Lights, Camera, Action: New Risks Emerge as Hollywood Goes Virtual, Hunts Tax Credits

Technology is playing a bigger role in entertainment than ever before.

Today’s film and television industry is becoming more digitized in production, in particular, with physical risks being replaced by digital risks.

“We’re seeing technology increasingly play a more important role in film production,” said Fred Milstein, CEO of Media Guarantors, a CAC Group company. “I’m not even getting to AI tech, I’m just saying really just on the actual film side, a lot of production is shifting to what we call virtual productions.”

Finding the right location to film a movie has always been a critical part of production. But now instead of finding that “weird house” to shoot a horror movie inside the living room, filmmakers are turning to digital tools rather than physical sets. “Now you can use very sophisticated LED screens on a sound stage,” Milstein said, instead of moving an entire cast and crew to a physical location in another state or country.

Milstein recalled a recent major film production that was shot entirely on a sound stage in Las Vegas. The film took place primarily inside an aircraft, so instead of using real flights, the cast and crew only used virtual production on a sound stage that could be tilted and maneuvered to simulate flying. “Basically, the airplane stood still, but backgrounds kept moving and changing per the director’s instruction.”

Virtual productions give film creators more control over things like natural landscapes, he said. “When shooting a scene, the director has the ability to do things like move the sunset to the right angle, manipulate the scene digitally.”

“We’re seeing more and more of that ‘virtual’ type of production, and I think it’s going to continue to see growth,” he said. “At a certain point you won’t have to go anywhere; you will be able to shoot a lot of what you need just on a sound stage.”

The new world of virtual moviemaking changes the risks, he said. “The physical risks to some degree are still there, but not to the same extent that they were before,” he explained. “You’re not climbing up a mountain or flying in an airplane; you’re shooting on a sound stage.”

The digital risks and exposure for high-tech equipment, including the LED screens, as well as the risk of that digital data being lost or stolen are important new considerations for productions.

“I think that’s one of the big things that’s shifting in film production is we’re seeing more and more technology in the actual film production and moving to much more of a virtual world of filming than we had seen any time in the past,” Milstein said.

These newer emerging risks are still insurable risks, he said, but they need to be analyzed and understood.

Market Stabilized

Entertainment insurance specialists say that the insurance sector overall for entertainment risks has bounced back from losses related to the COVID pandemic.

The market has shown “stability and profitability for insurance companies, even in the face of entertainment union strikes and other macroeconomic factors,” according to Risk Strategies in its recent report, 2025 State of the Market Outlook on Entertainment. The sector remains strong with a great deal of new production beginning to take place this year.

“Several carriers entered the space on the commercial production side with aspirational views of extending coverage into other areas of content creation and theatrical business over the next 6-12 months,” the Risk Strategies report said. “Rates are competitive for clients with positive loss profiles, limited auto exposure, and [who are] located/filming outside of catastrophe (CAT) zones/areas with extreme weather exposure.”

John Hamby, senior managing director, national entertainment practice leader, at DeWitt Stern of California Insurance Services, a division of Risk Strategies, told Insurance Journal he agrees the market has become more competitive with new carrier entrants into the sector, including one large global carrier that is close to finalizing filings and policy forms in most states for the film and television space.

But because of the specialized nature, and limited size, of the entertainment insurance space overall, new entrants create rate pressure, which may be good for the clients but is challenging for the insurance markets, Hamby said. “You don’t want too many different carriers in the space because then all the carriers want business, and we can’t give it to them all,” he said. “But we do like competition in the production insurance world, and so another carrier offering is always good,” he added.

Hamby said that rates have flattened for most standard film and TV productions, but underwriting has become more stringent for productions with “audience participation” or “immersive productions” and for shows that contain higher-risk activities.

Mona Grabowski, vice president – entertainment at HUB International, which specializes in music festivals, live events, and touring, said she’s seen traveling immersive events pick up. The events might range from a live event or theatrical show that previously was only in New York but now travels to various states on a four-month road trip to a pop culture event where participants walk through “transitional rooms” where attendees can play games and more.

Grabowski said that immersive style entertainment gives attendees something tangible and fun.

“Every room might be thematic, and so it’s a very benign experience in terms of the risk,” she said. “Then others can be a little bit more involved.” It’s important for insurance specialists to determine the physical involvement of the production to understand the risk, Grabowski said.

Immersive productions are all about pop culture, she said. “People can attend and really immerse themselves, whether it’s in a television show that they’ve been a part of for 20 years, or a movie that’s really been impactful. They can immerse themselves in that environment; it’s tactile. They can feel furniture, they can see props and really feel like they’re part of it.”

But participation adds risk, too. “Immersive experiences–while exciting and innovative–introduce a different risk profile,” said Wanda Phillips, executive vice president, North America entertainment, Arch Insurance. “Interactive elements and elaborate staging can increase general liability, complicate crowd management, and elevate exposure to injury or property damage.”

Phillips recommends “a proactive approach that includes event-specific coverage, robust safety planning, clear participant waivers, and risk consultations tailored to the unique dynamics of each event.”

Today, the most pressing risks in the entertainment world include property and business interruption, especially given the increasing frequency and severity of wildfires, hurricanes, and other climate-related events, Phillips said.

Cybersecurity also remains a top concern–particularly for companies managing digital content, intellectual property, or consumer data, she said, adding that ransomware attacks and leaks of unreleased material can lead to devastating financial and reputational losses.

“AI–particularly generative AI–is increasingly part of the production toolkit, from writing scripts to creating visual effects and even voiceovers,” Phillips said. “But these tools come with unique risks. We’re monitoring issues related to intellectual property infringement, content ownership, misinformation, and reputational fallout if AI-generated content is misused or misattributed,” she said.

