A small business can take years to build and one major setback to lose. For a trader, a fire could destroy months of stock. For a bakery, damaged equipment could bring production to a standstill. For a small shop, flooding or theft could mean losing the money needed to restock and keep the business running.

For millions of Nigerian small businesses, there is little to no insurance protection to fall back on when something goes wrong.

New data from the Insurance Sector Strengthening Programme (ISSP) shows that only about 3.17 million of Nigeria’s estimated 39.65 million Micro, Small and Medium Enterprises (MSMEs) have insurance coverage. That means roughly 36.4 million businesses operate without adequate protection against risks such as fire, flood, and theft.

The figure is significant because MSMEs are not a small part of the Nigerian economy. They account for 96.7 percent of businesses and contribute 46.31 percent to GDP, according to the SMEDAN and National Bureau of Statistics survey data being referenced. The same survey recorded MSMEs as responsible for 87.9 percent of employment.

The cost of an unexpected loss 

Running a business in Nigeria already comes with enough uncertainty. Business owners have to deal with changing operating costs, unreliable infrastructure, economic pressures and the everyday challenge of keeping customers and cash flow moving. Adding an unexpected loss to that list can be difficult, particularly for businesses operating with limited savings.

Insurance is supposed to provide a financial cushion when certain risks occur. But for many small businesses, it has not become a regular part of business planning. This creates what the insurance industry describes as a protection gap: a large difference between the businesses that exist and the businesses that have some form of insurance cover.

For a business with significant financial reserves, a major loss may be painful but manageable; for a small enterprise that uses most of its income to restock, pay workers or cover daily expenses, the same loss can threaten its ability to reopen.

The gap in business protection 

The estimated 39.65 million MSMEs figure comes from the SMEDAN and NBS survey data that has been widely used to describe the size of Nigeria’s small-business ecosystem. The latest insurance-sector data places coverage among these businesses at about eight per cent.

That leaves most MSMEs outside the insurance system. The problem is particularly important because micro businesses make up the overwhelming majority of Nigerian enterprises. Many operate informally, with owners often combining personal and business finances and relying heavily on daily sales to keep the business running. For such businesses, the idea of paying regularly for protection against a loss that may or may not happen can compete with more immediate needs such as rent, stock, wages, transport and electricity.

Why many businesses remain uninsured and what is at stake 

The low uptake cannot be explained simply by a lack of interest.

Insurance stakeholders have identified several barriers, including limited awareness, the cost of premiums, concerns about claims settlement and the shortage of simple products designed around the realities of small and informal businesses.

For some business owners, insurance can also feel like an expense without an immediate return. A business owner can see what a new freezer, generator or fresh stock will do for the business today. Insurance, on the other hand, is something they hope they never have to use. If business owners are unsure about what a policy covers, how much they will receive after a loss or how quickly a claim will be settled, they may be less willing to make insurance part of their monthly expenses.

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This means closing the insurance gap will require more than simply telling business owners to buy policies. The products have to make sense to the people they are designed to protect.

The importance of MSMEs makes the insurance gap an economic issue, not just an insurance industry issue. These businesses provide livelihoods, employ workers and keep money moving through communities. When one closes because it cannot recover from a major loss, the effect can be felt by the people who work there and the suppliers and customers around it.

That is why the conversation around insurance is increasingly tied to the resilience of small businesses. A business that can recover after a fire, flood or theft has a better chance of reopening than one that has to rebuild everything from its remaining cash.

Insurance cannot remove the risks of running a business. What it can potentially do is make some of those risks easier to absorb.

A push to make insurance more accessible

The National Insurance Commission is now trying to close part of this gap through the Insurance Sector Strengthening Programme.

The 36-to-60-month programme focuses on areas including awareness and education, capacity building, gender inclusion, youth engagement, innovation, and MSME and value-chain development.

NAICOM has set a target of increasing insurance penetration from about 0.5 percent of GDP to 1.5 percent by 2028, before pursuing a longer-term target of 10 percent by 2031.

For small businesses, however, the success of that ambition may come down to something much simpler: whether an ordinary business owner can find a policy that is affordable, understand what it covers and trust that it will provide meaningful support when a loss occurs.

Nigeria has millions of people building businesses with limited resources and considerable risk. Closing the insurance gap could therefore mean more than increasing the number of policies sold. It could mean giving more of those businesses a better chance of surviving the setbacks that can otherwise bring years of work to an end.

Meiza Nigeria