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Third Party Motor Insurance in Nigeria: Analysing its Evolution, Legal Framework, Compliance, and Effectiveness under the Nigerian Insurance Industry Reform
Act 2025 vis-a-vis the United Kingdom Insurance Regime1
1. Introduction
1.1 Road transportation remains the predominant means of movement for individuals and goods in Nigeria, and one feature that has remained constant in Nigeria's transportation landscape is the steady increase in the number of motor vehicles using public roads. In densely populated commercial centres such as Lagos, thousands of private motorists, commercial transport operators, heavy-duty vehicles, motorcycles, tricycles and pedestrians interact daily within an increasingly congested road The inevitable consequence is the frequent occurrence of road traffic accidents resulting in death, bodily injury and substantial property damage.
1.2 The dangers associated with road traffic accidents are by no means unique to Nigeria as they constitute a global challenge.2 Other nations have their fair share of the accidents and the attendant impacts.3 Available data confirms that deaths and injuries from road accidents have multiplier effects on socioeconomic development of many countries in the world. Nigeria has not been insulated from these global trends,4 underscoring the persistent risks associated with road transportation notwithstanding ongoing regulatory and enforcement efforts. Notwithstanding the devastating human consequences of road traffic accidents for many victims, obtaining compensation following a road traffic accident is far from straightforward.
1.3 It is this reality that underpins the rationale for compulsory third-party motor Rather than leaving compensation to the uncertain financial standing of individual motorists, the law requires every qualifying vehicle using public roads to maintain insurance against liabilities arising from death, bodily injury and property damage suffered by third parties. The regime therefore serves a dual purpose: it protects innocent victims by providing a source of compensation and, at the same time, protects policyholders from potentially substantial financial liability to third parties. Nigeria's compulsory third-party motor insurance regime has evolved from its origins in English road traffic legislation through the Motor Vehicles (Third Party Insurance) Act and the Insurance Act 2003 to the present framework under the Nigerian Insurance Industry Reform Act 2025 ("NIIRA"). This article examines that evolution, the legal framework under the NIIRA, its compliance and effectiveness, and its development in comparison with the United Kingdom's motor insurance regime.
2. History of Third-Party Motor Insurance in Nigeria
2.1 The Common Law Origins of Motor Liability
2.1.1 The Principles of compulsory third-party motor insurance are rooted in the common law of negligence. Before statutory intervention, liability arising from road traffic accidents was exclusively determined by the ordinary principles of the law of tort. Consequently, a person injured by the negligent operation of a motor vehicle could only recover compensation upon proving that the defendant owed a duty of care, breached that duty and thereby caused the resulting damage. Thus, while this system recognized the right of an injured person to seek compensation, it provided no guarantee that a successful claimant would recover any meaningful damages.
2.1.2 In addition, the rights of accident victims were constrained by the doctrine of privity of contract, under which a liability insurer’s obligations were owed exclusively to the insured. Consequently, an injured third party generally had no direct right of recourse against the insurer, a position captured in the English case of Tinline White Cross Insurance Association Ltd.5 The combined effect of these shortcomings exposed the inadequacies of the common law and fuelled calls for legislative intervention.
2.1.3 In response, the British Government established a Royal Commission in 1928 to examine the challenges associated with road transportation and traffic regulation.6 Acting on its recommendations, Parliament enacted the Road Traffic Act 1930, which introduced compulsory third-party motor insurance as one of its most significant The legislation ensured that motorists using public roads, maintained insurance against liabilities arising from the use of their vehicles, thereby guaranteeing a minimum level of financial protection for innocent victims of road traffic accidents.
