Balance

One of the things I watch closely is the intersection of regulation and economic development.  There are many instances in New Brunswick where regulation has been developed without – it seems – any regard for the economic development consequences.  Don’t misunderstand me – it is one of the roles of government to ensure that companies are not engaging in unfair/uncompetitive/environmentally abusive practices, etc. but decisions need to be made with the full context.

So the drive by shooting of Co-operators Insurance this morning in the media is a bit heavy handed.  The Co-operators employs several hundred people in New Brunswick at wage levels well above average.  They are a very good corporate citizen in a wide variety of ways (I have had the pleasure of meeting with them recently).  Their company nationally is starting to integrate the use of credit scores in its development of insurance policies and this is causing some concern.

I think the use of credit scores is complicated in this instance because of what insurance is and its importance (unlike Future Shop using your credit score to determine if it will sell you that big screen TV) but when I hear elected officials saying this:

“We’re standing up for the little guy, and he’s [Jody Carr] standing up for the insurance companies.”

I don’t like it.  I chafe at this kind of cheap political ploy to pit the big evil company against the ‘little’ guy.   We need to be able to have a reasonable discussion about appropriate regulation without turning the conversation into these little swipes that the elected official thinks will score him points – but there are a few hundred people associated with Co-operators that are cringing.

And the next time they consider expansion here, that characterization of them as the big bad insurance company will be in the back of their mind.

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3 Responses to Balance

  1. The concern is more generally the use of credit scores to evaluate people for things that have nothing to do with credit.

    The case of insurance is only the thin edge of the wedge. In the U.S. employers often subject prospective employees to credit checks, and reject those with poor credit.

    Applying a means test for the provision of basic needs, such as insurance or jobs, and then structuring the result to discriminate against those most in need, is divisive and dangerous.

    It serves to increase, rather than bridge, income disparities in society, and thus propagates the various social ills that result from wide income disparities.

    The price of insurance should be the same whether you are rich or poor, and if there is to be a price differentiation, it should most certainly not penalize the poor.

    Historically the insurance industry has acted as exactly the opposite of fair and equitable brokers in society.

    We have seen this with the health insurance industry in the United States, which has historically refused to insure people living in the wrong location, making the wrong sort of income, or for any of a wide variety of other putative facts that correlate with higher payouts.

    We have seen the auto insurance industry in New Brunswick exact significantly higher premiums here than in other provinces not on the basis of any difference in payouts but because the limited competition in a poorer market makes it possible to charge higher premiums. Private industry charges what the market will bear, and poorer regions bear higher prices as a result of lower competition for mandatory insurance.

    And while the Cooperators may be better than most insurance companies, on the premium (rather than the ownership) side of things, they function by the same principles as private insurance, which means premiums are based not as much on potential payout but rather on what the market will bear.

    Credit checks do not report an insurance-related property of the individual, but the use of credit checks reduces the number of opportunities for people with lower scores to obtain insurance, and this forces up their premiums. It puts people with lower credit scores in a take-it-or-leave-it position.

    The tactic is akin to forcing poor people to go to the most expensive doctor in town, because he’s the only one who will treat them.

    Or forcing (as actually happens) welfare recipients into the most expensive apartments in town, because they are the only ones that will accept welfare recipients.

    It is wrong, and should be prohibited.

  2. Coypu says:

    Insurance companies know that there is a strong correlation between credit scores and claims. That in itself is not a reason to allow them to discriminate on the basis of credit scores or to allow insurers to require credit information from clients not seeking credit.

    The real problem is the banks: they are now able to sell insurance and they have access to all the personal financial information, including credit scores, of their clients. Insurance companies rightly claim that this gives an unfair advantage to the banks’ insurance operations.

    The solution is to force the banks to get out of the insurance business.

  3. mikel says:

    Correlation doesn’t equal causation. A person may be poor, that doesn’t ‘necessarily’ make them a bad driver or homeowner. I did some research and insurance companies don’t actually KNOW any such thing. They ASSUME and use it as an excuse to raise rates. Something they love to do.

    However, the above is no solution, as banks do not control credit scores, that is done by private companies. If your bill payment is over 30 days late it goes to the credit company-whether its a bank or not. A bank obviously would have MORE information, like virtually ALL your information, but thats different than credit scores.

    Just because the co-operators is good in one area doesnt’ mean you give them a pass in other areas. The ‘balance’ question isn’t that it is mentioned, but that OTHER companies that do the same are not mentioned. But you don’t criticize a ‘drive by shooting’ because more people weren’t shot. In the US 92 out of 100 companies use credit scores, even for auto rates. So its unlikely the co-operators are the only guys on the block. But I don’t think they should be given a pass because they were nice to Dave-this blog sounds too much like a Charles Leblanc blog-if you’re ‘nice’ to the guy writing it then you get good press!:)

    But I highly doubt all the insurance companies owned by banks in Canada are NOT using credit scores, so when the press says “other companies do not use credit scores”, then it might be useful for them to say which ones they are referring to.

    Either way, its looking like public insurance may be the best solution again.

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