Auto Insurers’ Interest in New Brunswick’s Credit Ratings Bad News for Many

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The numbers show that the rate of New Brunswick adults with serious financial problems is the highest in Canada for the fourth year in a row, adding a wrinkle to the introduction of credit scores as a factor in setting credit scores. auto insurance rates in the province.

In recent months, the New Brunswick Insurance Commission has given several insurance companies the green light to ask customers for permission to use credit scores as a factor in setting auto premiums.

This could be a significant change in a province where an unusually high number of people struggle with personal finances.

According to figures compiled by the Office of the Superintendent of Bankruptcy Canada, about one in 87 adults in New Brunswick – 7,246 in total – filed for insolvency in a 24-month period ending in July.

This is the highest number per capita in the country in those two years and about 65% above the national average.

Insolvency can involve outright personal bankruptcy or a formal “proposal” to creditors to settle debts for partial payment.

Financial problems nothing new

But high rates of personal financial problems are nothing new to New Brunswick.

Over the past 10 years, 40,000 New Brunswick adults – about 1 in 16 – have sought some kind of creditor protection.

Andrew Graham, CEO of free online credit score site Borrowell, said credit problems among New Brunswick residents are showing up in his own business data.

Andrew Graham, second from left, is the CEO of Borrowell, a free online credit scoring site. He says the average credit scores in New Brunswick are the lowest in Canada. (Borrowell)

“When you look at credit scores across Canada and the ratings of the biggest cities, three of the last five are in New Brunswick,” Graham said.

Last spring, in a nationwide compilation of average credit scores of Borrowell users across 20 centers across Canada, Moncton residents finished 20th. Residents of Saint John, who posted even worse credit scores, were said to have been the last but were not included in the survey.

Credit scores are compiled by companies like Equifax and TransUnion that track consumer borrowing and bill payment histories.

A perfect credit score in Canada is 900. Anything above 740 is considered excellent. Below that, the scores drop rapidly into the good, fair, and bad ranges.

According to Graham, the average credit score for Borrowell users in New Brunswick is 634, with average ratings slightly above 636 in Moncton and Saint John well below the provincial average at 625.

Below the national average

Residents of Fredericton had the best average scores of the three, at 656, but all three cities were below the national averages with scores ranging from fair to poor.

“For good, we generally think that anything between 713 and 740, just between 660 and 712 and below 660, it definitely becomes harder to get credit,” Graham said.

A payday lender advertises loans of $ 100 for a fee of $ 15 in northern Saint John. Low credit scores are common in New Brunswick, where insolvency rates dominate the country. (Robert Jones / CBC News)

“New Brunswick is in fact at the bottom, unfortunately, of the list of Canadian provinces.

Auto insurance companies have not publicly said how credit scores could affect premiums in New Brunswick. But they argue that it’s an effective way to differentiate customers with otherwise similar driving records.

Citing their own accident data in New Brunswick as well as several American studies, some dating back more than 20 years, insurers were able to convince the board of directors that bad credit indicates risky personal behavior that makes people at risk of accident.

“By including the credit rating, which has proven to be a good predictor of risk, it will further segment our risks, resulting in the fairest rates for policyholders,” argued Wawanesa, the largest insurer in New Brunswick. -Brunswick, in its accepted request.

“Those policyholders who are likely to generate the highest costs will be billed more expensive than those who are likely to generate lower costs”,

In its decision granting Wawanesa the right to set rates using credit scores for customers who agree to the practice, the board said it was convinced by the company that there is a connection between bad credit and bad behavior.

Insurance companies say studies show that motorists with bad credit are more likely to be in an accident than others with similar driving records and they want premiums in New Brunswick to reflect that. (Dylan Hackett / CBC)

“[Wawanesa] argued that an individual’s level of risk-taking, risk tolerance and financial responsibility, as reflected in their credit rating, is behavior reflected in other expressions of risk-taking, tolerance for risk and responsibility, including driving habits, risk avoidance and a standard of care, ”the ruling read.

Graham said there is evidence to support the position of insurance companies that drivers with bad credit are at a higher risk of making a future claim, but notes that the credit rating in it- even is not a flawless process and should not be relied on too much.

Renters, for example, don’t get the same credit for paying their rent on time as landlords do for making their mortgage payments.

Others without a credit history, such as new immigrants, young people, spouses in marriages where one person controls money and others, may be invisible to the credit scoring system and appear to be a bad risk when ‘They are not.

“Not having a score, you know, is about as difficult or almost as difficult as having a low score,” Graham said. “It is certainly a delicate area and I think it should be treated with a lot of caution. There are many reasons why people can have low scores or no credit scores at all.”


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