In a world where you can place and offset a bet on just about anything with anyone, it’s maybe no surprise that marketers are turning to risk insurers and even bookmakers to hedge their exposure to the results of their offers.
For example Curry’s is offering customers £10 for each goal that England score in the World Cup, Very patriotic you might say, except that Currys owner DSG has hedged the risk through the insurance market to ensure it doesn’t have too much effect on the bottom line.
And private jet company Jet Logic is offering customers a 50 per cent refund on the cost of return flights to South Africa if England win and Wayne Rooney scores in the final.
Not much danger there maybe, but Jet Logic is taking no chances. Its offer covers £2 million worth of bookings and so the company has placed a bet with Paddy Power’s risk management insurance division, Airton Risk Management, to hedge the £1 million it will have to hand back if Wayne and the boys do the business.
Apparently the bookies are cashing in because they can price these sorts of events and other oddball stuff much more efficiently than the City’s actuaries and, even more importantly, will offer a better price.
It’s a pity this service wasn’t available in 1992 when Hoover lost £48 million and shredded its reputation by offering two free flights to anyone who spent £100 on its products. The flak was still flying years later as it tried to unravel the confusion caused by its back-of-the-envelope over generous promotion.
And as DSG and Jet Logic would surely agree, it shows that this much maligned hedging process can actually be rather useful for businesses and consumers alike.