GAP coverage, also known as, Guaranteed Asset Protection or Guaranteed Auto Protection, has been a popular loan protection product since the early 1990’s. However, there has never been another time when it’s benefit to consumers and lender has been as essential as it is today. While obtaining GAP is an elective insurance--or waiver of residual loan balance in most states—there are many reasons why loan officers can and should make a persuasive purchasing argument to the buyer in today’s lending environment.
GAP will pay the difference of the primary insurance settlement (ACV) and loan balance when the vehicle is either totaled or stolen. Most GAP policies also provide deductible reimbursement, and some even offer money towards a replacement vehicle purchase.
While the advantages to a customer having Guaranteed Asset Protection are evident when negative equity exists, lenders also benefit by realizing increased ancillary income and lower write-offs, and with some products retaiming the consumer's loan business after such a loss occurs.
As previously mentioned, many developments over the past 3-4 years have led to the importance of promoting your GAP program. Here are some of the most important recent developments:
- Loan terms that averaged 60 months or less a few years ago are now over 72 months, which means a longer amount of time a loan can have negative equity
- Rising depreciation rates due to the influx of used cars in the marketplace because of emphasis on leasing
- Distracted driving, leading to more accidents
- Advancements in high-tech equipment such as GPS and computer components causing repair costs to spike leading to more totaled vehicles
- Dealership and captive rebates that artificially inflate values
As a result, G-A-P claims have been on an exponential rise lately, especially in the past 2 years when claims percentages have more than doubled with most carriers of the product. This will likely mean the rate you currently pay the provider to offer Guaranteed Asset Protection to your customer is going to increase significantly, if it hasn’t already. Even if your portfolio hasn’t been affected yet, market conditions could dictate premium hikes.
The bottom line is there are more vehicles on the road with negative equity than ever before, and while Guaranteed Asset Protection will inevitably cost more to offer to your borrowers, now could be the time they need it most—and so does their lender.
Golden Eagle Insurance can help you explore asset protection solutions to protect your loan portfolio and your customers.