Classic-car enthusiasts are driving niche market. (Property/Casualty: Marketplace).

A combination of surviving midlife crises and bank accounts big enough to tap into motivates baby boomers to buy the dream cars of their youth. A surge in sales of classic muscle cars, such as GTOs and Mustangs, is fueling the need for insurance policies to protect the vintage vehicles.

Sales at the 2001 classic car auction held by the renowned Barrett-Jackson Auction Co. totaled $27 million, the highest amount in the last decade. And one of the insurance leaders in this niche market, Hagerty Insurance, wrote new business for 6,000 vehicles in June, said McKeel Hagerty; president of the Traverse City, Mich.-based managing general agency. The company competes with national writers such as State Farm and Allstate, which handle the majority of the market, and it shares the niche spotlight with Condon & Skelly, Grundy Worldwide and J.C. Taylor Antique Auto Insurance.

Hagerty garners about $40 million in premium annually of the $100 million in premium collected by the classic-car niche market. The total classic-car market, including the national carriers, earns about $400 million a year in premium, making classic-car auto coverage only a fraction of the $120 billion private-passenger auto insurance business.

The hobby's demographic group includes high-net-worth individuals, Hagerty said. About 25% of all car collectors have a net worth of at least $1 million. Most have a second home and a boat. "They are also slightly mechanically inclined; they're not afraid to jump a battery," Hagerty said. Currently in the United States, there are more than 14 million pre-1976 cars, and more than 50% are considered to be collectibles, Hagerty said.

The classic-car hobby has been growing since the 1960s, although the types of cars eyed by collectors are changing from models from the 1920s and 1930s to sporty '60s and '70s models. "In the past, GTOs and Mustangs weren't considered collectible," Hagerty said. "A new generation is choosing to buy the cars they always wanted to own. It's hard to drive something like a painting. But you can drive a car; it separates you from the crowd."

Many of the niche players in this market offer an "agreed-value" insurance policy for classic cars. Agreed value means that if the car is destroyed, the policyholder receives the amount listed on the policy. To ascertain the agreed value, Hagerty Insurance monitors the classic-car market and sponsors events nationwide to keep up to date on model pricing. Classic-car insurers see their policyholders as good risks, because the cars are used infrequently and are kept in prime condition.

The only wild card for insurers is car storage, Hagerty said. "If a car nut has $10, he will spend it on the car and not on storage," he said. Garages and storage sheds can burn down, and snow collecting on roofs can cause collapse. "People don't realize how often accidents occur close to their driveway," Hagerty said.

Hagerty Insurance sells policies through its direct channel and via 13,000 agents nationwide. "The classic-car insurance market is a great way to open up a new avenue of business for agents," Hagerty said.