THE ROLE OF GOVERNMENT REGULATION IN THE
INSURANCE BUSINESS IN NIGERIA
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ABSTRACT
1.0. INTRODUCTION
Regulation is the abstract concept when a state regulates her subjects with imposing legal
imperatives then it shapes a material body. Government regulations play a crucial role in shaping
insurance business environment and promoting ethical and responsible practices. 1 Insurance
involves risk transfer from insured to insurer for future loss compensation. Given this nature,
government regulation is essential to balance participant interests and set standards for successful
operation. However, broader public policies reflecting societal attitudes also shape the regulatory
pattern. These policies may channel, restrict, or alter the internal operations of the insurance
business in various ways.2
2.0. REGULATIONS, THEORIES OF REGULATION, AND TYPES OF REGULATION
Insurance regulation theories explain how regulation operates, often divided along public vs.
private spheres and economic vs. broader political factors. Some theories emphasize a clear
division between public and private actors, while others view the boundary as blurred. Similarly,
some focus solely on economic objectives, while others incorporate wider political goals. Posner
examines three strands of regulation theory that seek to justify government intervention in
insurance markets.3 These theories are the public interest theory, capture theory, and the
economic theory of regulation.
Public Interest theory
Public interest theory (or market failure theory) posits that regulation arises when government
acts to promote social welfare or responds to critical events like corporate failure. It asserts that
insurance regulation protects the public interest by ensuring fair services, solvency, and reducing
1
Oladunni, Opeyemi Emmanuel and Ezema, Clifford Anene, ‘Effects of Government Regulations on Insurance Operations in Nigeria (1999–
2022)’ [2024] 6(2) Journal of Quantitative Finance and Economics, 259 [Link] accessed 1 September
2025.
2
Kimball, Spencer L, ‘The Purpose of Insurance Regulation: A Preliminary Inquiry in the Theory of Insurance Law’ [1961] Minnesota Law Review,
2324 [Link] accessed 1 September 2025.
3
Adams, MB and GD Tower, ‘Theories of Regulation: Some Reflections on the Statutory Supervision of Insurance Companies in Anglo-American
Countries’ [1994] 19(71) The Geneva Papers on Risk and Insurance: Issues and Practice, 156 [Link] accessed 1
September 2025.
exploitation risks.4 A good example is the regulation of fire insurance rates in the early 20th
century in the United States, specifically highlighted by the Supreme Court case German
Alliance Ins. Co. v. Lewis (1914) during the Progressive Era. In the case of the British insurance
market, the collapse of the Vehicle and General Insurance Company in 1971 was the event
chiefly responsible for the tightening up of insurance company legislation and regulatory
procedures.5 Public Interest Theory (PIT) promotes competition to prevent monopoly. Meier
cites failures due to bureaucratic ineptitude, resource shortages, and technical complexity. Posner
critiques PIT for poor predictive power, challenging its assumptions of inherent market
inefficiency, costless regulation, and rational political intervention.
Capture theory
Capture (or private interest) theory, is derived largely from the political science literature. It
predicts that regulation is a partisan political process conferring benefits on politically effective
groups which capture and dominate the regulatory process. 6 Capture theory has two views: (a)
the Marxist/Muckraker view and (b) the Political Scientist perspective.
The Marxist/Muckraker view posits that regulation primarily serves capitalist interests,
marginalizing labor. It attributes regulatory levels and changes to corporate dominance, citing
examples like New Zealand's weak consumer protection and privatization of state insurers,
which harmed social welfare. Public insurers can counter monopoly abuse with break-even
premiums, but recent sales of government assets favor private business. Similarly, U.S. corporate
disclosure rules emerged from capitalist crises, such as mass share ownership.
From this perspective, insurance regulation develops reactively to capitalist crises. For instance,
British life insurance supervision arose after major market failures, including the collapse of
Albert and European life insurers in the 1860s and post-WWI economic turmoil. 7 considers that
industry groups seek to capture the regulatory and/or legislative process for two main reasons:
(a) to protect their market(s) from outside competition and the entry of new firms; and (b) to
4
Stigler, GJ, ‘The Theory of Economic Regulation’ [1971] 2(1) Bell Journal of Economics and Management Science, 3.
