The insurance sector is in dire need of Fintech to ensure its products penetrate the un-insured population and fast track the process of claim payments in Nigeria.
This was disclosed by the Chief Executive Officer, LASACO Assurance, Segun Balogun, in an exclusive interview with Nairametrics.
According to Balogun, the Coronavirus pandemic brought enormous pressure on the insurance sector and that of the company. He explained that the various lockdown measures for the effective prevention of the spread of the disease led to a decline in economic output, income, and consumer spending. Excerpts:
Some operators have described the insurance recapitalisation exercise as a great de-service to the sector. What is your take on this?
If not for the timing of the intervention or the eruption of this pandemic, recapitalisation is not a de-service to the insurance industry in Nigeria. The focus for recapitalisation is to enhance the capacity of all the industry players such that it will make us retain more of the revenue of the risk that we all participate in Nigeria than taking so much out of the shore of Nigeria that we do currently, especially in the area of high capacity risk such as Aviation, Oil and Gas, Energy as well as the insurances of major Power Plants. Rather than being a de-service, recapitalisation in itself is an enhancement of capacity which is good for the growth of the sector and it’s a tool to improve penetration.
Do you also think the exercise period is short, probably a three-year plan will be better?
The timing is not too short, considering the revision that has been made currently by the regulator giving the staggering period for compliance to 31st of December, 2020 to 31st of September, 2021. But for the current situation, where most foreign investors are withdrawing their funds from the local economy, affecting business performance due to the pandemic may call for a further review of the recapitalisation exercises.
How far are you to deadline?
We have increased our authorized share capital to N20 billion to accommodate new investments, in line with the recapitalisation in the industry. We engaged the services of financial consultants who are working hard to conclude the necessary regulatory protocols. LASACO will meet the new capital requirement, as there are various options open to the Company.
How would you rate the Nigerian insurance sector in Africa, how far is it to South Africa, and how would rate foreign investors participation?
We can make an inference from the participation of some South African companies in Nigeria, and we currently don’t have the same reciprocity of Nigeria Insurance companies operating over there.
Nigeria looks presently like that bride, we have the market, but the capacity is not adequate. One of the advantages the recapitalisation would bring is enhancing capacity such that some of our insurance companies would be looking to take comparative advantage to establish a presence in other economies in Africa. But we are not far back, in terms of skills and competence. In Nigeria, we have competent insurance professionals and business managers. They can also run the businesses across borders.
Most of the shares of insurance firms listed on the Nigerian Stock Exchange are penny stocks; many have not paid a dividend in about ten years. What are the factors responsible for this development?
There are numerous factors responsible, but I would say the shares of insurance firms listed on the Stock Market are majorly affected by perception and the level of awareness of insurance brands amongst the investing public. This is because if you critically review the performances of most of these insurance companies listed on the Stock Market, it’s not as though they are not running profitably, but the value of these stocks and ROI’s as far as the investors’ mind are concerned may be a significant consideration in determining how much they will be willing to commit to that industry. As bleak as it may seem, some of the players in the insurance industry are not doing badly in the Stock Market.
Fintech is the way to go now. How do you think the sector can explore opportunities in the Fintech space?
With my appreciation for technology, it’s a must for Fintech to be adopted in the insurance sector. It has worked for many other industries and businesses. It would help increase the rate of insurance penetration as choosing an instrument such as Fintech would place the operations of insurance in the hands of consumers placing the purchasing of insurance and processing of claims to be at the palm and the comfort of consumers.
Insurance penetration is rated at about 0.5%. Considering the nation’s population, what needs to be done to close the gap?
Despite the current low rate of insurance penetration in Nigeria, the sector has enormous growth potential, considering the country’s favourable demographics. With a population of around 180 million people and the potential upward mobility of substantial segments of the country’s populace, a boost in the insurance penetration will increase the insurance industry’s contribution to Nigeria’s GDP.
The industry players need to break insurance down to the language that can be spoken and understood by the common man on the street who presently feels insurance is not meant for him/her. When there is any incident or accident, Nigerians tend to rely on family and community to come to their rescue. Also, when someone dies, it takes the effort of all of the family and community to rally round to provide ordinary burial expenses. As a result, the industry players need to speak to these needs and create bespoke products that can attend to these needs and take it down to them in the grassroots.
Unfortunately, our concentration as an industry is more largely on governments, corporations and the elites. If insurance could be taken down to the low hub, then insurance penetration would soar up.
LASACO declared a dividend of 5kobo at your last AGM. What should your investors/shareholders expect in 2020?
Irrespective of the effect of the pandemic on the economy and our well thought out Business Continuity Plan; we will not renege in ensuring that the Company grows its revenue and profits. The controls that we have is over cost mostly and not income, but we are still engaging all relevant partners to ensure we get all our businesses renewed and participate in new ones.
