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Auto warranty is an insurance product in Quebec

Auto replacement warranties should be considered "an insurance product," according to Quebec’s financial services regulator, Autorité des marchés financiers (AMF).  The regulator made this announcement in their weekly bulletin dated March 27, 2009.

Béchard Jacques, the president and CEO of the Automobile Dealers Corporation of Quebec disagrees.

"[Auto dealers] invented the replacement warranty! This is not an insurance product but a product warranty. Otherwise, it should be clearly defined [as an insurance product] in the law," said Jacques.

However, Sylvain Théberge, a spokesperson for the AMF, explained that "the mode of distribution" was the issue and that AMF was now in the process of examining whether or not Quebec’s auto warranty replacement product was, in fact, a financial product or a warranty.

The AMF announcement, this March, came after several years of industry discussions among the regulator, other decision-making bodies and the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ)

"This is an important step taken, but we are not finished," said Johanne Lamanque, director general, Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ). Although happy that AMF will now examine the auto warranties, Lamanque is still concerned at who will get the opportunity to sell this type of product.

According to AMF’s March 27 bulletin, the auto replacement warranty is really an insurance product, and therefore should be issued "by insurers whose coaching regime, administered by the Authority, allows consumers to be better protected from risks of insolvency."

Although there are no accurate statistics on the revenue generated by the sale of auto replacement warranties, industry estimates suggest the product makes over $200 million (CDN) per year in Quebec alone.

Recognizing that any change in regulation could impact current sales networks and multiple industries, the MFA will work with key stakeholders to ensure an adequate transition of the product from automobile sales staff force to insurance professionals. This transition will take roughly 12 months.

These changes are now reflected in the Quebec regulators Insurance act—which governs automobile insurance for the province—and will require manufacturers and administrators of guarantees to register with AMF. The deadline for registering is three months after the March 27, 2009 bulletin.

"Having 12 months of transition satisfies all stakeholders," said Théberge.

This change will also protect the public; previously, the sale and enforcement of these products was at the discretion of those who sold the product—sales people that did not always understand the insurance process.

The warranty replacement is a complex issue with many stakeholders and interests, explains Théberge.

This does not mean that dealers cannot distribute auto warranty products, said Théberge. But how these products will be distributed still needs to be determined. Both dealers and insurers are being invited to talk to the AMF to sort out these important details.

On the possibility, or necessity, of dealers having to hire brokers to keep some sales in-house, Jacques also disagrees that dealers will have to hire brokers to keep some sales in-house.

"It would be unnecessary to hire a broker. We are ready for collaboration; we will continue to  manage the distribution of automotive replacement warranty."  He adds that brokers need to remember that dealers were the parties that originally created this product.

"From our side we do not recognize that the replacement warranty is an insurance product; it is not an insurance product but a product warranty."

Alexandre Royer, spokesman for the Insurance Bureau of Canada (IBC), said "the recognition of the warranty replacement as an insurance product is interesting because [the product] became ambiguous for some time."

Either way, Royer believes that consumers will benefit from this examination of the product as there will now be a single, uniform standard that everyone must follow.

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