Right now in Ontario, an auto insurance company can't use your credit score to determine your premiums. But that may be about to change. The budget tabled earlier this month promised many auto insurance reforms, including giving consumers the option to share credit history in exchange for what might be lower premiums.
How that might play out has yet to be seen. It does signal a pretty big change for the province. Credit scores are often used to rate home insurance in Ontario, but their use in auto coverage is forbidden. Since those two coverages are often sold together, many consumers may be confused about what an insurer is checking to underwrite what policy.
The use of credit scores in the insurance industry is the source of some controversy. While insurers say it helps them to judge risk, those who sell policies say it can make things harder on people in a vulnerable financial state.
Why Do Insurers Want to See Credit Scores?
It may seem a little odd that insurers would want access to credit scores. After all, auto coverage is not a credit card. But some feel that a good credit score equates to taking better care of things. A consumer with a higher score might be a safer driver, stay up-to-date with repairs, and do regular home maintenance. Those activities reduce the chance a driver will be in an accident or that a homeowner might put a claim in on a policy.
How Does the Industry Feel?
Industry stakeholders seem to have a diverse range of views on the use of credit scoring. Insurers claim it helps them to price coverage appropriate to the risk. However, back in 2012, the Insurance Brokers Association of Ontario called on the government to ban the use of scores even in personal property insurance. At that time, the IBAO noted the use of credit scores affected those least able to afford it.
In response to the 2019 budget, the IBAO said in a release that it looks forward to "better understanding how credit scoring will be implemented from a practical perspective, ensuring that those most vulnerable in our society remain protected."
The Insurance Bureau of Canada called the new budget "a win for drivers," without directly mentioning the issue of credit scores. The IBC has no policy on the use of credit scores in home or auto insurance, but has a voluntary Code of Conduct on the issue. According to the IBC, 85 percent of insurers across Canada comply with the Code, which emphasizes transparency in how they use credit information.
Is Ontario Alone in Banning the Practice?
Newfoundland and Labrador also ban the use of credit scores. In other provinces, however, credit is a factor when it comes to your options for an insurance policy. That's the case in Quebec. According to CAA-Quebec, the insurer can only gain access to a credit score and not a full credit report. Consumers can refuse to give a company access, and they cannot be refused a quote on that basis. However, they may not get the lowest premium.
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