It smells like the end of recess for auto dealers who have long resisted the idea of cleaning up their practices regarding the sale of replacement insurance (FPQ no 5). The warnings having never resulted in anything, Quebec decided to take extreme measures to resolve the matter. If all goes as planned, the law will be changed to prohibit them from selling this type of insurance.
It flew under the radar. The Minister of Finance, Eric Girard, tabled a bill in June to modify a series of laws affecting financial services. This includes real estate brokerage, securities and insurance.
This is all quite technical. But one paragraph will have a very concrete impact for consumers and car sellers who will lose the right to sell replacement insurance. This particularly lucrative product for them.
Last year, Quebec dealers sold nearly 64,000 replacement insurance policies at $2,323 each, on average, for a total of $148 million. So this is no small matter. The 45% commission is just as impressive. Car sellers thus pocketed 67 million, according to the Financial Markets Authority (AMF). In comparison, insurance brokers receive 12.5%.
The commission paid by car sellers is so high that it “is likely to lead to poor sales practices,” believes the AMF. This is a very polite way of saying that they have every interest in presenting the FPQ no 5 as the eighth wonder of the world and to put pressure on the client to sign without giving him too many details.
In fact, some dealers claim that the replacement insurance they offer is mandatory. What is wrong. Some people are offered a better financing rate if they purchase the insurance, which is prohibited. Worse, consumers discovered that insurance had been added to the purchase contract for their vehicle without their knowledge.
The price of this replacement insurance is also “high” among dealers (due to the high commission) and its value is “limited”, judges the AMF. See for yourself: the average compensation is $3,056, only $1,183 more than the price of insurance. It is also interesting to note that the compensation paid decreases from year to year.
This is without taking into account that the cost of insurance is included in the vehicle financing contract, at an interest rate around 7% these days, that the purchase decision must be made quickly during the meeting. with the sales director, and that reimbursements are complicated, if not impossible, to obtain.
Dealers have had years to discipline themselves. They preferred the status quo and now risk paying the price.
The AMF “made car dealers aware of the problems encountered, issued warnings, set up a consultation table and in certain cases even had to resort to the courts, but without notable results”, recalls spokesperson Sylvain Theberge.
In Eric Girard’s office, we did not blame the AMF for the lack of satisfactory results. Quebec would have rather acted thanks to “the findings made” by the policeman of the Quebec financial sector, I was told. Clearly, the minister had given up hope that change would happen.
Small important reminder here. Replacement insurance is not the same as replacement cost endorsement (FPQ no 43), sold only by insurers, even if both allow you to replace a stolen vehicle or declared a total loss with a new one. Unfortunately, the confusion is such that 22% of Quebecers have paid for both protections in recent years, according to a Léger survey. This is equivalent to putting up to $1,700 in the fire, calculates the CAA.
Insurance brokers welcome with a broad smile “the political courage” of Minister Eric Girard. Normal, because if the law which is moving at high speed in the National Assembly is adopted as is, the competition offered to them by the dealers will disappear. But as George Iny of the Motorist Protection Association points out, the dealers were not competitors with their prices twice as high. Good point !
The president of the Regroupement des cabinets de courtage d’assurance du Québec (RCCAQ), Maryse Rivard, explains that her members do not expect to sell more replacement insurance and get rich from it.
“My remuneration is 12.5% on replacement insurance and replacement value. Replacement cost costs between $150 and $200 the first year and the replacement warranty is perhaps $1200 over the life of the contract. I’ll tell you, 9 times out of 10, I sell for new value. For what ? Because it’s what’s best for customers. » The transaction then brings in around $20 to the brokerage firm.
We will see in practice how the insurance industry adapts, if new players enter the scene, if the price of policies changes. At least we will no longer see consumers buying both the FPQ no 5 and the no 43.
For their part, dealers will undoubtedly want to compensate for this loss of income of 67 million. In the United States, they get around the ban on selling insurance by hiring brokers who pay them under-the-table kickbacks, says George Iny.
The automotive industry has repeatedly demonstrated its capacity to be imaginative. At the height of the vehicle shortage, dealers forced their customers to buy insurance or options, otherwise they refused to complete the sale, as I have written before. The lure of profit has no limits.