Farmers Insurance is taking a big marketing gamble on an estimated $600 million to $700 million naming rights deal for a proposed football stadium in Los Angeles, which still lacks an NFL team.
With the 30-year deal, Farmers is seeking to build brand awareness and, ultimately, add customers. But even though the insurance company is spending millions of dollars to plaster its name on the stadium, Farmers executives say the expenditure will have “no impact whatsoever” on insurance premiums.
The deal — which will brand the stadium as Farmers Field — will help “attract more customers and will allow Farmers Insurance to continue to offer great insurance protection at competitive prices,” says Mark Toohey, senior vice president of Farmers.
Farmers Insurance is paying $600 million to $700 million to have its name splashed on a proposed football stadium in Los Angeles.Despite those high hopes from Farmers, Robert Hunter, director of insurance at the Consumer Federation of America, warns that the stadium deal could harm policyholders in the form of higher insurance rates.
“The question is how much of this will help their sales, and I’m assuming they think it will help their sales,” Hunter says. “But if it goes wrong, and they lose a lot of money, then obviously that will probably come out of the investment yields that would go into” setting rates.
Hunter adds: “When you spend a lot of money on something and it goes sour, you’re going to adversely impact rates.”
Los Angeles-based Farmers ranks third in size among providers of personal lines insurance in the United States (such as auto and home policies), but it ranks 11th for annual ad spending. The company thinks Farmers Field will boost brand awareness across the United States, not just in Southern California. That marketing target includes the East Coast, where Farmers is growing aggressively, Toohey says.
“Consumer-focused companies, including Farmers Insurance, use advertising and sponsorship dollars for several reasons, such as growing their business and enhancing their brand,” Toohey says.
Farmers Field deal represents the largest naming rights deal in U.S. sports history. It now beats CitiField in New York City, which had topped the list of naming rights deals at $400 million, according to SportsBusiness Journal.
Kevin Kelso, executive vice president and chief marketing officer of Farmers Insurance, says the deal “showcases the Farmers brand on a national stage.”
Rob Yowell, who has secured corporate naming rights for several sports stadiums, says Farmers’ $600 million to $700 million deal is “an excellent use of marketing dollars.”
For one thing, Farmers is reaping publicity already, despite the fact that Farmers hasn’t paid its first installment yet and not one shovel of dirt has been turned on the stadium project, says Yowell, president of Gemini Sports Group.
The L.A. neighbors of Farmers Field will include the Staples Center and the Nokia Theatre.Moreover, entertainment powerhouse AEG is behind the $1 billion, 68,000-seat stadium, and “if they say they will build it, they will,” Yowell says.
On top of that, the deal gives Farmers a way to offer NFL incentives to customers, such as discounted Super Bowl tickets, according to Yowell.
“It’s going to be something that they (Farmers) believe will provide large returns on insurance and will secure and build corporate sponsorships,” Yowell says.
The 1.7-million-square-foot stadium, to be connected to the Los Angeles Convention Center, will host football games, soccer matches, concerts and other events. Developers say it will be financed privately. The naming rights deal doesn’t guarantee that L.A. will be able to lure an NFL team.
When the Farmers Field deal was announced Feb. 1, 2011, Farmers Insurance CEO Bob Woudstra said: “Farmers Insurance was founded in Los Angeles and has been headquartered here for more than 80 years. We have always sought to be net givers, not net takers, in the communities we serve, and we are excited to be a part of this lasting legacy.”
Yowell cautions that naming rights deals can fall through. The most infamous and extreme example is Enron, whose naming rights deal for a baseball stadium in Houston collapsed along with the troubled company itself.
Farmers emphasizes that its naming rights agreement will be spread over 30 years and that it can walk away from the deal if the Los Angeles stadium isn’t completed.
“While we have every confidence that this project will get done, if it does not materialize, Farmers Insurance will pay no money for the project,” Farmers’ Toohey says.
–Tina Sfondeles
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Filed under insurance by on Feb 23rd, 2011. Comment. 
As millions of Americans cope with thick coats of ice, piles of snow and bitter cold, some of them are feeling secure under a blanket — a blanket of insurance, that is.
Across the country, storm-ravaged small businesses, large organizations and municipalities are plowing ahead with plans to file claims under their weather insurance policies. This type of insurance covers policyholders — ranging from farmers to concert promoters — if bad weather of any type strikes, such as a snowstorm or thunderstorm.
Lori Shaw, a weather insurance expert at Aon, a Chicago-based risk management firm, says: “Look at the City of Atlanta. It has a snow removal budget of $10 million; they’ve already run through $9 million. That’s a classic weather-insurance situation.”
At Global Weather Insurance Agency Inc., a municipality can buy a policy to ensure that overtime and equipment expenses associated with removing large amounts of snow won’t force a city or county to borrow or raise taxes to cover costs.
