Growth is essential for most companies. It can be achieved in various ways: Rolling out successful products to new markets, adding new products in existing markets, modifying existing products to make them more attractive, and last but not least growth by means of M&A.
There are quite famous examples in corporate history and gaming firms are no exception: often growth does not happen the way it was originally planned. This implies that it is of utmost importance to have flexible business processes and systems, including hedging and insurance.
We do not discuss the hedging model in relation to the growth options, as it has a very limited potential. Unless a newly added lottery is a straight forward secondary lottery in a well known jurisdiction, the very nature of the messenger model hinders product innovation.
In contrast, an insurance policy which covers some of the prize tiers is a contract which is bespoke to the operator and can be changed over time. Changing anything in an insurance policy is done by means of endorsements. An endorsement describes which paragraphs of an existing policy are changed or added. There is no particular format of an endorsement; it is simply an agreement to change an existing contract.
The following changes which often happen in growth scenarios are handled with endorsement:
- Adding new insured games; not all prize tiers have to be insured. Insurance does not impose any restrictions on innovation of games as long as the underlying RNG or lotteries securely produce random numbers.
- Removing insured prize tiers from being insured. This typically happens when companies grow and can payout smaller amounts from their cashflow. Smaller companies most often insure prize tiers 1 (jackpot) and 2, whereas larger companies tend to insure only the jackpots.
- Introducing or increasing the self-retention. Often the active management of self-retention is more efficient than the management of insured prize tiers. The payouts of prize tiers 2 or even 3 can fluctuate significantly. Hence, it is safer to insure the payouts above a threshold, the self-retention, than to specify only prize tiers.
- Offering the games in new jurisdictions. As long as it is not officially illegal to offer online lotteries in a country, the country is not on the list of FATF high risk countries, or is sanctioned, the services can be easily geographically extended.
If you are serviced by insurance specialists with a focus on the gambling industry, then your innovation and growth can be fully supported by insurance.