FSRA Issues Warning re: Unlicensed GAP Insurance Sales in Ontario

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FSRA Issues Warning re: Unlicensed GAP Insurance Sales in Ontario

Guaranteed Asset Protection ("GAP Insurance") has become a common feature of vehicle purchasing and is routinely sold at vehicle dealerships to consumers who are financing or leasing a vehicle.

Currently, only a select few provinces contain a definition of GAP Insurance in insurance legislation or guidance. Generally, GAP Insurance covers the financial "gap" between a vehicle's actual cash value and the remaining balance on a lease/loan in the event of the unrecovered theft of a vehicle, or if a vehicle is declared a total loss/written off after an accident or damage.

As an example, assume your auto insurer assesses the actual cash value of your stolen vehicle at $10,000. After payment of a $500 deductible, your resulting compensation is $9,500. If the vehicle is financed with an outstanding balance of $13,000, you are left with a shortfall of $3,500. This is the "gap" that GAP Insurance is designed to cover.

GAP Insurance in Ontario

Ontario is one of the provinces without a clear definition of GAP Insurance in its legislation, which has led to some uncertainty as to whether or not dealers could sell this type of coverage in the absence of insurance agent licensing, whether or not the "obligor" needed to be an authorized insurer, and whether or not third party administrators could administer claims for this type of coverage in the absence of insurance adjuster licensing.

However, on July 23, 2026, the Financial Services Regulatory Authority of Ontario ("FSRA") issued a clear warning that the sale of unlicensed GAP Insurance will not be tolerated. As such, dealers should immediately cease selling these types of coverages unless and until appropriate insurance licensing is obtained.

Indeed, FSRA has noted that it will continue to actively monitor the sale of GAP Insurance and will take appropriate action when violations are identified.

Loyalty Programs

FSRA specifically notes that so-called "loyalty programs", which provide a credit towards another vehicle at the dealership (vs. repayment/forgiveness of outstanding loan/lease obligations), also constitute GAP Insurance.

FSRA notes that these products may be presented in a way that deliberately implies they are not insurance, thereby circumventing the regulatory and legal requirements designed to protect consumers. However, it is perhaps the case that, absent historical clear guidance to the contrary, the industry has been providing loyalty programs under the premise that they were not likely to be considered contracts of insurance. FSRA's recent warning has now dispelled any such assumption.

Restricted Licensing

Unfortunately, the insurance legislation in Ontario does not currently include a restricted insurance agent licensing regime. Such a regime would allow dealerships to obtain a dealership-level license permitting its employees to sell certain types of coverages without the need to obtain an individual agent license. A restricted insurance agent licensing regime is available for GAP Insurance in the provinces of Alberta, Saskatchewan, Manitoba and New Brunswick (and will be available in British Columbia starting in 2027) and requires appropriate oversight by the insurer on whose behalf the dealership/its employees is acting.

Key Takeaways

In light of FSRA's warning, dealers and other industry participants selling or administering GAP Insurance in Ontario should consider the following steps: (a) immediately cease the sale of any unlicensed GAP Insurance products, including loyalty programs that may constitute contracts of insurance; (b) review existing sales practices to assess compliance with applicable insurance licensing requirements; and (c) monitor FSRA communications for further regulatory guidance.

by Darcy Ammerman and Gitashu Jain (Summer Law Student)

A Cautionary Note

The foregoing provides only an overview and does not constitute legal advice. Readers are cautioned against making any decisions based on this material alone. Rather, specific legal advice should be obtained.

© McMillan LLP 2026