Risk Assessment and Pricing of Motor Vehicle Insurance in Nigeria: A Case Study of Lagos State

This study examines risk assessment practices and premium pricing methodology in the motor vehicle insurance market, with a focus on Lagos State, South West Nigeria. Motor insurance is the most widely held class of insurance in Nigeria, yet it is also among the most unprofitable, with persistent loss ratios driven by high accident frequency, vehicle theft, and third-party injury claims. Inadequate risk classification and flat-rate pricing have been identified as key contributors to adverse selection and market instability. This study uses a mixed-method design, combining secondary claims data from five general insurance companies operating in Lagos with primary data from 90 underwriters and actuarial staff. Claims frequency and severity are analyzed by vehicle class, age, usage type, and geographic location within Lagos. Generalized linear model pricing frameworks are applied to identify statistically significant risk factors. Findings show that vehicle age, usage type (commercial versus private), and geographic location within Lagos are significant predictors of claims cost, yet most insurers apply only two-tier pricing based on engine capacity. Motorcycles and tricycles are the highest-risk categories but carry the lowest average premiums. The study concludes that current pricing practices in the Lagos motor insurance market inadequately reflect risk differentiation, contributing to market unprofitability. It recommends adoption of multivariate pricing models and improved claims data collection systems to enable risk-reflective premium setting.

Keywords: motor insurance, risk assessment, premium pricing, Lagos, GLM.