Weather insurance can protect a variety of organizations from lightning and other severe climate conditions.Insurance against bad weather usually is sold to organizations, not individuals. For instance, Global Weather Insurance Agency has issued weather policies to production companies behind such movies as “Basic Instinct” and “The Perfect Storm.”
“It’s mostly companies who buy it,” says Patricia Sleicher, president of Global Weather Insurance Agency, based in East Setauket, N.Y. “They really have the most to lose. Take a movie production site, or a special event like an outdoor concert, a county fair or a rodeo. If bad weather hits, the companies that run these events and have no insurance stand to lose a lot of money.”
Among the performers whose concerts have been insured by Sleicher’s company are the Rolling Stones, Michael Jackson, Garth Brooks and the Beach Boys.
“We basically insure the weather — any event that has a weather exposure risk,” Sleicher says. “The rates for weather insurance really depend on the crisis and the weather situation. We see rate demands for anywhere between 1 percent and 10 percent of the total policy.”
In other words, anyone wanting to cover $1 million in potential losses would pay up to $100,000 for a weather policy from Global Weather Insurance Agency.
How weather insurance works
The goal behind weather insurance is straightforward – to protect against financial losses triggered by severe weather.
“Weather insurance can reduce the need for costly emergency operations by preparing for the disaster, rather than reacting to the aftermath,” Carlo Scaramella, climate change and disaster risk reduction coordinator for the World Food Program, said in a statement released in 2010.
In general, the policyholder targets particular weather threats. A farmer might choose a policy that covers drought, and a concert promoter might buy a weather insurance package that covers rain, thunder and lightning. The size of the policy must be enough to cover any losses sustained during adverse weather.
Insurance companies that sell weather policies use a weather “database” to calculate risks and payouts. They look at weather patterns in the region covered by the policy, as well as the times of year covered.
“We generally offer total weather insurance,” says David Friedberg, founder and CEO of WeatherBill Inc., a weather insurance provider in San Francisco. “Take a farmer’s situation. He can tell us his crop size and the county he lives in, and we can customize a policy before their season starts. It could cover freezes, a heat wave, too much rain or drought. We’ll automatically set (coverage) dates that make the best sense for that farmer’s crop and the county where the farm is located.”
On average, farmers pay about $25 an acre for weather coverage, a figure that Friedberg calls “a small cost of running their business.”
Rain, rain, go away
Of all weather worries, rain is the biggest threat to most of WeatherBill’s clients.
“We do a lot of outdoor rain coverage,” Friedberg says. “We cover the U.S. Open tennis tournament every year. Merchandisers and event producers know that if it rains, tickets have to be reissued and event revenues go down. Even the cost of sending employees home and bringing them back when the rain subsides can be a big cost.”
He adds: “Usually, the amount of rain is the basis for the amount of a claim payment the insured can get.”
If you’re considering a weather insurance policy, Friedberg advises you to visit your local insurance broker and ask for a free weather risk report. If he or she doesn’t have one, ask to be referred to an insurance company that can give you one.
When push comes to shove, weather insurance is the ultimate rainy day fund. If your living depends on what happens outdoors, then you may not want to go outside without it.
–Brian O’Connell
Filed under insurance by on Feb 3rd, 2011. Comment.
How is property value calculated on a homeowner’s insurance claim?
I have an older laptop that was damaged during a hurricane. Shingles were torn off my roof and water got into my home. The fair market value is probably only about $200 – $300. However, I probably won’t be able to find the same make/model laptop. How will my insurance company (Farmers Insurance) reimburse me for my loss?
You should really ask your agent that question, but let me explain to you how it worked with a claim that I recently handled for a client.
They had replacement cost so it will depend on if you have replacement cost and the claim’s process at Farmers (I’m not too sure how they do it). So this case is just an example.
For my client, any items that became less valuable as time passed (depreciated) were paid out as follows:
What you paid for it (example, $800) minus the deprecation value (example, 40% or $320) = what the company initially pays you (example, $480). Now you go out and buy a like item…it doesn’t matter if it’s the same brand, speed, whatever, it just has to be like. So you buy any other laptop and give us the receipt. We pay you anything you paid over our initial payout ($480) up to what you paid for your original laptop ($320 extra).
So if you buy a new laptop for $300, we give you nothing extra and you just pocketed $180. If you buy a new laptop for $700, we give you an extra $220 and you come out even. If you buy a new laptop for $1200 we give you and extra $320 and you had to spend $400 out of pocket to upgrade to the new laptop.
I hope I explained that well for you, my client had trouble grasping it and thought she could somehow profit from the claim (albeit she has a few bolts loose).
Farmer’s may vary from the company I work for, but that’s how we handled it.
Filed under Home Insurance by on Jun 8th, 2010. Comment.