2.1.4 Compulsory motor insurance thus emerged not merely as a contractual arrangement between insurer and insured, but as an instrument of social policy aimed at balancing the interests of accident victims with those of motorists. While it guarantees compensation for third parties who suffer death, bodily injury or property damage, it also protects policy holders from potentially substantial personal liability arising from road traffic accidents. This dual objective continues to underpin compulsory third-party insurance regimes, including Nigeria’s current framework under the Nigerian Insurance Industry Reform Act
2.2 The Evolution of Compulsory Third-Party Motor Insurance in Nigeria
2.2.1 Nigeria's compulsory third-party motor insurance regime has its roots in English road traffic legislation introduced during the colonial era. Following the enactment of the Road Traffic Act 1930 in the United Kingdom, its underlying principles were progressively transplanted into Nigeria to regulate the increasing use of motor vehicles and ensure that victims of road traffic accidents had access to compensation irrespective of the financial capacity of the negligent motorist.
2.2.2 Following Nigeria’s independence, these principles were retained and adapted through the Motor Vehicles (Third Party Insurance) Act, which made third-party motor insurance compulsory for vehicles using public roads. The regime was subsequently reinforced by the Insurance Act 2003, which preserved compulsory third-party insurance as a mandatory class of insurance business while strengthening the regulatory oversight of insurers.
2.2.3 Despite these legislative developments, the compulsory insurance regime continued to face significant challenges, including widespread non-compliance, the proliferation of fake insurance certificates, weak enforcement, delayed claims settlement, and low public confidence in the insurance industry. These challenges often undermined the primary objective of ensuring prompt and adequate compensation for victims of road traffic accidents.
2.2.4 To address these shortcomings, the National Assembly enacted the Nigerian Insurance Industry Reform Act 2025, which repeals and consolidates several insurance-related statutes, including the Insurance Act and the Motor Vehicles (Third Party Insurance) Act,7 into a single comprehensive legislative framework. Particularly, the Act8 strengthens the existing framework by expanding the rights of third parties, imposing broader obligations on insurers, establishing the Road Accidents Victims’ Compensation Fund, and introducing measures aimed at improving compliance and enforcement. Therefore, the NIIRA represents the latest stage in the evolution of compulsory third-party motor insurance in Nigeria, reflecting a shift from merely mandating insurance coverage to strengthening victim protection, insurer accountability and the overall effectiveness of the compulsory insurance regime.
3. The Legal Framework for Third-Party Motor Insurance under the NIIRA
3.1. As already established in the preceding paragraphs, the NIIRA marks a significant milestone in the regulation of third-party motor insurance in Nigeria. By repealing all other Acts, the NIIRA establishes a more coherent and comprehensive framework governing compulsory motor insurance. Part X of the Act9 sets out the statutory requirements for compulsory third-party insurance, the rights of third parties, enforcement mechanisms and the establishment of a compensation fund for victims of road traffic accidents.
The Act preserves the long-standing requirement that every motor vehicle intended for use on a public road must be covered by a valid policy of third-party insurance issued by a licensed insurer, subject to statutory limitations. This ensures that persons who suffer death, bodily injury or property damage arising from the negligent use of a motor vehicle have access to compensation irrespective of the financial standing of the at-fault motorist. At the same time, the compulsory insurance regime protects motorists from potentially substantial personal liability by transferring the financial burden of compensating third parties, within the limits prescribed by law and the applicable policy, to a licensed insurer. In this regard, compulsory third-party insurance performs both a social welfare function by safeguarding accident victims and a commercial function of facilitating the transfer and management of risk.
However, when compared to the comprehensive motor insurance scheme, compulsory third-party insurance does not indemnify the policyholder for damage sustained by his/her own vehicle. Rather, its primary purpose is to provide financial protection against legal liability owed to third parties while ensuring that innocent victims are not left without effective remedy.
3.2 Rights of Third Parties and Obligations of Insurers
3.2.2 The NIIRA is very specific as to the rights of innocent third parties who may become victims as a result of a road accident, and by extension, the obligations of insurers under the The Act stipulates the minimum requirements for a valid third-party motor insurance policy. Particularly, every policy issued for the purposes of the Act must insure the policyholder against liability arising from the death of or bodily injury to third parties, as well as liability for damage to third-party property resulting from the use of the insured vehicle on a public road.10 The significance of this provision is that the statutory protection afforded to third parties cannot be diminished by private agreement between the insurer and the insured. The NIIRA restricts the circumstances in which insurers may avoid liability and impose a statutory duty to satisfy qualifying judgments.11
3.2.3 The policy considerations underpinning these statutory protections have long been recognised by Nigerian In Tabs Assurance Co. Ltd. v. Oyebola,12 although the insurer succeeded on the legal issues before the Court, the Court of Appeal13 lamented the plight of the injured respondent and expressed the hope that insurance companies would “rise up to the responsibilities involved" where third parties suffer injuries arising from motor accidents. Though decided under the repealed statutory regime, the Court's observations remain instructive and resonate with the NIIRA's objective of strengthening insurer accountability while ensuring that innocent victims receive effective compensation.
