From Sosoliso To Offshore Insurance: Nigeria’s ₦500 Billion Capacity Crisis Threatens Aviation & Maritime Growth

By OBIOMA TORI & FRED LONGJOHN OBEH

Nigeria’s Insurance Reform Faces a Crucial Test as Aviation & Maritime Billions Flow Abroad

NIGERIA’S efforts to strengthen its domestic insurance industry are facing a major test as aviation and maritime businesses continue to depend heavily on foreign insurers to protect their most valuable assets.

Despite years of regulatory intervention and renewed efforts to recapitalise the insurance market, local operators have yet to capture a substantial share of the high-value risks generated by the country’s airlines, shipping companies, cargo handlers and offshore businesses.

Estimates indicate that Nigeria loses approximately ₦500 billion annually, equivalent to about $360 million, through foreign insurance placements in the aviation and maritime sectors. More than 90 per cent of the relevant insurance premiums are reportedly channelled to offshore markets, leaving domestic companies with limited opportunities to retain business and develop specialised underwriting capabilities.

The situation raises serious questions about the effectiveness of the Nigerian Insurance Industry Reform Act (NIIRA) 2025, particularly its ambition to strengthen local participation and reduce capital flight.

However, the challenge is not simply whether Nigerian companies should insure Nigerian assets. The more fundamental question is whether domestic insurers possess the financial resources, technical expertise, international credibility and claims infrastructure required to assume complex risks without exposing themselves or their clients to unacceptable losses.

As the government looks to recapitalisation and stronger regulation to address the problem, stakeholders are demanding a broader strategy that connects insurance reform with aviation safety, maritime development, local content and economic competitiveness.

An industry caught between reform & structural limitations

Nigeria’s insurance sector occupies an important position within the economy because it provides financial protection, mobilises investment and supports businesses operating in high-risk environments.

Nevertheless, its contribution has remained below its potential. Industry estimates place insurance penetration at approximately 0.5 per cent, compared with an African average of around three per cent.

This low penetration reflects a combination of limited public confidence, inadequate insurance awareness and weaknesses in the industry’s capacity to provide specialised coverage.

The consequences become particularly visible in aviation and maritime operations, where asset values and potential liabilities can be enormous.

Aircraft, shipping vessels, cargo, oil tankers, offshore rigs and port infrastructure require insurance arrangements capable of responding to complex and potentially catastrophic claims. International lenders, aircraft lessors and shipping companies also impose standards that domestic insurers must meet before they can participate meaningfully.

For years, Nigeria’s more than 60 insurance companies operated with financial resources that stakeholders considered insufficient for many high-value risks. Consequently, local companies often relied on foreign insurers and reinsurers to provide the financial backing required by major operators.

The result has been a market in which Nigerian businesses generate insurance demand, but much of the financial value associated with that demand is retained abroad.

Yet, NAICOM insists that the situation should not be interpreted as proof that local insurers cannot participate in complex transactions.

Its Head of Corporate Affairs, Abba Halil, said domestic insurers actively underwrite major aviation and oil-and-gas risks but transfer portions of their exposure to international reinsurers.

According to him, such arrangements are normal in global insurance markets because no single insurer should carry an excessive concentration of potentially catastrophic risks.

He explained that reinsurance allows companies to distribute exposure, protect their capital and access wider financial resources.

That position highlights an important distinction in the debate: the use of foreign reinsurers is not inherently a sign of failure. The concern arises when local participation remains too small and the domestic market cannot retain a meaningful proportion of premiums, expertise and business opportunities.

Aviation insurance exposes the limits of local capacity

The aviation industry provides one of the clearest illustrations of the financial and technical demands confronting Nigerian insurers.

Scheduled airlines operate aircraft manufactured by major international companies, including Boeing, Airbus, Embraer and ATR. Each aircraft requires appropriate hull and liability coverage, while airline operations also involve passenger protection, ground handling, maintenance and other risks.

