Pricing and Monitoring GAP for Sustainable Performance BY KYLE REED Vice President of Global Auto Pricing, Assurant GAP insurance has always served a straightforward purpose: to protect the customer from owing more than their vehicle is worth in the event of a total loss. What’s changed is the market surrounding it. Today’s market demands a more strategic approach to how dealers price, structure and monitor their programs. The gap between what buyers owe and what their vehicles are worth is widening. In Q1 2026, roughly 30% of trade-in borrowers entered new loans with negative equity, carrying an average shortfall of $7,200 — up 42% from five years ago.1 Total losses are happening more frequently. The financial exposure per claim keeps climbing. For dealers, the real question is whether today’s customers can afford to go without GAP protection and whether your GAP strategy is built for today’s market. WHY GAP EXPOSURE IS GROWING ON TWO FRONTS GAP performance is shaped by two core variables: severity (how large the gap is when a claim occurs) and frequency (how often total losses happen). Both are moving in directions that increase risk. Severity Is Climbing New vehicle transaction prices reached an average of $49,461 in April 2026, up 0.4% over the previous month and up 1.3% year over year, according to Assurant’s own internal GAP data.2 Our Q1 report showed even more signals of increasing severity. • GAP in Amounts Financed: The average new car loan was roughly $33,4723 in Q2 2019, which has grown to $43,5824 in Q4 2025. • All-Time-High Negative Equity: Negative equity on new car trade-ins averaged $7,183 in Q1 2026, fairly steady with Q4 2025’s figure of $7,214, and still up 37% since 2018. At the end of the quarter, 31% of trade-ins carried negative equity. • Stretching Loan Terms: Per Edmunds Q3 2025 data, terms continue pushing to 72, 84 and 96 months, slowing principal paydown and keeping buyers underwater longer. • Elevated Claim Costs: The average GAP paid claim rose to $4,987 in Q1 2026, reflecting the structural widening between loan balances and vehicle values. GAP losses are structurally higher today than in prior cycles. When losses last peaked in 2018, average severity was $3,692 alongside a negative equity high. Compare that to roughly $5,000 today, and it’s a 35% increase, with no clear indication that negative equity has yet reached its peak.2 THE GENERATOR 26
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