The average Guaranteed Asset Protection (GAP) insurance payout has tripled in three years from £1,587 in 2021 to £5,558 last year.
That’s a key finding of research from MotorEasy which attributed the sharp increase to rapid vehicle depreciation and rising new car prices.
It added that spare parts shortages also led to insurance write-offs and a surge in vehicle theft.
It said many of the causes of rising GAP payouts can be traced back to the impact of COVID-19.
The pandemic brought about a period of unusual appreciation in used car values, but values have been rapidly declining since then, particularly for electric vehicles (EVs) which can lose 50-60% of their value in just two years.
While used values have been falling, purchase costs for new, more technically advanced vehicles have risen, further increasing the gap between the purchase price and the current market value and pushing up GAP insurance claims. MotorEasy has seen payouts exceed £20,000 for high-spec EVs.
Damage is not the only cause of a GAP insurance claim – theft can also lead to significant financial loss when a vehicle has depreciated significantly between purchase and theft. 41% of MotorEasy GAP claims over £15,000 were for stolen Range Rovers, where rapid depreciation has exacerbated the financial loss for owners.
“Our latest data paints a clear picture. The financial risks associated with car ownership are escalating,” said Duncan McClure Fisher, CEO of MotorEasy’s parent company, Intelligent Motoring.
The GAP market is not without its challenges. Last year the Financial Conduct Authority called on GAP firms to offer fair services to consumers. Intelligent Motoring said many dealers were not selling GAP product as a result of the scrutiny.