Investigations cited in the report indicate that Nigeria had more than 100 aircraft in the fleets of scheduled carriers, although only about 38 were reported airworthy as of December 2025. The remaining aircraft were undergoing maintenance, including at facilities outside the country.

Private jet owners and non-scheduled operators add another substantial category of aviation assets. Minister of Aviation and Aerospace Development, Festus Keyamo, has put their combined fleets at approximately 240 aircraft.

These include Gulfstream, Bombardier, Hawker, Dassault Falcon, Embraer and ATR models.

Insuring such assets requires substantial financial backing. Nigame Aircraft Consultancy Chief Executive Officer, Femi Adeniji, said aircraft hull and liability risks can involve values ranging from $50 million to $200 million per aircraft.

He estimated that Nigeria could be losing between $200 million and $400 million annually through offshore aviation insurance premiums.

Adeniji attributed this dependence to inadequate domestic capital, limited foreign-exchange reserves and weak international credit ratings. He also pointed to the strict requirements of aircraft lessors, which often demand coverage from insurers with strong financial credentials.

Although Nigerian legislation generally requires risks located within the country to be offered to local insurers first, Adeniji explained that foreign placements become difficult to avoid when domestic operators cannot provide the required coverage.

He added that offshore arrangements are often facilitated through locally registered insurance companies, meaning that foreign participation can coexist with some level of domestic involvement.

Aviation analyst Samuel Caulcrick also identified weak underwriting capacity and low market penetration as major obstacles.

He noted that the industry’s assets exceeded ₦3 trillion as of late 2023, but the financial base had not translated into sufficient capacity to cover some of the most expensive aviation risks.

According to Caulcrick, the transfer of substantial portions of premiums to foreign reinsurers reduces the amount of value that domestic companies retain.

Aviation security expert John Ojikutu raised additional concerns about the adequacy of insurance across Nigerian airports and airline operations.

He argued that financial constraints and regulatory inconsistencies continue to encourage reliance on foreign insurers. Moreover, he questioned whether airport infrastructure receives the same insurance attention as airline operations.

Ojikutu also linked the problem to Nigeria’s limited strength in the international aviation market, arguing that the absence of strong national or flag carriers leaves private airlines negotiating complex insurance arrangements with foreign lessors from a relatively weak position.

Sosoliso: When inadequate insurance becomes a human tragedy

While the financial implications of offshore insurance dominate much of the debate, the history of aviation accidents demonstrates why adequate coverage and dependable claims settlement matter beyond business calculations.

The 10 December 2005 crash of Sosoliso Airlines Flight 1145 remains one of the most painful examples of the consequences of inadequate insurance protection.

The DC-9 aircraft, registered as 5N-BFD, crashed at Port Harcourt International Airport, claiming numerous lives, including about 60 students of Jesuit College, Abuja.

According to the report, the aircraft did not maintain sufficient insurance coverage to satisfy the minimum compensation requirement of $100,000 cited under International Civil Aviation Organization standards.

Following the accident, the airline’s management, led by the late Victor Ikwuemesi, reportedly offered the victims’ families $10,000 each.

However, the then Director-General of the Nigerian Civil Aviation Authority, Dr Harold Demuren, rejected the offer and insisted that the airline comply with the applicable international standard.

Nearly 21 years later, the families are still pursuing compensation through the courts.

The prolonged dispute illustrates the devastating consequences that can arise when insurance arrangements fail to provide adequate protection after an aviation disaster.

It also exposes the importance of regulatory supervision. Insurance is not merely a financial product that airlines purchase to satisfy administrative requirements; it is a critical safeguard for passengers, crew members, victims and their families.

Ojikutu recalled other airline accidents in the early 2000s and questioned whether Nigerian insurers at the time possessed sufficient financial resources to meet compensation obligations.

Consequently, the Sosoliso experience remains relevant to current debates about underwriting capacity, regulatory enforcement and the credibility of insurance providers.

