Giveaways Can Build Guest Traffic, But Insurance Covers Cost of the Payout

By Justin Randall, HUB International

​Building business back up after the pandemic remains a challenge, and the hospitality industry is one that has been employing any number of strategies to turn things around.

One popular approach among many hotel groups is to sponsor giveaway events and contests to attract more guests. They’re not alone. Auto dealers sponsor sweepstakes with a new car as the prize for some lucky winner. Since sports are always a draw, another example is when retailers offer cash back on purchases if a local team captures a championship.

It’s a strategy Wisconsin’s properties should think about as the rebuilding continues. The state continues to outpace the national average for travel spending compared to its 2019 performance, thanks to increased investment in the tourism economy. Even so, the recovery tends to be spotty, with the state’s resort destinations outpacing the business.

Promotional initiatives might help to expand their exposure, bring in new business and grow revenues. More than 90% of consumers remember businesses that give them promotional gifts and 75% will then remain loyal in the future.

Still, these efforts can be financially risky. A grand prize may involve the payout of a large sum of money, and redemptions can be higher than expected. There’s a negative financial impact if that occurs so it makes the case for over-redemption and prize indemnity insurance, which can minimize the risk.

Here’s what hotels need to know.

Understanding how prize indemnity insurance works

Prize indemnity insurance only covers what it is purchased to cover, typically a costly grand prize.

Go back to that auto dealer example. Say a car dealer hosts a promotion where the primary prize is a new car. Secondary prizes are items such as free oil changes and tire rotations. Prize indemnity insurance would cover the cost of a new car, but the dealer would cover the cost of the smaller prizes.

Additionally, prize indemnity insurance won’t cover any events or promotions where someone is guaranteed to win.

Cost of prize indemnity insurance depends on variables such as the amount of skill required to win, the amount of coverage being bought (the value of the prize), and the field of potential winners.

How to proceed

There are three fronts that an organization should consider when putting a contest in place:

• Not every promotion is right for the brand. It’s important to determine what type of promotion or prize best suits the business, and what it wants in return. Take a golf resort that wants to fill rooms by leveraging its big draw: Award-winning greens. It might offer a $100,000 prize to the guest who makes a hole-in-one – not an easy feat. Prize indemnity insurance would cover the risk of someone winning, and either way, the resort is building excitement and buzz about its draws.
  
  
• Determine the financial parameters to find the right insurance coverage. Of course, it’s also key to ensure the promotion fits 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, the company needs to work with a broker to find the best insurance product that will allow them to reap the benefits of the promotion while also remaining cost-effective for the organization.
  
  
• Follow the policy to receive the payout. To ensure a company receives the full payout of any policy that insures a promotional offer, companies must follow the policy terms and conditions.  In general, promotional insurance underwriters are flexible in the parameters of what they are willing to 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.  

About the Author:

​Justin Randall leads the Hospitality & Real Estate Practice for global insurance brokerage Hub International’s  Wisconsin Region, focusing on leading client strategy in those verticals.  Justin’s 10 years of experience encompasses leading client engagements, advising clients on all aspects of insurance, risk management and overall enterprise growth.  Justin works with several different franchises including clients with more than nearly $2B in revenues.  Justin is an active member of the Wisconsin Restaurant Association as well as a participant in the American Hotel & Lodging Association.  Mr. Randall holds a Bacheler’s Degree in Business from Edgewood College in Madison, WI.

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