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Credit score use in the insurance industry is becoming more rampant today

By Brian Anderson
Published: Tuesday, November 16th, 2010

17People in Canada are now becoming more troubled with the increasing numbers of insurance companies who are making use of credit scores to determine their policyholders’ premium rates. Today 55 percent of major insurance companies in Canada are turning to these three-digit scores to guide them in assessing how risky a person could be as revealed by the Canadian Council of Insurance Regulators.

Not all insurance companies are informing their policyholders whether they are making use of credit scores or not. In fact out of the 55 percent of the biggest insurance provider in Canada using credit scores, 42 percent is not unveiling to their customers about the said practice.

For insurance companies credit scores are one reliable predictive indicator of who among the policy holders are most likely to file claims for both casualty and property insurance. Since insurance companies are primarily involved in risk assessment having an objective basis on how to rate consumers is crucial thus credit score use is considered by many as a logical factor to do the premium ratings.

The use of credit scores in determining insurance rate like home insurance premiums is faced with negative reaction from the public. People whose insurance provider suddenly turned to their credit scores to calculate their home insurance rate experienced paying 30 percent more to nearly double their previous rates. The change in rate happens even if the policyholder has never filed a claim to their home insurance provider.

Credit scores are three-digit number that is representing the credit worthiness of a person. For insurance companies therefore credit scores can be a reflection on how responsible a person could be. Moreover it can describe a person on how he/she deals with financial responsibilities. This is the main reason why almost all insurance companies are considering credit score to determine how risky their prospect clients and current policyholders could be.     

There is still an ongoing debate about the use of credit scores as one of the major factor influencing insurance rates. The justification insurance companies use to defend the said practice is now being put into question. Across the entire nation there are different reactions that surfaced and are yet to surface. The very first province to address the negative reaction of the public about this credit score use is New Brunswick. Regardless of the type of insurance a company is offering, credit score use is totally banned in this place. In some places like Alberta and Ontario the use of credit scores to establish auto insurance rate is no longer allowed.

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