Nigerian listed insurers are intensifying their cost management strategies in order to deliver a higher return to shareholders.
The country’s harsh economic environment confronts insurers with a myriad of challenges, from rising inflation to huge overheard costs, low consumer purchasing power, poor regulations, and currency volatility. Consequently, the profitability of insurers is barely above cost of capital as they are unable to translate impressive top-line performance into stronger bottom line.
The 17 largest listed insurers have spent a combined N203.30 billion on total operating costs (underwriting and management expenses) in the past four years, based on their half-year financial statements.
A breakdown shows total cumulative operating costs increased by 16.58 percent in June 2019 from N48.71 billion as at June 2018.
Experts say companies with very large product portfolios and multiple brands and channels are also those with the highest costs on average.
Tope Smart, managing director and CEO, NEM Insurance, said driving the company’s service delivery through technology has resulted in a reduction in wastages with improved turn-around time.
“This has a positive impact on our claim payment, underwriting process and has contributed immensely to our customers’ satisfaction and retention,” said Smart.
Smart added that the insurer’s expenses in each year is based on the top-line (sales) performance, which translates to profitability, and that the issue of cost saving becomes irrelevant.
“What matters is what you spend the money on. Will the expenses add value to the performance? If yes, saving such cost is abnormal – an act of pennywise pound foolish,” said Smart.
In 2018, National Insurance Commission (NAICOM), after thorough scrutiny of the books of companies, placed a spending limit on those with financial challenges.
Mohammed Kari, immediate past commissioner for Insurance, had said the decision to limit spending of some insurers was taken to ensure companies do not spend unnecessarily to the extent that they would not be able to attend to claims settlement.
He expressed sadness over the continuous increase in management expenses of underwriting firms across the country, stating that it was affecting their ability to give good returns on investment to their investors.
A further analysis of the financial statement of the 17 firms shows most of them have the buffers to cover expenses and still make profit, but dividend to shareholders is abysmally poor.
For instance, out of a cumulative combined net premium income of N119.86 billion in June 2019, the firms incurred total operating expenses of N56.97 billion.
The average industry operating expense ratio increased to 77.34 percent in the period under review from 71.56 percent in June 2018 as the firms continue to spend more on acquiring, underwriting, and servicing net premium.
Analysts say recurring huge management expenses as well as payment of fines to the relevant regulators have hindered operators in the industry from paying bumper dividend to shareholders.
They attribute rising wage bills to the need for firms to engage capable hands to manage their operations, while a lot of money is spent on the acquisition of latest software to bolster efficiency.
“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 a person would earn and the salaries become personal to that person,” said Sunny Nwosu, national coordinator, Independent Shareholders’ Association (ISAN).
BALA AUGIE
