Insurance companies in Nigeria will begin contributing 0.25% of their net premium income to a dedicated compensation fund for policyholders in the event of insurer collapse, marking the market’s latest effort to strengthen consumer protection and boost confidence in the industry.
The National Insurance Commission (NAICOM) in Nigeria recently released the guidelines for operation of the Insurance Policyholders’ Protection Fund (IPPF), which serves as a statutory safety net designed to protect insurance policyholders against distress and insolvency of a licensed insurer or reinsurer. The guidance extends to the reimbursement of loans by an insurer or reinsurer.
The annual contribution equals 0.25% of net premium income for the immediately preceding year. For now, the guideline has not specified any amount of compensation yet for policyholders in the event of collapse of any insurer.
Nigeria’s move mirrors the direction several markets in Africa have taken, including Kenya where Policyholders contribute 0.25% of their premiums to the compensation fund which is matched by their insurance companies. The policyholders are compensated up to KES500,000 (US$3,800) in case an insurer collapses.
Kenya’s scheme is managed by the Policyholders Compensation Fund (PCF) and holds the record as Africa’s first insurance guarantee scheme. It is therefore seen as a model for the continent. PCF became operational in 2005 and had maintained a KES250,000 (US$1,900) payout limit over the past two decades before doubling the amount in January 2026.
South Africa, which has the highest insurance penetration in Africa has no central pool of money to step in and immediately compensate policyholders. Protection depends on the insurer’s own assets, the regulatory intervention process and the insolvency laws.
Nigeria modelled its Insurance Policyholders Protection Fund on Kenya and has operationalised its fund following the coming into law of the Nigerian Insurance Industry Reform Act 2025 in August 2025.
Globally, economies such as the US, UK and European Union countries have some of the most developed policyholders’ compensation schemes that give priority to compulsory and socially-sensitive covers like motor liability, health and workers’ compensation.
In a circular to operators signed by John Falade, deputy director for special risk and security analysis at NAICOM, the regulator stated that the guideline is to “ensure regulatory clarity, guidance and ease compliance, as it provides a comprehensive regulatory framework for the collection, management and administration of the Fund.”
According to the guidelines, the major objectives of the Fund include:
- Ensure protection of policyholders and beneficiaries covered under an insurance policy
- Ensure timely and accurate collection of contributions to the Fund
- Establish sound management and investment practices for the Fund
- Provide procedures for disbursement and recovery of loans from the Fund
- Promote transparency, accountability, and governance in the administration of the Fund.
The guideline stipulates that the “IPPF Assessment Returns in respect of 2025 shall be submitted to the Commission not later than May 31, 2026, while subsequent submission shall be in line with Section 4.3 of the Guideline on Insurance Policyholders Protection Fund. All insurers, reinsurers and relevant insurance institutions are required to ensure strict compliance with these Guidelines.”
According to the circular, failure by any insurer or reinsurer to remit the full amount of its assessed contribution to the IPPF within the stipulated time frame shall constitute a ground for suspension or cancellation of its operating licence by the Commission.
Reacting to the guidelines, Jide Orimolade, CEO at Stanbic IBTC Insurance Limited said: “Just like the way it sounds, it is to protect the policyholders; to pay their claims when the company goes into liquidation. It will offer competitive advantage for stronger insurers that are well capitalised. It will boost confidence among the insuring public. Also, the funds can be used for infrastructural projects that can assist the economy.”
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