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3 Reasons You Should Never Insure a Classic Car with a PAP

Insuring a classic car under a standard personal auto policy is a common tactic among independent agents. But in terms of daily use and overall value, insuring a classic car is drastically different from insuring a standard auto.
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If you’re insuring a classic car under a standard personal auto policy, you’re not alone—it’s a common tactic among independent agents who are doing everything they can to place auto coverage efficiently.

Unfortunately, you’re also doing it wrong.

“I understand the daily life of an agent and how they’re working to grow their businesses,” says McKeel Hagerty, president & CEO of Hagerty. “Very often when it comes to a collector car, it’s just easier to keep all cars in a household on a package policy. You might even have some advantages from a compensation standpoint.”

But in terms of daily use and overall value, insuring a classic car is drastically different from insuring a standard auto. Here are the top three reasons you should never insure a classic car with a personal auto policy:

Agreed value. Your clients will receive greater coverage at a lower price with a classic car policy compared to a standard PAP, says Branden Helton, product manager at American Modern, who is responsible for the collector vehicle line of business.

“A collector car policy is an agreed value policy, meaning there would be no depreciation applied to the value of the car,” Helton explains. “So for example, if the customer thinks their car is worth $20,000 and we agree with that based on auction prices and current sell rates, in the event of a total loss, that’s what we would pay.”

By contrast, vehicle values under most standard auto policies depreciate—“meaning the life expectancy of the car would be subtracted out of the value,” Helton says. In the event of a loss, “the client would get substantially less than what could be potentially be sold at an auction.”

“If you’re putting them on a standard auto policy with no special valuation, you’re doing a disservice to your client,” agrees Jim Kruse, program director at Condon Skelly Collector Car Insurance. “At the time of loss, they’re going to have to figure out between them and the insurance company and maybe even a mediator what they’re going to be paid.”

To that end, make sure you help your clients stay on top of their vehicle’s true value. “Because classic cars are still in limited supply relative to the size of the population that is making enough money to afford them, the values have gone up dramatically in the last 10 years—and they continue to go up in many segments,” Hagerty says. “It can be the best news a customer gets all year when you tell them ‘Hey, I bet you didn’t know your car went up $10,000 in value.’”

“Nowadays, collector car values can double in just a year's time,” agrees Jeff Walker, senior collector car specialist, Chubb Collector Car Insurance. “Customers can find themselves with a very under-insured vehicle, and that isn't a comfortable message to deliver after a loss has occurred.”

Special parts. In the event of a claim that involves repairs, a standard PAP tends to default to after-market parts “that a collector car enthusiast may not necessarily be happy with,” Helton says. “A lot of collector car enthusiasts are very particular about getting original equipment from the manufacturer. A collector car policy will typically try and replace parts with like parts.”

And those parts have become increasingly difficult to find. “There are fewer restoration shops that actually work on these vehicles with real competence anymore,” Hagerty says. “The shops that are out there, shop rates aren’t $30-40 anymore; they’re $80-90-100.”

That means fixing a classic car will be far more expensive than repairing a normal vehicle, “especially if you get cars that are either original condition or very authentically restored,” Hagerty says. “Windshields can be thousands and thousands of dollars.”

Classic car policies are also better suited for vehicle restoration—a coverage that’s improving in the classic car insurance market. “Because of the values of some of these cars, you’re getting more and more additional coverage placed on spare parts and even specialized tools that people have to buy or own for the purposes of working on their cars,” Hagerty points out.

Claims handling. A standard auto company probably doesn’t have the expertise to effectively handle a loss involving your classic car client’s prized possession. “You don’t want the same person that’s managing a claim for a 2012 Ford Taurus managing a claim for your 1935 Lasalle convertible,” Kruse says.

Why? “The standard auto businesses are great at adjusting losses for a regular car, but they might not have the level of patience for getting through that claim process for a classic car,” Hagerty says. “This is a small market for them. Maybe they’ve collected a few pennies here and there from premiums through the years, but actually dealing with the problems at claim time is not insignificant.”

That can make the process of classic car repairs a very frustrating one for not only clients, but agents as well, “because the agent’s going to get caught in the middle,” Hagerty says. “Anybody can sell a policy on one of these. Actually dealing with the loss and getting it all the way through to a high level of satisfaction—that’s where the problems arise.”

Jacquelyn Connelly is IA senior editor.