GAP prices should stay steady despite Sandy

GAP claims likely are spiking because of October's Hurricane Sandy, but some experts say that probably won't lead to any immediate increase in pricing for GAP for dealers or customers.

In the long run, insurers may feel some upward pressure on pricing, but any effect on wholesale pricing to dealers should be small and gradual -- and maybe not even noticeable, said Tony Wanderon, an expert on Guaranteed Asset Protection and CEO of F&I administrator Family First Dealer Services.

Family First, based in Ponte Vedra Beach, Fla., sells GAP policies, trade-in protection, excess-wear policies for leases, tire-and-wheel plans, paintless dent repair, roadside assistance, windshield protection and key replacement.

Wanderon said last week that his back-of-the-envelope estimate for GAP claims related to Sandy is around $100 million industrywide.

How did he arrive at that?

He started with data from the National Insurance Crime Bureau, a nonprofit organization sponsored by the insurance industry.

The NICB doesn't have data on claims specifically related to GAP, according to spokesman Frank Scafidi, but it speculates that 230,000 vehicles were damaged by Sandy, based on insurance claims ranging from minor damage to total losses. (Larry Dixon, senior automotive analyst for NADA Used Car Guides, says that's an accurate estimate.)

Wanderon calculates that of the estimated 230,000 damaged vehicles, leases probably accounted for about 30 percent. GAP insurance comes with most leases. A subset of those got totaled, which would initiate a GAP claim.

Based on those assumptions, Wanderon estimates Sandy could have generated around 31,000 GAP claims at more than $3,000 each, a typical average per claim.

"Because there's no centralized data source for losses on GAP, you have to pick a number," Wanderon says.

Wanderon says it likely would take some time for any upward pressure on pricing generated by the hurricane to be felt in the market -- maybe even a couple of years as long-term contracts get renewed between insurance companies and F&I administrators.

Gary Fagg, a consulting actuary with CreditRe, also doesn't expect GAP prices to go up much as a result of the storm.

While claims data aren't available, he says, according to insurance industry sales data, New York and New Jersey together account for only about 5 percent of the GAP coverage sold nationally.

He says that's partly because dealers in New York aren't allowed to mark up GAP prices. So not much GAP gets sold in New York except when it comes with a lease. While claims may be high locally, he characterizes the effect on nationwide insurance companies as a temporary "blip."