1. PRESENTATION ON COST MANAGEMENT
APPROACHES
Presented by
Okurapa samuel (Chief finance officer)
2. MANAGING COSTS & EARNINGS
Grow
Premium Or
Revenue
Restructure
expenses
or
Reduction in
costs
Profitability
(EPS)
Dividends Pay
3. OUTLINE FOR THE PRESENTATION
Background
Management of Litigation costs
Trailing costs per loss assessors
Managing repair and maintenance costs
Employee or staff costs management
Adherence to regulatory commission rates
Analysis of marketing costs
Management of receivables
4. Background & key definitions
Sonarwa General insurance company has in place
an approved strategy for implementation as its
driving tool for the management of costs and
rejuvenation of its business lines.
The company therefore, has to address its costs
either through the restructuring of its process to
eliminate non relevant costs and maintain
processes lean to enable efficiency in operations.
Sonarwa may also aim at identifying and analyzing
such movement in costs on quarterly basis to
allow timely cost reduction
5. Litigation costs
Managing the approved claims
We as management, need to ensure claims as approved and already agreed
upon with claimants are well managed. Prioritization is key in controlling
deterioration to litigation in this, we are able to mitigate on the risk of paying
Court awards so costly than would be.
Bailiff costs
Lawyer’s expenses
Legal staff time
6. Formidable measures
1 2 3
2015 2014 2013
68,059 85,989
164,659
LEGAL AND PROFESSIONAL COSTS
Year Amount '000 (RWF)
7. TRAILING COST PER LOSS ASSESSOR
Trailing of claims handled by each of the claim assessor
allows as to measure the effectiveness and performance of
each of them and plan for effective development of skills or
call for HR involvement.
0
20000
40000
60000
80000
100000
120000
LOSS ASSESSOR MONITORING
Series1 Series2 Series3
8.
9. Repairs and mantainence
Year
Amount '000 (RWF)
0
50000
100000
150000
200000
1 2 3
2015 2014 2013
68,059 85,989
164,659
Year Amount '000 (RWF)
10. Repairs and maintenance
There is need for the finance to re examine the cost
category ensure that they are properly defined:-
Capital expenditure (IAS 16)
Expense to (IS) IAS 1
Strict adherence to budget allocations
Procurement SLA with long-term suppliers
Evaluation of service providers
Routine audit of services provided
11.
12. EMPLOYEE COSTS
The company employee costs in relationship to the revenue generated is
highlighted below;
2012 2013 2014 2015
1,585,111
1,980,623 2,070,703
1,899,784
0
500000
1000000
1500000
2000000
2500000
1 2 3 4
STAFF COSTS GRAPH IN RWF '000
Year Staff costs
13. Net premium earned analyzed
2012 2013 2014 2015
5,696,860 5,915,827
5,247,491
6,124,766
0
1000000
2000000
3000000
4000000
5000000
6000000
7000000
1 2 3 4
NET PREMIUM GRAPH
Year NET premium
14. PERCENTAGE OF STAFF COSTS TO NET WRITTEN PREMIUMS
28%
33%
39%
31%
2012 2013 2014 2015
15. STAFF COSTS AS % OF TOTAL COSTS
Year Staff costs Total costs %
2012 1,585,111 2,547,849 62%
2013 1,980,623 4,026,830 49%
2014 2,070,703 3,459,838 60%
2015 1,899,784 3,075,904 60%
16. Averaging premium income per employee
No.
Average No of staff 01-01-15 123
31-12-15 118
Average No in 2015 120.5
Net premium 2015 6,124,766
Average annual income per employee 50,828
Daily revenue per employee in 2015 139
Daily average revenue to achieve budgeted for
2016 (Rwf)’000 273
17. STAFF COST RESTRUCTURING
Devising control over the medical cost system
Control over budget and quarterly examination of
budget over actuals
Reprimand over budget indiscipline for budget
holders
Reviewing the department structures for
alignment and skewing of responsibilities.
18. ADHERENCE TO COMMISSION PRESCRIBED RATES
Management understands the need for business acquisition costs
to be paid however this must be maintained at regulatory
minimums.
Commissions to be negotiated at the contract level and clearly
specified for industry compliance
No underwritten premium must attract two commission
payments totaling above thresholds.
Investigation and disciplinary practice commission paid on
direct business.
Commission payments strictly as computed by IES
Controls over system duplicated production
19. REGULATORY RATES
Bond investments 2%-4%
Short term contracts 10%-25%
Sonarwa policy figures
Specific for motor business brokers <15%
agents <12%
21. MANAGING TRANSPORT & TRAVEL
Hiring of vehicles and management of their usage is key to
addressing the costs attributed to it.
There should be a control register that profiles the
movement of the company cars and follow ups.
All marketing costs excluding commissions paid must be
detailed and analyzed vis -vie premium underwritten on a
monthly basis.
Cost ratio to the No. of marketers must be profiled to
premium per marketer on monthly basis so as to measure
value for money.
The company should also plan ahead of the year on the
board deliberations except for emergencies (EGM’s)
22. Management of receivables
Receivables related to premiums sold on credit result to the
costs that affect the profitability of the company and the
solvency ratios
All debtors above 6month are expected to be written off the
books of the company ,hence affecting the solvency ratios by
BNR
SONARWA has an approximate amount of 1bn as debtors
Direct insurance arrangements 575,810
re-insurance arrangements 394,807
970,617
23. MEASURES TO LIMIT CREDIT
Invoicing when cash repayment schedule is known
Minimize credit sales by obtaining affront payments above 60%
Improve contract closes for no cash No. valid contract in place
Assess employees and branches on the amounts outstanding (KPI)
Clearly file relevant documentations for proper follow ups (KYC)
IES system must be configured to generate ageing list of debtors for EXCO
and per branch or agency and direct sales
Material debtors must be analyzed further to responsible individuals
The HR must link the above results for performance evaluation.
