Understanding Business Insurance and Liability in Nigeria

Imagine a situation where a young tailor in Ilorin shop went up in flames overnight. He lost everything: machines, fabrics, even customers who had trusted him with wedding clothes. When he was asked if he had insurance, he laughed and said, “Ah! That one na for big people.”

The truth is, insurance isn’t for “big people”, it’s for anyone who doesn’t want a single incident to erase years of effort. In Nigeria’s unpredictable business climate, insurance is not a luxury. It’s a survival strategy. Learn how Business insurance for Nigerian entrepreneurs works

What Business Insurance Really Means

At its core, business insurance is simply a way to spread risk. You pay a little now so you don’t lose everything later. It’s a promise between you and an insurer,  one that helps cushion the blow when accidents, theft, or legal issues show up uninvited.

The system is supervised by NAICOM, under the Insurance Act. So while the paperwork may look intimidating, the goal is straightforward: protect your business from financial shock.

Common Insurance Covers That Actually Matter

Forget the jargon for a moment. Here’s what’s practical for most Nigerian businesses:

• Property Insurance: When fire, flood, or theft strikes, this covers the damage.

• General Liability: If a customer gets hurt on your premises, this takes care of medical and legal costs.

• Professional Indemnity: For lawyers, consultants, accountants, it protects you when advice goes wrong.

• Employee Compensation (ECA): Compulsory for all employers. If a worker is injured on duty, this pays compensation.

• Product Liability:  If your product causes harm, this covers claims.

• Business Interruption: Helps you stay afloat when operations stop temporarily.

Think of these as safety nets. They don’t stop you from falling, they stop you from breaking.

Why Nigerian Entrepreneurs Skip Insurance (And Regret it Later)

Many small business owners treat insurance as a “when I hammer” plan. But what if the hammer never comes because a single mishap wipes out the business first?

According to NAICOM (2023), insurance penetration among SMEs is still painfully low. The Nigeria Social Insurance Trust Fund (NSITF) also reports an increase in workplace injury claims, especially in construction, transport, and manufacturing sectors. Yet, most of those victims worked for uninsured employers.

Understanding “liability” Without the Legal Headache

Liability just means who takes the blame and pays when something goes wrong. In business, it can arise in two main ways:

Contractual liability: You failed to deliver as agreed.

Negligence (tort): Someone gets hurt or loses money because of your action or inaction.

The danger? Courts can award damages that exceed your savings. Without insurance, that could end your business overnight.

Simple Steps to Keep Your Business Legally and Financially Safe

1. Identify your biggest risks. Is it fire, theft, or lawsuits?

2. Buy only what you need. Don’t pay for fancy policies you’ll never use.

3. Confirm your insurer is licensed by NAICOM. No shortcuts.

4. Study the exclusions. What they won’t pay for is just as important as what they will.

5. Keep proper records. Receipts, inventory, staff lists, you’ll need them when making a claim.

6. Train your workers. Many claims are preventable through basic safety measures.

7. Comply with the Employee Compensation Act. It’s not optional.

8. Review your cover yearly. As your business grows, so should your protection.

These aren’t “corporate checklists.” They’re habits that separate struggling traders from sustainable entrepreneurs.

It is also very important to discuss filing a claim. Filing a claim in Nigeria can test your patience. But if your documentation is clean and your story consistent, you’ll get your due. Think of it as a process, not a favour. The insurer’s role is to keep your business alive, not to frustrate it.

Final thoughts

Insurance won’t stop a fire, but it can stop the fire from burning down your dreams. Don’t wait for disaster before acting. Ask questions, compare policies, and protect what you’ve built.

Sometimes, it’s that one decision today that decides whether your business stands tomorrow.