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The full sweep of insuring the entertainment and media business is like providing coverage for a $200-million Hollywood movie extravaganza, or U2's burgeoning worldwide concert tour, or the Bush presidential inaugural festivities. Sweeping wider yet, it's like rolling the dice in covering the casinos that are popping up across the United States, or a showpiece $1 million-plus Super Bowl commercial. Or, at concessionaire Aramark Corp., it's coping with a $135 million jury award to the family of a seven-year-old girl paralyzed from the neck down as a result of a car wreck caused by a drunken fan after a New York Giants game.

Well, you get the picture, so to speak. Yet as wide-ranging and challenging as writing entertainment insurance often gets, until recently the post-Sept. 11 market for entertainment and media risks has been as hard and cold as glacial ice. "After the Sept. 11 tragedy, many underwriters became very skittish of the entertainment market," says one well-placed industry observer. "They figured, 'Why take the kind of risks we would face in the entertainment field when we could charge much higher premiums and usually with much lower risk, insuring good old-fashioned buildings and other property?"

But balmier days appear to be here again for the entertainment and media business. "As consumers become more confident about spending their discretionary income, as is happening in today's expanding economy, the entertainment sector is one of the first to benefit," says Joe Addison, national practice leader for Aon's entertainment group.

As the wave of demand for entertainment swells, so will the demand to insure the industry, or industries, that provide it. "People in the entertainment industry suddenly are trying to ride that new wave of spending, and each time the wave gets bigger, the need for more insurance is there," says Addison.

With the summer season around the corner, there will be more tours, outdoor sports venues and trips to resorts. "Overall," says Addison, "we think this will be the best summer ever for the entertainment business."

"People want to be out and about more," says Deborah Coleman, a practice leader with AIG, which introduced a "venue liability" insurance product a year ago. "This ranges from going to the new sports stadiums being built by so many cities, to horse racetracks and NASCAR events, to a lot more youth and amateur sports activities."

Overall, the health of the entertainment and media insurance business checks out just fine these days.

"The market is stable," says Martin K. Ridgers, partner and director of underwriting at Entertainment Brokers International. "No one side is controlling it. Brokers aren't in a position to dictate terms to the market, and there is no unpredictability among either clients or insurers."

From the all-important risk manager's vantage point, Bates Richmond, until recently vice president-risk management at Clear Channel Communications Inc.--a $9.4 billion entertainment company with holdings in everything from radio and TV to more than half a million outdoor displays, including giant ones in Times Square, to its storied SFX live-music tours--is optimistic about the outlook for the entertainment-business insurance market, albeit cautiously, as befits his long career in corporate finance and risk management.

"I see the market softening," says Richmond, who joined Clear Channel in the summer of 2002 from Compaq Computer Corp. and built a worldwide corporate risk-management group from scratch. "On good risks, insurers definitely are competing more aggressively with one another."

"Also, more external capacity is entering the market, especially with insurers in New York refocusing on their core business activity," says Richmond, who is in regular contact with a wide range of underwriters.

Of course these glad tidings quickly remind insurance veterans, including Richmond, of the fat-premium temptations--dare we say greed?--that can suddenly become associated with Hollywood and other entertainment and media ventures.

"The pizzazz of the entertainment business is very seductive in drawing in companies that think insuring a Leonardo DiCaprio movie or providing E&O for a film studio is a quick and exciting way to put premium on the books," observes LeConte Moore, who for 17 years has led Marsh USA's entertainment and media division.

"Their quest for fame and fortune, however, can be a recipe for disaster. These naïve markets frequently come into this business without understanding that it can be very tricky and volatile, one in which a nonappearance or cast claim can easily get into the millions of dollars overnight."

ARE YOU IN ON THIS TOO?

Today's market provides a huge--and in the end, no doubt, legendary--example of how complex and ultrarisky insuring a megaentertainment venture can be.

That would be the rock band U2's "Vertigo 2005" worldwide tour, which as it headed toward its debut in San Diego on March 28, was literally adding whole new legs to its touring plans several times every week. With tickets selling out immediately each time new stops on the tour were announced, the band's manager finally took a deep breath and said the band would "spend the majority of 2005 on tour."

This is great news for U2 fans all over the world. And certainly all the new legs of the group's tour means more business for insurers. But it resurrected the work that the brokers of the original tour had put to rest during the feverish activity of the holiday season.

The bottom line then, was the question of whether there was enough reliable capacity available for the concert in the first place, and what would happen if tour promoter SFX and its brokers, and on the other hand the band's brokers, went into insurance markets at the same time but separately?

