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?)
Accidents: 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.-SR