NEWS&VIEWS March 2018

INDIA News&Views CONTENT Message 1 CEO’s message from the 2 Movies: An insurance perspective CEO 4 Global Risk Report 2018 5 Other news and insights 6 Marsh in the media 7 Marsh events

Dear all, In addition to industry-specific risks, organizations also have to deal with global risks that can cause loss As we make inroads into the first quarter of the New Year and devastation beyond imagination. The Global Risk with great anticipation, we are happy to publish the first Perception Survey conducted by the World Economic edition of our newsletter, News & Views, for 2018. Forum, articulates these risks based on their anticipated impact according to the responses of nearly 1,000 risk The past year has been an eventful one and the coming professionals. With the United States having withdrawn year holds great promise for the insurance industry. With from the Paris Agreement, concerns on environmental government’s announcement of the National Health risks ranked most highly. Rising concerns surrounding Protection Scheme – Ayushman Bharat, health insurance the geo-political landscape led to the use of weapons of penetration is likely to scale new heights. mass destruction being ranked as the most prominent risk over a 10 year horizon. In the last financial year (2016-17), the general insurance industry saw a staggering growth of 32% and in the Last year also saw a slew of cyber-attacks like the current financial year, this robust trend has continued WannaCry ransomware which infected around 200,000 in the current year as well. During Apr-Dec period, total computers in over 150 countries according to a report by premiums collected by non-life insurance industry stood Europol. As systems become increasingly interconnected, at around INR 1.09 lakh , registering a growth of 19% the cost of a cybersecurity breach is capable of bringing on a year-on-year basis. operations to a standstill.

With the non-life industry poised for accelerated growth, In this edition, we have covered these issues besides our it also presents a unique opportunity to the broking usual News & Views section as well a glance at our events industry to scale higher peaks. in the previous quarter.

The value brought in by insurance is also expanding We hope you find our newsletter informative and to embrace policies that cover a diverse range of insightful. Please do share your feedback with us. needs. The requirement for insurance protection is Through this newsletter, we hope to invite discussion on now moving towards tailor-made products suiting the issues of mutual interest for us all. needs specific to various industries. The entertainment industry grappled with its own setbacks last year with Warm regards, big budget movies facing various issues, both in the pre and post production stage. For its investors, this led to tremendous uncertainty given the amount of investment that had gone into the project. As the budgets in the SANJAY KEDIA entertainment industry increase, there is a growing need Country Head and CEO to cover these risks, particularly for distributors. Marsh NEWS&VIEWS March 2018

BOLLYWOOD MOVIES: AN INSURANCE PERSPECTIVE

With the controversy surrounding a recent movie it is a good time to review how film or entertainment insurance policies have developed in India.

On the wake of different controversies surrounding recent films with historical references, production houses are now aware that films can be impacted not just in the pre-production and production phases, but also even after it has been released.

Like the recent events, it is not rare in India for a movie, particularly with a historical context, to be banned in multiple states even before the Central Board of Film Certification certified the film. For such films, mob attacks and disruption in production stage causing a delay in the release of the film, is not uncommon either. Luckily, there are insurance policies which are often used and come in handy in such cases.

Now let us look at how, an insurance cover can be beneficial for such mega projects. INCEPTION

Bollywood started taking insurance seriously from the late 1990s. Since then, insurance has become an indispensable part of films in Bollywood. For the initial 8-10 years, filmmaking was treated as project insurance, where the cover ceased on completion. However, in 2009, after an outbreak of Swine Flu, authorities in Maharashtra ordered a shutdown of public places like schools and theatres. This badly affected the collections a couple of high profile movie releases that took place at the time. This episode prompted the introduction of the ‘distributor’s loss of profit’ cover.

2 News&Views Bollywood started taking insurance seriously from the late 1990s. Since then, insurance has become an indispensable part of films in Bollywood. NEWS&VIEWS March 2018

CURRENT INDUSTRY HOW IT WORKS:

