Claims Settlement and Policyholder Protection Under NIIRA 2025

A widow submits her husband’s life claim, with every document the insurer asked for. She is told the file is “being processed.” Months pass. A year later the insurer’s name appears in the news because the regulator has stepped in. Her husband’s policy was valid and the premiums were paid, but the money is nowhere to be seen. Stories like hers explain why Nigerians distrust insurance, and why the 2025 reform spends so much effort on what happens after a loss.

Reports show how real the problem is. NAICOM cancelled the licence of Niger Insurance Plc in June 2022 over insolvency and its inability to meet verified claims, and in October 2024 it dissolved the board and management of African Alliance Insurance Plc, citing among other things its inability to meet obligations to annuitants. This article explains what the law now requires of an insurer once a claim is made, what rights third parties have, and what protection exists if the insurer itself fails. It follows Regulation and Licensing of Insurers Under NIIRA 2025.

1. The common law duty to pay

Before the statute, the insurer’s duty to pay promptly was mostly a matter of contract. Once an insurer has accepted liability, or been forced to accept it by court action or an arbitration award, it must pay, and it must follow the procedure in the policy. In Oghene & Sons Ltd v Royal Exchange Assurance Corporation, the court enforced an arbitration clause and stayed the insured’s action until arbitration took place.¹ Such a clause, known as a Scott v Avery clause, makes an award a condition of the right to sue, and it does not oust the court’s jurisdiction.²

The common law gave the insured little leverage against delay, because damages for late payment were hard to recover and the claim itself usually carried no interest. Section 210 of NIIRA was written to fill that gap.

2. Section 210: the statutory clock

The core of the section is a set of time limits.

Where a claim is made in writing by the insured or anyone else entitled to claim under the policy, the insurer must, unless it denies liability, settle it within the number of days stated in the Commission’s Service Charter or prescribed by the Commission. In every case except special risks, all admitted claims must be settled within 60 days of notification. Special risk claims must be admitted or denied within 60 days of notification, and admitted special risk claims must be paid within 60 days of the discharge voucher.³

If the insurer does not accept liability, or the documents are incomplete, it must deliver a written statement of its reasons, or of the missing documents, within 60 days of receiving the claim.⁴

An insurer that breaches the section is liable to a penalty of ₦500,000 and must pay the claim with monthly compound interest at the prevailing bank rate, running from the date by which it ought to have paid.⁵ In addition, the person whose claim remains unpaid may ask the Commission to pay it out of the insurer’s statutory deposit, and the Commission has power to do so.⁶

A few points deserve attention.

First, the interest is compound and monthly, which is a notable improvement over the old position. An insurer that sits on a ₦50 million claim for a year will pay far more than the claim.

Second, the 60-day period is measured from “notification”, while the duty to explain a refusal or incomplete documents is measured from the day the claimant delivered his claim. The Act does not say whether the payment clock restarts once missing documents are supplied. An insurer that spends 59 days finding out that a form is missing will argue that the clock starts again. The claimant will say it never stopped. Until a court decides, the safer course for a claimant is to send every document at once, in writing, and keep proof of delivery.

Third, section 210(1) gives the Commission and the Service Charter power to set the number of days, while section 210(3) fixes 60 days for admitted claims. The better reading is that 60 days is the outer limit and the Commission may require less.

Fourth, for insurances made compulsory by the Act, an insurer is liable to compensate the insured or a third party for damage caused by its unreasonable delay in settling a claim, as awarded by a court or the dispute resolution panel set up under the Act, and the policy cannot say otherwise.⁷ That is a form of bad-faith liability, and it exists only for compulsory insurance. For fire, burglary and ordinary life policies, the remedy remains the ₦500,000 penalty, interest and the Commission’s supervisory powers.

3. Where disputes go

Section 210(9) says all disputes arising out of any insurance contract shall be referred to the Federal High Court or to the insurance tribunal established under the National Insurance Commission Act.⁸ That language raises two questions.

