How Management Expenses cripples Insurance Industry in Nigeria

Insurance sector operators spent about N295 billion on management expenses between 2010 and 2014 amidst criticism from investors and regulators.

The operators have also said that their major headache in the new business year is how to create value addition to their businesses through employment of first class professionals and foreign partnerships.

Many operators, had at their various annual general meetings last year, received shareholders’ batching during question and answer sessions at the meetings  on account of huge management expenses reported in their annual reports and accounts.

In a related development,   the industry regulator, the National Insurance Commission (NAICOM) had on several occasions, in response to challenge by shareholders on punitive fines placed on operating firms, challenged the shareholders to ask the operators what they do with their money and why they incur huge management expenses year in year out.

The regulator’s challenge to shareholders to question  huge management expenses posted by operating firms dates back to the regime of Fola Daniel as the Commissioner for Insurance up to the present regime of Alhaji Mohammed Kari.

Both the investors and the regulator alleged that operators short-change shareholders by ripping off their returns on investment through high management expenses.

The investors alleged that from all indications, the operators and the regulator starve them of the much desired return on investment through huge management expenses on the part of the operators and high punitive fines on the part of the regulator.

Prominent investors in the industry like Boniface Okezie, Chairman, Progressive Shareholders Association of Nigeria, recently, lamented much on this insisting that operators should watch their management expenses.

In what looks like a confirmation of   this, recent report published by the Nigeria Insurers Association (NIA) said between 2010 and 2014, industry operators spent N294.90 billion on management expenses.

According to the report, the above figure was spent on underwriting, salaries, rents and commission.

According to the NIA report, non life operators incurred N220.91 billion and life operators N73.99 billion.

Okezie at one of the Annual General Meetings held in Lagos last year, threatened to sue both the regulator and the operators to court through their various shareholders’ association if they continue to siphon investors’ profit through these dubious means.

His view was shared by some shareholders who said huge management expenses, posted by operators on yearly basis is becoming unbearable to investors.

But Sir Sunny Nwosu, of Independent Shareholders Association of Nigeria, in a recent chat with one of the online media, Inspenonline, said the huge expenses are duly incurred in a bid to get good hands.

According to him, any company that wishes to attract best hands and retain them should be ready to pay.

He noted that the acclaimed huge management expenses, is often incurred in a bid to engage capable personnel to drive affairs of organisations , stressing that good services are not cheap anywhere in the world and that organisations that want to be at the top should be ready to pay for the services of professionals.
“If you want the best, you have to pay for it, if any regulator is coming to take up an executive job, in some of these companies, you need to know how much such person would earn and the salary becomes personal to that person.

The NIA report said insurance companies, spent N42.07 billion on management expenses in 2011, representing 19.32 per cent of the industry’s N217.74 billion gross premium income made in the year.

The report showed that Investment and Allied Insurance Plc, had the highest expenses, put at N158.39 million, as against N37.92 million premium income it recorded. The firm was followed by Universal Insurance Plc with N347.73 million, as against N349.17 million (99.6 per cent) underwritten.

Custodian and Allied Insurance Plc, was the most prudent in the general business category with N886.81 million expenses out of the N10.06 billion (8.81 per cent) income. Mansard Insurance Plc had the lowest in the life business, with N13.87 million spent out of N 2.36 billion (0.6 per cent). Zenith Life Insurance Limited spent N9.61 million out of N1.01 billion.

Other firms with their expenses include, Cornerstone Insurance, which spent N1.13 billion out of N3.17 billion, Equity Assurance N1.07 billion out of N2.23 billion, LASACO Assurance N1.20 billion out of N2.70 billion, NICON Insurance N1.05 billion out of N1.38billion, Niger Insurance N100 billion out of N3.04 billion, Standard Alliance Insurance N1.38 billion out of N4.76 billion.

Others are  Unitykapital Assurance N1.08 out of N1.87 billion, NICON Insurance Life N154.51 million out of N246.55 million, UBA Metropolitan Life N973.15million  out of N1.78 billion and Unic Insurance N375.31 million out of N464.30 million.

Meanwhile, some operators said this year, they will pursue strategy of employing first class professionals and allying with foreign partners in order to add value to their operators.

The Royal Exchange Assurance and Niger Insurance said this has remained uppermost in their mind to upgrade their status.

They noted that firms like Custodian and Allied Insurance, Leadway and Mansard boosted their status to their present level through foreign partnership.

 

Source: Nigeriatoday.ng