Climate Risk and Insurance Market Development in Nigeria

This study examines the relationship between climate risk and insurance market development in Nigeria, focusing on how climate-related losses, government disaster risk management (DRM) spending, and reinsurance capacity influence insurance penetration and density. The research adopts a quantitative approach using secondary data spanning 2000 to 2024, sourced from the National Insurance Commission (NAICOM), the Nigerian Meteorological Agency (NiMet), the National Emergency Management Agency (NEMA), and the World Bank Climate Data. Econometric techniques, including descriptive statistics, correlation analysis, the Augmented Dickey-Fuller (ADF) unit root test, Johansen cointegration, the Error Correction Model (ECM), and Ordinary Least Squares (OLS) regression, were employed to analyse the data. The results reveal that climate-related losses have a negative and statistically significant impact on insurance market development, indicating that increasing climate events such as floods and droughts reduce insurers’ capacity to underwrite new risks. In contrast, government DRM spending and reinsurance capacity exert positive and significant effects, suggesting that proactive fiscal intervention and strong financial resilience enhance the sector’s growth and stability. GDP growth was found to positively influence insurance development, while inflation showed a weak negative effect. The cointegration results confirmed a long-run equilibrium relationship among the variables, and the ECM showed that about 47 percent of short-run disequilibrium is corrected each year, confirming model stability. The study concludes that climate risk significantly influences Nigeria’s insurance market and that strengthening institutional capacity, expanding reinsurance frameworks, and increasing preventive DRM spending are essential for improving market resilience. It recommends policy coordination between environmental and financial institutions to promote sustainable insurance development and ensure economic stability in the face of rising climate uncertainty. Keywords: Climate risk, Insurance market development, Disaster risk management spending, Reinsurance capacity, Climate-related losses.