3.3 Expansion of Persons Subject to the Compulsory Motor Insurance Obligation
3.3.1 A notable reform under the NIIRA is the expansion of the persons responsible for compliance with compulsory motor insurance requirements. Under the NIIRA,14 the obligation to obtain a third-party insurance policy is not solely for vehicle owners. The NIIRA establishes that a person who uses, causes or permits another person to use a motor vehicle, or who is in effective control of the vehicle, must ensure that the requisite third-party insurance is in force. Furthermore, the NIIRA stipulates that a person is in effective control where he is the owner or directs, instructs or orders the vehicle to be used on a highway or other public place.15
3.3.2 This broader formulation represents a shift from the perspective of sole ownership and attaches responsibility to actual use and control of motor vehicles. This provision is particularly significant for commercial transport arrangements where ownership of vehicles may reside in different persons.
3.3.3.It is worthy of mention that the NIIRA also expands compulsory third-party insurance beyond conventional motor vehicle risks. Under section 78 of the NIIRA, petroleum and gas refilling stations and installations must be insured against third-party losses arising from accidental fire or explosion, while vehicles transporting petroleum and gas products must carry corresponding third-party The responsibility for maintaining the cover rests on the owner of the petroleum and gas products in transit or, in the case of a refilling station, the owner or operator of the relevant facility. These provisions seek to allocate responsibility to persons who exercise meaningful control over potentially hazardous activities and to create financial protection for third parties exposed to the risks arising from those activities.
3.4 The Road Accidents Victims’ Compensation Fund
3.4.1 One of the most significant innovations introduced by the NIIRA is the establishment of the Road Accident Victims’ Compensation Fund16 (“the Fund”). The fund represents a major shift in Nigeria’s compulsory motor insurance regime by providing an additional layer of protection for victims of road traffic accidents who may otherwise be left without compensation due to circumstances beyond their control.
3.4.2 The rationale for the Fund is rooted in the need to guarantee compensation for accident victims where a vehicle is uninsured, cannot be identified or where an insurer is unwilling to satisfy a valid claim. The NIIRA addresses this concern by establishing a statutory compensation fund to provide relief in deserving cases specified under the Act. The Fund is financed through statutory contributions which is 0.5% of the underwriting profit on motor insurance business. This Fund reflects a broader policy shift from merely requiring motorists to maintain insurance towards ensuring that victims of road traffic accidents receive meaningful compensation even where the ordinary insurance framework proves inadequate.17
3.5 The ECOWAS Brown Card Scheme
3.5.1 The Act establishes the National Bureau on the ECOWAS Brown Card Scheme and assigns it responsibility for, among other things, issuing Brown Cards, managing Nigeria’s obligations under the Scheme and settling claims arising from accidents involving Brown Card Holders in participating West African countries.18
3.5.2 The significance of this reform lies in its extension of motor insurance protection beyond Nigeria’s borders. By integrating the Brown Card into Nigerian motor insurance policies, the NIIRA facilitates the recognition and settlement of motor accident liabilities arising from cross-border travel within the ECOWAS This strengthens the regional dimension of Nigeria's compulsory motor insurance regime and provides greater protection for motorists and third-party victims involved in cross-border accidents.
4 Comparative Analysis of the Nigerian and United Kingdom Insurance Regimes
4.1 Although Nigeria’s third-party motor insurance regime traces its origins to the English road traffic legislation, the two jurisdictions have evolved differently in response to their respective legal and institutional However, the enactment of NIIRA has narrowed this gap by introducing reforms that align Nigeria’s compulsory insurance framework more closely with international best practices, particularly in relation to third-party protection, insurer accountability and compensation mechanisms.