Maritime insurance & the struggle for local participation

Nigeria’s maritime industry faces an equally demanding insurance environment.

Data from NIMASA show that the country had 4,610 flagged vessels as of March 2025, with a combined gross registered tonnage of 6,131,814.55. Additionally, 1,102 vessels operated under the Cabotage regime, with a combined tonnage of 2,037,184.63.

The scale of these assets, alongside the value of cargo moving through Nigerian waters, offers considerable opportunities for domestic insurance companies.

Nevertheless, much of the business remains connected to foreign insurance markets, particularly in specialised areas such as protection and indemnity coverage.

Professor Alfred Oniye, Deputy Vice-Chancellor, Academic and Professional Programme at City University, Cambodia, estimated that Nigeria loses approximately $60 million, or ₦82 billion, annually through foreign maritime insurance placements.

He attributed the outflow to the limited financial strength of indigenous insurers and the shortage of specialised underwriters capable of handling complex marine risks.

International shipping companies, he explained, often prefer foreign insurers because they offer recognised global coverage, access to extensive reinsurance networks and established claims-management arrangements.

Furthermore, international maritime conventions and contractual requirements can influence the choice of insurance providers.

Oniye warned that the situation weakens the domestic insurance industry, restricts employment opportunities and undermines the objectives of the Local Content Act and the Cabotage Act 2006.

Sunday Ademuyiwa, Director of International Trade at the Maritime Researchers and Authors Association of Nigeria, similarly identified inadequate local capacity and technical expertise as major reasons for the sector’s dependence on foreign providers.

Although indigenous companies such as Mutual Benefits Assurance provide marine insurance services, he said foreign operators retain advantages in global coverage, risk absorption and international reputation.

Nevertheless, Ademuyiwa believes the growing presence of indigenous shipowners could create fresh demand for local insurance services.

He urged NAICOM, NIMASA and the Nigerian Insurers Association to work together on policies that would improve underwriting strength, develop specialised expertise and encourage greater use of domestic insurance solutions.

How trade arrangements exclude Nigerian insurers

Beyond the weaknesses within insurance companies, SEREC Head of Research Dr Eugene Nweke identified Nigeria’s international trade structure as another major contributor to the problem.

He explained that exports are frequently conducted under free-on-board arrangements, under which foreign buyers take responsibility for insurance after goods are shipped.

Meanwhile, imports often operate under cost, insurance and freight terms, allowing foreign sellers to arrange the insurance coverage.

This arrangement can exclude Nigerian insurers from significant portions of both import and export transactions.

Nweke argued that the problem becomes more serious when weak enforcement of local content rules allows offshore placements to continue despite regulations intended to promote domestic participation.

He also identified insufficient capital, limited technical expertise and inadequate international claims infrastructure as major weaknesses.

According to him, these challenges have broader economic consequences. Foreign premium payments increase demand for foreign exchange, reduce domestic investment opportunities and weaken the ability of local financial institutions to develop specialised services.

In addition, foreign insurance costs, including war-risk charges, can increase the cost of maritime operations and contribute to higher freight and import prices.

Nweke therefore argued that maritime insurance localisation should form part of Nigeria’s economic security and Blue Economy strategy.

NIIRA 2025: A new legal framework, but will it deliver?

The introduction of the Nigerian Insurance Industry Reform Act 2025 has renewed expectations that domestic insurers will capture a larger share of the country’s insurance market.

The amendment to Section 204 provides for local insurers to receive the first opportunity to underwrite risks before operators seek foreign insurance arrangements.

The intention is to strengthen domestic participation, reduce unnecessary capital flight and expand the financial resources available to Nigerian insurers.

However, the implementation of this provision raises practical questions. High-value risks may exceed the capacity of individual local companies, while international lessors and shipping operators may require insurers to demonstrate specific financial ratings and claims capabilities.

NAICOM’s position is that risk-sharing and reinsurance should remain part of the solution. Halil maintained that domestic insurers can participate in major transactions while transferring portions of the exposure to international reinsurers.

