While we were picking our brackets in the annual college basketball tournament known as "March Madness," insurers were busy with their own game of chance. It's called "hole-in-one insurance."

Hole-in-one insurance is often behind the scenes on basketball courts, football fields and baseball diamonds -- in fact, virtually every sporting event ranging from golf to hockey.

Here's an example. It's halftime during a basketball game. To keep fans and viewers entertained while the opposing teams are in the locker room, kids from the audience are escorted to the half-court line. Each has one chance to sink a basket and earn college tuition.

What happens if one of these lucky kids does make the free throw? Management isn't going to pay and neither is the university. Instead, the cost of this unlikely win will be paid for by the "hole-in-one" insurance company.

Insurance madness

Most major insurers, such as AIG, Lloyd's and even Warren Buffett's Berkshire Hathaway, are involved in this sports-betting business. But, unlike us, they bet these kids wouldn't make the basket, because if they do then the insurance policies have to pay. Or, in the case of Warren Buffett himself, out of his own pocket in his recent March Madness challenge.

Hole-in-one insurance is also called "sports contingency insurance" or prize indemnity because the insurance company indemnifies the insured; otherwise, the contest sponsor would have to pay the tuition bill if the contestant finds "nothing but net."

A hole-in-one on the 18th green of a big tournament could see a player such as Tiger Woods or Phil Mickelson drive home in a Porsche Boxster.

This lucrative niche in the insurance business takes its name from a challenge that began in the 1980s when contest sponsors offered players the chance to win big if they could sink a hole-in-one during a golf tournament. The insurer, not the sponsor, had to pay if it actually happened.

The idea spiraled and is now commonplace at all types of sporting events: the fastest lap at a NASCAR race, super kicks at a soccer stadium, a perfect bowling score, and, back to golf, the longest putt that lands in the cup. For sports enthusiasts -- and insurers alike -- everything is bet-able. You just have to know the odds.

But don't pity insurers. Unlike some of us who bet our brackets blindly, insurers carefully calculate the statistics, in much the same way as with actuarial tables on how long we will live.

Well played, Warren

Prior to this year's March Madness tournament, Warren Buffett personally offered a billion dollars to anyone who could pick the winner of all 164 games.

Now let's be honest. The Sage of Omaha never thought he was going to have to pay. The odds were one in 9.2 quadrillion against us. But the publicity stunt shined a spotlight on the billionaire octogenarian and, in turn, his insurance companies, including GEICO. Point of fact: By the second round everyone's bracket was busted thanks to four major upsets -- allowing Buffett to keep his billion. He never broke a sweat.

And what of those kids bouncing basketballs on center court, waiting to take a shot for a free sheepskin? Most of them miss by a mile, but one girl's toss circles the rim before falling to the hardwood. The crowd moans and her parents tear up.

But the insurance folks break into a big smile.