With the absence of pandemic insurance adding complexities, expense and risk to most productions, 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

The continued lack of pandemic insurance has added to the difficulties of filmmakers. Speakers at AFM’s Finance Conference-I felt that while commercial banks don’t want to take risks, it is really tough to say whether it would become more expensive to make a film post Covid-19.

The meet saw stakeholders discussing strategies to get funds for films. While Jill Goldsmith, Co-Business Editor, Deadline is the moderator, the panelists were Steve Hays, Founder & Managing Member, 120dB Films; Peter A. Marshall, Managing Principal, Media Insurance Services, Epic Insurance Brokers; and Nick Spicer, Partner, XYZ Films.

In March 2020, they halted all of their pre-production activity, started off Nick Spicer, adding: “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. 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.”

Spicer said that at XYZ, they do a lot of international production typically, probably half of theirslate is comprised on international productions.  “So, in Q4 of 2020 we went into production on films in Finaland, 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.”

For Peter Marshall, there were 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.

He added: “A company like Nick’s [XYZ] that is just incredibly nimble and creative in terms of financial and content, just pivoted…The industry should be very proud of itself for developing protocols very quickly…we knew right away three things were going to happen, movies were going to be more expensive, more of a pain in the neck, and take longer. None of those three things are good but the Independents are incredibly scrappy, and a lot of films and TV got made event in the teeth of the first wave of Covid.”

On how do they see things right now with vaccinations, Spicer said, “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.  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.”

Marshal stated that it’s an A-symmetric phenomenon, it comes and goes at will – that’s what science tells us. It’s not going to hopefully be as harsh as it has been. The direction seems to be going the right way but the path of public health, which thank goodness is improving, is not necessarily the path of the insurance industry which is not really improving so much. So, unfortunately there’s a split in those two roads right now and I think it will continue for years. That is the harsh news.  

He also said that 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.”  

On banks slowly coming back, Marshall said, “I’m hopeful but commercial banks don’t necessarily want to take risks. That’s why [finance] companies like Steve’s [120dB Films] are so important. Sometimes their ability to reach out to capital markets is going to be part of the solution…self-insurance I think will be where the most opportunity will be. Private insurance companies that are set up by institutions that have the wherewithal to do that may be the future…or a small part of it.”

Will filmmaking be expensive in the near future? To this, Spicer said, “It’s really tough to say – so many of them are different. 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.”

On international backstop programs, Spicer said, “They are not liberal in their interpretation of what a covid event is. Most of the ones we have used have been for co-productions [the UK, Ireland and Canadian funds]. We are doing something in Australia next year that we’re just getting started on and I believe that one is a little more liberal in how it’s defined and who can have access to it.

In Finland, there was no government backstop. When we went there it was specifically because it was a safe place to shoot and then we came up with a unique financial structure – we self finance a lot of our movies as an independent studio – so we equity financed production alongside we used a lender called Bondit to create a bridge through production with no bond…Especially early on with travel restrictions and quarantine periods, it was really hard to schedule actors. We had to work really hard to find locations that would be amenable to the schedules that we needed to shoot at.

In his speech, Hays said, “Anyone who is using a government program should be certain of two things – 1. No insurance company can compete with a sovereign government that can print money for price. They will always be the best price on the way in.  The other thing is they’re [governments] not an insurance company so when you have a claim they’re not going to behave like an insurance company, they’re going to behave like a government…I think when you read the fine print of the Australian, the Canadian, the UK programs, there’s a lot of things that they take on that are really admirable and fantastic but there’s a lot of things they don’t take on that we take for granted. Read them very carefully. “

He added that there are certain expectations of production that insurance companies know because they’ve been insuring us for decades, but government’s have not. They don’t know about certain things we have to do when we shut down. “They don’t understand that travel incurs and sometimes location changes happen, people fall out…read the backstop very carefully and you’ll find out some of the things you’ll run into won’t be covered.”