Another reason to have a high credit score – home insurance costs!
Last week James Daw of the Toronto Star wrote an excellent informative piece on yet another reason why we should all care about our credit scores. I don’t like it at all, but the fact is property insurance companies peek at our credit scores as part of the underwriting process. Make sure your credit score is the best it can be.
If you want to know more about how to do that, give us a call at 416-989-1000.
Anyone with a poor credit score is going to find it increasingly difficult to avoid surcharges when insuring their home and possessions.
A recent government-sponsored survey reveals some insurers are not telling consumers just how badly they will be affected based on their credit score.
Meanwhile, those who do figure out how they have been affected are going to have other doors shut in their face if they try to shop around.
“We would be in a bad place if the government doesn’t proceed with a ban,” said Randy Carroll, chief executive of the Insurance Brokers Association of Ontario.
The Financial Services Commission of Ontario found in an April survey on behalf of several provinces that sellers of 55 per cent of property insurance were already screening, classifying or surcharging policyholders based on credit scores. That was an increase from 29 per cent in just three years.
Companies holding a further 6 percent of the market revealed plans to adopt credit scoring within three years, but Carroll said things are happening quicker.
Another four or five companies have moved to use credit scores in response to competitors since the survey was conducted, he said.
Ontario prohibits the use of credit scoring for auto insurance, and vowed earlier this month to prohibit the use of credit scores to delay price quotes, require written applications or to apply other screening techniques.
Spokeswoman Rowena McDougall said that, while there is no ban on the use of credit scores for other types of insurance, FSCO does review consumer complaints and conducts marketplace research.
Most companies reported few complaints over the use of credit scores.
Many consumers may simply not have noticed they have been affected.
Home insurance premiums are low compared with auto insurance and were quite stable before rising sharply in the past year.
But Carroll said he knows of one 68-year-old retiree who was facing a $1,000 or 80 per cent increase in home insurance premiums due mainly to her credit score.
He also said recent U.S. research found credit scoring can boost premiums for 41 per cent of consumers. No comparable data is yet available here.
What the FSCO survey did reveal is:
94 per cent of the 34 companies that responded feel credit scores are a valid predictor of the level of future loss. Four insurers representing 7 per cent of the market reject applicants with poor credit scores. Insurers for 49 per cent of the market use scores in setting rates.
Eight insurers with 17 per cent of the market do not advise applicants or policyholders that their credit score has had an adverse effect on their qualification, rating or underwriting.
Thirteen insurers with 32 per cent of the market will only provide contact information for credit rating agencies if the consumer asks.
Two insurers with 8 per cent of the market will not change a policyholder’s rating even if the policyholder has credit information corrected, while seven insurers with 22 per cent of the market will not backdate ratings in response to a correction.
Bryan Yetman, incoming president of the brokers’ association, said he is encouraged FSCO conducted the survey in the first place.
“The lack of transparency (about the impact of credit scoring) is definitely something we noted in the survey results.” His association is calling for a ban on the use of credit scoring in May.
The brokers argue it is inappropriate in a time of rising unemployment to use a rating criteria that will disproportionately affect the unemployed, newcomers to Canada, single parents and those owners struggling to keep a small business afloat.
”The availability and affordability of insurance should not be a social issue,” said Carroll. “Insurance should be affordable and reasonable to obtain.”