Why Nigerian business owners avoid insurance cover

Insurance in Nigeria has always been seen as fraudulent by many; however, the lack of understanding of its working, analysts say, is at the heart of the misunderstanding; BENJAMIN UMUTEME writes.

Chidi Emeka, a resident of Jikwoyi, a suburb of the federal capital territory, at 2am in late January received a phone call from one of the vigilantes who protected the shopping mall where he ran his business that there was fire inside his shop.

Without thinking twice, he jumped out of bed and quickly drove down to Phase 2. With the help of other people that came around, the fire was put out before it could cause more damage.

Speaking with this reporter Chidi, who sells consumables on wholesale, said he had just re-stocked his shop after Christmas. According to him, the first thing that crossed his mind was how he was going to raise money to stock the shop.

“When I got to the shop, I discovered that the fire had not entered where the goods were packed, luckily for me, only a part of where the shop was wired was on fire. Thank God that the vigilantes have my phone number. How I do for this January,” he asked rhetorically in pidgin English?

Chidi’s situation is a reflection of what goes on across the country.

The insurance industry is the backbone of a country’s risk management system. Yet, only a few people purchase genuine insurance policies in Nigeria.

Data obtained from the FCT Fire Service by this reporter put losses from fire incidence in 2021 in the FCT, at N4, 534,856,870 while the Fire Service was able to save properties worth N6, 735,925,230. This is the figure for the FCT, alone, add figures from the 36 states to it and it is really frightening.

Despite frequent fire disasters in several markets in the country, small scale entrepreneurs are not aware of the importance of genuine insurance policies.


Insurance is an arrangement by which a company or the state undertakes to provide a guarantee of compensation for specified loss, damage, illness, or death of an individual in return for payment of a specified amount (premium).

The contingency is the event which causes a loss. It can be the death of the policyholder, damage or destruction of the property.

It’s called a contingency because there is uncertainty regarding happenings of the event. The insured pays a premium in return for the promise made by the insurer.

Common insurance policies available are: Health Insurance, Life Insurance, Disability Insurance, Long-Term Care Insurance, Homeowners and Renters Insurance, Liability Insurance, Automobile Insurance, and Protect Yourself Insurance.

Cultural, religious belief

An Abuja-based insurer, who simply gave his name as Mr. Joe Idonor, told Blueprint Weekend in a chat that, “From experience of talking to an average of 18 people weekly in all spheres of the economy, some of the reasons for prospects not buying insurance as perceived from interactions and as put forward directly by prospects are: lack of awareness, religious beliefs, personal economic restraints, insincerity of Insurance companies and claim payment avoidance, fear of failure or distress of all Nigeria financial systems, and measuring insurance returns against other investment returns.”

Also, political economist and development researcher, Adefolarin Olamilekan, in a chat with this reporter, noted that cultural and religious beliefs and the pessimistic nature of Africans about insurance cover continues to play a strong role in why people run away from taking insurance cover.

“Nigerian business men and women for the matter of fact are yet to understand both the immediate, short and long term benefits of insurance cover for their business. Interestingly, we can attribute this to the sole proprietorship nature of how many business people build their businesses from scratch to the level it is.

“However, we should not rule out the nature of insurance practices as its modalities and operations are very much like shrouded financial activities for an average African person,” he said.

The Managing Director of SD&D Capital Management Limited, Gabriel Idakolo, in his view, explained that the understanding and penetration of insurance business in the consciousness of Nigerians and Nigerians businesses is still very low compared to other climes. According to him, unlike in South Africa where insurance companies own banks, the same can’t be said of Nigeria.

He said, “Most businesses shy away from taking insurance cover for so many reasons but major reasons are: The fear that insurance companies would indemnify them when claims occur; Past experiences with insurance companies that were not palatable.

“The fear of lack of capacity by these insurance companies to underwrite big risk; Lack of education and awareness about the importance of insurance to safeguard business continuity, Lack of enforcement by relevant government agencies as regards mandatory insurances that should be undertaken by businesses.

The myth

Mr. Idonor asserted that the widely held myth about non-payment of claims by insurers is not entirely true. While he did not rule out an exception, he said most companies pay claims.

“It is a view held by a few without the knowledge of insurance that Insurance companies always introduce technicalities to avoid payment of claims. They cite genuine instances of claim denials by insurance companies after policy holders had faithfully paid premium for years.

“This concern is spread by some to infuse fears on intending buyers. However, some insurance companies claim that claims can only be paid on insured interests who are specific,” he said.

However, despite this widely held view, data from the Nigeria Insurers Association (NIA) revealed that N70 billion was paid out as claims to individuals and corporates in 2016 alone.


Throwing more perspective on apathy in the sector, Mr. Idonor said: “As simple and suggestive as the word insurance seems, it is surprising that over 60 per cent of the working population know very little about insurance and its scope.”

Checks by this reporter revealed that several factors continue to conspire against the sector, one of which is religion. Insurance companies sell protection to cushion against hardship caused by misfortune and because religion is deep-rooted in Nigeria people do not see misfortune as our portion or as just the will of God which humans must not plan for.

“However, families who lost bread winners wallow in penury around us; we still are not moved to plan because it can only happen to others and not us.

“So, people would rather not be rational to discuss life uncertainties because, religiously, it is considered a negative confession. Thus, religious houses thrive with positive confession but when misfortune occurs the family is prayed for and left to face the harsh realities of life,” Idonor said.

The economic reality of the time is not helping matters either.

“Of the few who are aware of the benefits in Insurance, a large percentage is restrained from taking up insurance policies because of financial considerations. With the national minimum wage grossly inadequate to meet family needs, insurance is seen as a luxury to be enjoyed only by the rich. Perhaps this distantly accounts for d strong “not my portion” faith as it seems to be the only logical reason to face life uncertainties. People look forward to surviving today first before looking forward to tomorrow,” he added.

Moving forward

Chidi confided in our correspondent that many insurers have been visiting him urging him to take an insurance cover but he never took them seriously. According to him, his view about insurance has changed with the scare he got from the minor fire incident in his store.

“I will hasten the process of taking insurance for my business. This incident opened my eyes, and I don’t want to be caught napping,” he told this reporter.

To change the narrative, Idakolo urged insurance companies to not only raise awareness but also show capacity to perform.

For the expert, “Major claims paid by insurance companies should be publicized to give the insured public more confidence. Insurance companies should be adequately capitalised to the tune of their exposures.

“The government should mandate the regulatory agency (National Insurance Commission) to ensure that policies and programs concerning insurance are debated publicly.

“Insurance companies should embark on massive campaigns to enlighten the populace about the advantages of taking insurance covers for their businesses.

“The policy guidelines as regards each insurance cover should be adequately spelt out without ambiguity,” he stressed.

Speaking further, Adefolarin said insurance cover premiums in the country should be modeled to suit the cultural, religious and citizens’ sentiment.

“We can also introduce incentives that may come as benefits to businesses before they have challenges. In this sense, we are suggesting a pre- premium cover even before accidents or death occur.

Lastly, insurance companies should make their operation open. This requires that people can be part of shareholders of the insurance company and vice versa,” he said.

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