You've been good, saved your money, and now you're about to be rewarded with the sportbike of your dreams. You've found the right bike at the right price and are ready to consummate the deal--in more ways than you could know. Before you head to the dealership, the helpful salesman reminds you to have your insurance in order.
So you make the call to your local agent; he's always been good to you in the past. Then he comes back with, "Well, for that bike, with your driving record, it's going to be...are you sitting down?" and he reads you a number that makes your head swim. What the...?
Remember that it's nothing personal, honest. Insurance, at the heart of it, is a game of numbers. The goal is to earn more in premiums than is paid out to fix bikes and bodies--this is a basic business proposition, and it's pretty hard to fault insurance companies for trying to make a profit. What's more, the current situation in motorcycling has a combination of specialty insurers--companies that provide mainly motorcycle or vehicle insurance--competing with mega-companies that offer fire, theft and life insurance, for example. Motorcycling continues to grow, so underwriters see the potential profits and jump in. For the existing firms, more players means price competition and, often, better deals for consumers. This competition is a good thing.
Marcy Gray is a product manager for Progressive Insurance. She knows the numbers inside and out. "Rates are based on a lot of data," she says. "These are data we get from our own claims. When it comes to determining risk on a particular combination of rider and bike, we look at the combination of the loss frequency and the loss severity cost. In other words, it's how often we have a claim on that particular bike, and how much it costs us to settle the claim. Those numbers come down to something we call the average loss cost." That makes it pure statistics. Take the average loss cost for a particular bike ridden by a rider of a particular age, experience and driving record, and apply those costs to all consumers in the same group. If a dozen 20-year-olds on R1s toss it down the road, you, as another 20-year-old with an R1, will get to pay for the repairs through your premium.
In fact, there's another layer too. Progressive, like all insurance companies, has to pay its overhead--the profit to local agents, keeping the lights on in the call center, salaries for adjusters and so on. All of these costs are added to the average loss cost to come up with the premiums charged. Insurance companies don't like to lose money, though a couple have admitted that they're willing to take lesser profits to obtain market share. Again, it's a business.
Let's take another look at how insurance companies determine risk factors for consumers. As mentioned, it comes down to known claims. Simply put, a bike that's crashed frequently and costs a lot to repair will generate a higher risk factor and a more costly premium. Precisely how insurance companies cobble together this matrix of risk often creates great disparity in rates. For example, Progressive looks at the data very closely. "We carefully monitor the claims to see how each model is doing," says Gray. Moreover, a large company like Progressive has the data resolution, if you will, to see the difference between, say, an SV650 and an SV650S. If one has a higher loss rate than the other, it will charge accordingly.
Not all insurance companies do this. Our local State Farm agent said, "We basically look at the engine size." In this case, unless a particular model is highlighted as having a high loss rate--sometimes referred to as black-flagging--one 600cc bike is essentially the same as another. It's for this reason one carrier might charge $1000 a year for a 600 supersport while another might ask double or triple that amount.
An insurance company taking a broader-brush approach can be good for consumers because higher-risk bikes may come in under the radar and get classified along with lower-risk models. On the other hand, if claims in that group grow and the insurance company begins to lose money in the segment, you can bet all the bikes in the category will see a rate increase, even if, statistically, some of them are low-risk.
What about new models, how do insurance companies decide? Again, Gray spoke up. "It's a tough question, but we take a look at the new model and try to compare it to existing models. We look at things like who rides it, what is the weight/horsepower ratio, and try to figure out where it will fit." But this will be anything but a static number. "We keep looking for good data, although it may take one to two years to build up enough information to know if we got the initial risk assessment right," continues Gray. "We like to see at least 1000 claims before we feel that it's good data."
What, then, can you do to influence your premium? First, understand what determines your rate.
Age: There's not much you can do about it, but age has a massive impact on rates. Simply put, younger riders are more likely to crash. There is some discussion among insurance companies about the recent upward swing in fatal accidents involving older riders without a lot of experience--will they see higher rates soon or not?--but the general trend is that we get safer as we get older. (Trevitt forms the exception to prove the rule.)
Experience: If you just got your license, expect to pay more than a grizzled veteran. Statistically, you're most likely to have an accident when you're just starting out--at least that's the view of insurance companies. Combine inexperience with youth and you've got high risk. You may not agree, but this is how the statisticians view it.
Driving record: According to Gray, "One or two tickets usually isn't a big deal. But get three or more and the rates will go up." Again, it's statistics. "We find that riders who have a lot of tickets end up doing other things that add to the average loss cost." Getting caught driving without a motorcycle endorsement is one thing, but driving on a revoked or suspended license is fiscal suicide. Get caught driving drunk, and it's actually worse. (Worse than suicide?)
