The Fundraiser - Practical advice and insight for the charity sector

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How prize insurance can boost charity income

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Peter Collins from Legacy Funding Corporation Ltd explains how charities can offer competition prizes that are high value, but low risk

When it comes to securing your charity’s future income, innovation is key, and good fundraisers will always be looking to push forward with new ideas to generate additional income and increase brand awareness.

A good place to look for ideas is in the commercial sector. In this arena, promotional contests are a proven solution to gaining new customers via lead generation, and to rewarding loyalty where possible.

Certainly, we are a nation where people like to gamble in the hope of winning a prize, whether that is cash, a car or a holiday. A Gaming Commission report stated that out of all the people that completed their review in 2013, 58% had taken part in some form of competition to win a prize in the previous four weeks.

A chance to win a cash prize will always be of interest, and for charities this can provide an opportunity to gain new supporters - which is vital if they are going to maintain their income levels in the current economic climate. Indeed, many charities already offer their supporters the chance to take part in cash competitions.

Insuring against risk


The level of interest in a competition will increase with the size of the prize, but of course so will the financial risk - unless the organisation is insured against it.

Indeed, prize indemnity insurance is used widely in the commercial sector - giving companies the opportunity to offer bigger prizes at no risk to themselves.

Some TV shows, for example, which these days regularly offer prizes of £1m, insure against the risk of the big prize being won and only take the risk themselves on the smaller prizes. And with the new regional and community TV companies all looking for new shows and ideas to generate revenue by forming new partnerships, this could be a good area for not-for-profit organisations to investigate.

There is a restricted market for prize insurance; not all insurers will offer it - but provided your competition is designed so that there is no certainty of a winner, there is a good chance that the risk can be insured. In fact anything that is not a certainty can normally be insured; provided (in the case of competitions and lotteries) that it’s a game of chance and open to external validation.

Scalable and risk-free


Insurance and fixed fee solutions have enabled many types of company, from major global brands to small local business, to offer large prizes, rewards and incentives for at least the last two decades - enabling such competitions to be both scalable and risk-free.

One example was at a 2009 rugby match at Wembley between the Saracens and South Africa. A member of the crowd was selected for a competition to win £250k. To win, he had to kick the ball from 30m and hit the cross-bar. It was highly unlikely he would succeed - but he did it, stunning and delighting the audience. It was covered in all the national newspapers and on Youtube - the only viewer that wasn’t happy about it was the insurer who had to pay out!

The costs of insurance is decided by the risk factors, and in the example provided above, the insurer would have considered the number of people in the audience from which the participant would be selected, as well as the chance of hitting a small piece of wood from a 30m distance, and would have calculated the risk to be low.

We ourselves have insured competitions at football matches where a member of the crowd is invited to kick a ball from the halfway line into the empty goal, which sounds easy enough to make for an attractive opportunity but is actually pretty difficult to achieve - similar to a ‘win a car’ contest where I once insured that no one could eat a packet of cream crackers in two minutes without taking a break or water.

Additional income


By offering cash competitions, fundraisers can create additional income streams for their charity. Insuring the ‘big’ prize means that the financial risk is passed to the insurer, and the cost of generating this additional income is controlled.

Indeed some charities already use insurance - for example at gala dinners, where a guest is selected to pick an envelope from 30 on a board. Each envelope contains a small prize, apart from one which contains a major prize. The guest selects an envelope and wins whatever is in it - and if they choose the one with the major prize, the insurers would pay for it.

I have been asked in the past by different organisations to insure many different kinds of competitive events, including hole-in-one golf contests, and fishing contests (one in particular ran a ‘tag a fish’ competition where a fish had been fitted with a gold ring the day before a fishing competition in a lake. If the fish was caught the following day in the contest, the prize was £100k).

Running lotteries


Lotteries are another opportunity to raise money for good causes, as the success of the National Lottery has shown. Far from being a new idea, lotteries have been around since Roman times - some emperors used them for fundraising, in fact. The first lottery in the UK was established under royal charter in 1569 where a prize of £5k was offered (as well as immunity from arrest).

The National Lottery as we know it was first introduced in 1993, and today its income stands at more than £7bn. Gaming Commission statistics show that in 2013, 47% of the population played the National Lottery and 13% played other lotteries (both figures had increased from the previous year).

There have been many discussions about lotteries and how they operate and the amount of money that should be allocated to good causes, and I am sure that this will continue. In the meantime, a number of charities have started their own lotteries, and there is nothing to stop others doing the same.

These charities have to make important decisions about the amount they can offer in prize money - the bigger the prize, the more interest they will draw.

The challenge is to design a game without a certain winner - and then insurance can be used to control the risks of the bigger prizes being won. This means there is nothing to stop smaller charities moving into this area.

The risks of not insuring


It’s important to consider what might happen if you don’t take out prize indemnity insurance. I acted for the late Roger Cummings for one of his lotteries, and all the actuaries (including the insurers) predicted that statically we should not get a £1m winner for at least three years, by which time enough funds would have been raised to cover it and make a good profit. However, just seven weeks after the game started, someone bagged the £1m prize. Thankfully for Roger, the prize was insured - and of course we paid out.

I believe that this is a good time for non-profit organisations to move their targets forward, and to keep pace with some of the commercial companies. In a crowded charity marketplace where there is increasing pressure to develop new income streams, competitions with insured top prizes are one way charities can stay ahead of the game.

Peter Collins is CEO of Legacy Funding Corporation Ltd and is a specialist in designing insurance programmes for organisations operating within the not-for-profit sector. He works closely with a number of financial institutions developing products that can generate income for the sector and he also designed the first line slip in the UK for trustee liability insurance.

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