Project – Insurance Penetration and Risk Protection among Informal Sector Operators: A Study of Traders in Onitsha Main Market, Anambra State

CHAPTER ONE

INTRODUCTION

1.1 Background to the Study

Insurance is an important component of modern financial and risk-management systems because it enables individuals, households and businesses to transfer specified financial risks to an insurer in exchange for the payment of a premium. Through the pooling of risks, insurance can reduce the financial consequences of events such as fire, theft, accidents, illness, business interruption and other unexpected losses. For business operators, particularly those whose livelihoods depend directly on daily commercial activities, insurance can contribute to continuity by providing compensation when insured losses occur. The relevance of insurance to economic activity is therefore not restricted to large corporations; it also extends to small businesses and informal-sector operators whose assets and income streams may be particularly vulnerable to shocks. In Nigeria, the National Insurance Commission (NAICOM) is responsible for regulating, supervising and developing the insurance industry, with consumer protection and market development among its core responsibilities (NAICOM, 2025).

The informal sector occupies a substantial position in Nigeria’s labour market and economic structure. Informal economic activities include a wide range of self-employment, small-scale trading, artisanal activities and businesses that operate outside conventional formal employment arrangements. According to the International Labour Organization (ILO), informal employment accounted for approximately 92.3% of total employment in Nigeria in the period reported in its recent country analysis, with an even higher proportion among women. The ILO further reported that self-employment predominates in Nigeria’s labour market, demonstrating the importance of own-account and small-scale economic activities to household livelihoods (ILO, 2024). The large size of the informal economy creates an important implication for insurance development because a considerable proportion of economically active Nigerians may not have the conventional employer-sponsored benefits and institutional social protection mechanisms commonly associated with formal employment. Recent ILO discussions on extending social protection to informal economy workers have specifically identified traders and other informal workers as groups requiring improved access, affordability, simplified registration and stronger institutional arrangements (ILO, 2025).

Traders constitute a particularly important category of informal-sector operators because their businesses involve the continuous movement, storage and sale of goods and are exposed to a variety of commercial risks. Such risks may include theft, fire, accidental damage, deterioration of goods, transportation-related losses, personal accidents and temporary interruption of trading activities. These risks can be particularly consequential where traders have invested substantial personal or borrowed funds in merchandise. Evidence from research on Nigerian small and medium-sized enterprises indicates that risk management remains a significant challenge and that insurance is among the strategies available for transferring business risks, although it has been found to be less frequently used than some other risk-management strategies (Fadun, 2018). Similarly, research on property and pecuniary risks among Nigerian SMEs has examined the use of business-interruption insurance as a means of protecting physical assets and future business income, illustrating the relevance of insurance to business survival and continuity (Adeyele et al., 2016).

Despite the economic importance of insurance, Nigeria’s insurance market has historically been characterised by relatively low penetration. NAICOM’s 2023 statistical report showed that the Nigerian insurance industry recorded gross written premiums of approximately ₦1.043 trillion in 2023, representing a 32.1% increase over the previous year. The report also indicated substantial growth in industry assets and claims during the year, suggesting expansion in the formal insurance market (NAICOM, 2025). However, growth in aggregate premiums does not necessarily mean that insurance coverage has become widespread among low-income individuals and informal businesses. Industry reporting based on NAICOM statistics continued to describe insurance penetration as below one percent, while analysts identified low awareness and limited consumer uptake as continuing challenges (Popoola, 2023). Consequently, there is an important distinction between growth in the overall insurance industry and effective insurance penetration among informal-sector operators.

The challenge of extending insurance to informal-sector operators is also reflected in empirical research on Nigeria. Aregbeshola and Khan (2023), using data from the 2018 Nigeria Demographic and Health Survey, found extremely low enrolment in the National Health Insurance Scheme among informal-sector workers. Their analysis showed that educational level, socioeconomic status, geographic location, distance to health facilities and access to information were among factors associated with non-enrolment. Although health insurance represents only one component of the broader insurance industry, these findings demonstrate some of the structural and behavioural difficulties involved in extending insurance coverage to workers outside the formal economy. Similarly, Peterson et al. (2018), examining a private micro-health-insurance scheme for informal-sector workers in Lagos, found that the scheme encountered declining enrolment and low utilisation, with inadequate client education, marketing difficulties and institutional challenges affecting participation. These findings suggest that insurance penetration among informal operators may depend not only on the availability of insurance products but also on awareness, affordability, trust, accessibility and perceived usefulness.

