What's your credit score? Some car insurance companies want to know 

An increasing number of insurance companies in Nova Scotia want to use credit information as a factor in determining how much customers pay for auto insurance, a practice that is not without controversy.

Opponents say it will penalize people who are in a vulnerable financial state through no fault of their own, while those in favour say it could mean a reduction in rates for those with good credit.

In February, Aviva Insurance Company of Canada and Traders General Insurance Company received approval from the Nova Scotia Utility and Review Board to use "credit information" as a factor in determining a customer's premium. The decision doesn't specify whether that information is a credit score or a credit report. 

The decision said both companies already use credit information to rate homeowners policies in Nova Scotia and elsewhere. It said customers cannot be required to provide credit information and cannot be denied insurance if they refuse. However, they "may be able to obtain a better rate if this information is provided," the decision said. 

Insurers can raise premiums

The decision does not prevent insurance companies from raising premiums if a customer refuses a credit check.

Paul Allen, executive director of the UARB, said if some vehicle owners in a certain "pool" of insured agree to credit checks and are given a discount because of a good score/report, others in the pool may be required to make up the shortfall required for the insurance company to reach its return on investment.

He said if insurance companies want to implement a surcharge for those who don't want credit checks, they must apply to the UARB for approval.

Three other insurers in Nova Scotia, all part of the TD Insurance Group, were given permission in 2018 to use credit information in determining auto insurance rates.

Three other insurance companies, Intact, Allstate and Pembridge, have recently asked the UARB to allow them to use credit information as a factor in setting vehicle insurance rates.

"There is a risk if you say, 'No.' There is a risk if you say, 'Yes.' So consumers have to weigh that risk because it translates into how they will be viewed as a risk with that insurance company," according Amanda Dean, vice-president Atlantic of the Insurance Bureau of Canada, which represents insurance companies.

Higher risk of claims

The review board decision said Aviva and Traders believe credit information is "predictive of risk" and the companies provided confidential information that supported their belief. The board found the proposed use of credit information is "not subjective or arbitrary and is reasonably related to the risk assumed by the companies."

However, CARP, which bills itself as Canada's largest advocacy association for older Canadians, disagrees.

"There is no sound basis for relying on credit checks to approve auto insurance coverages for homes or autos," said Bill VanGorder, CARP's Nova Scotia spokesperson.

He said there are many reasons people may have a low credit score that have nothing to do with their honesty or ability to manage their insured properties. He said health is the main reason.

"There are many people with problems in health care who end up spending a lot of money on health care because it's not [all] covered by the government. It could be low-income reasons because they're on a fixed income, which hasn't increased for years. None of those indicate a lack of reliability in a senior," he said.

He worries seniors with reduced credit scores because of those factors will face higher premiums even though they would still "not be a higher risk to the insurers."

Not all insurance companies in Nova Scotia use credit information in setting auto insurance rates, and VanGorder urges seniors faced with a credit check to talk to a broker who will shop around for a company that doesn't require it. 

The use of credit information in determining private auto insurance premiums has been banned in Newfoundland and Labrador since 2011. It is prohibited in Ontario, too, although the Ford government has indicated in this year's budget that it may change.

Alberta prohibits the use of credit information when setting basic auto insurance rates, but allows its use for additional, option coverage such as collision and comprehensive.

In Prince Edward Island, there is nothing in legislation to stop auto insurers from using credit information as long as the customer consents. However, a spokesperson for the Island Regulatory and Appeals Commission, which regulates auto insurance, said it is not aware of any company using credit scores as a rating factor.

In New Brunswick, the government introduced legislation to prevent credit checks back in 2011, but it was never enacted. Marie-Claude Doucet, chair and CEO of the New Brunswick Insurance Board, said in an email that no insurer in the province is currently using credit scores as a risk factor for auto insurance, and none have proposed to do so.

Companies in that province, like many others, have been using credit scores for home insurance.

Concerns about the vulnerable

The Insurance Brokers Association of Ontario issued a statement in February about the possibility of using credit scores in auto policies, noting the use is a source of controversy.

While insurers say it helps them to judge risk because a good credit score indicates someone is more responsible, up to date on repairs and does regular maintenance, reducing the chance of being in an accident, the association has concerns.

"With the use of credit scoring on the auto product, those consumers who are most vulnerable in society could be further disadvantaged," it said, noting the practice could "negatively impact the availability and price offered to those who can least afford insurance in the first place." 

It identified those as people with low or no credit scores, retired seniors, newcomers to Canada, unemployed single income families and small business owners using lines of credit.

Dean, with the Insurance Bureau of Canada, said a number of insurance companies have agreed to follow the organizations's code of conduct on using credit information.

It includes the option of a customer with a low credit score asking their insurer to take "extraordinary life circumstances" into account so the person isn't unduly penalized by a low credit score. It's up to the customer to make the request and provide documentation backing up their claim. The code identifies an extraordinary life event as "identity theft or a catastrophic event as declared by provincial authorities." 

In an interview, Dean cited divorce and illness as other reasons that might temporarily impact a credit score.

In 2010, after insurance companies started using credit information as a factor in determining home insurance premiums, CBC's consumer affairs show Marketplace found several people whose premiums doubled as a result.

At that time, the Co-operators, the largest Canadian-owned insurance agency, said in written correspondence that "credit score is simply a reflection of a person's level of responsibility and behaviour when it comes to managing their financial obligations."

Credit checks can have a negative impact on an individual's credit rating, but Dean said the credit check used by insurance companies is a "soft" one that won't impact someone's credit rating. She was unable to explain what a "soft" check is and instead referred CBC to individual insurance companies to ask the question.

Aviva and Traders approved for hikes

Aviva declined a CBC request and wouldn't answer questions. It said its position is "in line" with that of the Insurance Bureau of Canada. However, the bureau said it cannot speak for individual insurance firms and it does not take a position one way or the other.

In addition to implementing the use of credit information, Nova Scotia's Utility and Review Board has approved an overall increase of 10.5 per cent for Aviva and 14.4 per cent for Traders, and has removed some customer discounts.

There will no longer be a driving training credit for principal operators but it will remain for occasional drivers. A five per cent discount for vehicles equipped with after-market anti-theft devices has been removed.

The Aviva group has also stopped offering a five per cent loyalty discount that applied to people who held a policy for at least three years. In addition, a 10 per cent discount no longer exists for people who bundle their home and auto insurance and who are occasional drivers licensed for fewer than nine years.

Some insurance companies have been offering discounts to those who are driving less because of COVID-19.