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CEO’s message

Bollywood Movies: An insurance perspective

Global Risk Report 2018

Other news and insights

Marsh in the media

Marsh events

CONTENT

NEWS&VIEWS March 2018

Dear all,

As we make inroads into the first quarter of the New Year with great anticipation, we are happy to publish the first edition of our newsletter, News & Views, for 2018.

The past year has been an eventful one and the coming year holds great promise for the insurance industry. With government’s announcement of the National Health Protection Scheme – Ayushman Bharat, health insurance penetration is likely to scale new heights.

In the last financial year (2016-17), the general insurance industry saw a staggering growth of 32% and in the current financial year, this robust trend has continued in the current year as well. During Apr-Dec period, total premiums collected by non-life insurance industry stood at around INR 1.09 lakh crore, registering a growth of 19% on a year-on-year basis.

With the non-life industry poised for accelerated growth, it also presents a unique opportunity to the broking industry to scale higher peaks.

The value brought in by insurance is also expanding to embrace policies that cover a diverse range of needs. The requirement for insurance protection is now moving towards tailor-made products suiting the needs specific to various industries. The entertainment industry grappled with its own setbacks last year with 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 entertainment industry increase, there is a growing need to cover these risks, particularly for distributors.

In addition to industry-specific risks, organizations also have to deal with global risks that can cause loss and devastation beyond imagination. The Global Risk Perception Survey conducted by the World Economic Forum, articulates these risks based on their anticipated impact according to the responses of nearly 1,000 risk professionals. With the United States having withdrawn from the Paris Agreement, concerns on environmental risks ranked most highly. Rising concerns surrounding the geo-political landscape led to the use of weapons of mass destruction being ranked as the most prominent risk over a 10 year horizon.

Last year also saw a slew of cyber-attacks like the WannaCry ransomware which infected around 200,000 computers in over 150 countries according to a report by Europol. As systems become increasingly interconnected, the cost of a cybersecurity breach is capable of bringing operations to a standstill.

In this edition, we have covered these issues besides our usual News & Views section as well a glance at our events in the previous quarter.

We hope you find our newsletter informative and insightful. Please do share your feedback with us. Through this newsletter, we hope to invite discussion on issues of mutual interest for us all.

Warm regards,

SANJAY KEDIA Country Head and CEO Marsh India

News&ViewsMessage from the CEO

INDIA

NEWS&VIEWS March 2018

2 News&Views

BOLLYWOOD MOVIES: AN INSURANCE PERSPECTIVEWith the controversy surrounding a recent Hindi 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.

NEWS&VIEWS March 2018

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CURRENT INDUSTRY

At present, nearly 70% of the films produced in Bollywood are covered under insurance where as big-budget films from South India are also looking for insurance covers. For regional movies, insurance adoption or penetration is presently at around 25%.

Currently, there are two broad types of covers associated with filmmaking in India, namely Film Production Package Insurance and Distributor’s Loss of Revenue (DLOR) Insurance Policy. Sum insured for both the policy varies with the premium paid.

According to Marsh India analysis, the film insurance market in India is now at INR 300 million, in terms of premium collection, and the market is growing at 25-30% annually. With the advent of the “100 crore club” or movies where gross collection exceed INR 1 billion, a film producers are now opting for production policy with coverage of INR 700 million to INR 1 billion and DLOR policy of over INR 1 billion. Typically, premiums for both policies range between INR 2.5 million – INR 3.0 million for a INR 1 billion coverage.

HOW IT WORKS:

Firstly, the Film Production Package Insurance comes into effect in the pre-production and production stages. The policy covers any damages to the sets and its equipment. The policy also covers any losses if production of the film or shoot is affected due to other perils like adverse weather conditions or act of god incidents like earthquakes and tsunamis. Additionally, some other potential risks like injury/critical illness to the lead artistes leading to disruption or delay in shooting are also covered by various insurers.

