Ontario's FSRA Warns Drivers That Some GAP Insurance Sold by Unlicensed Businesses May Not Pay Out, Including Products Marketed as 'Loyalty Programs'

The Financial Services Regulatory Authority of Ontario, known as FSRA, has issued a warning to drivers in the province about guaranteed asset protection insurance, usually called GAP insurance. The announcement as displayed on FSRA's site does not show a publication date, so this article does not give one. The warning's central message is that some GAP products on sale in Ontario are being sold by businesses and people who are not licensed to sell insurance, and that buyers of those products may not be protected.

What GAP insurance is

GAP insurance is an optional product that is commonly offered when someone buys or leases a vehicle with a loan or lease. A standard auto policy that covers theft or a total loss pays the actual cash value of the car at the time, meaning what it was worth on the day, after depreciation. New vehicles lose value quickly, so a driver can owe more on the loan than the car is worth. GAP cover is meant to pay the difference between the car's actual cash value and the balance still owed on the loan or lease if the car is stolen or written off.

FSRA gives an example. A driver owes $30,000 on a vehicle, and the vehicle is valued at $24,000 after it is declared a total loss. The auto insurer pays the $24,000, and the driver would still owe $6,000 to the lender. A valid GAP policy would pay that $6,000. Without it, the driver pays it out of pocket, even though the car is gone.

What FSRA found

FSRA reports that it found GAP products being sold by unlicensed businesses and individuals. It describes several problems.

Some of the products name an insurer, which can make them look legitimate, even though no licensed insurer actually issued the policy. A buyer who reads a certificate with an insurer's name on it may reasonably think the cover is real.

Some are marketed as loyalty programs. In one version, a business offers to credit an amount toward the purchase of another vehicle if the first one is written off or stolen. FSRA says that a product that promises this type of payment is still insurance under Ontario's Insurance Act, no matter what it is called. Calling it a loyalty program does not remove the need for a licence.

FSRA says insurance in Ontario can be sold only by licensed insurers, agents or brokers. If the seller is not licensed, the regulator warns, buyers may have paid hundreds of dollars for policies that may not be valid. Jordan Solway, FSRA's Executive Vice President for property and casualty insurance, is quoted saying that claims may not be honoured. This article does not know how many drivers are affected, how many sellers were identified or whether any have been named, because the announcement does not give that information.

How to check before you buy

FSRA's guidance to consumers is practical. Before buying GAP cover, a driver should:

confirm which licensed insurer is providing the cover;

check that the seller and insurer are licensed, using FSRA's licence verification tools;

make sure a licensed agent or broker is involved in the sale;

read the contract, including what counts as a covered loss and what is excluded; and

ask how the claims process works and who pays.

These steps also apply to people who have already bought GAP cover. A driver who is unsure should find the name of the insurer on the paperwork, contact that insurer directly using contact details found independently, and ask FSRA whether the seller is licensed.

What FSRA says it will do

FSRA says it will continue to monitor the market and take action against violations. People who have concerns or want to file a complaint can contact FSRA, whose consumer line is 1-800-668-0128.

What we cannot say

The FSRA announcement does not say how many drivers bought the products, how much money is involved beyond the figure of hundreds of dollars per policy, or which businesses are involved. It does not say whether buyers can recover their money. A driver who thinks they bought an invalid policy could ask the seller for a refund, tell their lender and contact FSRA or a licensed broker; these are general suggestions rather than steps FSRA's page prescribes.

Why the warning matters beyond Ontario

The underlying risk is not unique to one province. Any product that promises to pay money after a loss is insurance in substance, and the protections that come with a licence, including regulatory oversight and a route to complain, only apply if the seller is actually licensed. For a driver, the cost of checking is a few minutes before signing. The cost of not checking, if the policy proves worthless, could be thousands of dollars owed on a vehicle that no longer exists. This article is general information, not legal advice.