What insurance means
Insurance transfers a risk in exchange for a premium.
You pay a comparatively small amount regularly. The insurer agrees to pay a comparatively large amount if a defined event happens. The insurer can afford that because most policyholders do not claim, and the pool covers those who do.
Three ideas make the contract work.
Insurable interest: you must stand to lose something if the event occurs. You cannot insure a stranger's building, because you would gain from its destruction rather than being restored.
Indemnity: for most policies, the payout restores you to the position you were in, rather than putting you ahead of it. Life policies work differently, paying a fixed sum.
Utmost good faith: you must disclose material facts, whether or not you were asked. That obligation is what most declined Nigerian claims turn on.
How it is used
The classes most Nigerian businesses and individuals meet are a short list.
Motor insurance, where third party cover is compulsory. Fire and special perils on buildings and stock. Burglary and theft. Public liability, covering injury to third parties on your premises. Professional indemnity, covering claims arising from professional advice. Goods in transit and marine cargo for importers. Group life for employees. And health insurance.
Several classes are compulsory in Nigeria, including motor third party liability, occupiers liability for public buildings, insurance of buildings under construction above a defined height, group life cover for employers within the pension framework, and professional indemnity for certain professions.
The practical mechanics matter. Read the policy schedule, not the brochure. Note the excess, which is the first part of any loss you carry yourself. Note the exclusions, which is where claims are decided. Note the conditions, particularly notification periods, because a claim reported late can be declined however genuine it is.
Key features
- Transfers a defined risk in exchange for a premium
- Requires an insurable interest in what is insured
- Most policies indemnify rather than pay a fixed sum
- A contract of utmost good faith, requiring disclosure of material facts
- Several classes are compulsory in Nigeria
- Exclusions, excess and notification conditions decide most claims
How this works in Nigeria
The Nigerian market is regulated by the National Insurance Commission, and complaints about declined claims can be taken to it where the insurer will not resolve them.
The two recurring problems are disclosure and undervaluation.
On disclosure, a proposal form completed casually is the source of most declined claims. A previous claim not mentioned, a change of use of a building, an alteration to a vehicle, a pre existing condition. Because insurance is a contract of utmost good faith, the duty is to volunteer material facts rather than to answer only what is asked, and insurers do investigate at claim stage.
On undervaluation, insuring a building or stock for less than its replacement cost saves premium and produces a proportionate reduction at claim time under average, so a business insured for half its value recovers roughly half of even a partial loss.
Enforcement of compulsory classes has historically been uneven, and awareness is low. Many Nigerian businesses carry motor cover and nothing else, leaving public liability, fire and business interruption uninsured.
One more practical point: pay premiums through the insurer or a licensed broker and keep evidence. Premium paid to an intermediary who never remitted it is a recurring Nigerian problem, and the policyholder discovers it at claim stage.
Insurance vs guarantee vs self insurance
Three ways of dealing with a risk you would rather not carry.
Insurance transfers the risk to an insurer for a premium. You pay regularly whether or not anything happens, and the insurer pays if it does, subject to the policy terms.
A guarantee is a promise about somebody else's obligation. It does not spread risk across a pool, it simply adds a second person who can be pursued, and its value depends entirely on that person's means.
Self insurance is carrying the risk yourself, deliberately, usually by setting aside reserves. It works where losses are frequent, small and predictable, and it fails badly where a single event is large enough to sink the business.
The practical test is survivability. Risks you could absorb without threatening the business can be self insured. Risks that could end it should be transferred, and that is what the premium buys.
Limits and risks
Insurance pays according to the policy, not according to what you assumed. Exclusions are where most disputes live, and reading them after a loss is too late.
Non disclosure can void the policy entirely, leaving the policyholder with nothing after years of premiums.
Underinsurance reduces recovery proportionately even on a partial loss, which is a trap for businesses that insure stock at cost rather than replacement value.
Claims settlement can be slow, and a business relying on a payout to resume trading may find the gap significant, which is what business interruption cover is for.
And insurance does not prevent anything. It funds recovery, and the underlying risk management is still the policyholder's job.
Worth knowing
Disclose everything material on the proposal form, in writing, even things you were not asked about, and keep a copy. Nigerian claims are declined for non disclosure more often than for anything else, and the document that settles it is the one you completed before the loss.
Questions people ask
What is insurable interest?
A recognised interest in what is insured, so that you would suffer a loss if the event occurred. Without it the contract is not valid insurance, which is why you cannot insure a stranger's property.
Which insurance is compulsory in Nigeria?
Motor third party liability, occupiers liability for public buildings, insurance of buildings under construction above a defined height, group life cover for employers within the pension framework, and professional indemnity for certain professions.
Why was my claim declined?
Most often for non disclosure of a material fact, for a loss falling within an exclusion, or for late notification. Read the policy schedule, the exclusions and the conditions, and escalate to the National Insurance Commission if the insurer will not resolve it.
What does utmost good faith mean for me?
You must volunteer material facts when taking out or renewing a policy, not merely answer the questions asked. Insurers investigate at claim stage, and non disclosure can allow them to avoid the policy.
What happens if I insure for less than the full value?
Recovery is reduced proportionately under the principle of average, even on a partial loss. A business insured for half its replacement value recovers roughly half of what it claims.
Is paying my premium to an agent enough?
Only if it reaches the insurer. Premium paid to an intermediary who never remitted it is a recurring Nigerian problem discovered at claim stage. Pay through the insurer or a licensed broker and keep evidence.