Slate's Hollywood Economist: Insuring Movie Stars

Alex Chadwick talks with Slate Hollywood economist Edward Jay Epstein about the business of insuring movie stars. Epstein says that these days, insurance rules Hollywood.

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ALEX CHADWICK, host:

This is DAY TO DAY. I'm Alex Chadwick.

(Soundbite of music)

CHADWICK: Coming up, the strange relationship between two great jazz trumpet players: Dizzy Gillespie and Chet Baker.

First, this: Hollywood as the dream factory. We all consume the dreams produced here in Los Angeles, but our partners at Slate have been taking a closer look at the factory itself. Of course, no factory can operate for one minute these days without insurance. Edward Jay Epstein is Slate's Hollywood economist. He joins us now to talk about the business of insuring Nicole Kidman's knees, among other things.

Edward, insurance has been a part of making movies, I guess, for a long time. Explain a completion bond.

EDWARD JAY EPSTEIN (Slate): That's right, Alex. In the old days, it was mainly about movies, and insurance was a byproduct you had to take. Now Hollywood is mainly about reducing risk, and that's why insurance has grown so important. A completion bond on any film that has independent financing is a guarantee from someone that the film will get finished with its essential elements, which could include the star, and if it doesn't get finished, then the financiers get all the money back.

CHADWICK: And that's a lot of money, so these completion bonds--they go for--well, you say $2 1/2 million for "Terminator 3" with Arnold Schwarzenegger.

EPSTEIN: Right.

CHADWICK: They were--really wanted to make sure that movie was going to get made with Arnold in it.

EPSTEIN: They go between 1 and 3 percent of the budget. And it's an enormous risk, but then like all insurers, they lay off the risk by having other insurance companies come in and take part of the risk, and that's where cast insurance comes in.

CHADWICK: Cast insurance is different from completion. It means that the specific people in this film are there, and that's someone else picking up that insurance, aside from the overall completion bond.

EPSTEIN: That's exactly right, Alex. The completion bond company goes to another insurance company and says, `You have to insure these actors,' and, of course, the production pays the premium and, therefore, the completion bond company doesn't have the risk that the actor sprains an ankle, say--it doesn't have to be breaks his neck, anything that causes him to leave the set.

CHADWICK: I had no idea. I've seen Nicole Kidman in many films. I didn't know that her knees were such an issue. They actually cost her the part in one particular film, "Panic Room," which came out several years ago with Jodie Foster in it. They started it with Nicole Kidman and then her knees went bad?

EPSTEIN: As far as I know, it's just the right knee, but it might be both knees. But what happened is, look, the Fireman's Fund insured Nicole Kidman as an essential element in "Moulin Rouge!" They ran into problems. She made--the company made two claims about delays. Then she went into "Panic Room." After three weeks, she felt she couldn't act because of her knee, or she wanted a delay, and the producers almost called it off, which would have cost about $60 million. Instead, they got a replacement actress, Jodie Foster, where the insurance company still had to pay about 7 to $8 million to compensate them for getting a replacement actress. So at this point, you know, there aren't that many giant insurers. There's Fireman's Fund. There's Berkshire Hathaway. There's AIG. There's basically three.

For a while, Nicole Kidman was in the ranks of the uninsurable, which is a sort of living hell in Hollywood. Eventually, through the pressure of the completion bond company, which was partners with Fireman's Fund and the willingness of Nicole Kidman to wear an Ace bandage and to promise not to bend down and to agree to have a stunt woman, accept many other conditions, she became insurable. She finished "Cold Mountain" without incident. She finished "The Human Stain" without incident. And she's back in the ranks of the insurables.

CHADWICK: You tell a story that I--it's really funny and surprising to me. The director of the second "Lara Croft" movie was actually banned from the set because he had some kind of physical problem, and the insurance people were worried that if he showed up, he might slip on the floor and then he couldn't finish the film?

EPSTEIN: Right. I mean, he's also an essential element, Jan de Bont, and the poor guy--you know, he once had a knee injury on the set at Pinewood's Studios in London. The main set had some water on it, and suddenly, the loss control rep, which was the--the insurers have representatives on the set all the time--said, `Hey, wait, what if he slips? We're in a lot of trouble.' So they set up a remote control booth far away from the set, and he directed over a television camera. It's like surgeons operating from a remote location.

CHADWICK: Directing by remote control--how movies get made these days. Edward Jay Epstein is the author of "The Big Picture: The New Logic of Money and Power in Hollywood." You'll find his piece on how insurance rules Hollywood at slate.com. Edward, thanks for being with us again.

EPSTEIN: Thanks for having me, Alex.

CHADWICK: I'm Alex Chadwick. More just ahead on DAY TO DAY from NPR News.

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