This approach allows local companies to remain involved without carrying risks beyond their financial capacity.

The commission is also relying on recapitalisation to strengthen domestic underwriting resources and expand the market’s ability to absorb larger risks.

Yet, stakeholders insist that recapitalisation must lead to more than higher balance sheets. It must improve the industry’s technical competence, customer confidence, claims settlement and ability to compete for international business.

NAICOM reported that Nigeria’s insurance industry generated ₦1.98 trillion in 2025 and held total assets of ₦4.4 trillion in the second quarter of that year.

Within the non-life business, assets stood at ₦2.5 trillion, with marine insurance accounting for 8.8 per cent of the portfolio. The marine segment also recorded a 69.7 per cent claims settlement ratio.

These figures suggest that the industry has a substantial economic base. However, its low penetration rate and continued dependence on foreign reinsurance show that significant structural challenges remain.

The reforms experts say Nigeria needs

Experts have proposed several measures to improve domestic participation and strengthen the country’s insurance market.

Nweke advocated a review of trade arrangements to enable Nigerian insurers to participate more actively in export and import insurance. He also recommended stronger regulatory controls over offshore placements, including stricter approval procedures and minimum local-retention requirements.

Another proposal involves establishing a Nigerian Protection and Indemnity Club through a public-private partnership. Such an institution could initially provide domestic coverage and gradually build the capacity and international recognition needed to serve wider maritime markets.

He also recommended tax incentives for indigenous insurers, alongside targeted investment in technical training and professional development.

For aviation, Adeniji called for stronger foreign-exchange capitalisation, specialised underwriting skills, improved claims-management systems and domestic insurance pools.

Strategic partnerships with global reinsurers could also help local companies access larger financial resources while gradually improving their technical capabilities.

Meanwhile, Caulcrick argued that stronger legislation mandating wider insurance coverage across important sectors could increase market penetration and deepen the industry’s financial base.

These proposals point towards a common conclusion: local participation will only become sustainable when insurers can offer credible products, demonstrate financial strength and settle legitimate claims efficiently.

Rebuilding confidence must become part of the reform agenda

Nigeria’s insurance industry also faces a trust problem that cannot be solved through recapitalisation alone.

Customers must believe that insurers will honour their obligations, while businesses need confidence that local providers can handle large and complicated claims.

The Sosoliso compensation dispute demonstrates why this confidence matters. Even when a policy exists, inadequate coverage or weak claims arrangements can leave victims and their families exposed.

Similarly, international shipping companies and aircraft lessors will not automatically transfer major risks to Nigerian insurers simply because legislation encourages local participation.

They will require evidence of financial stability, professional competence, international partnerships and reliable claims administration.

Therefore, rebuilding trust must remain central to the reform process.

From capital flight to economic opportunity

Nigeria’s dependence on foreign insurers presents a significant challenge, but it also reveals an opportunity to strengthen the domestic financial sector.

The aviation and maritime industries generate substantial demand for insurance services. With stronger capitalisation, specialised skills and credible institutions, Nigerian companies could retain a greater share of that business and develop services capable of competing internationally.

Such progress could conserve foreign exchange, create employment, support professional training and deepen the country’s financial markets.

Moreover, stronger maritime insurance capacity could complement Nigeria’s Blue Economy ambitions by supporting indigenous shipping, port development and wider participation in international trade.

Ultimately, NIIRA 2025 must deliver practical improvements rather than merely introduce new regulatory requirements. The industry needs stronger underwriting institutions, effective supervision, dependable claims settlement and a balanced approach to international reinsurance.

The objective should not be to eliminate foreign participation, which remains important for spreading major risks. Instead, Nigeria must build a domestic market capable of taking a meaningful share of its own insurance business while maintaining access to global financial protection.

Until that happens, the country’s aviation and maritime sectors will continue to generate substantial insurance opportunities that domestic operators struggle to capture, while billions of naira in potential economic value flow beyond its borders.