I regret to inform that I am writing about insurance again. Until such a time as the subscriptions from this site can replace the income from my day job, I will continue to periodically bore you with posts on perhaps the least exciting part of financial services. You can pay me to stop by taking out a subscription here.
In December, I wrote a brief analysis of the draft Nigeria Insurance Industry Reform Bill. The President signed it into law last week. This piece examines the new Act in detail and explores its key provisions. These are my personal views, intended to discuss the Act's implications for the Nigerian insurance industry rather than critique legislation that has already passed. I should confess that my previous analysis was written with more speed than care, missing some important provisions in the draft bill. This version attempts a more considered, and fair, assessment - though some of my original criticisms still stand.
What Changed?
What changed between the draft I reviewed in December and the final Act? Most provisions remained the same, but there were two significant modifications worth noting.
The first is that the capital requirements in the final Act are lower than those in the draft. Insurers must maintain either the specified minimum capital (₦15 billion for non-life, ₦10 billion for life, and ₦35 billion for reinsurance) or risk-based capital as determined by the Commission - whichever is higher. However, the minimum floor amounts remain substantial barriers to entry and can still prevent specialised insurers from entering niche markets. The hypothetical pet insurance startup I mentioned in my earlier piece, for instance, would still need ₦15 billion minimum regardless of its actual risk profile. The 12-month implementation timeline also remains unchanged. The high minimum thresholds continue to favour consolidation over innovation in the Nigerian insurance market (which is probably why the stock market has been going crazy for insurance stocks since this became law.)
The more significant change is the creation of the Insurance Policyholders Protection Fund (IPPF). This fund will be financed through 0.25% of Gross Premium Income (GPI) from every insurer and reinsurer, plus an annual transfer of 0.25% of the existing Security and Insurance Development Fund (SIDF) balance. Rather than merging the old fund entirely into the new one, the Act maintains both funds as separate entities. Nigeria sometimes works like this.
What will the IPPF actually amount to? The Nigerian insurance regulator, Olusegun Omosehin, recently projected that premium generation in 2025 will reach approximately ₦2.5 trillion, up from a record ₦1.6 trillion in 2024. Based on this projection, the IPPF would collect roughly ₦6.3 billion (US$4 million) annually. In the context of a ₦2.5 trillion industry, this is very modest - like bringing a spoon to drain an ocean, but at least it's a start.
Protection schemes like this are standard in emerging markets. Thailand operates two such funds - one for general insurance (0.25% of GPI) and another for life insurance (0.5% of GPI). When insurers fail, these funds pay outstanding claims and policy benefits up to ฿1,000,000 (US$31,000) per policy. The system proved its worth in 2022 when two Thai insurers collapsed under Covid-19 claims. The regulator revoked their licenses and the fund covered their policyholders. China similarly operates the China Insurance Security Fund (CISF), funded by 0.15% of non-life premiums and 0.5% of life premiums. When Anbang Insurance collapsed in 2018, the CISF took control and injected $10 billion to stabilise the company.
Similar protection funds exist worldwide, bringing Nigeria in line with international standards. While the initial amount is modest, it can grow over time. The critical point is that the fund exists for its stated purpose, which the new law defines as: "The Fund shall be used for the purpose of resolving distress and insolvencies of licensed insurers or reinsurer[sic] and payment of claims admitted by or allowed against a licensed insurer or reinsurer which remains unpaid by reason of insolvency or cancellation of the licence of the insurer or reinsurer." The hope is that this fund becomes a proper umbrella, one that actually opens when the rain starts falling.
Several other smaller but notable changes were made between the draft and final Act. Policy delivery requirements became stricter, moving from a five-working-day window to requiring delivery on or before the policy start date, with electronic deliveries requiring confirmation of receipt. The penalty for launching products without approval was reduced from ₦5 million to ₦500,000 per day, though the 30-day "deemed approved" provision remains if NAICOM doesn't respond. Finally, the Road Accident Victims' Fund contribution basis shifted from 1% of net premium to 0.5% of underwriting profit - a change that will likely generate minimal funds. Consider this your reminder to drive carefully: whatever this fund eventually accumulates won't be worth the gamble.
Life Insurance, a brief history
In the middle of The Maltese Falcon, Dashiell Hammett's 1930 noir masterpiece that gave us the archetype of the hard-boiled detective, Sam Spade pauses his hunt for a jewelled bird to tell his lover a story that haunts him. Hammett, who'd spent years as a Pinkerton detective before becoming a writer, knew the insurance business intimately - his agency primarily worked for insurance companies investigating claims. The story Spade tells seems oddly philosophical for a crime novel: a successful estate executive named Flitcraft - married with children and a thriving business - vanished one afternoon "like a fist when you open your hand." No scandal, no debts, no mistress. Five years later, he surfaces in another city, living an almost identical life under a different name. What drove this respectable family man to abandon everything? A falling steel beam that missed him by inches on his way to lunch. The near-miss had revealed something unsettling to him: his carefully ordered life was an illusion, sustained only because blind chance hadn't yet intervened. So he walked away, drifted for years, then unconsciously recreated the exact same suburban existence elsewhere.
