Some estimates peg the number of cars flooded by Hurricane Harvey at more than a half million. So too, the number of flooded cars following Irma will be legion.
This significant loss will likely lead to a significant number of claims for “gap” automobile insurance. If an automobile loss has been declared a total loss by a covered peril, such as by the recent floods, gap insurance coverage will cover the difference between the actual cash value paid under an auto insurance policy and the remaining amount owed on the financing or lease of the automobile. Gap coverage may also include reimbursement of the auto insurance deductible.
For example, consider a flooded automobile that still has $18,000 remaining in loan payments and the automobile is covered under a comprehensive policy that covers flooding. The comprehensive policy has a $500 deductible. If the auto insurer determines that the actual cash value of the covered automobile is $15,000, then the gap insurance coverage should pay the $3,000 difference, and some policies may also cover the $500 deductible.
Given the large number of automobiles that have been flooded, insurers will likely be inundated with “total loss” claims, and the spillover of those claims with certainly affect insurers that offered gap insurance. Notably, Texas does not require automobile owners to take out comprehensive insurance policies (which cover flooding), so the extent of the impact remains to be seen.