The Financial Services Regulatory Authority of Ontario (FSRA) has taken the unusual step of warning the public about buying certain vehicle insurance products from unlicensed insurers. “They could be paying hundreds of dollars for coverage that may not be valid,” the announcement states. “FSRA is alerting consumers to the unlicensed sales of Guaranteed Asset Protection (GAP) insurance that may leave some drivers without the coverage they expected.”
The announcement explains that GAP insurance, sometimes described as a loyalty program to avoid the regulatory and legal requirements which go with selling insurance, is commonly sold at car dealerships to consumers who are financing or leasing a vehicle.
“For example, if $30,000 remains on the (consumer’s) loan, and the insurer determines that the vehicle’s actual cash value is $24,000 the consumer would still owe $6,000. GAP insurance is designed to cover this shortfall,” they write. “FSRA has identified GAP insurance being sold by unlicensed businesses and individuals. In some cases, GAP products name an insurer despite no licensed insurer having issued the policy.”
FSRA further calls the trend concerning.
“Roughly three-quarters of car buyers lease or finance their vehicles, and they may be offered coverage that could leave them exposed. Consumers have paid hundreds of dollars for this coverage and expect to be protected, but their policies may not be valid, and claims may not be honoured,” says FSRA’s executive vice president, property and casualty insurance, Jordan Solway.
The regulator further adds that calling GAP insurance a loyalty program, “does not change the fact that it is insurance and any company selling this product must comply with the Insurance Act.”
