PC Financial: A case study in credit score confusion

Last month, we learned that PC Financial --the financial arm of Loblaw Companies Ltd.--transformed its insurance practice into a brokerage. We also learned that credit scores might play an important role in the company's auto quotes--and practice that might be illegal.

On its website, PC Financial offers a quote generator that provides the lowest price available from its carrier partners–The Dominion of Canada Insurance Co., Aviva Insurance Co. of Canada, Elite Insurance Co., et al. It’s based on a series of questions that ultimately provide a price for a year-long policy, once the customer answers all questions.

One query is in relation to credit scores. It asks: Would it be OK for the insurance company to use the customer’s credit score, claims history and other items to build the quote?

The answer to this particular questions seemed to impact the price. When answered “yes,” the policyholder was quoted $824. But answering “no” a second time around, he was quoted $996.

Judging from documentation from the Financial Services Commission of Ontario (FSCO), this might be illegal. FSCO says, “Insurance companies are not to use criteria prohibited for rating or underwriting purposes as a basis for differential treatment in the quoting, application or renewal process.”

But it isn’t cut and dried. PC Financial says the difference in quotes could be due to a number of factors that are grouped with credit scoring–when the customers says “no” to the credit scoring question he is telling the carrier to ignore all of those other factors as well, not just the credit score. Another issue: Are PC Financial’s partners necessarily incorporating credit scores? The company does say the information will only be used “as permitted by law.” In some parts of the country, it’s perfectly OK for carriers to consider credit scores in auto. Elsewhere, it isn’t. Since PC Financial plans to serve numerous locations (the brokerage only served Alberta and Ontario at press time), it’s possible that in the reporter’s case–an Ontario situation–credit scores weren’t applied at all.

PC Financial says it’s off the hook. “FSCO has a bulletin, No. A-01/09, and that applies to insurance companies,” says the company’s communications director Karren King, referencing FSCO’s all-call to the industry last year: if you’re using credit scores in your auto rates, you have 60 days to cease and desist; it’s illegal. “That bulletin reflects FSCO’s view on the regulatory requirements applicable to insurers as it pertains to the use of credit and other information. Like all other independent brokers, we trust that the insurers with whom we do business comply with legal and regulatory obligations.”

In other words, if there’s a problem, it doesn’t belong to the brokerage.

Although FSCO’s position seems clear, its mandate isn’t. “There’s a debate right now that the regulator has the authority to regulate over the binding process–applying the rate to a policy,” says Randy Carroll, CEO of the Insurance Brokers Association of Ontario (IBAO). “But they don’t have the authority to regulate the rate for a quote.”

It’s confusing–is PC Financial presenting quotes that illegally incorporate credit scores or not?

New insurance industry regulations might help clarify the situation. According to a press release from the Ministry of Finance, the department is putting forth 17 consumer protection measures that include “clarifying that certain objectionable quoting practices are prohibited, including using credit scoring to determine whether a driver is insurable or how much to charge a driver for auto insurance.” The government expects to make the proposals into laws this summer.

© Copyright 2010 Rogers Publishing Ltd. This article first appeared in the April 2010 edition of Canadian Insurance Top Broker magazine.

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