On December 19, 2024, the Alberta Superintendent of Insurance published a revised version of Bulletin 05-2024 (“Superintendent’s Bulletin”) on the treatment of motor vehicle warranty contracts, dealership loyalty programs and vehicle protection products (“VPPs”) under the Alberta’s insurance legislation. One of the key changes in the Superintendent’s Bulletin is its reference to the Alberta Insurance Council's Information Bulletin IB-2024-01 ("AIC Bulletin"), which was released the same day in conjunction with the Superintendent’s Bulletin. In this post, we consider the two bulletins and what industry participants can expect going forward.
Quick Summary
The AIC Bulletin introduces a new type of a Restricted Certificate of Authority (“RCA”) for “Dealership Loyalty Programs and Vehicle Protection Products” (which will become available in January 2025) and clarifies that certain products sold by auto dealerships and equipment dealers, that were previously not considered insurance, are now considered insurance and, as such, must be underwritten by licensed insurers and sold pursuant to an RCA. Accordingly, as of January 2025, some auto dealerships and equipment dealers will be required to obtain an appropriate type of RCA if they wish to continue to offer products that are now treated as insurance products. Significant fines and/or administrative monetary penalties can be levied for non-compliance.
Insurance Product Types
The revised version of the Superintendent’s Bulletin generally tracks the prior version discussed in our previous post. The primary purpose of the document, in conjunction with the AIC Bulletin, is to clarify the insurance status of each of the following:
Motor vehicle warranty contracts (including extended manufacturer and third-party warranties)
The Superintendent’s Bulletin distinguishes manufacturer warranties from third-party extended warranties.
- Manufacturers’ warranties, including extended warranties, are generally not insurance, to the extent that coverage is limited to inherent deficiencies in workmanship or materials arising from the production of the vehicle.
- Third-party warranties generally do constitute contracts of insurance, except for coverage by automotive repairers that is limited to inherent deficiencies in their own workmanship.
Classification
The AIC Bulletin further clarifies that third party motor vehicle warranty contracts, and manufacturer warranties which protect again external risks, fall into the RCA “equipment warranty insurance” classification. Such contracts must be underwritten by licensed insurers.
Dealership loyalty programs
Dealership loyalty programs are typically offered by dealerships at the time of purchase, lease, or financing of a new or used vehicle and are often characterized as a “membership fee”. They provide consumers with discounts on future replacement vehicles from the dealership if their original vehicle is damaged or totaled. The size of the discount generally depends on factors such as the vehicle’s original sale price, its age when purchased and the type of loss. According to the Superintendent’s Bulletin, these programs are insurance because the discounts they provide are contingent on the occurrence of a “certain risk or peril”.
Exception for financing companies
The sole exception 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.
Classification
In a significant change from their classification as GAP insurance in the prior version of the Superintendent’s Bulletin, dealership loyalty programs now fall under the new RCA category of “Motor vehicle dealership loyalty programs and ancillary motor vehicle protection products”. Accordingly, dealership loyalty programs must now be underwritten by insurers licensed for the “property insurance” class and sold by auto dealerships and equipment dealers that hold the new type of RCA.
Ancillary VPPs
One of the most significant changes for the industry as a result of the two bulletins is that certain ancillary VPPs, that were previously not considered insurance, are now regulated as insurance in Alberta and must be underwritten by a licensed insurer. Such ancillary VPPs are identified below along with the class of insurance (indicated in parentheses) for which an insurer must be licensed. Auto dealerships and equipment dealers in turn must obtain a new type of RCA in order to sell such ancillary VPPs.
- Deductible reimbursement or monetary credit: Refers to deductible reimbursement or monetary credits provided in the event a motor vehicle is lost, stolen or damaged. (Property insurance class)
- Non-manufacturer tire and rim warranties: Covers replacement of the tire and rims and is classified as “equipment warranty insurance” (motor vehicle tire and rim warranties with respect to the vehicle’s original tires and rims are excepted). (Automobile insurance class)
- Glass protection products: Includes products covering some or all of the costs associated with windshield replacement. (Automobile insurance class)
- Theft deterrent products: Encompasses promises to pay in case of theft or non-recovery of a vehicle or part of a vehicle, where the product (e.g. anti-theft etching or tagging devices or other theft deterrent measures for a catalytic converter) failed to function as promised. (Automobile insurance class)
- Key Fob Replacement Coverage: Coverage compensating lost or damaged key fobs. (Property insurance class)
- Rental Vehicle Coverage: Coverage provided as part of an insurance VPP that promises to provide a loaner rental vehicle. (Same class as the related VPP)
Importantly, the Superintendent’s Bulletin also stipulates that, if any element of a product is insurance, the entire product is insurance and subject to the Insurance Act. In the revised version of the bulletin, the Superintendent notes that any products that are now classified as automobile insurance must comply with all regulatory requirements pertaining to that class, including (among others):
- Approval of policy wording by the Superintendent; and
- Approval of rating programs by the Alberta Automobile Insurance Rate Board.
Exception for “wear and tear” service plans
Roadside service plans or other motor vehicle service plans that provide solely for planned maintenance, routine service or minor repairs are not classified 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 Superintendent’s Bulletin.[1]
Penalties
Providing any of these insurance products without a valid RCA constitutes an offence under section 786 of Alberta’s Insurance Act, with the possibility of fines of up to $200,000 per day. Alternatively, an administrative monetary penalty of up to $25,000 per contravention may be imposed by the Superintendent of Insurance.
[1] 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)
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