It’s insurance – but against all the odds

Leicester’s aspirations at the start of the season were understandably modest and they apparently set a players bonus pool of £6.5m for finishing anywhere higher than 12^th. Their manager, Claudio Ranieri, was more confident and is believed to have negotiated himself £5m for winning the title. Despite all the riches from the Premier League, Leicester and the other successful teams may have had the foresight to insure the contractual bonuses they have to pay out for winning leagues, cups or promotion.

Insurance is generally thought to compensate against an unfortunate fortuitous event, but whilst insurance industry purists may take exception, it is a form of gambling. The profitability of both are based on actuarial probabilities and certainly these types of insurance are more associated with betting than those involving protection against a misfortune. It is somewhat odd to insure against something you want to achieve, although football teams (in the UK) cannot insure against loss of revenue for the misfortune of relegation or underperforming.

Insurance is also behind various activities linked to prizes or games of chance and anyone offering an expensive prize can insure against someone being successful. Prizes for golfers getting a hole in one is probably the best example, but some popular TV shows with big prizes based on skill or chance may have them insurance backed. Insurance can also be used on response based prize draws and scratch cards (where insurers effectively bet that the winning ticket will not be returned), as well as to back promotional offers, so you may well see an offer to buy a new TV to watch the European Championships this summer and if by some chance England win, you get your money back and the suppliers claim against their insurance. Insurers can also provide cover for promotional offers where too many people redeem the likes of 2 for 1 or half price coupon offers.

Some will remember the Hoover Flight Promotion offer in the early nineties where they offered free flights for customers spending over £100 on washing machines etc. Hoover were inundated with customers taking the offer up and ended up reneging on the offer, with subsequent court action and bad publicity. The fiasco is believed to have cost Hoover £50m and given the problems it caused by way of board resignations and the company being subsequently sold, it is probably fair to assume that they did not insure the offer.

There have always been unusual insurances, with Lloyds notably involved in insuring various famous film stars’ legs or other body parts and a few people still insure themselves against alien abduction. There are also less well known specialist covers, for instance, you can insure against the increased cost of travel if you lose your driving licence for totting up (but not drink and drug related or serious driving offences) and the interesting strap line ‘even careful drivers risk totting up points’.

It is worth ‘thinking outside the box’ and if your business is exposed to an unusual risk, ask if it is insurable.