Overview of the Article
This article provides a comparative analysis of insurance obligations introduced by Nigeria Insurance Industry Reform Act 2025 (“NIIRA” of “the Act”), particularly in the construction industry. It also explores the transition from a traditional, often ignored compliance culture to a strict, tech-driven regulatory era. Furthermore, the article highlights how the NIIRA transforms the industry from a collection of “paper-pushing” entities into a specialized, data-centric financial pillar.
A Brief History: The Path to Reform
The history of insurance legislation in Nigeria dates back to the pre-military era. The Insurance Act of 1961 later amended in 1964, represented the first indigenous legislative framework. Subsequent military-era reforms, including the Insurance Decree of 1968, sought to promote sectoral growth.
The establishment of the National Insurance Corporation of Nigeria in 1969 and the Nigeria Reinsurance Corporation in 1977 further institutionalised risk pooling and reinsurance capacity.[1] Later reforms, including the Insurance Decree 58 of 1991 and the National Insurance Commission Act of 1997, introduced stronger regulatory oversight through the National Insurance Commission (“NAICOM” or “the Commission”).
The Insurance Act of 2003 consolidated earlier legislation and solidified the framework. Before 2025, the industry struggled with penetration rates below 1%, driven by weak enforcement, low public trust and fragmented laws and regulations.
The enactment of the NIIRA marks a foundational shift in insurance practice in Nigeria. The NIIRA repeals and consolidates several insurance-related statutes into a comprehensive regulatory framework aimed at strengthening insurance penetration, improving consumer protection, enhancing risk management practices, and aligning Nigeria’s insurance regime with international best practices.[2]
Licensing
Section 5 of the NIIRA prohibits any person from carrying on insurance or reinsurance business without a valid licence issued by NAICOM. To obtain a licence, applicants must satisfy prescribed requirements, including incorporation as a limited liability company, maintenance of minimum capital, payment of statutory deposits, and compliance with regulatory standards. Upon satisfaction of all requirements for licensing, the Commission will license the company appropriately, in accordance with the Service Charter.[3] Additionally, foreign insurers without demonstrable regulatory oversight or physical presence are prohibited from operating in Nigeria.[4] Any person resident in Nigeria or body corporate registered in Nigeria carrying on insurance business anywhere other than in Nigeria shall be deemed to be an insurer carrying on insurance business within Nigeria.[5]
For the construction sector, these provisions are significant because they strengthen regulatory oversight and promote the participation of financially sound insurers in the market. This is particularly important for large-scale projects that rely on specialised insurance products such as Contractors’ All Risks Insurance, Builders’ Liability Insurance, Professional Indemnity Insurance and Performance Bonds. By enhancing transparency and setting clearer entry requirements, the NIIRA seeks to improve confidence in the insurance market and the ability of insurers to meet claims arising from major construction and infrastructure projects.
Section 6 of the NIIRA provides for the categories in which the Commission may license an insurer. While the NIIRA requires separate licences for life and non-life insurance businesses, it does not prohibit a company licensed to carry on life insurance business from acquiring or owning shares in a non-life insurance company, and vice versa.[6]There are also provisions for the issuance of licences to a reinsurer[7]. The NIIRA also grants the Commission the power to refuse, vary, or revoke licences where regulatory requirements are not met[8] including the ability to vary the conditions of an insurer’s licence and, where necessary, assume control of an insurer’s operations. Rejection must be communicated to the applicant with reasons.[9] However, this does not preclude a client from reapplying to the Commission[10] or appealing the decision of the Commission to the Board, which shall give its decision on the appeal within 30 days.[11] These provisions reinforce the importance of project-related risks underwritten by insurers and reinsurers authorised to operate in Nigeria, thereby strengthening regulatory oversight and reducing legal, regulatory and financial risks throughout the lifecycle of a construction project.
Section 8 of the NIIRA empowers the Commission to cancel licences. The process begins with the issuance of a notice of intention to cancel the licence and gives the insurer 30 days to remedy any defects. The Commission may vary any category or class of licence granted to an insurance institution.[12] The Act retains the distinction between life and non-life insurance business while recognising specialised classes of non-life insurance such as engineering insurance, energy (oil, gas and power) insurance, and bonds, credit guarantee and suretyship insurance. These categories are relevant to the construction industry, where project risks, performance obligations and financing arrangements often depend on robust insurance products. The recognition of engineering insurance and suretyship insurance as distinct classes reinforces the regulatory framework for contractors’ all-risk policies, performance bonds, advance payment guarantees and other risk management instruments commonly used in project delivery.