5
Harte and Macye, 1991, p. 353
6
Noll and Owen, 1983; Reagan, 1987
7
Stigler (1971, p. 5)
obtain state subsidies. Such action can adversely affect the interests of consumers, by restricting
supply and increasing prices.8
The Marxist model of capture theory, which claims regulation mainly benefits large
corporations, is criticized since regulation can also aid small businesses and individuals. The
political scientist approach is likewise faulted for weak explanatory and predictive power.
Economic Theory
Stigler reformulates capture theory into economic regulation theory, treating regulation as an
economic good allocated by demand and supply. Industry groups, with informational advantages,
demand regulation to secure corporate interests, while policymakers supply it when support
outweighs opposition.9
Posner argues this theory has greater explanatory power than public interest or capture theories
because it: (a) discards the assumption of pristine legislative purpose; (b) replaces capture with
demand/supply concepts; (c) assumes groups act in self-interest; and (d) explains regulations via
cartel arrangements and domination by politically effective groups.10
The economic theory of regulation views regulation as a market-like interaction. The state
supplies rules in response to demand, often for protection from competition or crises. It explains
the regulatory lifecycle of creation, modification, decline through market behavior shaped by
industries, consumers, and political actors.
Types of Insurance Regulations
Nigeria’s insurance regulatory framework rests on three interconnected pillars, each addressing
specific objectives and risks.
:
Prudential regulation
The primary objective of prudential oversight is to prevent market failures in the insurance
industry. Left unregulated, the insurance market is susceptible to destructive price competition,
8
Adams, MB and Tower, GD, ‘Theories of Regulation: Some Reflections on the Statutory Supervision of Insurance Companies in Anglo-American
Countries’ [1994] 19(71) The Geneva Papers on Risk and Insurance: Issues and Practice, 156 [Link] accessed 1
September 2025
9
Stigler 1971
10
1974, pp. 341-344
where insurers might lower premiums to unsustainable levels to gain market share, only to find
themselves unable to pay claims when they fall due. This can lead to insolvencies, which not
only harm policyholders directly but can also trigger a loss of public confidence and create
contagiooon risk within the broader financial system. 11 The most impactful prudential reform
introduced by the 2003 Act was the radical increase in minimum paid-up share capital
requirements. This measure was a direct response to the perceived undercapitalisation of the
industry, which limited its capacity to retain large risks and undermined its financial stability.
Section 9 of the Insurance Act 2003 sets new capital floors, far higher than the 1997 Decree.
Section 10 adds a statutory deposit: applicants must place 50% of minimum paid-up share capital
with the CBN. This provides a liquid fund to protect policyholders, especially in a company’s
early years.
Prudential regulation continues after entry. Section 24 requires insurers to establish technical
reserves for general insurance: (a) unexpired risks (premiums for coverage not yet expired), and
(b) outstanding claims, including reported but unpaid claims and IBNR. These reserves fund
claims and are vital for solvency. Sections 26 and 27 further mandate financial reporting and
actuarial valuation.
The evolution of regulatory thinking is further evidenced in draft legislation which explicitly
mentions the need to consider capital for a range of risks including insurance, market, credit, and
operational risks, signaling a clear trajectory towards a more sophisticated, risk-based capital
framework in the future.12
Market conduct regulation
While prudential regulation ensures an insurer's ability to meet its financial promises, market
conduct regulation governs the fairness and transparency with which it conducts its business and
fulfills those promises.
Prudential regulation secures an insurer’s ability to meet obligations, while market conduct
regulation ensures fairness and transparency in fulfilling them.
11
ResearchGate “The Purpose and Structure of Insurance Regulation in Nigeria” available at:
[Link] accessed
31st August 2025
12
Nigeria Insurance Reform Bill, 2024
At common law, insurance contracts were governed by uberrimae fidei (utmost good faith),
placing a heavy duty on the insured to disclose all material facts. Even innocent non-disclosure
could void the contract ab initio, often harsh on consumers.
