Prior to the meltdowns in credit default swaps, mortgage bonds and various derivatives, most people regarded insurance as a fairly sedate business. The actuarial analysis that goes into predicting when people will die, crash their cars or have a fire requires exceptional statistical skills, but most people's eyes glaze over at the thought. So why not take a little look at the wilder side of insurance? (Learn all the essentials of this industry in our Insurance Tutorial.)

In Pictures: Top 10 Insurance Myths

Specialty Lines - A Quiet Name for a Wilder Segment
Some of the most interesting (and amusing) policies in the insurance world are grouped under what the industry calls "specialty lines". While terms like life insurance, car insurance, and flood insurance pretty much mean exactly what they sound like, specialty lines is more like industry code for "a large disorganized jumble of weird, idiosyncratic and yet still lucrative insurance policies".

Sell 'em for Parts
One of the most famous sub-categories of specialty lines insurance is body part insurance. Plenty of people have heard the stories of singers like Bruce Springsteen or Celine Dion ensuring their voices (or vocal chords) or actresses like Heidi Klum, Tina Turner and Betty Grable insuring their legs. Sometimes the performer takes the initiative, while in other cases it may be a company doing so - in the case of Heidi Klum, Braun - now part of Procter & Gamble (NYSE:PG) - took out the policy when Ms. Klum signed on as a celebrity promoter.

This type of insurance is relatively common - or at least common enough that Lloyds of London has a body-parts insurance specialist, if not several. (For related reading, check out 5 Bizarre Insurance Policies.)

When Promotional Stunts Go Wrong
Another major category of specialty lines insurance is backing up various corporate promotional stunts. Perhaps you remember when Pepsi (NYSE:PEP) had a contest with a potential payout of $1 billion. The chances of winning the $1 billion were extremely small, however Berkshire Hathaway (NYSE:BRK.A) stood behind Pepsi just in case.

These do not even have to be large promotions. A Nebraska car dealership once offered a $10,000 rebate to buyers who bought a car in December if it snowed on Christmas Day. Lloyds of London wrote a policy worth $1.5 million for that promotion, and it certainly made the local news at the time.

Just Plain Weird
Of course, some of these offers are not nearly so squeaky clean. Singer David Lee Roth took out paternity suit insurance from Lloyds of London so that he could live the rock star life with one fewer worry. No word on what the premiums were for that policy, but I would have hated to be the underwriter.

More recently, Berkshire Hathaway disclosed an insurance policy they wrote for a French client whereby they would have paid out about $30 million if France won the World Cup.

Although some of the media reports talked about this in terms of "the mother of all World Cup bets", the reality is probably more sedate - I doubt it was some wealthy French businessman looking to make a wager with Warren Buffet; rather, it was probably another promotional backstop. For instance, Carrefour, the large French retailing chain, had a promotion that would have given rebates to flat screen TV buyers if France had won the Cup; clearly a large potential outlay for a low-margin business.

Risk Is Risk
Investors in insurance companies with specialty lines business, like Berkshire Hathaway, WR Berkley (NYSE:WRB), CNA Financial (NYSE:CNA) or XL Capital (NYSE:XL) need not worry. These stories are exceptional and they stand out precisely because they are so unusual. What's more, I am not aware of any major losses incurred by an insurance company because of any of these odd policies. Besides, at the end of the day, insurance is all about assessing and pricing risk, so as long as the underwriters know how to value an arm or a leg and discount the possibility of a $1 billion payout, the premiums certainly will not hurt the bottom line. (Find out how to save on your insurance in Top Tips For Cheaper, Better Car Insurance.)

Catch up on your financial news; read Water Cooler Finance: The Unrelenting Claw Of Bernie Madoff.

Related Articles
  1. Insurance

    6 Reasons To Avoid Private Mortgage Insurance

    This costly coverage protects your mortgage lender - not you.
  2. Entrepreneurship

    Identifying And Managing Business Risks

    There are a lot of risks associated with running a business, but there are an equal number of ways to prepare for and manage them.
  3. Insurance

    Cashing in Your Life Insurance Policy

    Tough times call for desperate measures, but is raiding your life insurance policy even worth considering?
  4. Insurance

    Avoiding The Modified Endowment Contract Trap

    To avoid MEC status, flexible-premium policies must cap the amount that can be paid into the policy over a period of seven years.
  5. Insurance

    Do You Need Short-Term Health Insurance?

    Yes, if you've no other coverage options. Here’s what you need to know about how it works and how it differs from employer-provided and marketplace plans.
  6. Insurance

    How Does Dental Insurance Work?

    Learn how dental insurance policies work and what to look for when comparing policies so you are not surprised with unexpected bills.
  7. Home & Auto

    Make This The Year You Get Vacation Insurance

    With a few simple policy additions you can protect your holiday plans from being ruined.
  8. Options & Futures

    Understanding The Escrow Process

    Learn the 10 steps that lead up to closing the deal on your new home and taking possession.
  9. Economics

    Management Strategies From A Top CEO

    Jack Welch is a legend in the business world: during the two decades he was CEO of General Electric, the company’s value rose by 4000%.
  10. Personal Finance

    Disability and Business Overhead Coverage for the Self-Employed

    What every small business owner or professional needs to know about individual and business overhead disability income insurance plans.
  1. Do FHA loans have private mortgage insurance (PMI)?

    he When you make a down payment from 3 to 20% of the value of your home and take out a Federal Housing Administration (FHA) ... Read Full Answer >>
  2. Does renters insurance cover storage units?

    An all-perils renters insurance policy provides coverage for the contents of storage units. Most policies limit the amount ... Read Full Answer >>
  3. Does renters insurance cover personal injuries?

    Renters insurance provides two main forms of coverage – liability and contents insurance – and they are offered together ... Read Full Answer >>
  4. Does renters insurance cover flooding?

    An all-perils renters insurance policy does not cover damage from a flood. Consumers sometimes confuse a pipe bursting with ... Read Full Answer >>
  5. Does renters insurance cover mold?

    An all-perils renters insurance policy typically provides a low set amount of coverage for damage caused by mold as long ... Read Full Answer >>
  6. Does renters insurance cover car theft?

    An all-perils renters insurance policy does not cover the theft of a vehicle. It does, however, provide coverage for personal ... Read Full Answer >>

You May Also Like

Trading Center