The first is about arbitration. Policies commonly require arbitration before suit, and Nigerian courts enforce those clauses. The wording of section 210(9) does not mention arbitration, and a court will have to decide whether the section displaces Scott v Avery clauses or only says where court proceedings go once arbitration is complete. The second is constitutional. The jurisdiction of the Federal High Court is defined in section 251 of the 1999 Constitution, and a claim by a policyholder against a private insurer for an unpaid sum is not obviously one of the matters listed there. Whether the National Assembly can channel every insurance dispute to the Federal High Court by ordinary legislation is an open point. Until it is settled, careful litigants should check the forum rules before filing, since a suit in the wrong court may be struck out.

4. Why insurers decline claims

Most refusals are not about delay. They rest on the grounds covered in earlier articles. The insurer may say that the insured did not disclose a material fact or made a false statement, as discussed in Non-Disclosure and Misrepresentation in Nigerian Insurance Contracts. It may say a term was broken, which brings in Conditions and Warranties in Nigerian Insurance Law and section 65. It may say the premium was not paid in advance, which is covered in Premiums and the Risk Factor in Nigerian Insurance Law. It may say the policy was never delivered, in which case section 17(3) stops it from relying on policy terms. And it may say the insured lacked an insurable interest.

Three of these rules now favour the insured more than students expect. Section 64 treats information not asked for in the proposal form as immaterial. Section 65 limits what the insurer can do for breach of a non-fundamental term. Section 17(3) bars reliance on undelivered policy terms. In practice, a well-advised claimant should ask for the insurer’s written reasons under section 210(6) and test each ground against these provisions.

5. Third parties and road accident victims

The people hurt most by non-payment are often not the policyholders at all. They are the injured pedestrian, the bus passenger, the owner of a damaged shop. NIIRA gives them several routes.

Direct rights under section 205. A third-party beneficiary of a non-life policy can recover from the insurer the loss he suffers, within the limit insured, though he is not a party to the contract. The insurer keeps the same defences it would have had against the insured.⁹

Motor third-party insurance. Part X is the most protective part of the Act. It requires insurance against third-party risks and includes cover for death, bodily injury, medical expenses and property damage up to ₦3 million.¹⁰ An insurer must satisfy a judgment against its insured for covered liability, even if it could have avoided the policy, unless it has obtained the appropriate declaration in time and given the claimant notice.¹¹ Conditions that say liability ends because something was done or not done after the accident have no effect against the third party, though the insurer may recover from the insured what it paid.¹²

Restrictions that do not bite. Section 89 voids any restriction in a compulsory policy on matters such as the age or physical condition of the driver, the condition of the vehicle, the number of persons the vehicle carries, the weight of its load, the times and areas of use, and the horsepower or value of the vehicle.¹³ In plain terms, an insurer cannot escape a third-party claim by saying a danfo was overloaded, driven at night or in poor condition. That matters in a country where overloaded commercial buses are a daily sight.

Insolvency of the insured. Where the insured becomes bankrupt, makes an arrangement with creditors, or is a company in liquidation, receivership or under a floating charge, the insured’s rights against the insurer are transferred to and vest in the third party, and settlements between insurer and insured made to defeat those rights are of no effect.¹⁴

The Road Accident Victims Compensation Fund. Section 99 sets up a fund financed by 0.5 per cent of underwriting profit on motor insurance business. Of the money, 65 per cent goes into a separate fund from which the Commission pays compensation for death or bodily injury caused by an uninsured vehicle or an unidentified driver, together with hospital expenses of up to ₦2 million per person. The remainder is divided among the Federal Road Safety Corps, the Police and road-traffic agencies for equipment, with up to 5 per cent for administration. An insurer that defaults on its payment faces a penalty of five times the amount due.¹⁵ This is the answer to the hit-and-run victim who for years had no one to claim from.

The weak point is enforcement. A third-party policy is only as real as the certificate behind it, and forged certificates remain common. NIIRA makes it an offence to obtain a certificate by false statements or to forge or use a forged one, as seen in Formation of an Insurance Contract in Nigeria. The law can compensate a victim only when an insurer or the fund stands behind the vehicle.

