ELITE ADVISOR BEST PRACTICES
Art on Wheels
What you need to know about collector car insurance
By Ron Fiamma
- Collector cars are a popular asset class, as indicated by strong annual auction results. As such, they should be viewed as a viable alternative investment.
- There are distinct insurance policies for collector cars, with meaningful coverage to help owners remain “whole” in the event of damage.
- Not all insurance companies have the expertise to help owners preserve long-term value.
An estimated 10,000 auto gatherings take place every year in the United States. They range from grand spectacles, such as the Pebble Beach Concours d’Elegance and the Cavallino Classic at the Breakers Hotel, to small gatherings in a McDonald’s parking lot where local collectors show off their favorite rides. No matter the level of participation, the popularity of these events points to an ongoing love affair with the automobile and the continuing growth of car collecting as a hobby. For many enthusiasts this avocation is a lifelong passion. Some collect numerous examples of a single marque; others search for a particular elusive automobile with an unmatched provenance and racing history.
In an environment in which automobile insurance is highly commoditized, it is critical to view insurance of collector cars through a very different lens.
A Growth Enterprise
There are roughly 5 million collector cars in the United States, and that number is constantly growing. 2012 was a strong year for collector car sales across nearly all categories but especially in highly collectible marques with strong provenance. The results mimic the strong 2012 fine art market, showing that collectibles and fine art are increasingly viewed as a viable alternative asset class by collectors and the financial professionals who advise them.
Early January is always an excellent barometer of collector car sales for the year ahead, as all the major auction houses have sales in Arizona. Statistics from the 2013 Scottsdale/Phoenix sales indicate that the year is shaping up to show strong results:
- Number of auctions: six over five days
- Number of lots sold: 2,234
- Total sales: $223.8 million, up 22 percent from 2012
- Average sale price: $100,176, up 18 percent from 2012
- Total sales: nearing the record 2007 levels
Taking a Risk Management Approach
A unique aspect of private collections insurance is the tremendous emphasis placed on vulnerability assessments, risk management and loss prevention. These policies cover rare and very often irreplaceable items. Whether owning Old Masters canvases, a cellar of vintage Bordeaux or a stable of prewar Bugattis, clients need to know that everything possible has been done to help them prevent damage or loss.
Knowledgeable insurance carriers can draw from experience to help you answer important questions such as these:
- Are the vehicles’ values accurate, and is the collection insured to value?
- Is the garage facility properly constructed to withstand floods, tremors or storm surges?
- Has an emergency evacuation plan been put in place?
- Are vehicles in low-lying areas on risers to prevent damage from a flood?
- Are necessary vehicle repairs or restoration being performed by qualified experts?
- Is the transportation company suited to the needs of the car and the move?
- Has proper international documentation been put in place for a smooth overseas transit?g
Understanding the intricacies of collector auto coverage is just as important as managing the risk. Insurance policy details can vary from carrier to carrier, but some of the more important aspects to look for are:
- Agreed value coverage
- Worldwide coverage
- Full transit coverage
- Single liability policy for the entire collection
- Market appreciation coverage to account for rising values
- Diminution in value coverage for partial loss
- Automatic coverage for new purchases
Claims are another area in which the road diverges from standard automobile insurance. In addition to rare parts and the unlikely availability of a replacement, your clients may have a significant sentimental attachment to a vehicle. It’s in everyone’s best interest to choose a carrier with claims professionals who understand this world and who are empowered to address the unique circumstances of each loss.
For example, a policyholder at our company was involved in a collision that virtually totaled his Ferrari Enzo, one of only 400 ever produced. The extensive damage would require lengthy and complicated repairs. We offered to reimburse the policyholder for the full value of the vehicle, but he preferred that we attempt to repair it. The rarity and design intricacies made it nearly impossible to find a qualified technician and replacement parts in the area. We determined that the only craftsmen qualified to complete the repairs were the ones who originally built it—at the Ferrari factory in Italy.
We shipped the damaged remains and flew the policyholder to Italy twice to inspect the progress. When all repairs were completed to the policyholder’s satisfaction, the vehicle was shipped back to his residence, and to this day he remains the proud owner of one of these rare beauties.
Knight Frank, a U.K.-based consultancy, published a luxury index in March 2013 that noted that vintage car prices rose 395 percent in the ten years leading up to September 2012. That growth outpaced gold coins, fine art and collectible wine. By contrast, the current 10-year return on the S&P 500 is roughly 80 percent.
Collector car enthusiasts may be motivated by a variety of factors: aesthetic enjoyment, diversification of an investment portfolio or merely the lust for a particular car first seen as a teenager. Regardless of the original intent, these appreciating assets need to be viewed and protected as an alternative investment class. Just as hedging tools or stop-loss strategies protect a financial portfolio, comprehensive insurance and dedicated risk management can protect a client’s collection portfolio. And the deeper your understanding, the more value you can deliver to clients.