These are worse than tickets, according to those we interviewed. (Backed up by a bit of side-by-side comparison shopping; see sidebar.)
Motorcycle type and size: As suggested above, the risk factors associated with your motorcycle will vary by carrier. Some can look at the data close enough to discern a CBR1000RR from an R1, while others lump all 1000cc sportbikes into one category. Some carriers will bump high-involvement bikes from their expected categories to one with a higher risk factor (and a greater cost).
Your job is to be a smart consumer. First of all, shop around. Of all the insurance people we talked to, it was surprising to hear this as the main suggestion from every one. Different companies have different rates--it's that simple. Search for the best one given your history and the bike you own. Be careful about matching benefits closely, as coverage can vary.
Consider taking a training course. As it stands, most companies offer modest discounts for taking an MSF course. The benefit is generally more pronounced for new riders than for graybeards. Check with your agent regarding track days or schools; most insurers want something with MSF in the title before offering up a discount.
Consider a higher comprehensive and collision deductible. Shop the different deductibles carefully. You may come out ahead with a higher deductible. So much depends on how often you expect to crash. (Oh, if we only knew...) If you've paid cash for the bike or have some way to appease your lender, you may be able to go "bare" on comprehensive and collision. Just remember that any repairs will have to come out of your own pocket.
Keep your record clean. That's so obvious we hesitate to admit it, but did you know that keeping your credit scores high will also help? This factor varies by state and insurer, but we're told people who are habitually late in making payments are statistically more likely to have insurance claims.
Finally, consider multivehicle coverage. Many insurers will work hard to get all your business, and the more of it there is--home insurance, fire, theft, life, you name it--the harder they'll work to get everything on one plate. "We can be very competitive when we have all your business," our local State Farm agent said, point blank. But as with everything, look at the big picture; don't give up better homeowner's coverage just to save a few bucks on the bike.
Insurance is clearly a one-sided deal. Companies know you need them and spend significant resources determining how safe you're likely to be--and will charge you accordingly. Your mission is to grow smarter as you grow older and more experienced, and stay out of the gravel. Consider those statisticians who think you're going to crash and prove them wrong.
Insurance Terms Explained
Sometimes referred to as bodily injury and property damage insurance. This part of the policy--the basic condition of insurance required in many states--pays for damage you may inflict on others. If you are found legally liable for causing bodily injury or property damage, this insurance pays for it up to the limit of the policy. Check the terms of your policy carefully. Many times this policy will not cover you if you're engaged in a commercial operation; it may not cover relatives using your vehicle; and it probably won't cover you in the event the damage was caused by an intentional act on your part. It's worth stating that the legally mandated minimums in most states are barely adequate. Choose as much liability insurance as you can afford.
If you are hurt by another motorist who does not have insurance, this policy covers medical treatment for you and your passenger. In addition, underinsured motorist is a stop-gap policy that takes over should costs spiral beyond the limit of the other person's--the jerk who hit you--policy. This aspect of coverage deals only with the people, not the hardware.
This is where the insurance company agrees to pay to repair your motorcycle in the event of theft, fire, flood or any other mishap that does not involve a collision. Comprehensive rates are affected by where you live and how you store your motor-cycle; a good neighborhood and a garage are best.
Pays for damage incurred in a crash, excluding the deductible. The deductible is basically the amount you agree to pay for each accident you have, and can be anywhere from $100 to $1000. Remember, you are always the first to pay the deductible; the insurance company steps in only after the deductible has been met.
This coverage pays the medical expenses for you and your passenger. This part of the policy is intended as a supplement to your own health insurance. Speaking of which, it's worth checking your health-insurance policy to make sure coverage is not specifically excluded while you're on a motorcycle.
These will depend on the policy, but generally, an accident that occurs while racing or stunting is not covered. As for track days, check your policy carefully for a specific exclusion. Some insurance companies consider track days racing, while others make the distinction between actual competition and track time for the purpose of entertainment and education.
Buying insurance is like ordering from a Chinese menu without translations. You can take a stab at it, but you often don't quite know what you're going to get.
With online quoting, however, it's possible to know just what you're getting into, and how much each of your decisions is going to cost. (And for that matter, how much each of those tickets or accidents will take out of your play money for the next year.)
What follows is a what-if based on taking a single owner and changing a few key parameters. We arrived at these numbers by using up quite a lot of Progressive's server time (www.progressive.com). It was an interesting experiment you can try, too.