Section 54 of the Insurance Act 2003 changes this by shifting the duty of inquiry to insurers.
Proposal forms must state that a copy will be given to the insured, and insurers must ask for the
information they deem material. The insured’s duty is only to answer truthfully. While avoidance
of contract remains a remedy, the Act narrows its use, and Section 55(1) introduces a statutory
test of materiality.
Market conduct regulation also includes product oversight. Section 16 requires NAICOM’s prior
approval for new products, ensuring clarity, fairness, and compliance before reaching consumers.
Its rationale is correcting information and power asymmetry in insurance, preventing abuses like
deceptive marketing, unsuitable products, and unfair claims practices.
Inclusive regulation
With insurance penetration below 2%, most Nigerians, especially low-income and rural groups,
lack a formal safety net. This protection gap drove the creation of an inclusive regulatory agenda
to remove barriers of cost, complexity, and accessibility.
The microinsurance model, introduced in 2013 and revised in 2018, is the centerpiece of this
[Link] NAICOM Microinsurance Guidelines are designed for low-income populations,
with low valued policies... run in accordance with generally accepted insurance principles and
funded by premiums.13
There is also the Takaful Operational Guidelines of 2013 were introduced to create a regulatory
framework for an alternative model of insurance that complies with the principles of Shari'ah
(Islamic Law). Notably, Takaful is not exclusively for Muslims but is open to all who prefer its
ethical and cooperative principles.14
The Bancassurance framework is a regulated microinsurance model that entails the distribution
of insurance products through bank branches. This microinsurance model is however not popular
as it is highly restrictive, and the regulatory framework governing it, jointly issued by the CBN
13
Ajibade & Co, ‘An Overview of Microinsurance in Nigeria: A Legal Perspective’ [Link]
nigeria-a-legal-perspective/ accessed 31 August 2025.
14
Ideas, ‘Application of Takaful Operational Guidelines 2013 and Insurance Act 2003 in Nigeria: Matters Arising and the Way Forwards’
[Link] accessed 31 August 2025.
and NAICOM reflects a clear tension between the goals of financial inclusion and banking sector
stability.15
Beyond solvency and fair market practices, Nigerian regulators now pursue inclusive regulation.
This third pillar marks a shift from passive oversight to active market development.
3.0. GENERAL OVERVIEW OF THE LEGAL AND REGULATORY FRAMEWORKS
IN NIGERIA
3.1. Significance of Insurance Regulation in Nigeria
The Association of Insurance Supervisors states that regulation of the insurance industry is "to
develop and maintain fair, safe and stable insurance markets for the benefit and protection of
policyholders and contribute to global financial stability"16.
The purpose of insurance regulation, irrespective of the sophistication of the economy, can be
grouped into two basic categories;
3.1.0. Market Stability
Dickinson noted that investing insurance premiums and shareholders’ funds channels savings
into the wider economy through the capital market. These mobilized savings stimulate both
economic growth and the capital market itself. Therefore, there is a dynamic interaction at work,
with the accumulation of savings through insurance, the investments of these savings in the
capital market leading to the development of the capital market.17
Section 25(1) of the Insurance Act requires insurers to invest and hold in Nigeria assets equal to
at least the policyholders’ funds shown in their balance sheet and revenue accounts. The direct
relationship between insurance claims expenditure and total assets implies that increased
insurance industry activities possess the potential and capacity to instill resilience in the capital
market.
15
Cenfri, ‘The Role of Insurance in Inclusive Growth: Nigeria in Brief’ [Link]
inclusive-growth_-[Link] accessed 31 August 2025.
16
IAIS, 2019, p. 6
17
Michael, Emmanuel, ‘Insurance Sector Activities and Financial Market Stability in Nigeria’ [2019] 4 — 28.
However, even with these great prospects, the Insurance Industry contributes about less than 2%
to Nigeria’s economy.
