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March 15, 2002 | 1155 IST
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Corporatisation to play significant role in covering film risks

Anusha Subramanian & Freny Patel

Corporatisation will pave the way for the domestic film industry to insure its business risks, unlike now, wherein only a handful of films have been insured.

"The insurance coverage norms applicable to the entertainment industry would also be distinct from standard norms and would include issues typical to this sector, such as those related to film stars, directors, equipment, sites or leases in hazardous zones," said Shardul Shroff, managing Partner at Amarchand Mangaldas.

Shroff has been instrumental in preparing the blueprint 'Entertainment Law Book', which tackles the legal issues for the entertainment industry along with Ficci.

The key benefit of corporatisation of industry players is really their ability to access structured finance at cheaper interest rates. Institutions such as Industrial Development Bank of India and some of the banks have plunged into film financing, of late.

This has reduced interest charges by more than 50 per cent in the case of financing films by corporate entities. The industry is otherwise paying as much as 48 per cent for tapping private finance, against IDBI's 16 per cent funding cost, said a leading film producer.

At the same time, however, financing institutions are not taking any of the risks on their own books. These are automatically passed onto the insurance company, as the film has to be comprehensively insured before loans are extended.

"With corporatisation, estimation of project costs would also have to factor in insurance premium amounts," said Shroff. Normally, insurance policies work on principles of cash restitution and substitution of faculty equipment, and may provide for consequential loss in some circumstances.

At the same time, special contingency insurance policies for films is only possible provided the complete budget of the film and the entire shooting schedule is available in advance. With this, film producers can ensure that the cast performs within the stipulated period. The sum assured for movies is equivalent to the budget of the film.

State-owned players such as United India Insurance Company have insured a number of Indian films, and state that the claims are on the lower side.

The claim ratio for United Insurance has been practically negligible, with only one claim settled thus far of Rs 1.6 million.

This was paid to Yash Chopra for the movie Mohabbatein, as the star actress, Aishwarya Rai met with an accident, and was unable to report for shooting for two days.

Insurance officials said that whether or not the industry is corporatised, "We insure films based on our own parameters". The reputation of the unit is what counts. This includes the producer, directors, film personality and even the stage or number of props used.

"It even includes the reputation of the hero in terms of whether or not he causes delays in the shooting of films," said a senior official from a state insurance company.

Primarily, insurance covers the start and the end of the shooting period against the probability of death or injury to the cast or damage to property sets. United India has to date insured ten major films, where the total sum assured has already crossed Rs 1.20 billion.

Insurance premiums vary between 1.25 per cent and 1.5 per cent of the sum assured. This depends upon the profile of the director, duration of the shooting schedule and the budget of the film. In the case of the budget being higher on account of the sets, the premium is automatically greater.

The entertainment industry in India is currently valued at Rs 154 billion and is expected to grow to approximately Rs 600-700 billion in the next five-seven years.

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