Thus was born a novel solution: SFX and its parent Clear Channel Communications and their brokers joined ranks with U2's brokers and jointly purchased insurance for the tour in order to avoid the logjam of capacity that had occurred in past U2 insurance placements.

And in another first, at least in such a complex combination, SFX's parent Clear Channel self-funded part of the tour, as well.

The pot of gold at the end of the rainbow, should U2's touring go largely without major untoward incidents, could be enormous. Even before the many extra touring legs were added, the initial insurance package topped $200 million, involving more than 20 insurers from all parts of the world.

How to handle such extensive, high-wire risk?

First, insurers, especially ones just entering the entertainment and media business, must realize that they are dealing with a very specialized, niche market. "This is a classic silo industry," as one veteran observer put it.

Secondly, as Marsh USA's Moore emphasizes, "Today, data is king. Ever since Sept. 11, underwriters are insisting on extensive information in every area."

Thirdly, whatever carrier an insured is working with must not only have credible capacity, but also sound financial books. And that, in an underlying and disquieting way, is a growing concern, not only in the entertainment and media business, but throughout the insurance industry as a whole.

A commonly heard concern focuses on the shrinkage of the number of insurance carriers in recent years, with Kemper Insurance Cos. having largely stopped issuing new policies since 2001, Reliance Insurance Co. likewise out of the picture and the Royal Insurance Co. of America announcing a smaller, retrenched operation.

Add to that the ongoing consolidation in the insurance industry, and, notes a top entertainment industry risk manager, "It is becoming increasingly difficult to find good, solvent insurers, especially in entertainment coverage."

Financial soundness of a carrier is, therefore, essential as is plenty of experience in this high-risk, potentially high-reward realm.

A noteworthy example of this was how Aon brokered everything to do with the Bush presidential inauguration festivities, from many gala parties, concerts and other preinaugural events to the inauguration itself.

Led by Joe Addison, an Aon group set in place a dedicated loss-control program; created policy guidelines for overall cancellation; reviewed every contract with every vendor, dealt with property damage issues galore; and addressed a range of casualty, accident and health issues involving everything from inaugural-event volunteers to spectator coverage.

Meanwhile, everybody involved, Addison notes, clearly had Sept. 11 on their minds.

So how did he and his expert group do?

"Aon's depth of major-event experience and resources enabled the 55th Presidential Inaugural Committee to secure ample insurance to cover the potential liabilities of one of the largest, most complex and high profile multiday events in the world," says Eric Bing, chief financial officer of the inaugural committee.

Also in the category of experience counts mightily, Jacqueline Fellrath provides a sterling example.

Fellrath--who is vice president, AIG Programs, a division of Lexington Insurance Co.--has been writing entertainment insurance for 25 years. She and her group underwrite policies for everything from bowling alleys, horse tracks, parades large and small, hole-in-one and other promotional events to large stadiums, among many other events and venues.

Fellrath says that given the extensive experience of her group with the large capacity of Lexington, "We are open to looking at all types of entertainment risks and specifically underwriting each risk. We react to the changes occurring in the industry, and we're ready to deal immediately and in innovative ways with any new developments."

Cost discipline, both on the part of the insureds and the insurers, is crucial to the stability of any insurance market, but probably more so than most in the entertainment and media fields where creative and inventive policies are more prevalent.

"Entertainment insurance packages are generally 3 percent to 5 percent of a project's total budget, but the costs can increase based on the severity of the exposures," says Cozen O'Connor attorney Justin Wineburgh, who has a broad-based entertainment litigation practice that includes insurance and intellectual property matters, among several other areas of specialty. "In the case of reality shows, for example, insurance costs are one of the largest, if not the largest, expense."

"In dealing with celebrities, lifestyle consideration must be carefully examined in a variety of ways," says lawyer Allan J. Levin, chairman of the insurance and reinsurance group with Edwards & Angell. "There are a lot of factors to assess. Does the celebrity engage in dangerous activities, which might include flying his or her own airplane? What is the celebrity's financial condition? And, based on past behavior, do moral tupitude issues arise?"

Marsh USA's Moore best sums up the unique nature of insuring risks in big-time entertainment and media. "It can get wild and wacky, sometimes changing with unpredictable and costly suddenness. Once I had an artist who was on a break from her leading role in a Broadway show, and she fell off a moped in Bermuda. She broke her shoulder and as a result, the show had to be cancelled."

STEVE YAHN, a former editor and publisher, is a Risk & Insurance® contributor.

April 15, 2005

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