Shift from State to Federal Laws: A Unified Market
The NIIRA effectively centralizes regulatory authority under the Commission, asserting federal supremacy. The Act ends the era where a logistics company would need different “insurance permits” for every state it drives through. A single federal certification is now the gold standard. The Act mandates the use of the Nigerian Insurance Industry Database (NIID). Federal law enforcement can now verify any policy nationwide in real-time, effectively killing the market for “fake” certificates. With a unified federal law, disputes will be handled under a standardized process. Given that most players in construction procure materials from all around the country, this shift is a welcome development as same will reduce the regulatory bottlenecks that often plague the sector and make insurance more accessible.
Insurance of Buildings Under Construction
Under the repealed Insurance Act 2003, compulsory insurance for buildings under construction applied only to buildings exceeding two floors.[13] Section 64 of the repealed Insurance Act 2003 mandated the owner or contractor to insure against liabilities arising from construction risks that could result in bodily injury, death, or property damage to third parties. NIIRA significantly expands this obligation, by extending compulsory insurance to buildings exceeding one floor (British Building Standard), thereby widening the range of construction projects subject to mandatory insurance.[14]
Another notable innovation is that the NIIRA expressly provides that the insurance obligation commences immediately upon receipt of building plan approval and before construction commences.[15] Unlike the replead insurance Act, where the obligation arose once construction had begun, the NIIRA embeds insurance compliance at the project planning stage, ensuring that construction risks are covered from the outset. This requirement ensures that insurance protection is integrated into the planning and early construction stages rather than being treated as an afterthought.
The NIIRA also strengthens enforcement by significantly increasing the monetary penalty for non-compliance. Under the repealed Insurance Act 2003, the penalty for non-compliance was a fine of ₦250,000 or imprisonment for three years or both.[16] Under the NIIRA, the penalty has been increased to a fine of ₦5,000,000 or imprisonment for up to twelve months or both.[17] The substantial increase in the financial penalty is likely to serve as a stronger deterrent to developers and contractors who fail to obtain the mandatory insurance cover.
Insurance of Public Buildings
Compulsory insurance of public buildings is not news as it existed under section 65 of the repealed Insurance Act.[18] The provision required owners or occupiers of public buildings to insure such buildings against hazards including collapse, fire, earthquake, storm, and flood. However, the effectiveness of this provision was undermined by weak implementation and enforcement.
The NIIRA not only retained this provision but strengthens its requirement. Also, it broadens regulatory oversight and introduces stricter penalties for default. While the old Insurance Act imposed a penalty of ₦100,000 for non-compliance, the NIIRA increases the fine to ₦1,000,000.[19] The NIIRA also introduces a Fire Services Maintenance Fund financed through contributions from insurers providing public building insurance.[20] The objective is to improve firefighting infrastructure and emergency response capabilities.
Importantly, the NIIRA adopts a broader conception of public buildings by covering buildings accessible to the public for educational, medical, commercial, recreational, or residential purposes.[21] This expansion reflects a policy orientation towards public welfare and consumer protection.
However, several challenges may undermine effectiveness. The foremost issue remains enforcement. Historically, compulsory insurance laws in Nigeria have suffered from poor implementation due to regulatory inefficiency. Additionally, many property owners may regard insurance as a mere statutory burden rather than a risk management tool, thereby encouraging fake or inadequate insurance policies.
Another concern relates to public awareness. Many occupiers and owners of public buildings remain unaware of the legal obligation to insure their premises. Without extensive sensitisation and inter-agency collaboration between the Commission, state governments, physical planning authorities, and fire services, compliance levels may remain low.
Insurance of Imports
There is no significant change in the law regarding imports of goods and merchandise. The law remains that all imports of goods and merchandise into Nigeria, including construction materials and equipment, be insured through insurers licenced in Nigeria. Under the previous legal regime, the same import insurance obligations existed but enforcement was largely inconsistent.[22] Importers frequently relied on foreign insurance providers, thereby depriving the Nigerian insurance industry of substantial premium income. Also, the punishment for non-compliance with the provision was a mere fine of N500,000 (five hundred thousand Naira).
