California’s entertainment industry is set for a boost after Gov. Gavin Newsom announced plans to more than double the state’s cap on its tax credit program to $750 million, from the current $330 million.
The bill, unveiled in late October, is seen as an aggressive bid to revive film and television production in California after it was curbed by the COVID-19 pandemic and workers’ strikes in recent years. If passed, it would make California the top state for capped film incentive programs, according to a report by the Los Angeles Times.
Experts told Insurance Business that the anticipated increase in production and overall production budgets will drive greater demand for risk management, reinforcing the critical role of insurance in safeguarding projects against production and financing-related risks.
“The level of risk has remained consistent, but industry dynamics have shifted due to a significant number of productions moving overseas,” said Fred Milstein (pictured on the right), CEO and president of Media Guarantors, a provider of completion guarantees for independent film and TV productions and a subsidiary of insurance brokerage CAC Group.
According to Milstein, production companies have increasingly opted to film out of state or abroad to take advantage of higher tax incentives. This trend has dampened Hollywood’s iconic industry, but Newsom's proposal could attract more filmmakers back to California.
“From the perspective of insurers and brokers, the industry has faced notable challenges, including consolidation and a decline in production levels. This has led to fewer policies being issued domestically,” said Milton.
“Enhancing these incentives could enable more productions to secure financing in California, which would, in turn, increase the volume of business for both insurers and brokers.”
The expansion of filming in California presents both opportunities and challenges from an insurance and risk management perspective. Experts from CAC Group said productions that remain in California must plan meticulously for risks that could derail their projects.
The biggest catastrophic risk for productions? Actor injury, disability or even death.
“The primary concern for insurers providing production insurance – distinct from the completion guarantee – is cast claims,” said Janet Comenos (pictured on the left), entertainment practice leader at CAC Group. “Production insurance typically covers scenarios where a key cast member is injured, becomes seriously ill, or even dies, events that represent the most significant catastrophic risk in the industry.”
However, Comenos noted this exposure could improve over time, especially with the advent of artificial intelligence (AI) technologies. “For instance, if an actor were to pass away during production, advancements in AI might allow for the creation of AI replicas. These replicas could enable the project to continue without needing to abandon it entirely.”
“As a result, insurers will likely have more tools available to address such catastrophic scenarios, further reducing the likelihood and impact of abandonment. This evolution in technology could play a critical role in transforming the management of catastrophic risks in the entertainment industry.”
Insurance plays a central role in every production, and there are two primary types. First, there’s the completion guarantee, critical for independently financed productions. These guarantees ensure that financiers will see a finished product, protecting their investment.
“Financiers don’t know or want to know how to handle production risks,” Milstein said. “That’s why they engage a completion guarantor to manage those risks and ensure the project is delivered.”
The second type is the production insurance package, a comprehensive policy that covers physical damage, property losses, and cast-related risks.
Independent filmmakers face unique challenges in California’s production environment, especially compared to major studios with vast resources. Comenos and Milstein shared the following tips for independent production companies to mitigate common risks:
Production teams should plan for contingencies around costs and work closely with insurers to thoroughly review budgets.
“Budgeting accurately is essential,” Milstein said. “Producers are optimistic by nature, but when they budget too tightly, it becomes a problem.”
Underwriters work closely with filmmakers to ensure their financial plans are realistic, but the tendency for optimism remains a challenge, he added.
Beyond the budget, natural and location-specific risks must also be addressed. Productions in hurricane-prone areas are required to purchase hurricane insurance, even if the producers believe a storm is unlikely.
“It’s surprising how often producers underestimate this need, claiming hurricanes are rare,” Milstein said. “However, such risks must be offloaded to insurance, as bond companies won’t accept them.”
Productions shooting in California, even in Southern California, need to be prepared for potential catastrophic events like earthquakes, wildfires, and other weather-related risks.
Companies must thoroughly vet the experience level of the director, producer, line producer, and other key crew to ensure they have the appropriate expertise for the budget range of the project. Inexperienced personnel can pose significant risks, Comenos said.
“It's critical to ensure that the production team has experience handling projects within the specific budget range,” she said. “For example, on a $75 million movie, you want to confirm that the key personnel have prior experience managing productions of a similar scale. This helps prevent situations where the team might be overwhelmed or out of their depth.”
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