Volume 6 • Number 3
IN THIS ISSUE:
May 2013
CREDIT SCORING AND PRIVACY
Use of Credit-Based Insurance
Scores: Privacy Commissioner
Confirms Reasonable Purpose
John P. Beardwood and
Arun S. Krishnamurti .................... 17
John P. Beardwood
Arun S. Krishnamurti
Partner,
Fasken Martineau DuMoulin LLP
Associate,
Fasken Martineau DuMoulin LLP
Use of Credit-Based Insurance Scores:
Privacy Commissioner Confirms Reasonable
Purpose
A. Introduction
Insurance is a form of risk management that is utilized by consumers
to guard against the risk of loss. However, in order to insure that the
pool of assets is sufficient to cover the losses of all consumers, insurance companies are required to properly assess and manage these
risks. To do this, insurance providers utilize a variety of methods to
determine the eligibility of the customer, decide how much coverage
customers should receive, and determine the cost for such coverage by
identifying the premium that properly relates to the insurance of the
risk. While this process may be self-evident for most readers, it is a
reminder of the importance to insurers of being able to identify and
utilize factors with predictive value.
Volume 6 • Number 3 • CANADIAN INSURANCE REGULATION REPORTER
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Advisory Board:
Jeff Bear, Registered Insurance Brokers of Ontario
Paul Belanger, Blake, Cassels & Graydon LLP
J-P Bernier
Randy Bundus, Insurance Bureau of Canada
Anne Butler, Empire Life
Robert McDowell, Fasken Martineau DuMoulin LLP
Norma Nielson, Haskayne School of Business,
University of Calgary
Bernie Stevenson, Aviva Canada Inc.
Grant Swanson, Financial Services Commission of Ontario
Note: This Reporter solicits manuscripts for consideration by the
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18
One such method of calculating the premiums and
assessing eligibility for a new policy or the renewal
of a policy is through the use of an applicant’s
credit‐based insurance score. While, for the sake of
simplicity, we use the term “credit score” throughout this article, we should note that credit-based
insurance scores are not traditional credit scores in
that they use slightly different considerations in
calculating the final score: the credit-based insurance score is calculated using a mathematical model proprietary to the company doing the calculation.
The use of credit‐based insurance scores in calculating insurance premiums and assessing risk has
emerged as an issue in recent years. Critics argue
that, among the plethora of factors that insurers
consider in assessing risk and calculating eligibility
and premiums, there is something conceptually different about including the credit score of an actual
or potential insured in that menu of factors, which
somehow makes it inappropriate or offensive.
In some ways, it is odd that the use of this factor is
only now becoming the subject of debate. The use
of such scores by an insurer to assess risk or calculate premiums is not a new mechanism and has
been particularly prevalent in the United States. In
Canada, the use of credit information for insurance
is inherent in a number of provincial laws on credit
reports. For example, in Ontario, the use of creditbased insurance scores to determine insurance
premiums, such as for property and casualty, is expressly permitted under the Consumer Reporting
Act.1 Similarly, the British Columbia Business
Practices and Consumer Protection Act2 allows a
reporting agency to disclose credit information
about an individual in a report to a person who, it
has reason to believe, intends to use the report in
connection with underwriting insurance involving
the individual.
CANADIAN INSURANCE REGULATION REPORTER • Volume 6 • Number 3
As for the rest of Canada, with the exception of
Newfoundland and Labrador and to a certain extent
Alberta, Canadian legislation remains silent on
the issue.3 While other provinces, such as Prince
Edward Island, have considered banning insurance
companies from using credit information to set
premiums or assess eligibility, no other such blanket bans have yet been implemented.4 In other
words, based on the current state, legislators appear
to have already made the choice to allow insurers to
use credit scores.
Nevertheless, in a much noted recent finding, the
federal regulator under the Personal Information
Protection and Electronic Documents Act
[PIPEDA]5 had the opportunity to opine on whether
it was reasonable for an insurer to use credit scores.
