A specialty insurance coverage that got its start on the golf course these days has evolved into one that could potentially cover the cost for free tacos for everyone in America, according to participants in the prize indemnification market.

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

One way organizations attract attention to brands and causes is by holding contests or running other promotions, typically offering major prizes like cars or even $1 million. But offering the chance to win isn't the same as actually giving the prize away, and few companies 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 the cost.

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

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

Lauren Jones of CGA Inc. in Granger, Ind., said that a majority of the hole-in-one coverage written by her firm is for promotions attached to events. While the events themselves may be for charities such as the Susan G. Komen Breast Cancer Foundation, “about 75 percent of our clients are auto dealerships” offering cars as prizes during those charity golf outings, she said. These groups, she added, “use us to enhance the outing and to increase player participation.”

The odds of a hole-in-one shot occurring on an average par three, Ms. Jones said, are roughly 1-in-10,000. The odds are different for other promotions, she said, with the rates determined by underwriters.

A typical premium for insuring a hole-in-one contest is relatively inexpensive, she said, with an average contest costing about $500 for a $25,000 prize, such as a car. Other promotions can run higher, at around $750.

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

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

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 attract customers.

Ms. Jones noted most CGA customers expect, and are provided with, special promotional materials, such as signs to be placed around the tee box and hole. “It's extremely important to have well-made, colorful signs for our clients,” she said. “That's one of the most important things.”

Although the prize indemnification product is most well known for covering hole-in-one contests, some insurers in this market will 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 basketball shots or things such as a field goal kick.

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

Kenneth Kukral, president, chief executive officer and chairman of International Excess Inc. in Richmond Heights, Ohio, said that his company prefers to look for more unique promotions, and will actually refer typical hole-in-one coverage elsewhere.

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

Insurers will also write larger promotions, typically run by major companies to promote their brands. As an example, Ms. Jones noted a promotion run by the Taco Bell fast-food chain in recent years during the World Series. If a player had hit a home run to a certain part of the ball park, she said, every one in America would have won a free taco. That promotion, she said, carried an estimated potential price tag of $1.2 million.

Mr. Kukral noted that hole-in-one coverage itself can vary depending on where you are. International Excess notes on their Web site that in Japan, a player who makes a hole in one is expected to give gifts to their friends and relatives in celebration, and that the costs of those gifts can run into the thousands of dollars. He said it wouldn't be a surprise if insurers in Japan had coverage for 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 it isn't, it's a rare thing, because Mr. Kukral believes virtually any type of promotion can find coverage.

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

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

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

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

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

Generally, coming up with the coverage for such a promotion is a matter of meeting with the client who planned and will oversee the promotion. Mr. Hubbard said there typically is a marketing firm working for the business, and the meeting is a matter of “just going through all the permutations and coming up with something that 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 regulatory aspects to it.

“You have to have people who know the laws,” he said. Among the requirements that most people who have seen the advertising for these contests have heard before is that companies cannot demand anything in return.

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

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

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

Contests and promotions such as these are typically games of chance, and that means that no matter how long the odds may be there is bound to be a winner at some point or another. In this aspect, hole-in-one coverage or prize indemnity is different from other lines of insurance, in a way that can be troublesome for insurers.

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

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

As a result, insurers have very specific procedures for verifying a claim. With a commercial promotion, such as a fast food contest, it may just be a matter of a winner showing they have the proper piece or combination of pieces.

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

Typically, according to Ms. Jones, this involves collecting signed affidavits from designated witnesses, which are stationed by the hole during the contest. Mr. Kukral noted that some firms can even set up a camera to record pictures or video of each shot and avoid having to keep witnesses on hand.

However, Ms. Jones said witnesses are the more typical means of verifying a shot and video of the shot is not required unless the prize is more than $100,000. CGA, she said, requires a simple claim form and the affidavits to be submitted on the next business day after the winning shot occurs.

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