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The cost of film completion bond insurance

Friday 10th July
The cost of film completion bond insurance

If you were to take a glimpse at the UK film industry’s recent financial performance, its robustness will demonstrate the existence of significant potential for private investment.

According to the BFI’s Statistical Yearbook 2019, turnover for the industry in 2017 reached £14.8 billion. Meanwhile, film production company turnover in 2018 totalled £6.1 billion – an increase of 106% on 2014 figures.

Total estimated public funding available for UK film during 2017/18 ran to £634 million, with at least 86% of those funds (£548 million) going into film production.

What are typical UK film production costs?

In 2017, only 1 of the 142 films made in the UK was produced for £15 million or more. 76% of film projects incurred costs up to £2 million, and 19% cost between £2 million and £10 million.

Average investment values vary

Some film investment companies have a minimum investment threshold of just £2,000, although most will expect a low end of £10,000. Many investors will have staked much larger sums.

As has been outlined already, many things can go wrong during a film’s production. When this happens, it can not only cost you your original investment but also any anticipated returns, which may have formed an important part of your decision to invest. You may also have some difficult questions to answer about your choice of investment to other stakeholders. Film completion bond insurance should therefore form a vital part of your investment strategy.

How much does film production insurance cost?

Film completion bonds are different to standard film insurance, which may include: public liability insurance, insurance for equipment, the cast, media, third party damage, and so on.

Film completion bonds involve a much more hands-on and involved process of risk handling and assessment. Consequently, the costs involved in providing the bond are calculated differently to other types of film insurance.

The bond is put in place to guarantee that the producer will complete and deliver a film in line with the agreed script, cast, budget and schedule. It includes the provision of an independent third party to oversee the production and delivery of the film, which involves performing a full audit and risk assessment (both before and during production). If necessary, the insuring body will retain the legal power to take over the production.

Calculating film completion bond cost

In order to calculate film completion bond costs, the bond guarantor will assess the production price: the amount the bond guarantor believes will be needed in order to complete and deliver the film. They will also need to carry out a pre-production risk assessment, which will include scrutiny of the:

• production budget;
• script;
• shooting schedule;
• credentials of the cast, crew and producer;
• other associated production risks.

The calculation of the production price

The production price normally includes above-the-line costs (i.e. the director, cast and crew) and below-the-line (i.e. day-to-day) production costs, as well as financing costs, the completion guarantor’s fee and a contingency allowance, which must be provided for in the production budget (normally 10% of production costs).

Where a contingency allowance is in place, a completion bond will only be triggered once the allowance has been used.

The completion bond cost

Calculation of the bond fee is based on the production price; therefore the cost will vary from film to film. It will also depend on the film budget, script, schedule, creative team and cast, and any additional factors in the risk assessment.

The completion bond fee is normally calculated as a percentage based on the budget, although sometimes it is calculated as a flat sum. The bond fee itself tends to be negotiable, but could be anything between 1.8% and 3% of direct production costs (i.e. all production costs other than the contingency allowance, interest and finance costs, and the completion bond cost itself). It is normally paid upfront.

Other film completion bond requirements

Some completion bond guarantors who charge an upfront fee agree to a proportional rebate if no claims are made after the film is delivered. This is sometimes known as a no-claims rebate or no-claims bonus.

The terms of the completion bond contract will almost always require the usual underlying film insurance policies to be in place. Moreover, the film completion bond will not take effect unless, and until, all the financing is in place – including the contingency allowance.

If losses must be met by the film completion bond insurance company, the contract will nearly always outline that the first proceeds from the film’s distribution must go towards paying off those losses, before any other profit distributions are carried out.

At Kerry London, we offer film completion bonds to cover film projects and investments ranging from the smallest budget to high-level, high stakes productions. Need advice on finding cover best suited to your needs? Visit our site, or get in touch today for a detailed discussion.

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