6 Critical Risks Facing the Entertainment Industry

New business models, theft of IP, reputation and violent acts are some of the top risks facing the industry today.

By: Katie Dwyer | August 2, 2018

In an industry that seeks to captivate, shock, inspire and amuse audiences of every stripe, some risk-taking is certainly essential — but likely among the most difficult to manage. Here are the top risks — some established and some emerging — facing the entertainment industry today:

1) Reputation

In the entertainment industry, a performer’s image is just as important as their genuine talent (if not more so). Bad behavior is punished with negative press, merchandise boycotts and declining sales.

In worst-case scenarios, stars lose their work altogether. Take the recent example of Roseanne Barr. After successfully revitalizing her original 1990s sitcom “Roseanne,” the new show was cancelled before the end of its first season after the namesake star published a racist Tweet. Not only will the incident cost her future work, but it also eliminated the livelihoods of her fellow cast mates and crew.

ABC, which aired the show, may have saved some face by acting swiftly in its cancellation of the show, but reputation risk generated by TV stars certainly extends to the entities that distribute their content as well.

2) Cyber

Cyber risk takes on multiple forms in the entertainment industry. Streaming services like Netflix, Hulu and Spotify are reliant on uninterrupted service. A cyber attack that renders those platforms inaccessible could anger advertisers seeking a certain amount of visibility and will certainly frustrate viewers paying a monthly membership fee for on-demand content.

Theft and leaking of intellectual property are other top concerns. Netflix and HBO both suffered hacks and subsequent leaking of popular TV show plots in 2017. In 2014, cyber thieves stole large stores of data, which included a full feature film that had yet to be released, private emails between executives that derided colleagues and clients, and financial data including salaries and severance costs.

Losses like these can cause a company to lose market share due to reputation damage and interrupted revenue.

3) Violence

Paris. Manchester. Las Vegas. All are grim demonstrations of the vulnerability of entertainment industry events to violent acts. Anywhere a lot of people are gathered in a confined space, there’s an opportunity for a mass casualty event.

Failure to take [extra precautions] could lead to victims holding event organizers liable for injuries or deaths caused by an attack.

Safety is always top-of-mind for event organizers, but they have had to take greater precautions in recent years as the frequency of attacks seems to escalate. This includes banning backpacks and other bags larger than a purse, conducting random searches, increasing security presence, and developing more detailed emergency response and evacuation plans. Failure to take these steps could lead to victims holding event organizers liable for injuries or deaths caused by an attack.

And while no evidence supports this link, it’s possible that high-profile attacks can induce public anxiety about large crowds for at least a short period of time. Performance and event producers may find ticket sales dipping, especially in the wake of a highly-publicized attack.

4) New Business Models

Advances in technology have help content creators eliminate the middleman and push their work directly to consumers across a variety of platforms. User-friendly production software enables aspiring starts to create high-quality content and deliver it to consumers via YouTube, Instagram, Facebook or their own websites.

Entertainment companies now have to figure out how to diversify and compete on smaller scales.

When anyone with basic technical skills and self-starting ambition can get their creative work in front of an internet audience, the competition heats up. Even established talent has to find new ways to connect with audiences, distribute content, and market themselves. Increasingly, this means interfacing more directly with consumers via social media posts, pushing new content directly to streaming services rather than focusing on physical albums or DVDs first.

More platforms means creators can appeal to niche audiences and established distributors, which traditionally focused on the content and marketing that would appeal to the broadest swath of consumers. Entertainment companies now have to figure out how to diversify and compete on smaller scales.

5) Talent Risk

The success of most entertainment companies is dependent on its stars. The artists and performers that audiences pay to see and listen to. But when so much of an album, a movie or television shoot, or a concert revolves around an individual, that individual presents as much risk as opportunity.

If for any reason a star can’t fulfill his or her duties, production companies have to scramble for a Plan B. Those reasons can encompass everything from sickness, injury or death to pregnancy to arrest to something as simple as getting stuck an at airport. Entertainment companies typically carry cast insurance to cover extra expenses associated with executing Plan B, but changing plans last-minute can introduce or elevate other existing risks.

Entertainment companies typically carry cast insurance to cover extra expenses associated with executing Plan B, but changing plans last-minute can introduce or elevate other existing risks.

Take Gal Gadot, the leading actress who was five months pregnant while shooting some additional scenes for “Wonder Woman.” While she wasn’t preforming any dangerous stunts, safety nonetheless becomes an even greater concern. And more work was needed on the back end to hide her growing belly. According to Entertainment Weekly, “the costume department had to cut a section out of the front of her costume and replace it with green cloth so her figure could be altered in postproduction.”

6) Third-Party Liability

Entertainment companies, whether in the business of producing or distributing content or putting on shows, regularly contract with third parties to get it all done. As such, they bear responsibility for providing safe work environments and for protecting contractors’ and vendors’ private data, which results in third party liability exposure.

Especially when it comes to events like concerts or festivals, organizers can also be held liable for any property damage caused by spectators. &

Katie Dwyer is a freelance editor and writer based out of Philadelphia. She can be reached at [email protected].

How a Carrier Partner Can Help Navigate a Challenging Management and Professional Liability Market

A combination of a choppy economy with increased claims frequency and severity could lead to rate increases in the Management & Professional Liability market.

By: Risk & Insurance | April 3, 2024

Rates in the management & professional liability (M&PL) markets were on the rise from 2020 to early 2023 and are now falling rapidly.

