Production Insurance: who keeps the difference?

When people think about producing an advert, they picture the obvious: wardrobe, talent, locations, travel, post-production. What they don’t usually think about is production insurance — the line quietly protecting the entire process.

Despite its low profile, production insurance is a routine (and often essential) part of advertising production. It protects agencies, advertisers, and production companies against risks such as equipment damage, injury on set, or delays caused by unforeseen events. In many respects, it’s a sensible safeguard.

But it’s also one of the least examined areas of production spend — and that’s where problems arise.

The Hidden Nature of Production Insurance Costs

Production insurance is frequently bundled into cost estimates, approved without challenge, and rarely revisited once production concludes. Compared to more visible line items, it attracts surprisingly little scrutiny during reconciliations or post‑campaign reviews.

This lack of attention has consequences.

In our audits, we often uncover production insurance overcharges that should be returned to advertisers. Recoveries of four and five figure amounts per audit are common.

So why does this happen?

Many advertisers assume production insurance is a simple pass-through cost — administrative, predictable, neutral. In reality, it is often charged based on estimated assumptions rather than the actual premium paid.

How Production Insurance Really Works

Insurers calculate production insurance premiums using the creative agency’s forecast of all the productions it expects to manage over a 12‑month period. These estimates must include the types of productions involved because different formats carry different risks and therefore attract different underwriting rates.

For example, a live-action shoot and an animation project with the same budget will not attract the same insurance premium.

At year‑end, the insurer asks the agency for the actual production costs and the types of productions completed. They then “actualise” the premium — adjusting it up or down based on what genuinely happened. The agency ultimately pays the insurer based on real costs and insured risks.

This leads to a critical question:  Is the agency also reconciling these actualised costs back to the advertiser?  Good practice would suggest “yes”. But in our experience? Almost always, the answer is no.

Why Advertisers Rarely Benefit

Some may wonder: If actual production costs come in higher than estimated, wouldn’t that help the advertiser?

Unfortunately not.

That’s because the rate charged to advertisers (typically 1–2% of production cost) is always higher than the rate the insurer charges the agency. Agencies protect themselves from being left out of pocket by building in an over-recovery mechanism.

In effect, production insurance becomes a profit centre for creative agencies — a widely adopted industry practice.

Whether overcharges should be reimbursed depends on the advertiser’s contract. Under a standard creative agency agreement, production insurance is a third‑party cost. It should therefore be charged strictly “at cost”, with no mark‑up permitted. Estimated and actual costs should be reconciled so that advertisers pay only what was genuinely incurred.

Most advertisers, however, don’t have visibility of these mechanics — and agencies rarely volunteer the detail.

Where to begin: Two Simple Questions

Asking your agency the following can be highly revealing:

1. At what rate do you charge us for production insurance, and at what rate does your insurer charge you?
2. Do you reconcile the actual insurance cost back to us? If so, how?

The responses — and sometimes the hesitations — tell you a lot.

How Audits Create Value

Through our contract compliance audits, we review production insurance in depth. We assess whether:

• costs were charged in line with the contract,
• actualisation exercises were performed, and
• any over‑recoveries were retained by the agency.

Beyond recovering money, these reviews often result in clearer processes, greater transparency, and stronger financial controls going forward.

A Low Profile Cost Worth a Closer Look

Production insurance may not be the most visible line in a production budget, but our audit findings consistently show that it’s an area well worth examining.

If you’d like to discuss how to manage production insurance more effectively — or explore any aspect of marketing financial compliance — we’d be delighted to talk.