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A conditional rebate is a sales-based promotion used typically by retailers to further increase their sales, generate traffic and create publicity. With this specific type of rebate, a company typically offers a certain amount of their product, or some sort of sales incentive, if a particular circumstance (i.e. condition), occurs.
How A Conditional Rebate Works
A conditional rebate revolves around an "if, then…" proposition (in this case: if x happens, then y will be awarded to the participating customers). The conditional rebate is typically used with sports- or weather-related conditions. In order to protect themselves from the risk of making such an offer, companies turn to specialty insurers, to purchase either conditional rebate coverage or promotional weather coverage, where they will pay a premium based on odds of the “condition” taking place. Conditional rebate insurance can be a very effective marketing strategy for retailers because for a fixed fee the company eliminates the risk associated with repaying their customers in the event of a claim –because the risk has been transferred to the insurance company after the policy is purchased.
As an example, a retailer might want to insure the following: if a particular NFL team returns the opening kick off of a game, or season for a touchdown, then the customer who made a purchase during the specified promotional period will get a 100% rebate on their purchase. Another example is that of a conditional weather rebate where if there is snow on New Year’s Day the customer will receive a full refund of all purchases made during the month of November.
How A Conditional Rebate Is Rated
Insurance companies rate conditional rebates based upon a variety of factors. If the conditional rebate is weather-themed, it will be based on: the location of the event (city/state) and history of the weather condition that is being underwritten (temperature, rain, snow, etc.) as well as the limit of the policy that is being insured.
For sports-themed conditional rebates, it will be rated based on not only the size of the policy, but the history of the particular sports team. This is not only limited to how many wins that particular team has had, but depending on what type of sport is being insured, how many home runs, field goals, grand slams, touchdowns, etc., as those are all plausible circumstances which are insurable with a conditional rebate.