Subsequently, Distributor’s Loss of Revenue Insurance Policy comes into effect once the movie is released. Once a film is completed, the distribution and satellite rights are sold to Film Distributors (India & Overseas), including Satellite TV and online streaming right holders. Through this policy distributors safeguard their projected income. Some risks that the policy addresses include the impact on the post-release revenues due to factors like opposition from some political/social groups, calls for boycotts/strikes and violent protests and riots, acts of God such as floods or earthquakes. However, loss of revenue due to bans by state governments are, in general, excluded under the policy terms. However, bans by any other groups, organizations come under insured risk.

DLOR is offered by insurers covering these risks. The cover commences before the release of the movie until 60 to 90 days after.

BY MARSH INDIA FINPRO TEAM

Bollywood started taking insurance seriously from the late 1990s. Since then, insurance has become an indispensable part of films in Bollywood.

BOX

TYPES OF COVERS AVERAGE SUM INSURED

Films released in 2017

Hindi: 364*

Regional: 1622*

*Source: film federation of india

PREMIUM RATE

• INR 2.5-3.0 million for INR 1 billion coverage.

INDIAN MARKET

• INR 300 million, in terms of premium collection, growing at 25-30% annually.

• Film Production Package Insurance.

• Distributor’s Loss of revenue insurance policy.

• INR 700 million to INR 1 billion for Film Production Package Insurance.

• INR 1 billion and above for Distributor’s Loss of Revenue Insurance Policy.

*Source: Marsh Analysis

NEWS&VIEWS March 2018

4 News&Views

GLOBAL RISK REPORTThe 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 Economic Forum’s Global Risks Report, prepared in partnership with Marsh & McLennan Companies. The report also highlights uncertainties in the global economic recovery and rising geopolitical and cyber risks as the other prominent factors likely to dominate the global risk landscape in 2018.

As was the case in 2017, the environment was by far the greatest concern raised by experts. Among the 30 global risks the experts were asked to rank in terms of likelihood and impact, all five environmental risks – extreme weather; biodiversity loss and ecosystem collapse; major natural disasters; man-made environmental disasters; and failure of climate-change mitigation and adaptation – were ranked highly on both dimensions. Extreme weather events were seen as the single most prominent risk.

The report, released in January every year, shares the perspectives of global experts and decision-makers on the most significant risks that face the world.In the latest edition, it cautions that we are struggling to keep up with the accelerating pace of change. It highlights numerous areas where we are pushing systems to the brink, from extinction-level rates of biodiversity loss to mounting concerns about the possibility of new wars.

The annual Global Risks Perception Survey (GRPS) suggests that experts are preparing for another year of increased risk. When nearly 1,000 respondents were asked for their views about the trajectory of risks in 2018, 59% of their answers pointed to an intensification of risks, compared with 7% pointing to declining risks.

INDIA CONTEXT

GEO POLITICAL POWER SHIFTS:

Major Power tensions: India and Japan are exploring more structured forms of strategic cooperation in both economic and military affairs to counter China’s efforts to press territorial and maritime claims. As major regional powers are becoming increasingly assertive of their own interest, strong-state politics could potentially disrupt relations between major power centers.

CHALLENGE

Trigger 1: The International North-South Transport Corridor (INSTC), which links India, Iran and Russia; and the Asia-Africa Growth Corridor (AAGC), a joint initiative by India and Japan, may intensify geo economic risk. These kinds of ambitious infrastructure projects may exacerbate regional tensions.

Trigger 2: Economic corridors crossing contested territory, like CPEC which runs through Gilgit-Baltistan, a part of Kashmir that is administered by Pakistan but claimed by India.

“There remain strong incentives on all sides to avoid triggering trade wars, just as there are for all forms of conflict—but the risk of domestic political factors spilling over into disruption of the global trade system has risen sharply in recent years,” the World Economic Forum’s Global Risk Report 2018 said.