6. The Insurance Policyholders Protection Fund

What if the insurer itself collapses? Section 212 creates a fund for that situation. It receives 0.25 per cent of the gross premium income of every insurer and reinsurer each year, together with 0.25 per cent of the balance of the Security and Insurance Development Fund under the NAICOM Act. It is to be used for resolving distress and insolvency of licensed insurers and for paying claims admitted by or allowed against an insurer that remain unpaid because of insolvency or cancellation of the licence.¹⁶

The Fund is managed independently of the Commission’s own money by a fund manager, under a committee with a chairman appointed by the Commission, two Commission representatives and two industry representatives. The Commission may require additional contributions if the Fund is inadequate, and insurers must report imprudent underwriting or governance practices that could cause insolvency within five days of becoming aware of them.¹⁷

Read it carefully, though. Section 212(6) says the Fund is disbursed as a loan, repayable by the insurer after recovery, or as a first-line charge on the receiver or liquidator from the realisation of assets after cancellation. So the Fund is a liquidity and resolution mechanism that is repaid from the failed insurer’s assets, not a guarantee scheme like deposit insurance for banks. The Act sets no cap per policyholder and no stated payout formula, leaving those details to the guidelines the Commission must issue. Two further limits follow from the wording. The Fund pays claims that are “admitted by or allowed against” the insurer, so a contested claim may need to be admitted or adjudicated first. And the Act does not say what happens to a policyholder whose policy is valid but who has not yet made a claim, such as a holder of a long-term life policy or an annuity.

7. When an insurer fails

NIIRA lays out a sequence that policyholders should know.

Cancellation of the licence ends new business. The Commission may take over as receiver or appoint one, with power to freeze accounts and take over management. The receiver publishes a notice requiring all policyholders and creditors to submit claims, and the Commission or liquidator may realise the assets and enforce the individual liability of shareholders and directors.¹⁸ In the priority order that follows, liquidation costs come first and policyholders second, ahead of secured creditors, other creditors, staff, shareholders and directors.¹⁹ Limitation statutes do not bar the recovery of debts owed to the failed insurer, and nobody may sue an insurer the Commission is liquidating without leave of court.²⁰

The 2026 recapitalisation showed the process in motion. Reports say NAICOM published a list of compliant insurers at the end of July 2026 and later relicensed the large majority of the market, while insurers that could not meet the capital floors, including Universal Insurance, Goldlink and STACO according to reports, had their licences revoked. The Commission can also cancel a licence where it has received and verified at least five complaints of failure to pay claims promptly.²¹

For a policyholder, three practical steps follow. Respond to any notice published by the Commission or liquidator and file the claim in writing, because section 110 expects policyholders to come forward. Keep copies of the policy, premium receipts and claim correspondence. And check whether the claim also falls under a compulsory scheme, for example the third-party cover in Part X, which may carry its own remedies.

There is a constitutional dimension. A policyholder’s claim is a property right under a contract, and section 44 protects property against compulsory acquisition without compensation. That guarantee binds the state, and it does not say what happens when a private company fails. The Fund and the priority rule in section 110(5) are the legislature’s response to a gap that the Constitution leaves open. For life and annuity holders, the point is closer to home. A pension income or a death benefit that keeps a family afloat is part of the security that section 33’s protection of life is concerned with, which is why the quality of these protections matters beyond the technicalities.

8. Common student mistakes

• Citing the Insurance Act 2003 (sections 69 to 71) for claims settlement. Section 210 of NIIRA now governs.
• Forgetting the 60-day period and the penalty of ₦500,000 plus compound interest.
• Saying the Policyholders Protection Fund pays claims directly like deposit insurance. Section 212(6) describes disbursement as a loan or first-line charge.
• Overlooking that unreasonable-delay damages under section 210(8) apply only to compulsory insurance.
• Letting an insurer avoid a third-party motor claim because of overloading, vehicle condition or time of use. Section 89 says those restrictions are void.
• Forgetting that third parties have direct rights, under section 205 for non-life insurance and Part X for motor.
• Treating section 210(9) as settled. Its interaction with arbitration clauses and section 251 of the Constitution is unresolved.

9. Problem question approach

Start by asking who is claiming: the insured, a third-party beneficiary, or an accident victim. Check whether the claim was made in writing and when. Apply the 60-day rule to find whether the insurer is in default, and look for written reasons under section 210(6). If the insurer declined, test its reason against sections 17(3), 64 and 65 and the earlier articles. For a road accident, check section 87 cover, section 89 restrictions, section 90 and whether the vehicle was insured at all, in which case look to the Road Accident Victims Compensation Fund. If the insurer has failed, apply sections 110 and 212: the priority order, the claims notice and the Fund’s loan structure. End by naming the forum: the Federal High Court, the insurance tribunal or arbitration, and flag the open questions on section 210(9).

