Improving Nigeria’s insurance penetration: legal, regulatory and market considerations



According to industry statistics, Nigeria’s insurance penetration rate (IPR) in 2013 was 0.39 percent, down from 0.48 percent in 2010. However, Nigeria’s IPR worsened to 0.06 percent in 2016 – by comparison, South Africa’s IPR reached 13.2 percent, the highest in Africa – while the insurance sector’s contribution to Nigeria’s real GDP was abysmally low at only 0.02 percent. Illustratively, according to a 2013 survey by NOI Polls, 86 percent of Nigerians polled do not have any form of health insurance cover.

These statistics provide a good backdrop to the Nigerian insurance sector’s huge potential for growth, particularly given the country’s positive demographics, namely Nigeria’s population of around 180 million people, and the potential upward mobility of substantial segments of the country’s populace. As the nation fights the current recession, will a boost in the IPR increase the insurance industry’s contribution to Nigeria’s GDP?

Legal and regulatory considerations

IPR, by definition, indicates the insurance sector’s level of development in a country, measured as the ratio of premium underwritten in a particular year to the GDP. This could be determined from the various life businesses – namely, individual life insurance, group life insurance and pension – and general insurance business – motor vehicle, health, fire, marine, oil & gas and engineering insurance, among others, pursuant to section two of the Insurance Act (IA).

The Nigerian government enacted various sectoral laws and established regulatory agencies to give effect to the IA provisions, including the Nigerian Council of Registered Insurance Brokers Act (NCRIBA), the National Insurance Commission Act (NAICOMA), and the Federal Road Safety Commission (Establishment) Act (FRSCA). These acts play a considerable role in shaping the insurance industry through their various regulatory, monitoring and sensitisation initiatives.

Undoubtedly NAICOM – the sector regulator created and empowered under section 85 of the IA – has tried to work toward improving the IPR in Nigeria. Some of NAICOM’s policies and initiatives, such as the Prudential Guidelines for Insurers and Reinsurers in Nigeria, 2015, the Code of Good Corporate Governance for the Insurance Industry in Nigeria, 2009, the adoption of International Financial Reporting Standards (IFRS) by insurers, the ‘No Premium No Cover’ rule and the prescription for an increase in insurance companies’ capital base in 2007, were to directly and indirectly enhance the IPR in Nigeria.

Furthermore, improved enforcement of the current framework of six compulsory insurance policies in Nigeria should also positively impact the IPR. The compulsory insurance are: builders liability insurance, construction all risks insurance and occupier liability under the IA, employers liability, (group life) under the Pension Reform Act 2004, healthcare professional indemnity under the National Health Insurance Scheme (NHIS) Act and motor vehicle (third party) insurance (MVTPIP) under the IA.

Notably, section 64(1) and (2) of the IA requires that construction risk insurance cover must be obtained for any building under construction beyond two floors and violators will pay a fine of N250,000 or be liable to three years’ imprisonment or both. Section 65 of the IA, on its own, enjoins owners and occupiers of public buildings – tenement house, hostel, recreational or business buildings, among others – to insure their buildings against hazards of collapse, fire, flood and so on, with fines of N100,000 or one year imprisonment or both as a sanction upon conviction while section 68(1) & (4) of the IA and section 10(4)(I) of the FRSC Act provides for motor vehicle (third) party insurance, penalty for default and the FRSC powers to prosecute defaulters.

These laudable provisions can enhance the IPR if relevant federal and state ministries, departments and agencies (MDAs) align with NAICOM and other regulators to enforce them. For example, proof of insurance cover should be made condition precedent for applicable construction approvals. For effective regulatory oversight, government officials should carry out unannounced visits or inspections of construction sites until completion and respective public buildings to ensure that insurance certificates obtained and presented are valid, current and from approved channels. Of course, the monitoring system must be transparent, and designed to minimise corruption by such officials. Foundational to this is that there is an awareness gap – there should be continued massive public sensitisation of these mandatory insurance schemes as a prelude to invigorated enforcement.

The Nigerian Insurance Industry Database’s (NIID) car insurance verification database, which FRSC uses to detect car insurance defaulters, should be expanded to the other five compulsory insurance schemes in order to determine when a contractor or owner of a building has not complied with the law, which will assist in enforcement by MDAs. Can we operate a modified version of New Zealand’s auto-insurance scheme, whereby in Nigeria the premium for motor insurance will be included in vehicle registration taxes? This, in itself, if not properly managed, could create administrative bottlenecks and may signify the industry’s inability to push compulsory insurance products independently, but the potential IPR benefits may make it an option worth considering.

