New Insurance Policies Help Agencies Control Ad-Production Costs
NEW YORK (AdAge.com) -- A few years ago Dianne Richter, an ad agency veteran who's clocked time in the broadcast departments of shops such as JWT, Y&R and Saatchi & Saatchi, found herself on a nightmare of a commercial shoot. While driving to location, police had blocked the production team's route for several hours after a suicide jumper perched himself on a bridge.
With daylight fading and under a tight production schedule, the team scrambled to rent boats to ferry their rigs and crew across the river to the set. Quick thinking saved the commercial, but those last-minute changes came at a steep cost to the client.
The good news for advertisers is that broader protections are being offered under recent changes in the U.S. insurance market. New, broader insurance programs are becoming available to fill gaps and cover things such as travel delays, dangerous weather conditions and other unforeseen issues that can crop up unexpectedly and quickly skyrocket production costs.
Traditionally, U.S. insurance policies for TV commercial shoots have covered claims only for physical damage. If a house being used in a commercial shoot burns down, for example, or if camera equipment is stolen. Arranging insurance is a small -- not to mention pretty unsexy -- step in the lifespan of a TV spot, but in a tough economy that has squeezed marketers' budgets, it can help prevent extra costs from being tacked on when least expected.
The new protections are the most significant change in TV production insurance in the American ad market in years, said A. LeConte Moore, managing director at Dewitt Stern, a century-old risk insurance brokerage that specializes in insurance for media, entertainment and ad industries.
According to ad industry executives, the average cost of a TV spot these days runs about $250,000. But depending upon the complexity of the job -- the location of the shoot, music rights, celebrity actors -- the costs can reach a high-end of between $1 million and $2 million.
Insurance premiums tend to cost about 2% of a shoot, and the broader coverages being made available by the likes of Entertainment Brokers International, part of OneBeacon Insurance, today aren't all that higher. So if a production budget is $200,000, and carries a $3,400 insurance premium, for another $200 a production can manage a variety of surprise contingencies.
"It feels like insurance on steroids," said Ms. Richter, who now works at New York-based independent Droga 5, handling production estimates and contracts for the agency.
Back in the day, production companies would arrange insurance for commercial shoots and bill it back to clients. Now, ad agencies take on the insurance responsibilities, buying coverage in bulk to cover the production company and the agency, as well as clients.
"We are the stewards of production dollars," said Ms. Richter. "Production companies are being asked to produce things with limited funding, agencies are being asked to produce better commercials with limited funding, and our clients are watching their bottom lines. [The new policies] eliminate worry that these very unusual but devastating losses could result in cost changes and overages for our clients."
It's not just individual shops that are taking notice. Industry insiders say that over the past few months, a number of large ad agency holding companies have begun re-examining their insurance arrangements. Paris-based Publicis Groupe recently re-upped its insurance contracts to gain broader coverage on behalf of all the agencies under its umbrella, such as Leo Burnett, Fallon and Digitas.
"Reducing the risks associated with their investment in commercial production has always been important, and in the current economy it has become critical," said Richard Meehan, Publicis' North American treasurer. "This new broadened coverage supports this effort and could likely lead to more commercials being made, as it will let brands 'sleep easy' about risks on productions that they otherwise may not have done."
Just in case ...A. LeConte Moore, managing director at Dewitt Stern, offers examples of scenarios that now could be covered under the new wrap-up insurance.
- A pool man accidentally adds the wrong chemicals to a swimming pool an hour before a planned suntan lotion shoot. Instead of being shimmering blue, the water clouds over and cannot be used. Production has to be postponed a day. Estimated extra expenses caused by the delay: $50,000.
- A production shooting for a car ad in Northern California has the only road to the location blocked from mudslides. Production equipment and crew cannot get to location for two days. Estimated cost to postpone: $90,000.
- A tailor hired to create animal costumes for kids in a commercial shoot for children's vitamins botches the job by arriving on location with 20 costumes for teenagers, way too large for the 6-year-olds on the set. Production must be delayed. Estimated cost to postpone: $65,000.
- Severe wind and lightening unexpectedly hits a shoot on a golf course, putting in danger the safety of the cast and crew. Production must be shut down and delayed a day till the weather clears up. Estimated cost to postpone: $83,000.