How SpottedRisk and TigerRisk Tamed ‘Live Cat’ COVID Event for Entertainment Insureds

April 7, 2021 by

In the early months of the pandemic last year, brokers just couldn’t place insurance for the entertainment industry. In late February 2020, underwriters began excluding communicable disease from all of the underlying production insurance policies. No insurer wanted to touch the risk.

In stepped SpottedRisk, the Boston-based managing general agent, which saw an opportunity in the midst of this major market disruption to offer pandemic cover for film production companies.

“In the wake of a catastrophe or amidst changing market dynamics, the insurance industry will often just recede and exclude coverage, or limit the coverage and dramatically increase rates,” said Janet Comenos, co-founder and chief executive officer of SpottedRisk, in an interview with Insurance Journal.

One big attraction for capacity providers is that the policy has a short duration, said TigerRisk CEO Rod Fox. “It could be 30 days, or it could be 60 days – but it’s still short term. As a result, you can recycle your capital, and you know immediately if you have had a loss, so the potential return on capital is exciting.”

In mid-March, Comenos and her team decided to build a product and fill this market need – to create what she calls “a live cat product.”

“I had a feeling that we could do it because we specialize in spotting insurance opportunities around emerging risks. When everyone else is running out of the burning building, we tend to be running in.” She then corrected herself, with a laugh: “Actually, it’s more like entering a smoldering building after a fire.”

“So we started on a four or five month development process. We worked 18 hours a day, six days a week. We only gave our company off Sundays until we finished the development of the product,” she recalled.

The Spotted Risk team determined that the product needed to cover two areas: sickness and death of any cast and crew, and the actions of a civil authority, if the production is shut down by a local, state or federal public health or government official.

The civil authority side of the policy would pay for the extra expenses incurred, or the delay, if the protection company has to move locations, or wait out the lockdown.

It took five months and the product, dubbed “SpottedRisk Coronavirus Production Insurance,” was launched in late August 2020. Limits range from $1 million to $20 million, on a per production basis. “Actually, we just came off risk on a policy [for a production] with a $52 million gross budget. We extended $20 million in COVID coverage. The rate online was about 9%, and it ran clean with a policy duration of only 55 days.”

By the fall of 2020, Comenos said, there was unbelievable demand for the product, and there still is.”

The product is mainly designed for mid-sized, independent production companies that are in most need of the coverage, she said.

Comenos explained that the largest production companies are able to self-insure, and even the smallest production companies tend to self-insure, or finance the COVID risk through their equity investors.

She recalled a conversation in March 2020 with the general counsel of a large bank in Los Angeles, who said: “We’d rather shut down our entertainment lending practice than lend with COVID uninsured.”

“Given that more than 90% of the lending in the space comes from the commercial banks, we knew there was going to be a great demand for the product.”

“We offer 16 specialty products to the film and TV industry – and for many, we’re the only provider of the coverage,” Comenos continued. “We’re also looking to take advantage of the dislocation in the event cancellation space as well, because most of the markets have had to exit or reduce their line size.”

An essential part of the product development was developing a model to help underwrite and price the pandemic product. The problem was the lack of historical data. “We had to find a way to close the gap that had been left by the exclusions placed in the underlying film production policies by all of the film production insurers” Comenos stressed.

She said she worked closely with Rod Fox, CEO of TigerRisk Partners, the Stamford, Conn.-based brokerage. “In strategizing with Rod, I think we expected to get push back on both sides of the policy because sickness and death was very difficult to model back in March, April, May [2020] when we didn’t have much information on the virus and how it can spread and how severe the symptoms were.”

The civil authority side of the policy was also a challenge because no underwriter likes to underwrite around the decision making of a local public official “who could wake up one day and decide to shut down your production.”

SpottedRisk began the process to understand the risk by examining every international filming location from the last five years. “We looked at dozens of factors. We looked at shutdown history from the very beginning of the pandemic, and we started to see trends in [various geographic areas] and across various production types.”

The company modeled hundreds of film locations from most to least likely to shut down. “In the early days of the program, we were very careful about the locations that were eligible for coverage, which were only the top 15% to 20% of the safest locations globally.”

However, SpottedRisk has relaxed that requirement, now providing coverage for nearly 100% of the locations for which it gets submissions, mainly because of the strict risk management required and the majority of productions in 2021 being filmed in COVID-safe areas around the world.

She explained that high COVID-19 infection rates don’t necessarily mean a high civil authority exposure, which makes parts of civil authority modeling seem almost counterintuitive.

“There are several other factors that are actually much more predictive of a county or a state being shut down, including the hospital-bed-to-population ratios, the political environment, etc.,” she said.

“In certain areas of the world, you can have very high infection rates, but there’s still a very low likelihood that the civil authority will shut down a film production,” Comenos added.

Since the product was launched in August of 2020, SpottedRisk has backtested its models and found they are about 94% accurate.

“For example, we look at how important the film industry is to that local geography and what the tax credits and incentives are, because if there is a really significant tax credit and incentive program in that area, the civil authority is less likely to shut the production down. They may deem film and TV production as essential.”

