Insurance penetration in Nigeria remains below two percent of gross domestic product (GDP), with micro-insurance adoption lagging far behind. The majority of low-income households, smallholder farmers, and informal workers remain unprotected against shocks such as illness, crop failure, livestock loss, theft, and death of a breadwinner. This lack of risk protection perpetuates cycles of poverty and undermines national financial inclusion goals.
Micro-insurance is an insurance product designed for low-income individuals, farmers, traders, artisans, and informal workers who are usually excluded from traditional insurance because of affordability, access, and awareness. Premiums are very low, coverage is basic, and delivery is often through mobile phones, cooperatives, MFIs, or agent networks.
Expansion in micro-insurance is needed because of the high vulnerability of over 80 percent of Nigerians who work in the informal sector without formal risk protection. Poor households face shocks like illness, livestock loss, crop failure, fire, theft or death of a breadwinner that can plunge them into poverty. A second rationale for expansion in micro-insurance is low insurance penetration in countries like Nigeria. Insurance penetration is negative 0.5 percent in Nigeria compared to negative three percent in Kenya and over 15 percent in South Africa. Again, financial inclusion goals form a reason for micro-insurance expansion.
Micro-insurance complements micro-credit, pensions, and savings by protecting livelihoods. Nigeria aims to reach 95 percent financial inclusion by 2025, but risk protection remains the weakest link. Micro-insurance provides simple, low-premium, high-impact protection, enabling households to absorb shocks without falling into deeper poverty. Climate change is another rationale for micro-insurance expansion. Farmers especially need index-based weather insurance to cushion losses. Increasing floods, droughts, and pests threaten agricultural livelihoods.
There are models that serve as opportunities for micro-insurance expansion. These are digital channels or platforms covering mobile money, fintech wallets, and USSD which can reduce distribution costs. Claim processing through apps, USSD, or blockchain show greater transparency and trust. Bundled micro-insurance into airtime or data purchases as in MTN and Airtel increases uptake. The use of community networks as in cooperatives, trade associations, and religious organisations serve as trusted entry points. The third model is the agricultural index insurance in which weather-based crop insurance that is triggered by rainfall data protects farmers at scale. Next is embedded products or insurance in which insurance is bundled with loans, school fees, transport tickets, or farm inputs to ensure mass reach.
There are, however, challenges that tend to impede micro-insurance expansion. These include awareness and trust as many low-income groups do not understand insurance or distrust it. The second is high distribution costs which make traditional agent-based models unsustainable for tiny premiums. Next is regulatory flexibility or gaps as there is need for micro-insurance-friendly rules like simplified KYC and claims. Complex licensing, slow claim settlement frameworks, and inadequate reinsurance support discourage entry. The products should be designed to be simple, relevant, and possess a quick payout. At the moment, the products are often urban-focused, not aligned with rural realities.
Having reviewed the opportunities and key challenges, the following policy and market recommendations should be considered, First is regulatory and government actions to expand and simplify NAICOM micro-insurance licensing framework with lighter requirements for community-based and digital operators, to provide reinsurance support for catastrophic risks like floods and droughts, and to integrate micro-insurance into national social protection and agricultural subsidy programmes. The second category is market development measures which include to incentivise insurers through tax relief or innovation funds to target the bottom of the pyramid, to strengthen partnerships with telcos, fintechs, and agri-techs for last-mile delivery, and to promote open data systems like weather, health, mortality to enable index-based products. The third category is consumer awareness which should cover nationwide financial literacy campaigns in local languages, and to showcase quick claims payout stories to build trust.
Examples of expansion include the index-based crop insurance in Kenya by Kilimo Salama, through Safaricom, in which payouts are triggered by weather data. In Nigeria, pilot partnerships between fintechs like Paga, MTN, and licensed micro-insurers are promising but need scaling. NAICOM’s guidelines created tiers namely unit, state and national operators. In Ghana, MTN has successfully bundled micro-insurance with airtime, reaching millions. These cases and lessons are encouraging but are yet requiring emerging studies.
Expanding micro-insurance, through regulatory support, digital delivery channels, and public-private partnerships, can enhance resilience, reduce poverty, and complement ongoing efforts in micro-pensions, micro-credit, and social protection.
Expanding micro-insurance is central to achieving resilient financial inclusion in Nigeria. With supportive regulation, digital innovation, and strong public-private collaboration, millions of vulnerable Nigerians can be protected against risks that threaten livelihoods and development gains.
This is a call to action by regulators like NAICOM, CBN and SEC to simplify frameworks and integrate insurance into financial inclusion strategy; development partners to fund pilots, support consumer education, and catalyse risk pools, and the private sector to embed insurance into digital ecosystems, agricultural services and micro-finance platforms.
