Nigeria’s worsening insecurity, driven by banditry, terrorism, and herdsmen-farmer clashes, is severely undermining the insurance industry, with escalating claims from property damage, loss of life, and agricultural disruptions threatening companies’ financial stability.
The crisis, particularly in northern and north-central states, has disrupted travel, displaced farmers, and eroded consumer confidence, hampering economic activities and insurance uptake, industry leaders warn.
Rising Claims and Solvency Risks
Mayowa Adeduro, CEO of Law Union and Insurance Plc, described the growing insecurity as a “grave danger” to Nigeria’s economy and its players, including insurers. He highlighted a surge in claims from insured lives, destroyed farms, and job losses, which are straining insurers’ bottom lines.
“The insurance industry is going to witness a very difficult time in income generation, cost control, increase in claims, and likely increase in reinsurance cost,” Adeduro said, warning that return on equity will be significantly impacted without adaptive strategies.
Tunde Oguntade, vice president of the Nigerian Council of Registered Insurance Brokers (NCRIB), noted that while insecurity could spur demand for terrorism-related insurance, such products remain rare in Nigeria.
Instead, the dominant impact is “loss of revenue from economic activities, increasing liability for insurance, and insolvency” risks for heavily exposed firms.
A 2021 NAICOM report estimated the insurance industry’s penetration at under 0.5%, with total assets at N1.7 trillion, constrained by low public trust and poor claims settlement practices.
Agricultural Disruptions and Food Insecurity
The agricultural sector, a focus for insurers supporting food security, is reeling from insecurity. Herdsmen-farmer clashes in states like Benue have displaced over 1.6 million people by 2021, per UNHCR, forcing farmers to abandon fields and driving food insecurity.
Adeduro noted a “mass exodus of farmers,” pushing food prices higher, with yam tubers at N1,500 and a bag of garri at N30,000 in Lagos markets.
The National Bureau of Statistics reported food inflation at 19.56% in March 2021, with projections of further rises.
Agricultural insurance uptake remains low, with only 1% of farmers insured, per a 2020 study, due to high premiums and low awareness. Insurers face mounting claims for crop and livestock losses, straining reserves.
Government-backed schemes, like the Nigeria Agricultural Insurance Corporation, are underfunded, unlike robust models in India or the US, limiting support for farmers facing conflict-related losses.
Economic and Consumer Impacts
Insecurity has curtailed transportation, logistics, and aviation sectors, with airlines hiking fares to offset reduced passengers, Adeduro said.
The Central Bank of Nigeria’s forex restrictions, with the naira devalued to N410/$ officially but trading at N480/$ on the parallel market, deter investors, with foreign direct investment dropping 48% to $2.4 billion in 2020, per UNCTAD.
Adeduro noted that “forex doesn’t follow cash incentives but a secure investment climate,” underscoring how insecurity stifles inflows despite CBN efforts like the Naira for Dollar scheme.
Bola Onigbogi, NCRIB president, called the “endemic” killings and kidnappings “disheartening,” urging a state of emergency on terrorism, particularly in northern Nigeria.
Protracted insecurity erodes consumer confidence, reducing spending and insurance demand.
A 2021 study highlighted that Nigeria’s misery index, driven by 33% unemployment and 18.17% inflation, has reached critical levels, with the wealthy concealing affluence to avoid targeting.
Call for Urgent Action
Onigbogi stressed that unchecked insecurity deters investors, risking further economic decline. The insurance industry, with gross premiums of N520 billion in 2020, faces solvency threats without robust risk management, per NAICOM.
Experts advocate for stronger security measures, including community policing and technology-driven surveillance, to stabilize economic activities.
For insurers, diversifying portfolios and leveraging reinsurance could mitigate claim surges, while public awareness campaigns are needed to boost insurance adoption in a market where cultural aversion and poverty limit growth.
