Film Insurance in India 1. Introduction 2. Size & Scale of Indian Film Industry 3. Factors Leading to Need for Insurance
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Film Insurance in India Abstract This paper is aimed at understanding the film insurance in India. The paper is an attempt to trace the development of film insurance in India. It starts with a brief description about size of Indian film industry. Then it explains the situations under which film insurance became unavoidable in India. Further it elucidates the different heads, which are generally covered under the film insurance. The paper further lists, some major insurance players in the industry and their share. It also explains the reasons for lack of propensity towards insurance by major players in film industry. Finally as a conclusion this paper predicts the future of Film Insurance. 1. Introduction In the wake of swine flu scare in the state, the Maharashtra government on 12th Aug09 announced a closure of all Multiplexes in Mumbai and Pune till 16th Aug09. This meant a loss of around 25 crore of revenues for the film industry overall. Films like Kaminey and Life Partner releasing on 14th Aug are expected to have lost 25% of weekly revenues. But the impact of loss was cushioned to a great extent because both films were insured and the losses would be shared by insurance firms with the producer. This clearly illustrates the practice of insuring films helping the film producers to deal with adversities. 2. Size & Scale of Indian Film Industry Since 1931 when first talkie film ³Alam Alra´ was produced, more than 67000 films have been produced in about 30 different languages and dialects. In 2001 the industry produced 1,013 films making it the world's largest feature film producer. Although south Indian films made in four languages viz. Tamil, Telugu, Kanada and Malayalam are more in number as compared to Hindi language films, but the Hindi language films take the largest box office share. According to Pricewaterhouse Coopers report the Indian film industry is expected to grow at CAGR of 11.6 % reaching Rs 185 billion in 2013 from present Rs 107 billion in 2008. The major contributors to this revenues are theatrical sales, overseas rights, music rights, television and video rights , corporate sponsorship and merchandising in that order. The Figure 1 clearly illustrates the growth and major segments contributing to growth of the Indian film industry. (Source: http://www.interworld.co.in/digital_cinema/industryOverview.php retrieved on 27Aug09, all figures in Billion Rupees) Figure 1 3. Factors leading to Need for Insurance There are various factors that have led the producers to readily accept and acknowledge insurance for their films. Let us examine each of the factors in detail. a. The intriguing romance between risk and reward in the film industry. When we analyze the development of film industry from its golden age (year 1940s to 1960s) we find that, as compared to that time film making has become a costly and risky proposition today. Due to the immense growth in technology and the entrance of Hollywood studios, now making a film involves a huge sum of money and depends on several contingencies. Huge sets, highly risky stunt scenes, outdoor and foreign locations, very sensitive equipments, a huge amount of compensation paid to the actors and a lot other factors, has made Indian Films a very risky business. As compared to budgets that big banner films had in golden ages to the films being made today, there has been a huge increase. The number of films that go flop in a year is also an indicator of the risks involved. Take the case, this year out of over 60 Hindi movies released so far only three movies viz New York, Kaminey and Love Aaj Kal have been able to perk up the business and end up with net profit. In addition to risk of film flopping at the box office, the producers are also susceptible to several other risks. Financial risks involve raising of funds from various financers like banks, FII¶s, private financers. Production risks involve film production getting extended beyond schedule, overspending and extra expenditure due to accidents on sets. On the other hand distribution and exhibition risk, risks due to piracy and post release risk also involve distributors, exhibitors. This clearly demands some kind of mechanism through which a producer can be assured that; in case of these contingencies he will be indemnified. b. Unforeseen contingencies There are numerous unforeseen adverse conditions that affect the box office collection of a movie. One such example is given in the Introduction section of this paper where producers lost out on 25% of revenues because multiplexes in couple of metros were closed due to swine flu scare. There are many more incidents that affect the performance a film at box office. However