Insuring American Cars

Specialist motor insurance for American cars is a fascinating and surprisingly fast-growing niche sector of the UK insurance market. Anyone with a newly imported 1970 Plymouth Fury to insure will quickly find there are few places to turn for an affordable premium. Most underwriters still have difficulty getting to grips with a market that requires a completely different approach to conventional motor insurance.

Writing this type of business calls not only for a detailed understanding of the machines in question but also the types of individual who typically drive them. But for open-minded insurance providers who are prepared to take the time and trouble to immerse themselves in the unique culture that surrounds this market, specialist American car insurance offers real business opportunities.

Depending on which decade you were born in, your awareness of American culture will probably have been shaped in part at least by a particular classic US car. From the Cadillacs and Chevrolets, of the fifties when giant tailfins were de rigeur, to the Ford Thunderbirds and Mustangs in the sixties when big was beautiful, certain cars have imprinted themselves on the popular imagination in the UK as much as in the US. More recent models like the Ford Torino driven by Starsky and Hutch, the Dodge Charger from The Dukes of Hazard, the Pontiac Trans Am Firebird used in Knight Rider to Back to the Future’s gull-wing DeLorean have all acquired iconic status.

In 2000, there were approximately 15,000 American cars of all shapes and sizes in the UK. American cars of any given era are typically very different from the UK counterparts in terms of design, size, engine type, extras and trim, build quality, handling and fuel consumption. But they share one common denominator: by law, all require insurance. The steadily increasing interest in American cars in the UK therefore provides a real opportunity for the specialist insurance provider to meet the needs of a distinct and potentially profitable new market.

The typical American car owner is aged between 35 and 45 and owns a car worth somewhere between £3,000 and £5,000. He - and it will almost certainly be a he, as women account for less than one per cent of policyholders - is likely to be a blue-collar worker. He will probably have a maximum no-claims bonus; he is accident free, conviction free, and lives outside of major conurbations like London or Birmingham. Many US car fans will own more than one; some maintain as many as eight, which they may well keep, quite literally, in a barn.

American car owners are serious enthusiasts and their hobby is often, in reality, more like a way of life. One of the attractions of these vehicles is the relatively low cost of purchase. For as little as £2,000 to £3,000 an enthusiast can purchase a well-maintained, high-spec, big-engined classic that handsomely fills half a supermarket car park. With some American cars running at eight miles to the gallon, its easy to see why classic US cars might not always be the commuter car of choice or the ideal means of getting from Aberdeen to Bournemouth. Most owners will own a more conventional European-style car as well.

Another attraction to ownership of an American car is being brought into contact with a community of like-minded people. Car clubs have been set up across the UK to exchange information and advice and to provide support, help and encouragement to other owners. In this specialist insurance market it is important to do your homework and research the real issues that concern owners. Establishing affinity schemes with specialist clubs helps to develop a clear picture of the particular needs and demands of this market. The three major clubs are the umbrella-providing American Auto Club, the Cadillac Owners’ Club and the Mustang Owners’ Club. There are also as many as twenty or thirty smaller clubs. Some have as few as 15 member vehicles, whilst others can have 200 or more.

There is a surprisingly large number of American car shows taking place around the UK from March to September. These are great places to soak in the unique culture of the UK American car enthusiast circuit. These people really take their love of Americana seriously. There is a lot of dressing up and getting into the spirit of the thing; and almost every vehicle will be spotlessly turned out. These events are the perfect environment for building and understanding of - and acceptance and trust with - current and potential policyholders.

Provided you have taken the trouble to understand your market, there are a number of good reasons for doing business with American car owners. Three reasons in particular stand out: extremely low loss ratios, knowledgeable policyholders, and a client base who reward good service with exceptional loyalty.

Another surprise for the uninitiated is that the supply of spare parts from the US is plentiful and cheap. In a US city like Detroit there are huge warehouses overflowing with parts for - say - a ‘58 Thunderbird just waiting to be shipped out and fitted to a car in the UK. Policyholders are often only too pleased to source spare parts for their vehicles and do their own repair work. A well-developed network of contacts allows them to source parts easily and cheaply from the States. This benefits the insurer as reduced charges for labour and materials keep the overall cost of repairs down.

Claims experience for American cars is typically very good, as the vehicles are often the owner’s pride and joy. Policy limits are up to £35,000; but it is extremely rare to see claims for anything like that amount, with claims frequency typically somewhere in the low single figures. You would only expect to see two or three major claims a year. In claims situations where minor to moderate damage occurs claimants will often be keen to fix the vehicles themselves at a significantly lower cost than you would pay for a more conventional UK vehicle. American car owners tend to prefer servicing their own vehicles - indeed this is a central part of the enjoyment. Owners also tend to be skilful mechanics and punctilious at keeping their vehicles in excellent working order. Some are so fanatical you’ll see them painstakingly picking the mud out of their tyre treads at car club events. Often friends and other club members will rally round to help carry out major repair work. For one particular claim, we estimated that if an approved repairer had taken on the repair work the final cost would have amounted to £8,000 or £9,000. The policyholder decided to take the work on himself, and the costs came in at a quarter of the price.

High-performance cars like Mustangs, Corvettes and Trans Ams typically cause the larger claims. The owner will take the car out for a drive in the rain and lose control. For the driver, it’s like losing a loved one. For the insurer it’s a sizeable claim. But there are ways of mitigating the risk of such claims. High performance American cars can seem an attractive option for younger, less well-off drivers looking for a 300bhp sports car with built-in extras like air conditioning, electric seats, and leather interiors - all for the knockdown price of £2,000 to £3,000. The equivalent UK or European car will cost £15,000 to £20,000.

To prevent the larger claims it makes sense to adopt a 25 and over policy and to weed out those who just love the performance from those who will cherish the car. Common sense suggests that few drivers under the age of 25 will have the experience to control a high-performance car with 300 brake horsepower. Another option for the insurance provider looking to manage loss ratios in the high performance market is to insure American car club members only, who tend to be rather more responsible than the average youngster out to impress the ladies.

The American car market presents a unique set of challenges and demands. It is all too easy for the unwary insurer to come a cropper - particularly where high-performance models are concerned. But demand for American cars in the UK shows no sign of drying up and this is a potentially promising niche area for insurance providers who are truly committed to understanding and meeting the needs of policyholders.