Higher expenses weigh on life insurers

Most of the life insurance companies spent more than they earned in April to June, putting a negative impact on life funds and eroding their capacity to settle claims.

Of the 32 life insurers in Bangladesh, 20 spent higher for management expenses than premium collection in the quarter violating the authorised limit for the former, according to the Insurance Development and Regulatory Authority (IDRA).

The management expenditure for these companies was Tk 100 to Tk 348 against a premium collection of Tk 100, said the regulator in a report on management expense.

Insurance laws allow companies to spend up to Tk 96 as management expenses for every Tk 100 collected in premium. In 2016, insurers spent Tk 179 against their earning of Tk 100, the report said.

Insurance companies could not settle claims on schedule because of the higher management expenditure, said a senior executive of the IDRA.

The higher expenditure is weakening the financial strength of insurers as they are meeting the excess expenses from their paid-up capital instead of from life funds, breaching laws, he said.  Life fund is an amount of money from which life insurance payments are made and with which an insurance company makes investments.

Ten life insurers saw a decline in their life funds in the first quarter of 2018 due to their higher expenditure, the report said.

The companies are Fareast Life, Golden, Homeland, LIC Bangladesh, Meghna, National, Padma Islami, Popular Life, Prime Islami and Sandhani Life. Weak organogram of agents at field level pushed up the cost for premium collection, the report said.

Insurance companies are supposed to employ five agents under a permanent employee as per rules, but they have only two agents. Besides, the higher rate of insurance policy lapse also accounted for the increased management expenses, said the report.

The policy for which all benefits to policy-holders cease and are terminated because of non-payment of premium amount on due date or even after a grace period is called a lapsed policy.

The rate of insurance lapse was more than 70 percent in two insurance companies -- Baira and Fareast, said the IDRA.

The lapse mainly takes place because of agents' shift from one company to another, the report identified.

The management expenses are much higher in some new generation companies compared to those of their predecessors.

Jamuna Life, which was given licence in 2013, spent 130 percent more than the regulatory ceiling in the April-June quarter. Swadesh Life, another new generation insurer, spent 95 percent more, IDRA data showed.

A lack of efficient human resources is one of the major causes behind the higher management spending, said Borhan Uddin Mazumder, chief executive officer of Mercantile Islami Life Insurance.

He said insurance companies had to spend higher for agent management at field levels because of a shortage of agents.