On April 25, 2024, the British Columbia Financial Services Authority (the BCFSA) released Regulatory Statement No. 24-008 Product Warranty, Vehicle Warranty, and Automobile Insurance (the Regulatory Statement) which repeals and replaces “Information Bulletin INS-06-009 Product and Vehicle Warranty Insurance.” Although the exemptions for product warranty insurance and vehicle warranty insurance remain intact, the Regulatory Statement clarifies the BCFSA’s position with respect to the regulation of vehicle protection contracts that are not related to the mechanical breakdown or failure of the vehicle.
Background
Insurance products can only be underwritten by appropriately authorized insurers and marketed and sold by licensed insurance agents unless an appropriate exemption exists under the legislation. In British Columbia, product warranties and vehicle warranties are regulated as insurance. Product warranty insurance relates to loss of, or damage to, personal property other than a motor vehicle or that falls within another class of insurance. Vehicle warranty insurance relates to loss of, or damage to, motor vehicles arising from mechanical failure.
Automobile insurance is distinct from vehicle warranty insurance in particular, and covers loss or damage to automobiles, such as indemnification for loss in the event of a theft, motor vehicle accident, or if the glass, paint or other part of a motor vehicle is otherwise damaged due to a fortuitous event.
Requirements
Section 75 of the Financial Institutions Act (British Columbia) provides that a person must not carry on insurance business in British Columbia unless the person is, among other things, an insurance company or extra provincial corporation that has a business authorization to carry on insurance business or is licensed as an insurance agent or salesperson and is carrying on insurance business only in that capacity.
Insurers are only permitted to underwrite and sell the classes of insurance set out in the business authorization issued to them by BCFSA. Exemption from the authorization or licensing requirements may apply when the underwriting and/or solicitation of product warranty insurance and vehicle insurance is undertaken by product manufacturers, vehicle manufacturers, retailers, including motor dealers and their employees.
Vehicle Protection Products
The BCFSA has confirmed that vehicle protection products or service contracts unrelated to the mechanical breakdown or failure of the vehicle (e.g., tire and wheel protection, paintless dent repair or removal, windshield repair/replacement and key/fob replacement) (Vehicle Protection Products) constitute automobile insurance and cannot be sold by dealers. Such contracts do not constitute vehicle warranty insurance, since they are not related to the mechanical failure of the vehicle and are more in line with the definition of automobile insurance which includes damage due to a fortuitous event.
Accordingly, Vehicle Protection Products must be underwritten by insurers who are authorized to insure automobile risks in British Columbia and must be distributed by licensed insurance agents/agencies in British Columbia. The dealer may refer the customer to the insurance agent but should not be the distributor or obligor of such products going forward. However, by way of example, the BCFSA indicated that if the dealer sells tires or rims separately to the customer and offers a protection product in respect of the tires or rims, respectively, then that would be permissible, as it would fall within the class of product warranty insurance and the retailer exemption would apply.
The terms and conditions of the Vehicle Protection Products must comply with the applicable provisions of the provincial insurance legislation. There is presently no restricted license regime available for the distribution of Vehicle Protection Products.
The BCFSA indicated that, except in cases where insurance has been distributed by third party entities on an unauthorized basis, existing contracts will be permitted to run off and the BCFSA will not require such contracts to be cancelled and rewritten as insurance policies. However, the BCFSA will expect market participants to formulate an action plan in order to bring their businesses into compliance with the Regulatory Statement. We understand that many dealers and other market participants have already received warning letters in this regard.
This will mark a distinct shift in the manner many administrators and insurers structure and sell these products in the province of British Columbia. Please do not hesitate to contact us should you wish to discuss how to properly structure and distribute any new or existing programs related to vehicle warranty insurance or Vehicle Protection Products.
The Vehicle Protection Products described herein do not refer to products offered under Insurance Corporation of British Columbia Autoplan policies.
For more information on this topic, please reach out to the authors, Laurie LaPalme, Marisa Coggin or Jaspal Nagra.
The foregoing is intended for informational purposes only and does not constitute legal advice or an opinion on any issue. We would be pleased to provide additional details or advice if desired.
