On November 22, 2024, the Ontario Ministry of Finance announced that it is proceeding with a plan announced in Ontario’s 2024 Budget that will give the Financial Services Regulatory Authority (FSRA) the power to initiate a pilot project permitting the sale of automobile insurance products by auto dealers, manufacturers and finance companies (the “Exempted Persons”) at motor vehicle dealerships. The plan would involve amending Ontario Regulation 704/21 to allow FSRA to exempt such sales from the application of section 231 of the Insurance Act (Ontario), which currently prohibits them.
While certain Canadian provinces allow automobile dealers and manufacturers to sell certain insurance products (e.g., extended/equipment warranty, GAP insurance), the proposed amendment, if approved, would make Ontario the first province to potentially allow the Exempted Persons to sell auto insurance.
Background
Currently, section 231 of the Insurance Act (Ontario) effectively prohibits the Exempted Persons from engaging in activities relating to the sale of automobile insurance, except in respect of subscription-based auto insurance.
As noted above, the proposed amendment to Regulation 704/21 would extend FSRA’s exemption powers to enable the sale of automobile insurance at motor vehicle dealerships by the Exempted Persons under its Test and Learn Environment (TLE). A TLE is a controlled environment where new products, services, or business models can be tested and validated from a regulatory perspective prior to being fully introduced to the wider market.
Under the proposed initiative, FSRA would be able to create a pilot to facilitate the sale of automobile insurance products at motor vehicle dealerships through one or more delivery mechanisms, including sales by brokers, agents, or direct writers present at dealerships, as well as an embedded insurance model whereby vehicle and insurance pricing are bundled together in a single package. FSRA would oversee the proposed pilot project within its TLE, ensuring compliance and consumer protection and establish terms, parameters, and necessary compliance requirements.
Some provinces in western Canada, as well as New Brunswick, already have restricted licensing regimes that allow automobile manufacturers and dealers to sell certain insurance products incidental to the sale of vehicles (e.g., extended/equipment warranty and GAP insurance). However, these restricted licensing regimes do not allow manufacturers and dealers to sell automobile insurance. Accordingly, the proposed initiative would make Ontario the first province to potentially allow the sale of automobile insurance by the Exempted Persons.
Objectives
The initiative aims to:
- Improve customer experience and affordability;
- Increase consumer choice by introducing novel distribution channels;
- Encourage the development of innovative, consumer-focused products in response to changing needs; and
- Promote competition in Ontario’s insurance sector.
It is anticipated once the amendment is approved, FSRA will issue further detail about the proposed initiative and the related regulatory requirements, however, at this stage, the Ministry does not expect that the proposed amendment to O. Reg. 704/21 would impose any additional obligations on regulated entities and result in any negative regulatory impact, as it currently pertains to FSRA's TLE. That said, if implemented, the initiative could profoundly change the Ontario auto insurance distribution landscape, potentially to the detriment of traditional insurance brokers/agents.
Consultation
The consultation is structured around a series of questions, including the following (in condensed form):
- Would this initiative benefit consumers?
- What would the effects be on the auto insurance market in Ontario?
- What are the implications of using broker/agent-led or embedded insurance models for selling auto insurance through dealerships, and what challenges might arise?
- Should any other distribution methods be considered?
- Are there other concerns?
- Would piloting such initiatives be supported?
- Are there any additional comments for the Ministry of Finance and FSRA on the pilot?
Responses are due by January 6, 2025 and may be submitted online.
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