One flip side of the pandemic is that notwithstanding the financial lag back that it will give businesses, the risks abound, and any viable business would ensure to protect their risks. The economy is gradually opening, and insurance is key to businesses. With these positive indicators, we are going to have a growth rate from what we achieved last year.
How is COVID-19 affecting your operations?
As expected, the outbreak brought enormous pressure on our businesses. The various Lockdown measures for the effective prevention of the spread of the disease led to a decline in economic output, income, and consumer spending. As disposable income is being affected, so will the demand for our services.
Our First Quarter Results showed an 11% reduction in revenue in comparison to the Year 2019 corresponding period, but our quick response to this reality is to manage down cost.
What is LASACO doing differently to keep it head above water, especially to survive COVID and its challenges?
Our first and swift response was to look at areas we have control over, which is the cost of operations. We have made a lot of adjustment in the field of management expenses because we are almost confident that once the cost is down, the available revenue would provide a good result. We have also upscaled our engagement with customers, especially our brokering partner, which is bringing a good result for us. Our half-year results showed a slight growth in revenue in comparison to the Year 2019 corresponding period.
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What should be the expectations of your clients, investors from LASACO in the next five years?
It can only be better. By our nag for quality, we seek to improve on the performance of our system continually. Part of our offerings to customers is to ensure prompt claim settlement – claims to be settled the same day after the discharge voucher is executed and submitted to us. We assure our customers to be quick in service delivery and seek to improve our promptness on service delivery and the quality of the products we offer.
For our investors, it will not be less. As good as the Company is performing, and as we seek to better it, the value that will come to them will be enhanced.
How Gradely makes money by providing bespoke learning services – Gradely CEO, Boye Oshinaga
Gradely CEO, Boye Oshinaga talks to Nairametrics about the inspiration behind the learning platform.
From earlier centuries, practically every industry has undergone drastic changes to keep up with the times, except for the education industry which remained largely the same. For many, the tussle might have been how to preserve the individual relationship in teaching and learning, while also scaling along with the modern-day business model.
It appears that Gradely has figured out how to individualise the learning process while scaling.
Gradely is a learning platform for schools and students that uses data, from assessment to personalising resources and providing recommendations tailored to meet students’ needs. Unlike the typical classroom scenario where students are lumped together and taught the same content in the same way irrespective of their different levels of comprehension and capabilities, learning the Gradely way means each student can have video lessons, tutor sessions, assignments, quizzes, mock tests, etc. tailored to them.
Co-founder and Chief Executive Officer of Gradely, Boye Oshinaga, recounted during the Nairametrics Business Half Hour that the inspiration came after an encounter with a parent who complained bitterly about her child failing a particular subject repeatedly.
Obviously, the general teaching methods used for the class was not as effective for the child in relation to that subject. The situation called for what some might want to refer to as “bespoke teaching services.”
“I have had a lot of experience creating content and technology for education, so when I saw this problem, I knew there had to be a way learning could be tailored based on the child’s assessment to make him study more in his weak areas and improve subsequently,” Oshinaga said.
This definitely resolves a lot for both teacher and student. After all, why would a child want to spend same time learning his weak subject – Mathematics – as the child who has mathematics as her area of strength?
So how does this bring money to the company?
From the experience Oshinaga had gathered in his years in the tech space, and from the findings from their pilot study, he knew that he had to find a way to get the funds trickling in, otherwise the business would be reduced to a not-for-profit venture.
Gradely was structured to function on a subscription basis, where schools paid a certain amount to get their teachers access to the premium features including examination questions, lesson notes and others. Parents also got to pay a fixed amount of N1500 monthly to get their children access to the content and an optional N2500 fee for a live tutor session for the child.
“We plan to get to the point where we have millions using the product,” Oshinaga said, further emphasising that it is all about scaling.
The COVID-19 catalyst
Less than seven months after Gradely started operations, the COVID -19 crisis came into Nigeria and in no time, businesses and schools were shut down. When the lockdown stretched from the expected 14 days and seemed to drag on endlessly, more parents and schools started exploring alternate learning plans.
This was the right time for Gradely to experience an upsurge in demand for its products and it did.
“A lot of requests came for some products and some of them wanted it within the shortest possible time. Even though we already had plans underway, we could not meet up with some of their timelines, but we pushed through because now, we had excess demand for a product we had not even perfected,” Oshinage explained.
The business that had started in October 2019 gained traction in no time because people were looking for what could help children learn more as they were spending more time at home and needed a system that was compatible with the ‘new normal’ and the uncertainty of schools reopening.
Even with the lockdown over, parents are still in search of forms of online learning that may help children learn at home because students are obviously spending more hours at home now than they did a couple of years back. What many thought was a temporary fix for the lockdown may have become a definite addition to the educational sector.