At present, nearly 70% of the films produced in Bollywood are covered under Firstly, the Film Production insurance where as big-budget films from South India are also looking for Package Insurance comes into insurance covers. For regional movies, insurance adoption or penetration is effect in the pre-production and presently at around 25%. production stages. The policy covers any damages to the sets and its Currently, there are two broad types of covers associated with filmmaking in equipment. The policy also covers India, namely Film Production Package Insurance and Distributor’s Loss of any losses if production of the film or Revenue (DLOR) Insurance Policy. Sum insured for both the policy varies shoot is affected due to other perils with the premium paid. like adverse weather conditions or act of god incidents like earthquakes According to Marsh India analysis, the film insurance market in India is and tsunamis. Additionally, some now at INR 300 million, in terms of premium collection, and the market other potential risks like injury/ is growing at 25-30% annually. With the advent of the “100 crore club” or critical illness to the lead artistes movies where gross collection exceed INR 1 billion, a film producers are now leading to disruption or delay in opting for production policy with coverage of INR 700 million to INR 1 billion shooting are also covered by various and DLOR policy of over INR 1 billion. Typically, premiums for both policies insurers. range between INR 2.5 million – INR 3.0 million for a INR 1 billion coverage. Subsequently, Distributor’s Loss of Revenue Insurance Policy comes into effect once the movie is released. Once a film is completed, BOX the distribution and satellite rights are sold to Film Distributors (India Films released in 2017 & Overseas), including Satellite TV Hindi: 364* and online streaming right holders. Through this policy distributors Regional: 1622* safeguard their projected income. *Source: film federation of india Some risks that the policy addresses include the impact on the post- release revenues due to factors like opposition from some political/ TYPES OF COVERS AVERAGE SUM INSURED social groups, calls for boycotts/ strikes and violent protests and • Film Production Package • INR 700 million to INR 1 riots, acts of God such as floods Insurance. billion for Film Production or earthquakes. However, loss Package Insurance. of revenue due to bans by state • Distributor’s Loss of revenue governments are, in general, insurance policy. • INR 1 billion and above excluded under the policy terms. for Distributor’s Loss of However, bans by any other groups, Revenue Insurance Policy. organizations come under insured risk.

DLOR is offered by insurers covering these risks. The cover commences INDIAN MARKET PREMIUM RATE before the release of the movie until 60 to 90 days after. • INR 300 million, in terms of • INR 2.5-3.0 million for INR premium collection, growing 1 billion coverage. BY MARSH INDIA FINPRO TEAM at 25-30% annually.

*Source: Marsh Analysis

Marsh 3 NEWS&VIEWS March 2018

GLOBAL RISK REPORT INDIA CONTEXT GEO POLITICAL POWER SHIFTS: The occurrence of an extreme weather event is the single most prominent risk the world could face in 2018, according the 13th edition of the World Major Power tensions: India and Economic Forum’s Global Risks Report, prepared in partnership with Marsh Japan are exploring more structured & McLennan Companies. The report also highlights uncertainties in the forms of strategic cooperation in global economic recovery and rising geopolitical and cyber risks as the other both economic and military affairs prominent factors likely to dominate the global risk landscape in 2018. to counter China’s efforts to press As was the case in 2017, the environment was by far the greatest concern territorial and maritime claims. As raised by experts. Among the 30 global risks the experts were asked to rank major regional powers are becoming in terms of likelihood and impact, all five environmental risks – extreme increasingly assertive of their weather; biodiversity loss and ecosystem collapse; major natural disasters; own interest, strong-state politics man-made environmental disasters; and failure of climate-change mitigation could potentially disrupt relations and adaptation – were ranked highly on both dimensions. Extreme weather between major power centers. events were seen as the single most prominent risk. CHALLENGE

The report, released in January every year, shares the perspectives of global Trigger 1: The International experts and decision-makers on the most significant risks that face the North-South Transport Corridor world.In the latest edition, it cautions that we are struggling to keep up with (INSTC), which links India, Iran and the accelerating pace of change. It highlights numerous areas where we are Russia; and the Asia-Africa Growth pushing systems to the brink, from extinction-level rates of biodiversity loss Corridor (AAGC), a joint initiative to mounting concerns about the possibility of new wars. by India and Japan, may intensify The annual Global Risks Perception Survey (GRPS) suggests that experts are geo economic risk. These kinds of preparing for another year of increased risk. When nearly 1,000 respondents ambitious infrastructure projects were asked for their views about the trajectory of risks in 2018, 59% of their may exacerbate regional tensions. answers pointed to an intensification of risks, compared with 7% pointing to Trigger 2: Economic corridors declining risks. crossing contested territory, like CPEC which runs through Gilgit- TOP GLOBAL RISK CONCERNS OVER A 10-YEAR HORIZON Baltistan, a part of Kashmir that is administered by Pakistan but LIVELIHOOD IMPACT claimed by India. EXTREME WEAPONS OF 1 1 WEATHER MASS DESTRUCTION “There remain strong incentives on all sides to avoid triggering trade wars, just as there are for all forms NATURAL EXTREME of conflict—but the risk of domestic 2 2 CATASTROPHES WEATHER political factors spilling over into disruption of the global trade system has risen sharply in recent years,” the World Economic Forum’s Global

