A specialty insurance coverage that got its start on the golfcourse these days has evolved into one that could potentially coverthe cost for free tacos for everyone in America, according toparticipants in the prize indemnification market.

Even a jewelry giveaway on a snowy day in Cleveland isinsurable, as is just about any contest marketers can dream up topromote their clients, they say.

One way organizations attract attention to brands and causes isby holding contests or running other promotions, typically offeringmajor prizes like cars or even $1 million. But offering the chanceto win isn't the same as actually giving the prize away, and fewcompanies actually want to pay out such significant amounts,turning to prize indemnification, also known as “hole-in-one”coverage after one of the more popular promotions, to cover thecost.

William Hubbard, president and chief executive officer of HCCSpecialty Underwriters Inc. in Wakefield, Mass., said that for hiscompany, at least, “hole in one was the start, no doubt.”

The main factors in writing the coverage are the number ofparticipants, the value of the prize, the length of the hole, andthe skill level of the participants. That skill-leveldifferentiation is fairly basic, he said, with participantsclassified as either pro or amateur level.

Lauren Jones of CGA Inc. in Granger, Ind., said that a majorityof the hole-in-one coverage written by her firm is for promotionsattached to events. While the events themselves may be forcharities such as the Susan G. Komen Breast Cancer Foundation,“about 75 percent of our clients are auto dealerships” offeringcars as prizes during those charity golf outings, she said. Thesegroups, she added, “use us to enhance the outing and to increaseplayer participation.”

The odds of a hole-in-one shot occurring on an average parthree, Ms. Jones said, are roughly 1-in-10,000. The odds aredifferent for other promotions, she said, with the rates determinedby underwriters.

A typical premium for insuring a hole-in-one contest isrelatively inexpensive, she said, with an average contest costingabout $500 for a $25,000 prize, such as a car. Other promotions canrun higher, at around $750.

Most prize amounts are paid out in cash, except for a largeamount such as $1 million, which would be paid out as an annuity,she said, adding that CGA did pay out on a million-dollarhole-in-one contest a few years ago.

Mr. Hubbard said “hole-in-one is a very competitivemarketplace.”

But the competitive aspect of the hole-in-one insurance market,along with the relative lack of differentiation among coverages,means insurers and agents have to find ways to attractcustomers.

Ms. Jones noted most CGA customers expect, and are providedwith, special promotional materials, such as signs to be placedaround the tee box and hole. “It's extremely important to havewell-made, colorful signs for our clients,” she said. “That's oneof the most important things.”

Although the prize indemnification product is most well knownfor covering hole-in-one contests, some insurers in this marketwill also cover for any number of different promotional contests.Mr. Hubbard noted, however, that the market “starts winnowing down”when these other contests come into play, such as the basketballshots or things such as a field goal kick.

“Anything that has to do with sports, we can do,” Ms. Jonessaid, adding that CGA provides coverage for half-court basketballshots, hockey promotions, soccer kicks and more.

Kenneth Kukral, president, chief executive officer and chairmanof International Excess Inc. in Richmond Heights, Ohio, said thathis company prefers to look for more unique promotions, and willactually refer typical hole-in-one coverage elsewhere.

“It has to be a little out of the norm for us,” he said. As anexample, Mr. Kukral said that International Excess can providecoverage for fishing or hunting promotions in which the organizers“tag” a certain animal and the prize is paid out if a contestantcatches it.

Insurers will also write larger promotions, typically run bymajor companies to promote their brands. As an example, Ms. Jonesnoted a promotion run by the Taco Bell fast-food chain in recentyears during the World Series. If a player had hit a home run to acertain part of the ball park, she said, every one in America wouldhave won a free taco. That promotion, she said, carried anestimated potential price tag of $1.2 million.

Mr. Kukral noted that hole-in-one coverage itself can varydepending on where you are. International Excess notes on their Website that in Japan, a player who makes a hole in one is expected togive gifts to their friends and relatives in celebration, and thatthe costs of those gifts can run into the thousands of dollars. Hesaid it wouldn't be a surprise if insurers in Japan had coveragefor such circumstances. “I'm not sure we've seen that over here,”he added.

That gift coverage may not be available, he said, but if itisn't, it's a rare thing, because Mr. Kukral believes virtually anytype of promotion can find coverage.

“Just think it through,” he said. “If somebody comes up withsomething creative, there are markets out there willing to do it.”He suggested that businesses with creative ideas just need to givedetailed information to underwriters about how the promotions willwork.

As an example, he said there is a jewelry store in Clevelandthat has offered to give its merchandise away for free if a certainamount of snow fell on a specific day.

Although contests such as the field goal kick or half-court shotmay involve more variables than a hole-in-one contest, any of thoseare relatively simple compared to the fast-food promotions. “Thoseinvolve consumer behavior,” he noted.

“They have to decide how compelling the offer is,” he said.Other factors could include what competitors are doing and overallconsumer interest in the company or product at the center of thepromotion.

For the actual contest, underwriters would need to look at howrare winning game pieces are, how they are seeded geographically,among other things. The variations, he said, are “pretty muchunlimited.” The only requirement for getting coverage, however, isthat “there has to be some element of chance or skill.”

Generally, coming up with the coverage for such a promotion is amatter of meeting with the client who planned and will oversee thepromotion. Mr. Hubbard said there typically is a marketing firmworking for the business, and the meeting is a matter of “justgoing through all the permutations and coming up with somethingthat works for us from the perspective of our underwriters.”

Conducting a major promotion, or providing the coverage for it,can also be a complex task in terms of the legal or regulatoryaspects to it.

“You have to have people who know the laws,” he said. Among therequirements that most people who have seen the advertising forthese contests have heard before is that companies cannot demandanything in return.

“You can't require consideration, or more likely, you can'trequire purchase,” he said. “That means you have to set up analternate means of entry.”

Sometimes, he added, the regulations governing a contest can berelated to the product being sold. Gas station promotions have veryspecific rules, he said, as do contests involving dairy products.So, he explained, if a company wants to run a contest involvingdairy products that could be sold at gas stations, such a companyhas to keep in mind both sets of rules.

Mr. Hubbard said he couldn't recall the specifics of theseregulations, but that HCC has people who do. “That's why we alsohave lawyers,” he said.

Contests and promotions such as these are typically games ofchance, and that means that no matter how long the odds may bethere is bound to be a winner at some point or another. In thisaspect, hole-in-one coverage or prize indemnity is different fromother lines of insurance, in a way that can be troublesome forinsurers.

If a person has homeowners coverage, Mr. Hubbard explained, thatdoesn't mean that they hope their house burns down. However, hesaid, “once you have prize indemnity, you're really hoping you havea claim.”

That's because “clearly a promotion has more excitement and ismore of a marketing [tool] if you have a winner,” he said, callingit a “potential moral exposure.”

As a result, insurers have very specific procedures forverifying a claim. With a commercial promotion, such as a fast foodcontest, it may just be a matter of a winner showing they have theproper piece or combination of pieces.

For promotions such as hole-in-one contests however, insurersneed evidence that the shot actually went in.

Typically, according to Ms. Jones, this involves collectingsigned affidavits from designated witnesses, which are stationed bythe hole during the contest. Mr. Kukral noted that some firms caneven set up a camera to record pictures or video of each shot andavoid having to keep witnesses on hand.

However, Ms. Jones said witnesses are the more typical means ofverifying a shot and video of the shot is not required unless theprize is more than $100,000. CGA, she said, requires a simple claimform and the affidavits to be submitted on the next business dayafter the winning shot occurs.

“Then it's just a regular claim,” she said.