10. Quick reference

Question	Answer	Authority
Time to settle an admitted claim?	Within 60 days of notification	NIIRA s 210(3)
Special risk claims?	Admit or deny within 60 days; pay within 60 days of discharge voucher	NIIRA s 210(4), (5)
If the insurer refuses or documents are incomplete?	Written reasons within 60 days	NIIRA s 210(6)
Penalty for default?	₦500,000 plus monthly compound interest	NIIRA s 210(7)
Unpaid claim after the period?	Commission may pay from the statutory deposit	NIIRA s 210(2)
Damages for unreasonable delay?	Compulsory insurance only	NIIRA s 210(8)
Where do disputes go?	Federal High Court or insurance tribunal	NIIRA s 210(9)
Third-party beneficiary’s right?	Direct claim within the limit insured	NIIRA s 205
Motor third-party property damage cover?	Up to ₦3 million	NIIRA s 87
Restrictions on drivers, loads, areas?	Void against third parties	NIIRA s 89
Uninsured or unidentified driver?	Road Accident Victims Compensation Fund	NIIRA ss 99, 100
Failed insurer’s assets?	Policyholders rank second after liquidation costs	NIIRA s 110(5)
Policyholders Protection Fund?	Loan or first-line charge, not a direct guarantee	NIIRA s 212(2), (6)

11. Key cases

• Oghene & Sons Ltd v Royal Exchange Assurance Corporation (1968) 1 ALR (Comm) 119: arbitration clause enforced by stay.
• Scott v Avery (1856) 5 HL Cas 811: an award can be made a condition precedent to a court action.
• Abousaleh v White Cross Insurance Co Ltd (1968) 2 ALR (Comm) 1: stranger to the policy could not claim (now qualified by NIIRA s 205).
• Yorkshire Insurance Co v Haway (1969) 1 All NLR 352: insurer that paid a third party under compulsion could recover from the insured.
• Northern Assurance Co Ltd v Wuraola (1969) 1 NMLR 1: notice condition in a motor policy, now limited for third-party claims by NIIRA s 88.

Footnotes

1. Oghene & Sons Ltd v Royal Exchange Assurance Corporation (1968) 1 ALR (Comm) 119.
2. Scott v Avery (1856) 5 HL Cas 811.
3. Nigerian Insurance Industry Reform Act 2025, s 210(1) to (9).
4. Nigerian Insurance Industry Reform Act 2025, s 210(1) to (9).
5. Nigerian Insurance Industry Reform Act 2025, s 210(1) to (9).
6. Nigerian Insurance Industry Reform Act 2025, s 210(1) to (9).
7. Nigerian Insurance Industry Reform Act 2025, s 210(1) to (9).
8. Nigerian Insurance Industry Reform Act 2025, s 210(1) to (9).
9. Nigerian Insurance Industry Reform Act 2025, s 205(1) to (3).
10. Nigerian Insurance Industry Reform Act 2025, ss 84(1), 87(1) and 102.
11. Nigerian Insurance Industry Reform Act 2025, s 90(1), (3) and (4).
12. Nigerian Insurance Industry Reform Act 2025, s 88(1) and (2).
13. Nigerian Insurance Industry Reform Act 2025, s 89(1).
14. Nigerian Insurance Industry Reform Act 2025, ss 91 to 96.
15. Nigerian Insurance Industry Reform Act 2025, ss 99 and 100(4) and (5).
16. Nigerian Insurance Industry Reform Act 2025, s 212(1) to (11).
17. Nigerian Insurance Industry Reform Act 2025, s 212(1) to (11).
18. Nigerian Insurance Industry Reform Act 2025, s 110(1) to (10).
19. Nigerian Insurance Industry Reform Act 2025, s 110(1) to (10).
20. Nigerian Insurance Industry Reform Act 2025, s 110(1) to (10).
21. Nigerian Insurance Industry Reform Act 2025, s 8(1)(m).