3.1.1. Consumer Protection
Consumer protection within the financial services sector holds significant importance in
upholding public trust and ensuring market stability. The insurance industry places paramount
emphasis on consumer protection, as it directly impacts the welfare of policyholders who depend
on these financial instruments for their security and risk management needs. 18 Despite its crucial
nature, consumers in the insurance industry encounter various obstacles such as the failure of
financial institutions, which can undermine their trust and financial security, thus making
consumers lose trust in the financial system.
Regulation is essential, involving a robust regulatory framework and diligent oversight. Entities
such as the NDIC play this role. The NDIC was established to furnish deposit insurance and
safeguard depositors in the event of bank failures. The core functions of the NDIC encompass
the insurance of deposit liabilities of banks, the oversight of insured institutions to ensure their
adherence to regulations, and the resolution of distressed banks.19
Section 24 of the Insurance Act mandates a solvency margin. Insurers must maintain excess
admissible assets over liabilities for unexpired risks, outstanding claims, incurred but not
reported claims, and other liabilities.
Penalties for non-compliance include revocation of registration, serving as key consumer
protection.
The Act further outlines several measures aimed at protecting consumers, including the validity
of a policy for the benefit of unnamed person(s) providing sufficient description of such is
given,the recognition of a derivative action over an insurance policy, the rejection of a
registration of an insurance business in the interest of the public or prospective policy holders
transparency and accountability in operations including the amalgamation of insurance
businesses, etc.20
18
Igbinenikaro, Etinosa and Adewusi, Adefolake Olachi, ‘Financial Law: Policy Frameworks for Regulating Fintech Innovations: Ensuring
Consumer Protection While Fostering Innovation’ [2024] 6(4) Finance and Accounting Research Journal, 515.
19
Ojukwu-Ogba, Nelson, ‘In Search of Financial Stability in Nigeria: From Legislation to Effective Regulation of Banks’ [2017] 25(1) African
Journal of International and Comparative Law, 20.
20
Oyetola Muyiwa Atoyebi, ‘Consumer Protection Within the Insurance Industry: The Role of The NDIC’
[Link] accessed 29 August 2025.
4.0. CHALLENGES FACING INSURANCE REGULATION IN NIGERIA
The regulatory frameworks for Nigerian insurance classes (marine, fire, compulsory building,
microinsurance, takaful) face challenges that undermine market stability and consumer
protection. Key issues include outdated legislation, such as the Insurance Act 2003 and Marine
Insurance Act 2004, which fail to address modern developments and create gaps. Weak
enforcement of compulsory insurance provisions (Sections 64, 65, 67) due to limited manpower,
poor inter-agency coordination, and low public awareness results in widespread non-compliance.
Additionally, insurers struggle with implementing risk-based supervision and international
standards like IFRS 17 due to resource constraints.
The outdated Insurance Act 2003 has been replaced by the new Nigeria Insurance Industry
Reform Act (NIIRA) 2025. This act modernizes the statutory framework, introduces formal risk-
based supervision, and mandates substantial increases in minimum capital and on-shore
investment of policyholder funds to strengthen solvency and claims-paying capacity.
The marine insurance in Nigeria is primarily governed by the Marine Insurance Act 2004, which
is essentially a re-enactment of the United Kingdom's Marine Insurance Act of 1906. This legal
framework is widely considered outdated, as it continues to apply strict doctrines such as the
absolute warranty rule and rigid requirements for proving insurable interest, both of which often
result in technical coverage denials.21 These provisions increase litigation, delay claim
settlement, and ultimately reduce consumer confidence in marine cover. Furthermore, section
6722 requires all imports into Nigeria to be insured with Nigerian insurers, but enforcement has
remained weak. As a result, a significant portion of marine premiums continues to be placed
offshore, thereby reducing local market’s capacity to settle claims, diminishing national foreign
exchange reserves, and weakening consumer protection when losses are pursued outside
Nigerian Jurisdiction.23 Outdated statutes and weak enforcement create instability in Nigeria’s
marine insurance sector. In contrast, the UK has modernized its marine insurance law to soften
21
Agbakoba, O, ‘The Role of Marine Insurance in Nigeria’ [Link]
[Link] accessed 29 August 2025
22
Insurance Act 2003.
