The main concept of insurance is that of spreading risks. Insurance facilitates investment by reducing the amount of capital that businesses and individuals need to keep at hand to protect themselves from uncertain events. According to some scholars, insurance is a barometer of economic activity in a country and thus, protects the success of emerging economies.

Insurance operations in Nigeria faces some challenges militating against the growth of the insurance industry, for instance; regulatory, operators, government, market etc though it can be traced back to the 20th century cannot dear above statement even when Nigeria’s economy was solely dependent on agriculture. There was a need for merchants to transport their cash crops to Europe and also reducing the risk of such transportation. This majorly contributed to the dominance of marine insurance in Nigeria at that time.


Despite its importance in an economic development, for instance, the gross premium collected by insurance companies in Nigeria is about 1.9 Billion in United States Dollars compared to South Africa with 3.8 Billion United States Dollars collected.


In South Africa, the insurance industry contributes 17% of the total GDP and in Kenya, the insurance industry contributes 3.4% of its nation’s GDP. However, in spite the astronomical growth of the Insurance companies from just one agency in 1918 – Royal Exchange Assurance Agency to the present number of 56 Insurance companies as stated on National Insurance Commission (“NAICOM’s”) website, the Nigerian Insurance industry contributes a meagre 0.7% of the total GDP of Nigeria. It will be right to say that the performance of Nigerian insurance industry is sub-optimal.

In audacity of National Insurance Commission’s constant effort to cure and mitigate the challenges causing the sub-optimal performance of the insurance industry, there are still some challenges militating against the growth of the insurance industry.


Antagonistic and hostile economy


A stable economy promotes the savings necessary to finance investments which is a prerequisite for achieving a viable insurance industry which can help sustain economic growth. Insurance companies are sensitive to economic fundamentals and sometimes have to factor a lot of economic variables so as to make the right investment decisions.


These variables include foreign exchange reserves, government debt, government deficits, inflation, interest rates and exchange rates which have all suffered in recent years as a result of Nigeria’s financial indiscipline and misappropriation.


What this means is that for the insurance industry to thrive and attain its potentials, the government must be sincere in promoting a favourable environment that will allow the financial service industries thrive. This will help increase the operational efficiency of the insurance industry.

Presently, insurance companies are unwilling to invest the premiums in long-term instruments because of the fear of inflation built up over several years due to fiscal indiscipline and high inflation. It is a very simple principle of economics and investment that short-term investment will yield lower returns. If these trends continue to occur, insurance companies will not be able to solve their liquidity problems which might deter insurers to pay claims.


The Nigerians is doubtful of Insurance Companies. Anybody who has spoken to the average Nigerian about insurance policy should definitely give a firsthand experience of how Nigerians generally have a negative attitude toward insurance policy. This perhaps accounts for the low patronage of insurance companies in Nigeria.


The negative attitude of Nigerians might not be unconnected to the poor attitude of the insurers as regards non-payment of claims and varieties of policies. Though, some insurance companies are very notorious of defaulting in payment of claims which has adversely affected the publicity for the industry and consequently the confidence in the industry buy the prospective assured. Nigerians are generally religious people who tying their life to their believing faith.


Also, there are clauses in policy documents which escalate the distrust in Nigerians.


Lack of willingness of operators to access and adopts information Technology driving model


Despite being in a world where information technology seems to be ruling everything, many companies in the insurance industry still do not have a fully automated and/or integrated computer software system. The challenge here is that document management system is relatively poor compared to other sectors in the economy.


It is an unfortunate truth that manual services are still prevalent in the industry which leads to delay in settlement of claims, fraudulent practices, mistakes and errors in the entire business operations.


There is also no regulatory guideline on best IT infrastructure for insurers and re-insurers to adopt for both operational and reporting purposes.


Weak Regulatory Framework

The regulatory framework for insurance is very weak. National Insurance Commission is empowered to ensure the effective administration, supervision, regulation and control of insurance business in Nigeria.


Historically in Nigeria, government policies and legislations were made concerning insurance industry simply to whittle down foreign dominance in the industry. There is an urgent need to review the laws regulating the Insurance industry. The Marine Insurance Act, 1961 is clearly outdated as it was a verbatim reproduction of the Marine Insurance Act 1906 of the United Kingdom which has been reviewed in the UK.


There is also a need for policies making some insurance products compulsory and mechanism to ensure full implementation of such policies. More stringent policies in relation to retaining more local content in some special risk such as aviation and oil& gas must be made by the legislators and National Insurance Commission.


Another major problem is National Insurance Commission inability to ensure that there are standard premium rates on certain insurance products. Insurance companies must adhere to the policy such that there is a benchmark for rates when negotiating premiums.