M&PL divisions manage a number of different insurance products including management liability (D&O), professional liability (E&O), employment practices liability (EPL), fiduciary liability policies, cyber, etc. In 2023 and into 2024, a big influence on the marketplace has been the extremely aggressive and softening public company D&O market.

Though these rates have been softening for management liability, that may change over the next few years as companies continue to adjust their business models motivated by economic uncertainty. Layoffs were up nearly 200% last year, Forbes reported, even as other recession indicators, like the inflation rate, improved. A recession could lead to an increased claim activity and force carriers to raise rates.

“Whenever there is a meaningful downturn in the economy, we tend to see claim frequency pop up,” said George Schalick, Jr., senior vice president of the Management and Professional Liability Division at Philadelphia Insurance Companies (PHLY).

With continued fiscal uncertainty, businesses potentially already burdened with pandemic-related claims should seek a carrier with a long history in M&PL products. They will provide much-needed risk management guidance and be better positioned to support their insureds during market fluctuations.

Why Insureds Might See an Uptick in M&PL Claims

George Schalick, Jr., Senior Vice President of the Management and Professional Liability Division, Philadelphia Insurance Companies

The current soft market might come as a bit of a surprise as it does not track with previous underwriting cycles and economic conditions. Afterall, many privately held and non-profit organizations struggled during the early days of the pandemic with shutdowns and rapidly declining revenues. But the Government assistance programs, like the Paycheck Protection Program loans, helped keep many afloat during the tough times.

“During COVID many organizations stopped doing business until they were able to sort out all of the health and safety challenges,” Schalick said. “They were forced to lock down, but then all the government assistance programs allowed them to keep people employed. The increased volume of claims we anticipated we would see coming from the lockdowns and restrictions that were imposed upon businesses in the U.S. didn’t manifest at first.”

“Just because there wasn’t an onslaught of reported claims at the beginning of the pandemic, doesn’t mean the circumstances that would give rise to a claim being reported didn’t occur. Courts and the judicial system were closed or slowed and now that they are back open, we’re starting to see the circumstances that occurred during the COVID lockdowns becoming claims today,” Schalick said. “Litigation is progressing.”

Added to the delayed pandemic litigation is a concern over newer claims that might be filed as the country inches toward an economic downturn. Though a recession was avoided in 2023, experts think a soft dip could occur in 2024, with 76% of economists saying there’s a 50% or less chance of an economic downturn this year — that almost always results in more management liability claims.

“During the Great Recession in 2008, we saw an almost immediate spike in claims because of the economic conditions and the pressure it placed on organizations. They were making personnel changes with significant belt tightening almost immediately.” Schalick said.

What’s in Store for M&PL Policy Rates in 2024?

Despite an uptick in claims and increased economic uncertainty, management liability rates haven’t increased, resulting in market-wide pricing levels that may not meet the increased pressure of rising settlements and jury verdicts.

“Rates are going the other direction and settlement values are not falling,” Schalick said.

The mismatch between rates, claim frequency and severity is, in part, because carriers experiencing the dramatic soft market in the public D&O market are seeking premium gain in the private and non-profit market.

“In the public company market, the rates have been decreasing significantly. The rates were increasing in the private, not-for-profit market, and rightfully so, but there’s a desire to supplement overall mid-size D&O for carriers who also write private not-for-profit, and they see that as an opportunity to aggregate premium,” Schalick said. “So the always competitive landscape in the private, not-for-profit market has dramatically increased in the last 18 to 24 months.”

Still, companies of all sizes and types should be concerned about management liability rates in the future. Legal system abuse is resulting in increases in both the amount of litigation and the size of verdicts plaintiffs are receiving.

Certain areas of the country are particularly vulnerable to this type of legal system abuse. As a result, insureds in these localities are likely to be vulnerable to rate increases.

“The environment is so positive for the plaintiff that forces premium increases so carriers are able to stay in that market long term,” Schalick said.

Why a Tenured Carrier Partner Can Help Insureds Navigate An Uncertain Market

It’s clear that insureds are facing an uncertain M&PL market over the next few years. Fortunately, carriers with a long history in the M&PL space will be there to offer stability.

Philadelphia Insurance Companies has been supporting this market for 35 years. PHLY is committed to offering long-term rate stability, even as economic and claims trends start to push premiums upwards. They have an appetite for all sorts of companies, large and small, for-profit and nonprofit alike.

“We’ve been at this game for a long time and are one of the most tenured underwriters in this space,” Schalick said. “We like to stay very consistent.”

PHLY has worked with both for-profit and non-profit on management liability policies. With dedicated M&PL teams throughout the company’s 13 regions, PHLY provides the support agents and brokers are looking for on behalf of their clients. The teams know their regions well and can respond to local trends. They’re also dedicated to making the renewal process as easy as possible for their partners and policyholders.

“We have real confidence in our results, so we focus a lot on making the renewal experience as painless as possible for all agents and insureds,” Schalick said.

The company is also investing in tools to help insureds avoid losses. Earlier this year, they launched a new online risk management platform, PHLYGateway, which offers resources for insureds on how to create an employee handbook and trainings on issues such as recognizing workplace sexual harassment and discrimination.

If insureds have questions, they can consult a Best Practices Help Line, provided via the platform. That way, they can get on the spot risk management guidance to help them prevent claims.

To learn more, visit: https://www.phly.com/mplDivision/managementLiability/default.aspx.

This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Philadelphia Insurance Companies. The editorial staff of Risk & Insurance had no role in its preparation.