This type of insurance is taken out for a promotion in which the participants are offered the chance to win prizes. The promoter pays a premium to an insurance company for prize indemnity insurance instead of having to keep cash reserves to cover large prizes.
One of the earliest and most common forms of prize indemnity insurance is hole-in-one insurance. A golf tournament host or sponsor purchases this type of insurance. For example, if the golf sponsor offers $10, 000 for a hole-in-one on hole 17, your insurance company reimburses you the $10, 000 you have to pay out if a participant makes the shot. The odds of an amateur golfer hitting a hole-in-one on an arbitrary par 3 are about 1 in 12, 500. This is according to information published in the newspaper, USA Today. These low odds allow golf tournaments to offer expensive prizes to golfers able to hit a hole-in-one during tournament play.
Typically, these hole-in-one contests operate as part of a marketing promotion. A car dealership might offer a new car from that dealership as the prize for hitting a hole-in-one.
Especially relevant is the relationship between the tournament host and the sponsor. It is usually set up to provide advertising for the sponsor. The sponsor’s name will also be prominently displayed next to the prize during the tournament.
Companies that provide hole-in-one prize indemnity insurance may furthermore provide signs or other accessories to help the tournament host promote the hole-in-one prize. The insurance contract between the golf tournament and insurance company will detail rules such as :
1. which holes on the course the prize will be insured on:
2. how to verify the hole-in-one was achieved legitimately;
3. what to do if a contestant hits a hole-in-one on a hole other than the insured hole.
Variables that furthermore affect the cost of the hole-in-one prize indemnity insurance include:
1. the number of participants in the tournament;
2. the skill of the participants (amateurs vs professional golfers);
3. the length of the insured hole;
4. the value of the prize being offered.
Many holes-in-one are not recorded. Jack Nicklaus has 20 aces; his last came in a practice round at the 2003 Senior British Open, when he was 63. Gary Player has 19. His most recent was when he was 70 in the pro-am of the Nelson Mandela Invitational in South Africa. Arnold Palmer has 18. He was 74 when he made his last one, in a casual round at the Bay Hill course in Orlando. Tiger Woods has 18.
Interesting hole-in-one snippets
Ryder Cup: Nick Faldo’s ace at the 14th in 1993 at The Belfry was only the second recorded in the history of the match.
First recorded: The earliest recorded hole in one as in 1868 at the British Open by Tom Morris on the No. 8, 145 yard hole at Prestwick.
Four in one: In less than two hours play in the second round of the 1989 U. S. Open at Oak Hill Country Club, Doug Weaver, Mark Wiebe, Jerry Pate and Nick Price each aced the No. 6, 167 yard hole. The odds against four professionals achieving such a record in a field of 156 are estimated at 1.89 quadrillion to 1.
The longest recorded straight drive hole-in-one is believed to be 517 yards by Mike Crean at the par 5 No. 9 at Green Valley Ranch Golf Club in Denver in 2002.
Prize indemnity insurance is also used in motor sport. The highest recorded payout was $250, 000 during the 1992 Interserie. The 1992 Zolder 966 driven by John Bartlett at the Interserie in Belgium won $250, 000 for a podium position paid out by Lloyds of London.
Coverages are offered for other contests as well. Examples are half-court shots in basketball, field-goal kicks in football, home runs in baseball, blue-line goals in hockey and also retail and casino-based promotions.
In the 2005 Super Bowl, prizes were set to be awarded for several events, including a return of the opening kickoff for a touchdown, a safety, and a fourth-quarter field goal of 50 yards or more. Prize indemnity insurance was purchased to cover all these events. However, none of the events occurred in the game.
In 2008 an insurance provider demanded that RTL (Europe’s leading entertainment group) and CBS toughen million dollar win provisions after The Price is Right $1, 000, 000 Spectacular produced three millionaires in the six episodes produced that season. After the four episodes aired with new rules RTL and CBS have not produced any further “million dollar” episodes since, possibly due to insurance concerns.
Policy premiums are based on the number of participants, the amount of the prize being offered and the parameters of the contest itself.
The parameter refers to the length of the hole on which the prize is being offered. US Hole in One’s average policy covers a $25, 000 prize for a contest involving 100 golfers and a 165 yard hole, for a $360 insurance premium.