Hammett chose his character names deliberately. Flitcraft wasn't random - it was the surname of the statistical wizard who'd written the actuarial tables that transformed American life insurance from gambling into science. And Charles Pierce (Flitcraft's assumed name) points to Charles Sanders Peirce, the philosopher-mathematician who declared "each of us is an insurance company" and spent his life trying to reconcile chance with pattern. For Peirce, insurance wasn't about defeating randomness but acknowledging it, pricing it, and living alongside it.
This is what life insurance actually offers: a framework for continuing with life when falling beams strike, not protection from them. We buy it not because we've conquered uncertainty, but because we've accepted it. Like Flitcraft settling back into his suburban groove, we construct our careful plans knowing they rest on nothing more solid than statistical probability. The difference is that we've learned to price the risk. Understanding life insurance this way - as an acknowledgement of randomness rather than a defence against it - clarifies what its absence means for most Nigerians: not just missing financial protection, but the lack of any formal structure to absorb life's inevitable disruptions.
Nigeria vs Peers
Beyond the capital requirements already discussed, the new Act introduces several structural changes specific to life insurance. Composite insurers must now separate their life and non-life operations within five years, ending the practice of mixed underwriting that has characterised the Nigerian market. Life insurers face new operational requirements including mandatory actuarial valuations and restrictions on how shareholder profits can be appropriated from life funds. The Act also establishes clearer frameworks for different life insurance categories - microinsurance, Takaful, and traditional life products - each with distinct licensing requirements and operational guidelines.
Claims settlement receives particular attention for life insurers. The 60-day payment rule applies to all admitted life claims, with penalties of ₦500,000 daily plus interest for delays. If insurers fail to comply, NAICOM - the regulator - can pay beneficiaries directly from the insurer's statutory deposits. Policy delivery must now occur on or before the coverage start date, with electronic deliveries requiring confirmation of receipt, whilst proposal forms must clearly state that agents act on behalf of applicants, preventing insurers from denying claims based on agent errors.
The Act's approach to distribution and product development reflects attempts to expand life insurance beyond its current narrow base of group life and credit life products. Digital distribution receives formal recognition through web aggregator licenses, whilst the 30-day product approval timeline aims to accelerate innovation. Commission caps remain strict - 10% for group life policies - which may limit aggressive sales practices but could also constrain the development of agency networks that have driven life insurance growth in other emerging markets. Worse, the cap will almost certainly become the floor: every agent will treat 10% as the target rather than the limit, eliminating any space for price competition or commission-based innovation. I vividly recall my bewilderment when Tidjane Thiam's Prudential tried to buy AIA in 2010: the combined entity would have commanded 700,000 agents in Asia, with plans to expand to one million.
Whether these provisions translate into increased life insurance penetration will depend largely on NAICOM's enforcement capacity and the industry's ability to develop products that resonate with Nigerian consumers amid persistent inflation and economic uncertainty.
Nigeria's adoption of risk-based capital in 2025 comes years after Asia's insurance markets made the transition. Malaysia and Thailand implemented RBC frameworks in the early 2000s, China introduced its C-ROSS system in 2016, and Indonesia has operated under RBC since 2013. The ₦15 billion capital requirement for Nigerian life insurers translates to roughly $10 million - more than Pakistan's $5-6 million or Bangladesh's $5 million requirements, but substantially less than Malaysia or the Philippines at $25 million each. Nigeria is essentially implementing regulatory standards that have been tested elsewhere for over a decade. That’s a good thing.
The distribution gap between Nigeria and Asian markets reveals the real challenge. Bancassurance (insurance sold through bank branches) accounts for over 50% of new life premiums in India and Malaysia, yet Nigeria's regulatory framework barely acknowledges its existence, with the Act only hinting at future guidelines. India's online aggregators have been selling policies since 2017, whilst Nigeria is only now beginning to license digital platforms. The contrast in agency networks is particularly striking: India operates with over 2 million insurance agents whilst Nigeria's entire agent force remains minimal. As stated earlier, the Act's commission structure may compound this problem whilst India recently removed commission caps entirely, allowing insurers to set rates freely within expense limits. Malaysia previously allowed first-year commissions exceeding 160% of premiums, creating powerful sales incentives that Nigeria's framework explicitly prevents.
Product development remains similarly constrained. Asian insurers routinely offer unit-linked investment plans that transfer market risk to policyholders - these dominate sales in India and Indonesia - whilst Nigerian life insurers concentrate on mandatory group life and basic credit protection. The Act's 30-day product approval timeline matches recent liberalisation in India, but expedited approvals won’t matter without the technical capability or market demand for sophisticated products. Asian markets demonstrate that product innovation typically follows distribution expansion: once banks and agents could reach millions of customers, the market evolved from simple term life to investment-linked savings, critical illness coverage, and complex retirement products.