23
Ajigboye, MO, ‘A Review of the Doctrine of Insurable Interest under the Marine Insurance Act in Nigeria’
[Link]
in_Nigeria accessed September 2016.
traditional doctrines and ensure fairer policyholder treatment, serving as a model for Nigerian
reform to enhance market stability.
Sections 64 and 65 mandate compulsory insurance for high-rise construction and public
buildings, serving as a social safety net. Enforcement remains the critical challenge due to low
awareness, poor NAICOM-urban agency coordination, and widespread non-compliance. This
leaves disaster victims in cities like Lagos, Abuja, and Port Harcourt uncompensated, forcing
government ad-hoc relief and eroding public trust. The failure undermines insurance’s societal
stabilizing role and perpetuates industry-wide reputational risk. 24 Comparative experience from
South Africa demonstrates that Nigeria could strengthen consumer protection and market
stability by linking compulsory insurance enforcement to building permits and occupancy
certifications.
The micro-insurance sub-sector in Nigeria is regulated under the NAICOM Micro-insurance
Guidelines (2018), which introduced a tiered licensing framework, unit, state and national
operators, to extend insurance to low-income groups and promote financial inclusion. 25 Micro-
insurers face viability issues from thin capital bases, high rural distribution costs, and limited
digital infrastructure. Weak oversight in last-mile channels (agents, cooperatives, fin-tech
partners) creates risks of improper sales, poor disclosure, and inadequate claims management,
eroding consumer trust.26 Failed claims experiences have led to policyholder abandonment of
micro-insurance, directly undermining financial inclusion objectives. This erosion of trust
weakens broader market stability by discouraging new entrants and stalling penetration rates. 27
Kenya’s model demonstrates how strong supervision, SACCOs, and mobile platforms enable
sustainable micro-insurance scaling. Nigeria could bolster consumer confidence and market
resilience by building similar distribution partnerships and strengthening enforcement capacity.
Nigeria’s Takaful sector operates under the Takaful Operational Guidelines (2013), detailing
governance, models (Wakalah, Mudarabah, Hybrid), and Shariah-compliance. However,
24
Curacel, ‘The Evolution of the Insurance Industry in Nigeria: Challenges, Opportunities, and Innovations’ [Link]
evolution-of-the-insurance-industry-in-nigeria-challenges-opportunities-and-innovations accessed 2023.
25
Inyang, U, Bassey, AE and Umunnakwe, AI, ‘Evidence-Based Policy Evaluation: Focus on Micro-Insurance Operational Policy in Nigeria’ [2022]
XII International Journal of Finance, Insurance and Risk Management, 30.
26
Ajibade & Co, ‘An Overview of Micro-Insurance in Nigeria: A Legal Perspective’ [Link]
products/1407538/an-overview-of-micro-insurance-in-nigeria-a-legal-perspective accessed 5 January 2024.
27
Inyang, U and Okonkwo, IV, ‘Microfinance Schemes and Insurance Penetration in Nigeria’ [2022] The Journal of Risk Management and
Insurance, 60.
inconsistencies with the Insurance Act 2003 create challenges in surplus distribution, fund
management, and governance.28 Provisions in the Insurance Act assume conventional models,
creating legal uncertainty for Takaful contracts. The sector also struggles with inadequate
Shariah governance capacity, limited retakaful availability, and a shortage of qualified experts
for Shariah audits.29 Regulatory gaps slow uptake among Nigeria’s large Muslim population,
who demand strict Shariah compliance. This uncertainty undermines trust and Takaful stability.
In contrast, Malaysia’s Islamic Financial Services Act 2013 offers clear statutory backing,
detailed surplus rules, and structured Shariah auditing, enabling market growth. Adopting a
similar model would harmonize Nigeria’s framework, promote inclusivity, and strengthen
consumer confidence.
Recurring challenges—outdated laws, weak enforcement, regulatory gaps, and capacity limits—
undermine consumer protection and market stability. Comparative lessons from Kenya, South
Africa, Malaysia, and the UK emphasize the need for modernized frameworks, risk-based
supervision, and stronger enforcement. Implementing these reforms via the new Insurance
Industry Reform Act and enhanced NAICOM oversight would transform the sector into an
economic stabilizer and consumer protector.
