Across the country there has been much discussion on this topic. Insurers argue for the need to use credit scoring to assess risk, and consumer groups lobby against. The insurance industry has long held that an individuals credit worthiness is indicative of the risk they pose in filing a claim. Interestingly, though an individual may not file a claim, does that mean that an incident that may have given rise to a claim had never happened? Insurers have typically maintained that an occurrence is an occurrence regardless of the severity, in which case a person's likelihood of filing the claim shouldn't be the focus, but rather that if the incident occurring in the first place. At the same time, most people if confronted with an individual who's credit was completely used and had several mortgages on a home, which also just burned, would consider the fire to suspect at best. Consumer groups have consistently held that a credit score is not indicative of anything and bluntly it isn't a lender's business, not to mention that the proceeds of a payout would not have to be repaid, so how would the person's repayment history be a factor?
In Ontario the use of credit scoring to determine auto insurance premiums has been prohibited. No decision has been made regarding homeowner policies at this time, and consequently some insurers still use it and others do not. Depending on the product in commercial lines it may be used.
As this debate continues, I have no idea on which side of the debate I sit. In what is a rare instance for me, I remain an observer on this issue. I wonder if perhaps there isn't a way around this, for instance, Class A lenders only lend to individuals of a certain credit worthiness, Class B does the same and so on. Why not rate the lenders, and use that instead. In a situation such as this no one's credit report would be accessed, and yet because of the lender a person uses the insurer would inadvertently have a sense of where someone's finances are.
What do you think?
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