Her findings on the issue are significant and worthy
of review.
B.
1.
Whether the use of credit-based insurance
scores met the PIPEDA test of reasonableness
in light of the requirement that an organization “may collect, use or disclose personal
information only for purposes that a reasonable person would consider appropriate in the
circumstances.”7
2.
Whether there was meaningful consent obtained from the complainants, and whether
the companies were open about “their policies and practices with respect to the management of personal information.”8
After assessing both of these issues, the Commissioner came to the following pertinent conclusions:
1.
Summary of PIPEDA Report of
Findings #2012-005
In December 2012, the Office of the Privacy
Commissioner (“OPC”) of Canada reviewed a
complaint involving the use of a credit‐based insurance score in calculating the premium to be
charged to the complainants upon renewal of their
policy (the “Complaint”). In the Complaint, the
complainants sought recourse from the OPC after
they saw their home insurance premium increase
significantly upon renewal of their policy. They
alleged that the insurer’s policy of basing premiums
on credit information was not justified and that the
insurer did not have the complainants’ knowledge
and consent for the use of their information for this
purpose.
As outlined in the PIPEDA Report of Findings
#2012-005 (the “Decision”),6 the Commissioner
evaluated the facts of the Complaint against the following specific requirements of PIPEDA:
In brief, in considering whether the company’s collection and use of credit information
for the purpose of calculating risk was appropriate, the Commissioner noted the following:
 Section 8 of the Consumer Reporting Act
(Ontario) expressly allows for the disclosure of credit information for the purpose
of assessing insurance risk.
 The selling of insurance policies requires
the undertaking of a risk analysis, and
therefore, a reasonable person would consider it appropriate that the company
would collect and use statistical scores as
a tool.
The Commissioner also concluded that the allegation that basing premiums on a customer’s
credit information obtained from a credit bureau was not justified was not well founded.
2.
In considering whether meaningful consent
was obtained, the Commissioner reviewed the
language used in the consent provision of the
complainant’s original insurance application
and concluded that it was overly general and
19
Volume 6 • Number 3 • CANADIAN INSURANCE REGULATION REPORTER
would not have led an applicant to infer that a
change in credit score would impact his or
her premium. In response to the further assertion by the insurer that a two-page notice sent
to policy holders at the time of their first policy renewal also adequately explained the
collection and use of credit-related information, the OPC held both that (a) the notice
was misleading, as while it stated that the
company “… may use the score as one of the
rating factors to determine … premiums”
[emphasis added], the company actually obtained a statistical score at the first renewal of
all policyholders in Ontario and (b) the notice
did not establish consent for such use, as it
was only sent to policyholders after they had
already signed the policy application.
As a result of the investigation, the insurer agreed
to amend its application consent clause to provide
existing policyholders with additional information
about the collection of credit information and
to post a written notification on its website about
its use of credit information to assess customer
risk.
C.
Analysis
As we outline below, the Decision is worthy of
closer examination for two reasons. First, while
some commentators—notably, the Insurance
Brokers Association of Ontario (the “IBAO”) discussed later—have suggested that the Decision
should be read as damning critique of the use of
credit information, we would suggest that such
reading of the Decision is grossly misleading.
Second, the Commissioner’s conclusion that the
consent obtained by the insurer was inadequate was
problematic in a number of respects.
20
1.
Is the Use of Credit-Based Insurance
Scores Reasonable?
(a)
The Studies
Perhaps the most significant factor in determining
whether the use of credit-based insurance scores is
reasonable is whether there is a causal relationship
between the credit-based insurance scores and risk.
However, we would argue that this issue is largely
moot, given the number and significance of studies
determining that, from an actuarial perspective, the
relationship between credit scoring and insurance
losses is in fact one of the strongest predictors of
future insurance loss. We have highlighted below
certain portions of the more relevant studies.
