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.

In addition to completely describing the prize feat and the contest's parameters, Mr. Hubbard explains that underwriters must consider (1) how and when the contestant is selected, (2) the game security imposed (an insurer often requires that its representative oversees security), and (3) historical experience running similar promotions.

All insurance coverages have exclusions. Our experts agree that the most common and important ones involve fraud, misrepresentation and failure to follow contest rules. Another common one is that relatives of the insured or sponsor are ineligible to participate. Each of these exclusions is based on the premise that this coverage must be subject to chance.

According to Mr. Hubbard, errors and omissions in conducting the games are also excluded. He explains, “If a printer or programmer makes a mistake related to the insured's promotion resulting in a higher likelihood of a winner or more winners than are possible based on the terms of the contest, such a mistake is not covered.”

Certain exclusions can be negotiated away with higher premiums. Mr. Gilmartin provides a few examples. “A standard hole-in-one contest may exclude professional golfers but the exclusion can be eliminated with a higher premium. A standard half-court basketball shot may exclude former high school or college players but it can be removed with a higher premium."

When asked if there were difficult-to-place risks, Mr. Gilmartin stated, “Not many.” However he qualified that statement further by saying, “As long as there is ‘the chance’ to win and not a ‘guaranteed winner,’ we can generally get it covered.” Following that thought, Mr. Zoidis stated, “Contests considered too easy to win or where underwriting experience indicates a high rate of winners are difficult to place. In addition, any contest with the opportunity to ‘fix’ the contest may be difficult to place.”

Mr. Hubbard lists some specific problem risks. Instant win games are difficult because they depend on consumer behavior and play rate. Games where security is difficult to implement, such as fishing contests in large lakes, bowling risks where the exposure is in numerous locations and over long periods of time, are difficult because of the potential for fraud. Games where the prize is contingent on answering certain trivia questions are a problem because underwriters and promoters disagree on question difficulty. There is also the problem of avoiding leaks.

A broad range of limits is available. According to Mr. Zoidis, the most common prize values are in the $5,000 to $50,000 range. Although all agree on the lower limits, our experts quote different high limits of $1 million, $100 million and even $1 billion! However, Mr. Zoidis cautions, “If the prize amount gets too large, the cost of the insurance may become prohibitive.”

The experts all agree that, while there is some competition, the overall pricing for this coverage is fairly constant. According to Mr. Hubbard, one reason is because “Many of the promotions being run this year were not run last year. Consequently, there is no standard to compare to.” Mr. Zoidis also points out, “For more unique contests, the pricing has not really changed much over the past few years, as each contest is individually underwritten and assessed.”

An insurance coverage with stable pricing and excellent capacity is available and that should make it a very attractive product to sell. However, there is one problem. According to Mr. Zoidis, “The number of contests has decreased with the overall decline in the economy.”

Mr. Hubbard also sees a slight reduction in demand for this coverage because “The expense for the coverage comes out of a company’s advertising budget.” He expects further reductions as the impact of companies slashing advertising and promotion budgets begins to take effect on the prize indemnity insurance marketplace. Although he agrees that there are definitely fewer sponsors, Mr. Gilmartin adds, “The beauty of our business is that it is even more important to market your product or service in tough economic times. There is no better way to do that than by offering the chance to win $1 million without worrying about having to pay it yourself!”

Our experts are all enthusiastic about this coverage line. They use words like creativity, unique, life-changing prizes, and endless possibilities. They see this coverage as a tool an agent can offer to clients searching for ways to differentiate themselves in these brutal economic times.