Texas Motorcycle Market Cruises Along

There may be a strong parallel between learning to ride a motorcycle and insuring motorcycle operators. For the beginning rider, the first 90 days of vehicle ownership can be an especially risky period for crashes. Similarly, novices jumping into the business of motorcycle insurance often quickly find themselves knocked for a loop after a few short years.

Many insurers agree that entering the motorcycle insurance business is tough because the line requires about a three- to five-year book of renewals before it becomes profitable. The line is not an easy cruise to big profits, most agree.

Currently, three companies write the bulk of coverage in Texas: Old American County Mutual, Progressive and Dairyland. While Old American is new to the Texas market, its parent, Pacific Specialty Insurance Company has a long history as a leading specialist in the western motorcycle market. Mike McGraw, president of Menlo Park, Calif.-based Pacific Specialty, which also writes motorcycle programs (liability only, liability and physical damage, and excess liability) in California, Arizona, Georgia and Hawaii, described motorcycle as a very small, specialty subset of the auto marketplace, with coverage parts virtually identical to auto. Old American began appointing agents in Texas during the final quarter of 2000. It began writing coverage the first quarter of 2001, according to McGraw.

“Like all the marketplaces in Texas—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.”

Market demographics
While the popular stereotype of a biker as a renegade may still persist, in reality, there is no “typical” motorcycle owner. Riders range from kids on sport bikes; to rich, urban types riding expensive Harleys, Gold Wings and touring bikes; to BMW aficionados to Italian bike enthusiasts who ride Ducattis. Today the average motorcycle operator is 38 years old, while as recently as 1980 the average age was 24, reports the Motorcycle Safety Foundation.

The market also includes riders who pilot vintage bikes ranging to 20 years and older. Those who ride such bikes often want only liability coverage. The problem here is that many companies will not write full coverage if the bike exceeds 20 years.

Progressive is one of the few companies writing custom bike coverage which generally requires that the rider have a nearly spotless driving record. Only a few companies will write stated-value policies on motorcycles unless it’s classic motorcycle. Two companies that write such coverage are St. Paul and Condon & Skelly. The motorcycle business is pretty much rated by driving experience including annual miles, engine size and, of course, driving record. Another rating factor is bike type-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 pretty much one and the same.”

Old American County Mutual-parent 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.”

Profitability
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, according to one industry insider. This often results in paying bump part prices, bump labor rates and just copying sheets. Further, such practices may also result in simply replacing parts rather than repairing them. Most companies do pay fair market labor rates, which are out of the book, but that can be assured only when dealing with a motorcycle adjuster.

Not surprisingly, most agree that older drivers are better. Harleys may well have the best renewal rates given the ownership demographic-their owners are usually older and thus more careful drivers. Most street bikes are usually good and often have a lower loss ratio than sport bikes; although, a developing trend indicates that coverage of dirt bikes and ATVs is on the uptick.

“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.

Safety issues
A continuous decline in motorcycle crash fatalities from the mid-1980s through 1997 has given way to a steady increase since 1998, according to the National Highway Traffic Safety Administration. In 2000, motorcycle crashes killed 2,680 riders compared to 2,472 in 1999, an increase of more than 8 percent, says the NHTSA.

According to the Insurance Information Institute’s Fact Book 2001, overall motorcycle crashes in the U.S. declined for the period 1988-1998. In 1988 motorcycle injury crashes numbered 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.

In recent years a number of design enhancements have been aimed at increasing motorcycle safety. Included are better suspension systems, improved fuel tank design, new brake systems and lights that come on when the engine is running. On the other hand, motorcycles have increased in size and power during the same period, according to the MSF.

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 million motorcycles. We have a database that tells us what we need to charge price-wise by model.”

Underwriting is the key to managing or avoiding undesirable risks. Most companies apply a simple rating system with 0 representing the least risk and 10 the greatest. When companies write coverage on a 10-rated risk, the pricing must reflect that.

He added that in those states where Pacific Specialty has a long history of writing motorcycles, agents 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 Old American via ZapApp. The company has also added the ability for customers to log onto its website, where they can bind and quote.

“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 a marketplace,” McGraw said. “If anything, it is sort of par for the course. But when you look at it, the leaders that were writing it 20 years ago are the same guys writing it today. It’s pretty amazing in that regard.”

Topics Texas Auto Excess Surplus