Credit scores can hike home insurance rates
Insurance companies say credit scores are a good indicator of risk
Insurance companies across Canada are increasingly turning to credit scores to help assess risk and determine the cost of premiums.
CBC-TV's Marketplace spoke with several people who saw home insurance premiums double after their insurance company began including credit scores as a way to calibrate risk.
Last year, The Co-operators, the largest Canadian-owned insurance agency, adopted the practice, following in the footsteps of several other large insurance companies.
The Co-operators said in written correspondence that credit scores are "one of the most predictive indicators of future claims for property and casualty insurance. As such, it is a logical rating factor for home insurance."
The correspondence goes on to say, "Credit score is simply a reflection of a person's level of responsibility and behaviour when it comes to managing their financial obligations."
But not everyone thinks it's a good idea.
"My question there is, how has the physical risk changed? Has the house changed? Has the roof deteriorated because the person lost their job because they had health issues? Have they had problems within their district in regards to crime rates? Not likely," said Randy Carroll, the CEO of the Insurance Brokers Association of Ontario.
Good scores pay off, say insurers
A credit score is a measure of your financial health, with 300 being the worst and 900 the best. It has traditionally been used by institutions to assess credit risk. Insurance companies argue that people who have strong credit scores will actually benefit.
About 55 per cent of Canada's largest insurers now use credit scoring. And of that segment, 42 per cent did not disclose the practice to customers, according to the Canadian Council of Insurance Regulators.
The Co-operators said it would never deny insurance based on a credit score, and wrote that "without the use of credit score, people with good credit scores — the majority of Canadians — who we know are less likely to have future claims, would be subsidizing those more likely to have claims."
That doesn't make Dave Frederick, a former car-parts employee who lives near Chatham, Ont., feel any better.
Frederick's employment status and a recent bankruptcy had no effect on his insurance premiums until this year, when The Co-operators started including credit scores to assess risk. Frederick saw his home insurance premium nearly double to $73.14 a month from $40.38.
"I've got home insurance in the last five years, never missed a payment there at all. And here I am. I feel like I'm fighting an insurance company that just says, 'Sorry, you know. We know you've never made a claim. We know we've made tons of money off you but we want more,'" said Frederick, who is now training to be a heavy equipment operator.
Kevin Rivard also saw rates spike. While Rivard has a good job with the City of Sudbury, he recently separated from his wife and is now a single father covering a household on one income. The Co-operators said his credit score was a factor in the decision to hike his home insurance rate to $157.74 a month from $78.72.
"I've never had a claim previous or with Co-operators. I've never made a claim in my life. So I don't know why I'm being singled out I guess," said Rivard.
Privacy option expensive
The Co-operators and other insurance companies say they do not force customers to reveal their credit scores, but those who choose to keep the information private may face higher rates as a result.
"If a client chooses not to provide consent to check their credit score, we will honour their request; however, we may not be able to provide the most competitive rate (or premium)," wrote The Co-operators.
Marketplace put it to the test and went shopping online for home insurance at The Co-operator's website. Denying permission to use the credit score resulted in a quote of $3,324, compared with just $1,009 if the box was ticked to give permission.
When Paul Renny, of Oshawa, Ont., went to renew his home insurance with Aviva Canada, the U.K.-based company asked for permission to check his credit rating, saying he could potentially get a discount. Renny, a pilot, who says he has never missed a payment or made a claim in 15 years, said no.
"My exact words were I'll eat the discount. If it's a hundred dollars it's worth the hundred dollars to me to keep my privacy private," said Renny.
And keeping his credit score private did cost him. His home insurance jumped to $850 a year from $650, an increase of just over 32 per cent.
Credit scoring has been banned in Ontario and Alberta for auto insurance, and New Brunswick has become the first province to ban the practice outright for any type of insurance. Ontario is considering a similar move.
Carroll's biggest worry is that credit scoring will have a greater effect on the most vulnerable segment of the population: the unemployed, new immigrants, single parents and small business owners.
"Those that can least afford it will pay more. Those that can afford it because they've got good credit rating will pay less," said Carroll. "We hope it never gets there."