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Film Insurance In India

Written by: Anurag Dwivedi - final year student at National law institute University
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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 and the response of producers and insurance companies.

The paper start with a brief under standing of size and scale of the India Film Industry. 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. Attempt is also made to find out that in spite of the fact that such a big risk and huge amount of money is involved, why producers are not turning up for the insurance. At the end suggestions are given to improve and regulate insurance in Indian Film Industry. As India is one of the largest film making countries in the word, the film insurance sector in this country is full of immense possibilities. The only need is to make a balance between the interest of insurer and insured and to provide adequate safe guards to both of them.

Size and scale of the Indian film industry

Since 1931, when talkies were first introduced in India, the film industry has produced more than 67,000 films in more than 30 different languages and dialects. In 2001 the industry produced 1,013 films making it the world's largest feature film producer. The majority of films are made in the South Indian languages of Telugu, Tamil and Malayalam (537 compared to 230 in Hindi), but Hindi-language films take the largest box office share.

The industry draws its revenues from: domestic theatrical sales (2001: 36 billion rupees); overseas rights (2001: 5.25 billion rupees); music rights (2001: 1.5 billion rupees); television and video rights (2001: 2 billion rupees); corporate sponsorship and merchandising (2001: 0.01 billion rupees). The total revenues of the industry from these sources are estimated at 45 billion rupees.

The intriguing romance between risk and reward in the Indian film industry

If we analyze the development of the Indian Film Industry from its golden age we find that at that time film making was not as costly and risky as it is today. Due to the immense growth in technology and the entrance of Hollywood, now making a film involves a huge sum of money and depends on several contingencies. Huge sets, highly risky stunt seen, very sensitive equipments, a huge amount of salary paid to the actors and a lot other factors, has made Indian Films a very risky business. Theses factors demand some kind of mechanism through which a producer can be assured that, in case of these contingencies he will be indemnified.

To deal with these situations film insurance was introduced in the foreign film industry. Abroad, as insurers faced falling premiums in their traditional markets they jumped onto the bandwagon of film insurance because they received huge premiums but as time passed they were so badly hit that they had to close shop. In India too as corporatisation sets in the film world there is a lot of talk about films being insured. Insurance companies need to negotiate the potholes effectively because if all goes as per planned it can prove to be a fast growing industry.

A fast growing film insurance market in India

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 opt for cover.

For example if a movie is being made at a budget of Rs. 30 million, the total insurance premium payble would be Rs. 500,000 at the rate of approximately 1.5%. With 700-800 films being made per year totally across India, the size of the film market in India is estimated at around Rs. 48 million or approximately 1 billion US dollars and even if 50% of these films (Rs. 24 million) are insured at anywhere between 1.0%-5% the total premium will be anywhere between Rs. 0.24 billion to Rs. 1.24 billion - a good start for a nascent industry if it happens.

What sparked the drive towards insurance?

Initially insurance was considered as one more burden to films budget and the producers were very hesitant in taking insurance policies. 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. Ever since Taal was insured more and more producers have rushed to insure their movies as the table below shows.
Movie Producer Insurance (Rs. million)
Taal Mukta Arts 120
Mohabatein Yash Raj 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 Shippy 140
Deewaar Gaurang Doshi 300

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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. Till now United Insurance India Ltd. (which is only insurance company to provide for film insurance in India) has insured more than 40 films and hoping to double this figure with in one year. 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.

Another reason for the move towards insurance is that Film production was given `industry' status in 2000, and RBI allowed banks to lend to film production. Now the insurance of the film is a pre requisite for bank loans for Hindi films. Therefore any one who wants loan from bank for film making has to take insurance on his film.

In the future with more uncertainties in the film market such as Bharat Shah's arrest and fancy for cocaine by some of our stars, more and more producers will move towards insuring their films.

What the insurance coverage includes
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

Type of policy
For a typical movie various covers as mentioned above typically exist. Depending on the type of movie one is making, one will need to take one or all of the above coverages as a part of the policy. For example in a movie like Devdas where large sets have to be put in Film City, the policy will be heavy on insurance for properties and sets whereas for a movie like Kaun which is shot in just one room this kind of insurance can be completely avoided. Also in a movie like Khiladi 420 where a great number of stunts have to be performed by the actor, extra insurance may be taken whereas in a movie like Aastitva this may not be required.

