Canadian Underwriter

This customized vehicle replacement coverage is headed for the junk yard

December 8, 2020   by Greg Meckbach

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This is no April Fool’s joke. TD Insurance Group plans to stop offering its non-standard five-year vehicle replacement coverage in Nova Scotia as of Apr. 1, 2021.

In 2019, the Nova Scotia Utility Review Board approved TD’s application to offer its Five Year Replacement Cost Solution as an optional add-on for Nova Scotia auto insurance clients. That change took effect Jan. 20, 2020, for new business and March 23, 2020, for renewal business.

But in a decision released Dec. 3, 2020, the auto rate regulator approved TD’s application to stop offering the Five Year Replacement Cost Solution endorsement effective Apr. 1, 2021.

“TD explained that since the (2019) filing, new experience emerged that showed the profitability of this endorsement was not sustainable without premium increases that would make the rates unreasonable,” NSURB board member Peter W. Gurnham wrote in the board’s Dec. 3, 2020, decision.

This does not mean Nova Scotia clients with existing endorsements will see them removed on Apr. 1. TD will grandfather the risks that currently carry this endorsement until either it expires or the client chooses to remove it.

Some motorists could be at risk of driving a vehicle whose actual cash value is less than what they owe on a loan. Unless the motorist makes a large down payment, there is a good chance the vehicle will be worth less than what’s owed on the loan for several years, the Associated Press reported earlier.

Nova Scotia, like some of the other provinces, limits the amount of money auto insurers have to pay out for vehicles written off in accidents. Under Nova Scotia’s standard policy, the insurer’s liability is limited to actual cash value. But as in other provinces, Nova Scotia motorists can also buy optional additional coverage known as a waiver of depreciation.

In Nova Scotia, the limited waiver of depreciation, dubbed NSEF#43R/43R(L), provides better coverage than actual cash value. But it still limits the insurer’s liability to the lesser of the value of the vehicle and equipment as stated in the lending agreement or the manufacturer’s suggested list price at the original date of purchase of the vehicle.

In 2019, TD told NSURB that motorists are often disappointed by the coverage available through NSEF #43R/43R(L), which is only valid for two years.

TD’s non-standard Five Year Replacement Cost Solution makes TD Insurance liable for the replacement cost of the vehicle by another new automobile that has the same specifications and equipment as the original vehicle. If no such automobile exists, then TD’s liability is limited to the replacement cost of a new vehicle of like kind and quality with similar equipment.

Bringing in the Five Year Replacement Cost Solution was part of a TD Insurance national initiative at that time, NSURB member Gurnham wrote in his decision, approving the removal of that endorsement, released Dec. 3, 2020.

In Alberta, there is an optional coverage called Limited Waiver of Depreciation or SEF 43.

“When somebody phones us and says, ‘Hey I bought a new vehicle, and I need to add it to my policy,’ it would be routine to add the SEF 43 to that policy,” Robyn Young, principal and owner of Lundgren and Young Insurance Ltd. in Calgary, told Canadian Underwriter earlier.

Young, a former president of the Insurance Brokers Association of Alberta, is currently president-elect of the Insurance Brokers Association of Canada.

“We would be creating for ourselves [a risk of being sued for errors and omissions] if we did not provide [the limited waiver of depreciation] option with a brand-new vehicle. Every market offers it,” Young said in an earlier interview.

Young was asked what advice personal lines brokers should give clients about the financial risk of owing more on an auto lease than the vehicle’s replacement value. Young was commenting specifically about Alberta auto and not about other provinces.

For its part, Ontario has the OPCF 43 optional additional coverage. This endorsement means the insurer no longer has the right to deduct depreciation. The most the insurer is liable for is the lowest of the following three amounts:

  • The actual purchase price of the automobile and its equipment;
  • The manufacturer’s suggested list price of the automobile and its equipment on the original date of purchase; or
  • The cost of replacing the automobile with a new automobile of the same make and model, similarly equipped.


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