Conversely, there are some areas around the world that can be very safe from an infection standpoint, and have close to zero infections, but the civil authority will shut a production down, if there’s one or two COVID infections on the set. For example, she said this was a problem in the early days of the pandemic in Australia, which had lower infection rates.

Since the product was launched in August of 2020, SpottedRisk has backtested its models and found they are about 94% accurate.

In August, SpottedRisk acquired one of the leading completion bond companies in the film and TV space – a managing general underwriter, called Media Guarantors, based in Los Angles. (Generally required by the lenders, completion bonds guarantee that the production will be completed on time and within budget).

Media Guarantors helped SpottedRisk design a strict set of protocols for film productions to ward against COVID infections as well as a number of contingency strategies in case there is an infection on set or in case there is a civil authority shutdown, she explained.

“They were critically involved in the policy drafting and the risk mitigation strategies if there would be a COVID outbreak or a civil authority shutdown.”

Further, the Screen Actors Guild – American Federation of Television and Radio Artists, or SAG-AFTRA, last year developed rigorous safety guidelines, which, in part, require production companies to submit a separate set of safety protocols for approval for any film or TV scene that lasts longer than five seconds. In addition, she said, cast and crew also must be separated into distinct and isolated zones and PPE is required.

“All these rules dramatically reduce the infection rate on set versus the general population,” she emphasized.

“We conservatively assumed in our models that the infection rate on set, due to the strict nature of the protocols, would be about 90% lower than the average infection rate,” she said, noting that the Alliance of Motion Picture and Television Producers (AMPTP) published a report at the beginning of 2021, which showed the average infection rate on production sets were roughly 97% lower than the general population, even in three hot-spot areas for COVID: New York City, Los Angeles and Atlanta.

Indeed, of the 15 productions that SpottedRisk has covered, only one has filed a claim as of this writing in early April 2021.

This particular claim involved a cast member who contracted the virus. The production was shut down for five days before resuming filming.

Another notice of potential claim came as the result of an on-site infection but it ended up avoiding a claims scenario due to the required modular filming schedule, which enabled them to film around the cast member, she said. “They only had to shut down a small part of the production because they performed contract tracing, isolated the infection individuals, replaced them and resumed almost immediately,” she added. “The program is designed to really limit the likelihood of a significant loss.”

Of course, no pandemic product was going to move forward without insurance capacity providers who needed to understand that the risk could be underwritten – and at a profit. Remember, in the beginning of the pandemic, underwriters were turning away from this market.

For that job, Comenos enlisted the help of TigerRisk. The broker’s CEO Rod Fox admitted it was initially a bit difficult to get insurers on board. Fox and his team found that when they began talking about a COVID product for the entertainment industry, some underwriters “just froze up and stopped talking to you.”

“There were lots of people that just wanted nothing to do with COVID cover. But as we started to break down that initial barrier and have a rational conversation about what the real exposure was and how well it was being managed – with SpottedRisk’s analytics and risk management techniques – we were able to make some traction. It’s not for the faint of heart though,” said Fox with a chuckle.

Comenos confirmed that the process of gathering capacity was “pretty grueling.” “I think one of the most interesting things that Rod’s team did in pitching the markets was they tried to get the markets to put the word ‘COVID’ out of their heads and focus on breaking down the two parts of the policy: sickness and death, and civil authority exposure.”

One big attraction for capacity providers is that the policy has a short duration, said Fox. “It could be 30 days, or it could be 60 days – but it’s still short term. As a result, you can recycle your capital, and you know immediately if you have had a loss, so the potential return on capital is exciting,” he added.

“From an underwriting standpoint, it’s a very interesting and attractive proposition,” Fox emphasized.

Noting that the average time on risk for this coverage is around 70 days, Comenos said the underwriter knows immediately at the end of principal photography “whether there is a claim because the triggers are very clear. Either there’s a positive infection or the civil authorities have shut you down. Those are the triggers. There’s no gray area.”

While Comenos and Fox wouldn’t reveal their capacity providers, a press report recently revealed one of them as Vantage Risk, the new company co-founded by Greg Hendrick, the former CEO of AXA XL, and Dinos Iordanou, retired president and CEO of Arch Capital Group.

SpottedRisk is the only AM Best-rated provider of pandemic coverage in the entertainment space, although there is one small captive, which provides lower limits, Comenos noted.

SpottedRisk has its roots as a predictive analytics company, called Spotted, which originally matched companies with celebrities for endorsements and advertising. In late 2019, Spotted launched its MGA subsidiary, SpottedRisk, and began offering so-called “disgrace insurance.” This product covers famous people who have experienced reputational damage, which forces business partners to cancel contracts or stop production of a film or a TV show. The company is moving its Boston headquarters to New York within the next few months.

SpottedRisk also provides event cancellation cover but plans to expand its product offering beyond the entertainment sector in the coming months, including professional lines and personal accident.

“The entertainment industry is a relatively niche industry, and so, while we plan to take advantage of the market dislocation right now in the entertainment space – for film, TV and event cancellation, we are going to use this kind of rigorous underwriting approach to develop other products that don’t exist in several other sectors…,” said Comenos.

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