Guaranteed Asset Protection claims — and losses — are on the rise, and ballooning negative equity appears to be partially to blame.
Losses on GAP coverage have spiked in the past couple of years after several years of restraint from lenders in the wake of the Great Recession, according to EFG Cos. In fact, losses have returned to around the historic peak in 2007 and 2008.
What's driving the spike? To be sure, low gasoline prices and a healthy economy are combining to put more people on the roadways, thus increasing the risk for accidents and totaled vehicles.
According to an October 2016 study by the nonprofit Insurance Information Institute, collision claim frequency rose 2.6 percent between the first quarter of 2014 and the first quarter of 2016. Meanwhile, total loss costs gained 13 percent during that period.
But another factor is also at play: a rise in negative equity.