The Financial Services Regulatory Authority of Ontario (FSRA) has issued a consumer and industry alert regarding the unlicensed sale of Guaranteed Asset Protection (GAP) insurance across vehicle financing and leasing channels. Optional GAP coverage protects borrowers by covering the financial shortfall between a vehicle’s actual cash value and the remaining loan or lease balance following a total loss or theft.

FSRA investigations identified businesses and individuals selling GAP products without holding required insurance licenses, with certain policies listing insurance carriers that had not actually issued coverage. 

Furthermore, the regulator highlighted instances where GAP insurance was mischaracterized as a dealer “loyalty program” offering trade-in credits to bypass regulatory requirements under Ontario’s Insurance Act. FSRA emphasized that rebrandings do not alter the legal classification of an insurance product.

“This is very concerning,” said Jordan Solway, FSRA’s Executive Vice President, Property and Casualty Insurance. “Roughly three-quarters of car buyers lease or finance their vehicles and they may be offered coverage that could leave them exposed. Consumers have paid hundreds of dollars for this coverage and expect to be protected, but their policies may not be valid, and claims may not be honoured.”

Under provincial regulations, insurance products in Ontario may only be distributed by licensed insurers, agents, or brokers. FSRA advises vehicle buyers to verify underwriting credentials through its public licensing database prior to executing finance contracts. 

For automotive dealerships and F&I managers, the advisory highlights the necessity of auditing third-party protection suppliers to ensure compliance with provincial insurance standards and mitigate liability risks.