During Day 1 of the American Film Market, a panel was held that looked at the continued lack of pandemic insurance. According to notes from the AFM, the situation has added complexities, expense and risk to most productions.
Moderated by Jill Goldsmith, Co-Business Editor of Deadline, financiers and producers discussed strategies that can get films made, what projects are side-lined by the insurance gap, and how to know which are ultimately worth taking the risk.
Joining Goldsmith was Steve Hays, Founder & Managing Member, 120dB Films, Peter A. Marshall, Managing Principal, Media Insurance Services, Epic Insurance Brokers and Nick Spicer, Partner XYZ Films.
The panel first discussed what happened to international productions when COVID first hit. Nick Spicer said, “In March 2020, we halted all of our pre-production activity… we all thought it was going to go on pause for a couple of months. No one really had a sense of how long this was going to last but it wasn’t until September that we actually went into production on another movie.”
Spicer then noted, “The traditional independent financing model was impossible because of the gaps in the insurance policies and completion bonds so the traditional bank financing wasn’t available which meant we all had to find different ways of doing things. At XYZ, we do a lot of international production typically, probably half of our slate is comprised on international productions.”
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Spicer added that XYZ Films went back into production in Q4 of 2020. “We went in Finland, Norway, Mexico, we started prep on films in Canada and the UK and that’s where we really focused on the places where it felt safer and the risks were mitigated, like Scandinavia, and places that had government backstops that we didn’t have in the U.S. which enabled us to get bank financing or to sit as a security net underneath a completion bond that did have an exclusion for Covid. We transitioned into more creative financing models leaning on equity, private lenders, bridge loans to get through production and parsing out the cash management to mitigate the actual cash risk. Financing became a lot more work-intensive than it was the year before.”
Peter Marshall of Epic Insurance Brokers chimed in, “There was months of dealing with these terrible shutdowns and the chaos, the claims ensued, and the insurance companies were thrown into a situation they had never seen before – they’re no longer underwriting, they are only responding to claims, there is no new business, there is only loss. Immediately, the reinsurance world disappeared like a puff of smoke… So, there was no new business being created…. It was a loss like the industry had never seen a full-scale and wholesale loss scenario like this. Not from terrorist attacks, not from anything.”
Goldsmith then pivoted to the question of requiring vaccinations on production sets. Spicer was not sure if producers can require them, adding that most of XYZ sets are fully vaxxed. “I actually don’t know if it’s something you can require. We have not required it but most of our sets have been almost entirely vaccinated if not entirely vaccinated. The best practices tend to follow the union rules.”
Spicer strongly felt the Delta Variant had a major impact on productions. “Delta, from my standpoint, seemed to have screwed everything up…the insurance companies, from my conversations, were starting to get a little more open-minded. The bond companies were starting to go in the right direction because the vaccination rates were increasing and then Delta punched a giant hole in it because all of the sudden there were breakthrough cases and a vaccination was not full proof so it went in the opposite direction. It seemed even harder once Delta set in to have a conversation about getting a bond with no exclusion or an insurance policy so we just got thrown back into the same situation on a financial level even though the real risks were a lot lower and we knew a lot more.”
Marshall compared COVID and the Delta Variant to asbestos affecting the insurance industry. “The insurance industry is not going to rebound from this quickly. This is worse than asbestos was for the insurance industry. They don’t have the ability to backstop for catastrophic loss and risk. We’re going to have to be more inventive and nimbler and I think different ways in transferring risk are going to emerge and have already emerged. They’re tricky because they are often done in the heat of battle and they’re tested as they’re being used for the first time and get modified.”
The discussion then turned briefly to the expense of making a film in a new COVID world. Spicer described the different variables that didn’t exist in 2019. “It depends on where we are shooting. It varies country to country and there’s just the physical covid production costs of testing, the extra days that we need to schedule, the additional cost of insurance and a bond if you get one without an exclusion – so as low as 8-10% increase up to 20% depending on the size of the budget, how the financing looks, where you’re shooting, if there’s a government backstop. There is a baseline no matter what just to follow the covid guidelines and have a reasonable reserve in case something happens.”
When Goldsmith asked the panel what would make an ideal indie film project, 120dB Films’ Steve Hays had this to say: “A project that comes in that has a meaningful amount of their equity already in place. Assuming they have a project that’s commercial and at least a third of the budget is covered in equity. Filming in a jurisdiction that’s tax credit friendly and pre-sales – we don’t do gap without pre-sales so we would like to see projects where at least two foreign language pre-sales made. It’s easy if it’s an English language project and you’ve pre-sold the UK and Australia it’s not really indicative of things are going to sell in Spain or Italy so we need some check for the estimates provided by the sales agent. We certainly want to work with a sales agent that has a strong reputation and producers that really have a track record and can instill confidence that it will be a well-oiled machine. Our sweet spot is in the 2 to 10 Mil range and generally, we’ll have presales that represent at least a quarter or a third of that.”
Goldsmith ended the discussion by asking the group what the status of current productions are in the United States and abroad.
Spicer was realistic about the situation, “It’s busy everywhere right now, not just in the US. It’s never been harder to schedule actors than it is right now. Actors have more projects available to them and don’t need to take stuff. Independent production has always been a sliver of the overall production industry and right now the streamers are taking up the majority with high-end series which shoot for longer, as well as the studios. These are companies that don’t have the same needs as the Independents do. And then local production around the world is coming back online and is really being supported by the local governments. So as an indie producer in the US, it is hard to get something up and running not just because of the difficulty of financing but also because you’re competing with much bigger players that are offering a lot more money to [to talent and crews] and huge competition especially in the production hubs.”
