Regulation and Development of the Nigerian Insurance Industry: A Comparative Review of the Insurance Act 2003 and the Nigerian Insurance Industry Reform Act 2025
Abstract
Regulation has historically been central to the growth and direction of the Nigerian insurance industry. From the early Insurance Companies Act of 1961, through the Insurance Act of 2003, successive legal frameworks have sought to strengthen solvency, expand coverage, and stimulate confidence in the sector. Yet, as highlighted in a 2019 review of regulatory governance, the industry’s contribution to GDP, its penetration ratios, and overall cultural acceptance remained among the lowest in Africa.
The Nigerian Insurance Industry Reform Act 2025 (NIIRA 2025) repeals the Insurance Act 2003 and other related statutes, consolidating them into a single, comprehensive framework. This article undertakes a comparative review of the 2003 Act and NIIRA 2025, situating the reforms within the broader regulatory history of the sector. It argues that while NIIRA introduces transformative provisions—higher capital thresholds, compulsory insurance expansion, enhanced NAICOM powers, and innovation-friendly measures—the enduring challenge remains enforcement and cultural acceptance of insurance in Nigeria.
Introduction
Insurance regulation in Nigeria has long been a story of reactive legislative reform, often prompted by crises of solvency, low confidence, and external policy direction. The 2019 seminar paper on “The Use of Regulation in the Development of the Insurance Sector in Nigeria” emphasized that the industry, despite decades of regulatory activity, remained a “sleeping giant”—characterized by low penetration, weak consumer trust, and regulatory opportunism.
NIIRA 2025 represents a bold attempt to rewrite this narrative. By repealing the 2003 Act and related legislation (Marine Insurance Act, Motor Vehicles (Third Party Insurance) Act, National Insurance Corporation of Nigeria Act, Nigeria Reinsurance Corporation Act), the new Act consolidates regulatory provisions into one statute, modernizes the categorization of risks, strengthens solvency rules, and grants NAICOM wider powers. The intent is to create a more resilient, innovative, and competitive industry aligned with global best practice.
This article compares the two regimes, highlighting both continuities and divergences, and considers whether NIIRA 2025 resolves the regulatory weaknesses identified in 2019.
Regulatory Framework and Institutional Oversight
2003 Act and Earlier Experience:
The 2003 Act prescribed the classes of insurance business, raised minimum capital requirements, introduced the “No Premium, No Cover” (NPNC) rule, and mandated compulsory insurance for buildings, public structures, and motor vehicles. NAICOM, created in 1997, was empowered to issue regulations and guidelines. Yet, as noted in 2019, the regulator often demonstrated lethargy and poor enforcement, allowing industry malpractice to persist.
NIIRA 2025 Innovations:
NIIRA 2025 consolidates multiple legislations, streamlining supervision under NAICOM. Section 228 explicitly enhances NAICOM’s regulatory authority, empowering it to adjust capital thresholds dynamically and issue binding guidelines responsive to market realities. This reform directly responds to the critique of weak institutional oversight emphasized in 2019, though its success depends on consistent implementation.
Capitalization and Solvency
Historical Approach:
Minimum capital requirements have long been a regulatory lever. The 2003 Act set thresholds as low as ₦150m for life and ₦200m for general insurance. By 2005 and 2019, NAICOM attempted progressive increases, culminating in ₦8–20bn requirements. These interventions reduced the number of operators and increased balance-sheet size but had minimal impact on penetration and density. As the 2019 paper noted, bigger entities did not automatically translate into deeper insurance culture.
NIIRA 2025 Shift:
NIIRA 2025 prescribes ₦10bn for life, ₦15bn for non-life, ₦25bn for composite, and ₦35bn for reinsurance. Crucially, Section 15(8) empowers NAICOM to raise thresholds further under a risk-based capital (RBC) regime. This marks a shift from static capitalization to a dynamic solvency framework, aligning Nigeria with international practice. However, the concern raised in 2019—that capital reforms alone cannot transform public trust or penetration—remains salient.
Compulsory Insurance
Weak Enforcement under 2003 Act:
Sections 64–68 of the 2003 Act introduced mandatory insurance for buildings under construction (above two floors), public buildings, and motor third-party liability. Yet, compliance levels were abysmal—estimated at under 1% for building insurance. The 2019 review highlighted poor enforcement, collusion with state authorities, and cultural apathy towards insurance.
Strengthened Provisions under NIIRA 2025:
NIIRA 2025 broadens compulsory insurance: Buildings (now required for any structure exceeding one floor), public buildings (expanded to cover collapse, earthquake, storm, and flood), motor liability (compensation raised to ₦2m or higher by NAICOM), and penalties (sharply increased—₦5m or up to 12 months imprisonment). These provisions respond directly to 2019 concerns of weak deterrence.
Premium Regulation: The “No Premium, No Cover” Rule
2003 Act’s Introduction:
Section 50 introduced NPNC, making advance payment a condition for valid cover. Enforcement only came a decade later, in 2013, after NAICOM issued guidelines. Even then, insurers resisted, sometimes booking unpaid premiums as income to inflate solvency reports.
NIIRA 2025’s Codification:
Section 60 of NIIRA 2025 restates and strengthens the rule: Premiums via brokers deemed validly received, violations attract fines of up to twice the premium collected, compulsory third-party liability exempted, and reinsurance contracts governed by their own terms.
Product Innovation and Market Expansion
2019 Perspective:
The 2019 paper noted NAICOM’s introduction of micro-insurance and takaful as steps to deepen penetration. Yet, poor marketing, complex policy wordings, and cultural apathy limited uptake. Regulatory interventions were largely reactionary, lacking a long-term roadmap.
NIIRA 2025 Reform:
For the first time, statutory provision is made for deemed approval of new products: if NAICOM does not respond within 30 days, the product is considered approved. This aligns with the Business Facilitation Act 2022, reducing bottlenecks and incentivizing innovation.
Reserve Funds and Statutory Deposits
Previous Weakness:
Under the old regime, statutory deposits with CBN earned minimal interest. Insurers often misrepresented solvency by booking unpaid premiums as income, undermining consumer confidence.
NIIRA 2025 Improvement:
The Act requires insurers and reinsurers to maintain specific reserve funds against unpaid risks and claims. Statutory deposits with CBN can now be invested in Treasury instruments, with bi-annual returns credited to insurers. Deposits are shielded from garnishee proceedings, ensuring their availability for liabilities.
Conclusion: Continuity and Transformation
The comparison between the 2003 Act (as critiqued in 2019) and NIIRA 2025 reveals both continuity and transformation.
– Continuity lies in the persistence of capital adequacy, compulsory insurance, and premium regulation as central tools of supervision.
– Transformation lies in NIIRA’s consolidation of multiple statutes, modernization of insurance categories (annuity, agricultural, energy), significant hikes in capital thresholds, expansion of compulsory insurance, codification of NPNC, deemed approval for new products, and statutory reserve requirements.
Yet, the concerns raised in 2019 remain: without robust enforcement, cultural change, and regulatory credibility, even the most progressive statutory reforms risk underperformance. The Nigerian insurance industry’s growth will depend not only on laws but also on the governance of the regulator, trust of consumers, and integration of insurance into broader economic policy.
