As the supply of coronavirus vaccinations expands and film and TV productions ramp up again, studios and production companies are faced with a critical decision: Insure or don’t insure their projects.
With pandemics now excluded on standard insurance policies, productions have three options to get their projects moving, according to production insurance experts: 1) Pay higher premiums and deductibles to the few specialty insurance companies that cover losses, 2) self-insure, or 3) get no insurance and take the risk.
Adding to the higher costs, projects need a COVID compliance officer, as well as other protective measures, such as PPE and testing options, which can increase budgets by up to 20%.
“There is a new game in town, and we have to play it,” Joe Addison, managing director at Marsh, an insurance broker and risk advisory firm, told TheWrap. “You can follow the protocol, but there is no guarantee and that’s why insurance companies can’t get their arm around it — they write things they don’t understand or you have companies that will exclude stuff that they do understand. The studios have said, ‘Guess what? We need to make content, and it’s more important than the cost of potentially shutting down.’ It’s a financial loss and unforeseen expense.”
Large studios have the capital to self-insure, meaning they are willing to take on the risk of potential production shutdown themselves. Should an issue arise, as when Paramount’s “Mission: Impossible 7” had to shut down for two weeks this month after a positive coronavirus test, the studio would have enough money to cover those losses. For independent production companies, it’s a different story. For a company that does one film a year and has to shut down production because a cast member gets COVID, it becomes a big financial problem.
Indeed, Addison said there is such a race to produce content now that studios are willing to take on the risk of shutting down for two weeks should there be an incident, rather than not going into production at all. “The demand for content is at an all-time high, and what’s being produced is all-time low,” Janet Comenos, CEO of SpottedRisk, one of the two firms offering COVID coverage. “The smarter, savvier people in the film and TV space will do whatever it takes to get up and running.”
As TheWrap reported last year, any production before March 2020 most likely was insured to protect against virus risks. However, once COVID-19 became known to underwriters, they began excluding it from policies to mitigate their own losses. This led big studios to self-insure and smaller production companies to seek pricey alternatives — or gamble on shooting without any coverage at all.
Even during the height of the pandemic, some productions opted to take the risk and go into production, following strict protocols set forth by the unions and government agencies. For example, Dwayne Johnson’s “Red Notice” filmed in September, when cast and crew had to be sequestered 24/7 and only go to and from set during production. In one of his Instagram posts, Johnson said they were creating “the blueprint for how effective a large scale production can operate during a pandemic” and posted a photo of himself wearing a face shield and mask. Last summer, Tyler Perry managed to shoot full seasons of four different shows over two months by quarantining cast and crew at his Atlanta studio.
Other productions haven’t been so seamless: Warner Bros. had to shut down “The Batman” for two weeks after star Robert Pattinson tested positive on Sept. 3. Universal’s “Jurassic World: Dominion” halted production in October after positive tests on the crew.
A spokesperson for Paramount declined to comment on whether the studio self-insured for “Mission: Impossible,” but Comenos said she believes that the studio took the risk by weighing the benefits of releasing another installment in the franchise that’s grossed over $3.5 billion at the global box office since 1996.
For the carriers that offer any COVID coverage, premiums and rates have gone up substantially — in some cases doubling for less coverage.
“The industry has accepted that insurance is virtually unavailable. There are specialty markets that underwrite coverage, but each individual risk is underwritten, and it’s expensive,” said Brian Kingman, managing director at Gallagher Entertainment, who in the past has helped find insurance coverage for Hollywood’s stars. “Sub limits and exclusions are more broad reaching; they are taking coverage away and are charging more for it and having the producer take more risk. That gives the bond companies and banks more challenges — the broker has to work a lot harder. Underwriting is tough as nails; they ask more questions, and sometimes they decline.”
The rate of premiums skyrocketed early last year to as much as 10% of the insurance limit bought — so a $20 million movie would require up to $2 million in COVID coverage. Previously, the cost of production portfolios insurance ran from 0.75% to 1%.
