At the same time, the AMF fined nine motor vehicle dealers and
one damage insurance firm for engaging in such practices. The
AMF's news release, which contains a link to the English
version of the Notice, is available here.
This is not the first time that the AMF has provided guidance on
motor vehicle replacement insurance and condemned improper
practices. In 2010, an AMF Notice (in French only) set out the
AMF's view on motor vehicle replacement warranties ("GAP
warranties"), classifying them as insurance products that may
be sold only by a licensed firm or through the distribution regime
of the Financial Products Act. Various other AMF notices on motor
vehicle insurance were published in 2009, 2010 and 2012.
How the Financial Products Act regulates the sale of damage
Under the Financial Products Act, damage insurance (including
motor vehicle replacement insurance) may be sold in Quebec in
either of two ways:
Through a licensed damage insurance representative/firm;
Through the distribution regime, which permits certain
non-licensed businesses, such as motor vehicle dealers, to sell
certain types of motor vehicle insurance directly.
As the AMF emphasizes in the Notice of February 16, 2015, the
distribution regime imposes obligations on insurers and
distributors. Pursuant to this regime, the insurer must:
Provide the distributor with an approved distribution
Ensure that the distributor is familiar with the insurance
Set up mechanisms to ensure that the distribution activities
comply with the Quebec legal and regulatory framework; and
Refrain from providing incentives that may affect the
distributor's fair treatment of consumers.
The notice reminds insurers of the legal provisions and
guidelines applicable to them which impose these obligations. The
distributors also have various obligations under the Financial
Products Act, including distributing the guide to the consumer
purchasing the insurance and ensuring the consumer is properly
informed about the product.
Non-compliant practices singled out in the Notice
Pursuant to the Notice, current non-compliant practices of motor
vehicle dealers include:
Failing to notify customers when the commissions received
exceed 30% of the insurance premium;
Failing to offer customers of replacement insurance two options
in the event of a loss, i.e. (i) the replacement of the vehicle
through the designated dealer or (ii) an indemnity so the consumer
can have his or her vehicle replaced through the dealer of his or
Adding the balance of a previous debt to the purchase price of
the vehicle indicated in the replacement insurance contract (QPF No. 5);
Comparing replacement insurance with the replacement cost
endorsement, an activity that constitutes advice and which
therefore may only be performed by certified insurance
Offering automobile insurance products covering civil liability
and damage to the vehicle (QPF No. 1), a product that may only be offered
by damage insurance agents and brokers registered with the AMF
(including gathering personal information in order to obtain a
quote in this regard);
Failing to provide a copy of the distribution guide to the
customer prior to the sale of the insurance product;
Making financing or a lower financing rate conditional on the
customer's purchase of replacement insurance;
Compelling a customer to have his or her vehicle repaired with
a specific dealer in the event of a partial loss;
Selling replacement insurance offered to customers who already
hold a replacement cost endorsement or advising the customer to
replace the endorsement with the insurance.
Finally, the damage insurance representative/firm must
Intentionally not propose the replacement cost
endorsement when selling QPF No. 1 in order that the distributor
can instead sell the customers replacement insurance.
The AMF's "final word"
The AMF concludes the Notice with the stern warning that it
"intends to take the necessary measures to put an end to any
practice that is not in compliance with the Insurance Act
and the Distribution Act", adding that it "may
impose an administrative sanction or take penal proceedings against
any person who fails to comply with these Acts [and] may also order
an insurer to cease distributing an insurance product through
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