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Managing your risk landscape
Thu 25 Apr 2019 @ 9:19
In February 2002, Donald Rumsfeld, the then US Secretary of State for Defence, stated: ‘There are known knowns. There are things we know that we know. There are known unknowns. That is to say, there are things that we now know we don’t know. But there are also unknown unknowns. There are things we do not know we don’t know.’ This caused much hilarity at the time as initially it appeared to be nonsense. However, a second more careful reading suggests it makes perfect sense in many arenas. Whether it’s politics and armed conflict, or dare I say, risk management and insurance of iGaming products, there are dangerous unknown unknowns lying in wait for the uninformed. Unknowns that could cost iGaming operators a great deal of money.
One thing that we know only too well is that we work in a sector that comes armed with huge speculative financial risks. Across all operational verticals, from trading on football to running a physical roulette table, ‘risk management’ is as much a part of our everyday vernacular as ‘betting’, ‘stakes’ or ‘odds’.
As player and customer demand has grown for games promising ever bigger, even life-changing jackpots, operators have had to search out new ways of covering the greater levels of exposure to risk. As an industry we have embraced to some extent insurance as a means of managing these larger risks. Still a thing we know we know, right?
We are fairly comfortable knowing that we have the flexibility to offer our valuable customers huge windfall prize funds. And we are confident that we can offer the reassurance that, unlike some areas of the sector, neither they nor ourselves will be ‘on the hook’ when it comes to paying out. We know that if we take out jackpot coverage we are safely covered, don’t we?
No we don’t. Because not all cover is created equal
We may never know the unknown unknowns, by definition that’s impossible but we still have a real duty of care to our employers, our shareholders, our customers and ourselves to seek out credible answers to what should be known unknowns. But the scary truth is most operators, many of whom are household names at least within our industry, just don’t. Understandably, they simply trust that because a jackpot coverage policy is there, that this is sufficient. But there are risk insurance providers out there who, without actually taking on any real risk themselves, are profiting from this trust amongst their iGaming operator clients.
Seeking out the Known Unknowns
The sad thing is that none of this needs be difficult. Two simple questions need to be asked of your risk management partner. First, who is covering me and are they FCA regulated? And second, where is the money that would be used to cover my liability coming from?
Who is covering me?
Let’s look at the first of these questions; lets take the case of an operator shopping for a facility to cover a prize for a new casino game. They want to boost the jackpot for the first two months with the game on site so that they can drive participation and take up. So far, so good. Insurance makes good business sense. We know that insurance is a pillar of the financial services industry and is tightly regulated. What many, especially challenger brands for whom insurance backed risk is an appealing option, don’t know is that this security does not necessarily apply to all ‘insurance products’ within the iGaming industry. The unscrupulous risk management company will simply not declare who is underwriting the risk and, if they don’t, there is always the possibility that no-one is; they may simply be taking the chance there won’t be a massive winner and so won’t have to pay out. If you choose to trade with a partner that sells jackpot coverage that is not insurance and is not underwritten by any of the known contingency insurance underwriting market, then the age old advice of Caveat Emptor (Buyer Beware) has never been more pertinent.
So, whether we like it or not, the onus is on the buyer, the game operator to check who is underwriting the risk of the coverage they are buying. The best way to have some security and peace of mind is, as a matter of course, to check that the vendor is endorsed by a regulator such as the FCA.
Show me the money!
Let’s assume you are dealing with an insurance product that actually exists. Even then there are known unknowns to check out. It is just as important is to check whether the policy that makes up the core part of the ‘insurance product’ that you buy is yours and only yours. It sounds obvious but it isn’t. Many policies cover multiple risks and are unable to pay out on all of them.
Take this example, if you are offered coverage as part of a broader policy covering a substantial amount of risk (say £50 million) you may encounter problems if someone else who is on that policy has a pay-out. In a situation such as this, you may wish to question your risk management partner as to what would happen if certain, very possible, eventualities occurred. How about “If both operators on the policy were to have a pay-out who would have first call on the policy?”, “Would the policy cover multiple pay-outs to winners from different operators?”, and even “If another partner were to have a winner, would our policy even continue to exist?” Remember it’s perfectly possible in these circumstances that you would you have to pay for a new policy so that you can continue to offer the jackpot you have committed to. But would you be told? And who would be left with the ultimate liability? No game operator can afford to not know the answers to these known unknowns.
Your safety net for the unknown
The good news is that it isn’t all bad news. At this point you may even begin to question whether an insurance policy is your best course of action. The devil in the detail here is the words ‘insurance policy’’; put simply, the only way to avoid all of these pitfalls is to buy a regulated insurance policy that is dedicated solely to your business from a regulated insurance broker. This is a fantastic way to enable you to deliver exciting games and big jackpots to your customers across all your products whilst minimising your own risks. There’s absolutely no point having any policy that doesn’t allow you to sleep easily.
There has to be a catch somewhere, doesn’t there? No. A dedicated policy from a regulated source covering the known unknowns they’re designed to protect you from need not automatically mean a higher cost to you. But, should you choose an unregulated, alternative ‘insurance solution or product’ then you risk the unknown unknown of paying a much higher cost in the long run.