5.0. Nigerian Insurance Industry Reform Act (NIIRA), 2025: Strengths and Weaknesses
The Nigerian government has enacted the NIIRA 2025 to address challenges in the existing
insurance legal regimes. The Act is a direct response to weaknesses in the Insurance Act 2003,
including weak enforcement, insufficient capital thresholds, and limited administrative powers.
These defects of the ISA have been said to cause systematic undercapitalisation and associated
insolvency risks,30 issues that impair market stability and consumer protection and security in
Nigeria. A brief review of the NIIA's provisions is necessary to assess its innovations for market
stability and consumer protection, as well as its inherent weaknesses.
5.1. Objectives of the NIIRA, 2025
28
Curacel (2023) ibid.
29
ibid.
30
1st Attorneys, ‘The Nigerian Insurance Industry Reform Act, 2025 (NIIRA 2025): Consolidation, Innovation, and Challenges to Nigeria’s
Insurance Law’ [Link] accessed 28 August 2025.
The NIIRA's objectives demonstrate the drafters' awareness of the prior framework's
inefficiency. They are specifically aimed at strengthening consumer protection and ensuring
market stability. With respect to market stability, Section 1(1)(a) of the Act, clearly states that
the Act aims to “regulate the insurance industry to foster the development of the insurance
sector”. The NIIRA presupposes limited sector growth and crippling regulatory challenges for
specialized insurance. Section 1(1)(b) aims to protect stakeholders to secure a viable, competitive
industry, acknowledging prior weak consumer security. The Act achieves this by determining
market participants, imposing prudent management and corporate governance requirements, and
providing effective dispute resolution.
5.2. Innovations and Strengths of the NIIRA, 2025
The scope of this work will not permit an exhaustive examination of all the reforms and changes
in the NIIRA vis a vis the Insurance Act. This section examines key innovations in the Act to
contextually assess how they address the traditional challenges facing Nigeria's insurance sector,
as previously discussed.
5.2.1. Consolidation of Existing Laws
One of the bold innovations of the NIIRA is contained in Section 229(1) of the Act which, in
unequivocal expressions, repeal the existing insurance laws in Nigeria, particularly, the
Insurance Act, 2003, the Marine Insurance Act, the Motor Vehicle (Third Party) Insurance
Act, the National Insurance Corporation of Nigeria Act, and the Nigerian Reinsurance
Corporation Act. However, Section 229(2) states the NIIRA lacks retroactive effect. Rights,
obligations, or decisions under the old Acts remain valid, even if contrary to new provisions. The
Act also codifies all existing regimes (e.g., marine, motor vehicle insurance) into a single law,
addressing prior fragmentation that complicated compliance and transparency versus unified
modern frameworks.
5.2.2.. Scope of Application and Classification of Insurance Businesses
The provisions of Section 2(1) of the Act, which governs the scope of its application, is all-
encompassing and materially and substantially a repetition of the provision in Section 1 of the
ISA. In any case, it is commendable that it captures every form of insurance business in
Nigeria.31 Exemptions are expressly provided in Section 2(2) for friendly societies in Nigeria,
and reinsurance companies established outside Nigeria.
With respect to classification, just like the Insurance Act, 2003, the Act expressly categorized
insurance businesses into two classes: life and non-life insurance. 32 The Act recognizes only
three life insurance businesses: individual life assurance, group life assurance, and health
insurance. Commendably, it includes "annuity" under life insurance, expanding market scope.
For non-life insurance, the list now incorporates agricultural insurance businesses not covered by
the Nigerian Agricultural Insurance Corporation Act.
