Eighteen non-life insurance companies spent more in 2022 on management expenses than allowed, leaving a negative impact on their overall business and eroding their capacity to settle claims.

Company officials attributed the excess spending to an unstable business environment following the Covid-19 pandemic and other global crises.

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Insurance firms spend beyond regulatory limits

The companies are Karnaphuli Insurance, Purabi General Insurance, Bangladesh General Insurance, Peoples Insurance Company, Standard Insurance, Crystal Insurance Company, Provati Insurance Company, Express Insurance, South Asia Insurance, Phoenix Insurance Company, Islami Commercial Insurance, and Meghna Insurance Company.

Also included are Republic Insurance Company, Nitol Insurance, Global Insurance, Desh General Insurance Company, Islami Insurance Bangladesh, and Bangladesh Co-Operative Insurance, according to a document of the Insurance Development and Regulatory Authority (IDRA).

Allowable management expense refers to the amount permitted by the IDRA to be spent on running operations, namely for paying agent commissions and operating costs.

The limits are set based on the gross premium income in a calendar year. Insurers can spend a certain percentage that they receive in the form of premiums from fire and other types of insurance while marine insurance is considered separately.

For example, of the first Tk 15 crore of total gross premium income in a calendar year, a non-life insurance company can spend 35 percent of the amount it gets from fire and other forms of insurance behind management expenses. The amount is 26 percent when it comes to marine insurance.

In the case of the next Tk 15 crore, the company can spend 33 percent of the premium for fire and other insurance and 25 percent of the premium collected under marine insurance.

There are eight such slabs with caps on how much a company can spend on management expenses.

If a company spends more than the prescribed limit, they will not be able to settle insurance claims on time, said an IDRA official.

The 18 companies are spending mainly on salaries, extra commission to agents, car purchases, advertising, printing stationery, and motor vehicle maintenance, he added.

Currently, there are 46 non-life insurance and 35 life insurance companies in Bangladesh.

After analysing the IDRA data, it was found that Meghna Insurance spent Tk 27.88 crore beyond the limit, the most among the companies.

Mohammad Abu Bakar Siddique, chief executive officer of Meghna Insurance, said management costs had exceeded the limit due to a lack of business.

"The lion's share has been spent on salaries."

Global Insurance was the next worst transgressor, spending Tk 26.63 crore beyond the limit, while Islami Insurance exceeded the ceiling by Tk 16.12 crore.

Mosharrof Hossain, CEO of Global Insurance, said the business environment was no longer the same since the Covid-19 pandemic and other global crises.

"Profits have decreased. We could not make as much profit or do as much business as we had hoped. As a result, the cost has exceeded the limit."

Zahangir Alam, a spokesperson for the IDRA, told The Daily Star that the additional management expenses issues were coming to the fore now because the data from 2022 was finally audited.

He added that companies were claiming management expenses had increased due to a rise in energy prices in the world market, the dollar shortage in the country, and higher inflation.

In addition, the companies said they had to spend extra due to the slowdown in business following the abolition of the motor insurance business, he said.

Insurance was mandatory for all types of vehicles such as motorcycles, cars, buses and trucks, but the government ended the system in 2018, dealing a blow to the insurance business.

Alam added that a hearing was held for the companies that had exceeded management expenses on January 29. The companies were then asked to submit documents related to the extra management expenditures.

"After they reply, the next step will be taken."

All non-life insurance companies will sit with the IDRA today to discuss how they can confine their management expenses to the limit, a source said.