Quebec gives auto dealers more time for replacement insurance changes

Quebec has deferred the coming into force of a legislative amendment that will prohibit automobile and recreational vehicle dealers from offering replacement insurance. Originally scheduled for July 1, 2026, the prohibition will now take effect Jan. 1, 2027.

This means that effective Jan. 1, 2027, ‘distributors’ — including auto and recreational vehicle dealers — will no longer be permitted to offer replacement insurance related to vehicles they sell or lease. This product must instead be obtained through licensed firms and representatives in Quebec, such as agents or property and casualty insurance brokers, law firm Dentons says in a bulletin Monday.

Other insurance products lawfully offered by dealers are not affected by this change.

Replacement insurance — known as Q.P.F. No. 5 (Quebec Policy Form No. 5) — is a replacement cost policy in which an insurer pays compensation to replace a vehicle at the dealership the insured has chosen, explains the Chambre de l’assurance de dommages (ChAD), Quebec’s regulatory body for damage insurance professionals. Replacement is mandatory.

Q.P.F. No. 5 is different from Q.E.F. No. 43 (Quebec Endorsement Form No. 43), a replacement cost endorsement that allows an insured to choose to either replace a vehicle or receive compensation.

According to a November 2022 comparison document between Q.P.F. No. 5 and Q.E.F. No. 43, both auto insurance products protect against depreciation when the insured makes a claim in the wake of a total or partial loss. For new vehicles only, Q.P.F. No. 5 does the following, among others:

• Allows the insured to choose a term between one and eight years at a fixed premium for the length of the contract. The term can cover the financing period
• Ends after a claim is made (total loss). The Q.P.F. No. 5 insurer will reimburse the unused portion of the premium according to a cancellation table. A new contract is required for the new vehicle
• Premium is calculated based on the vehicle’s value and the length of the contract, without regard to the insured’s driving record. Payment may be included in the vehicle’s financing contract (from one to eight years). Interest charges apply and could increase the cost
• Regardless of the circumstances of the loss, the Q.P.F. No. 5 insurer reimburses the insured for the deductible, up to the amount stipulated in the contract.

Car and recreational vehicle dealers, as well as the insurance sector, are facing a major legislative change introduced by Bill 30, enacted as Act 15 (An Act to amend various provisions mainly with respect to the financial sector). A key measure of the reform is the prohibition for distributors to offer replacement insurance related to vehicles they sell or lease.

On Feb. 26, the National Assembly of Quebec adopted Bill 11, An Act to amend various provisions mainly for the purpose of reducing the regulatory and administrative burden. Among its measures, the bill amends the coming into force of section 110 of Act 15 to exclude replacement insurance from the products that distributors may offer. The entry into force of the legislative amendment in s. 110 of Act 15, originally scheduled for July 1, 2026, has now been officially postponed to Jan. 1, 2027.

“This postponement provides insurers and other industry stakeholders with additional time to adjust their business models, and gives them the opportunity to realign their replacement‑insurance distribution networks,” Dentons says in the bulletin.

Until the new deadline, current sales practices remain authorized under the Act respecting the distribution of financial products and services.

Jason Contant

Jason has been an award-winning journalist with Canadian Underwriter for more than a decade, including the past three years as associate editor and, before that, as digital editor for seven years.