(i)
Canadian Council of Insurance Regulators’
Report (2009)
In 2009, the Canadian Council of Insurance
Regulators (“CCIR”) published a report that summarized the results of a survey of insurers representing 75 per cent of the property insurance
market (based on the 2007 total for direct written
premiums in Ontario) in order to “better understand
how credit scoring is being used in the insurance
industry”9 (the “CCIR Report”).
The CCIR Report concluded that the “majority of
insurers (19 insurers representing 55% of market
share) have performed actuarial analysis on their
own portfolios and satisfied themselves that there is
a correlation between [credit-based insurance]
scores and loss experience” and that “94% of respondents felt [credit-based insurance] scores were
a valid predictor of future loss experience.”10
Somewhat disappointingly, after reviewing the
CCIR Report, the OPC’s conclusion was simply that
not all insurance companies in Canada were using
credit scores for the purposes of risk assessment.11
CANADIAN INSURANCE REGULATION REPORTER • Volume 6 • Number 3
(ii)
Federal Trade Commission Report (2007)
For those who would fairly point out that the CCIR
Report suffered from an inherent self-selection bias,
we note that in 2007, the U.S. Federal Trade
Commission (“FTC”) submitted a report to the U.S.
Congress that reviewed the impact the use of creditbased insurance scores in the context of automobile
insurance had on consumers (the “FTC Report”).
While this particular report was specific to automobile insurance, it is helpful as it was an expansive
study conducted in a large insurance market.
The FTC concluded that credit-based insurance
scores are effective predictors of risk under automobile policies. More specifically, they are predictive of both the number of claims consumers file
and the total cost of those claims. Therefore, the
use of scores is likely to make the price of insurance more accurately match the risk of loss posed
by the consumer. Thus, on average, “higher-risk
consumers will pay higher premiums and lowerrisk consumers will pay lower premiums.”12
In addition, the FTC found that the use of such
scores may ultimately benefit customers as they
permit insurance companies to “evaluate risk with
greater accuracy, which may make them more willing to offer insurance to higher-risk consumers.”13
In short, the FTC concluded that the use of creditbased insurance scores benefits consumers in two
ways: lower risk consumers pay lower premiums,
and high risk consumers are better able to obtain
insurance, since insurers are able to more accurately price that risk into their premiums.
(iii) Michigan Commissioner of the Office of
Financial and Insurance Services Report
(2003)
While the FTC Report only reviewed the use of credit-based insurance scores for automobile insurance, it
followed on the conclusions of an earlier 2003 report prepared by the Michigan Commissioner of the
Office of Financial and Insurance Services. This
latter report considered the use of insurance credit
scoring in both automobile and homeowners insurance (the “Michigan Report”). The Michigan
Report also concluded that
There exists a correlation between a person’s insurance
credit score and the likelihood that a claim will be filed.14
The Michigan Report further found that the use of
credit-based insurance scores ultimately reduces the
likelihood of an insurer experiencing losses from
those policyholders who are most likely to experience losses and make claims. As the later FTC
Report noted, this was due to the fact that insurers
are “better able to identify those policyholders and
charge them premiums commensurate with the
losses they generate.”15 This report went on to state
that the use of such credit-based insurance scores
may have a subjective effect on the policyholders
themselves, because “if responsible behavior in
general leads to the predictive link between credit
histories and insurance losses, as insureds change
behavior to obtain better insurance credit scores
they may experience fewer losses.”16
(iv) American Academy of Actuaries Study
(2002)
The Michigan Report was preceded by a 2002
study conducted by the American Academy of
Actuaries (to assist the U.S. National Association
of Insurance Commissioners), which examined the
use of credit history in the provision of insurance.
Utilizing a detailed and quantitative approach and
performing multivariate analysis, this study also
concluded that
credit history can be used effectively to differentiate
between groups of policyholders and therefore is
an effective tool …
21
Volume 6 • Number 3 • CANADIAN INSURANCE REGULATION REPORTER
such that
different credit profiles predict different loss ratios, even
when other factors (such as driving record, age of driver,
and so forth) are held constant.17
Note that at no point did this study make a normative judgement as to whether such credit-based insurance scores should be utilized but rather set out
to make an objective determination as to whether
the use of such scores had any measureable impact
on the assessment of risk.