A literal reading of Section 3 suggests the drafters intended to regulate all insurance businesses
in Nigeria to ensure accountability, transparency, and effective regulation, while preventing
exclusion of other forms due to limited recognition. In fact, this inclusionary objective is
expressly captured by the collective reading of Sections 3(4), 3(7), and 3(8) of the Act. Section
3(4) clearly provides that: “there shall also be miscellaneous insurance business, including
financial inclusion insurance business”. This provision incorporates inclusion theory, the
foundation for models like Takaful and Microinsurance, which expand market access to
economically or religiously excluded groups. By codifying this theory, the Act encourages
development of other unconventional models while proactively ensuring their regulation for
consumer protection and market stability.
5.2. Higher Minimum Capital & Licensing Requirements
To ensure market stability and consumer protection, the Act mandates a dramatic increase in
minimum share capital. This protects consumer interests in solvency events and ensures only
capable insurers enter the market.
The minimum capital varies by business type, reflecting an understanding that risks differ
drastically in magnitude, assessment, and scope across insurance models. According to Section
15(1) of the Act, the following are the new minimum capital requirements for insurers and
reinsurers operating in Nigeria:
a. Non-life insurers: ₦15 billion or risk-based capital.
31
Section 2(1) of the Act.
32
Section 3(1) of the Act.
b. Life insurers: ₦10 billion or risk-based capital.
c. Reinsurers: ₦35 billion or risk-based capital.
The Act also guarantees compliance by providing consequences of non-compliance as well as
transparency measures in Sections 15(7) and (8) of the Act. The Commission has the power to
cancel the registration of any insurer or reinsurer that fails to satisfy the minimum capital
provisions for its category of operation. The Commission is also mandated to publish a list of
compliant insurers within 30 days after the compliance period expires. Furthermore, the
Commission has the power to direct an insurer to increase its minimum capital to an amount
higher than the specified minimum, considering the nature, size, complexity, and risk profile of
the business. The provisions of Section 15, when read together with the other risk-based
regulation provisions contained in Sections 24 and 25, are commendable. This is especially
relevant given that specialized and high-risk insurance businesses such as aviation insurance, fire
insurance, and terrorism insurance, which are growing in Nigeria may require insurers to
maintain a capital base higher than the minimum specified in Section 15 under certain
circumstances. This is critical for terrorism insurance given rising terrorist activities in Nigeria.
The Commission’s discretion to mandate higher capital case-by-case enhances consumer
confidence in insurers’ risk capacity, supporting growth of these essential classes. Unless a
company complies with the minimum capital, they cannot be licensed to do business in Nigeria. 33
Failure of insurers, reinsurers, intermediaries (agents, brokers), and loss adjusters to obtain
licenses before commencing business in Nigeria are quite grave, 34 when compared with the
punishments under the Insurance Act of 2003, particularly in the context of inflationary value of
money over the years.
5.2.4. Digitisation and Efficiency
The NIIRA mandates insurance companies and NAICOM to deploy technology and digital tools
in their operations. The law requires that all licensing, product approvals, claims processing, and
regulatory filings be fully digitized and conducted through NAICOM-managed platforms. This
aims to streamline processes, enhance transparency, and rebuild public trust.
33
Section 5(3)(b) of the Act.
34
See Section 10 (1), Sections 37 (8), (10), Section 40(6), Section 48(4) of the Act.
5.2.5. Regional Integration
The Act encourages participation in regional insurance frameworks, notably the ECOWAS
Brown Card System, establishing a National Bureau for its implementation in Nigeria. The Act
seeks to facilitate cross-border motor insurance, claims settlement across West Africa, and aligns
with regional standards, enhancing market resilience and cross-border reliability.
5.3. Challenges and Weaknesses of the NIIRA, 2025
5.3.1. Market Consolidation and Accessibility
The tenfold capital increase, aimed at solvency and consumer protection, risks destabilizing
Nigeria’s market. Dominated by small-to-medium insurers with low capital thresholds, the hike
may force exits or mergers, reducing competition and consumer choice. This is particularly
problematic in a market with only a 1% penetration rate. The capital increase may concentrate
insurance services in urban centers like Lagos, gravely impacting rural financial inclusion. Rural
communities already face low awareness, accessibility, and affordability of agricultural
insurance. Market capitalization risks exacerbating these gaps, exposing them to greater losses
and undermining inclusion goals. The capital hike also barriers insurtech startups, stifling
innovation. Even with improved solvency, reduced market diversity defeats the capitalization's
core purpose.
