whatever more subtle approach the CCIR might have deemed appropriate.

New Brunswick’s ham-fisted approach is not doing anyone in the industry any favours.

It’s bad for insurers, because now they face the prospect of having to comply with various different credit-scoring regimes across the country. If the New Brunswick ban takes effect, then unless the CCIR’s recommended approach is to ban credit scoring altogether, there will always be a patchwork quilt of credit scoring regulation across the country. This is maybe the nightmare scenario to befall insurers on this issue.

A disharmonized approach to credit scoring is also bad for brokers, no matter which side of the issue they prefer.

Broker associations that want bans in Ontario and B.C., but don’t get them, will wonder why the same logic in New Brunswick doesn’t apply equally in their respective jurisdictions. This would be a very legitimate question.

As for brokers in New Brunswick who favour credit scoring, they will be left wondering why neighbouring brokers in P.E.I. or Nova Scotia can use credit scoring, but they can’t.

As for the regulators, the movie-style script playing out right now is no way to demonstrate its authority on the issue. Insurers have always been concerned about harmonizing laws across the country, and this is just one more example of the challenge involved in making this happen. Every time the regulators do not act in concert, it strains the relationship between the industry and those regulating it.

The wise approach in this matter would be for New Brunswick to hold back on its brawny approach and wait at least until the CCIR has had a chance to “handle it” — i.e. by trying to negotiate a national consensus on the issue. And if the CCIR fails at the national level, there is nothing stopping the brawny fighter from proceeding with its guns a-blazing.