Hagerty IPO Shows Value of Membership Model in Insuring Collectible Cars

For many millions of drivers, a car is simply a conveyance. Enthusiasts, however, are a breed apart. We’re talking people who live and breathe collectible autos. For this group, merely insuring beloved and precious wheels doesn’t cut it. They long to be in the collectible car world.

There are car clubs and car shows, newsletters and websites loaded with content. But what they really crave is an ecosystem devoted to their passion.

Fortunately for enthusiasts, that exists. Specialty insurance provider Hagerty goes well beyond the average insurer in several ways. Investors are now finding this out after Hagerty listed on the New York Stock Exchange (NYSE) following a merger with  Aldel Financial, a special purpose acquisition company (SPAC). The newly formed insurance company — Hagerty Inc. — is all about car enthusiasts.

On the eve of Hagerty’s NYSE listing — expected to value the company north of $3 billion — Hagerty Chief Financial Officer Fred Turcotte spoke with Karen Webster about the company’s enthusiast ecosystem of events and offerings that speed past prosaic insurance to deliver experiences.

“The way that we view it is that the collectible vehicle segment is its own unique sort of industry,” he said. “It has factors that maybe don’t weigh into the standard auto market. For instance, in the standard auto market, the people that buy insurance are trying to get from point A to point B. It’s about mobility. In our world, it’s much more than that. It’s about family. It’s about fun and freedom and passion, and status in some cases. People love these cars.”

Eyeing a potential market of some 69 million collectible car lovers in the U.S. alone, Turcotte said, “In our ecosystem, we provide them with experiences. We provide them with valuation. We provide them with products and services that are specific to the hobby.”

For example, Hagerty Drivers Club operates on a membership model, fostering a sense of community among people who might or might not be insured through the company.

Noting “member-to-member interaction is a key element to our growth strategy,” he told Webster, “We have an entire distribution team on the ground all over the country engaging with these members. Sometimes, it’s as simple as let’s go to a cars and coffee [event] together and look at cars. There’s not an insurance transaction to [that kind of] engagement.”

“Insurance is our largest product offering within the membership, but it isn’t what drives us. Insurance is very important to us in terms of its cash flow, but ultimately it’s this unique combination of insurance with other elements of the Hagerty ecosystem that make it special.”

See also: Selling Connected Car Data Is Booming Business for Auto Insurers

On a Mission to ‘Save Driving and Driving Culture’

Among elements that bring members to say they are “with Hagerty” and not just insured by the company is a network of specialized service providers tailored to the collectible car enthusiast.

“We make it easier,” Turcotte said. “We have expert repair networks. This is a network of repair shops who know how to handle and repair these kinds of cars, in addition to parts finders. We know how to underwrite them. We underwrite to a loss ratio that’s static. We try to keep right at a loss ratio that allows us to invest in the other parts of the ecosystem, [those] being our marketplaces, membership offerings, [industry] events and owned events.”

The Hagerty Drivers Club membership averages $57 annually, which he said is less expensive than many drivers’ clubs. But monetizing membership isn’t that hard when there’s affinity.

“From an insurance perspective, 75% of all the people that become insured with us in any given year buy the Hagerty Drivers Club membership,” he said. “It’s important to them. They’re being part of what we’re trying to do, which is to save driving and driving culture for future generations.”

Enthusiasts worry that wave after wave of automotive innovation — driverless technologies, the demise of the manual transmission — in the name of safety and convenience is turning cars into soulless platforms that get people from point A to point B. To win and serve proponents of wind in the hair and the roar of a V-8 engine, Turcotte said Hagerty embraced the digital shift early.

“Digital transformation is really key to us; it’s imperative,” he said. “We all know that digitally leaning companies have a huge advantage in terms of their ability to create earnings over those that maybe aren’t. What that means at the end of the day is those additional earnings mean additional valuation, so for the companies that are digitally committed and driven, it should ultimately result in a higher valuation.”

That theory will be put to the test as Hagerty takes its place on the Big Board.

Read also: From Insurance and Risk to Repair Appointments, the Connected Car Industry Is Growing Up

Partnerships and Pipeline Shaping Up

Noting that Hagerty is poised to announce two major new partnerships timed for the SPAC initial public offering (IPO) — one of them being with State Farm — Turcotte is bullish on the company’s prospects.

“We had always thought that we would really enter the IPO market probably more toward Turcotte 2024,” he said, adding, “One of the advantages of the SPAC IPO is you’re able to use projections over a course of future years that you really believe in, and we really believe in the projections. It reflects our historical growth in the high 29% compound annual growth rate [range]. It’s 27% in future years. A lot of our growth is contractual. We [also] have long-term partnerships with our underwriting partners in the U.S., Canada and the U.K.”

“We feel pretty confident in the numbers that we’re presenting. Having credibility to our projections was very important to us, so we didn’t outsize anything in the future.”

Within Hagerty’s total addressable market of 69 million drivers are an estimated 43 million collectible vehicles, “and those are real numbers, down to the geocode. We know where the cars are given the amount of data and our commitment to data over the last 10 years.”

It’s a strong pipeline for a specialty insurer looking to become a hot stock pick. And with premiums that are typically lower than standard stated-value auto insurance policies, Turcotte said, “We have a pricing advantage that plays very well for us. But they’re not shopping as much as long as they’re being serviced. And when we say service, it’s claims, our ability to handle claims and find parts. We send a get well card to the car when a car has an accident.”

“Again,” he said, “it’s about that passion.”

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