What is GAP? Guaranteed Asset Protection (“GAP”) coverage is optional protection sold to consumers who are financing or leasing a vehicle. GAP is designed to indemnify a consumer for the difference between a vehicle’s actual cash value and the outstanding balance on the consumer’s loan or lease if the vehicle is stolen or written off as a result of an accident.
A Warning from FSRA. On July 23, 2026, FSRA issued a consumer warning about the unlicensed sale of GAP coverage (the “Warning”). FSRA has identified GAP being sold by unlicensed dealers and individuals, sometimes under product wordings that name an insurer even though no licensed insurer issued the policy. FSRA cautions that affected consumers may have paid for coverage that is not valid and that these consumers risk having unpaid claims.
Why it matters. FSRA’s Warning is notable less for its consumer-protection message than for the clear and decisive position that FSRA has communicated. FSRA’s view is that these products may be presented in a way that deliberately implies they are not insurance to avoid the regulatory and legal requirements designed to protect consumers — for example, being described as a “loyalty program”. However, describing GAP insurance as a “loyalty program” does not change the fact that it is insurance, and as a result a license is required to sell GAP. In other words, FSRA is applying a substance-over-form approach: branding a product as a warranty, membership, or loyalty benefit will not remove it from the scope of insurance regulation. This is significant because Ontario, unlike several Western provinces, has no restricted or incidental-seller licensing regime tailored to GAP or similar ancillary automotive protection products. FSRA’s position is that GAP products can only be sold by licensed insurers, agents, or brokers.
Enforcement. It is not yet clear how FSRA will act on this position or whether formal enforcement will follow. However, FSRA stated it will continue to monitor the sale of GAP insurance and take appropriate action when it identifies violations of the Insurance Act (Ontario). FSRA has invited consumers who purchased GAP from an unlicensed business or individual to file a complaint.
Distinguishing Between Insurance and Debt Waivers. FSRA’s Warning did not discuss other types of products which are sometimes marketed as GAP coverage, but which are typically not regulated as insurance. These products are offered by companies that finance the purchase or lease of automobiles to consumers and provide that if the vehicle is stolen or written off as the result of an accident, the financing company will “waive” its right to collect any amount that remains owing on the vehicle which is in excess of the amount recovered through the consumer’s automobile insurance. These types of waivers are generally not considered insurance because they involve contractual obligations of the lender to waive future loan repayments, rather than an agreement to indemnify the consumer for a loss.
Practical Implication. Underwriting insurers should confirm that every GAP product bearing their name, which is not clearly a debt waiver product, was in fact issued by them as a policy of insurance rather than a service contract given FSRA’s concern that GAP products are being sold in circumstances where no licensed insurer stands behind the coverage. Insurers should also ensure their GAP products are accurately described as insurance and distributed only through licensed agents or brokers who are responsible for the sale. Dealers should verify there is a licensed insurer behind any GAP or “loyalty” product offered to consumers and that a licensed agent participates in each transaction unless the product is clearly a debt waiver and not an insurance product.
This alert is general information and not legal advice. Please contact us to discuss how these developments affect your specific programs.
