Coinsurance ban puts spotlight on Nigeria’s Takaful industry

By Barbara Bako, Abuja.

A new regulatory guideline banning coinsurance arrangements between conventional insurance and Takaful companies represents a significant shift for the industry. This change will test the resilience and ingenuity of Nigeria’s Takaful operators in the coming months.

The National Insurance Commission (NAICOM) justifies the move as necessary to protect the integrity of licensed Sharia-compliant insurance companies.

DAILY COMMERCE reports that the directive effective January 1, 2026, signals a major regulatory shift as Nigeria aims to bolster public trust and accelerate growth in its Islamic finance sector. Titled “Prohibition of Coinsurance Arrangements Between Takaful Companies and Conventional Insurance Companies,” the circular permits retakaful deals with conventional reinsurers to address local capacity constraints but firmly prohibits direct risk-sharing.

Takaful insurance, which operates on principles of mutual assistance and risk-sharing while prohibiting interest, uncertainty, and gambling, received a formal framework in Nigeria in 2015 when NAICOM issued its operational guidelines. The first fully licensed Takaful operators, Noor Takaful Insurance and Jaiz Takaful Insurance, received their licenses as composite operators in 2016. The surge of Takaful companies reflects a broader push to align financial services with Islamic ethics and include conservative Muslims.

Observers say the new guideline will shut Takaful companies out of large public accounts from strategic organizations like the Central Bank of Nigeria (CBN) and the Federal Inland Revenue Service (FIRS), whose risks are covered by multiple insurers. Traditionally, multiple insurance companies provide coverage for a single client to spread risk and ensure prudent underwriting.

Takaful operators are forecast to see declines in contributions and underwriting revenue in the 2026 financial year as they cease participating in coinsurance contracts with conventional insurers. This may threaten business continuity and slow insurance penetration in Nigeria.

While Takaful companies have a niche in the Muslim-dominated northern market, patronage from state governments and Muslim-owned enterprises remains insufficient. Contribution from the retail market is also abysmally low. Industry watchers attribute the low appetite for orthodox risk coverage in Nigeria to poor awareness and financial inclusion. Recent data shows Nigeria still contends with less than 1 percent insurance penetration rate, a poor insurance-to-GDP ratio.

An executive of a leading Takaful company told DAILY COMMERCE that NAICOM’s decision is “necessary but disruptive.”

Speaking anonymously due to the matter’s sensitivity, the executive said, “We unequivocally support Sharia compliance. However, we previously leaned on conventional coinsurance for large-scale risks where Takaful capacity fell short. Now, we must rapidly develop Sharia-compliant alternatives.”

The executive warned that local Takaful infrastructure remains underdeveloped but acknowledged that the risk-sharing mechanism with conventional reinsurers provides a critical lifeline.

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Dr. Jibril Salaudeen, an Islamic finance expert, observed that, “There are clear-cut Shariah guidelines for co-insurance between Takaful companies and conventional insurance. These frameworks have been practiced around the world for several years. While other nations are promoting cooperation to drive inclusion, NAICOM seems to be doing the opposite in a nation that is grossly underinsured, with poor penetration and regulatory imbalance.”

He added that, “NAICOM claimed it has to do with Shariah regulation, and our question is: can you point us to the specific Shariah regulation that prohibits this? Otherwise, there seem to be parties outside of NAICOM that are not happy with the achievements of the Takaful companies.”

Asked whether the prohibition was necessary to preserve the sanctity of Takaful, Dr. Salaudeen was unequivocal: “No.”

He further explained: “The regulations, as far as Shariah is concerned, are clear and not complicated at all—well spelt out by AAOIFI and related agencies, as well as the interpretations by the Advisory Committees of Experts. The circular did not refer to any part of the Shariah that is in confusion with the current practice. I think you should ask NAICOM to clarify this.”

NAICOM officials did not respond to inquiries about the new guideline at the time of this report. This silence has fueled speculation that the ban may be tied to rivalry move by some stakeholders in the Nigerian Insurance Association (NIA), once led by the current Commissioner for Insurance/CEO, Mr. Olusegun Ayo Omosehin, who are bent on demeaning Takaful companies as micro-insurers to weaken their ability to compete for high-net-worth accounts. Recall that the NIA, an association dominated by conventional insurers, was chaired by Mr. Omosehin between 2022 and 2024.

While the transition may cause short-term disruption, analysts view it as a necessary step to forge a robust and trustworthy Islamic finance ecosystem.

In a contrary opinion, Dr. Salaudeen does not consider the prohibition a necessary measure to preserve the integrity and sanctity of the Takaful system in Nigeria.

He said: “NAICOM claimed it (the new guideline) has to do with Shariah regulation, and our question is: can you point us to the specific Shariah regulation that prohibits this? Otherwise, there seem to be parties outside of NAICOM that are not happy with the achievements of the Takaful companies.”

With the January 1, 2026 deadline, operators have until the end of Q4 2025 to unwind existing coinsurance deals, restructure their operations, and submit compliance updates to NAICOM.

With the enactment of the Nigerian Insurance Industry Reform Act (NIIRA) 2025, the insurance industry is generally expected to face tighter regulatory noose in 2026.

The NIIRA 2025 raises capital requirements to strengthen insurers’ financial capacity and mandates capital calculations that consider market, credit, and operational risks.

Coinsurance is a practice where multiple insurers share a single risk, along with the premiums and claims. While standard in conventional insurance, analysts say it is problematic for Takaful when it commingles funds with companies that engage in interest-based (riba) or speculative (gharar) activities, violating the core tenets of Islamic finance.

NB: This News story has been updated to reflect the original opinion of Dr. Jibril Salaudeen following the discovery of errors in the ealier report.