The Impact of Insurance Valuation in Nigeria
Insurance valuation refers to the systematic process of determining the fair and accurate value of insured assets or liabilities for the purpose of establishing appropriate insurance coverage, setting premiums, and guiding risk management strategies. In Nigeria, a country with a growing, yet under-penetrated insurance market, effective valuation plays a central role in the stability and effectiveness of the industry. Its impact can be understood across economic, regulatory, operational, and consumer trust dimensions.
- Enhancing Risk Assessment and Pricing Accuracy
Accurate valuation is fundamental for appropriate risk assessment. When assets (such as buildings, equipment, or inventory) or liabilities are professionally valued, insurance companies and policyholders can ensure that the sum insured reflects true economic value, rather than arbitrary estimates. This reduces incidents of underinsurance—where coverage is insufficient to rebuild or replace assets after a loss—and overinsurance, which can distort premium rates and cost policyholders more than necessary. New regulatory frameworks, like provisions in the Nigerian Insurance Industry Reform Act (NIIRA) 2025, increasingly require actuarial and professional valuations to ensure premiums and claims settlements reflect current realities, including inflation and currency shifts. (Peoples Daily Newspaper)
By relying on independent, professional valuers, insurers are better positioned to set premiums that are commensurate with actual exposure to risk, promoting sustainability and fairness across policies.
- Strengthening Regulatory Compliance and Solvency
The National Insurance Commission (NAICOM) oversees the solvency and regulatory compliance of insurance firms in Nigeria. Valuation feeds into capital adequacy, reserve setting, and risk-based capital requirements by offering transparent measurements of assets and liabilities. When insurance companies maintain valuations based on current market realities, it supports regulators’ efforts to ensure that insurers can meet claims obligations.
Section 79 of the NIIRA 2025 highlights that payouts—especially for fire and property insurance—should be based on recent professional valuations to guarantee that policyholders can rebuild or replace damaged property at current market costs. This alignment helps protect both insureds and insurers from financial strain during claims events. (Businessday NG)
- Improving Claims Management and Loss Settlements
Proper valuation enhances claims settlements by providing a credible basis for determining liabilities. When an insured event occurs, the valuation determines the amount eligible for indemnity, helping to reduce disputes between insurers and policyholders about appropriate settlement figures. Precision in valuation can curb fraudulent or inflated claims because there is a clear, professionally determined reference for actual value.
In Nigeria’s high-inflation context, where replacement costs can quickly change, regular valuation updates are especially important to keep claims reserves adequate and reflective of economic conditions. (Peoples Daily Newspaper)
- Supporting Market Confidence and Investment Growth
The Nigerian insurance market is expanding, with studies projecting growth in sector value and premium income, driven by rising awareness, regulatory reforms, and digital innovation. (blueweaveconsulting.com) Confidence in the actuarial soundness and financial reporting of insurers is partly anchored in robust valuation practices. Investors and stakeholders are more likely to commit capital to firms that demonstrate accurate balance sheet valuations and sound risk management, which includes regular and dependable asset valuations.
Additionally, valuation practices support transparent financial reporting, which increases comparability among firms, thereby attracting capital from both domestic and international investors.
- Mitigating Economic and Macro Risks
Nigeria’s economy faces macroeconomic pressures such as volatile exchange rates and high inflation, which influence asset replacement costs and liabilities valuation. When insurers adjust valuations to reflect these dynamics, they not only protect their own solvency but also contribute to broader economic resilience.
For example, inflation-adjusted valuations help prevent reserve erosion, where the real value of reserves declines over time, jeopardising future claims payments. Properly valuing liabilities and assets also plays into asset–liability management (ALM) – ensuring portfolios are sensibly aligned with future obligations. (ejournal.yasin-alsys.org)
Conclusion
The impact of insurance valuation in Nigeria is multidimensional and significant. Accurate valuation practices support:
- Fair risk pricing and reduced under/over insurance
- Regulatory compliance and solvency assurance
- Transparent, fair claims settlement
- Investor confidence and financial market development
- Resilience against inflation and macroeconomic uncertainty
As Nigeria continues to reform its insurance laws (e.g., NIIRA 2025) and expand market capacity, integrating professional, continuous valuation into all facets of insurance operations will remain a cornerstone for improving industry performance and contributing meaningfully to national economic growth.
References
BusinessDay Nigeria. (2025). Valuation for insurance and the Nigerian Insurance Industry Reform Act (NIIRA 2025). BusinessDay.
https://businessday.ng/opinion/article/valuation-for-insurance-and-the-nigerian-insurance-industry-reform-act-niira-2025/
BlueWeave Consulting. (2023). Nigeria insurance market size, share, trends and forecast. BlueWeave Consulting.
https://www.blueweaveconsulting.com/press-release/nigeria-insurance-market-size-set-to-touch-usd-8-74-billion-by-2031
National Insurance Commission. (2020). Guidelines for valuation of assets and liabilities of insurance companies in Nigeria. NAICOM.
https://naicom.gov.ng
Peoples Daily Nigeria. (2024). Insurance valuation is a crucial process drive in Nigeria. Peoples Daily.
https://peoplesdailyng.com/insurance-valuation-is-a-crucial-process-drive-in-nigeria-esv-osheka-joy/
Yasin, M. A., & Al-Sys, A. (2022). Asset–liability management and insurance solvency in developing economies. Multidisciplinary Journal of Management Studies, 4(2), 45–59.
https://ejournal.yasin-alsys.org/MJMS/article/view/7182