Why some service plans sold by car dealerships may be insurance

Insurance regulatory bodies in western Canada are clarifying which vehicle owners’ protection policies are considered insurance, requiring an insurance license to sell it, and which are not.

Over the past 18 months, Alberta and British Columbia have changed how they regulate the sale and underwriting of ancillary auto products covering things like extended warranties, appearance protection, and windshield and tire and rim protection, a legal analyst observed at Insurance Bureau of Canada’s InSight Summit 2025.

“In a nutshell, if the product is protecting against a traditional insurance peril, a random external bad thing, then they consider that insurance. And if any part of a bundle includes an insurance product, the whole bundle is insurance,” Stuart Carruthers, partner at Stikeman Elliott LLP, told the regulatory affairs portion of the Apr. 3 IBC summit.

“And so that is forcing significant changes in Alberta to require some of those products to be now underwritten by licensed insurance companies. And they’ve created a new license category for those type of protection products in Alberta that auto dealers and others will now need to go get licensed in.”

As Canadian Underwriter previously reported, Alberta’s Automobile Insurance Rate Board (AIRB) introduced auto insurance rate filing guidelines on Jan. 9, 2025. That guidance followed bulletins from Alberta’s Superintendent of Insurance (ASI) and the Alberta Insurance Council (AIC), which define vehicle warranty contracts, dealership loyalty programs, and ancillary vehicle protection products as ‘insurance,’ meaning those products must have approved policy wordings and rating programs.

Breaking it down

Referencing AIC’s Bulletin IB-2024-01 and ASI’s Bulletin 05-2024, Carruthers notes regulatory bodies in the province responded to industry questions about which policies protecting vehicle owners are insurance, which types are not – and where the lines were drawn. In his presentation slides, he explains:

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• Manufacturer warranties and extended warranties are not insurance unless covering risks beyond defects;

• Wear-and-tear service plans covering routine maintenance are not considered insurance;

• Third-party extended warranties are considered insurance, except for coverage by automotive repairers limited to inherent deficiencies in their own workmanship;

• Dealership loyalty programs are treated as insurance, with an exception for finance companies underwriting debt waivers in certain circumstances; and

• Regarding ancillary vehicle protection plans, some (e.g., non-manufacturer tire and rim warranties) are considered insurance.

He adds ASI put out a set of FAQs to provide further clarification. “But the gist of it is…if it’s an external, random peril, they consider that, and want to regulate it as, insurance.”

B.C. makes similar changes

In comparison, Carruthers notes, in B.C., automobile protection policies against external risks are classified as automobile insurance that must be underwritten by a licensed automobile insurer and sold by a licensed broker, the British Columbia Financial Services Authority states in its April 2024 Regulatory Statement 24-008.

“The B.C. regulator…put out new guidance, basically saying similarly, ‘If your product protects against random external kind[s] of perils, that’s auto insurance and that can only be underwritten by a licensed auto carrier and only distributed by a licensed broker,’” he tells the summit. “And that was a real sea change from what the market practice or the traditional sort of administrative practice was in B.C. [It means] significant impacts to the industry.

“Lots of folks [are] quite frustrated because it was…a 180 change from historical. It was released without any comment period or phase-in or lead-in; it was just immediately effective. And it happened at the same time as B.C. is working still on its own restricted insurance agent licensing regime, similar to the [other] western provinces, for incidental sales; not just for automotive products, but travel insurance, electronics and mobile devices and so on.”

Phil Porado

Phil, an award-winning journalist with over 30 years of experience in financial topics, has been managing editor of Canadian Underwriter for more than three years.