Before we get into the numbers, let's begin with the caveats. First, this is just one insurance company. In any of these instances, Progressive may be high, low or right in the middle. Without an exhaustive survey of many insurance companies, it's hard to know exactly where Progressive fits in. This is a competitive market, and Progressive clearly wants business, but we're told it does not intend to undercharge in high-risk cases just to have the head count. Second, these online quotes were good only for the day they were made; insurance rates are always in flux. In fact, we went back to check another variable and found two totally unrelated outcomes had changed within the space of two days. Third, surely there are better deals and worse deals for similar coverage on the baseline bike. So be it; the purpose here is to illustrate the effect of some variables on the quoted rates.
Now, let's begin. Our prototypical rider is in fact quite average. Let's call him Baseline Bob. (OK, at 41 he's a little older than average, which is 38.) He is married, owns a house in Southern California and wants to insure the 2003 Yamaha YZF-R1 he intends to buy. He's the cautious type, so he buys a lot of liability insurance, with a basic liability of $500,000 combined single limit and an uninsured/underinsured motorist limit of $250,000/$500,000. He's financed the bike and chosen a $100 deductible for both comprehensive and collision. The total premium, so says the computer, is $3645 a year. It breaks down at $247 for the liability, $327 for the uninsured motorist, $1014 for the comprehensive and $2057 for the collision.
Just out of curiosity, Baseline Bob tries a higher deductible, punching in $250 for comprehensive and collision. That drops the rates to $940 and $1523, respectively, for a savings of $608 a year. Liking that direction, Bob tries a $500 deductible, resulting in a quote of $912 for comprehensive and $1477 for collision; this nets a $682 savings over the highest bill. In this case, he'd be better off spending the $74 over the year to save the extra $250 in the deductible. Next he tries a $1000 deductible, resulting in a quote of $770 for comprehensive and $1158 for collision, for a savings of $1143. Now we're getting somewhere. Assuming he has one accident in the year, he's $43 ahead on comp and collision alone. The question really should be: Can Bob afford to put $1000 out of pocket at any time to cover a crash?
Feeling the sting of a literbike's insurance, Bob thinks about getting an R6 instead. All else being equal, the R6 will in fact save him money. The basic liability is $208 (a savings of $39), uninsured motorist is $188 ($139 less), comprehensive at the $1000 deductible is $440 ($330 less) and collision falls to $605 ($553 less). Across the board, Bob is better off on the R6, particularly with regard to comprehensive and collision. Clearly the statistics favor the 600.
But most companies consider the R6 a pure sportbike. What if Bob found himself a nice YZF600R instead? You might be surprised to learn that his quote is exactly the same. But isn't the YZF a slowpoke compared to the R6? Yes, but as far as the statistical exposure goes, it ranks about the same, and so Progressive's rates are the same as for the R6.
Bob had heard naked bikes were cheaper to insure, so he checks the deal on an FZ1, just for fun. Turns out "they" were right: The total bill for the year is $918, with savings in every category, but particularly in collision. The FZ1 is a reasonable $424 for collision on a $1000 deductible.
But Bob has his heart set on the R1, so that's what he'll get. Nevertheless, he's worried that the superbike would get him into trouble with the law, and checks to see what impact three speeding tickets (in the last three years) would have. Predictably, the rates are up across the board. Liability is now $532 (almost double), uninsured motorist is $690, comprehensive is a whopping $2101 and collision is $2710. That's a total annual premium of $6033. Why would comprehensive and collision go up even if he hasn't had accidents? According to Progressive's data, someone with three tickets is more likely to have an accident than someone without any tickets, and the company charges more to offset the potential losses.
Let's say Bob turned back the clock and was half his 41 years of age. He wouldn't like the insurance bills. Keeping the $1000 deductible on comprehensive and collision but losing the tickets still earns him a breathtaking $12,070 insurance bill. The worst parts are the dramatically upped liability, now $2419 alone, and the collision, $5531, that would drive any 21-year-old to tears. Even running "bare" on comprehensive and collision, Young Bob would be in for a $3464 annual premium. And what if Young Bob just happened to have those three tickets in three years? How about a total premium of $22,981, with a collision amount itself of $10,349. Of course, Young Bob could drop down to the minimum liability level and skirt by on a $3099-a-year bill.
One more major variable to consider is location. Bob is old again and decides to move to central Maryland. (He hears the cows are nice.) There, with a clean record, he could even afford a $250 deductible for comprehensive and collision and pay only $1016 a year. Hearing that, he's out the door. Shame he'll learn about the summer humidity the hard way.
So, it's just as the insurance people told us. Age, experience and driving record are the prime movers of your insurance rate, though location also has a large impact. (In fact, different insurance laws by state make that issue extremely variable, not just for the rates but for the kinds of insurance offered, coverage limits and consumer rights.) Better shop around, Bob.