4.2 Firstly, both the Nigerian and United Kingdom compulsory motor insurance regimes are founded on the principle of third-party liability insurance rather than first-party property Accordingly, sections 87 and 145 of the NIIRA and the Road Traffic Act, 1988 (“RT Act”) respectively, require motorists to maintain insurance against liabilities owed to third parties. Neither regime requires compulsory insurance to indemnify the insured for damage sustained by the insured’s own vehicle. Such protection remains a matter of voluntary contractual arrangement through comprehensive motor insurance or other optional insurance cover.
4.3 Furthermore, a notable innovation introduced by the NIIRA is the establishment of the Fund intended to provide compensation in circumstances where recovery under the ordinary compulsory insurance framework is unavailable or Conversely, the United Kingdom adopts a different institutional approach. Rather than creating a statutory compensation fund within the RT Act, compensation for victims of uninsured or untraced motorists is administered through the Motor Insurers’ Bureau (“MIB”) under the Untraced Drivers Agreement and the Uninsured Drivers Agreement both of which operate alongside the RT Act.19 While structurally different, both mechanisms pursue the same policy objective of ensuring that innocent victims are not denied compensation because a vehicle is uninsured or cannot be identified.
4.4 Conclusively, Nigeria’s compulsory third-party motor insurance shares the same foundational objectives as the United Kingdom’s system. The NIIRA has modernized Nigeria’s legal framework by strengthening third-party rights and enhancing insurer accountability. However, the effectiveness of these reforms largely depends not on the comprehensiveness of the statutory provisions alone, but on the extent to which they are effectively implemented, enforced and embraced by insurers, regulators and motorists alike.
5. Compliance and Effectiveness of the NIIRA
5.1 The NIIRA significantly strengthens Nigeria's compulsory third-party motor insurance regime by expanding the rights of third-party victims, reinforcing insurers' obligations, and introducing the Road Accident Victims' Compensation Fund. However, the effectiveness of these reforms will ultimately depend on robust implementation and sustained compliance rather than the enactment of legislation alone.
5.2 Despite the mandatory nature of third-party insurance, challenges such as uninsured vehicles, counterfeit insurance certificates, delayed claims settlement and limited public awareness continue to undermine the effectiveness of the regime. While the NIIRA provides a stronger legal framework to address these issues, meaningful progress will require effective enforcement by the National Insurance Commission (NAICOM), the Federal Road Safety Corps, the Nigerian Police Force and other relevant agencies, together with greater commitment by insurers to the prompt settlement of legitimate claims.
5.3 As the Court of Appeal aptly observed in Tabs Assurance Co. Ltd. v. Oyebola20, compulsory motor insurance achieves its purpose only where insurers rise to their responsibilities towards innocent third-party victims. The NIIRA provides the statutory framework for achieving this objective; its success will depend on faithful implementation and industry-wide compliance.
6 Conclusion
6.1 The NIIRA represents a significant milestone in the evolution of Nigeria's compulsory motor insurance regime. By consolidating the law, strengthening the rights of third-party victims, enhancing insurer accountability and establishing the Road Accident Victims' Compensation Fund, the Act aligns Nigeria's legal framework more closely with international best practices, including those reflected in the United Kingdom's Road Traffic Act
6.2 Nevertheless, legislation alone cannot guarantee the success of compulsory motor insurance. The true effectiveness of the NIIRA will ultimately be measured by the extent to which its provisions are enforced, insurers honour their statutory obligations, motorists comply with the law, and regulators maintain effective oversight. If these objectives are realised, the Act has the potential not only to improve public confidence in Nigeria's insurance industry but also to ensure that compulsory third-party motor insurance fulfils its intended purpose as a reliable mechanism for compensating accident victims and promoting safer roads.
