Classic Car Values Rev Into Overdrive
The classic car market is changing and values are continuing to accelerate. With interest rates staying low for many years now, classic cars have become a more attractive asset for private investors. Over the past 18-24 months, the value of some classic cars has accelerated by 50% or more, with some models going under the hammer at auction for multiples of what they were fetching just a few years ago.
Ferrari sports cars, especially 1960-1970 models, are a prime example. Last year, a 1962 Ferrari GTO 250 Berlinetta sold for $38 million at auction in California - the highest sum ever paid for any vehicle.
This trend isn’t limited to the most high-end, rare vehicles, however, with some mass-produced sports cars commanding higher prices as well. On average, classic cars grew in value by 40% in 2014, and by 400% when compared with 2005, according to Coutts, a UK private bank.
It’s clear that while investing in classic cars is still risky, it has allowed some investors to achieve much better returns on their capital than following the stock market - and have a lot more fun while they are doing it!
But this rapidly changing market has big implications for insurers of classic cars because it’s not always easy to fully understand the value of the particular “alternative asset” being insured.
Researching and updating the insured value of the vehicle at each renewal is imperative. Classic car policies tend to be written with Stated Amount valuation, so the insured will want to make sure they are properly insured for the value of the vehicle in the case of a claim.
If a vehicle is underinsured, the insured runs the risk of being paid for only a portion of the car’s value.
Clearly, underwriters need to make sure they know the current values of the insured vehicles so that they charge adequate premiums for their exposure. We’ve seen the values of some vehicles double year-over-year, adding to the importance of the insurance company rating them appropriately.
Also, as car values appreciate, insurance companies need to consider the added exposures associated with a mobile high-value asset, in order to have a conversation with the insured about the necessary security measures.
At Gen Re we can provide advice on risk mitigation as well as valuation resources. It’s fair to say that our underwriters have all the tools insurers need to keep their classic car business revved up and going in the right direction.