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N295bn frivolous spendings: NAICOM, shareholders  investment & Allied Insurance, others

Naicom

By Dotun Akintomide

The N295 billion management expenses incurred by insurance companies in five years between 2010 and 2014 has continued to generate outright condemnation from the insuring public, as National Insurance Commission (NAICOM) and shareholders of insurance companies have kicked against what they termed frivolous spending, Nigerian NewsDirect has found out.

Findings revealed in a recent report published by the Nigeria Insurers Association (NIA) that between 2010 and 2014, industry operators had spent N294.90bn on management expenses.

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

The NIA report further shows that, while non life insurance operators incurred N220.91bn, life operators spent N73.99bn on management expenses.

For instance in 2011, insurance companies were said to have spent N42.07bn on management expenses, representing 19.32% of the industry’s N217.74bn gross premium income made in that year.

The report shows 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.

In general insurance category, Custodian and Allied Insurance Plc, had the best showing, having recorded the most prudent spending of N886.81 million expenses out of the N10.06bn (8.81 per cent) income generated. Also, Mansard Insurance Plc had the lowest in the life insurance category, with N13.87 million spent out of N2.36bn (0.6 per cent).

The huge management expenses as against the income generated, Nigerian NewsDirect gathered are usually incurred in a bid to engage capable personnel to drive affairs of insurance organisations, thereby making salary attractive to the detriment of shareholders whose investments suffered low dividends due to a reduced income from companies.

A source told NewsDirect how many insurance operators had at their sundry annual general meetings last year, received shareholders’ bashing during question and answer sessions at the meetings on account of huge management expenses reported in their annual reports and accounts.

It appears some of the operators in 2017 are more concerned in adding value to their businesses through employment of first class professionals and foreign partnerships not minding its implication on their income and capital base.

Amid criticisms from NAICOM and shareholders, insurers have been accused of allegedly short-changing shareholders by ripping off their returns on investment through high management expenses.

Reacting to this development, a recent release by the Head, Corporate Affairs, Rasaaq Salami noted that the level of expenses of some insurance institutions is becoming a cause for concern. The commission vowed “to pay more detailed attention to reasonableness of management expenses to ensure that each company’s level of expense is appropriate for its business model and does not adversely affect its profitability, liquidity and capital adequacy.”

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