March 5th, 2021
GAP losses have significantly increased over the last several years. This is due to a wide array of reasons, including:
As the frequency and size of GAP claims continue to increase, we have also seen a worrisome trend of your borrowers’ insurance companies suppressing claim settlements for total loss or theft claims. This is especially true when borrowers have purchased optional GAP coverage. The insurance company knows the GAP waiver will help offset lowball claim settlements.
Most of the total loss settlements you receive do not have GAP coverage. If a lender accepts an inadequate settlement, your borrower must make up the shortfall. If there is GAP coverage, the claim will be higher, which increases losses and subsequently increases rates over time. We are recommending that lenders proactively manage the collateral valuation process and help advocate for and educate their borrowers.
Below is an outline of simple steps that lenders can take to protect their borrowers and push back on undervalued claims in a total loss or theft scenario.
For more information about GAP program losses, contact Lee & Mason today.