How Catastrophes Change the Game
Produced By Anne Holtzman, Senior Vice President of Claims and Recovery | May 3, 2019
Senior Vice President of Claims and Recovery, Anne Holtzman, led a webinar about natural disasters and the impact they have on total loss. Natural disasters continue to be a national concern as statistics from the last 5 years have shown an upward trend in disaster frequency and severity. For this reason, it is important for lending institutions to think proactively and plan ahead. Below we highlight the main points shared during the webinar.
Factors Impacting Auto in 2019
Consumers are facing increasing premiums and costs on their vehicle, while lenders face changing industry practices, especially with compliance at the state level during a catastrophe.
1. Car Sales Increase
The growing economy has seen an increase in new car purchases, which means cars on the road are newer and more valuable than ever before. However, safety features and increased computerization in new cars are pressuring insurance companies to pay out more to their consumers to cover these complicated and technology-driven repairs.
Depreciation is also increasing as cars lose their value more quickly. Consumer behavior tends to gravitate toward an affordable monthly payment and longer loan term. This means that while car buyers are paying more for their car over a longer time period, the actual car is not maintaining its value, leading some buyers to go ‘upside down’ in their loan (or their remaining loan balance is actually higher than the worth of their car).
2. Car Values Decrease
Insurance carriers are now asking for more documentation of accidents, total loss, and catastrophic events. With more transparency in this documentation, people are getting less return on selling their used vehicles and facing higher repair costs than ever before. This is leading a consumer behavior shift of preferring a total loss over repair due to rising expenses and the complicated nature of car repairs.
3. Active CAT Seasons
The United States saw a 483% increase in total dollars spent on weather-related catastrophes from 2016-2017 from $18.19 billion to $87.38 billion!1 This upward trend continued into 2018 with an estimated $91 billion spent.2 And while hurricanes typically dominate national coverage, it’s important to remember regional events such as thunderstorms, hail, and wind also cause substantial damage. Hail, in particular, was the most disruptive with over $1 billion in reported damages 2015-2017.1
Click here to download our 2019 Changing State of GAP to read more about factors impacting the auto industry.
How Are Factors Affecting Lenders?
Lenders are affected, especially in times of disasters, when a high number of loans are upside down and borrowers’ insurance claim does not cover their outstanding balance. This leads to an increased frequency and severity of GAP claims that places an additional strain on lenders, and an additional challenge of working with the consumer to navigate through their total loss claim process.
During catastrophes, claim accuracy goes down as insurance carriers and lenders face a high volume of claims. This leads to problems as lenders need accurate data to handle cancellations and refund of products. Many vehicles are abandoned as people evacuate affected areas, so it’s important to follow state regulation to appropriately handle the salvage title process to not cause any additional delays.
Get in the Game
Total losses continue to rise and cars are becoming harder to repair since there is more technology put into building them—so how will your institution handle the catastrophic loss?
Key Action for Lenders:
- Keep Consumers in Mind: It’s important that consumers’ needs are at the forefront of your mind when settling claims and cancelling product to help best accommodate their needs. In the midst of catastrophe there are a lot of moving parts, and by focusing on making your consumers’ lives easier you’re communicating you understand their concerns, stress, and needs.
- Know Your Risk Exposure: Having access to risk exposure reporting is one of the best proactive steps your lending institution can take to begin to grasp the full loss impact. Make sure your organization has up-to-date risk information, so you can build an effective communication plan in the event of catastrophic total loss.
- "It's absolutely critical to have a plan in place with your team": The best time to plan is when the catastrophe hasn’t yet occurred or just after the catastrophe has occurred, not in the middle of it. Be sure to have a triggering event to kick in the communication plan that reaches out to your employees, dealers, and consumers.
- Put Appropriate Protocols in Place: This helps efficiently move through your claims influx and handle additional product cancellations related to the claim.
About Allied Solutions
Allied Solutions, LLC is one of the largest providers of insurance, lending, and marketing products to financial institutions in the US. Allied Solutions uses technology based products and services customized to meet the needs of 4,000 clients along with a portfolio of innovative products and services from a wide variety of providers. Allied Solutions maintains over 15 regional offices and service centers around the country and is a subsidiary of Securian Financial Group, Inc.
1 Summary of Natural Hazard Statistics in the US. National Weather Service. 2015-2017. (https://www.nws.noaa.gov/om/hazstats.shtml)Content in the blog posts are the opinion and views of the writer, and don't necessarily reflect the opinions or views of Allied Solutions.