Mike's Comments

Oct 19, 2009


Do you know your credit score?

Since the 'credit crisis' of 2008, credit, and the use of credit information has taken a much higher profile in the media. This really is a function of our 'love/hate' relationship with credit - very few of us could by a car or home without it, but it's overuse can lead to disastrous results as we have just experienced..

Many financial transactions involve various types of credit checks, however, many people do not realize that Insurance is one of those transactions. Insurance companies use an individual's credit history as a guage of their overall responsibility and have begun extrapolating that information as a basis for predicting the probability of claims. This is a hotly debated topic, and rightly so in my opinion. It should be noted that there is a possibility that financial regulators may ban its use altogether in the underwriting of Insurance.

Until the situation is clarified, I feel it is important that everyone know that this is going on right now, by all types of Insurance Companies, and it is important that you be informed not only of the practice, but of the source of the information. There are a number of agencies that handle this information, including Equifax (http://www.equifax.com/home/en_ca) and Transunion (http://www.transunion.ca/) where you can get your credit report, make sure it is correct, and also check your credit score. As with any database of information, there is always the opportunity for error, so checking your report will ensure it is accurate, and can also spot any attempts at identity theft.

My opinion on this matter is that 4 things MUST happen for the use of credit to be fair in any insurance transaction:
  1. The consumer must be made aware that it is being used. Our quote authorization forms for auto and habitational insurance now include this factor as something that the companies check when underwriting policies.
  2. The consumer must be made aware of the source of the information (see above) and how they can fix any errors or question the information in the reports. I have had to do this myself and while I wouldn't say it's easy, it can be done.
  3. The consumer must be given the right to refuse to provide authorization to check this information. This is the case right now, but it could lead to higher premiums for any individual who does so - many companies are providing discounts for favourable credit scores so if you refuse, no discount.
  4. A poor credit score should NEVER be used to refuse insurance, particularly auto insurance, since this is a mandatory coverage. There have been allegations that companies are checking this information, finding a poor score and declining to quote individuals. This has rightly captured the interest of the regulators of the industry and any company doing this will be facing stiff penalties.
I am not entirely comfortable with the use of credit in underwriting insurance, however I do have an obligation to inform my clients of this practice. I hope you find this article helpful and I welcome your comments.

Michael Stuart, BBA, FCIP, CRM, CAIB
Grant, Jones & Stuart Insurance Brokers