Insurance is a game of chance — a gambler’s game similar to Wall Street trading and big casino betting that, much like trading or gambling, is also a for-profit profession. Therefore, it would be a judicious move on the part of anyone entering the insurance field to ensure that the odds are stacked in favor of the house. One way that insurance companies try to protect themselves is through “risk management.” To quote Ricardo Antunes and Vincent Gonzalez: “Risk management’s objective is to assure uncertainty does not deflect the endeavor from the business goals.” The goal in this instance is to make a profit while offering a customer piece of mind against a perceived threat in one undertaking or another.
For example, insurance companies do not set up shop in casinos offering policies to gamblers who might want to indemnify themselves against the house. Unless an exorbitant premium and high deductible were to be paid to the insurer, the odds of this type of jeopardy would be unmanageable, and thereby gamblers are required to proceed at their own risk.
Sue, Sue, Sue
In our litigious society, it is probably a good idea to carry insurance of one type or another. This is especially true if one owns their own business, as risk variables can be on the high side. That said, insurance — as we know it — only compensates after the fact and is not a preventative measure that guarantees against a negative event that could befall you or your business. Anyone offering insurance that promises protection against the occurrence of a future adverse event is probably in the shakedown business. “If you pay me today, I promise I won’t burn down your store tomorrow,” is an uncomfortable type of policy, but depending upon your situation and the extenuating circumstances, some insurance policies are probably better than others.
The selling of insurance often depends upon creating doubt and fear in the mind of the buyer. Considering that some of these insurance policies are just a brilliant way to empty the consumer’s pockets, it is often a good idea to practice one’s own form of risk management before laying out the extra cash. In-store insurance policies are a good example of this type of fear mongering and, for all intents and purposes, it is a great way for the sellers to make some extra cash with little or no risk to themselves.
Close to Home
Case in point: I went to a large, well-known electronics store to buy a television for my bedroom. The set I had in mind was not intended to be an entertainment center, but rather an ancillary TV designed to sit on my dresser and distract my wife and myself with the morning news and weather when we woke up and turned in every day.
Being resolute regarding my television requirements made my decision-making fairly easy and, as shopping is one of my least favorite activities, it pleased me that I was able to choose quickly. I opted for the in-store brand and thwarted the salesperson’s attempt to up-sell me on a more expensive set and better cables. The salesperson then offered me a $25 in-store insurance policy that covered the product for three years and superseded the one-year warranty offered by the manufacturer. I asked him if the set was known to break after one year, and he told me that it was rare, but known to happen, and that it would be advisable to get the store policy, as I could then just come in and get another set without having to ship it back to the manufacturer. This insurance plan also covered the set in case the screen happened to crack or incur any water damage.
Taking into consideration that my old TV had lasted about 20 years, and also thinking of the risk factor involved, I ran through my head the possible scenarios that might occur to necessitate my need for the in-store warranty. Since the TV was a house brand manufactured for the store itself, it seemed as though I was being sold a redundant policy. Call me cheap, but I prefer to not pay twice for the same item. Then, in terms of water damage, I decided that it was unnecessary to have coverage, since my wife is pretty darn careful when she power washes the room. Lastly, regarding a cracked screen, it occurred to me that I would just have to take a little more care when playing handball or having batting practice in the close proximity of that flat-screen display. Needless to say, I did not go for the in-store warranty, but the experience did start me thinking about insurance in our world of concerts and audio.
Insurance in the Pro Audio World
Insurance is a game of numbers and probability, so the industry relies upon such economic tools as Game Theory. Game Theory is “the study of strategic decision-making.” It is a way of discerning risk and is described as “the study of mathematical models of conflict and cooperation between intelligent rational decision makers.” When this theorem is applied by the insurance industry, it means — in layman’s terms — how to gamble on risk and come out showing a profit. While the insurance companies are there to aid their clients in time of need, it does not mean that they are in any way practicing a form of altruism.
Again, insurance companies are like big casinos that gamble at virtually no risk to themselves, secure in knowing that the house always wins. Although there are times large payouts are required, these payouts are calculated to avoid what is called a negative incentive. Offering more of a payout than something is worth often creates a negative incentive. For example, if an insurance company underwrites a concert or event for more money than the event could generate at optimum performance, then there would be a negative incentive for the certificate holder to sabotage their own event. The insurer is not in the business to lose money, so it is important that they can properly calculate risk and remuneration. This is why the premium for insuring a console that is always on the road is more expensive than for the one living in a venue or theater.
For companies that do concerts and live events — or rent out gear on a regular basis — it is important to have a comprehensive insurance policy. This would be a policy that covers the equipment, the labor, liability and any property damage that can be argued as culpability on the part of said business. While it’s prudent as a producer to have a general insurance policy, it is also advisable to make certain that all vendors who are providing services have insurance as well. Getting a COI (certificate of insurance) from each of the vendors that name the producer as additionally insured is a must.
Renting equipment has a different set of parameters than event production, but the renter should also able to provide a COI (certificate of insurance) that names the rental company as additionally insured. Be aware that there is often a deductible associated with any policy, and in the case of a large rental — such as a console and a line array — a deposit in the amount of the deductible should be taken as well. With smaller rentals, one should consider taking a deposit on a credit card for a portion of the total value of the rental. This deposit can apply to any loss, theft or damage of the rented equipment.
In consideration of insuring rental equipment, the thought of selling an inexpensive in-store type of policy might be a way of generating extra income on a regular basis, but could also create a negative incentive for the customer to protect the gear. The sale of insurance is a calculated gamble that preys upon the fears of the buyer with the distinct hope that there will be no need to use the purchased policy; in most situations this is the outcome, but we must be prepared in the unlikely event that one disaster or another actually occurs. The worst part about purchasing insurance policies is that they are not capable of protecting a client against loss, theft, damage or injury, but only a means to offer compensation after the fact. Yet as we all know, money may help ease the pain of loss, but some things are irreplaceable.