The situation is particularly relevant to Anambra State, where commercial activity is highly developed and where informal-sector operators constitute an important part of economic life. Research on innovative financing for social health insurance in Anambra State found that expanding insurance coverage among informal-sector populations presented challenges associated with knowledge, trust, health-system concerns and economic constraints. The study also found that stakeholder involvement, advocacy and sensitisation could contribute to improved coverage among informal-sector populations (Onyemaechi & Ezenwaka, 2022). Onitsha, as one of the major commercial centres in southeastern Nigeria, provides a particularly relevant environment for examining insurance penetration among traders. Research on Onitsha Main Market has described the market as a major commercial centre containing more than 25,000 lock-up shops and employing large numbers of traders and artisans, although precise population estimates are difficult because of the continuous movement of people within the market (Ezenwa et al., 2025). The size and commercial intensity of the market make the issue of risk protection particularly relevant to its trading population.

Recent scholarship has increasingly drawn attention to the relationship between insurance services and sustainability within Nigeria’s informal economy. Ufua, Al-Faryan and Butt (2025) reviewed insurance services in the Nigerian informal sector and argued that insurance has potential to contribute to the sustainability and transformation of informal businesses, while also emphasising the importance of stakeholder commitment and appropriate policy development. At the same time, research among informal workers in Nigeria has continued to identify low awareness, financial constraints, limited understanding of insurance arrangements and service-related concerns as barriers to insurance enrolment. For example, a 2025 study of informal construction artisans in Lagos and Benin City reported low enrolment in micro-health-insurance schemes and identified poor awareness, inadequate funding, limited understanding of the micro-insurance market and economic constraints among the factors affecting participation (Ebekozien et al., 2025). These broader findings provide a basis for examining whether similar factors influence traders in Onitsha Main Market and whether existing insurance participation provides meaningful risk protection for their businesses and livelihoods.

1.2 Statement of the Problem

Insurance is expected to provide a mechanism through which individuals and businesses can manage financial consequences arising from uncertain events. However, the existence of insurance products does not automatically translate into effective coverage. Nigeria’s insurance sector has experienced substantial growth in premium generation, with NAICOM reporting gross written premiums exceeding ₦1 trillion in 2023, yet industry-level evidence continues to point to low penetration. This creates an important research problem because aggregate industry growth may coexist with inadequate participation among particular groups, especially operators of small and informal businesses. For traders who depend on their businesses as their primary source of income, insufficient insurance coverage may leave them exposed to financial losses following events such as fire, theft, accidents, illness or business interruption. The central problem is therefore not simply whether insurance exists in Nigeria, but the extent to which informal-sector traders actually participate in insurance arrangements and obtain meaningful protection from the risks confronting their businesses.

A second problem concerns the characteristics of informal-sector businesses themselves. Unlike formal employees who may receive certain employment-related benefits, many informal-sector operators are responsible for arranging their own financial and social protection. The ILO has reported that informal employment constitutes the overwhelming majority of employment in Nigeria and that informal workers often experience limited access to social protection and occupational safeguards (ILO, 2024). Evidence from studies of informal-sector insurance participation further indicates that lack of awareness, affordability constraints, limited understanding of insurance products and difficulties with enrolment can restrict coverage (Aregbeshola & Khan, 2023; Peterson et al., 2018). For traders in a large commercial environment such as Onitsha Main Market, these factors may interact with the daily demands of buying and selling goods, fluctuating income, stock replacement and business expenses. Without empirical evidence from the specific market, it remains difficult to determine which of these factors are most relevant to the traders.

A third problem relates to the nature and magnitude of risks confronting traders in Onitsha Main Market. The market’s large physical and commercial scale exposes traders to different forms of operational and financial vulnerability. Research on the market has documented its extensive concentration of shops, traders and commercial activities, while also noting the difficulty of establishing an exact population because of the movement of people into and out of the market (Ezenwa et al., 2025). Business risks can potentially result in significant losses where traders lack adequate mechanisms for transferring or absorbing those losses. Previous research on Nigerian SMEs has found that insurance is used less frequently than some other risk-management strategies, despite its potential role in mitigating business risks (Fadun, 2018). This raises the need to investigate whether traders in Onitsha Main Market have insurance protection, the types of risks for which they seek coverage, and whether existing insurance arrangements are perceived as adequate for protecting their businesses and livelihoods.

A fourth problem is the limited location-specific empirical evidence linking insurance penetration to risk protection among traders in Onitsha Main Market. Existing Nigerian studies have examined informal-sector insurance from different perspectives, including national health insurance enrolment, private micro-health insurance, informal-sector risk management and insurance services generally (Aregbeshola & Khan, 2023; Peterson et al., 2018; Ufua et al., 2025). Research in Anambra State has also demonstrated that insurance coverage among informal-sector populations can be affected by awareness, trust, institutional arrangements and economic conditions (Onyemaechi & Ezenwaka, 2022). Nevertheless, there remains a need for focused empirical evidence on traders in Onitsha Main Market, particularly concerning their level of insurance penetration and the extent to which insurance participation contributes to protection against business and livelihood risks. This study therefore seeks to examine insurance penetration and risk protection among informal-sector operators, with specific focus on traders in Onitsha Main Market, Anambra State.

1.3 Purpose of the Study

The general purpose of this study is to examine the relationship between insurance penetration and risk protection among informal-sector operators, with particular reference to traders in Onitsha Main Market, Anambra State.