(b)
The Commissioner’s Finding regarding
Reasonableness
In considering whether the company’s collection
and use of credit information for the purpose of
calculating risk was appropriate, the OPC noted
 that s. 8 of the Consumer Reporting Act
(Ontario) allows for the disclosure of credit
information for the purpose of assessing
insurance risk;18
 that the selling of insurance policies requires
the undertaking of a risk analysis, and therefore, a reasonable person would consider it
appropriate that the company would collect
and use statistical scores as a tool;19
 the insurer’s submission to the OPC, as per
the conclusion of the FTC Report, that
“there is a benefit for both the insurer (who
gains by managing its risk and pricing its insurance policies appropriately) and the policyholder (for whom ‘credit information has a
positive impact on the overall premium’)”;20
 the FTC Report and found that it affirmed
the predictive value of credit-based insurance scores in claiming experience and that
the use of such scores may result in consumer benefits;21 and
 its own review of the available research,
22
concluding that a reasonable person would consider
it appropriate that the company would collect and
use statistical scores as a tool to underwrite insurance policies, especially as the Ontario government
had specifically allowed the use of credit information in calculating premiums and assessing
risk.22
Compare this to the press release issued by the
IBAO on January 9, 2013:
Federal Privacy Commissioner Releases Finding Supporting
IBAO Concerns on Use of Credit Scoring
Today, the Insurance Brokers Association of Ontario
(IBAO) is urging the Ontario Government to take action
on the use of credit scoring to price home and other personal property insurance. In mid-December, the Office
of the Privacy Commissioner of Canada released a finding
which supports IBAO’s concerns that proper disclosure is
not being provided to consumers when accessing credit
information for insurance purposes.
The use of credit information to determine insurance
premiums only serves to make it more difficult, if not impossible, for brokers to meet important obligations to
their consumers. In addition, the use of credit scoring is
not being used to predict whether consumers will pay
their bills. IBAO believes this practice is unfair to
consumers, is not transparent, and is inappropriate as
a rating tool. Furthermore, it has nothing to do
with the insured risk. Nevertheless, many insurers are
using credit scoring to significantly increase home insurance premiums [emphasis added].
This is very similar to the statements made in the
IBAO blog on April 4, 2012, prior to the release of
the Decision:23
78% of Ontarians Are Not Aware Their Credit is Being Used
Apr 04, 2012
Currently, a growing number of insurers are using a person’s credit score to measure their insured risk. This has
led to an increase in insurance premiums or a denial of
insurance outright to many Ontarians. As a result, now is
the time for the Ontario Government to ban credit scoring to protect consumers!
…
In 2005, the Ontario government banned the practice of
using credit scoring as it relates to auto insurance policies
because a person’s credit score was not related to
CANADIAN INSURANCE REGULATION REPORTER • Volume 6 • Number 3
their insured risk, and therefore the practice was
deemed to be unfair and not in the public interest
[emphasis added].
Based on the studies above and on the Decision itself, it appears that there are two serious misrepresentations in these statements. First, the statement
that a person’s credit score is not related to the insured risk is flatly contradictory to the studies and
to the Commissioner’s conclusions based on her
own research. Second, while the IBAO states that
the use of scores “has led to an increase in insurance premiums or a denial of insurance outright to
many Ontarians,” it also leads, as identified by the
FTC Report and others, to a decrease of insurance
premiums for consumers identified as being of less
risk as a result and approvals of insurance for other
insureds who would not otherwise be able to obtain
insurance.
In short, an individual’s credit score is not only related to their risk as an insured but can also have a
beneficial effect on their ability to obtain insurance
and reasonable premiums for it.
2.
Was the Consent Sufficiently
Transparent?