Footnotes
1 Peter Olaoye Olalere, Notary Public for Nigeria, Associate Partner and Head, Energy and Natural Resources Practice, S. P. A. Ajibade & Co., Lagos, Nigeria; Becky Nwaroh, Associate, Dispute Resolution, S. P. A. Ajibade & Co., Lagos, Nigeria; and Faruq Anifowose, NYSC Associate, Dispute Resolution, S. P. A. Ajibade & Co., Lagos, Nigeria.
2 The United Nations proclaimed the Decade of Action for Road Safety (2011-2020) with the objective of stabilising and reducing the alarming road traffic deaths globally which initiative highlighted road crashes as the leading cause of death among young people worldwide and was projected to achieve global road safety targets of saving as many as five million lives and prevent approximately fifty million serious injuries. See The Decade of Action for Road Safety 2011-2020: Lessons from Argentina, available at (https://openknowledge.worldbank.org/server/api/core/bitstreams/8d6ce75c-742e-5fc9-bcf6-ce6f9818259f/content) accessed on 27th July 2026.
3 The report by the Economic Commission for Africa (ECA, 2011) states that more than 1.2 million people die every year worldwide by road crashes, 65% of deaths involved pedestrians of which children’s death account for 35 percent. Each year around fifty (50) million are injured and a lot disabled. In most countries, road accidents impose huge economic cost of between 1 to 3% of the GDP shares. Motor Vehicle (Third Party) Insurance Regulation and Road Traffic Liability Risk Management in Nigeria, available at (https://jabu.edu.ng/wp-content/uploads/2024/02/Motor-Vehicle-Third-Party-Insurance-Regulation-and-Road-Traffic-Liability-Risk-Management-in-Nigeria.pdf) accessed on 27th July 2026.
4 The Federal Road Safety Commission (FRSC) Annual Report (2024) revealed that in 2024, a total of 424 (Four Hundred and Twenty-Four) road traffic crashes were recorded, involving 166 (One Hundred and Sixty-Six) fleet operators. Tragically, 399 (Three Hundred and Ninety-Nine) individuals lost their lives and 1,730 (One Thousand Seven Hundred and Thirty) people were injured in these crashes. See Federal Road Safety Corps; 2024 Annual Report, available at (https://staging.frsc.gov.ng/frsc-admin/uploads/2024_ANNUAL_REPORT_1_10_b52d7e1bcb.pdf) accessed on 27th July 2026.
5 [1921] 125 LT 632 available at (https://legalguide.ie/insurance-principles/2/) accessed on 27th July 2026.
6 Francis Deak, ‘Compulsory Liability Insurance under the British Road Traffic Acts of 1930 and 1934’; available at (https://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=1838&context=lcp) accessed on 27th July 2026.
7 Advocaat Law Practice, ‘Nigeria’s Insurance Industry Reform Act, 2025: A Deep Dive into Reform and its Challenges’, available at (https://advocaat-law.com/wp-content/uploads/2025/09/Nigerias-Insurance-Industry-Reform-Act-2025-A-Deep-Dive-into-reform-and-its-challenges.pdf) accessed on 28th July 2026.
8 Sections 8-102 of the NIIRA.
9 Sections 84 –102 of the NIIRA.
10 Section 87 of the NIIRA.
11 Section 88 of the NIIRA.
12 [2001] 3 NWLR (PT. 701) 436-37 @ paras. H-A.
13 per IGE, J.C.A.
14 Section 84 of the NIIRA.
15 Section 84(3) of the NIIRA.
16 Section 99 of the NIIRA.
17 Section 100(4)(d) stipulates that the Compensation Committee shall disburse 65% of the Fund into a separate fund out of which the Commission shall pay to any person in respect of death or bodily injury following a motor vehicle accident caused by an uninsured vehicle or an unidentified driver.
18 Sections 103-105 of the NIIRA. The modalities for the application for benefits from these statutory protections must be put in place.
19 Slater Gordon Lawyers, What is the Motor Insurers Bureau?’, available at (https://www.slatergordon.co.uk/newsroom/5-things-you-might-not-know-about-the-motor-insurers-bureau/) accessed on 4th August 2026.
20 Supra, n12.
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