Richard Giroux, Chartered Insurance Broker (C.I.B.)

By Richard Giroux

A number of RCCAQ members recently sent us copies of vehicle leasing contracts questioning the fact that the notion of "GAP warranties" (motor vehicle replacement warranties) was not mentioned. This question is a valid one given that the intention of these brokers was to protect their clients' interests.

GAP warranties explained

According to Quebec's Autorité des marchés financiers (AMF), GAP warranties offered in long-term vehicle leasing contracts are not insurance products. They are actually a contractual provision through which the lessor relinquishes his or her right (in the contract) to require reimbursement of the difference between the balance due and the amount paid by the automobile insurer if and when a risk materializes, i.e. if the vehicle is written off. In effect, the lessor contractually "surrenders" this right in favour of the co-contracting party, i.e. the lessee or the consumer. This coverage is not sold to consumers as it is usually included automatically in the leasing contract.*

Implications

Brokers' duty to provide impartial advice lies at the heart of our work. Indeed, our status as advisors may even extend into areas that specifically go beyond the realm of insurance, such as the matter at hand. In general, consumers do not fully understand the GAP warranty provision. In order to protect the public, be sure to provide your clients with adequate information in this regard!

Promote your advisory role

In order for us to practice professionally and for your firms to grow while providing consumers with assurances that they are doing business with professionals who are fully versed in the insurance sector's complexities, we believe that the focus must be placed on advice and education. As we all know, consumers may be very enthusiastic about buying a vehicle but they may not have your depth of knowledge when it comes to the various types of coverage available. Therefore, you should:

• Avoid going over every leasing contract. Instead, ask your clients to check whether their contract contains a GAP warranty provision. They will be grateful for your concern.
• Ask your clients to review in-depth the various clauses and provisions of their contract.
• Talk to your clients about replacement insurance. Also, provide them with the consumer information document in this regard. They will be pleased to know that you are authorized to sell insurance products and that you can help them save some money.
• Talk to your clients about the differences between the "replacement cost endorsement" and replacement insurance. These notions are difficult for consumers to understand and the information document will give them valuable insight into these optional products.

Any questions? Please email us (communications@rccaq.com).

Source: AMF bulletin, vol. 7, no. 17, April 30, 2010.