Film Insurance & Financing in India

BACKGROUND NOTE contd...

Depending on the type of movie being made, a producer took one or all of the above coverages as a part of the policy. For instance, a movie where large sets had to be put up, the policy would be heavy on insurance for properties and sets. On the other hand, for a movie shot in a single room/bungalow etc., this kind of insurance could be completely avoided. Also, for a movie where the actors performed dangerous stunts, extra insurance had to be taken. The insuring companies did not cover pre and post-production problems and the loss of profits.

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.

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.

Thus, the financiers had emerged as the de-facto primary source of funds in India over the years. Financiers – often diamond merchants, brokers, builders and other cash rich businessmen, charged very high interest rates, generally in the range of 36-48% per annum. To get funds at cheaper rates, the film industry gradually moved towards black money, laying the foundations of the underworld mafia and the film industry's association. Industry sources revealed that approximately 30-35% of the films were financed by the underworld.

^[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.

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