it was arrest of Sanjay Dutt during 'Khalnayak' which prompted Subhash Ghai to insure his next movie 'Taal' for which he paid Rs 1.5 million as premium for the film valued at Rs 110 million. c. Drop in percentage of insurance premium. Initially it was felt that paying a premium of 6 per cent of the production cost, as is prevalent abroad would be too steep for Indian film producers. However, as time has passed premiums have dropped to as low as 1%, as more and more producers opted for cover. d. Film production got an Industry status in the year 1998. Film production got the industry status in 1998 and RBI allowed banks to lend for film production. On security aspect, RBI stipulated that lending institution should take rights to negatives of the films being financed. In addition to this RBI asked banks to take as security items like music, audio or video rights, CD or DVD rights, internet rights and satellite rights. This led to production houses lining up to banks to get finances. However banks insisted on corporatisation and risk insurance as perquisite for loans. e. Corporatisation of Film Industry Over the years there has been a significance rise in corporate houses producing films. Reliance¶s Big Entertainment, UTV, Pritish Nandy Communications, Percept pictures are some prominent production houses who are involved in film producing in an organised way. 4. Film Insurance current scenario, major players Producer Yash Chopra claimed a compensation of Rs. 3.5 million from United India Insurance when Aishwarya Rai had an accident, her shooting schedules were disturbed and a set that was put up had to be brought down. This is was the first instance when the insurance benefits were claimed by a producer. Ever since the movie Taal was insured more and more producers have rushed to insure their movies. The Table 1 shows some prominent movies that were insured and the premiums for which they were insured. Movie Producer Insurance (Rs. millions) Taal Mukta Arts 120 Mohabatein YashRaj Films 150 Lagaan Aamir Khan Productions 150 Kabhi Khushi Kabhi Gham Karan Johar 220 Ashoka Shahrukh Khan 70 Dil Chahta Hai Ritesh Sidhwani 180 Ek Aur Ek Gayarah David Dhawan 100 Kuch Na Kaho Ramesh Sippy 140 Deewaar Gaurang Doshi 300 Table 1 Apart from the above mentioned movies some other movies were also insured such as Saathiya, Joggers Park, Asambhav, Chalte Chalte, Main Hoon Na, Taj Mahal, Khel, Ganga Jal, Kal Ho Na Ho, Lakshya etc. United India Insurance (UII) has been the largest player in India in the film insurance market. It has insured over 50 films and is expecting to double this figure soon. Bajaj Allianz General Insurance Co is another firm that is also into the film insurance business in a big way. It has witnessed a 50% increase in premium during the year 2006 and expects a premium growth of 30% for the next few years. Although the state-run Oriental Insurance Company ventured into the film insurance business by underwriting a Hindi film few years ago, it has restricted its business to insuring star nights and cricket matches since then. Another state-run New India Assurance Co insured the Rajnikanth starrer, Sivaji The Boss. Hindi films like Babul and Baghban were some of the Bollywood films that have been insured by New India Assurance Co. Normally, the premium charged by an insurance company for insuring a film comprises 1%-1.5% of the total budget of the film. 5. Film Insurance types and coverage extent Leading insurance companies have agreed to compensate for delays and losses due to cyclones, bandhs, strikes, adverse weather conditions and traffic interruptions as well as harm to individuals involved in film-making. Depending on the type of policy one takes, insurance in Hindi films can be grouped under the following broad heads. 1. Named Artistes such as the Main Cast, Important Support Cast, Directors, Technicians etc. 2. Properties, Sets, Production Equipments, Negatives etc.. 3. Public Liability 4. Money Insurance 5. Workmen Insurance 6. Accident Insurance 5.1 Choice of Type of Policy & Coverage head Once again, the type of policy you want relies on the type of film you plan to make. Obviously, if you are making a short documentary film, the type of policy you want will differ from a filmmaker who aims to make a feature-length film. There are basically three types of policies: short-term, long-term and annual. Short-term policies are used for single production, such as a commercial. A long-term policy is used for several projects during a longer period of time. An annual policy is reserved for ongoing projects, such as documentaries, industrial, commercials and education (DICE). DICE policies typically last for one year. For a typical movie various covers typically exist. Depending on the type of movie one is making, one will need to take one or all of the above coverage¶s as a part of the policy.