Credit Score

Does your credit score impact your home and car insurance?

By: John Shmuel on August 29, 2017
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Canadian regulators recently came down hard on an insurance company who accessed a client’s credit score after a claim submission.

The insurer said accessing the credit score of the client, who lives in Ontario, was necessary to ensure the claim wasn’t fraudulent. But there are rules in Canada that protect consumers from just that very thing.

There’s not a lot of clarity around these rules, however. For instance, insurers can access credit scores when it comes to home insurance in some provinces, but not for car insurance. Even if it’s the same insurer.

Your credit score is one of the most important pieces of financial information about you. Understanding how it’s calculated and who uses it is key to keeping your finances in a healthy state.

In an effort to offer some clarity, we dug into the rules and talked to a spokesperson at the Insurance Bureau of Canada to find out how credit scores affect your insurance.

Car insurance and credit scores

Canada has a patchwork system of rules and regulations when it comes to whether insurers can use credit scores when underwriting auto insurance.

In two provinces — Ontario and Newfoundland and Labrador — auto insurers are banned from ever using this information. In Alberta, an insurer must get the consumer’s explicit consent to look at their credit history.

In other provinces, no rules and regulations exist. For some provinces, such as British Columbia and Manitoba, this isn’t a major issue, since auto insurance is provincially regulated.

In others, such as Nova Scotia, consumers should be aware that insurers can use your credit history if they desire.

Steve Kee, director of media and digital communications for the Insurance Bureau of Canada, says the most important thing is for consumers to be aware of the rules and regulations around credit scores and insurance in their home province or territory.

“They need to understand what their rights are and know that they have every right to ask [their insurer if their credit history has been used],” he says.

Home insurance and credit scores

Newfoundland and Labrador is the only province that has outright banned the use of credit history as a metric to determine personal insurance premiums. That includes home insurance.

And while restrictions on credit scores and car insurance exist in Ontario and Alberta, there are no such restrictions on home insurance. Insurers are allowed to use your credit history to determine your premium.

In some cases, this has resulted in a homeowners’ premium doubling after insurers have found out that the policyholder has a poor credit score. Unfortunately, there’s no recourse for when this happens.

Insurance companies have long maintained that there is a strong correlation between credit scores and increased insurance risk. On the other side, critics argue that using credit history is unfairly punishing newcomers to Canada, the poor and the disabled.

Because Canada’s regulations on this differ from province to province, you should ask your insurer whether they are using your credit history to determine your insurance premium. That can help you understand why the price you’re paying may be too high.

If you have bad credit, a solution may be to switch to an auto or home insurer that doesn’t look at credit history.

“It’s important to have dialogues with your insurer,” says Kee of IBC.

Can I get a discount if I do reveal my credit score?

Some insurers give you a discount on your home or insurance if you allow them to view your credit score (in provinces and territories where they’re legally allowed to ask you for it).

SGI Canada, for instance, will potentially offer home insurers a discount if they provide consent to look at the insurance portion of your credit score. This involves pulling a credit score from TransUnion, and looking at the credit-based insurance score.

“Credit-based insurance scores are not used in the same way as traditional credit scores,” says SGI Canada. “While traditional credit scores are used to predict the likelihood that a consumer will default on a loan, credit-based insurance scores are used specifically for insurance purposes to predict the likelihood that an individual will file an insurance claim.”

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