The IBAO also identified inadequate disclosure
of the purpose for the collection and use of such
credit scores as being a significant problem. The
Commissioner similarly expressed such a concern
in the Decision.
However, we would argue that, as outlined
below, there were some significant flaws in the
Commissioner’s Decision on this issue.
(a)
The CSIO Form
As noted by the OPC, the company against whom
the Complaint was brought used the standard
Centre for Studies in Insurance Operations
(“CSIO”)24 application form, which includes the
following consent provision:
The Applicants agree that reports containing personal,
credit, factual record, premium payment or claims history information may be sought or exchanged in connection with this application for insurance or renewal,
extension, variation or cancellation thereof.25
(i)
CSIO Standard Form
While the OPC noted that the application form containing the consent was standard, they appear to
have missed the significance as to whether the insurer in question should be penalized for using such
a form adopted by the industry.
As part of the preliminary report of investigation,
the OPC recommended that the company amend its
application consent clause to include consent for its
collection and use of the statistical score. The
Commissioner did subsequently note in the final
reported finding that the insurer had informed her
that
 it uses, like all major insurers, standard
forms that are developed and provided by
the CSIO for the property and casualty insurance industry as a whole, and that as
such, it cannot unilaterally change any
standard consent language used in application forms for insurance coverage;26
 the application form for property insurance
was currently being revised by the industry
such that the consent language now incorporated two potential uses by insurers of the
credit information of applicants; and
 it was working with industry stakeholders to
ensure that the consent wording adopted
would be aligned with the provisions of the
Code of Conduct for Insurers’ Use of Credit
Information (“Code”) and the recommendations of the OPC.27
In light of the foregoing, the insurer agreed to
keep the OPC regularly informed on the progress
23
Volume 6 • Number 3 • CANADIAN INSURANCE REGULATION REPORTER
of the consent language amendments until its
completion and provide the OPC with a copy of
the revised application form. However, notwithstanding this, the technical recommendation that
the insurer amend the consent language remained
in force.
Given that the OPC agreed that “all major insurers”28 use this consent form, the question arises as
to whether CSIO rather than the insurer should
have been the better target for the Commissioner’s
criticism of the CSIO form. In short, this element
of the decision raises troubling questions as to
fairness.
(ii)
Lack of Transparency in the Consent
Provision
The OPC identified its concern with the standard
form consent by stating that
it is not reasonable to expect an individual to understand
that their credit score will be used in this way since the
most obvious accepted use of this information by businesses is to establish an individual’s credit worthiness in a
loan or credit context29
In short, the OPC concluded that the language used
in the consent provision of the complainant’s original insurance application was overly general and
would not have led an applicant to infer that a
change in credit score would impact his or her
premium.
Is this a fair assertion? The consent lists various
types of information, including personal, credit,
factual record, premium payment, or claims history
information, as being used by the insurer. Credit
information is just one item on that list. An express
description of the purpose as being “in connection
with this application for insurance or renewal, extension, variation or cancellation thereof” follows.
How then could the OPC find that a reasonable person would select one of those categories of information—credit information—to then conclude that
24
credit information was being used to “establish
[their] credit worthiness in a loan or credit context”
when there was no reference anywhere on the
consent referencing such a purpose. Should the
expectations of the insured not be reasonably conditioned by the fact that credit is simply one of a
number of types of information listed on an insurance application form?
By way of comparison, we can contrast the consent
language on the CSIO form with the language of a
sample bank credit application (the “Bank Consent”)
wherein the consumer consents to the bank:
making any inquiries, including the collection of personal information, as [they] may deem necessary in order to verify
the information set out herein and to reach a decision on
any Application and administer such a loan, if one is made.30
Is the language of this Bank Consent any clearer?