TOP GLOBAL RISK CONCERNS OVER A 10-YEAR HORIZON

1WEAPONS OFMASS DESTRUCTION1

EXTREMEWEATHER

2NATURAL

CATASTROPHES

3CYBER

ATTACKS

4DATA

FRAUD

5CLIMATE CHANGEMITIGATION AND

ADAPTATION FAILURE

2EXTREMEWEATHER

3NATURALCATASTROPHES

5WATERCRISES

4CLIMATE CHANGEMITIGATION ANDADAPTATION FAILURE

IMPACTLIVELIHOOD

GLOBAL RISKCOMMUNITY

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

BUDGET 2018: ARUN JAITLEY ANNOUNCES ‘MODICARE’

Finance Minister Arun Jaitley in his budget document announced the world’s largest healthcare program, Ayushman Bharat, which aims to provide INR 500,000 of medical insurance cover per family per year. The move is expected to benefit over 100 million poor and vulnerable families, financial daily Financial Express reported:

http://www.financialexpress.com/budget/budget-2018-arun-jaitley-announces-modicare-as-obamacare-becomes-passe/1042907/

GENERAL INSURERS’ MERGER LIKELY TO BE COMPLETED BY EARLY 2019

The merger of the three public sector general insurance companies—National Insurance Co Ltd, United India Insurance Co Ltd, and Oriental Insurance Co Ltd —is likely to be complete by early next year. According to MN Sarma, CMD, United India Insurance, the chiefs of the three general insurance companies will have a ‘departmental meeting’ on February 16 to discuss and deliberate on Budget pronouncements including the roadmap for merger, reported The Hindu Businessline.

http://www.thehindubusinessline.com/companies/general-insurers-merger-likely-to-be-completed-by-early-2019/article22741992.ece

REINSURANCE DRAFT GUIDELINES- ORDER OF PREFERENCE

The order of preference rule highlighted in the recently-released Draft IRDA (reinsurance) Regulations, 2018, can be viewed as the government’s stance on protecting the Indian reinsurance industry from external competition.

The origin of this dissonance is the Draft IRDA (reinsurance) Regulations, 2018, which has created a first right of refusal for Indian reinsurers and Foreign Reinsurer Branch (FBR).

This, a large section of the industry says, amounts to limiting competition on reinsurance, thereby impacting policyholders adversely in terms of higher cost and limited coverage, and product innovation, noted Shyamal Mujumdar, Editor, Business Standard, in his weekly column.

http://www.business-standard.com/article/opinion/draft-irda-regulations-2018-suggest-protectionism-in-reinsurance-118021401427_1.html

NEWS&VIEWS March 2018

6 News&Views

MARSH IN THE MEDIA

1. Marsh India CEO and Country Head, Sanjay Kedia was quoted by Business Standard in an article, “BS Insurance Round Table 2018: Govt’s health scheme needs realistic pricing,” on February 9, 2018. “We know that health inflation, as a thumb rule, is 50 per cent more than consumer inflation and these programmes do not only need a cost allocation in terms of the health inflation index, but also in terms of user awareness,” Sanjay was quoted in the article. Article link: http://www.business-standard.com/budget/article/bs-insurance-round-table-2018-govt-s-health-scheme-needs-realistic-pricing-118020801607_1.html

2. Marsh India CEO and Country Head, Sanjay Kedia was quoted by multiple media publications during the 14th IBAI Summit held at Hyderabad on January 23, 2018. While delivering his Presidential Address, Sanjay, who is also the President of IBAI, said the demand for insurance broking has been growing with 428 brokers in the industry as of today. The projected growth of non-life insurance in terms of GDP is 17% - around Rs 400,000 crore. Insurance broking is expected to contribute around Rs 160,000 crore. Article link: http://www.thehindu.com/business/Industry/irdai-to-set-new-norms-for-brokers/article22512575.ece

3. Marsh India SVP - FINPRO & Private Equity M&A leader, Anup Dhingra, was quoted by CNBC Awaaz during a news feature story on Cyber Security Insurance in India on January 14, 2018. “We are seeing increasing demand for Cyber Insurance Cover from sectors like Oil and Gas, Large Manufacturing companies including Pharmaceutical, Auto Ancillary and Automobile manufacturing companies. These companies are seeking covers for protection against Business Interruption Risk which may arise on account of a Cyber attack” Anup Dhingra, was quoted by CNBC Awaaz during an interview for the news feature. The video link: http://hindi.moneycontrol.com/tv/view_video.php?autono=170599

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MARSH EVENTS

INSOLVENCY & BANKRUPTCY CODE CONFERENCE

With the rapidly changing legal and economic landscape in recent times, and the much-awaited insolvency and Bankruptcy Code taking effect, an entire ecosystem has evolved to resolve the problem of corporate distress. Recognizing the importance of the code and its impact in the financial architecture of the country, Marsh hosted the event, The Bankruptcy Code and the Roles and Responsibilities of the Insolvency Resolution Professionals on January 16, 2018. The event included two panel discussions chaired by Marsh India Country Head & CEO, Sanjay Kedia, and Anup Dhingra, Senior Vice President and Marsh India FINPRO Leader.