Lack of skilled personnel


As funny as it may seem, there is a huge shortfall of skilled professionals (underwriters, brokers, actuaries, etc.) in the entire insurance industry. Insurance companies inadequately train their staffs. Majority of the insurance companies attract low-skilled personnel due to inadequate remuneration package thus, there is always the inability to retain competent employees.


Many top executives in the insurance industry are marketers who have rose through the ranks not because of their strong technical background of the industry but because of their distinctive salesmanship and the ability to bring in more clients than the others. The author thinks bringing in client should be a major requirement of promotion, however, the combination of a good technical background and business skills should be the pre- requisite. Many marketers out there would give any rate to the prospective assured, not looking at important factors such as claims history and other major factors.

Poor knowledge of Insurance Services by the prospective assured


The insurance culture in Nigeria is very low. This may not be unconnected to the lack of knowledge about life insurance products. Many educated Nigerians still do not see a reason for insurance. Scholars have stated that there is an urgent need for insurance companies to renew their marketing communication strategy that should be based on creating awareness and informing the consumers of the benefits inherent to insurance.


Nigeria is a nation plagued with a low level of development, vast income inequalities, and cultural diversity in terms of language, religion, ethnicity and resource control crises.


The low standard of living is a major reason for the poor attitude of Nigerians towards insurance services. The per capital income in Nigeria is very low and thus insurance penetration into the economy is bound to be low.


Possible actions to ensure optimal operation of Insurance Industry in Nigeria


The Federal Government through NAICOM should examine the extant legislations to strengthen and recapitalization issue among insurance in Nigeria. For instance, the Insurance Act 2003 as Amended and the National Insurance Commission Act 1997. The Insurance Act must also be well implemented by NAICOM or any other government institution saddled with such implementation responsibility. For instance, Section 64 of the Insurance Act makes compulsory insurance of building under construction which is more than two floors. The general implementation of the Insurance Act has left more to be desired. The limitation of liability on third party insurance is too small in line with the present day economy. Several sections of the insurance Act have also been badly implemented. We cannot overemphasize the need for an adequate legislation and policy to create operational environment.


The government should formulate economic policies which will give room for investment thereby also help the insurance industry penetration. Rest assure that if investment policies are friendly, insurance companies would also be able to make long term investment for better returns on such investments. Also, it is noteworthy of stating that if the economy is in a better shape, the prospective assure will have the liquidity to procure insurance.


Customer services in the insurance industry are below par. Many of these companies are having problem satisfying their customers in terms of product offerings, quality of services and sophistication of products offered. Customer service is clearly important for winning new customers and retaining existing ones. The first step of changing the face of the industry is ensuring an exceptional customer experience. Insurance companies must find a way to provide customers with a internet based self-service insurance platform where customers can view policy coverage, pay bills, make changes to policies, submit claims and check the status of claim progress. Brokers should be able to obtain online quotes, proposal and plans, design for their customers.


Employing more adequate staff with related professional background is also key. It is also important that the Chartered institute of Insurance must regularly review and expand their curriculum to meet with the present market need and build the capacity of student members. Insurance companies must also allocate a percentage of its budget to Continuous Professional Development to keep staff abreast of professional standards and practices.

The government also has a role to play in this by making relevant laws that will help make certain insurance policies compulsory and harsh sanctions for non-compliance of same. While insurance companies should find ways to sensitise the populace about the hiding benefits of insurance policy.


Globally, there is a paradigm shift from paper oriented process which is manual to automated process which is technology compliance. Insurance companies in Nigeria must follow this growing trend. Insurance companies must employ the expertise of first tier technology firms to develop software to increase operational efficiency.


In this unstable economic reality, insurance companies are still struggling to find their feet as a major financial service sector in Nigeria. The perceived stagnant growth of insurance industry continues to be a key challenge that the country must overcome in order to encourage greater levels of investment.


In view of the fact that no modern economy can function effectively without an organized insurance industry thus insurance companies need to be innovative.  Eating their breakfast before their enemy eats it through Technology driven as their success will depend on their ability to devise new ways to approach insurance in Nigeria. Furthermore, the Federal government, insurance companies, insurance professionals and all relevant agencies must ensure that they work together to ensure the insurance industry reaches its much publicized potential height which is obscure at the moment.

The apparent stagnant growth of insurance industry continues to be a key challenge that the country must overcome in order to encourage greater levels of investment.

If only, insurance operators should know that the live wire of industry is the area of innovations and marketing of policy. Then the deep penetration of insurance industry in the country is at hand.

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