On October 10, 2024, the Alberta Superintendent of Insurance issued Interpretation Bulletin 05-2024 (“Bulletin”) on the insurance regulatory treatment of motor vehicle warranty contracts, dealership loyalty programs and vehicle protection products. In an unusual development, the Bulletin, which incorporated a number of changes from the June 2024 draft version, was almost immediately withdrawn in order for unspecified changes to be made. Even as we await those final revisions, the Superintendent’s overall approach appears sufficiently clear, as described below.
Overview
Under Alberta’s Insurance Act, products that meet the definition of “insurance” must be underwritten by a licenced insurer and may only be sold by a licenced agent (which includes a business, such as an automobile dealer, holding a “restricted certificate of authority” allowing it to sell certain specific insurance products (an “RCA”). The definition of “insurance”, similar to the definition in other provinces, is:
The undertaking by one person to indemnify another person against loss or liability for loss in respect of certain risk or peril to which the object of the insurance might be exposed or to pay a sum of money or other thing of value on the happening of a certain event….
The Bulletin describes how (pending the final revisions) the Superintendent considers each of the following:
- Motor vehicle warranty contracts (manufacturer warranties, manufacturer extended warranties and third-party extended warranties);
- Dealership loyalty programs; and
- Ancillary motor vehicle protection products.
As detailed below, Alberta’s approach clarifies that some products that were previously arguably not insurance will not be regulated as such. Alberta’s approach also clarifies that roadside service plans and other motor vehicle service plans may be offered without an insurance licence, provided they include only planned maintenance, routine service or minor repairs due to “wear and tear”. Notably, this differs from the approach announced by the British Columbia Financial Services Authority in Regulatory Statement 24-008 on April 25, 2024, in relation to British Columbia law which treats all vehicle warranties as contracts of insurance (although does not require insurance agent licensing for the solicitation and/or underwriting of vehicle warranty insurance by manufacturers or dealerships).
The Bulletin clarifies that if any element of a product constitutes insurance, the entire product is insurance.
Motor Vehicle Warranty Contracts
Consistent with the regulator’s historical approach, the Bulletin distinguishes manufacturer warranties from third-party extended warranties (including dealership warranties), providing greater leeway to original equipment manufacturers than third parties. The Superintendent interprets motor vehicle warranty insurance as falling under the category of “equipment warranty insurance” as defined in the Classes of Insurance Regulation of Alberta’s Insurance Act.
Manufacturer warranties and extended warranties
Under historical Alberta practice and the Bulletin, manufacturer warranties are not considered insurance and are instead subject to the provisions of Alberta’s Consumer Protection Act, provided they cover only inherent deficiencies in materials or workmanship. Therefore, warranty contracts issued by the manufacturer or by a wholly-owned subsidiary of the manufacturer would not be considered as insurance.
On the other hand, if a warranty covers any risks, damages, peril, or losses beyond inherent deficiencies in workmanship or materials from the vehicle's production, it constitutes insurance. For example, coverage compensating for the loss of a vehicle that is stolen due to a failure of its manufacturer-supplied security system is regarded by the Superintendent as insurance. This classification arises because such coverage goes beyond remediating the inherent deficiency and instead compensates for a consequence of the deficiency.
This contrasts with British Columbia’s approach, under which all manufacturer warranties are contracts of insurance (although, as noted above, distribution exemptions apply).
Third-Party extended motor vehicle warranties
This category includes warranty contracts issued by a person other than the manufacturer or its wholly-owned subsidiary, such as automotive dealers or third-party warranty companies. These warranties can be issued at any time during or after the sale of the vehicle and are classified as insurance. Consequently, the Bulletin indicates that third-party warranty providers not licensed as insurers may need to transfer their contracts to an insurer licensed in Alberta.
The only exception contemplated in the Bulletin is for persons who provide coverage for inherent deficiencies in the service or repairs they have provided, such as auto repair shops. This is consistent with the position taken with respect to manufacturers’ warranties: in each case coverage designed to address deficiencies in one’s own work (such as services or repairs) will not be considered an insurance product.
Dealership Loyalty Programs
Motor vehicle dealership loyalty programs will generally be considered contracts of insurance, specifically GAP insurance, which is defined as follows by the General Insurance Council of Alberta:
GAP insurance means property insurance that covers all or a portion of the difference between the recovery received on primary automobile insurance in the event of a total loss and the [manufacturer’s suggested retail price] of a current year replacement vehicle or the difference between the recovery on a primary automobile insurance policy and an outstanding loan or lease obligation in the event of total loss.
