Film Insurance & Financing in India

Details

Themes: Financial Markets
Period : 1998 - 2000
Organization : UTI India
Pub Date : 2002
Countries : India
Industry : Financial Services

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Case Code : FINC012
Case Length : 07 Pages
Price: Rs. 200;

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Background Note Contd...

By insuring just 10 odd films, UII had done business worth around Rs 1 billion. Considering the fact that India produced 700-800 films per year, the Indian film insurance market was quite significant. However, the business was not expanding as expected by the analysts. This was primarily attributed to the fact that though films as a business outsized many other industries in India, the government had not given it an industry status. The main reason for this was the highly unorganized nature of the business. Even the future of film insurance seemed to be clouded because of this.

In December 1998, after signing the deal for 'Taal,' UII had approached a few London and Tokyo based insurance companies to re-insure² the film. These companies refused to re-insure Indian movies, citing the complete lack of accountability in film production in India as the reason behind their decision. An UII official said, "They sent us many questionnaires on the movie business in India and about Ghai's project. Finally, they decided that they will not be able to re-insure a movie produced in India."

The Problems

Analysts remarked that the hesitance of the foreign insurance companies was completely justified. The functioning of the Indian film industry was completely unorganized. To insure (or re-insure) a film project, any insurance company would naturally look for a commercially viable project, backed by detailed reports regarding the risks involved, the financing of the project and completion schedule etc. However, the issue of financing was found to be the biggest stumbling block for the development of the film insurance industry.

The three major sources of funds for the film industry were the distributors, music companies and financiers. It was comparatively easier to get finance from the distributors for producers with a good track record. However, in case of a lesser known producer, the distributors frequently asked to see the under-production movie, and forced the producers to make some changes (such as adding or deleting a song/dance/action sequence etc.) to improve the film's success prospects. The music companies, who bought the rights for selling a film's music also provided funds to the producers. However, here also the big banners associated with established music directors had easier access to funds as compared to the others.

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2] Reinsurance is the acceptance by one or more insurers, called reinsurers, of a portion of the risk underwritten by another insurer who has contracted for the entire coverage.