CYBER GLOBAL RISK NATURAL Risk Report 2018 said. 3 3 ATTACKS COMMUNITY CATASTROPHES

CLIMATE CHANGE DATA 4 4 MITIGATION AND FRAUD ADAPTATION FAILURE

WATER CLIMATE CHANGE 5 MITIGATION AND 5 CRISES ADAPTATION FAILURE

Cybersecurity risks are also worsening, according to the report. In five years, attacks against businesses have doubled worldwide. “Unlike natural disasters, we are not prepared for cyber-attacks despite them causing billions of damage each year”, said John Drzik, president at Marsh Global Risk and Digital.

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OTHER NEWS AND INSIGHTS

REINSURANCE DRAFT GUIDELINES- ORDER OF PREFERENCE

The order of preference rule highlighted in the recently- released Draft IRDA (reinsurance) Regulations, 2018, can be viewed BUDGET 2018: ARUN JAITLEY ANNOUNCES as the government’s stance on ‘MODICARE’ protecting the Indian reinsurance industry from external competition. Finance Minister Arun Jaitley in his budget document announced the world’s largest healthcare program, Ayushman Bharat, which aims to provide INR The origin of this dissonance is 500,000 of medical insurance cover per family per year. The move is expected the Draft IRDA (reinsurance) to benefit over 100 million poor and vulnerable families, financial daily Regulations, 2018, which has created Financial Express reported: a first right of refusal for Indian reinsurers and Foreign Reinsurer http://www.financialexpress.com/budget/budget-2018-arun-jaitley-announces- Branch (FBR). modicare-as-obamacare-becomes-passe/1042907/ This, a large section of the GENERAL INSURERS’ MERGER LIKELY TO BE industry says, amounts to limiting competition on reinsurance, thereby COMPLETED BY EARLY 2019 impacting policyholders adversely in terms of higher cost and limited The merger of the three public sector general insurance companies—National coverage, and product innovation, Insurance Co Ltd, United India Insurance Co Ltd, and Oriental Insurance Co noted Shyamal Mujumdar, Editor, Ltd —is likely to be complete by early next year. According to MN Sarma, CMD, Business Standard, in his weekly United India Insurance, the chiefs of the three general insurance companies column. will have a ‘departmental meeting’ on February 16 to discuss and deliberate on Budget pronouncements including the roadmap for merger, reported The http://www.business-standard. Hindu Businessline. com/article/opinion/draft- irda-regulations-2018- http://www.thehindubusinessline.com/companies/general-insurers-merger- suggest-protectionism-in- likely-to-be-completed-by-early-2019/article22741992.ece reinsurance-118021401427_1.html

Marsh 5 NEWS&VIEWS March 2018

MARSH IN THE MEDIA

1. Marsh India CEO and Country 2. Marsh India CEO and Country 3. Marsh India SVP - FINPRO Head, Sanjay Kedia was quoted Head, Sanjay Kedia was quoted & Private Equity M&A leader, by Business Standard in an by multiple media publications Anup Dhingra, was quoted by article, “BS Insurance Round during the 14th IBAI Summit CNBC Awaaz during a news Table 2018: Govt’s health held at Hyderabad on January feature story on Cyber Security scheme needs realistic pricing,” 23, 2018. Insurance in India on January on February 9, 2018. 14, 2018. While delivering his Presidential “We know that health inflation, Address, Sanjay, who is also as a thumb rule, is 50 per cent the President of IBAI, said the “We are seeing increasing more than consumer inflation demand for insurance broking demand for Cyber Insurance and these programmes do not has been growing with 428 Cover from sectors like Oil only need a cost allocation in brokers in the industry as of and Gas, Large Manufacturing terms of the health inflation today. The projected growth of companies including index, but also in terms of user non-life insurance in terms of Pharmaceutical, Auto Ancillary awareness,” Sanjay was quoted GDP is 17% - around Rs 400,000 and Automobile manufacturing in the article. crore. Insurance broking is companies. These companies expected to contribute around are seeking covers for protection Article link: http://www. Rs 160,000 crore. against Business Interruption business-standard.com/ Risk which may arise on account budget/article/bs-insurance- Article link: http://www. of a Cyber attack” Anup Dhingra, round-table-2018-govt-s- thehindu.com/business/ was quoted by CNBC Awaaz health-scheme-needs-realistic- Industry/irdai-to-set- during an interview for the news pricing-118020801607_1.html new-norms-for-brokers/ feature. article22512575.ece The video link: http://hindi. moneycontrol.com/tv/view_ video.php?autono=170599

