Many Nigerians see conventional insurance as costly and unrewarding, renewing policies yearly without tangible benefits. To address these concerns and deepen financial inclusion, regulators introduced Takaful, an ethical, Sharia-compliant insurance model built on mutual support, fairness, and shared responsibility, open to people of all backgrounds, OLUWAKEMI ABIMBOLA writes
As far as Moruf Ajibade, a former commercial bus driver turned entrepreneur in the transport business, is concerned, buying third-party insurance for his vehicles is just giving free money to the insurance company and obeying the law.
“In all the years I have been driving, I have never been involved in an accident, never filed an insurance claim on my vehicles and every year, I renew my insurance policy. I have never benefited from the system, but every year, I have to renew the policy. It feels like paying for a service that I’m not enjoying, and it’s been going on for years now,” he said.
Recounting her experience with insurance in the past, a member of the panel of judges for the 2025 Almond Insurance Awards, Jean Anishere, SAN, said, “I used to be one of those who didn’t like insurance. I just believed that we are just depositing money, and when it comes to taking the benefits, underwriters would come and just write it off, and you get little or nothing for it. For example, when I lost my first new vehicle, I had taken out comprehensive insurance on the vehicle. Of course, I ran to the insurance company to do the needful and pick up a new vehicle. By the time underwriters did what they had to do, what I had left wasn’t enough to buy a ‘korope’ (minibus), if they were available back then. Thank God, insurance companies are coming up.”
Bimpe Ogbonnaya described herself as a very careful driver who also has not been involved in an accident and, as such, has not had a reason to file claims on her comprehensive insurance policy.
“Some days, I really question why I keep renewing this policy. It is of no benefit to me. If not for disturbances on the road, I really wouldn’t bother,” Ogbonnaya lamented.
The trio of Ajibade, Anisere and Ogbonnaya are not alone in questioning the benefits of the motor insurance policy or other conventional insurance policies. This lack of understanding as to how insurance works has been identified as one of the factors hindering insurance penetration in Nigeria.
To address this concern and cater for the call for ethical insurance options, the National Insurance Commission issued Takaful insurance guidelines, which went into effect in March 2013.
Takaful, an Arabic word meaning “guaranteeing each other”, is approved under Islamic jurisprudence, or Sharia guidelines. It incorporates elements of mutuality and ethical finance considerations and is open to all people regardless of faith and background.
NAICOM said the need for Takaful Insurance was identified following detailed research and that it would enhance financial inclusion in Nigeria. Takaful insurance is a form of insurance that is compatible with the principle of the Shari’ah (Islamic Law). As of the time of issuing the Takaful guidelines, the regulator said that a market survey undertaken by it indicated a significant religiously based objection to conventional insurance.
Takaful Insurance is based on two principles: Tabarru (donation/contribution), which is a donation covenant where all participants agree to mutually support each other and is the basis of participants’ contributions into the Takaful Insurance Fund.
The second principle is that of Ta’awun (co-operation). This is the established Islamic concept of mutual assistance and is the basis on which participants willingly agree for the Takaful Insurance Fund to be used for the mutual benefit of all participants to meet eligible claims.
The key elements of a Takaful Insurance scheme include mutual guarantee; all policyholders agree that the pooled funds are to be used for assistance in specified circumstances of loss.
Ownership of the Fund: The participants are the main owners of the Takaful insurance fund.
For the management of the Takaful Insurance Fund, the management role is performed by the Takaful Insurance operator in consonance with international best practices and investment conditions; any investment activity performed using the participants’ contributions must be in line with the governing principles of Takaful Insurance (e.g., avoiding investment in select unlawful industries that are deemed harmful to society and avoiding interest).
There are two classes of Takaful Insurance operating in Nigeria. The Family Takaful Insurance, which is typically a long-term arrangement between the Takaful Insurance operator and Takaful Insurance participant, provides the policyholder with financial relief in the event of bereavement, critical illness or disabling injury to a fund contributor.
Then, there is the General Takaful Insurance, typically a short-term agreement between the Takaful Insurance operator and the Takaful Insurance participant providing financial compensation for specified losses such as theft or damage, etc., but it will exclude Family Takaful Insurance.
According to the insurance regulator, there are five Takaful Insurance operators in the country licensed to carry out general and family Takaful businesses.
Explaining how the Takaful Insurance model works, the Vice Chairman of Noor Takaful Nigeria Limited, Aminu Tukur, in an earlier interview with The PUNCH, said, “Under the Takaful model, the number one thing is that it is Sharia compliant; therefore, you enter a contract of donation. Whereby everyone who signs that contract has agreed to donate their funds to a pool, and this basket is to assist others who have contributed to that pool of funds. It is people coming together to share their risks in that pool. Anyone who has contributed to that pool can benefit when they face a disaster or a subject matter into which they have made that contribution.
“That is why, under the Takaful model, the funds do not belong to the Takaful operator; they belong to the participants who have contributed. Under conventional insurance, the funds go into the assets of the company, but with the Takaful model, when benefits or claims are paid from that fund, and there is a balance, it belongs to the participants. This is why, at the end of the day, a surplus can be distributed to those people who have not benefited from the claims part of it. So, you can benefit in two ways, either through claims or through surplus, and that is why it is built on equity and fairness. This is not just about profit.”
A digital insurance brokerage firm, Hefazat Technologies, highlighted some of the benefits of Takaful, including risk sharing and reduced moral hazard, saying that in a Takaful system, shared responsibility cultivates a sense of accountability among participants. This reduces the risk of fraudulent claims and minimises moral hazards, as everyone has a stake in preserving the community’s financial stability.
Another benefit is wealth accumulation and savings. Takaful plans often include an element of savings or investment, allowing participants to build wealth over time. This aspect is particularly attractive to individuals seeking a combination of insurance protection and long-term financial growth.
Participants also enjoy customisable coverage. Usually, Takaful operators offer a wide range of coverage options tailored to the diverse needs of participants. Whether it’s life, health, property, or business-related coverage, there are Takaful solutions available for various risk scenarios.
Takaful Insurance makes room for enhanced social welfare. Hefazat Technologies argued that because surpluses are distributed back to the participants or allocated to charitable causes, Takaful indirectly contributes to the betterment of society.
This philanthropic aspect appeals to individuals seeking to make a positive impact through their insurance choices.
Experts in Islamic finance argued that Takaful Insurance is a compelling option in the insurance industry, especially in Nigeria, as it offers a combination of financial security, ethical values, and social responsibility.