Coverage types, insurers liability and exclusions

1. Named Artistes such as the Main Cast, Important Support Cast, Directors, Technicians etc.

Coverage in such cases can be claimed due to non-appearance which may arise due to - death, accident/illness involving hospitalization, death in immediate family, natural calamity, complete breakdown of transport system, riot/strike/civil commotion/curfew like situation prohibiting the cast from reaching the site of shoot, acts of kidnap, murder etc.

Insurer's liability is restricted to reimbursement of lost remuneration in event of above events, reshooting expenses and losses due to expenses on account of cancellation/postponement etc.

However no cover can be claimed if the cancellation has taken place if the person is a accused criminal under arrest, detention, interrogation etc. or accidents arising out of participation in hazardous stunts or conditions like pregnancy etc.

2. Properties, Sets, Production Equipments, Negatives etc.

Coverage in such cases is due to losses arising out of fire, flood, storm or any other acts of God or natural calamities or accidents due to main cast /accidental/external means or acts of riot/strike/ civil commotion etc. or terrorism/theft/burglary/dacoity or risks of transit.

Insurer's liability is limited to material damage, additional expenses on account of bringing back things to normal, irrevocably lost insured expenses on account of cancellation/postponement etc. For example Yash Chopra was able to claim Rs 3.5 million insurance due to a set, which had to be brought down when Aishwarya Rai could not attend a shooting schedule because she had injured herself.

Major Exclusions are due to objects of art unless valued and declared or wear & tear/inherent defects electrical and mechanical breakdown of equipments or inventory losses or deterioration of negatives because of humidity and other atmospheric conditions.

3. Public Liability

Coverage is due to injury/loss to members of public and their property which can include indemnity for court or fees, advocate's fees, legal costs and expenses incurred with Insurer's consent in the successful defense of suits/writs/summons brought against to prevent the film being shot further or being released. For example Kaun Banega Crorepati had taken this type of Insurance against PIL (Public Interest Litigation) Major exclusions exist in this case are fines, penalties, punitive damages or liability assumed by virtue of an agreement which are explicitly excluded.

4. Money Insurance

Coverage in this case is cash in transit between shoot locations or cash kept at the shoot site (under lock and key) or cash embezzled by the authorized person of the insured but detected within 48 hours of the occurrence. Insurers Liability is Rs.200,000 per incident of loss with an overall limit of Rs 600,000 during the period of the policy. Major Exclusions include personal cash of any nature or unattended cash or loss arising out of use of duplicate key whilst the cash is kept in the premises outside business hours.

5. Workmen Insurance

Coverage includes bodily injury resulting in death/disability to the workman arising out of and during the course of employment on-shoot locations. Insurer's liability is as per the provisions of the Workmen Compensation Act.

6. Accident Insurance Coverage

This coverage is for all members of the production team on-location and/or off-location at a predetermined rate. Coverage can be claimed for bodily injury resulting from accidents caused directly and solely by external, violent, visible means during the policy period.

Is Indian film industry still insurance shy?

Since opening its film insurance account with the movie Taal in 1998, United India's list of insured films has grown to 42 by the end of June 2003. The merits of being insured and instances of disbursements against claims have helped the industry's interest in getting films insured. But amenable candidates are still only a handful; many big banner productions such as Ram Gopal Varma's Company preferred to go uninsured. Further, United India's business is even today confined to Bollywood; attempts to get South Indian films insured are yet to yield dividend.

According to insurance company officials, there is continued perception in the film industry that premium outflow merely adds to the budget of a movie and is hence an avoidable expense. This, despite a well-known major production of the recent past, having scored three instances for claims - ranging from personal injury to major fire - and refusing to insure through all that.

The cost of disinterest in insurance becomes clearer from the fact that United India's premium is pegged at approximately 1-1.5 per cent of a film's budget, considerably lower than the 4-6 per cent range of film completion bond guarantees abroad.

The domestic insurer covers the entire gamut of film making up to post-production, commencing with cast insurance; props, set and wardrobe; film negative insurance, extra expenses covering postponement, fire, burglary; money insurance, personal accident and legal liability.

