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Advertising promotions have evolved quite a bit from the days of free gravy bowls to lure customers to the movie theater. However, one key problem remains—how can the advertiser limit its risk of an unexpected payout. If gravy bowls were promised, they had to be handed out. If a $1 million prize is promised if a certain event occurs, $1 million must be paid when it occurs!
Prize indemnification insurance is not about guaranteed gravy bowls. It is about insuring against uncertainty. Insurance is available if the prize is possible but not guaranteed, and the circumstances can be controlled in such a way that they can be evaluated. |
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Here is a possible scenario:
Glimmer and Shimmer Swimming Pool Company wants to attract attention to its showroom. It knows it has a much higher chance of selling a customer a pool once the customer comes in. The trick is to get them in the door. Paul has an idea. He wants to fill a pool with soft plastic balls and have customers guess the number in the pool. The one condition to entering the contest is that the customers must actually come inside the premises to do so.
Paul and his brother Larry agree on the contest idea but not on the prize amount. Paul thinks $5,000 is enough. Larry believes the prize must be much higher to draw any attention. Paul worries about their ability to afford to offer a higher prize amount, especially if there is more than one winner.
Paul and Larry mention this to their insurance agent. They all work with the insurance company offering the prize indemnification coverage to establish the conditions and the prize amount based on the premium they are willing to pay.
The ad campaign is successful even though no one actually guessed the exact number of balls in the pool. Glimmer and Shimmer experienced a substantial increase in the number of prospective customers coming into the showroom and Paul and Larry converted many of them into customers. Even better, the premium they paid gave Paul and Larry the peace of mind that only insurance can provide. |
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According to William Hubbard, chairman of HCC Specialty Underwriters, Inc., “Prize indemnification insurance is designed to cover contingent (non-guaranteed) prizes that are part of a promotional campaign. An interesting part of this type of insurance is the varied and creative method for which such prize insurance is used.”
“Hole-in-one and putting contests are the most popular,” says Mark Gilmartin, president of Hole In One International and Odds on Promotions. “Basically, any game, contest or promotion with ‘the chance’ to win a big prize can be covered.”
Our experts provided examples of some contests. They include basketball shots, fishing contests, football kicks, direct mail promotions, in-store promotions, weather promotions, Internet contests, stacking a number of cookies, finding the Loch Ness monster, identifying a mystery wine brand, and making an unassisted triple play.
Some question whether this is actually insurance coverage at all. However according to Chris Zoidis, vice president, director of special risk division – international, of Burns & Wilcox, numerous underwriting criteria are used to evaluate a risk. Two key ones are that the contest cannot be “fixed” by either the participant or the organizers and there must be a measure of luck in winning the contest, with the possibility that there will be no winner.
Mr. Gilmartin explains the three basic categories of prize indemnification. Skill-based risks, such as hole-in-one contests, are evaluated based on the difficulty of the task and the qualification process of the contestants. Math-based risks, such as guessing games, are evaluated based strictly on the numbers/odds involved. Odds-based risks, such as if it will be 100 degrees on July 4th, combine history and human forecasting in the evaluation.
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