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'Hole in one' cover and the design of insurance products

Apparently 'hole in one' insurance is a thing. I didn’t realise until I helped sponsor an event a little while back where the organisers were offering $1 million if you hit a hole in one.

Thursday, September 30th 2021, 11:10AM 4 Comments

by Russell Hutchinson

This could be done by buying an insurance contract, but it's entirely possible that the insurance contract was bad value for money.

In most years, none of the contracts issued were claimed on so the loss ratio was, quite possibly for years, 0%.

A lot of consumer credit insurance isn’t like that. It’s worse.

Much of that insurance is issued so that consumers have no idea how it works or how to claim or even that it's optional.

Hence the Financial Markets Authority (FMA) warning about it recently. Good insurance advisers routinely help people buy good value cover that they understand, can claim on, and will help them claim when the time comes.

That’s the vital work you do, day in, day out.

Having said that, sometimes when insurance that is bad value for money may be desired by clients and can be sold – like the hole in one cover above.

No one wants a consumer minefield where consumers lose faith in the sector because there are so many bad products.

On the other hand, no one wants a market where there is no room for innovation, or even plain old excess – the ridiculous product that we buy for similar reasons to buying a ludicrous sports car.

You can’t drive it that fast and you probably won’t need it, but you just want it.

You may think the example silly, but there are people out there with tens of millions in life insurance who simply don’t need it – but they want it.

Sometimes those crazy ideas lead to something wonderful - like trauma insurance being invented.

The subject is important because the FMA may soon be granted powers that will enable it to have a much greater say in how products are designed and offered to the market.

Recently I asked an industry sector lawyer about how this will work; this is their view:

‘The Bill gives wide powers to not only regulate the conduct of banks, insurers … but to dictate the characteristics of the products they create and distribute, including in relation to price.

'No evidence is provided to suggest that the Government will be any better than the market at determining appropriate product settings,  including price.’

However good they are, I expect the FMA will use the current market environment as a basis for considering what is reasonable and I know they are always willing to engage with the sector on new ideas.

Their flexibility and inquiry give me optimism that product development will remain open and constructive.

But you need to know that insurers, reinsurers, advisers, and clients will soon have a new colleague at the table that decides on product and pricing - the FMA.

Tags: FMA insurance Opinion Russell Hutchinson

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Comments from our readers

On 1 October 2021 at 9:14 am Murray Weatherston said:
I'm surprised you have difficulty in understanding hole in one insurance.
Insurance is used to cover risk of an event occurring that would send you bankrupt.
Hole in one insurance is used when someone using a golf tournament to fundraise offers a car or in your case $1 million to anyone who scores a hole in one on the nominated hole during the event.
That's insurable - premium depends on the length and difficulty of the hole, the toughness of the course, the number of expected participants and the skill rate of the expected participants.
The promoter of the tournament is most often not sufficiently endowed to have to pay out a successful golfer holing out.
There are enough of these events to encourage underwriters to offer the cover.
Sure most of the policies are unclaimed. But promoters willingly incur the cost of the premium as part of the costs of running the event, because they attract more golfers to their event
And to reiterate, they can't afford to have to pay the prize out of their own resources.
On 1 October 2021 at 10:54 am dcwhyte said:
..and to the frequency of Holes-in-One alreay recorded at the selected hole.

Back in the day, my old company in the UK, Eagle Star, offered a contract called "Pluvius" (Latin scholars will recognise) covering costs incurred if an event was cancelled due to inclement weather. In the UK, that's a very courageous indemnity to offer!
On 1 October 2021 at 11:22 am cstanger said:
Yes I've used Hole in One cover at many different industry events too as part of the sponsorship contribution.
Have a look at
Oustide of niche products like Hole in One, and cover for 'Triple Crown' Horse Races, I agree with Russell it is going to be difficult especially in the Fire and General Industry to create innovative products...
PS If you have a NZI Distinction Contents Insurance Policy - there is a Hole in One benefit of a contribution to the celebration at the 19th hole included.
On 1 October 2021 at 1:47 pm RussellH said:
Hey Murray, I do understand hole in one insurance and have used it myself. The point of describing it as 'bad value' was to underline how sometimes things that may appear 'bad value' can be very useful. Hence that loss ratio alone is probably an insufficient measure of value. Best wishes, Russell.

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