The event was attended by 50 guests, including eminent industry veterans like Mr. Bahram Vakil – Founding Partner AZB Partners, Mr. VG Kannan- CEO of Indian Banking Association, Mr. Srinivasan- CMD of New India Assurance Co Ltd, and Mr. Uday Bansali- President Financial Advisory Deloitte. Presence of diverse industry experts made sure the event was interactive and informative.

BUILDING AGILE BENEFITS

The Employee Health and Benefits landscape is undergoing rapid change due to a confluence of factors including diverse demographics, rising healthcare costs, shifts in behaviors towards work, and changes in lifestyle. One of the biggest challenges faced by corporates today is attracting and retaining the right talent. It is increasingly important for organizations to adapt to the demands of a dynamic workforce, and to design relevant and innovative solutions to cater to them.

There is a need to systematically address the underlying employee benefit risks of the organization and build a sustainable solution which can add value to the organization and its employees. Against this background, Marsh India hosted a conference: Building Agile Benefits – the Changing Perspective on February 7, 2018, at Pune.

The event was attended by 130 guests from across the insurance industry.

HIGHLY PROTECTED RISKS WAY FORWARD FOR BUSINESS RESILIENCE & PROPERTY PROTECTION

Marsh India introduced the good industry practice concept of “Highly Protected Risks (HPR)” for Property Loss Prevention and reducing Business Interruptions. In an increasingly uncertain environment, mitigating property losses and their impacts hinges on the ability to effectively identify, qualify, assess, and manage the full spectrum of physical, financial, and operational risks affecting real assets. A strong overall resilience program helps ensure an effective response and proactive management — regardless of the cause of the situation. With this background, Marsh India organized a seminar titled: Highly Protected Risks Way Forward For Business Resilience & Property Protection on January 18, 2018, at Pune. The topics covered were:

• Global Risks and Ensuring Appropriate Risk Management Strategies.

• Highly Protected Risks - Best Industry Practice in Property Loss Prevention: Myths and Facts.

• Global Loss Drivers for Automobile, Engineering, Warehouses, IT/ITES 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 India Communications Team.

For any information, please contact: NILADRI BHATTACHARYA niladri.bhattacharya@marsh.com

MARSH IS ONE OF THE MARSH & McLENNAN COMPANIES, TOGETHER WITH GUY CARPENTER, MERCER, AND OLIVER WYMAN.

The information contained in this publication provides only a general overview of subjects covered, is not intended to be taken as advice regarding any individual situation, and should not be relied upon as such. Insured should consult their insurance, legal and other advisors regarding specific coverage issues. All insurance coverage is subject to the terms, conditions, and exclusions of the applicable individual policies. Statements concerning financial, regulatory or legal matters should be understood to be general observations based solely on our experience as risk consultants and may not be relied upon as financial, regulatory or legal advice, which we are not authorized to provide. All such matters should be reviewed with appropriately qualified advisors in these areas. Marsh cannot provide any assurance that insurance can be obtained for any particular client or for any particular risk.

Marsh India Insurance Brokers Pvt Ltd is JV Company of Marsh Inc a global leader in risk management, risk consulting and insurance broking and the Indian partners.

Marsh India Insurance Brokers Pvt. Ltd. having corporate and the registered office at 1201-02, Tower 2, One Indiabulls Centre, Jupiter Mills Compound, Senapati Bapat Marg, Elphinstone Road (W), Mumbai 400 013 is registered as composite broker with Insurance and Regulatory Development Authority of India (IRDAI). Its license no. is 120 and is valid from 03/03/2018 to 02/03/2021. CIN: U66010MH2002PTC138276.

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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.