The market statistics illustrate Nigeria's position. Insurance penetration remains below 0.5% of GDP, comparable only to Pakistan (0.8%) and Bangladesh (0.5%), whilst India achieves 4%, China 3.9%, and Vietnam 2.5%. Life insurance density - the average premium spent per person annually - tells the story even more plainly. Nigerians spend roughly $8 per capita on insurance, whilst Indians now spend $92 ($70 of that on life.) Malaysia's density reaches into the hundreds of dollars per person. With 90% of Nigerians lacking any life coverage, the market resembles India two decades ago, before that country's substantial increase in life insurance spending was driven by bancassurance and digital channels. The Act establishes the regulatory framework to address these gaps, but regulatory frameworks don't sell policies - that requires building consumer trust, developing relevant products, and creating distribution networks that can reach a population that has historically viewed insurance with scepticism.
What’s the outlook?
The optimistic scenario reads like a development economist's dream. Assume the government actively supports insurance through things like tax rebates and financial inclusion programmes, NAICOM regulates with conviction, and inflation drops to single digits whilst the Naira strengthens. In this version of events, life insurance premiums could grow at 25% annually in nominal terms - 10% in real terms - with penetration reaching 2% of GDP by 2030. The industry would then enter a "virtuous cycle": higher capitalisation enables larger underwriting capacity, telecoms embed life cover into airtime packages, and the National Pension Commission channels retiring workers into annuity products, and so on. Distribution channels multiply as thousands of new agents enter the field, banks turn their branches into insurance outlets, and digital platforms make buying coverage a routine affair. Within a decade, the share of Nigerian households with life insurance could rise from under 2% to perhaps 10%, with insurance becoming as normal as having a bank account.
The pessimistic scenario is less inspiring. Picture inflation stuck above 20%, NAICOM extending compliance deadlines under pressure, and insurers continuing their traditional dance of undercutting and avoiding claims. Real premium growth slumps to single digits or worse, keeping penetration trapped below 0.5% of GDP. Life insurance remains dominated by mandatory group coverage that employers purchase grudgingly to comply with pension regulations. Banks deprioritise insurance without regulatory pressure, digital innovation stalls from lack of venture funding, and the protection fund's first test comes not from one failure but several simultaneous collapses that destroy what little consumer confidence exists. Nigeria would risk falling behind even Pakistan's modest improvements, trapped in the familiar cycle: low trust leads to low uptake, which keeps insurers weak, which produces more trust-eroding failures.
The risks specific to Nigeria are substantial. Inflation running at 20% doesn't just erode purchasing power - it makes long-term life products mathematically absurd when real returns turn negative. The cultural challenge runs deeper than economics: insurance must overcome both religious scepticism and competition from informal risk-pooling mechanisms that have served communities for generations. NAICOM's enforcement capacity remains unproven; the regulator is smaller and less institutionally powerful than India's IRDAI or Malaysia's Bank Negara, and past recapitalisation efforts have foundered on court challenges and political interference. Perhaps most critically, the Act cannot fix Nigeria's macro-economic volatility - the volatile Naira (perhaps that is changing) and stop-start growth that makes financial planning an exercise in futility.
Conclusion
I've deliberately focused on life insurance because it represents the real test of a market's sophistication. General insurance - your motor cover, property insurance, marine policies - is transactional, immediate, tangible. You insure your car because the law demands it or because the bank requires it for your car loan. The Act addresses general insurance with the same broad strokes: higher capital requirements, faster claims settlement, digital distribution channels. But life insurance operates in an entirely different dimension. It requires citizens to think in decades, not months, to save rather than merely protect, to trust institutions with money they won't see again for years or that their families will claim when they're gone. When life insurance works, it transforms an economy by creating pools of long-term capital that can fund infrastructure, deepen capital markets, and smooth consumption across generations.
This is why life insurance penetration serves as the litmus test for financial sector development. India's economic transformation correlates directly with life insurance growth; China's insurance companies now rank among the world's largest institutional investors. Ping An alone, the world's largest insurer by market capitalisation at $236 billion, serves 600 million people annually - more than double Nigeria's entire population - and has evolved from a small Shenzhen insurance outfit into a technology conglomerate that now owns stakes in HSBC. Nigeria, with life premiums at barely $300 million annually, hasn't even scratched the surface. The real prize on offer is what a functioning life insurance market represents. Like in Flitcraft's story earlier, a society that buys life insurance has accepted uncertainty but refused to be paralysed by it. It has learned to price chaos into order.
For all these challenges, the Nigerian insurance industry is undoubtedly better positioned with this Act than without it. The shift to risk-based capital, the policyholder protection fund, the 60-day claims rule - these aren't revolutionary innovations but proven mechanisms that work elsewhere. The Act doesn't guarantee that Nigeria will develop the long-term savings culture that transforms economies, but it removes many structural impediments that made such development impossible. The gap between Nigeria's 0.5% penetration and even Pakistan's 0.8% represents millions of potential policyholders and billions in premiums that could fund the country's development.
The regulatory scaffolding is now in place; what remains is the harder work of building trust, one paid claim at a time.
Thank you for so much for this excellent explainer. It came in very handy in contextualising the new law.