NAICOM’s obligation to approve or reject new products within 30 days of receiving applications, pursuant to section 16 of the IA, needs to be complied with, rather than being the exception due to regulatory queries and bureaucracies. Insurers can also help in this regard by making sure they have thought through their products and, as such, comply with requisite basic requirements for NAICOM’s approval. NAICOM should have a fast track approval mechanism to further encourage innovative insurance products conceptualisation in the industry.

Market competitiveness considerations

Experience has shown that unhealthy competition among underwriters, resulting in premium rate undercutting against prescribed or standard industry rates, is not the way to go in improving IPR. Rather, creative and value-added insurance products that scale a sceptical public’s trust barriers to deliver positive customer experiences will better make the case for insurance in general and IPR in particular.

Also, partnerships with foreign insurers can be leveraged to enhance IPR. For example, Sanlam Group’s investment in FBN Insurance means the latter can, in addition to its in-depth knowledge of the local market, access the former’s institutional knowledge, experience and business strategy, spanning decades of managing life insurance businesses on four continents. Such synergies resulted in 35 percent and 44 percent year on year gross premium growth in 2013 and 2014 respectively. AXA Mansard is another example where foreign investment has yielded impressive performance, making the Nigerian market very attractive to prospective foreign entrants. Morocco’s Saham recently acquired a stake in Continental Re. Space constraints, discussion of other foreign players and imminent regulatory-induced sector consolidation may further make Nigerian entry compelling for some others. Home-grown insurers, too, have fared very well, including those that have also received foreign investment like Leadway (IFC/Atlantic Insurance), Cornerstone (ACA) and Custodian & Allied (IFC), among others.

Social media has proved to be a useful tool in significantly scaling the advertising and sale of online insurance packages to Nigerians. Collaborations with telecoms operators have yielded impressive results and can further exponentially drive the IPR, given Nigeria’s pervasive mobile penetration rate. Examples of recent collaborations include Cornerstone and Airtel’s free life and hospital cash insurance policy and Airtel and FBN Life Assurance’s ‘Padi4Life policy’. Incidentally, Cornerstone and Airtel’s pioneering insurance product won AfricaRe’s 2016 award for innovation.

Promoters of the NHIS’ community based, voluntary contributors and tertiary institutions social health insurance schemes can collaborate with the various primary health centres, private and general hospitals as conduits to ensure that health insurance products are affordable and accessible. Despite the fact that health insurance is now outside NAICOM’s primary purview, educating the populace on the risk management benefits of insurance and also the tax benefits –tax deductibility of premiums paid – should position insurance as a sound commercial proposition and help to improve IPR.

Another innovation can be micro-group insurance arrangements. In Kenya, a micro-insurance health product – Linda Jamii – involving a partnership between Britam Insurance, mobile telecom operator Safaricom and Chagamka Micro-insurance, was scaled down from individual to group buyers, recording huge success. Recently, the Nigerian Bar Association introduced optional life and professional indemnity insurance to its members, by partnering with Leadway Assurance, with premiums paid as well as annual practicing fees. This could be embraced by other professional bodies. In South Africa, for instance, legal and health professionals are required to procure professional liability insurance cover as condition precedent to professional practice.

Insurers need to ensure that claims are paid promptly when insurable events happen. Insurers and brokers should be more technologically driven in their operations in order to penetrate the upcoming millennial generation and effectively compete with rising FinTech companies. These could help push the boundaries and make up for loss of NAICOM’s ‘jurisdiction’ over group life, employees’ compensation and health insurance businesses respectively to Pencom, NSITF and NHIS. A requirement mandating insurance of pension assets or investments like mutual funds could potentially further drive IPR, however this could create circular problem and result in additional costs, as premiums could be significant given capital markets volatility. This may be illustrative that it is better for the industry, while striving to upscale the IPR (with regulatory support) via the compulsory insurance window, to focus on more impactful and sustainable results through creative product development, marketing and demonstrable value addition to the insuring public.


Nigeria’s low IPR – despite its huge population and imminent economic growth, which will drive the need for insurance products consumption – has huge potential for insurers and investors. Achieving the feat of transformational IPR levels would involve NAICOM upgrading its policy implementation strategy, especially in enforcing the compulsory insurance scheme and implementing the Solvency II model, fast tracking innovative product approval and synergising with the MDAs and stakeholders in the industry to educate and incentivise people who voluntarily obtain insurance cover.


Gabriel Fatokunbo is an associate at LeLaw Barristers and Solicitors. He can be contacted on +234 813 473 133 or by email:

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Gabriel Fatokunbo

LeLaw Barristers and Solicitors

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