Note that the consent
 is less descriptive than the CSIO consent as
to the categories of information being collected (i.e., “personal information, as [they]
deem necessary”)
 is no more descriptive than the CSIO consent as to the purpose (i.e., “to verify the information set out herein and to reach a
decision on any Application and administer
such a loan”)
By way of example, note that the term “credit worthiness” is not referenced in this Bank Consent
form. While it is arguable that the use of the information for the purpose of assessing credit worthiness is evident from the context (i.e., the consent is
found on a credit application), the same logic
should be applicable to a consent that is found on
an insurance application (i.e., the use of the information for the purpose of assessing eligibility/premiums for insurance is evident from the
context of an insurance application).
CANADIAN INSURANCE REGULATION REPORTER • Volume 6 • Number 3
(iii) Consumer Knowledge
In the blog entry set out above, the IBAO references their own “new consumer study” as finding
that “78% of Ontarians are not aware that insurers
were using their credit scores to price their home
insurance.”
Absent comparators, does this statistic have any
meaning? More specifically, we would suggest that
the average consumer would likely have very little
awareness of the numerous factors, not just credit
scores, that insurers assess in determining policy
eligibility and premiums. In addition, recall the
Bank Consent above authorizing “the collection of
personal information, as [they] may deem necessary in order to verify the information set out herein
and to reach a decision.”
Again, we would posit that consumers would not be
aware of a number of the factors that a bank may
consider in determining whether or not to grant
credit. In light of that general lack of knowledge, it
would seem unreasonable to highlight credit score
information as being worthy of particular attention.
(iv) Adverse Inference Taken from the Existence
of the IBC Code
A final troubling aspect of the Decision was
the OPC’s interpretation about the significance of
the Code of Conduct for Insurers’ Use of Credit
Information, as issued by the Insurance Bureau of
Canada (the “IBC”) on December 14, 2010. The
IBC issued the Code in order to “provide insurers
who use credit information in their underwriting
and rating activities for personal insurance with
guidelines on the use of credit information in accordance with principles of consumer protection
and applicable federal and provincial laws.”31
Oddly, rather than viewing the existence of the voluntary Code as simply a cross-national guidance
tool for an industry where the use of credit-based
insurance scores is subject to a varying mix of provincial and federal privacy laws, the OPC drew an
adverse inference from the existence of the Code
itself:
The insurance industry’s own national association seems
to recognize that using credit information is not entirely
consistent with other tools typically used to assess insurance risk. In our view, the presence of the Code indicates that the IBC views the use of credit information as
sufficiently different and separate from other tools to
warrant special considerations around its usage and
treatment. We also note that the Code guides insurance
companies to not use credit information as a sole variable
and to not deny quotes and insurance to customers who
refuse to consent to the use of credit information. This
suggests to us that IBC further recognizes that credit information is not a tool that is necessarily integral to assessing insurance risk.32
In sum, the Commissioner unfortunately took the
existence of the Code as being evident that there
was something distinctly “special” about credit
scores requiring additional disclosure to consumers.
However, even more troubling was the OPC’s conclusion that “credit information is not a tool that is
necessarily integral to assessing insurance risk” because the Code “guides insurance companies to not
use credit information as a sole variable.” This
statement both (a) jumps to the erroneous conclusion that the prohibition on a credit score being a
sole variable means that it is therefore not “integral” to assessing risk—a conclusion appearing to
illogically suggest that the only variables integral to
assessing risk are those which can be used as a sole
variable—and (b) shows a gross misunderstanding
as to how the assessment of risk in the insurance
industry requires the assessment of a wide-ranging
number of variables, none of which by themselves
are “necessarily integral.”
The existence of the Code and the guidance set out
therein are fundamental to the OPC’s treatment
of the issue of transparency. The OPC found that
the presence of the Code indicates that special
25
Volume 6 • Number 3 • CANADIAN INSURANCE REGULATION REPORTER
considerations are required for the use of credit information and that the parameters set by the Code
for obtaining consent in the context of using credit
information in underwriting and rating activities for
personal insurance, although voluntary in nature,
should be followed. Therefore, the mere presence
of the Code appears to raise the level of disclosure
required to obtain consent for the use of creditbased insurance scores.
