Nigeria’s compulsory third-party motor insurance market could be on the point of significant expansion as reforms introduced under the Nigerian Insurance Industry Reform Act (NIIRA) 2025 expose a vast but underutilised market, constrained by poor claims awareness, weak service delivery and low consumer confidence.
- +Reforms expose untapped potential in compulsory motor insurance market
A new industry report by Leenkaz Insurance Brokers Limited suggests that while NIIRA 2025 has strengthened insurers’ capital base, expanded policyholder protections and introduced statutory claims timelines, the industry’s next growth phase will depend less on regulation and more on converting millions of compulsory policyholders into active insurance users.
A new industry report by Leenkaz Insurance Brokers Limited suggests that while NIIRA 2025 has strengthened insurers’ capital base, expanded policyholder protections and introduced statutory claims timelines, the industry’s next growth phase will depend less on regulation and more on converting millions of compulsory policyholders into active insurance users.
The report, titled: The Protection Paradox: Nigeria’s Motor Insurance Reality and the NIIRA 2025 Reform Agenda, was unveiled during a stakeholder webinar attended by insurers, brokers, regulators, actuaries and investment professionals. It examined responses from vehicle owners across 24 states and the Federal Capital Territory and found a disconnect between compulsory insurance compliance and actual consumer protection.
Its findings show that despite millions of Nigerians purchasing third-party motor insurance annually, the product remains largely misunderstood and significantly underutilised.
About 61.2 percent of respondents said their vehicles had been damaged by another driver. Yet only 21.6 percent of affected motorists received compensation through the at-fault driver’s third-party insurance policy, while 77 percent never benefited from the cover. The report describes this disconnect as Nigeria’s “protection paradox”, a situation where insurance exists but rarely delivers value to those it is designed to protect.
Consumer awareness remains one of the industry’s biggest obstacles. Only half of respondents knew that third-party insurance covers damage to another person’s property up to N3 million, while fewer than one in five had ever filed a claim under their own third-party policy. Even more concerning, 76 percent regarded the product as nothing more than a compulsory licensing requirement, and over half said their experience with motor insurance discouraged them from buying other insurance products. The findings point to a major growth opportunity for insurers.
Industry experts at the webinar argued that Nigeria’s motor insurance market is operating far below its potential because motorists rarely exercise the rights guaranteed under the law. They warned that the industry’s current premium structure remains sustainable only because claims frequency is unusually low.
According to the panel, as awareness improves and policyholders begin pursuing legitimate claims under NIIRA 2025, insurers will need stronger reserves, more sophisticated risk pricing and enhanced capital management to support increased claims obligations.
Rather than viewing increased claims as a threat, the report argues they should be seen as the foundation for rebuilding trust in insurance.
The panel identified two key reasons motorists fail to seek compensation. Many simply do not know they are entitled to claim against another driver’s insurer, while others abandon the process because claims handling is slow, cumbersome and lacking transparency.
To unlock the market’s full potential, the report recommends a fundamental shift in customer engagement. It urges insurers to simplify policy documents, digitise claims administration, provide customers with real-time claim status updates and communicate claims settlements more openly to rebuild confidence in the industry. It also advocates developing a national claims and loss database to enable risk-based pricing and discourage destructive price competition.
Although the ongoing recapitalisation exercise under NIIRA 2025 has strengthened insurers’ financial capacity, the panel stressed that stronger balance sheets alone will not increase insurance penetration.
“Capital addresses solvency. It does not, by itself, pay claims,” the report noted, arguing that customer experience, prompt claims settlement and operational efficiency—not capital alone—will determine whether compulsory motor insurance evolves into a trusted financial protection product.
The report expects Nigeria’s insurance industry to undergo significant transformation over the next 12 to 24 months as risk-based supervision, digitalisation and recapitalisation reshape underwriting practices, pricing discipline and customer service standards.
Among its recommendations, Leenkaz urged insurers to treat claims settlement as a growth strategy rather than a cost centre, regulators to strictly enforce statutory claims timelines and expand consumer education, brokers to strengthen policyholder advisory services, and industry bodies to accelerate digital transformation and professional capacity development.
The report concludes that NIIRA 2025 has provided the legal and financial architecture needed to transform Nigeria’s compulsory motor insurance market. The next challenge, it says, is ensuring that motorists can easily access the protections embedded in the law, a shift that could unlock one of the insurance industry’s biggest opportunities for expanding penetration, improving public trust and driving sustainable premium growth.
