Sight Unseen

The Canadian Council of Insurance Regulators (CCIR) released the results of their survey on the use of credit-based insurance scoring (CBIS) in November 2009. Among its findings, the survey confirmed the use of CBIS is not only widespread, but the majority of carriers using this information are not disclosing its impact to the policyholders. These and other findings within this study outline many of the latent risks that are associated with the practice of credit scoring in property and casualty insurance.

In their findings, the CCIR survey reported that of the carriers that responded, 19 (representing 55% of the property insurance markets in Ontario) currently use credit scoring in the qualification, rating or underwriting practices for personal property insurance. The survey also confirmed that the list of carriers using CBIS’s is growing: six companies representing a further 6% of the market advised they intended to begin using CBIS sometime during the next three years.

The Insurance Brokers Association of Ontario (IBAO) continues to receive an increasing number of calls from brokers advising of new carriers adopting a credit-based approach to underwriting, creating endless efficiency challenges in serving their existing clients. We have also heard from confused consumers who are receiving renewal increases in excess of 100% with no corresponding change in risk.

When one reviews the results of this survey, it is apparent that if you asked consumers on the street, most would have no way of knowing what impact this practice has on their premium. The survey results show that despite the fact that 79% of respondents currently disclose information about discounts and surcharges on their policies, only one actually displays resultant surcharges or discounts arising out of a consumer’s CBIS.

IBAO’s position on the use of credit scoring in personal lines insurance is well documented, and I do not intend to regurgitate all of the points from a social or operational standpoint. I would, however, like to offer from a practical standpoint how you as an independent broker professional, to whom consumers look for trusted advice, would advise your clients based on the CCIR’s survey results. How would you explain to your client why their credit information has been used, yet no one felt it necessary to advise the client of the impact the credit score had on his or her premium? From the standpoint of some insurers, the answer seems to be easy: don’t tell them. From the standpoint of other insurers, the answer seems to be to download the obligation onto the broker community.

In an industry that has suffered a longstanding image problem steeped in consumer mistrust, these kinds of scenarios continually reinforce a negative perception among a constituency that already finds trusting us difficult. For years, we have tried to outline the benefits of dealing with a broker and outline the differences between brokers and insurers. At all times our key message has emphasized the importance of our independence and how this independence allows us to be their advocate and work on their behalf. I would argue that if we play an active part in the credit game, it would severely compromise our position as the independent advocate for the consumer.

Although the CCIR’s report is not as extensive as studies that we have seen out of the United States, we are very encouraged that the Financial Services Commission of Ontario (FSCO) and the CCIR conducted this study: it is the only Canadian study on the subject of which we are aware. We believe the government is now armed with appropriate data to make a decision about how to protect consumers from an obvious risk arising out of a lack of awareness, but also act responsibly to build confidence in the industry and its regulatory bodies.

We continue to try to wrap our head around ways in which we could best address this problem. We have been engaged in conversations with insurers, both for and against the use of credit. We have also been engaged in discussions with government across all party lines. In all instances, we have heard a full range of suggestions — including widening the use of credit, defining a fair use and an outright ban.

As an association representing individuals in an industry that is already heavily regulated, it is never our goal to ask for more regulation. However, given what we have witnessed over the past nine months, in addition to the results revealed in the CCIR’s survey, it is clear that insurers are not handling this information in a manner that displays responsibility, fairness or accountability. What we have seen, and what the CCIR report reveals, will in no way promote consumer confidence, nor will it give consumers a sense that they or their information are adequately protected. Given the frequency with which brokers are advising IBAO that this process is displacing their customers, and also taking into consideration how aggressive some insurers have been about the use of credit scoring, we are left with no choice but to continue to push for a ban on the use of credit scoring.

Affordability and availability of insurance should not be a social issue. Consumers deserve better. And we as a group of independent broker professionals should show by way of example how the consumers’ interests are truly our top priority.

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We believe the government is now armed with appropriate data to make a decision about how to protect consumers from an obvious risk arising out of a lack of awareness about credit use.