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Pandemic insurance, coming to a screen near you

SNL Image

The entrance to Paramount Studios is seen early on during the coronavirus pandemic in Los Angeles.
Source: David Livingston via Getty Images

The insurance and bonding business around filmmaking can be as complex as the production itself, but COVID-19 is making matters even more complicated.

The coronavirus pandemic not only idled hundreds of television and film productions, it changed the policies and coverage that insurers were willing to offer the industry. After the pandemic struck, insurers eliminated a special status for Hollywood that covered losses resulting from stoppages due to the spread of disease. New policy coverage now is either much more expensive or does not include pandemic business interruption coverage, leading many in the industry to say government intervention will be required if the entertainment industry is ever to get back on the financial footing it enjoyed before COVID-19.

Jeff Kleid, founder of Newport Beach, Calif.-based Elite Risk Insurance, explained that while other industries had exclusions in their insurance policies for pandemic-related business interruptions, Hollywood did not have those exclusions, giving it favored treatment.

"There's something sexy about the entertainment industry," Kleid said in an interview. "There's something about it that makes them want to [do business.]"

Because of that, some insurers have been hit hard by COVID-19-related claims. Allianz Global Corporate & Specialty SE, a unit of Allianz SE that is a major provider of insurance to the film, TV and events industry, said in October that it had reserved about €488 million, or $571 million, for expected COVID-19-related claims, especially for the cancellation of live events and the disruption of movie or film productions in the entertainment industry.

Kleid said that after the coronavirus, Hollywood's favored treatment has all but disappeared.

Not so special

Kleid worked in specialty insurance in the sector for years before focusing most recently on coverage for hemp growers. After the pandemic lockdowns shuttered TV and movie production, Elite Risk developed a policy that offers idled projects protection for COVID-19 interruptions for up to $1 million for $80,000 to $120,000 in premium.

"Even though we're a micro-solution relative to what's going on, we can still get several thousand people back to work," he said.

Before agreeing to coverage, the insurer considers specially tailored virus safety protocols on set, the length of production and the location, including the local civil authorities' likelihood to implement a lockdown that would stall production, among other factors.

It is an expensive policy, Kleid concedes.

However, higher expense is a new normal for film production, and bonding agents may require policies like Kleid’s.

A new normal

While corporate studios should be able to take the extra expense in stride given their large, often diversified balance sheets, smaller studios and independent productions are absorbing a material COVID-19 fallout.

For example, independent producer Justin Begnaud said that expenses related to the pandemic have already cut into the investment thesis for many films. On one $12 million production that he requested not be named, pandemic logistics added at least $1 million to the budget. This included safety protocols like increased medical staff, full medical equipment, virus testing for cast and crew several days a week, temperature-check stations, and delays related to negotiations with local officials about when and where the film could be shot.

These new medical requirements could become standard on set going forward, required by insurers to cover pandemic breakouts.

"They're going to want to cover every virus known to man — the black plague," Begnaud said in an interview.

READ MORE: Sign up for our weekly coronavirus newsletter here, and read our latest coverage on the crisis here.

Bonded together

Adding a further wrinkle, film productions are not only insured, but often bonded as well. A film bonding agent is similar to an insurer but takes a broader view, acting as an insurer to film investors.

Filmmaking is a relatively high-risk endeavor, with a significant chance that even if a title does make it to the screen, investors could still register a loss if the movie falls flat with audiences. Often investors are not fully savvy to the complex production process, so bonding agents act as a liaison between the production management and the investors, working with the managers to derisk a production as much as possible.

Elite Risk is one of a very few carriers willing to offer COVID-19 losses. But with Elite's limits of $3 million combined for several categories of peril, the coverage does not adequately protect the whole market, said entertainment insurance broker Michael Groner.

"If you're a fairly decent sized independent film, and your [cost] is probably $8 million to $15 million, $3 million doesn't get you very far, especially when it's being split between three different perils," said Groner, account executive for Front Row Insurance Brokers. Some companies are able to buy the coverage for the full cost of a film, but at the same steep premium rate, he said.

"They're very expensive, but it's a price a lot of people are willing to pay so that they can get back to work and make their project," he said.

Begnaud feels the stress involved. One of his current projects was budgeted at $4 million in production. The pandemic hit after negotiating a contract with a studio, and now with an additional $800,000 in expenses, including insurance and bonding, the title may not be made.

The largest studios can self-insure, but the risk is perilous even for them, insuranceQuotes.com analyst Michael Giusti said in an interview. Their exposure in production and losses can approach or exceed $1 billion.

"Not even The Walt Disney Co. can take that on their bottom line," he said. The middle part of the entertainment industry's ecosystem will have to "scratch and claw for a while," Guisti added.

New policies, new exclusions

Given the preferred treatment enjoyed by the entertainment industry, the insurance fallout from the pandemic was not as bad as it could have been. Among Groner's clients, some 90% had policies that will cover pandemic losses.

But all of the insurers that wrote for Front Row's clients either added pandemic exclusions quickly or ceased writing policies until they could get them, he said.

SNL Image
A Netflix billboard in Los Angeles offers encouragement to entertainment industry workers as the coronavirus stalls film and TV production.
Source: AaronP/Bauer-Griffin via Getty Images

Getting those new policies in place took time, contributing to a supply shortfall in the industry. Moreover, bonding agents needed time to better understand the risks involved with greenlighting a film in the pandemic era. Coupled with delays from state and local lockdowns, in many areas the industry has all but ground to a halt.

For example, filming in greater Los Angeles, including Hollywood, plummeted 54.5% during the pandemic, according to industry logistics, research and promotional organization FilmLA. The loss of production jobs has contributed to a startling local jobless rate, the highest in the nation, according to a recent Rand Corp. analysis.

Both Kleid and Groner believe the government will eventually have to restore the insurance market for disease-related losses for all levels of the entertainment industry to function properly again.

The Independent Film and Television Alliance is among an array of trade groups who have thrown in for the Pandemic Risk Insurance Act, or PRIA, a proposal to have the federal government back the private insurance market in covering future pandemic losses.

2021 will be better ... right?

However it happens, Begnaud was optimistic that his business would recover once insurance companies, bonding agents, studios and producers all gained visibility on the problem.

Fellow independent producer, Daria Jovicic, owner of production company Latitude Media, agreed with both Begnaud's bewilderment and optimism.

"Somewhere middle of next year we'll have everything under control," Jovicic said, noting that she's had to stall three productions due to coronavirus related delays, including insurance complications. "We just have to find a system."