More Credit Score Misuse

Y'all know how much I hate the credit scoring system. I think it's a travesty that it's being used for things it should not. And I think it's only going to get worse over time as our lenders (and other financial gate-keepers) get lazier and turn more often to the score. When Liane Wood sent me this article she wrote, I asked her for permission to use it as a Guest Blog. Read it. Take your time to digest it. If you're as appalled as I am, don't just shake your head. Do something.

Most people don't know what their credit score is.  And according to a poll conducted by MRP Market Research Professionals in November 2010, 75% of insurance consumers are unaware that credit score is used to determine how much premium a person pays for home insurance.

How does the use of credit scoring affect premiums?  Well, the Insurance Broker's Association of Ontario (IBAO) recently sampled 54 property renewal policies from one insurance company known to use credit scoring aggressively.  Of those 54 policies, the average premium increase was 73%, the largest premium increase was 155% or $762 annually, the smallest increase was 11% (interesting that they noted no premium decreases) and 7 policies included claims related increases and were excluded from the sampling.

The use of credit scoring as a factor for determining premium adversely affects those who use lines of credit such as single income families, seniors, newcomers to Canada, the unemployed and small business owners.

In 2005, the Ontario government banned the use of credit scoring in auto insurance and further strengthened that position in 2010 by banning the practice entirely at every stage of the auto insurance transaction.

Additionally, the provinces of New Brunswick & Newfoundland have announced that they intend to ban the use of credit scoring from personal property insurance.

Considering all of this, one would think that if the Ontario government feels it is not right to use credit scoring in auto insurance then it should not be allowed in personal property insurance.  Thinking about the number of people who take advantage of package policies and extra discounts for combining home and auto insurance together, the question becomes: if the use of credit scoring is allowed on personal property insurance, is it even possible to prevent that information from being available or used on auto insurance when both lines are with the same insurance company?  Personally, I don't think it is possible.  To have the use of credit scoring prohibited in auto insurance makes it necessary to be prohibited in personal property insurance.

This past November 2010, Liberal Member of Provincial Parliament, Mike Colle, introduced his private member's Bill 130: The Homeowners Insurance Credit Scoring Ban Act, 2010.  This bill bans the use of credit scoring on personal property insurance, something a growing number of insurance companies are already doing.

In an effort to support Bill 130, the Insurance Brokers Association of Ontario launched a new website: www.soaringinsurancerates.ca on May 16, 2011.  Through this website, insurance brokers across Ontario are encouraging members of the public to contact their local MPP's by using an online form to get the message to all MPP's that the use of credit score on personal property insurance needs to be banned just as it already is on auto insurance.

The use of credit scoring in insurance has nothing to do with the insured risk.  This is something the government has already recognized in auto insurance because a person's credit score is not related to accident records or tickets.  The government recognized that the use of credit score in auto insurance was unfair and not in the public's interest.  It's now time for the government to support the precedent that was set with auto insurance by extending the ban for the use of credit scoring to personal property insurance.

For more information on Bill 130, the use of credit score in personal property insurance and to contact your MPP regarding this issue, visit www.soaringinsurancerates.ca.

————

Kat, you won yesterday and I've sent you email to MrsJanuary.

Today is Day Two of the giveaway of Casssie Howard's (MrsJanuary.com) Money In Your Pocket, which focuses on saving money on your grocery bills. To enter, answer the question of the day in the comments. Today's question: What really ticks you off when it comes to the financial companies you deal with?

Share this on Facebook


Share this on del.icio.us


Digg this!


Share this on LinkedIn


Stumble upon something good? Share it on StumbleUpon


Tweet This!


Subscribe to the comments for this post?


Email this to a friend?