Prize Indemnity Insurance covers promotional events where participants win high-value prizes. It is a Liability Insurance policy and mostly taken by companies that invest in large-scale promotional competitions with the intention of giving away prizes and cash rewards to contestants.
Businesses employ a wide variety of strategies and campaigns to promote their products. And an effective promotional technique is competitions. Companies often hold prestigious events that encourage participation from their audience, promising them a chance to win a prize. These prizes can be anything from product hampers, to free vacations, and to even cars or gadgets.
But, how do these companies afford to give away such lavish prizes? The general consensus seems to be that these organisations keep massive cash reserves or investments for the purpose of awarding the winning prizes. However, freezing large amounts of resources for the sole purpose of giving away prizes that may or may not even be won seems impractical and expensive.
What these businesses end up doing instead is investing in a Prize Indemnity Insurance policy.
Under a Prize Indemnity Insurance policy, the promoters of the contest pay premiums to the insurance company which then provides compensation in the event a prize is actually given away.
Prize Indemnity Insurance is taken for the sole purpose of indemnifying a business for a promotional activity that involves offering participants a chance to win prizes. It is also known as a hole-in-one policy owing to its popularity among golf events.
Here, instead of the business insuring a property against damage, it insures the risk of having to pay a large prize. Through such a system, the business is able to draw in huge crowds of potential customers and create marketable engagement, while also avoiding hoarding precious resources for contingent prizes.
This policy essentially helps sponsors and promoters offer high value rewards to their target audience and boost business growth, build brand loyalty and promote their market reputation.
The premium for Prize Indemnity Insurance is calculated on the basis of the value of the price as well as the statistical odds of a contestant winning it. Furthermore, the pay-out received by the promoter is limited to the actual net loss suffered by them, i.e. the financial value of the prize given away. The insurance also protects the rights of the prize winner as it guarantees that the prize so promised is awarded to them. This prevents non-compliance of the contest agreement for reasons like financial insolvency or lack of funds.
The insurance company for a Prize Indemnity policy sets strict guidelines for the prize contest. These guidelines need to be followed by the promoters and the sponsors in order to be able to make a successful claim when a prize is given away.
Generally, the following exclusions apply to a Prize Indemnity Insurance policy :
- The contest winner being given an unfair advantage by the promoters
- Event cancellation due to any reason
- The insured prize being changed without prior consent of the insured and in violation of their guidelines during the policy period
Furthermore, insurer guidelines also state that the promoting company must provide certain evidence in order to make a claim under this policy. This evidence must be duly submitted by the promoters and show that the contest was held on just and fair grounds.
Prize Indemnity Insurance is an excellent tool for any business seeking to incentivize their customers through promotional events. With the help of this policy, they can offer legitimate allure to potential consumers with a promise of lavish vacations and material prizes, all the while transferring their risk to an insurance company.
This policy can also be clubbed with Event Cancellation Insurance, thus forming a comprehensive Event Liability Insurance policy.
Businesses can cover other common liabilities with the help of a General Liability Insurance policy!