Dealers who frame GAP as an essential part of the transaction, one that supports the buyer’s financial position, build credibility at a moment when buyers are most alert to whether the dealership is working in their interest. THE OUTLOOK FOR THE REST OF 2026: ELEVATED RISK, EMERGING OPPORTUNITIES GAP losses will remain elevated through 2026, though claims are showing signs of normalization. • Negative equity will persist. Higher rates, longer loan terms, lower down payments and used-vehicle depreciation have driven negative equity averages to all-time highs. This structural condition won’t reverse quickly. • GAP paid claims are increasing. The average GAP paid claim increased in 2026 Q1 to $4,987, up 2% from the 2025 Q4 average of $4,900.2 • Total loss frequency will likely remain elevated. Lower used-vehicle values, increased labor and parts costs, an aging vehicle mix and added technological complexity all push more vehicles past the repair-versus-replace threshold. • Interest rate movements will matter. Higher rates prolong GAP exposure by keeping outstanding loan balances elevated. As of Q1 2026, average interest rates were 6.4%, only a 0.2% decrease from a 6.6% high in 2024 and 2025.2 Any rate relief in 2026 could reduce exposure on new originations, but existing portfolios will reflect current rate conditions for years. • Tariff-driven pricing is likely here to stay. As we’ve seen with other pricing increases tied to inflation and supply chain disruption, downward adjustments tend to be small, if they happen at all. For GAP, this means elevated loan values on vehicles purchased at tariff-inflated prices will persist, extending risk exposure. This environment rewards proactive GAP management. Maintaining the status quo on GAP pricing and relying on trailing assumptions can lead to unexpected program deterioration that goes unnoticed until the damage is already done. HOW PARTNERSHIP HELPS SWING GAP BACK IN YOUR FAVOR GAP performance depends on variables that shift constantly: vehicle values, loan structures, claims patterns and repair cost trends. Managing those variables well requires actuarial depth, not just competitive pricing. The critical question for dealers is whether their provider has the data foundation and discipline to price GAP for sustainable performance rather than short-term edge. That means multiple years of claims history informing current models, continuous monitoring of emerging frequency and severity trends, and the willingness to adjust proactively before deterioration shows up in a dealer’s results. QUESTIONS WORTH ASKING YOUR GAP PROVIDER The dealers managing GAP most effectively are asking specific questions of their providers. • Are you adjusting pricing assumptions to reflect current market conditions, including vehicle value trends, loan term shifts and claims development? • What conservatism is built into your underwriting, and how does it protect my program from unexpected claims deterioration? • What reporting do I receive to monitor program performance, and how frequently is it updated? • How do you identify and communicate emerging claims trends before they impact my results? • Is your pricing strategy optimized for sustainable performance or for short-term competitiveness? BUILDING GAP STRATEGY FOR THE MARKET AHEAD Dealerships that manage GAP most effectively treat it as a strategic capability: relevant to today’s deal structures, transparent in how it works and backed by a partner that can keep pace with changing risk dynamics. When the gap widens and losses happen more often, the value of getting this right becomes visible across the entire business, from F&I performance and reinsurance health to customer retention and long-term profitability. Assurant leverages deep actuarial knowledge, robust datasets and advanced modeling tools to provide partners with the insight needed to navigate volatility. Our approach delivers the transparency and discipline required to reduce risk and maximize performance. Kyle Reed is the vice president of global auto pricing at Assurant, overseeing pricing strategy and performance for a diverse portfolio of vehicle protection products covering motor vehicles, heavy trucks and heavy equipment. He is a Fellow of the Casualty Actuarial Society. SOURCES 1. Wall Street Journal, America’s Pandemic Car Bubble Is Now Trapping Buyers in Debt, April 25, 2026 (https://www.wsj.com/business/autos/ car-owners-debt-negative-equity-3cfcd031?AutomotiveVentures) 2. Assurant, Global Automotive GAP Report, Q4 2025 3. Edmunds industry insights, December 2019 4. Experian State of the Automotive Finance Market, Q4 2025 5. Cox Automotive, Manheim Used Vehicle Value Index, Dec. 2024 THE GENERATOR 28
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