In the early months of the pandemic last year, brokers just couldn’t place insurance for the entertainment industry. In late February 2020, underwriters began excluding communicable disease from all of the underlying production insurance policies. No insurer wanted to touch the risk.
In stepped SpottedRisk, the Boston-based managing general agent, which saw an opportunity in the midst of this major market disruption to offer pandemic cover for film production companies.
“In the wake of a catastrophe or amidst changing market dynamics, the insurance industry will often just recede and exclude coverage, or limit the coverage and dramatically increase rates,” said Janet Comenos, co-founder and chief executive officer of SpottedRisk, in an interview with Insurance Journal.
In mid-March, Comenos and her team decided to build a product and fill this market need – to create what she calls “a live cat product.”
“I had a feeling that we could do it because we specialize in spotting insurance opportunities around emerging risks. When everyone else is running out of the burning building, we tend to be running in.” She then corrected herself, with a laugh: “Actually, it’s more like entering a smoldering building after a fire.”
One big attraction for capacity providers is that the policy has a short duration, said TigerRisk CEO Rod Fox. “It could be 30 days, or it could be 60 days – but it’s still short term. As a result, you can recycle your capital, and you know immediately if you have had a loss, so the potential return on capital is exciting.”
“So we started on a four or five month development process. We worked 18 hours a day, six days a week. We only gave our company off Sundays until we finished the development of the product,” she recalled.
The Spotted Risk team determined that the product needed to cover two areas: sickness and death of any cast and crew, and the actions of a civil authority, if the production is shut down by a local, state or federal public health or government official.
The civil authority side of the policy would pay for the extra expenses incurred, or the delay, if the protection company has to move locations, or wait out the lockdown.
It took five months and the product, dubbed “SpottedRisk Coronavirus Production Insurance,” was launched in late August 2020. Limits range from $1 million to $20 million, on a per production basis. “Actually, we just came off risk on a policy [for a production] with a $52 million gross budget. We extended $20 million in COVID coverage. The rate online was about 9%, and it ran clean with a policy duration of only 55 days.”
By the fall of 2020, Comenos said, there was unbelievable demand for the product, and there still is.”
The product is mainly designed for mid-sized, independent production companies that are in most need of the coverage, she said.
Comenos explained that the largest production companies are able to self-insure, and even the smallest production companies tend to self-insure, or finance the COVID risk through their equity investors.
She recalled a conversation in March 2020 with the general counsel of a large bank in Los Angeles, who said: “We’d rather shut down our entertainment lending practice than lend with COVID uninsured.”
“Given that more than 90% of the lending in the space comes from the commercial banks, we knew there was going to be a great demand for the product.”
“We offer 16 specialty products to the film and TV industry – and for many, we’re the only provider of the coverage,” Comenos continued. “We’re also looking to take advantage of the dislocation in the event cancellation space as well, because most of the markets have had to exit or reduce their line size.”