With the release of its annual statistics for the year 2022/2023, the commission rates and production costs ratios of various insurance lines can be compared to those of the previous fiscal year of 2021/2022, according to Al-Mal News.
The commission and production cost ratio is the total commissions, underwriting, marketing and production costs to total written premiums, the article stated. The ratio reflects how the cost of acquiring insurance contracts affect the financial performance of insurers, which include commissions paid to insurance agents and brokers, in addition to expenses related to marketing insurance products and issuing documents.
The data showed a total commission and production cost decrease of all insurance lines from 19.8% in 2021/2022 to 18.9% in 2022/2023 (-0.9%). Fire, marine and accidental insurance lines were some of those shown in the article.
Of fire insurance, there was a slight increase in commission rates and production costs from 20% in 2021/2022 to 20.3% in 2022/2023, while there was a decrease of 2.2% for marine insurance. Commission rates and production costs fell from 23.4% in 2021/2022 to 21.2% in 2022/2023.
There was an increase of 4.8% in accident insurance, from 19.8% in 2021/2022, to 24.6% in 2022/2023. On the other hand, commission rates and production costs for medical coverage fell from 14.4% in 2021/2022 to 14.1% in 2022/2023 (-0.3%).
According to Al-Mal News, the data suggested that the decrease in commission rates and production costs could be attributed to improved operational efficiency or changes in pricing and reinsurance policies. An increase, on the other hand, may indicate rising costs associated with managing the policies.
The higher this rate, the higher the costs of acquiring customers relative to the total premiums written, which in turn affects profitability of insurers if it is not matched by an improvement in premium retention rates or a reduction in losses, the article by Al-Mal News showed.