By JACK ROBERTS, editor in chief of Risk & Insurance®
A broker's job is to challenge the status quo, often through improving a risk transfer mechanism. Insurance, the traditional mechanism, can usually be improved, especially as risk becomes more complex.
At least that's what LeConte Moore, managing director of DeWitt Stern in New York, believes. The DeWitt Stern Group, a national insurance brokerage firm that specializes in entertainment and media insurance, has developed, in effect, a contingent extra expense policy that broadens traditional coverage against costly delays, which often occur in the production of television commercials.
Moore, a longtime entertainment broker in film and television markets, managed Marsh's worldwide entertainment group before joining DeWitt Stern. He saw a sizable shortcoming in the way that U.S. television commercials are currently insured.
Basically, it was a question of: What if something totally unpredictable happens during the production of a television commercial that causes delays, incurring extraordinary, unanticipated expenses? This could cost the client and the agency far more than what was budgeted.
Delays stemming from equipment, set and location damage can be insured under policies available now and are commonly called a "production wrap-up."
For example, what if there is a fire in a tent on the beach destroying all the film for a swimsuit commercial in an isolated location in North Africa? No replacement film is available for a few days. That could cost the advertising agency, and subsequently the sponsor, thousands in additional costs for the delay.
But there are other factors that could cause losses that involve no physical damage to property. For a real-life example, Moore pointed to a production company crew that was blocked from reaching the film location because a mudslide closed the coastal highway to the site. That kind of problem, not covered by the traditional wrap-up policy written in the United States, resulted in unanticipated additional expenses to reschedule and reshoot.
WRAP UP 2.0
This is the kind of contingency that would be covered under the new DeWitt Stern policy, called Wrap Up 2.0.
Moore, working with Entertainment Brokers International, the entertainment division of OneBeacon Insurance, developed a new expanded wrap-up policy that insures any contingency, including nonphysical ones. Because ad dollars are so scarce today, Fortune 500 companies and other advertisers that make commercials need very broad protection. There is plenty of opportunity for the unforeseen to go wrong, especially during film production on location rather than in a studio.
Richard Meehan, senior vice president and treasurer of the Paris-based Publicis Groupe--among the largest advertising agencies in the world--is enthusiastic about the development and not just because the extension of the former existing policy coverage comes with little or no cost increases.
The new policy allows the agency to be more creative, and it changes decision-making factors for producing unusual or complicated television commercials.
"This gives us an opportunity rather than just a cost. With the broader coverage, I'm much more comfortable giving the go-ahead to a particularly unusual shoot or special venue," Meehan said.
In the past, the risk of something going wrong on a film shoot "prevented us from doing certain things." It takes the risk out of the equation because "we don't have to worry about paying for a substantial loss if something happens," Meehan said. That gives us another good reason for a client to work with us, he added.
THE U.K. CONNECTION
This kind of coverage, although almost nonexistent until now in the United States, is a common component of similar policies written in the United Kingdom. U.S. insurers saw no reason to add the cover until DeWitt's Moore approached OneBeacon with the proposal to develop the new policy.
"There is no problem with capacity," Moore explained, because losses of nonphysical damage do not happen that often. But when they do, the costs can be huge. Again, another example: If bad weather like a lightening storm causes a production shooting on a golf course or near a swimming pool to be cancelled and postponed, that can be a costly event. Advertisers, ad agencies and productions rarely budget enough to cover these kinds of losses.
The major market for the new policy is large. Advertising agencies that work for the very biggest advertisers spend millions producing commercials around the world each year. A car commercial that is seen on American television and cable networks is likely to be filmed in Spain, for example.
"The budget for an on-location television commercial can have production costs exceeding $1 million. What if the 400 extras, for example, can't get to the site of the commercial shoot, for example," Moore pointed out. Under this new Wrap Up 2.0 policy, the cost of any delays beyond the control of the agency and the contracted production company would be covered.
"This is the next version of the wrap-up policy," he added.
Currently, none of the other insurers that write entertainment coverage offer this policy extension. Publicis' Meehan said he talked with another insurance company that holds a large share of the advertising insurance market.
"They turned us down flat," he said. Most of his business for this kind of insurance will probably move to OneBeacon, the only U.S. carrier that offers the coverage.
Moore said that the response to the new offer has been strong and that he anticipated it will be quickly adopted by all the global advertising agencies.
"Budgets are tight in the advertising industry today, and the last thing advertisers and their agencies need is an unforeseen, uninsured occurrence that adds cost to their production budgets. We expect this new product to revolutionize the way TV commercial productions are insured in the United States. It is about time that we caught up to the British way of doing things.
"Since my wife is from the U.K., I hear that from her all the time, and I just decided to import the concept to commercial production insurance," Moore said.
October 9, 2009
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