(b)
One can assume that the use of the term “may” was
intended to signify that it was in the insurer’s discretion as to whether to use the credit score as a
rating factor. The fact that the insurer had, in the
past, exercised its discretion to use such score
should not have been interpreted as imposing a requirement on the insurer to replace the word “may”
with “shall,” as the finding appears to imply. This
would then require the insurer to use the score in
every case in the future, even in those circumstances where the insurer might otherwise feel it to be
inappropriate.
Conclusion
In reviewing the Decision, one is left, perhaps unfairly, with the unfortunate impression that the
26
In addition, we note that the use of credit information in the
property insurance context is not permitted in all provinces.
Insurance companies operating in Newfoundland and
Labrador are now prohibited from using credit information in their “personal insurance risk classification systems” or using credit information to decline to issue, to
terminate or to refuse to renew a contract of “personal
insurance”.
The Insurer Privacy Notice sent on
Renewal
Finally, the OPC’s response to the further assertion
by the insurer that a two-page notice sent to policy
holders at the time of their first policy renewal adequately explained the collection and use of creditrelated information is also worthy of note. The
OPC held that the notice was misleading as it stated
that while the company “… may use the score as
one of the rating factors to determine … premiums,” the fact was that “the company advised our
Office that it obtains a statistical score at the first
renewal of all policyholders in Ontario [emphasis
added].”33
D.
Commissioner entered into the investigation process with a clear dislike for the use of credit scores
for the purposes of insurance risk assessment but
found her hands tied by the existence of the express
permissive language of the Ontario Consumer
Reporting Act. This impression is supported by
the following two successive paragraphs of the
Decision:
As such, this complaint has raised broader issues of concern for the Office. In our view, the long-term public policy impact stemming from the use of credit information
for the purposes of assessing insurance risk is unknown at
this time. Accordingly, the Office will continue to conduct research and monitor this trend and the Office’s
position may evolve over time.34
The placement of these two paragraphs of the
Decision in succession makes it sound as though
the OPC would be interested in reopening this issue
in order to prohibit the use of credit-based insurance scores in underwriting non-automobile insurance, were there be a change in the legislation in
Ontario. Whether that would be the appropriate
public policy choice by Ontario is a different matter, considering the conclusions made by the studies above. Credit scores have proved to have
significant value as a risk-predictive factor and,
notwithstanding the misperceptions fostered in the
market, have acted and, given the opportunity, will
continue to act for the benefit of consumers.
[Editor’s note: The authors would like to thank
Heather Michel, student-at-law, for her assistance
with this article.]
1
R.S.O. 1990, c. C.33, s. 8(1)(d)(iv). In contrast, the use of
credit scores as a risk classification factor for auto insurance has been prohibited in Ontario since 2005, which
CANADIAN INSURANCE REGULATION REPORTER • Volume 6 • Number 3
2
3
4
5
6
7
8
9
10
11
12
13
prohibition on the use of same as an unfair or deceptive
act or practice was further tightened in 2010 under
s. 2.1(4) of O. Reg. 7/00 (“Unfair or Deceptive Acts or
Practices”) under the Insurance Act, R.S.O. 1990, c. I.8.
S.B.C. 2004, c. 2, s. 108(1)(a)(iv).
With the notable exception of Newfoundland and Labrador,
which has expressly prohibited the use of credit
information in risk classification or as a basis to terminate
or refuse to renew a contract of personal insurance.
Insurance Prohibited Underwriting Regulations, NLR
46/11, House of Assembly Newfoundland and Labrador,
<http://www.assembly.nl.ca/legislation/sr/annualregs/
2011/nr110046.htm>. Newfoundland and Labrador has
also banned the practice for automobile insurance
<http://www.fcac-acfc.gc.ca/eng/resources/faq/qavieweng.asp?id=397>.
