Movie Insurance

With all the recent news about Lindsey Lohan’s problems a few recent quotes from the Hollywood reports bring up my area of expertise, Insurance! There has been a bit of chatter about the fact that Lohan may now be “uninsurable.”

Insurance isn’t something most people associate with the fame and power of Hollywood. But, the truth is there are many assets and risks that require insurance in order to make the movies that entertain us. When investors, studios and producers plan to make a movie the insurance is one of the first things they need to plan for and invest in.

The movie making insiders, especially those working behind-the-scenes have choices of which actors will be the stars and which movies will be made, insurance is a sine qua non reality of the entertainment business. If we think about it, once the glitz and glamour is taken out of the equation, Hollywood, like most other businesses, is all about minimizing risk.

Movie stars may have talent, great agents, and a spectacular image, but if an actor or actress in uninsurable, he or she will not be offered a part in any major motion picture. The more outside financing from banks and other investors the more likely insurance will become an issue.

Most movies produced today require a completion bond which will guarantee the investors will be repaid the full cost of the production from the script development, finance charges, and bank interest no matter what happens. If the production for any reason loses one of the essential elements the completion bond will cover the losses the investors have made.

Most often an essential element includes the stars and the director. For example with the production of the movie Terminator 3, producers purchased a completion bond from International Film Guarantors (IFG) with a premim in the amount of $2.54 million dollars. The completion bond named Arnold Schwarzenegger as an essential element. This bond protected the producers and investors in the event Schwarzenegger was for some reason disabled during filming or had to leave the production for any reason. If something had gone wrong IFG would have paid the bonded amount of $181.6 million to the producers and Investors. As things turned out, IFG collected the $2.54 million premiums and didn’t need to payout the 181.6 million.

Bond companies won’t just provide this coverage on such a gigantic risk, without requiring other kinds of insurance coverage before offering the completion bond. The movie producers were also require to purchase cast insurance that would reimburse the production for anything that might happen to the star. For Terminator 3, Fireman’s Fund offered the cast insurance. The total cast insurance and completion bond premiums brought the insurance bill to $4.54 million for Terminator 3. In this situation the completion bond company kept the risk of the production budget going completely out of control and the movie not being finished but IFG transferred the risk of the star causing the problem by requiring the cast insurance.

When we hear these reports that Lindsey Lohan is “uninsurable” it translates into the fact that she isn’t able to get insured under a cast insurance policy, and most completion bonds will not accept a star without cast insurance coverage. This means, movie producers are not likely to hire her for any movie part in the future, or until she become insurable again. Hollywood won’t decide if Lohan is insurable, the insurance companies will decide this, and if she becomes insurable the insurance companies will also decide how much premiums it will cost to take such a risk.

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