In northern Nigeria, where pundits say poverty rates are high and cultural and religious beliefs have reportedly prevented many from accessing traditional insurance, takaful offers an alternative that is aligned with local values. G.U. Chukwu, in this report, examines that this alignment with Islamic principles has increased acceptance and participation in communities previously underserved by traditional insurance models regarded as “Godless” with the government currently aiming to tap into the global Takaful insurance market that is expected to grow to $25 trillion by 2025
Insurance was once considered ungodly in northern Nigeria, where Muslims live, due to their unbending views in their religion. This idea was so widespread that it was believed that “God is the insurer.”
Insurance was considered a business for southern Nigerians, most of whom are Christians. In 2010, Ademayowa Adeduro, then executive director of Anchor Insurance Limited, expressed concern, saying there was a shortage of skilled professionals in the north and that northern professionals were migrating to the south.
Chris Agabi, a Lagos-based business analyst, summed up Adeduro’s words in a public presentation: “The challenge facing the insurance industry in the north is that there is a shortage of skilled professionals.
“Most of the human capital in the insurance industry comes from the South. Hardly anyone in the North knew anything about the insurance market.”
Financial experts believed that religion and culture hindered the growth and development of the insurance industry in the North. According to them, most people in the North considered insurance a “sacrilege.”
Despite these shortcomings, the then Chairman of NCRIB, Alhaji Teslim Sanusi, warned that more efforts were needed to develop the insurance market in the North.
He instructed companies to explore imaginative insurance as well as microinsurance options tailored to the characteristics of the people in the region.
Islamic Insurance – Global Market
Currently, Islamic Takaful insurance has become mainstream not only in Northern Nigeria but across the world. For instance, the National Insurance Commission (NAICOM) on August 1, 2023, assured that Nigeria is ready to enter the global Takaful insurance market that is expected to grow to $25 trillion by 2025.
The then Commissioner for Insurance and CEO of NAICOM, Sunday Thomas, through his Vice Chairman, Alhaji Sabiu Abubakar, stated this at the Africa Takaful and Interest-Free Finance Conference organized by Noor Takaful Insurance Company in Lagos.
The global value of Takaful insurance is believed to have exceeded $2 trillion and is expected to reach $25 trillion this year. This comes as Nigeria’s insurance industry ranks 62nd in the world with total premiums of $1.64 billion, which represents 0.2% of the premiums collected worldwide in 2018. [Nigerian Stock Exchange (NSE), 2019].
According to Augusto & Co’s 2022 Insurance Industry Report, the industry’s gross written premium (GPI) was 20.1 trillion. The gross written premium for the Nigerian insurance industry in the fourth quarter of 2023 was N1,003 billion. Sadly, Mr. Thomas was removed in 2024.
The special guest of honor and former Central Bank of Nigeria (CBN) Governor H.E. Muhammad Sanusi, at the event, said that although he was initially skeptical and cynical, he was pleased with the large-scale development of Islamic finance during his tenure at the central bank, introducing the interest-free Takaful banking model.
Muhammad Sanusi 11 might have made the right decision when NAICOM approved in principle Cornerstone Takaful Insurance Company Limited and Salam Takaful Insurance Company Limited as integrated Takaful operators to operate both family and general Takaful businesses in Nigeria. This follows the granting of licenses to Noor Takaful and Jaiz Takaful in early 2016, bringing the total number of pure Takaful operators to four.
Understanding Takaful
Experts say it is an Islamic insurance concept based on the Islamic principle of “taann” (also known as mutual benefit).
Takaful insurance companies, as participants, are obliged to compensate each other for any loss or damage suffered as a result of their funds or contribution pool. Most importantly, at the end of the financial year, profits generated through Takaful are distributed to participants and shareholders in proportion to the size of their investment.
Jaiz Takaful Insurance Managing Director and CEO Mohd Musa (Jowfu) said the company’s product was inspired by customers’ need to earn profits from the premiums they pay as policyholders.
Gaining traction across borders
This Shariah-compliant insurance model is gradually gaining traction in Nigeria, especially in the northern region where Islamic financial principles are more widespread. The launch of Takaful products aims to provide financial protection while adhering to Islamic law, which bans traditional interest-based insurance, stakeholders say.
Those familiar with the matter say Takaful has seen a steady increase in the number of participants since its launch in Nigeria around 2005. But NAICOM has established operational guidelines to foster growth in the sector.
These policies encouraged both traditional insurers and new entrants to offer takaful products, thereby expanding access to insurance coverage for the population. In northern Nigeria, where poverty rates are high and cultural and religious beliefs have reportedly prevented many from accessing traditional insurance, takaful offers an alternative that is aligned with local values.
This alignment with Islamic principles has increased acceptance and participation in communities previously underserved by traditional insurance models.
The rise of takaful insurance is believed to have contributed significantly to financial inclusion in northern Nigeria in a short space of time.
With around 70% of Nigerians living below the national poverty line and many lacking financial security, takaful provides a safety net for families against unexpected events such as illness or accidents. By pooling resources through community contributions, Takaful members are able to financially support each other in times of need.
As more people become aware of the benefits of Takaful, millions of people are now able to access insurance that was previously unavailable to them.This change not only increases personal safety but also promotes a culture of mutual support within the community.
By encouraging participants to save and invest, it contributes to economic empowerment. Many Takaful products include a savings component that helps policyholders save money in the long term.
This aspect is crucial in areas where traditional banking services are limited or viewed with skepticism.
Checks revealed that some takaful providers participate in community development initiatives funded by excess donations after claims are settled.
These initiatives may include education programs, health services, and infrastructure projects. As a result, Takaful not only protects individuals but also contributes positively to social development.
Takaful does not lack challenges
Despite its growth, experts say that the Takaful industry in Northern Nigeria faces challenges such as hyping of awareness about its benefits and a general distrust of financial institutions.
Ongoing efforts by regulators such as NAICOM and private insurers have however aim to address these issues through education campaigns and improved service delivery.
Public opinion is looking at a promising future for Takaful insurance as more people recognize the value of Takaful insurance as an ethical alternative to traditional insurance.
Given continued support from regulators and a growing urban middle class, millions more could potentially have access to this form of financial protection.
*Chukwu writes from Imo State.