Prize Indemnity Insurance versus Contingency Insurance
A business is a dynamic system where resources such as land, labor and capital are utilized to generate a profit or monetary rewards. Tangible resources are expensive, natural resources have become limited, and the quality of a labor force can become unstable and unreliable, which is why businesses are risky operations. A business can either succeed or fail.
A business has a 50/50 chance of succeeding, and only the brave and talented can see the glass half full and knows how to win a gamble without relying on Lady Luck. Good businessmen reduce or eliminate liabilities and secure their ventures with insurances.
Two of the most popular business insurances are Prize Indemnity Insurance and Contingency Insurance.
Prize Indemnity Insurance
Prize Indemnity Insurance is where a business passes the responsibility of paying its promised award on to an insurance company should there be a winner. Businesses such as lotteries, sweepstakes, and raffle promos earn by collecting registration fees or some sort from participants and spending only a fraction of it for insurance who will reimburse the insured if the prize is won.
Here are instances where prize indemnity insurance is suitable for a business:
- A game of spin the wheel was a promotion at a small grocery shop. The probability-based prize was won and was covered by prize indemnity insurance on behalf of the sponsor.
- A wager is placed at the NBAs. It is a sport highly based on skill and an insured organizer gets a prize indemnity insurance to pay for the prize triumphed.
- An insured business of a product brand sponsors a game of Scratch and Win at a department store. The business is able to propose a large prize to attract a crowd without risking award value. At the same time, the insured was given the chance to advertise without expense.
Contingency Insurance, on the other hand, provisions for a possible, unforeseen, incidental future event that may affect a company's business, be it product or service, to customers which in turn may cause loss of income or bankruptcy. Most, if not all businesses, find it a necessity to get insured for contingencies. Accidents like fire; faulty machinery; human error; natural calamities such as storms, floods, hurricanes; and even the expected wear and tear of infrastructure can affect an entire enterprise negatively.
Here are examples of businesses' casualties where a contingency insurance is relevant:
- In 2013, Unilever's North American headquarters in New Jersey was handicapped by beaten, aging infrastructure which composed of five separate buildings in different locations. The offices cater to 1, 700 employees who need to constantly collaborate with one another. A contingency insurance could have helped with renovations and reconfiguring the spaces so that the avenue could have become a state of the art, effective and efficient workplace.
- Music artists who were supposed to hold an event in New York cancelled due to the failure of mechanical staging. A contingency insurance from La Playa covered for the commission lost due to forfeited opportunity.
- An insured business in Florida makes electronic products. The supplier has had a fire and is unable to provide for the insured. A contingency insurance covers for the profit the insured should've had if supplies had been delivered.
With insurance, a business grows by ensuring a consistently interested market and acquires profits by widening the margin while narrowing financial liabilities.