So far, the variety of claims that have come up before United India includes delay on account of injury to a film star, unexposed negative due to a malfunctioning camera and damage to film equipment in a road accident. To earn the benefit of insurance cover, a film producer is required to submit details of his track record, budget, script and production schedule. Drafting an insurance product for the film industry is apparently a time-consuming task and therefore premium is decided on project-to-project basis, varying with the kind of risk the insurance company is taking upon itself.

Advertisement films - step in right direction

With the advent of new technologies and increasing consumerism new concepts and ideas are coming in the area of advertisement films also. That intern demands for more expanses and even stunt seen like films are now being pasteurized in advertisement films. For example the seen of bunji jumping in one of the ad films of cold drink. This kind of advancement makes ad films more expansive and risky, which demands for insurance.

Therefore not only feature films but advertisement films are also showing keen interest in insurance and first ever insurance of an advertisement film is an evident example of this. An advertisement film, featuring actress Hema Malini promoting Rahat Rooh Oil, has become the first domestic advertising film to get insured. The premium was fixed at 1.10 per cent of the film's budget. Film is being produced by Lehar Communications and insured by United India Insurance Company Ltd. the film's budget is Rs 15 lakh. So the ambit of insurance is expending to even the areas like advertisement films also. Theses are the indication that now Indian Entertainment Industry is ready to recognise the concept of film insurance and willing to insure against any expected or unexpected event.

Should performance of a film at box office also be covered?

Due to a very huge list of flop films every year and the increasing rate of unsuccess of many big banners film now a days a demand is also being made to include the performance of the film at box office. This issue is not as simple as it prima facie seems. Now we will analyze positive and negative effects of covering the performance of a film at box office.

The positive effect of this step will be that producer will make the films free from all the worries about films fate at box office. Producers and directors will take many courageous steps and come up with new experiments. Then, even new comers will also dare to enter in to this profession. The repetition of the same formula again and again due to fear of unsuccess will also be reduced. The quality of the films will improve and new ideas and stories will come forward. Art films, which are in very poor state, will rejuvenate once again, because then people will not hesitate in investing on those films.

Although this step might have above positive effects but there are lots of practical problems and negative effects in its implementation. The first problem is regarding the criterion in which the performance of a film would be judged and indemnified accordingly. It is very difficult to find out a straightjacket formula according to which the performance of a film would be judged and that intern makes almost impossible to calculate the amount of compensation based on that. Secondly due to advent of overseas rights and musical rights etc., films including those films which are shown flop, recovers there cost even before there release and in that case to recover from the insurance company for the performance of there film will not be right. Lastly there is a huge possibility that this kind of coverage will the producers and directors idle. They will make substandard movies without caring for the quality to recover from the insurance company. They will try to exploit this situation to their benefit and there will be a huge amount of fake cases. This will lead to a floodgate situation and it would become impossible for an insurance company to work.

Therefore in spite of some of the positive effects due to inclusion of the performance of a film, negative effects and practical problems are such that it is not advisable to cover the performance of a film at box office.

Increasing professionalism and demand for more realism has driven film business towards huge expenses and more risk. Now the changed circumstances has made it necessary to cover the film under insurance. In my opinion irrespective of the fact that bank finances or not, as a film producer it is always better to cover risks by obtaining insurance cover, which works out to hardly 1-3% of the budget, as it is chicken feed for even small-budget films since it is added to the cost of the film. Thus, producers can do themselves a great service by insuring their films.

However, insurance companies need to beware of the Film Producers who can be a cunning lot if experience abroad is anything to go by, where many insurers have shut shop due to huge losses incurred. In normal insurance, the interests of policyholder and insurer are usually somewhat aligned. If a traveler has taken medical insurance he does not want to get sick. A film producer doesn't mind because it is not he who is getting sick but it is some one else who is directly affected and due to which he is being indemnified.

Regarding the demand to include the performance of film at box office, as already discussed the practical problems and negative effects are such that it must not be implemented. With specific reference to Indian Film Industry, it has still to warm up for insurance. Although many production houses has came up but the number is relatively very small. A large section still believes that insurance does nothing but to increases the budget of the film. This tendency should be changed. Advent of insurance in advertisement film is a right step in the direction. Recently some interest has also being shown by the southern film industry, which was most inactive and unwilling initially. This indicates that concept of film insurance is slowly and gradually recognized and accepted in India. It is a good sign for the film industry and it might just bail out the Indian Film Industry from its current recession.

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