Insurers like to know about the people they are insuring. Many insurers that cover home owners use credit scores to assess the likelihood of future claims; statistical evidence shows there is a link between muddy credit scores and future claims.
But regulators and courts are increasingly on the lookout for insurers who access credit score information without proper consent from the clients who have applied for insurance. Last week, the Supreme Court of British Columbia ruled on the issue in a case involving Waterloo. Ont.-based Economical Mutual Insurance Company.
While Economical was successful in the case, the court also made it clear that insurers must ensure they are diligent about obtaining the consent before delving into their clients’ credit scores. (The federal privacy commissioner has also recently reported on this issue, cautioning insurers about their duty to obtain proper consent when accessing credit scores; See Investment Executive, Mid-February, 2013: Insurance, credit scores and privacy)
The Economical case arose after a homeowner complained in 2009 to the Information and Privacy Commissioner of British Columbia that his privacy had been breached: the homeowner had recently become aware that Economical had enquired into his credit score during a renewal application.
Despite having signed a consent in 1996 to the gathering of credit information by the insurer, the homeowner was not satisfied. A written inquiry was then launched by the B.C. privacy commissioner under the province’s Personal Information Protection Act (PIPA). In an indication of the attention privacy issues are now attracting, seven intervenors then joined the inquiry. They include: the B.C. Freedom of Information and Privacy Association; Equifax Canada Inc.; Insurance Bureau of Canada; TransUnion of Canada Inc.; the Insurance Brokers Association of B.C.; the Consumers Council of Canada; and the Canadian Association of Direct Response Insurers.
The inquiry concluded that Economical had the right to use credit scores to set premiums. However, it also concluded that the form of the consent signed by the homeowner in 1996 (which was subsequently altered in 2004 and 2008 to conform to B.C. privacy legislation) was not “adequate notice of its purpose” in collecting the credit scores.
More important, however, the inquiry also resulted in a series of sweeping orders, essentially requiring Economical to provide “adequate notice” to all of its home insurance policy holders, as well as all present and future applicants for home insurance, that credit scores would be collected to assess future risk.
In addition, Economical was ordered to review all of the consents it had obtained from home owners since January 1, 2004, when PIPA came into effect and “ascertain” whether these policyholders knew that their credit scores might be obtained by the company.
Economical did not dispute the finding concerning the original complaint from the homeowner. But it did object to the extent of the other orders, alleging lack of procedural fairness, a misinterpretation of PIPA and lack of evidence for making the orders.
In addition, the decision says, Economical argued that compliance with the orders would “impose a hardship and costs on hundreds of brokers in British Columbia who are the ones who will actually have to carry out significant aspects of the orders.”
In finding for Economical, the court concluded that it was not reasonable to expect the company to be responsible for reviewing its own conduct. “In attempting to determine whether consents had been granted, Economical would not be a detached observer,” the decision says. The court added that, under PIPA, it is the privacy commissioner who must assess the sufficiency of consents, not the company that has drafted the consent.
In setting aside all of the orders except for those relating to the original homeowner, the court stated: “The remedy had to relate to the issues before the [inquiry]. Those issues did not include notice to, or consents given by other policyholders. An order requiring that Economical review all policies to determine whether consents had been given was outside the scope of the inquiry and the orders were not within the range of possible outcomes.