Western Motorcycle Market Cruises Along

In at least one way, there is a strong parallel between learning to ride a motorcycle and insuring motorcycle operators. For the novice rider, the first 90 days of vehicle ownership is an especially risky period for crashes. Similarly, newcomers jumping into the business of motorcycle insurance often quickly find themselves knocked for a loop after a few short years.

“It’s a very hard business to enter because you need about a three- to five-year book of renewals before it becomes profitable,” said Marty Sullivan Jr., president of Sullivan & Sullivan General Insurance Agency in Stockton, Calif., which offers motorcycle liability only and package in California. “People think they can make a lot of money in motorcycles and it just doesn’t happen.”

Currently, three companies in particular are widely regarded as specialists in the western motorcycle market: Pacific Specialty Insurance Company, based in Menlo Park, Calif.; Progressive Corporation; and Sullivan & Sullivan.

Mike McGraw, president of Pacific Specialty, which writes motorcycle programs (liability only or liability and physical damage; and excess liability) in the states of California, Texas, Arizona, Georgia and Hawaii, described motorcycle as a very small, specialty subset of the auto marketplace, with coverage parts virtually identical to auto.

“Like all the marketplaces in California—the more things change, the more they stay the same,” McGraw said. “Three or four years ago, there were five or six new guys writing motorcycle. It seems like the new players have exited the marketplace with poor results. It’s back to the same old folks that have been doing it for years and years.”

While a renegade biker stereotype may still persist in many minds, in reality, there is no “typical” motorcycle owner. Riders range from kids on sport bikes; to rich, urban types riding big Harleys, Gold Wings and touring bikes; to BMW afficianados or Italian bike enthusiasts that ride Ducattis.

“Then there are guys riding bikes that are usually 20 years and older who want liability only,” Sullivan said, adding that most companies will not write full coverage if the bike is more than 20 years old. “If they do, it’s got to have pictures.” According to Sullivan, only one company, Progressive, writes custom bike coverage. “Basically you have to be a good driver to get custom bike coverage,” he said. “Nobody writes stated value policies on motorcycles unless it’s classic motorcycle.”

Under Prop. 103, the motorcycle business is pretty much rated by driving experience—basically annual miles, CC size and, of course, driving record.

Another rating factor which comes into play is bike type; for example, sport bike, street bike, ATV, dirt bike or tour bike.

“Exactly the same rules that apply to auto apply to motorcycle,” McGraw said. “You have good driver discounts and all those things…Auto and motorcycle in the eyes of the department are one and the same. The same Prop. 103 rules that apply to auto apply to motorcycles, so you have to take all comers if they’re good drivers. Now good driver in motorcycle means that they have to have a motorcycle license for three years. They can’t just have had an auto license.”

Pacific Specialty revised its program for 2001 to include increased limits. “Historically we used to write two policies: a standard basic limit motorcycle product and, for the people that wanted the excess limits, a separate policy,” McGraw said. “Now it’s all in one. That’s following the same sort of trends [as] in auto.”

Just how profitable a line is motorcycle these days? Like most things, the recipe for success boils down to the basics: rates, claims and underwriting.

One major error that many companies make is to send auto adjusters to adjust motorcycle claims. “Thus, they’re paying bump part prices, bump labor rates, and just copying sheets,” Sullivan said. “They may also be simply replacing parts rather than repairing them. We pay fair market labor rates, which are out of the book. But you only know that if you send in a guy who is a motorcycle adjuster.”

Sullivan added that he basically markets to certain classes of business. “I think older drivers are better,” he said. “Harleys are great because they renew their policies year after year. Street bikes are good and usually have a lower loss ratio than sport bikes. A good trend which is starting to pick up is dirt bikes and ATVs. A lot of people are getting insurance on those.”

“Everything is about pricing it appropriately,” McGraw said. “The guys that are here year-in and year-out price it to a point where you can actually make a profit.”

In another similarity to the auto market, prices for motorcycle insurance are hardening. Besides the fact that a number of participants have exited the market, the tightening of rates can be attributed to the rising cost of bikes.

Certainly, according to the Insurance Information Institute’s Fact Book 2001, the good news is that overall crashes of motorcycles in the U.S. have declined over the years. In 1988, the number of injury crashes involving motorcycles totaled 97,602, and property damage-only crashes numbered 20,756. Those numbers dropped in 1998 to 45,000 and 9,000, respectively. In addition, fatal crashes dropped from 3,715 in 1988 to 2,334 in 1998.

However, Sullivan stated that the biggest problem for motorcycle insurance is vehicle theft. “Alarms don’t work,” he said. “If we ever could develop a chip to put inside the frames and get some of our bikes back, we would have a very good loss ratio.”

All things considered, virtually any consumer who needs motorcycle coverage can get it without too much difficulty. “We take every motorcycle there is,” McGraw said. “We have a price for every motorcycle. In our 25-year history, we’ve insured way over a billion motorcycles in California. We have a database that tells us what we need to charge price-wise by model.”

The way to avoid undesirable risks comes down to underwriting. “What we do is we have 0-1 is good driver; 2-4 is standard rate and 5 points is the max we’ll take,” Sullivan said. While some companies take up to 10 points, their pricing reflects that level of risk. “Anyone over 7 points is an accident waiting to happen.

“Some companies require motorcycle licenses, some don’t,” Sullivan continued. “A lot of us just charge 2-4 points if you don’t have a motorcycle license…And it doesn’t necessarily mean that the guy is a bad driver. A lot of these guys never got around to getting one, but they’ve been riding motorcycles for years.”

McGraw maintained that while there hasn’t been anything “super-new” with regards to motorcycle coverages, there has been new technology in the distribution. Insurance agent customers have traditionally come to Pacific Specialty either by using the company’s own proprietary software desktop software or the comparative raters. Now, customers can link to Pacific Specialty via ZapApp. The company has also added the ability for customers to log onto its website, where they can bind and quote.

“Most of the companies that get any business use FSC and ZapApp,” Sullivan said. “Progressive has their own system.”

“It’s not a marketplace where you have nearly the competition that you have in the auto marketplace, because it’s not nearly as big,” McGraw said.

It’s really just a matter of learning to ride and knowing the road.

Topics California Auto Excess Surplus