Survey Says: Some Motorcyclists May Not Completely Understand Physical Damage Insurance Coverages (Who Does?)

For many motorcycle owners, riding is more than just a recreational activity, it’s a lifestyle. Riding represents freedom, friends and fun. It’s what fuels daydreams and fills weekends. With so much fun to be had, it’s probably not surprising that riders like you aren’t spending your time poring over your insurance policy to understand coverage nuances. That’s why the Progressive Group of Insurance Companies, the largest motorcycle insurer in the country, recently conducted a survey of more than 1,000 motorcycle owners and found that many don’t understand important information about their policies. Not knowing - and making the wrong choices - can cost you thousands if you have a claim. The survey focused on two key facets of a motorcycle insurance policy: physical damage coverages and loss settlement types. Here’s what bikers said and what you need to know. Physical Damage Coverages If you’re like most bikers, you’d probably say that next to riding, customizing your motorcycle to fit your personality and riding style is the best part of having a bike. That’s why it’s so surprising that more than half (56 percent) of all the bikers surveyed don’t know how much protection for their bike’s custom parts and accessories comes with their physical damage coverage. Of the 44 percent surveyed with more than $3,000 worth of custom parts and accessories on their motorcycles, the majority of them (51 percent) didn’t purchase additional coverage. The physical damage portion of your motorcycle policy generally includes comprehensive and collision and custom parts and accessories coverages. Comprehensive generally covers weather-related damage (hail, etc.) as well as theft claims while collision generally covers crashes your bike has with objects other than animals. Most motorcycle policies with comprehensive and collision include some custom parts and accessories coverage free with the option to purchase more. Comprehensive, collision and custom parts and accessories are optional coverages and are subject to a deductible amount - that’s the amount you select when you buy the policy and the amount you’ll be required to pay first before the insurance company pays on either coverage. Common deductible amounts are $250 and $500. "Most insurance policies that have physical damage coverage provide some custom parts coverage, but it could be as little as $500,” said Rick Stern, motorcycle product manager, Progressive. "Others provide as much as $5,000 worth of coverage at no extra charge - but you have to know what comes standard with your policy. And, if it’s not enough to protect the value of your bike’s custom parts and accessories, most insurance companies will sell you additional coverage. For example, we sell coverage for up to $30,000 worth of additional custom parts and accessories.” Loss Settlement Types If you own a custom or classic bike, pay attention. More than 45 percent of motorcyclists surveyed don’t know which loss settlement type - Actual Cash Value, Agreed Value or Stated Amount - their policy provides. And, 68 percent of those confuse the benefits of Agreed Value and Stated Amount settlement types; that is, they mistakenly believe that Stated Amount guarantees a pre-selected total loss settlement amount in writing in the event a bike is declared unrepairable (what the industry calls a total loss) or is stolen and not recovered. These misconceptions could seem innocent enough, but they could cost you thousands. Insurance companies generally do not offer all three loss settlement types - instead, the loss settlement type you have available to you is based on the type of motorcycle you own. If you own a mass-produced motorcycle that has a resale value generated by a third party like the N.A.D.A. appraisal guides or Kelley Blue Book, you will generally be offered an Actual Cash Value (ACV) settlement option. This means that, in the event of a total loss or if your bike is stolen and not recovered, you will generally be paid the ACV, less your deductible amount. If you own a custom or classic motorcycle with certain characteristics, you might find that some companies won’t insure your bike. However, many insurers that specialize in motorcycles will insure these types of bikes and will generally offer you one of two loss settlement types - Agreed Value or Stated Amount. Criteria for these settlement types vary by insurance company, and no insurance company offers both types. For example, Progressive offers motorcycle owners a policy with Agreed Value if they have bikes that are 25 years and older or custom bikes that don’t have resale values in an N.A.D.A. guide or Kelley Blue Book. Many other insurers only offer Stated Amount for bikes with similar characteristics. Here’s what you need to know: Stated Amount is the amount selected by the bike owner at the time the policy is purchased and is the maximum amount the insurance company will pay in the event of a claim. If the bike is totaled or is stolen and not recovered, the insurance company will generally pay the Stated Amount or the ACV as determined by sources like N.A.D.A. or Kelley Blue Book, whichever is less. And, a deductible applies to the settlement amount. Agreed Value represents the value of the bike as agreed upon by you and the insurance company when the policy is written. This amount doesn’t change over time unless both parties agree to the change. If the bike is totaled or stolen and not recovered, you will generally receive the agreed upon amount. No deductible amount applies to an Agreed Value settlement. Today, owners of bikes produced by more than 500 custom motorcycle manufacturers might qualify for a policy with an Agreed Value or a Stated Amount loss settlement; this number has grown quickly over the past few years as the popularity of custom bikes has grown. Some of the more well-known bikes that qualify for Agreed Value policies at Progressive are made by Big Bear Choppers, Bourget’s Bike Works and Orange County Choppers. "If bike owners mistakenly believe that the settlement types provide the same protection, they’ll probably base their purchase decision on price like I would,” said Stern. "For instance, a policy with Stated Amount is generally less expensive than one with Agreed Value, but there are very significant coverage differences. That’s why it’s so important that bikers understand these differences and choose their policy and provider accordingly.” The Bottom Line "Know what’s on your bike - and on your policy. And, know what’s offered by the company you’re dealing with. If the company doesn’t offer the loss settlement type you need, check around with other companies,” said Stern. "An investment of your time can go far in protecting your investment in your bike.” About Progressive The Progressive Group of Insurance Companies, now celebrating its 70th year in business, is the country’s third largest auto insurance group and largest seller of motorcycle and personal watercraft policies based on premiums written, and is a market leader in commercial auto insurance. Progressive is committed to becoming consumers’ #1 choice for auto insurance by providing competitive products and rates that meet drivers’ needs throughout their lifetimes, superior online and in-person customer service, and best-in-class, 24-hour claims service, including its concierge level of claims service available at service centers throughout the United States. Progressive companies offer consumers choices in how to shop for, buy and manage their auto insurance policies. The Agency Business sells Progressive Drive Insurance private passenger auto insurance through more than 30,000 independent agencies. To find an agent, go to www.progressive.com. The Direct Business sells Progressive Direct® private passenger auto insurance online at www.progressive.com and by phone at 1-800-PROGRESSIVE. Both businesses offer Progressive’s other insurance products, including Progressive Commercial, Progressive Motorcycle, Progressive Boat, etc. Each business makes independent decisions about private passenger car insurance product design and pricing. Progressive and Drive are registered trademarks. The Common Shares of The Progressive Corporation, the Mayfield Village, Ohio-based holding company, are publicly traded at (NYSE:PGR). For more information, visit www.progressive.com. Rick Stern, motorcycle product manager, Progressive Insurance, is available for interview.