Management expense by the country’s insurance companies is growing alarmingly as it exceeded the allowable limit, eventually eating up the policy holders’ bonus.
The Insurance Development and Regulatory Authority (IDRA) has found 13 life insurance companies spending Tk1,200 crore, exceeding the limit of management cost for last five years.
The companies are National Life Insurance, Meghna Life, Rupali Life, Delta Life, Homeland Life, Popular Life, Fareast Life, Sunlife, Shandhani Life, Progressive Life, Prime Life, Pragati Life and Padma Islami Life insurance.
The management cost started rising abnormally mainly since 2011, according to the IDRA findings.
Only in the year of 2013, the excessive cost of the companies was Tk262 crore.
The excess expenditure goes against the interest of the policy holders, an IDRA senior executive said.
But the IDRA law suggests the policy holders should get 90% of surplus fund as bonus and the shareholders 10%.
IDRA Chairman M Shefaq Ahmed admitted the policy holders are becoming loser due to extravagant spending by the companies.
He said the management of the insurance companies hardly followed the rules and was not aware of the excessive expenses.
The IDRA queried the unlimited spending to the managing directors of the companies, but the latter failed to produce satisfactory explanation for the issue, said a senior executive of the insurance regulatory authority.
It also met with the board of directors of the companies and decided to appoint auditors to check the management expense of all the insurance companies.
The authority will send letter to the 13 companies seeking details of the management cost, M Shefaq Ahmed said.
Of the life insurance companies, Padma Islami Life Insurance had the highest 76.56% excess management cost of the allowable limit in 2013.
The company’s total management cost in the last five years was Tk137.58 crore.
Padma spent Tk9 crore in 2009 which was 12% higher than the allowable limit of Tk73.45 crore, with the excessive expense rising abnormally over the years. The excess cost was Tk24.69 crore in 2010 from the limit, Tk37.31 crore in 2011, Tk33 crore in 2012 and Tk34 crore in 2013.
The second in line in terms of spending is Pragati Life Insurance that spent excess 70.92% of allowable cost in the year 2013. The excess spending of the company was 48% in the year 2012 and 38.49% in 2011.
Prime Islami Life Insurance comes in third with its management cost exceeding the allowable limit from the year 2011. The excess amount stood at Tk29.26 crore in 2013 which was 51.36% higher from the allowable expense.
Popular Life Insurance stands fourth, with its total expense standing at Tk237 crore beyond the limit in the last five years. The excessive amount was 18.49% in the year 2013.
The fifth is Shandhani Life Insurance of which the management cost remained beyond the allowable limit since 2009 and the highest excess cost was Tk33.15 crore in the year 2012 which was 47.98% beyond the limit. The excessive cost was 32.25% or Tk24.30 crore in the last year.
Next to Shandhani is Delta Life Insurance, a leading company in the insurance business that has spent Tk46.6 crore exceeding the limit in last five years.
The company witnessed the highest excess cost of Tk17.87 crore last year.
