Actuarial Review of Compulsory Insurance Compliance and Market Impact in Nigeria

This study examines compliance rates with compulsory insurance requirements in Nigeria and evaluates their actuarial and market development implications. Nigerian law mandates several classes of insurance including motor third-party liability, builders liability, occupiers liability, and group life for employees, yet enforcement remains weak and compliance rates are estimated to be below 30 percent for most compulsory lines. Poor compliance undermines the risk pooling benefits of mandatory insurance, inflates premiums for compliant policyholders, and limits loss data availability for actuarial analysis. This study uses NAICOM compliance enforcement records, police and transport authority data on motor insurance verification, and a survey of 85 compliance officers and actuaries across Lagos, Kano, and Port Harcourt for 2019 to 2023. Actuarial impact analysis quantifies how improved compliance rates would affect premium adequacy, portfolio diversification, and loss ratio stability for each compulsory line. Economic modelling estimates the revenue and consumer welfare implications of alternative enforcement mechanisms. Findings reveal that achieving 70 percent compliance in motor third-party insurance alone would reduce average premiums by approximately 22 percent through improved risk pooling, while simultaneously improving claims payment capacity. Digital vehicle registration integration is identified as the most cost-effective enforcement mechanism. The study concludes that compulsory insurance enforcement is an actuarially significant lever for Nigerian market development. It recommends a joint NAICOM, FRSC, and NIID digital verification initiative to improve motor insurance compliance rates nationally.

Keywords: compulsory insurance, compliance, motor third-party, risk pooling, NAICOM.