The Entertainment Comeback Insurance Market Ready to Respond Despite Challenging Market Conditions

The ongoing effects of the COVID-19 pandemic continue to dampen the entertainment sector, but the industry and its insurance partners are gearing up for a comeback.

In the U.S., the theatrical, home/mobile entertainment market in 2020 totaled $32.2 billion, down 11% from $36.1 billion in 2019, according to the Motion Picture Association’s recently released annual THEME report covering 2020. Theatrical entertainment dropped to $2.2 billion accounting for 7% of the revenue. In 2019 the revenue for theatrical entertainment was $11.4 billion.

The bright side was that digital entertainment revenue, such as online streaming services, grew 33% in the U.S. in 2020 over 2019. For the year, digital revenue totaled $26.5 billion. While in recent years digital revenue has been increasing, in 2020 digital media exploded, accounting for an 82% share of theatrical, home/mobile revenue compared to 55% in 2019.

John A. Hamby, national entertainment practice leader for DeWitt Stern of California Insurance Services, a division of Risk Strategies Co., says while the film and television space is back up and running, these insureds are facing a tough insurance market.

“It’s a very difficult market and I think it will remain so for the foreseeable future,” Hamby said. “We’re still looking at communicable disease exclusions on the vast majority of policies.”

While there is some coverage available, the coverage limits being offered are not substantial, he noted. “There are a couple of COVID-related insurance products out there now, but none of them are ideal because they don’t provide huge limits,” he said. “That’s still a difficult proposition for event planners, promoters and producers.”

Communicable disease exclusions are not the only hurdle. Most insurance rates in the entertainment sector are seeing large increases, some rising by 50% to 100% higher than just 15 months ago, he said.

While entertainment insurance is tough there is plenty of capacity for the sector, maintains David S. Nikolai, president of EverSports & Entertainment Insurance Inc., an Everest Re Group company.

“The markets have reduced the limits on an individual basis, but the capacity has not completely left the building,” Nikolai said.

He said the biggest change has been exclusions for communicable disease. “If it is an indoor venue, I would tell you that almost a 100% of the time, there’s a communicable disease exclusion,” he said. “If it is an outdoor venue, it’s still probably 90% of the time that there’s a communicable disease exclusion with respect to the venue.”

But still, even large events are still happening, Nikolai said.

“Events are being planned for the second half of the year at this point in time,” he said. “I think there’s an appetite from fans to go back to those events and the venues are working through ways to do it safely with their eyes wide open in understanding that their insurance is very likely got a communicable disease exclusion.”

In the live event sector, liability rates are increasing by about 20% to 40%, according to Hamby, but the one area that’s been particularly challenging is event cancellation coverage.

“Those rates are going up 50%, or even 100%,” he said. “They don’t have to buy event cancellation insurance, they can self-insure it, but most can’t because there’s too much risk.”

It’s up to the insured whether to buy insurance to protect their out-of-pocket expenses or lost revenue. “They can buy whatever limit they want. So if a rate went up 100%, maybe they buy half the limit that they would typically buy.”

While the rate increases began prior to the pandemic, the acceleration of rates is likely to be permanent, according to Hamby.

“One thing I’ve learned is that the coverages offered and the rates and premiums charged up until mid-2020, and probably since the early 2000s, have been very much a buyer’s market,” Hamby said. “Lots of coverage, lots of limits, rates were very low, and it was that way for many years.” Even in an entertainment world where production budgets kept increasing, and losses were rising.

“Clearly, carriers got hit with massive claims from the pandemic, but the carriers have used the pandemic to raise rates to where they probably should have been before it,” he said. “I don’t think that rates will ever go back to where they were; the rates are going to stay where they are for several years to come.”

Hamby just hopes that even though rates will remain higher than before, broader coverage offerings will return or terms will loosen up a bit.

“The film and TV business is back. There are more and more productions, and that’s great,” he said. But what he needs now to help clients is better coverage. “That’s the biggest thing that has changed.”

Nikolai agrees that the market is definitely coming back. “We are seeing people either preparing for reopening and as a result, putting their risk management programs back in place, or they have already opened up.” It depends on their geography, he added, noting certain states like Florida and Texas have moved faster than others in lifting restrictions.

Nikolai and Hamby think the industry and the public are ready for a comeback.

“We are seeing a lot of TV and film productions that have started up in the last month or two, and many more are slated to start filming again in the summer,” Hamby said. “That is good news in the industry.”

“We’ve seen our insureds working hard to be creative and thoughtful about how they might create a more safe environment to get events back up and running as quickly as possible,” Nikolai said. “Whether that be with no or less capacity for audiences. Or whether it be simply doing it in a different type of venue. The appetite to see live entertainment again is there and we’re very optimistic that the market will continue to come back.”