These products are usually offered at dealerships alongside the purchase, lease, or financing of new or used vehicles, often referred to as a membership fee. They provide consumers with dealership discounts on future replacement vehicles if their original vehicle is damaged or totaled. The discount amounts can vary based on factors such as the type of loss, the original vehicle's sale price, and its age at the time of purchase.
The Superintendent is taking the position that, because such discounts are contingent on the occurrence of a “certain risk or peril”, they are insurance and need to comply with Alberta’s Insurance Act.
The sole exception identified in the Bulletin applies to financing companies that underwrite debt waivers in certain circumstances, e.g. where a vehicle is a write-off and the insurance payment is less than what is owed on the loan. In that scenario, vehicle finance companies may agree to waive a certain amount of the outstanding loan.
Ancillary Motor Vehicle Protection Products
Importantly, the Bulletin canvasses add-on or “ancillary” motor vehicle protection products (“VPPs”), primarily by listing those that the Superintendent would and would not consider to be insurance. VPPs that are classified as insurance include, but are not limited to:
- Deductible Reimbursement or Monetary Credit: This coverage applies in the event a motor vehicle is lost, stolen or damaged (considered to be GAP insurance).
- Non-manufacturer Tire and Rim Warranties: This product covers replacement of the tire and rims and is classified as “equipment warranty insurance”. However, unlike the original draft of the Bulletin, the October 10th version of the Bulletin specifically excludes motor vehicle manufacturer warranties on a vehicle’s original tires and rims.
- Glass Protection Products: These products cover some or all costs associated with windshield replacement. They are classified under automobile insurance and must be sold by a general insurance agent; they cannot be sold under an RCA.
- Theft Deterrent Products: This includes promises to pay in case of vehicle theft or non-recovery of a vehicle or part of a vehicle (e.g. anti-theft etching or tagging devices or other theft deterrent measures for a catalytic converter) where the product failed to function as promised. Like glass protection, they fall under automobile insurance and can only be sold by a general insurance agent, and not under merely an RCA.
- Key Fob Replacement Coverage: This coverage, which compensates for lost or damaged key fobs, is classified as automobile insurance and must also be sold by a general insurance agent, and not under merely an RCA.
- Rental Vehicle Coverage: If provided as part of an insurance VPP, this coverage pays for a rental vehicle while the insured vehicle is unavailable. It is categorized as automobile insurance and can only be sold by a general insurance agent, and not under merely an RCA.
In contrast with the above, the Superintendent does not classify roadside service plans or other motor vehicle service plans that provide solely for planned maintenance, routine service or minor repairs as insurance. “Routine services” include:
- Oil changes;
- Windshield repairs;
- Tire and rim repairs;
- Wiper blade replacements;
- Air filter replacements; and
- Scuff, ding, chip, cut, tear and scratch repairs (interior or exterior).
To fall under this exception, a service plan would have to cover wear and tear due to use of the vehicle, rather than damage from an external risk (e.g. collision or theft). If the service is limited to “reasonable and expected wear and tear” it is “likely” not insurance, according to the Bulletin.
By comparison, in British Columbia, pursuant to the April 2024 Regulatory Statement 24-008, any such protections from external risks would be considered automobile insurance and could only be underwritten by a licensed automobile insurer and distributed by a licensed broker (and not merely an automobile dealer).
Going Forward
The revision to the Bulletin is currently underway and we will provide updated commentary when it is released. In the meantime, it may be difficult for industry participants to know where the line should be drawn between ordinary wear and tear vs. insurance providing coverage for fortuitous events. For example, while “glass protection products promising to pay some or all of the cost of a windshield replacement” are “insurance”, according to the Bulletin, it is unclear whether windshield replacements could sometimes be allowed as a possible option under a wear and tear roadside service plan or motor vehicle service plan (which the Bulletin does not consider insurance), or whether the reference to “windshield repairs” as an example of what may be included in a service plan is intended to exclude “replacement” as a permitted type of repair. As some commentators have noted, this type of distinction could lead consumers to choose to merely repair a heavily damaged windshield (because that is included in their service plan) rather than a full replacement which might be safer in the circumstances.
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