Regulation around AI is also developing rapidly, so that adds another layer of complexity, Phillips added. “As these technologies evolve, so must our understanding of their exposures–and our strategies to mitigate them.”

Hamby senses that as the entertainment industry has moved further and further away from the pandemic, “business has turned around quite nicely.”

For example, the theaters on Broadway in New York are reporting more attendance. That’s true for each of the past couple of years, Hamby said, as audiences have increasingly returned to theaters. Theatrical productions on Broadway boasted 2024 attendance at about 95% compared to pre-pandemic times.

The movie business, however, has yet to see that kind of growth when compared to pre-pandemic figures. Annual movie box office sales in 2019 were about $11.2 billion, whereas in 2024 box office sales totaled only $8.5 billion, according to box office tracking website Box Office Mojo.

Hamby doesn’t see those movie figures trending back to the pre-pandemic levels anytime soon, if ever.

Budgets and Tax Credits

Profitability is down for theaters and filmmakers due to rising costs of producing on Broadway and bigger budgets for moviemaking.

“I don’t see the budgets decreasing,” Hamby said. “The budgets are quite large, and a good majority of the productions are still being backed and financed by the streaming companies–Netflix, Amazon, Apple, and whatnot.”

According to Hamby, there are still some big productions backed and distributed by the traditional distributors like Warner Brothers, Universal, Paramount, but a large percentage comes from streaming companies nowadays.

There are also plenty of productions that still depend on real landscapes and settings.

Due to the rising costs, some moviemakers have relocated production to places where tax incentives help to bring down expenses, Milstein said.

“What we’re seeing now more so than ever is producers, film producers, looking for areas where they can get ‘soft money’ or tax credits, tax incentives,” Milstein said. “We’re seeing a big outflow of work move obviously out of California, which doesn’t have very good tax incentive for business.” Productions are moving “anywhere in the world that’s got tax incentives,” he added.

Hamby agreed, adding that by his estimation, about 70%-plus of all film and television productions have moved to other U.S. states outside of California, or to other countries around the world due to tax incentives.

“I would say more than half of the productions, both film and TV today, are filmed outside the U.S.,” he added. Some of the location selections might be based on a particular city’s landscape. “But a lot of the decision has to do with tax incentives and rebates, which can in some cases be as high as 30% to 40%,” Hamby said. “You can have a $100 million budget and the country’s going to give you $30 or $40 million [in tax incentives] to come and film there. That’s quite an incentive.”

Milstein said the increased movie production that takes place outside of the U.S. is also changing the insurance market to a degree, creating more interest in coverage for the tax credits.

“Tax insurance, it is tangential, but it’s important to the [film] producers, and I think it’s going to become more important that we find ways to assist production in covering tax credits,” he said.

How would that work? Milstein said there are a few risks to consider when it comes to tax incentives.

“There’s the sovereign risk, having the right contract with the government and making sure the government of whatever jurisdiction that you’re working in actually lives up to what they say they’re going to do in terms of tax credits,” he said. “And the other obvious part is actually ensuring that the credits are properly earned and paid for.” Those are two areas he sees potentially having some implications when it comes to insurance.

There is also the added risk of filming in another country, especially in countries that may be experiencing political risks, he added.

“We just did a film in Georgia–the country, not the state–and we required as part of our underwriting that the production get political risk coverage,” he said. The day that the cast and crew left to film, a large demonstration protesting the country’s election occurred. “We knew filming was going to be around the election,” he said. So, there were a number of risks that needed to be covered as a result of that, he added.

Arch’s Phillips said the current “geopolitical climate has made international shoots and global productions more complex.” Productions in certain regions might “require specialized coverage–such as kidnap and ransom, terrorism, or political risk–and must stay compliant with evolving international regulations,” she said. “Logistics, insurance placement, and talent safety all require a more strategic, globally minded approach.”

Tariffs and COVID

As most films today have some element of foreign involvement, making it a global business, the potential impact of tariffs is on the minds of entertainment specialists, as well.

Early this month President Donald Trump said he would impose a 100% tariff on all movies produced outside the U.S. but issued few details on the idea.

At this current moment, it is unclear on what would go into effect and the impact of it, Milstein told Insurance Journal. “Films produced or partially produced outside the U.S. are services that are being used, not goods, so how this notion would apply is unclear at this moment,” he said.

He added that additional risk or insurance implications are not expected, except the potential for fewer policies if production is limited or curtailed.

“It’s way too early to know whether or not this will happen, or if it does, how it would work,” Hamby said. “Let’s see how it plays out.”

There’s also been discussion of how tariffs might impact production equipment. “Those LED panels I was referring to aren’t made in the U.S.,” Milstein said. “Despite the fact that the costs may be lower shooting a film virtually, buying those panels and having to replace them may now increase the cost.”

Despite all the headwinds facing the entertainment industry today, the public’s “appetite for content, live entertainment, and immersive storytelling remains incredibly strong,” Phillips said. “The future of entertainment lies in innovation, collaboration, and responsible adaptation.”

One thing Hamby hopes to see the insurance industry get rid of is COVID exclusions.

“We’re five years out of from the pandemic, and COVID is still excluded on all the production insurance policies around the world,” Hamby said. If an artist gets sick and the filming is shut down, the carrier requires the artist to see a doctor and take a COVID test. “If they have COVID, there’s an exclusion for that in their cast insurance, or business interruption.”

Hamby said it is time to either remove that exclusion or at the least bring back coverage with a sublimit. “We think in the brokerage world that it’s time to do that, but the carriers aren’t ready yet,” he said. “Still, I do think that’ll happen, but maybe not for a year or so.”