Bad Deal

It looks like frayed relations between insurance brokers and some auto dealers are poised to deteriorate further than is currently the case. Tensions are likely to rise in light of the Regroupement des cabinets de courtage d’assurance du Québec’s (RCCAQ) intention not only to keep lobbying the Autorité des marchés financiers (AMF) to strictly enforce provincial law in a bid to end illegal practices by some dealers, but also to shine a spotlight on the practices that Quebec brokers contend put consumers in harm’s way.

None of this is likely to tamp down tensions. But RCCAQ officials and members believe the move is in the interests of brokers and consumers alike to publicize and denounce practices that skirt the law. This is being achieved through the recent launch of a consumer awareness campaign.

SOURCE OF TENSION

Questionable practices

Over the past few years, the RCCAQ has been concerned with certain dealers’ business practices, particularly when these involved offering their clients an opportunity to purchase replacement insurance. The RCCAQ regards certain methods being used as violating provincial advisory, transparency and disclosure rules and requirements needed to protect consumers who want to buy damage insurance. In light of the disturbing (and illegal) practices, the RCCAQ began documenting some of these in the fall of 2012.

Call to action

After condemning these practices as harmful to both the industry and consumers, the RCCAQ called on members to remain vigilant, denounce these practices and alert the AMF when they became aware of any such questionable practices. This call to action did not fall on deaf ears: various examples of abusive situations were eventually brought to the attention of RCCAQ which, in turn, began compiling information to build a solid case supporting its view that the practices were in contravention of the law.

In March 2013, the RCCAQ submitted its findings to the AMF, which immediately voiced its concern and promised swift action. After analyzing the situation, the AMF informed the RCCAQ that the regulator intended to investigate several of the reported cases.

Not all dealers implicated

Special care has been taken by the RCCAQ to ensure that insurers who are dealing properly with automobile dealers, obeying the law and complying with all ethical requirements are not caught up in the skirmish. No complaints have been filed against insurers who are acting lawfully. As for automobile dealers, it is important to note that many do a very good job, in accordance with the highest professional standards.

RAISING PUBLIC AWARENESS

“The unfair competition engaged in by many new car dealers in Quebec deserves to be brought to the general public’s attention,” says RCCAQ chair Jean Bilodeau. To that end, since November 2013, the RCCAQ’s efforts have been focused on a new tack: raising public awareness of the risks that consumers face.

Ever since auto dealers were authorized to sell replacement insurance (AMF auto insurance form FPQ No. 5), some of them began competing with brokers on the “replacement cost endorsement” (FPQ No. 43) by including an option in the FPQ No. 1 automobile insurance policy. Based on various reported cases, some dealers are entering into financial arrangements.

This tactic is in clear violation of the rules. For example, they may transfer the required information for submitting FPQ No. 1 to the agent or broker and then finalize the transactions in their places of business.

LACK OF TRANSPARENCY

Consumers may not always have a full understanding of the existing rules and protections in place. For example, dealers are authorized to offer replacement insurance – which resembles the replacement cost insurance offered by brokers – whereas brokers offer both types of coverage.

Some dealers take advantage of this lack of transparency by denigrating products offered by brokers and by pressuring consumers to buy products with which dealers themselves, having no insurance training, are unfamiliar.

This causes confusion for consumers who may want to compare dealers’ prices with brokers’ prices.

It should be noted that dealers’ prices for replacement insurance can be as much as 66% higher than brokers’ prices, due in part to the cost being added to the vehicle financing amount, which may be spread out over six years.

Some consumers who agreed to discuss their experiences reported that some dealers even threatened to increase the vehicle-financing rate if they did not purchase replacement insurance through them. That means consumers were unfairly pressured to buy this insurance.

THE LAW IS THE LAW

Within this specific legal framework, the RCCAQ wishes to reiterate what the legislation governing distribution without representation provides for in the case of automobile dealers.

Automobile dealers are authorized to do the following:

• offer replacement insurance (FPQ No. 5);

• offer life, health and job loss insurance if it pertains to vehicle

financing;

• refer clients to an insurance representative to obtain products that automobile dealers are not authorized to sell;

• provide clients with the contact information of a representative or a registered person;

• provide a representative or a registered person with the name and contact information of a client or list of clients (only client contact information is allowed, such as names, addresses, e-mail addresses and phone numbers); and

• receive compensation that is wholly independent of the referral outcome (i.e., whether or not insurance products are ultimately purchased).

In principle, dealers are also required to inform clients that replacement insurance is also available from insurance brokers.

Automobile dealers, however, are not authorized to do the following:

• offer automobile insurance (FPQ No. 1) or advise clients on the coverage available under such a contract;

• gather personal information with a view to obtaining a quote;

• complete on a client’s behalf, or help a client to complete, an insurance quote request or an insurance proposal (even if the client asks for assistance);

• provide clients with any insurance-related advice;

• make the signing of the vehicle sales agreement contingent on the signing of a replacement insurance contract; and

• make the signing of a loan agreement contingent on the signing of an insurance contract with a dealer-specified insurer.

BROKERS’ VOICES

To date, a total of 21 cases involving clients willing to be contacted have been submitted to the AMF, while brokers have submitted another 20 denunciations of dubious practices brought to their attention.

Still, the RCCAQ knows this is not enough. Looking to rally the troops, Bilodeau emphasizes that “we have to send out a powerful message so the AMF cannot possibly ignore it. If we have 4,500 brokers, we should have 4,500 denunciations of illegal practices.”

To assist in the campaign, the RCCAQ has prepared a consent form to be signed by consumers affected by these practices so that they can be more easily contacted by the AMF.

The RCCAQ refuses to give up the fight and is fully prepared to do battle to protect insurance brokers and consumers alike.