There is the possibility of exploring a whole comprehensive learning online that could make physical learning complementary, and according to Oshinaga, this could chart the future direction for the company even as it expands to the rest of Africa.
How we will use the $10 million raised – Onyekachi Izukanne, CEO TradeDepot
CEO of TradeDepot Onyekachi Izukanne chats with Nairametrics on retail distribution sector, funding and more.
Onyekachi Izukanne is the Co-founder & CEO of TradeDepot. He is an entrepreneur with 17 years’ experience in technology and consulting. He has over 11 years in management consulting, specialising in consumer products, energy and financial services.
TradeDepot is a distributor and retail aggregator that was launched in 2016 with a mission to consolidate Nigeria’s fragmented informal retail supply chain, by connecting the world’s top consumer goods manufacturers to retailers in Africa. TradeDepot’s technology was built to accommodate the varying needs of its customers. It currently has about 60,000 micro retailers in its network.
TradeDepot could have gone into other segments, why is the company passionate about solving issues in the retail distribution sector?
Our focus is distribution, which is a very feasible problem because to purchase whatever item we need, distribution is necessary in getting it from the maker to us. Whether it is a shirt, food, or digital item, there needs to be distribution.
Now especially, the biggest commercially used case you could make for distribution is the movement of consumables, personal care items and other essential supplies. Items that are fast-moving, due to the high velocity of their usage, require frequent replenishment. This creates the biggest challenge as far as distribution is concerned.
If you look at a typical distribution outlet, which is a retail store, the majority of what you will find them selling are fast-moving consumer goods. So, it wasn’t so much for us a choice of should we do FMCG or other things; we need to build reliable distribution, and if you are building a reliable distribution, the biggest thing that we’ll need to move through that pipe will be fast-moving consumer goods.
What is the key driver of the impressive growth in TradeDepot’s distribution network?
Our current network is currently nothing compared to the number of micro retailers in the company, and this is one of the key drivers for growth. It is important to understand that the market where we operate has over 1.5 million stores, and this shows that we are still very early in the business, and I think there is some relevance if you are a distribution platform, with more footprint in this segment.
If you are a manufacturer and there are 1.5 million retail outlets across the country that consumers in Nigeria patronize, and you are looking for which distribution platform to work with, the more of that 1.5 million outlets base you can get from a distribution platform, the more relevant that platform is to you, and that is what’s guiding us.
We realize that to be essential to manufacturers, there needs to be an aggressive focus on expanding our footprint. Another thing is that the business makes more sense from an economic standpoint, as profitability gets better if you can increase the density of your supply base.
Despite the potentials for growth, what can you say have been major challenges of the company in reaching retailers, with the retail sector highly fragmented and 98% of players in the industry operating in the informal sector?
We show up where the people are. There are more convenient and cost-effective ways of trying to reach customers—through digital channels and so on—but to the extent that the target customer is not available on those channels, effectiveness will be quite low.
So many times, we had to get out with actual field operatives, going store to store, to interact with them and have them understand the value proposition.
Another thing is that the value proposition has to be simple and also make sense. These people are informal, yet they are a bunch of very resilient entrepreneurs who have built their businesses with almost zero help from anybody, and they are not looking for a “savior.” If you show up, you really must have a value proposition that makes immediate sense, for them to even contemplate changing what they have been doing that has worked on some level for them, to explore this new direction.
I would say reaching where they are and having a simple value proposition that makes sense has been key things that worked. There is a lot of work that must be done in figuring out better ways of doing what we are doing faster, and that’s the work we would continue to do.
The obstacles to our business remain those things you would expect, like resistance to change, inadequate infrastructure, etc., which we constantly figure out how to navigate.
You obtained financing of $10 million in July 2020. What will the company invest it in?
Technology is the primary thing that we are investing in to drive better economics. The distribution industry has been around for a while. However, we are betting on the opportunities for technology and innovation to change the way distribution happens.
We are investing significantly in leveraging technology to drive optimization, using data and tech which tell us where to focus. They also guide us on which store we need to onboard. They play an important role in determining how we deploy logistics assets like vans and other vehicles, and how to get the best utilization for those assets because these are the things that have the most direct impact on your variable cost.
The other thing is optimizing your margin and having the right consumer insight, in using an effective mix of cost and margin optimization strategy to plan for supply and demand; this plays a very important role in helping you optimize your inventory holding cost.
It also helps optimize promotions that you are passing on to your retailers. We believe that we win when we are able to use data and technology to really help us optimize these key costs of doing what it is that we do.
We are also actively investing in expanding our footprint and kicking off operations in more states across the country. We have also invested significantly in the lending programme which we kicked off last year, and are still running a pilot for. These are the key things that will identify our value proposition, attract more retailers, and make this whole thing work better for the retail store owners.
How many states has the company been able to cover, and what will the company be doing to reach out to more states?
