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.