Use of credit scores by auto insurers growing in N.B. despite once universal opposition

The New Brunswick Insurance Board continues to grant new requests from auto insurance companies to use the credit scores of drivers to help set rates in the province, even though New Brunswick's independent Office of the Attorney General has openly questioned the fairness of the practice, and more drivers per capita in New Brunswick have poor credit than anywhere in the country.

Michèle Pelletier, New Brunswick's consumer advocate for insurance, opposes the use of credit scores in setting insurance rates and says nothing short of an intervention by the provincial government will stop it from becoming standard practice.

"In order to change that, government needs an appetite to change it," said Pelletier in an interview.

"I don't know why they're not. I guess there is no appetite for that."

This summer the provincially-appointed insurance board, which regulates the amount companies operating in New Brunswick can charge for auto coverage, accepted requests from related companies Northbridge General Insurance and Zenith Insurance for permission to charge consumers — with otherwise comparable driving profiles — different prices for coverage based on their credit history.

The insurance board granted similar requests to several other companies last year after accepting evidence that people with poor credit are more likely to have a future accident or other adverse incident, like a theft, than those with good credit. 

New Brunswick's largest auto insurer, Wawanesa, was among the first to raise the issue, telling the board in 2021 that an individual's level of risk taking, risk tolerance and responsibility with financial matters, as reflected in their credit score, is a behaviour that can show itself in other forms of risk taking, like bad driving.

"Those policyholders who are likely to generate the highest costs will be charged more than those who are likely to generate lower costs," Wawanesa said of its intended use of the credit information.

That argument, and the fact the New Brunswick government has not specifically banned the use of credit scores in setting insurance rates, convinced the board it had no basis to decline the requests.

"New Brunswick has no restriction on the use of credit scores, though other factors like gender, age and marital status are prohibited," wrote the board this year in its decision on the Northbridge application. 

Companies need permission from drivers to see their credit reports and have pledged not to penalize those who refuse or have poor credit. Instead, discounts for those with good credit are offered although amounts are confidential.

That allows drivers with identical vehicles and driving profiles, but different credit histories, to be charged different amounts.

Unknown as a rate-setting factor for auto insurance in New Brunswick prior to last year, Pelletier said the use of credit scores is becoming widespread.

"Nobody was using it but now they are all using it or they are all asking to use it," she said.

New Brunswick Liberal and Progressive Conservative MLAs jointly passed legislation in 2010 to grant a future government the power to ban credit scoring as an auto insurance rate-setting factor if companies ever attempted to adopt the practice.

Then-attorney general Kelly Lamrock said like similar restrictions New Brunswick places on the use of age and gender in setting auto premiums, poor credit was not an appropriate distinction to make among drivers.

"Poverty tends to lead to bad credit," said Lamrock.

"We do not think that you should be making judgments about an individual because that individual happens to be a member of a group that tends to have certain outcomes. You cannot use that as a basis for setting rates."

Progressive Conservatives under then-leader David Alward supported the legislation and it passed with wide support.

Mixed signals from government

For more than 10 years auto insurance companies left the credit score issue alone, and so regulations to ban its use were not pursued. Now that it has resurfaced, the New Brunswick government has given mixed signals about whether it remains concerned or not.

In the Northbridge hearing the government's designated representative of the public interest, the Office of the Attorney General, pointedly questioned the appropriateness of insurance companies being allowed to use credit scores.

It raised concerns with the insurance board about the likely effect it will have on low-income drivers. It also raised the possibility that singling out poor credit might be a back door entry for companies to charge extra to those they are otherwise forbidden from treating differently, like single people or seniors.

"The OAG [Office of the Attorney General] argues that the inclusion of credit scores in the rating formula may adversely impact those in vulnerable socioeconomic groups as it may lead to increased premiums," wrote the board in summarizing the government's legal argument.  

"Furthermore, as the OAG notes the difficulty in establishing a direct causal relationship between credit score and exposure to automobile insurance losses, it argues that credit score may be a proxy for other restricted rating variables."

But a question to the New Brunswick government about why it hasn't moved against the use of credit scores in setting automobile rates, given concerns about the practice raised by the attorney general's office and powers granted to the government by the legislature to act, went unanswered on Monday.

It is a potentially significant issue for many since New Brunswick adults have a higher incidence of poor credit than anywhere in Canada.

According to Canada's Office of the Superintendent of Bankruptcy, 46 of every 10,000 New Brunswick adults experienced an insolvency in 2021. It was the highest rate in Canada among provinces or territories for the fourth year in a row and 58.6 per cent above the national average.