Lights! Camera! Risk! Insuring movies is risky business

Joe Finnegan isn't afraid of animals. At least not personally.

But as vice president of the entertainment division at insurer Fireman's Fund, he became alarmed when he saw what director Sean Penn had in mind for Into the Wild — the poignant film released last year about a young man who abandons his middle-class life and treks to Alaska to become one with nature.

In addition to the film's potentially hazardous shots among cliffs and whitewater rapids, Penn needed a bear.

"Wild animals are called 'wild' for a reason," Finnegan says. "When you put them around people, anything can happen. There's an old saying in the underwriting world: Horses and actors don't mix."

That's why the largest insurer of Hollywood movies — in a playful annual exercise to attract attention on the eve of Sunday's Academy Awards — deemed Wild to be the riskiest film of 2007.

When it comes to taking chances, though, few in Tinseltown place more important and unusual bets than the small army of actuaries who insure studios and financiers from any number of potentially devastating losses.

Most independent producers and even some big studios won't touch a film unless it's insured against potential problems including production delays from injured or incapacitated actors, bad weather, equipment breakdown or damage to essential elements of a film.

On a flick with a $100 million production budget, which is common for potential blockbusters, "If an actor gets sick one day and is unable to shoot, it's a $1 million claim," says Finnegan. "It's not an inexpensive, low-exposure business. It can be quite high hazard."

Cast coverage can account for about 1% of a film's budget and carries a deductable equal to about one day's worth of shooting. Major studios often buy an annual policy that covers several movies and supplement it if a particular film needs special attention.

Independent films need to have these policies to land a different kind of protection, called a completion bond, that compensates backers if the movie doesn't come in on time and on budget. These bonds can account for an additional 2% of a film's costs.

Providers "would not bond a film that did not have insurance," says Gene Williams, worldwide entertainment manager for Chubb Commercial Insurance. "But it is very common for a film with no bond to still have insurance."

It takes a lot of experience to evaluate a film's potential risk, which is why only a handful of companies compete for the estimated $200 million Hollywood spends each year in premiums. In addition to Allianz Group's azFireman's Fund, major providers include Chubb cb, Travelers trv and HCC Insurance Holdings hcc.

Coverage usually has to be tailor-made for each production, as well as changes that affect the entire entertainment industry.

This month, Fireman's Fund introduced its first policy to protect some producers if the Screen Actors Guild goes on strike, a possibility in late June.

In addition, Chubb this week introduced coverage for problems that occur after the initial shooting ends such as damage to hard drives used to store digital images, computer viruses and communications breakdowns. "It was a long-overdue updating and ended up being a more revolutionary change than we originally intended," says Williams.

A delay that involves today's pricey computer effects, and the small pool of programmers who know how to create them, can cost hundreds of thousands of dollars a day, he says.

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