At least half of all insurance companies in Canada now use ‘credit scoring’ as a way to gain a sense of the risk you pose for future claims. Insurers see credit as a reflection of your personal level of responsibility and behaviour when it comes to managing financial obligations. After the uncertainties in the economy in recent years, every industry – including insurance – is nervous about the growing numbers of people losing their jobs, their homes, filing for bankruptcy, or generally having fewer assets or cash.
Several studies have shown a co-relation between credit and insurance risk, i.e. you are more likely to file an insurance claim when you have poor credit. That risk to insurers means you have to pay a slightly higher premium than someone who has good credit.
Insurance companies do not force customers to reveal their credit scores, and obviously the benefit of allowing a credit check is the possibility of a reduced premium (if your credit is good). Insurers are really looking at your payment history, not what cards you hold and what you owe on them.
Of course, there are other variables in assessing your homeowner’s premium, such as:
- Your neighbourhood: What is the crime rate; how close your home is to a fire station, etc.
- The ‘replacement value’ of your home
(Auto insurance is a different story when it comes to credit checks; the Financial Services Commission of Ontario says insurance companies can not use your credit history, employment or personal history, or accident record, when setting your auto premium.)
If you have poor credit, you can still be proactive about keeping your home insurance premiums down; for example:
- Keep a safe home
- Regularly maintain your roof to prevent wind damage
- Fix broken/loose steps to avoid injury and lawsuit
- Install smoke alarms, deadbolts, burglary alarms – insurers often offer discounts for these items.
- Keep doors and windows closed/locked when you aren’t home
- Your insurance company may offer a discount for being “claims free” for a specific period of time
What do you think: should insurance companies be allowed to use the credit scores of Ontario homeowners to set premiums? Leave your comments here.
