While Britney Spears is growing her hair long again and Tiger Woods is getting his car fixed, Lindsay Lohan can’t seem to resist the hedonistic temptations surrounding her and her latest probation stumble has earned her 90 days in jail. What does this mean for the underwriters tasked with assessing how risky it is for producers to insure their films?
Lohan is going to jail and rehab for violating probation. Apparently she missed a number of the weekly alcohol education classes that she is meant to attend.
According to Douglas Turk, executive vice-president of the entertainment industry insurance broker Aon/Albert G Ruben, it is likely that any producer presently working with Lohan will have insurance for this kind of thing. Most likely it will be something similar to, “death, disgrace and disability insurance”.
The problem for Lohan now is that any future underwriters of such a policy will have to assess the risk that film producers take on when they agree to work with her, making Lohan an expensive entity.
“Anything is insurable for the right price and that is evidenced by other actors and cast members who have been in trouble similar to Lindsay but who have come through that and been in a good position moving forward, such as Robert Downey Jr, Charlie Sheen and Kiefer Sutherland,” Turk told Reactions. “The real question is not necessarily insurability as it is the assumption of the risk. Is the producer willing to accept potential risk with someone like Lindsay? And consequently, are they willing to accept the cost associated with that? Because it will require a different cost model in terms of both the insurance cost for production and completion elements. Also it will require something where the producers will inevitably be required to put up more of their own money.”
The insurance covering someone like Lohan will protect the production and completion of a film so that it protects the people putting their money into the film. If something happens with an essential element of the film – such as a star going to jail – the people that put their money in are covered for the costs that have been expended so far as well as the likely funds required to complete the film, either with a different cast member or changing what has already been filmed.
When Oliver Reed suffered from a fatal heart in the last three weeks of the filming of Ridley Scott’s Gladiator, the remainder of his sequence had to be re-edited and a double, photographed in the shadows with a computer generated image of Reed’s face superimposed on, was used as a stand-in.
According to film website IMDb the insurance coverage on the movie would have allowed the film-makers to shoot all of Reed's scenes with another actor, with the insurers footing the bill (estimated at $25m). But, as filming was so near the end, Scott decided to re-write the script and use CGI instead. It has been estimated this decision cost around $3m.
Turk says that most big stars that have a long-term connection with a particular network or brand will have “death, disgrace and disability cover”. So if Tiger Woods had one with consulting firm Accenture it will have recovered some of the money expended and/or lost revenue that it ultimately experienced from its “Go on. Be a Tiger” advertising campaign being wrecked after his “disgrace”.
A lawyer was quoted in the New York Times at the time of the Tiger Woods affair and car crash scandal as saying "companies are saying if it could happen to Tiger Woods, it could happen to anyone”. The revelations that Woods was not so squeaky-clean led to companies who use high-profile celebrities to market their products scrambling to get cover.
According to the Financial Times, US insurance brokerage firm DeWitt Stern developed a "reputational risk product" following the Woods scandal. The product compensates policy holders for lost sales, crisis management fees, lost advertising campaign expenses, and pre-committed and incurred endorsement fees.
The way that underwriters have responded with celebrities in similar situations to Lohan is to look at future risk, says Turk. It is not straightforward, however. Underwriters have to look at a number of circumstances that the actors are going to be involved in during filming.
“When we look at something that includes somebody who has had [Lohan’s] kind of history we spend more time and we ask more questions than we would in the past,” says Turk. “We really begin to understand where the film is shooting, the location, the proximity to a large city, how many days of photography the actors going to be there, and who else is involved. We look to the strength of the relationships between the producers and directors with the particular talent. We also work very closely with the completion bond folks to understand what risks they are looking at and make sure there is an alignment with the completion risk and insurance risk.”
If underwriters feel there are undue risks then they can change the terms of the insurance by putting in specific exclusions, or changing the pricing.
Turk adds: “We have also seen in many cases, people that are risk control experts that are on set that make sure the actor does what they need to do for that period of time.”
Turk says that when dealing with Lohan in the future, producers will need to be careful when weighing up the risk/cost benefits. They need to consider reputational risk as well as how much her profile might be raised if she makes a full recovery.
“The producer needs to be smart,” he says. “The cost of insurance could increase but the benefits could increase as well if they put her in a good film and put her in a spot where it’s a very commercially marketable film itself.”
By Annabelle Palmer - apalmer@euromoneyny.com