Actuarial Notes

Code of Conduct for Insurers' Use of Credit Information (Code)

By Insurance Bureau of Canada · 2011

Study guide: Exam 6C

The Insurance Bureau of Canada's code of conduct for insurers that use credit information in underwriting and rating personal insurance. Its stated purpose is to give those insurers guidelines on the use of credit information in accordance with principles of consumer protection and applicable federal and provincial laws, and it sets ten guidelines for the use of credit information obtained from a consumer reporting agency in quoting, underwriting and rating.

On the syllabus

  • Exam 6C — objective A1; the outline cites the Code without limiting it to any part.

Purpose

  • To provide insurers who use credit information in their underwriting and rating activities for personal insurance with guidelines on its use, in accordance with principles of consumer protection and applicable federal and provincial laws.

Scope

  • The Code applies to personal insurance only — private passenger automobile, homeowners, motorcycle, mobile-homeowners and non-commercial dwelling fire policies, including boat, personal watercraft, snowmobile and recreational vehicle policies — and not to commercial insurance.
  • Credit information includes credit scores, credit history, credit reports and other credit related information as defined under the provincial Consumer Reporting Acts (Credit-Based Insurance Scoring).

1 Comply with provincial laws

  • The insurer must be aware of and fully comply with any federal and provincial laws and regulations, including privacy legislation and Consumer Reporting Acts, affecting its use or management of credit information.

2 Ensure credit information used is current and accurate

  • The insurer must not use credit information that is not current, and must update a customer's credit information at the customer's request.
  • When a consumer reporting agency reports a correction, supplement or deletion, the insurer must adjust the file immediately, re-underwrite and re-rate the consumer as soon as practical, and refund any overpaid premium as the regulations require.
  • On request, the insurer names the consumer reporting agency that supplied the information; the customer is responsible for having that agency verify and correct the file.

3 Gathering prior consent to collect and use credit information (written or verbal)

  • Consent must be informed, specific and never presumed; it may be given verbally, in writing or by e-medium, and the consent field on an agent's or broker's screen must not default to yes.
  • No one can give consent for another person: each individual in the household whose credit information is used must consent.
  • Proof of consent is kept in the customer file, and consent is valid for as long as the policy is in force unless the policyholder withdraws it.
  • Wording of consent question (Verbal or written): authorization to collect from consumer reporting agencies, the nature of the information sought, its use, the consent use period, and the right to withdraw and its consequences.

4 Keeping customers' credit information confidential and private

  • Only those who require the information to do their job should have access to it.
  • Relevant Canadian consumer and privacy protection laws are to be fully complied with, among them PIPEDA, whose Principles 4.3.1 (consent) and 4.5 (limits on use, disclosure and retention) the Code quotes.

5 Use of credit as a sole variable

  • The insurer must not refuse to quote, base renewal rates on, or deny, cancel or non-renew a personal insurance policy solely on the basis of credit information, without considering other non-credit underwriting or rating variables.

6 Legitimate uses of credit information – pricing, underwriting or financing of premiums - modeling

  • An individual's credit information must not be double counted in rating the premium, consistent with established actuarial practice.
  • The insurer must seek assurance from its suppliers that credit scoring models do not use as a negative factor the consumer's own inquiries, insurance inquiries, income, gender, address, ethnic group, religion, marital status or nationality, or multiple mortgage or automobile-lending inquiries within 30 days (unless only one is considered).
  • Factors prohibited by provincial insurance regulations or bulletins, which may vary by province, must not be included.

7 Handling of Consumer Disputes

  • Complaints about the insurer's use of a customer's credit information are addressed under the complaint procedures required by federal (Financial Consumer Agency of Canada) and provincial law.

8 Taking adverse action as a result of credit information

  • Customers with no credit information, or unable to create a credit score, must not be denied coverage, cancelled or non-renewed without consideration of other applicable underwriting factors.
  • The insurer must disclose to the consumer adverse action taken only as a result of credit information, explaining the reason.

9 Refusal of consent

  • The insurer may not refuse to quote, refuse to insure, or terminate or refuse to renew a policy because the customer refuses consent; that customer is offered a competitive rate but may not qualify for related discounts or the insurer's best quote.
  • Nor may it refuse to quote, terminate or refuse to renew solely because of unfavourable credit information.

10 Extraordinary life circumstances

  • A customer whose credit was adversely affected by an extraordinary life event may make a written request, with supporting documentation, for the insurer to review its use of credit information; if an exception is approved, the customer is re-rated.
  • The Code's examples of an extraordinary life event are identity theft and a catastrophic event declared by provincial authorities.

Sources