Specifically, the study seeks to:

1. examine the level of awareness of insurance products among traders in Onitsha Main Market;
2. determine the extent of insurance penetration among traders in Onitsha Main Market;
3. identify the major factors influencing insurance participation among traders in Onitsha Main Market; and
4. examine the relationship between insurance penetration and risk protection among traders in Onitsha Main Market.

1.4 Research Questions

The following research questions will guide the study:

1. What is the level of awareness of insurance products among traders in Onitsha Main Market?
2. What is the extent of insurance penetration among traders in Onitsha Main Market?
3. What factors influence insurance participation among traders in Onitsha Main Market?
4. What relationship exists between insurance penetration and risk protection among traders in Onitsha Main Market?

1.5 Research Hypothesis

The following null hypothesis will be tested at the 0.05 level of significance:

H₀: There is no significant relationship between insurance penetration and risk protection among traders in Onitsha Main Market, Anambra State.

1.6 Significance of the Study

The study will be significant to traders in Onitsha Main Market because it will provide information on the importance of insurance as a mechanism for managing business and livelihood risks. The findings may help traders understand the potential implications of remaining uninsured or inadequately insured and may encourage more informed consideration of appropriate insurance products.

The study will also be useful to insurance companies and insurance intermediaries. Information concerning traders’ awareness, participation, perceived barriers and risk-protection needs may assist insurers in designing products and distribution approaches that are more responsive to informal-sector operators. This is particularly relevant because research on Nigeria’s informal economy has identified the need for stronger stakeholder engagement and improved insurance-service delivery (Ufua et al., 2025).

The findings may also benefit NAICOM and other insurance-sector regulators by providing empirical evidence about insurance participation within a major informal commercial environment. NAICOM’s mandate includes the development of the Nigerian insurance industry and protection of insurance consumers. Evidence from the study may therefore be useful in considering strategies for improving insurance awareness, market conduct, consumer protection and insurance inclusion among informal-sector operators.

The study will be relevant to Anambra State Government and agencies concerned with social and economic development. Evidence from Anambra State has shown that innovative approaches and stakeholder engagement can influence insurance coverage among informal-sector populations (Onyemaechi & Ezenwaka, 2022). Findings from this study may provide additional information for initiatives aimed at improving financial protection, supporting small businesses and strengthening the resilience of informal-sector operators.

The study will also contribute to academic knowledge in insurance, risk management, finance, entrepreneurship and development studies. While previous studies have examined insurance participation among informal workers in Nigeria, relatively limited attention has been given specifically to the relationship between insurance penetration and risk protection among traders in Onitsha Main Market. The study will therefore provide location-specific evidence that can serve as a reference for subsequent research.

1.7 Scope of the Study

The study focuses on insurance penetration and risk protection among informal-sector operators in Onitsha Main Market, Anambra State. The geographical scope is limited to traders operating within Onitsha Main Market.

The content scope covers four major areas: awareness of insurance products, level of insurance penetration, factors influencing insurance participation, and the relationship between insurance penetration and risk protection.

The study will focus on traders as informal-sector business operators and will consider insurance in relation to the protection of business assets, merchandise, income and other relevant commercial risks. It will not attempt to examine the entire insurance industry in Nigeria or all categories of informal-sector workers.

1.8 Operational Definition of Terms

Insurance: A contractual arrangement under which an insurer undertakes, in return for a premium, to provide specified financial compensation or benefits when an insured event occurs.

Insurance Penetration: The extent to which insurance is utilised within an economy or among a particular population. In this study, it refers specifically to the level of insurance participation or coverage among traders in Onitsha Main Market.

Risk Protection: The extent to which insurance and other risk-management arrangements reduce the financial consequences of unexpected events affecting traders, their businesses, assets or livelihoods.

Informal Sector: Economic activities and employment arrangements that operate outside, or are insufficiently covered by, formal regulatory, employment and social-protection structures.

Informal-Sector Operators: Individuals who operate businesses or engage in economic activities within the informal economy. In this study, the term refers principally to traders operating in Onitsha Main Market.

Traders: Individuals who purchase, sell, distribute or otherwise engage in commercial transactions involving goods within Onitsha Main Market.

Microinsurance: Insurance designed to provide relatively affordable and accessible protection against specified risks for low-income or underserved populations and small businesses.

Insurance Awareness: The extent to which traders possess knowledge about the existence, functions, benefits, costs and conditions of insurance products.

Insurance Participation: The act of purchasing, subscribing to or maintaining an insurance policy or scheme for the purpose of obtaining specified protection against identified risks.

Business Risk: The possibility of financial loss or disruption arising from uncertain events affecting the operation, assets, merchandise, income or continuity of a business.

Project – Insurance Penetration and Risk Protection among Informal Sector Operators: A Study of Traders in Onitsha Main Market, Anambra State