5.3.2. Scope of Discretionary and Administrative Powers
Granting NAICOM discretionary powers is understandable, but their scope is legally
questionable. The Act centralizes extensive authority—license revocation, sanctions, and risk-
based capital determinations—likely to face judicial challenges. Unchecked discretion may
conflict with constitutional rights, notably the right to fair hearing under Section 36 of the 1999
Constitution. The Nigerian administrative law jurisprudence is quite rich with cases where
courts have nullified discretionary excesses. In the case of Legal Practitioners Disciplinary
Committee v. Chief Gani Fawehinmi,35 the Supreme Court held that administrative bodies
exercising quasi-judicial powers must accord fair hearing. The case of Garba v University of
Maiduguri36 is another authority on this principle, where the Supreme Court invalidated
administrative actions on the basis that due process was not followed by the authority. Therefore,
if NAICOM imposes fines or revokes licenses, courts will likely scrutinize these actions. To
prevent endless litigation, the Act should clearly define the scope and limits of these powers.
However, it lacks any such boundaries.
5.3.3. Consumer Protection and. Regulatory Burden
While the Policyholder Protection Fund and strict claims timelines enhance consumer protection,
they impose significant burdens on insurers. Technically, the 0.25% levy on gross life premiums
may be viewed by insurers as a quasi-tax, which is not expressly authorized under Section 59 of
the Constitution (power of appropriation). This will certainly invite litigation on the limit of
government’s executive fiscal powers.37 Strict claim timelines ignore infrastructural delays (e.g.,
medical certifications). Heavy late-payment penalties may incentivize over-screening, causing
delays or denials for legitimate claims. This protective intent risks defensive practices that harm
consumers.
5.4.4. Feasibility of Digitisation
The NIIRA’s full digitalisation mandate for licensing, claims, and filings via NAICOM
platforms is ambitious but faces feasibility issues due to rural digital illiteracy and weak
infrastructure. Without careful execution, it risks marginalizing populations, undermining its
inclusion goals.
5.4.5. Reduced Regional and International Competitiveness
Alignment with the ECOWAS Brown Card Scheme may impose higher compliance costs on
Nigerian insurers compared to counterparts in Ghana, Togo, and Benin, reducing their regional
competitiveness.
35
(1985) 2 NWLR (Pt. 7) 300.
36
(1986) 1 NWLR (Pt. 18) 550.
37
Attorney General of the Federation v Guardian Newspapers (1999) 9 NWLR (Pt. 618) 187
6.0. RECOMMENDATIONS AND CONCLUSIONS
To ensure effective NIIRA 2025 implementation, several measures are advisable. A phased
recapitalisation with extended deadlines would allow smaller firms time to adapt or consolidate
without destabilising the market. An appeals framework or specialised tribunal should be
established to guarantee fair hearings for disputes arising from NAICOM’s decisions.
NAICOM’s institutional capacity requires strengthening through staff training, technology
adoption, and financial autonomy.
Support for innovation should include exemptions or lower thresholds for micro-insurers and
InsurTech startups to foster inclusion. Infrastructure support, such as rural internet access and
digital literacy programs, is essential to avoid marginalising vulnerable populations. Regional
integration requires reciprocal ECOWAS agreements to ensure fair market participation. Finally,
the Policyholder Protection Fund levy must be backed by explicit legislative appropriation to
prevent constitutional challenges.
The NIIRA 2025 represents a landmark reform aimed at consolidating Nigeria’s insurance laws,
raising capital thresholds, strengthening regulation, and driving digital and consumer-focused
transformation. While it has the potential to enhance stability, confidence, and sector growth, the
Act also carries risks of over-concentration, exclusion, and regulatory overreach if not carefully
implemented. Courts are expected to play a central role in balancing regulatory objectives with
constitutional rights. Ultimately, the reform’s success will be promoted by inclusive
implementation, regulatory fairness, institutional capacity, and sustained political will.