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Market growth leaves many cars under insured

12 December 2016

The classic car market has shown great resilience in recent years as it has seen values rise, fall and then rise again to levels unseen since the heady days of the 1990s.  Classic Insurance Services have seen this first hand, having recently provided cover for Ferraris at over £20m and collections in excess of £60m.

In addition to the cars, motorcycles are seeing unprecedented rises with many collectors looking to consolidate their collections with two wheeled classics.  As an example, a Brough Superior SS100 was advertised in the US recently with a price tag in excess of $550,000.

Most of this growth has been through existing collectors, but speculators looking to invest in a rising market are starting to appear.  The market is currently robust enough to cope with this increased demand and fears of a 1990s style crash driven by over supply and falling demand are, seemingly unfounded. Buyers are using their own funds rather than getting substantial finance as they did in the 90s and this should provide greater market stability.

But while it is difficult not to enjoy this growth, it is not entirely positive.  Many collections remain dangerously undervalued, and therefore underinsured, and the implications of this are worrying – as insurers may prove difficult in the event of a loss.

One US based Classic Car broker recently had a Ferrari damaged in Hurricane Sandy, but as the car was insured for only $20,000 the insurer offered to pay out on a total loss basis and retain the damaged car which could have been sold on for a profit. Rather than lose the car, the owner had to pay for the repairs out of his own pocket. Sandy highlighted many other similar situations and the elderly owner of a Porsche 906 fortunately escaped damage and subsequently increased his value from the insured figure of $50,000 to $1m !

To avoid a similar headache it is vital that the value of cars are reviewed regularly and CIS, who are authorised by their insurers to carry out appraisals, will help.  When taking out or renewing a policy we will agree the value of each car in the collection appropriately and provide the relevant level of cover. We recommend an Agreed Value where a client has a high value car or one whose value exceeds the normal market value for similar models.Agreed Values’ takes into account a variety of factors, including the vehicle’s condition, originality and provenance and, as the name suggests, allows values to be agreed before a loss occurs rather than having to negotiate a settlement after the loss when the car may have disappeared.

Another issue that impacts on values (and insurance cover) so needs to be carefully considered, is the cost of restoration.  We have seen many vehicles undergo restorations that have cost more than the car’s value.  This could be for sentimental reasons – the owner wants the car returned to its former glory and hang the expense, or a collector believes that the car will, one day, be worth as much as it has cost to restore.

To protect these costs CIS are able to offer ‘Reinstatement Cover’ which allows the car to be reinstated to its pre loss condition even though this would normally be regarded as uneconomic.

Another option of the CIS cover is the ‘Originality Clause’ which allows collectors to choose a repairer to have the car repaired in such a manner that the integrity and originality of the vehicle is maintained.We recently heard of a claim on an early racing Porsche  – not a client of ours, it must be said – and the insurer insisted, to keep their costs to a minimum, on replacing the damaged wings with new panels rather than repairing the original alloy wings.  The outcome was a loss of originality and a reduction in the car’s value.

We think it is important that you are aware of the potential pitfalls of insuring classic cars.  There are many factors unique to classic car insurance, all of which can have a potentially significant impact on a claim.  We know that many of our high street and online competitors, in their quest to keep costs to a minimum, may not readily offer the level of cover that is appropriate for your collections.

We like little better than to talk classic insurance with our existing and potential clients so please feel free to contact us if you have any questions regarding your insurance needs.

At Classic Insurance Services, we always like to keep up with the latest news so we can provide the best insight and knowledge to our clients.

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