How prize indemnity insurance can help build buzz without breaking the bank
by STEFAN BURKEY
Contests and giveaways are big with hotels and resorts. They take all sorts of sizes and shapes and – as a marketing tactic –can do a great job of bringing guests in and boosting brand awareness.
Resorts built around notable golf courses, for example, might promote a big cash prize for anyone who manages to sink a hole in one. One Canadian hotel in Calgary uniquely sponsored a photo contest of shots showcasing aspects of the city with cash prizes and free stay packages for the top winners. Others periodically offer generous points purchase terms to members of their loyalty programs.
These have been especially popular since the industry has been in recovery mode from the pandemic, even though Florida’s tourism industry has come roaring back and the state’s lodging industry is enjoying the boom. In fact, it’s estimated that Florida will score the second highest gross increase in hotel-generated tax revenue from 2019 to 2023 over 10 other states – up 23.5% or to about $4.02 billion.
Still, for all the benefits of promotional marketing programs, there are risks to the strategy, too. The resort faced with a big payout for that hole in one may be hard pressed to cover the prize money, given the negative financial impact. Anticipating the risk in advance is important, and there’s an insurance line for that: over-redemption and prize indemnity, and, yes, hole-in-one insurance, too.
Here’s how to manage the risks.
HOW PRIZE INDEMNITY INSURANCE WORKS
When a promotional event is planned that has a big-ticket prize is at stake – say, cash or a new car – the promoter might put cash reserves in place to cover the cost. Or, the promoter can take out prize indemnity insurance and let the insurer take on the risk of making the payout.
It covers what it’s purchased to cover – a grand prize – but not anything outside of that. What it doesn’t cover are guaranteed prizes. The cost of this insurance is dictated by such variables as the amount of skill required to win, the value of the prize, and how many potential winners might participate.
Incidentally, hole-in-one insurance is a variation of prize indemnity coverage, with particular criteria, such as hole yardage, number of professional and amateur participants, number of rounds and, of course, value of the prize.
THE PROMOTIONAL STRATEGY COMES FIRST
Hotels planning such events should be aware of three provisos in proceeding.
1. Align the promotion to the brand. The promotion and prize should suit the business, but equally important is to establish what the business hopes to gain in return. Go back to that hole-in-one promotion by a golf resort that wants to leverage its big draw: award-winning greens. A $100,000 prize is a great reward for the guest who shoots a hole-in-one. USA Today reports the odds of a hole in one on a par 3 is 12,500-to-1 for amateurs; 7,500-to-1 for professional golfers. Prize indemnity insurance would cover the risk of someone winning, and the resort is building excitement and buzz either way.
2. Financial parameters dictate the insurance coverage. The promotion also must fit within a budget. If a company has allocated a certain percentage of every product sold toward this promotional offer, then any promotional offer to the consumer – whether self-insured or using promotional insurance – must fit within that target. Once the budget is determined, a qualified broker must be enlisted to find the best insurance product that will allow the promoter to get the benefits of the promotion, but as cost-effectively as possible.
3. Policy terms matter. For a hotel to receive the full payout of any policy that insures a promotional offer, it must follow the specified terms and conditions. Promotional insurance underwriters are flexible in the extent of what they will insure and in the drafting of the policy. But, once in place, the policy must be followed to ensure the appropriate payout. A broker can help secure promotional coverage, file claims, and submit paperwork to help companies obtain payment more quickly.
Stefan Burkey is the hospitality practice leader for HUB International Florida. In this role, he oversees insurance placement solutions for owners, developers, and operators from limited-service hotels to full-scale resorts. Stefan and his team clearly understand the financial needs and exposures associated with the hospitality industry, and their singular focus has generated profound market knowledge and significant buying power for HUB clients throughout Florida and the U.S. He won Risk & Insurance’s 2023 Hospitality Power Broker of the Year.
