The air was charged in anticipation of the magnificent work of art before the enthusiastic bidders. Paddles shot up like pistons. Then, the auctioneer’s hammer fell–”Sold for $7.25 million!”

An early Giacometti? A minor Picasso? No, the winning bid was for a 1965 Championship Shelby Daytona Coupe racing car, sold last August at the annual Monterey Peninsula vintage automobile auction in California. More than $116 million changed hands at this prestigious showing of fine cars.

Like great paintings and sculptures, rare automobiles represent more than just an investment to buyers. What captivates them beyond the financial appreciation of the vehicles is their sheer beauty and elegance. The difference is that owners can literally envelop themselves within the object, taking it out for a leisurely spin or revving it up on the racetrack. But, just like works of fine art, rare automobiles are investments that must be protected.

In the last three years, the collector car market has outpaced both the stock market and fine art market. Values are stratospheric. At the annual Ferrari Leggenda e Passione auction held last May by RM Auctions in Maranello, Italy, a 1957 Ferrari 250 TR chassis with pontoon fenders, one of only 22 such cars manufactured, sold for a record-breaking $12.2 million. Private sales of rare automobiles are said to be even higher. Preserving such valuable investments requires careful consideration of the myriad risks, from routine parts breakdowns and transportation mishaps to a harrowing crash at one of the many road rallies gaining favor around the globe.

The granddaddy of international rallies is the Mille Miglia. Its name refers to the one thousand miles entrants rack up on their odometers as they drive the ancient roads of Brescia, Italy. Only vintage racing cars dating between 1927, the year of the first Mille Miglia, and 1957, when the race was temporarily banned after several fatal crashes, are permitted to compete. The event is advertised as “the most beautiful road race in the world,” and it routinely attracts passionate car collectors as both entrants and spectators.

The Mille Miglia has inspired other rallies like the Colorado Grand (the word “grand” also referring to one thousand miles); 1,000 Millas Sport Argentina in the foothills of the Andes; and the California Mille, which touts the allure of the state’s wine country and great roads. A must-stop for many collectors of vintage automobiles is the London-to-Brighton Veteran Car Run, which limits the competition to automobiles built before 1904. Similar picturesque touring events are sponsored each year in Shanghai, Paris, Casablanca, Monte Carlo, Gstaad, and other exotic locales.

Part-investment, part-lifestyle, the ownership of rare vehicles is expected to mushroom as values rise. Not that collectible cars are restricted to the vintage automobiles that grandpa used to drive. So-called “muscle cars” from the 1960s and 1970s hold special appeal for affluent Baby Boomers who either drove them–or desired them–as teenagers.

Maintaining the value of rare cars requires vigilance beyond changing the oil every three months. The vehicles’ age assures mechanical and other failures. Fortunately, there are service shops that specialize in the maintenance, repair and restoration of rare automobiles. Such firms source needed parts globally, and when unavailable make the parts by hand. Damaged vehicles are repaired with the loving care that an art restorer lavishes on a Michelangelo fresco. Identifying the shops to assure topnotch quality is largely word of mouth and references. Although the Internet has broadened introductions, it has provided too many choices to make an educated decision. (Sidebar Two)

Damage and loss are as threatening to rare cars as they are to fine artworks. An important consideration for the car collector is quality insurance from a provider that appreciates the nuances of the unique financial exposures and high values presented, and possesses the capital strength to absorb multi-million dollar losses. As one would imagine, a standard automobile insurance policy falls short in addressing the unique coverage considerations of classic cars. Interestingly, since the vehicles are not used for everyday commuting, the risk of a collision is considered less. Rare automobiles also are typically transported in trucks or vans to rallies and shows, which specialized underwriters take into account in deriving the premium.

That said, specific loss prevention activities are advisable. For example, owners should consider storing prized automobiles in temperature-controlled and moisture-free environments–not the family garage. Since mechanical failures are more likely with older cars than newer ones, it is prudent to cultivate a relationship with a specialty repair shop, one with access to suppliers of vintage parts and makers of new ones when extant components are unavailable. Hydraulic failures in braking systems are a common curse of older vehicles. If the braking fluid leaks, the brake pedal is rendered inoperable, thus raising the risk of accident. Routine maintenance limits this threat.

When cars are in storage, owners should consider removing the battery to reduce the possibility of a short circuit and subsequent fire. Fuel systems can gum up if not cleaned out regularly, and it is worthwhile to consider removing the gasoline when cars are garaged.

One of the primary causes of loss is mold, given the age of many vehicles’ interiors and the fabrics like mohair and leather with which they are made. Some automobiles from the 1920s and 1930s have Landau roofs covered with fabric or leather, a trend revived in the 1960s. Mold damage is typically not covered in insurance contracts–another reason why a damp storage environment must be avoided. Unlike an axle, a vintage car’s soft parts are more vulnerable to age, making the sourcing of original fabrics from stock houses challenging if not elusive. Matching the type, texture and color of a leather-upholstered seat is the job of automobile reproduction parts suppliers, a growing cottage industry. Such handcrafted equipment is priced on a time-and-materials basis, and it is not uncommon for an entire vintage automobile wrecked in a collision to be completely restored with a combination of both vintage and reproduced parts. Obviously, sifting the wheat from the chaff in the nascent industry requires informed references.

Driving classic sports cars on the amateur and professional racing circuits–or even the local town’s speedway–is generally not covered by traditional collector car insurance policies, although there are nuances. For instance, an insured vintage racecar temporarily sidelined in the pit lane that catches fire as a mechanic tends to it is not covered by insurance, as the pit lane is considered part of the racing track. A racecar being serviced in the paddock away from the track, however, may be covered by insurance, although policyholders should check the policy language to be sure. As for insurance covering a valuable racecar accelerating at high speeds on the track, there are specialty policies addressing the obvious risks, but they are very pricey, come with a list of stipulated coverage exclusions, and are only available for well-managed vintage racing events, like the Monterey Historics races each August at Laguna Seca.

Transporting collectible cars presents a range of risks, from simple dents and scratches caused by jostling to more serious losses like fire. Typically, the vehicles are carefully secured and transported in enclosed trailers owned by collectors, although the hiring of specialty transport companies is an alternative. In this case, the transport company typically assumes the risk of damage and loss, but the financial limits of protection provided may not cover the full extent of a vintage car’s market value and there may be exclusions and limitations to the transport company’s liability. Inferior transport companies may not even have insurance absorbing the damage and loss. Again, knowledge and expertise are the car collector’s first line of defense.

Not all insurance policies covering fine automobiles are alike. Key questions to ask agents include:

  • Does the policy have mileage restrictions?
  • Is the policy an “agreed value” policy?
  • Does it offer collectors the ability to choose specialized body shops for repairs?
  • Does it provide off-premises coverage for risks while the car is in the repair shop?
  • Will the policy replace damaged parts with authentic or newly handcrafted parts?

The insurance policy also must offer financial limits of protection on par with the vehicle’s current and rising value, and provide worldwide protection since such cars travel the globe nearly as often as their jet-setting owners.

A final caveat is to contract only with a highly rated insurance carrier that truly understands the unique risks and other complexities of the collector car insurance market, and can make referrals to the most reputable restoration and transportation specialists.

Andrew McElwee is EVP of Chubb & Son and COO of Chubb Personal Insurance.