Aston Martin recently announced it would make 25 continuation versions of the DB5 that appeared in the 1964 James Bond film “Goldfinger.” They will be priced at $3.1 million each with deliveries beginning in 2020. Porsche’s Project Gold 993 recently sold for $3.1 million at auction, making it the most expensive 993 Turbo ever. These vehicles and other collectible cars are high-end examples of the value of a Collector Car policy.
Collectible cars are usually an investment or a passion of their owner. A car’s value can fluctuate rapidly in either direction, making it critical to purchase the proper insurance policy and monitor its value.
A standard auto policy would provide coverage for the current market value, which generally will depreciate each year a vehicle is on the road.
What differentiates a Collector Car policy from a general automotive policy is Guaranteed Value, said Tim Weadock, Senior Manager of Vehicle Database Operations for Hagerty, widely regarded as one of the leading global insurance agencies for collector vehicles. Guaranteed Value through a Collector Car policy gives the insured protection that is guaranteed for the insured value of the vehicle minus any deductibles.
“We encourage clients to reevaluate their insured values for (collector cars) because in this market they can change rapidly,” Weadock said. “If the value of the (collector) car rises, you may be underinsured. If the value falls, you may be paying too much for your policy.”
Tailored coverage for classic cars ensures protection for what is often a significant financial investment. A Collector Car policy provides fully comprehensive coverage, agreed value insurance, and even classic car and bike club memberships. Discounted premiums are possible, with additional savings when insuring more than one vehicle.
Clients should know that even if a valuable vehicle is not being regularly driven on the road, having a Collector Car policy is recommended since a Guaranteed Value would not be covered under a standard Homeowners’ policy, Weadock said.
“So if you stored your classic car in a garage or somewhere on your property, but you took insurance off it because it’s being restored or housed for the winter, you wouldn’t be covered if there was a fire,” Weadock said. “It’s a risk.”
The same risk is there with a flood. Approximately 10,000 collector vehicles were lost in the Houston floods during August and September 2017, according to Burns & Wilcox.
A Collector Car policy is considered a specialty policy that requires deep knowledge of the market and the trends impacting values, said Bill Gatewood, Corporate Vice President and Director, Personal Insurance, Burns & Wilcox.
“You need an insurance carrier that specializes in this area. It’s not a policy that you can just dabble in,” Gatewood said. “The value of the car means everything when selecting the right insurance. It’s similar to collectibles in the art world. If you get an artist that becomes popular, values can rise quickly and you need insurance that can keep up. The same is true of collector cars.”
Carrier options for Collector Car insurance are somewhat limited, as many carriers choose not to offer such coverage.
It’s much more expensive to find replacement parts or to find a mechanic qualified to work on a classic car for example.
“What makes a Collector Car policy different from a standard auto policy is that this is tailored to unique exposures you have with a classic car,” Gatewood added. “It’s much more expensive to find replacement parts or to find a mechanic qualified to work on a classic car for example.”
Being a part of a specialty market does not mean that insurance costs are high. Weadock estimates that the average Collector Car policy Hagerty sells in the U.S. is around $375 annually, although that number can fluctuate based on a vehicle’s individual value, the state where the insured lives and other factors. For example, a premium for a vehicle valued at $250,000 is approximately $1,800 per year (based on Ohio rates).
The average value of a collector vehicle in the U.S. is around $30,000. Hagerty estimates there are more than 20 million collector vehicles in the U.S. today.
Unique endorsements are available
A Laid Up Endorsement provides coverage for cars that are not road registered. They may in fact be under restoration for a period of time, and such an endorsement can be a less costly option that still offers the protection needed in case of a catastrophic loss.
A Salvage Endorsement allows the insured to retain the salvaged vehicle along with the payment of the Guaranteed Value for a covered total loss. Hagerty calls this the “Cherished Salvage” endorsement.
Some car collectors rarely drive their cars outside of high-speed tracks or make them available to the public outside of car shows. Endorsements are available for vehicles that are not street legal, but may be driven at a speedway or housed in a paddock or trailer area for an event, Weadock said. Other endorsements cover “in transit” protection if a vehicle has to be shipped or is part of a sale.
Classic car market is slowly expanding
As has been the case with the collectibles market in other areas, some classic cars have experienced sluggish value growth in recent years even as the economy in the U.S. has grown. Yet that varies from vehicle to vehicle, said Weadock, who helps to oversee Hagerty’s Market Rating for collector cars. Hagerty tracks the purchase of virtually every collector car in the market today, whether as part of an auction, dealer or private sale.
“I would say that the market is cautiously expanding.” Weadock said.
Demand for collector cars has remained steady. Revenue in the U.S. was expected to increase to $1.7 billion by 2018. Prices for some of the most in-demand vehicles still can be significant. The average cost of 10 of the most expensive classic cars ever sold is nearly $27 million. The private sale of a 1964 Ferrari 250 GTO five years ago was reportedly finalized at $52 million alone.
While such high selling prices are rare, strong demand exists for the most popular classic cars. Forbes listed the most popular vehicles by state earlier this year, and such models as the 1969 Dodge Charger and 1965-71 Ford Mustang led the way among consumers.
Hagerty’s index fell 8 percent year-over-year in 2017. It was down 15 percent, or 28.4 points, from its all-time high in August 2015. That same index surged 83 percent on an inflation-adjusted basis from August 2009 to its peak in September 2015.
Some experts believe that changing U.S. tax laws may also adversely impact the market in the short-term. Some of these laws have increased the tax impact of selling high-ticket items.
Millennials changing the market
Demographics could favor the classic car market in the years ahead, as millennials now account for roughly 25 percent of collector car quotes, according to Burns & Wilcox. It is the fastest-growing segment that is active in the industry and is changing the definition of classic or collector car, said Gatewood.
Millennials are increasingly looking for vehicles from the 1990s, 2000s and even the 2010s, such as the Mazda Miata, newer Ford Mustangs and the BMW M3.
“The millennials aren’t as interested in older muscle cars,” Gatewood said. “They want to buy the cars they saw on the streets when they were growing up. Like other (demographics), millennials include those collectors looking at a purchase as an investment and those who see a car as more of a passion.”
Weadock said that demand was high for muscle cars of the 1950s, ’60s and ’70s before the Great Recession hit in 2008. Since then, values have risen and many buyers have become more concerned with the provenance and authenticity to make sure the vehicle is what it is being represented as. This means that equipment, including the correct engine can be important.
“These days fewer collectors are willing to throw money at a vehicle without getting its full history and documentation,” Weadock said. “They want the story behind that vehicle – who owned it, where and when it was driven. That is impacting vehicle values, and thereby the amount of insurance that is required.”
As with any coverage need, an insurance broker or agent must be consulted. Click here to forward this article to your insurance broker or agent to ask if you need this coverage, or share this with clients to start the conversation and ensure proper protection.
This information was provided by Burns & Wilcox, North America’s leading wholesale insurance broker and underwriting manager. Burns & Wilcox works exclusively with retail insurance brokers and agents to assist clients like you with their specialty insurance needs. Ask your insurance broker or agent to review your Collector Car policy or any other related policies to ensure you have proper protection.