In the world of auto physical damage claims, the past year has seen profound changes. The wide-reaching scope of these changes is likely to have a significant impact on borrowers and auto lenders, not to mention auto insurers and GAP providers. In short, we are seeing an increase in auto accident frequency, an even greater increase in the percentage of accidents that result in a total loss, and yet an even greater increase in the percentage of borrowers left with a deficiency balance after total loss. Some of these deficiencies result in GAP claims, and some result in very unhappy borrowers and/or lender write-offs.
The research and findings that follow provide an overview of 1) the economic, regulatory and technological changes over the last 10 years that have precipitated these changes; 2) their significant impact on auto lending; and 3) what to expect in the next 10 years.
- Total loss GAP claims up >50%
- Vehicle depreciation is at record highs, particularly in specific vehicle segments
- Repair costs are increasing due to high-tech components, causing more accidents to result in total losses
- Primary auto insurer loss settlements are NOT typically at NADA Clean Retail
- Used car loans are often made assuming a vehicle value of NADA Clean Retail, but without CARFAX and inspection, this can prove to be a costly assumption. 100% loan to value (LTV) does not always mean 100% LTV.
- Recent CFPB supervisory and state regulatory changes call for review of practices and products.
Moving forward, economic, regulatory and technological factors will continue to exert their influence, making it more important than ever to ensure that loans are protected with GAP coverage and that total losses don't result in undue financial strain on borrowers, uncollectible debts for lenders, and the inability of borrowers to get into a replacement vehicle. READ MORE ...