Inflation is on everyone’s minds these days. It seems like we’ve blinked and suddenly, everything is so much more expensive. Your groceries cost more, rent and housing payments cost more, our cell phones and TVs cost more—and the car market is no exception.
If you’re buying a new car, you might expect prices and insurance to go up, but a lot of customers are having a hard time understanding how this all relates to the classic car industry—mainly where insurance rates and claims are concerned. You could spend thousands of dollars on a build only to realize that the insurance value of the car isn’t actually worth as much money as you put into it.
To better understand how the classic car market is being affected and its impact on insurance rates and claims, we sat down with Jim Kruse, our VP here at Classic Auto Insurance, Rick Drewry—the Collector Car and Motorcycle Specialist at American Modern Insurance Group— to discuss this topic.
How is Inflation Affecting the Classic Car Market?
As Rick puts it, “with the standard market right now, supply chain issues are a big deal,” which affects both the cost of building and repairing a classic car. “Modern-day collectibles are impacted. And where the inflation is really getting us is from the repair shops.”
From the repair shop’s perspective, there is a backlog because they can’t get the parts they need. The supply chain has been disrupted, which means there is limited supply. And when there is limited supply but still a demand, prices go up.
And it also depends on where you live. Rick says, “Some states are worse than others. California’s terrible. New York is terrible… But if you go into the Midwest, say Indiana, Ohio, or Kentucky, it’s nowhere near the impact as it is in other states…You still get a labor rate of 60, 70 bucks an hour in the Midwest, but we’re paying $130 to $150 an hour in California and New York.”
And a lot of it has to do with regulations that are making it harder to make and get your hands on parts.
So repair shops are having to pay more for parts, which means they are having to charge the customer more for the repairs. The problem is that you might have a $100,000 classic car, but the repairs could cost more than what the car is worth, depending on the damage.
You’ve also got to think about it from a build perspective. If you’re working on a build, you’ll have a harder time finding the parts you need, and you will be paying a lot more money for them—depending on how old the car is.
Antique cars, for example, like nickel-era cars from the 20s and 30s, aren’t as popular anymore. So it’s harder to find parts for them, but also, they aren’t going to be worth as much on the market even once you do fix one up because people just don’t want cars that go top speed 30 miles an hour anymore.
So you might pay $100,000 to build one of these cars, but the actual value of the car is much less because of what it would sell for on the market. This is why resto-MODs are more popular now because you can build them with modern parts that are easier to get a hold of.
So if you’ve got an old muscle car, you’re better off because the cost of the build or the cost of repairs might be closer to what the market value of the car is because they are still popular. But the problem is collectors or anyone that’s into buying or fixing up older cars.
The Model T, for example, used to run around $20k, but now you can get one for $6k to $8k. But the cost to build or repair one is much more expensive than what it is actually worth because of the limited supply of parts, and because of the skill that goes into repairing a car like that.
That’s another thing to consider. Repair shop prices are rising, not just because of inflation but also because if you have a high-quality classic car, you will have to pay higher prices for a repair shop that knows how to adequately repair that vehicle.
How is Inflation Affecting Insurance Claims for Classic Cars?
So, how does this all play into insurance rates and claims?
According to Rick, “Most states have regulations saying you cannot repair beyond a certain threshold.” So, you have to look at it in terms of total loss, which is an insurance term used when the cost to repair a car is more than the value of the car.
Let’s say you have a car that costs you $40k, but with inflation, repairs might end up costing more than that. In this case, the insurance company would consider it a total loss, and they would just give you the value of the car.
But that’s also where customers get confused. They might have paid $40k when they bought the car, or that might be how much money they put into the build, but if the market value has gone down on the car, then what the insurance company values the car at might be less than what you paid. So you end up getting less money for the car than what you put into it.
This is something that classic car owners need to start paying closer attention to. Because inflation isn’t just affecting the insurance claims and how much you might get back if your car is considered a total loss, but it also affects the insurance premiums.
When you build a classic car, you could easily sink $200k into it, but your insurance company will only insure you for what the car is worth, not what you spent on it. In some cases, premiums could go up due to inflation if the car is still worth a lot of money on the market. But if you spent $200k on a classic car build that would only sell on the open market for $100k, then your insurance company is only going to insure it for the $100k, not for the amount of money that you put into the car.
This is understandably frustrating for classic car owners, but it’s how the market works, which means car owners and collectors need to start paying closer attention to how much they are paying for a car due to inflation versus how much it is actually worth.
Insuring a Classic Car Today: What You Should Know
If you are a classic car owner or if you are interested in getting into classic cars, it’s crucial that you start paying closer attention to how much you are paying for a car compared to what repairs might cost or what the market value of the car might actually be.
It’s important to understand that what you pay to build a classic car today might be a lot more than what you would actually get for the vehicle on the open market, or what you might get for the car if it is damaged. Classic cars are being considered a total loss much easier today than they once were because inflation has made it cost so much more money to have these cars repaired.
Labor might be 60% to 70% of the cost, and you’re not going to get that back if the car is a loss.
This isn’t to say that you can’t still enjoy your hobby as a classic car enthusiast. If you have the money and want to put it into buying or building a classic car, that’s still an option, you just need to understand that insurance might end up insuring the car for less than what you put into it based on current inflation rates and market values. And if the car is damaged and needs repairs, the car and what you put into it could also end up being a total loss. That is a risk you have to consider.
However, it’s also about making sure you are working with the right insurance company. Not all car insurance companies know how to adequately price or value a classic car with inflation in mind.
As Jim, our VP puts it, “You need people on both ends of the equation, the underwriters up front to make sure that the customers are getting priced adequately and fairly on the value of the car… And then having a claims department on the other end that understands and won’t question the higher cost of repairs for a quality classic car… That’s gonna shock some claims guys. But it shouldn’t shock you if you’re used to dealing in this business.”
A good insurance company with experience understands that the quality of the car is going to dictate how much it costs to put it back to pre-loss.
It’s also important for customers to understand that if they have an older car, they should not just continue to accept insurance renewals without first reviewing their policy. What you paid for the car originally might not be what it is worth now, or other things in your life might have changed, so you need to talk to your insurance agent about that before renewing.
Your collector car insurance company is only as good as what you make them aware of. So don’t just accept a renewal without first looking at how the market has changed or how other things in your life might have changed, as these things could play a role in your policy.
It’s important to note though, that with all of these changes in inflation, claims, and insurance rates, it might take some time before you see the changes taking effect. Jim says, “From a customer perspective, I think you’re going to see dramatic changes over the next couple of years because it’s like turning a tanker ship. Things don’t just happen overnight. It’s slow. It takes a while for insurance companies to justify rate increases or decreases.”
Protect Your Vehicle with Classic Auto Insurance
Whether you drive a 1960s muscle car or are a collector of other classic vehicles, you’ll need the right kind of insurance to protect your piece of history.
At Classic Auto Insurance, we pay attention to how inflation is affecting the market and will do everything we can to offer the best coverage possible on your classic or vintage car. We work with each client individually to determine the worth of their particular vehicle to find a plan best suited to their needs.
If you need insurance for your classic car, you can request a quote here today. We are also available by phone at 888-901-1338. We are happy to answer any questions you may have about our policies and are ready to help you take the next steps toward preserving your prized vehicle.
