Listed insurers strengthen cost management strategies to bolster margins

Nigerian listed insurers are intensifying their cost management strategies in order to deliver a higher return to shareholders. The country’s harsh economic environment confronts insurers with a myriad of challenges, from rising inflation to huge overheard costs, low consumer purchasing power, poor regulations, and currency volatility. Consequently, the profitability of insurers is barely above cost of capital as they are unable to translate impressive top-line performance into stronger bottom line. The 17 largest listed insurers have spent a combined N203.30 billion on total operating costs (underwriting and management expenses) in the past four years, based on their half-year financial statements. A breakdown shows total cumulative operating costs increased by 16.58 percent in June 2019 from N48.71 billion as at June 2018. Experts say companies with very large product portfolios and multiple brands and channels are also those with the highest costs on average. Tope Smart, managing director and CEO, NEM Insurance, said driving the company’s service delivery through

technology has resulted in a reduction in wastages with improved turn-around time. “This has a positive impact on our claim payment, underwriting process and has contributed immensely to our customers’ satisfaction and retention,” said Smart. Smart added that the insurer’s expenses in each year is based on the top-line (sales) performance, which translates to profitability, and that the issue of cost saving becomes irrelevant. “What matters is what you spend the money on. Will the expenses add value to the performance? If yes, saving such cost is abnormal – an act of pennywise pound foolish,” said Smart. In 2018, National Insurance Commission (NAICOM), after thorough scrutiny of the books of companies, placed a spending limit on those with financial challenges. Mohammed Kari, immediate past commissioner for Insurance, had said the decision to limit spending of some insurers was taken to ensure companies do not spend unnecessarily to the extent that they would not be able to attend to claims settlement.