Under the NIIRA, the compliance requirement has increased to the sum of N1,000,000 (one million Naira) or the premium involved, whichever is higher.[23] This reform is targeted to act as a stronger deterrent to defaulters while boosting local premium retention and domestic underwriting capacity for complex infrastructure and construction projects.
Impact on Project Financing
Modern project finance structures place significant emphasis on risk allocation and mitigation.[24] Consequently, lenders increasingly require evidence of insurance coverage before approving project financing facilities.[25]
Mitigation and Compliance Guidelines
Under the NIIRA, compliance with compulsory insurance requirements is a key condition precedent to financing transactions, particularly within the real estate, infrastructure, and energy sectors. Financial institutions may view insured projects as lower-risk investments because insurance provides an additional layer of security against unforeseen losses and liabilities.
Developers should incorporate insurance planning into the earliest stages of project development.[26] Insurance requirements should be considered during project feasibility assessments, procurement planning, and financing negotiations. In addition, organisations should conduct periodic compliance audits to ensure that policies remain valid, premiums are paid when due, and coverage limits remain adequate throughout the project lifecycle. Engaging licensed insurance brokers and legal advisers can further reduce compliance risks and ensure that insurance arrangements satisfy both statutory and contractual requirements.
Conclusion
The NIIRA represents a decisive shift from a passive and largely elective insurance framework to a more proactive compulsory insurance regime. By extending mandatory insurance obligations across the planning, construction, occupancy, and commercial stages, it seeks to strengthen public protection, improve risk management, and deepen insurance penetration in Nigeria.
The reforms relating to buildings under construction, public buildings, and imports demonstrate a legislative intention to integrate insurance into critical sectors of the economy. By embedding insurance across the lifecycle of construction and infrastructure assets, the Act transforms insurance into a legal and financial necessity.
Increased penalties, broader coverage requirements, and enhanced regulatory oversight reflect a stronger enforcement philosophy than was obtainable under the repealed Insurance Act 2003. The success of these innovations will ultimately depend on effective enforcement, public awareness, institutional coordination, and the operational capacity of Nigerian insurers. Without these supporting mechanisms, the reforms may suffer the same fate as earlier compulsory insurance provisions that existed largely on paper.
Nevertheless, certain loopholes remain. First, enforcement may prove difficult in Nigeria’s largely informal construction sector where many buildings are erected without approvals or regulatory supervision. Secondly, there is a risk that some developers may procure insurance merely to satisfy regulatory requirements without maintaining adequate coverage throughout the construction period. Thirdly, increased compliance costs may discourage small-scale developers and contribute to higher housing costs.
As a whole, the NIIRA is a positive development because it aligns Nigeria with global best practices in construction risk management and public protection.
Written by: Kosisochukwu Udeh, Chris Allagoa, Sekinat Ibraheem, Femi Shitta-Bey, Rhodiyat Ogbara, and Christiana Okechukwu
Reference
[1] https://www.getinsurance.ng/history-of-insurance-in-nigeria/ Accessed on 1st June 2026 at 8:47am.
[2] Section 75 – 76 of the Nigerian Insurance Industry Reform Act 2025
[3] Section 5(5) of the NIIRA.
[4] Section 5(6) of the NIIRA.
[5] Section 5(7) of the NIIRA.
[6] Section 6 (1) and (2) of the NIIRA.
[7] Setion 6(3) and (5) of the NIIRA.
[8] Section 7 of the NIIRA.
[9] Section 7(2) of the NIIRA.
[10] Section 7(3) of the NIIRA.
[11] Section 7(4) and (5) of the NIIRA.
[12] Section 9 of the NIIRA.
[13] Section 64 Insurance Act 2003,
[14] Section 75 of the NIIRA.
[15] Section 75(2) of the NIIRA.
[16] Section 64(4) Insurance Act 2003.
[17] NIIRA, penalty provisions relating to construction insurance
[18] Section 65 of the Insurance Act 2003
[19] Section 76 of the NIIRA, provisions on insurance of public buildings
[20] ibid
[21] ibid
[22] Insurance Act 2003, provisions relating to local content and import insurance
[23] Section 82(4) of the NIIRA.
[24] Yescombe (n 14) 121.
[25] NAICOM (n 2).
[26] NAICOM (n2)