There are key markets across the country that we are either exploring or getting active in. Our goal is to ultimately have coverage across the major commercial centres in the country, both in the North East and in the West; this is our strategy. This year, we expect to cover at least 10 states and keep expanding into more of the commercial centres in the country.
I noticed the company uses a full suite approach in its distribution strategy, as it looks at the products which the retailers want, down to inventory control, warehousing, distribution and financing to the retailers, with key costs coming from this approach, compared to a fragmented approach which leverages on other distributor aggregators in the industry, what is the rationale for this?
There are scenarios in which it makes sense to work with other distributors, so we partner with them sometimes when we find out that our offerings are complementary. For instance, we have a stellar programme in which tier 1 distributors of FMCG work with us to provide inventory that will then help drive our distribution, and we also have a platform that allows distributors drive payment and collections at the retail stores.
The key is always about finding the levels to which the services are complementary.
There are also certain sides of the value chain that we are keying into and gaining control over, just to the extent that it is important to do so to guarantee service level. When we engage a store, there are certain promises that we make; we identify what they need, promise them what they will get and the timeframe when they will get it. In line with the promises that we make, the focus will always be to ensure as much control of the process as is required to enable us ensure that these promises are fulfilled.
What has been the impact of the COVID-19 pandemic across segments?
The biggest impact was in the relative performance of the categories, and this was as a result of the change in consumer behavior, as food items became bigger contributors to the basket versus other categories.
Overall, we identified that, across the retail sector, the pandemic led to an increase in store owners exploring alternative channels of reaching, acquiring and servicing customers, especially online and social media. For TradeDepot, services increased by 500%, with a 300% increase in transaction value and volume on the back of the pandemic.
Consumer buying patterns shifted slightly towards more food items, with growth in purchase of food and essentials as opposed to other categories. Our data revealed that there was a 10% increase in the overall contribution of food items to the distribution volumes, compared with 2019.
In the beer and drinks category, the lockdown affected the ability of manufacturers and distributors to sell to bars, restaurants and clubs, which usually account for about 60% of the bulk of their sales; however, many shifted their attention to Mom-and-Pop stores, and retail outlets to cushion the impact.
We also found suppliers of electrical appliances doing more volumes than they did previously. Suppliers in the home building-related sector like the manufacturers and so on had a decent year compared to previous years. We observed that some restaurants that embraced home delivery earlier tended to have a decent year as well.
What is the impact of this dramatic shift on TradeDepot and its services as a player in the retail industry?
On the demand for TradeDepot services, there was a positive impact. In the heat of the lockdown for instance, when you couldn’t go to the market or get on the road because there was no movement, probably you had the option of reaching out to TradeDepot through our ShopTopUp platform where you could get what you needed.
Based on this, we saw relatively higher demand than normal. We were able to drive more volume than we typically did. However, we weren’t able to drive enough volume to meet demand, as some of the health situations occasioned by the COVID-19 pandemic affected our supply chain.
What is the company doing in terms of creating value for your customers and retailers in your network?
I won’t be able to answer in as much details as I would have wanted to because there are a couple of things that we are yet to formally announce; however, on the high level, our commitment is to figure out ways to help these SME retailers.
It starts with the more commercial thing we can do to help them provide access to inventories as well as provide access to credit. It goes to supporting services that we realize are useful to them which include providing them training and access to knowledge around the things that they do. We have this town hall event which happens twice a month, where we gather virtually or physically with social distancing rules and guidelines observed with the retail store owners, talk through their challenges, hold trainings and help them understand how we can help them run their businesses better.
We have seen that these sessions also help them to become more financially smart about how they manage their cash flows. However, we are looking beyond this because we have seen other ways that we can help not just them, but their dependents, and other things that we are working on which in due time we would be announcing.
What are your thoughts on the things that are expected to change in 2021?
I think the consideration is what behavior we will revert to when Covid-19 doesn’t look as much of a threat as it currently does; we are probably not talking about 2021, because there is nothing to suggest that 2021 will be remarkably different from 2020 in that respect.
We expect, at least for the first half of the year, a lot of similarities with what last year looked like—just from a general pandemic consciousness and behavior. In terms of habits of consumers, we envisage a situation of “caution fatigue” in which people are less inclined to take the precautions that they took last year.
We should know that there are habits which we have adopted because they have made us more effective. I will use a general example: people do more virtual meetings today than they did this time last year; it has become way more normal for estates to have their meetings on zoom, and for people to work from home versus going to the office and getting into traffic, we have figured out how to make that work.
If we didn’t have to stay at home, probably we would be going out more, but that doesn’t mean we are throwing away benefits. On their own, there are benefits we have gained by not having to be in traffic four hours every day or just leaving the house and budgeting an hour before and after every meeting. These benefits won’t disappear when the pandemic ends.
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