Kathmandu: Life insurance companies have spent more than Rs. 13.16billion in a year as management expenses. Its about 10.87 percent of their total premium income. When companies spend large sums of money raised with the insured for management, it will have a direct impact on the policy bonus rate that the insured receives.
In addition to the management expenses, agents receive commissions and incentives. As companies earn more than 50 percent of the total premium as first premium income, the amount of agent commission and incentives is quite high. Insurance companies only get better benefits from the subsequent premium earnings than the first or second annual premium.
In the last fiscal year 2077/78, life insurance companies had earned Rs.121 billion in insurance premiums. Similarly, management expenditure is Rs.13.16 billion. This expenditure is 10.87 percent of the total premium income.
The highest management cost of Nepal Life Insurance Company is Rs 2.43 billion. It’s management expenditure is 7.53 percent of the total premium income. Similarly, the management cost of LIC Nepal, which has earned the second highest premium, is only Rs.901.7million. Management expenses account for only 5.26 percent of total premium income.
The third most insured National Life has a management cost of Rs.1.13 billion. Management expenses account for 9.04 percent of the total premium income. Compared to the old life insurance companies, the management cost of National Life is very high.
The management cost of Met Life is 9.78 percent of the total premium income, 13.95 percent of Asian Life, 14.93 percent of Prime Life, 15.76 percent of Surya Life and 13.76 percent of Guransh Life. The management cost of Rastriya Beema Sansthan is very low. Only 2.42 percent of the total premium income is spent on management.
The management expenses of new life insurance companies is high due to their investment in business expansion.
The management costs of new companies have skyrocketed in the expansion of life insurance business. Older life insurance companies are able to limit the management expenses within 10 percent of their total premiums on management, while newer companies have been spending more than 20 percent.
New companies are expanding their branches and adding more employees. On the other hand, they are spending on various segments to attract agents. New companies lack expert and technical manpower. At the same time, the cost is increasing due to the compulsion to pull from another company to fill the need for high level employees.
Expansion of branch office automatically increases financial management costs. In the next few years, the growth rate of management expenses of new insurance companies will remain high. The old companies have already expanded their branches in major places. Moreover, due to Covid19, many formal events could not be held this year.
This year, Prabhu Life has the highest management expenses in terms of insurance fees. Prabhu Life’s management expenses account for 27.69 percent of the total premium earned. Last year alone, the company spent Rs.403.3 million. Prabhu Life, which was sluggish in business expansion in the previous year, did good business last year. On the other hand, some expenses have also gone up during the issuance of primary shares.
Similarly, 27.22 percent of the total premium income of Mahalakshmi Life is spent for management. The company spent Rs. 332.6 million last year. Among the new ones, the Union Life seems to have lower management costs based on insurance fees. Union Life has spent Rs. 1.5 billion on management. But it ranks fourth in terms of spending the most on management. The management expenses of Sun Nepal, Jyoti and Reliance are 20 percent of the total premium income. While IME Life 19.20 percent, Sanima Life19.44 percent, Citizen Life 18.36 percent and Reliable Nepal 17.19 percent management expenditure.