That’s why some smaller productions, like the horror film “The Knocking,” opted to forgo insurance entirely. “As a producer, you sometimes have to take risks, and we all decided that this was a risk worth taking because we have our own crew. We were going to adhere to all the strict state and union rules, and minimize personal exposure risk to a minimum,” Maurice Fadida, one of the film’s producers, told TheWrap in October.
Standard “business interruption” clauses don’t apply to pandemics because infections can continue, and, likewise, insurance companies will fight policy holders on “Act of God” clauses that might qualify as a natural disaster. Since last year, “nothing has changed, just rates have gotten more expensive across the board,” said Jeff Kleid, owner of Elite Risk, the other firm currently offering COVID coverage.
Kleid’s company has insured some 60 film and TV projects since last summer, while Comenos’ SpottedRisk has written 23 policies covering budgets $2 million to $80 million, with a deductible that amounts to 1% of the total production budget.
EliteRisk has also started Pandemic Outbreak with COVID-19 relapse coverage for companies that are going back to production, which includes cast coverage and business interruption. Kleid said his company has insured multiple projects under a blanket policy with maximum limits and price breaks.
However, EliteRisk has lowered rates to 8.5 to 10% and in certain areas, and 5% by putting deductibles on certain risks. SpottedRisk’s rates are “hovering” in the 4-5% range, Camenos said. “Now, it’s a lot easier to extend coverage because we’ve written so many policies, and we’ve become more comfortable with the risks. The big difference is we can now provide variable limits. The limit back then was the full budget insured — now, we’re allowing coverage as little as 10%.”
SpottedRisk now also provides coverage for outbreaks of communicable diseases, such as measles, salmonella, HIV and the coronavirus. Kingman said that most other carriers are still covering communicable diseases but not if they rise to the level of a pandemic, as established by the CDC or the World Health Organization.
Comenos said that only 20% of her company’s policies were written for major studios, with independent companies in greater need of coverage even though it’s expensive. She explained that it’s because the indies are so reliant on commercial loans.
“When COVID suddenly emerged, and there was no COVID insurance, the banks said, ‘We’re not lending to you in this environment,’” she explained. “There has been little to no commercial lending over the past 14 months. These indie producers have to secure COVID insurance.”
Of course, one way around that is to raise capital or self-finance the indie production.
Now, 15 months later, multiple sources told TheWrap that the insurance industry incurred about $2 billion in losses for film and TV, with the biggest carrier, Allianz, losing $1 billion. (A spokesperson for Allianz did not respond to TheWrap’s request for comment.) In general, insurance companies collectively lost $8 billion, according to Kingman, not including the postponement of the Summer Olympics in 2020.
Moving forward, Kingman says that while premium rates are declining, he doubts that major insurance carriers will ever offer pandemic coverage again, although the specific coronavirus exclusion might go away.
“In the short term, I think we’re going to have an exclusion for the coronavirus, as well as pandemic and epidemic,” he said. “However, I think over time, there is a chance that in a couple years, the coronavirus exclusion will go away, but I don’t see the exclusion ever going away on pandemics in the entertainment industry. They can’t get enough money for another pandemic; their answer is to exclude it unless the government creates a fund. Once an occurrence that can cause a systemic loss is identified, it will affect all policy holders.”
Addison said he could see infectious disease coverage coming back in the next few years.
“As we learn more about COVID and infectious disease — we had SARS before, we had infectious disease before — there will be someone chasing the money,” Addison said. “There will be opportunity to buy future infectious disease coverage based on models.”
Comenos said it’s up to the special insurance companies like SpottedRisk to build a new, standalone product for the foreseeable future as she predicts the COVID exclusions won’t be removed “in our lifetime. These providers got hit so hard last year that their corporate mandate now is to never offer communicable disease coverage ever again.”
Kingman sees light at the end of the tunnel, though. “It’s not doom and gloom,” he said. “Things are getting better but we have a long way to go to get to where we were pre-pandemic.”
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