The regulatory body found the insurance company spending about additional 10 percent, or Rs 19 million, as management expense from the amount acquired from the annual gross first premium paid by the policy buyers in the fiscal year 2012/2013. [break]
“We found that the insurance company had exceeded the limitation set by the IB´s directive,” Raj Kumar Aryal, IB spokesman told informed Republica. The board is studying the preliminary financial reports of the insurance companies for the last fiscal year.
IB has also returned the balance sheet to the company and asked it to manage the additional expense from the investors´ and promoters´ fund and submit the revised balance sheet duly.
IB officials said that heavy management expense hints at embezzlement. IB had issued the directive to cap the management expense at 6 percent for the life insurance companies and 1.5 percent for the non-life insurance companies on annual gross premium income generated through the sales of new policies from the beginning of the fiscal year 2012/2013.
The directive was issued in order to control unhealthy competition in the market like paying exorbitant sums to the agents who sell insurance policies.
Aryal further said that the recovering the exceeding expenses from the promoters and investors of the company is aimed at protecting the policy holders.
All the life insurance companies have failed to abide by the directive -- though marginally, except Asian Life Insurance and National Life Insurance companies, according to IB officials.
“IB has issued warning to all of them and has also directed them to manage the extra expense from the investors´ fund and submit the revised balance sheet,” added Aryal.
Likewise, IB also has issued warning to all non-life insurance companies as they have also marginally exceeded the expenses.
“We have given an opportunity for those who have exceeded the limit by a negligible margin as it is quite tough to meet the criteria,” said Santosh Prasai, senior Chartered Accountant at IB.
The regulatory body has placed the cost of business promotion, reception, incentive to insurance agents and advertisement for both life and non-life insurance companies under the management cost.
There are nine life-insurance companies and 17 non life insurance companies in the country.
Capping the management cost was expected to increase the profitability of almost all the insurance companies by 10 to 15 percent a year. And, most of the companies have already posted huge profits -- up to 305 percent -- in their un-audited financial status reports.
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