In addition, the Alberta Superintendent of Insurance issued a bulletin in December 2008 to clarify that the automobile insurance application restricts the use of credit to a
payment plan and that insurers must not refuse a quote if a
consumer does not consent to allowing access to his or her
credit score. However, there is no ban by law or regulation
for the use of credit score outside of the application, provided the score is not used for an “unfair practice.” See
<http://www.finance.alberta.ca/publications/insurance/
super_bulletin0408.pdf>.
“Credit Check Ban for Insurance Pondered,” CBC News,
November 29, 2012, <http://www.cbc.ca/news/canada/
prince-edward-island/story/2012/11/29/pei-credit-ratinginsurance-584.html>.
S.C. 2000, c. 5 [PIPEDA].
Office of the Privacy Commissioner of Canada, Report of
Findings #2012-005: Ontario Insurance Company Used
Credit Information to Assess Risk; Calculate Premiums,
<https://www.priv.gc.ca/cf-dc/2012/2012_005_0427_e.asp>.
Supra note 5, s. 5. (3).
Ibid. at Principle 4.8.1 of Schedule 1.
Canadian Council of Insurance Regulators, Report on the
Credit-Based Insurance Scoring Questionnaire, August
2009, <http://www.ccir-ccrra.org/en/init/credit_scor/
CBIS_Report_2009_CCIR_EN.pdf>, p. 2.
Ibid. at 2, 4.
Supra note 6 at para. 15.
Federal Trade Commission, Credit-Based Insurance
Scores: Impacts on Consumers of Automobile Insurance,
July 2007, <http://www.ftc.gov/os/2007/07/
P044804FACTA_Report_CreditBased_Insurance_Scores.pdf> at 3.
Ibid. at 82.
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
Frank M. Fitzgerald, “The Use of Insurance Credit
Scoring in Automobile and Homeowners Insurance,”
December 2002, <http://www.michigan.gov/documents/
cis_ofis_credit_scoring_report_52885_7.pdf> at 22.
Ibid. at 17.
Ibid.
American Academy of Actuaries, Risk Classification
Subcommittee of the Property/Casualty Products, Pricing,
and Market Committee, The Use of Credit History for
Personal Lines of Insurance: Report to the National
Association of Insurance Commissioners, November 15,
2002, <http://www.actuary.org/pdf/casualty/
credit_dec02.pdf> at 3, 6.
Supra note 6 at para. 24.
Ibid. at para. 26.
Ibid.
Ibid at para 28.
Ibid. at para. 27. Or as the Decision’s “double negative”
language stated it: “[that the OPC] could not conclude that
a reasonable person would not consider it appropriate.”
Insurance Brokers Association Ontario Blog; “SeventyEight Per Cent of Ontarians Are Not Aware Their Credit
Is Being Used,” April 4, 2012,
<http://www.ibao.org/tools/blog/ibao-blogs/2012/09/24/
78-of-ontarians-are-not-aware-their-credit-is-being-used>.
CSIO is Canada’s national standards association of property and casualty insurers, insurance brokers, and software
providers.
Supra note 6 at para. 6.
Note that CSIO’s working groups review and set standardized forms, which members follow as a consistent means
of documenting insurance policy information across the
country. Therefore, the forms produced by CSIO are frequently seen as “industry standard.” See CSIO, “Forms
Working Groups,” <http://www.csio.com/forms-workinggroups>.
Supra note 6 at para. 45.
Ibid.
Ibid. at para. 38.
Business Development Bank of Canada, “Statement of
Personal Affairs,” <http://www.bdc.ca/EN/Documents/
doc_corpo/forms/F4037E.pdf>.
Insurance Bureau of Canada,
<http://www.ibc.ca/en/consumer_protection/documents/co
de_of_conduct.pdf> at 1.
Supra note 6 at para. 31.
Ibid. at para. 40.
Ibid. at paras. 32–33.
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Volume 6 • Number 3 • CANADIAN INSURANCE REGULATION REPORTER
INVITATION TO OUR READERS
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for the Canadian Insurance Regulation Reporter?
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in future issues of the Canadian Insurance Regulation Reporter?
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