Nigeria’s insurance regulator, NAICOM, has decided the best way to fix its chronically underdeveloped insurance market is to make it much, much more expensive to enter. In a shake-up nearly two decades in the making, the new Nigerian Insurance Industry Reform Act (NIIRA) has handed the country’s insurers a one-year deadline to increase their minimum capital by up to 500%, or hand back their licences.

The government’s ambition is clear: to transform a sector that, despite serving Africa’s largest economy and population, accounts for a meagre 2.1% of insurance premiums written across the continent. For context, South Africa commands 68.2%. The logic is that bigger, better-capitalised companies will be more resilient, pay claims faster, and finally earn the trust of a skeptical public.

But in solving one problem, regulators may have created another. For the country’s ambitious insurtech startups, who dream of becoming full-stack, tech-first insurers, this new law feels less like a reform and more like a slammed door.

The Great Wall of Capital

The new capital requirements are stark. Life insurance companies must now shore up their capital base from ₦2bn to ₦10bn ($6.5m). General insurers face a steeper climb, from ₦3bn to ₦15bn ($9.8m). For the big-leaguers, composite insurers (offering both life and non-life) must now hold ₦25bn ($16.3m), and reinsurance companies a hefty ₦35bn ($22.8m).

NAICOM argues the move will “strengthen the financial resilience of insurers” and clean up a market where delayed or unpaid claims are common. The NIIRA isn’t just about capital; it mandates the digitisation of the entire insurance value chain, introduces a policyholder protection fund, and sets strict timelines for claims settlement.

It also comes with a very big stick. Individuals operating an unlicensed insurance business now face fines of ₦25m, with companies and their principal officers facing a ₦50m penalty and potential jail time. The message is clear: the days of operating in regulatory grey areas are over.

For the established players, this is a moment of consolidation. For new entrants, it’s a near-insurmountable barrier. While VCs have been pouring money into African fintech, the 3% of equity funding that went to insurtech in 2023, according to Partech Africa, wouldn’t cover the cost of a single Nigerian licence today.

The Partnership Tango Becomes Mandatory

If building a full-stack insurtech in Nigeria was once a dream, it’s now a fantasy. The new reality pushes startups firmly into a well-trodden path across the continent: the partnership model.

Look around Africa, and you’ll see this isn’t a new dance.

• In Egypt, fintech giant Fawry has a digital health insurance product, but it is running so in collaboration with established player GIG Insurance. Egypt’s regulator is cautiously opening the door to digital-first policies, but true disruption remains tethered to the incumbents.
• In Ghana, auto-insurtech ETAP recently celebrated securing the country’s “first-ever” insurtech licence, but it was a sandbox licence obtained through a partnership with Hollard Insurance, allowing it to test its products under supervision.
• In Kenya, where a full licence costs around $6m, startups like Turaco have cleverly found a niche with a micro-underwriting licence. Even telecom behemoth Safaricom opted for brokerage and agency licences to sell others’ products, deciding that becoming a full insurer wasn’t worth the capital headache.

“We operate as insurance agents rather than a direct insurer. Obtaining an insurance license would require significant time and capital,” explains Simon Schwall, founder of agricultural insurance provider OKO, which operates in Mali and Uganda. This sentiment now echoes louder than ever in Lagos.

A Lifeline or a Leash?

For Nigerian startups, the most viable path forward is now the Insurance Web Aggregator Licence, which allows companies to sell and compare insurance products from multiple providers without needing to underwrite the risk themselves. 

This model provides a crucial lifeline, allowing tech companies to focus on what they do best: building slick user interfaces, improving customer experience, and reaching underserved markets. However, it also solidifies their role as a distribution channel for the same old incumbents, who are now more flush with cash than ever.

The path of an Insurance Agent, meanwhile, is now guarded by a dragon of bureaucracy: the demand for “at least 10 years of experience in an underwriting firm.” It’s a clause that serves as a moat around the industry’s old boys’ club, ensuring that only those already steeped in the traditional system can participate. For a typical tech founder, this isn’t a hurdle; it’s a complete barrier to entry.

The Insurance Broker license represents a more treacherous middle ground. While offering more independence to act on behalf of the customer, it plunges a startup deep into the regulatory maze. It comes with its own capital requirements — far less than an underwriter, but still significant for a lean startup — and binds them to a six-year license renewal cycle, an eternity in the fast-moving tech world. This route forces a startup to become a compliance-heavy, regulated entity from day one, potentially stifling the agility that is its primary advantage.

The Nigerian government wants a modern, digitised, and trusted insurance sector. The NIIRA provides the blueprint for a more stable and financially sound industry. The question is whether, in raising the castle walls to keep the weak out, it has also locked out the innovators who were meant to build the future. The stage is set for a stronger Nigerian insurance market; it’s just less clear if it will be an innovative one.