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MARSH EVENTS

INSOLVENCY & BUILDING AGILE HIGHLY PROTECTED BANKRUPTCY CODE BENEFITS RISKS WAY FORWARD FOR CONFERENCE BUSINESS RESILIENCE & The Employee Health and Benefits PROPERTY PROTECTION With the rapidly changing legal and landscape is undergoing rapid economic landscape in recent times, change due to a confluence of factors including diverse demographics, Marsh India introduced the good and the much-awaited insolvency industry practice concept of “Highly and Bankruptcy Code taking effect, rising healthcare costs, shifts in behaviors towards work, and changes Protected Risks (HPR)” for Property an entire ecosystem has evolved to Loss Prevention and reducing Business resolve the problem of corporate in lifestyle. One of the biggest challenges faced by corporates today Interruptions. In an increasingly distress. Recognizing the importance uncertain environment, mitigating of the code and its impact in the is attracting and retaining the right talent. It is increasingly important for property losses and their impacts hinges financial architecture of the country, on the ability to effectively identify, Marsh hosted the event, The organizations to adapt to the demands of a dynamic workforce, and to design qualify, assess, and manage the full Bankruptcy Code and the Roles and spectrum of physical, financial, and Responsibilities of the Insolvency relevant and innovative solutions to cater to them. operational risks affecting real assets. Resolution Professionals on January A strong overall resilience program 16, 2018. The event included two There is a need to systematically helps ensure an effective response and panel discussions chaired by Marsh address the underlying employee proactive management — regardless India Country Head & CEO, Sanjay benefit risks of the organization and of the cause of the situation. With this Kedia, and Anup Dhingra, Senior Vice build a sustainable solution which can background, Marsh India organized a President and Marsh India FINPRO add value to the organization and its seminar titled: Highly Protected Risks Leader. employees. Against this background, Way Forward For Business Resilience & Property Protection on January 18, 2018, The event was attended by 50 guests, Marsh India hosted a conference: at Pune. The topics covered were: including eminent industry veterans Building Agile Benefits – the Changing Perspective on February 7, like Mr. Bahram Vakil – Founding • Global Risks and Ensuring Appropriate 2018, at Pune. Partner AZB Partners, Mr. VG Risk Management Strategies. Kannan- CEO of Indian Banking The event was attended by 130 guests Association, Mr. Srinivasan- CMD of • Highly Protected Risks - Best Industry from across the insurance industry. New India Assurance Co Ltd, and Mr. Practice in Property Loss Prevention: Myths and Facts. Uday Bansali- President Financial Advisory Deloitte. Presence of diverse • Global Loss Drivers for Automobile, industry experts made sure the event Engineering, Warehouses, IT/ITES was interactive and informative. industries/VSM. • Logistics Risk Management-Proactive approach in reducing Marine losses. The event was attended by 65 guests from across the insurance industry.

We’re Celebrating 15 years of Excellence! Marsh 7 About Marsh

Marsh is a global leader in insurance broking and risk management. Marsh helps clients succeed by defining, designing, and delivering innovative industry-specific solutions that help them effectively manage risk. Marsh’s approximately 30,000 colleagues work together to serve clients in more than 130 countries. Marsh is a wholly owned subsidiary of Marsh & McLennan Companies (NYSE: MMC), a global professional services firm offering clients advice and solutions in the areas of risk, strategy, and people. With annual revenue of US$13 billion and approximately 60,000 colleagues worldwide, Marsh & McLennan Companies is also the parent company of Guy Carpenter, a leader in providing risk and reinsurance intermediary services; Mercer, a leader in talent, health, retirement, and investment consulting; and Oliver Wyman, a leader in management consulting. Follow Marsh on Twitter, @MarshGlobal; LinkedIn; Facebook; and YouTube.

Marsh India Communications Team.

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