Actuarial Modelling of Disability Risk and Income Protection Insurance in Nigeria

This study develops actuarial models for disability risk and examines the design and pricing implications for income protection insurance products in Nigeria. Disability represents a significant but largely uninsured economic risk for Nigerian workers, with the potential to permanently eliminate earned income and deplete household savings. The Employee Compensation Act provides limited workplace injury coverage, but long-term income protection insurance for non-occupational disability is virtually absent from the Nigerian market. This study uses disability prevalence data from the National Survey on Disability conducted by the National Bureau of Statistics combined with wage data and occupation classifications from the National Manpower Survey. Multi-state disability models incorporating active, sick, disabled, and dead states are developed using maximum likelihood estimation of transition intensities. Income protection premium rates are computed for representative age, gender, and occupation cohorts. Findings reveal significant variation in disability incidence across occupation groups, with manual labor categories showing disability rates approximately three times higher than professional categories. Women show lower disability incidence but higher morbidity severity when disabled. At actuarially fair premium rates, income protection coverage would be affordable for formal sector workers earning above the minimum wage. The study concludes that a viable income protection insurance market is technically feasible in Nigeria. It recommends that NAICOM collaborate with employers and pension fund administrators to develop a bundled income protection solution delivered through workplace benefit programs.

Keywords: disability risk, income protection insurance, multi-state model, actuarial pricing, Nigeria.