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The Role of Insurance in Mitigating Financial Risks for Nigerian SMEs: A Study of SMEs in Lagos State

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Background of the Study
Insurance serves as an important financial risk management tool, providing businesses with a safety net against unexpected events that may disrupt operations or lead to financial losses. In Nigeria, SMEs, particularly those operating in Lagos State, face a variety of financial risks, including property damage, theft, accidents, and liability claims. The role of insurance in mitigating these risks cannot be overstated, as it provides financial protection that enables businesses to recover and continue operations after adverse events (Oni & Williams, 2024).

While larger corporations typically adopt comprehensive insurance policies, many SMEs in Lagos State remain underinsured or completely uninsured, exposing them to significant financial vulnerabilities. Factors such as cost, lack of awareness, and distrust in insurance companies have hindered the uptake of insurance among SMEs in Nigeria. This study seeks to explore the role of insurance in mitigating financial risks for SMEs in Lagos State and highlight the benefits and challenges of adopting insurance as part of their risk management strategies (Oluwaseun & Durojaiye, 2025).

Statement of the Problem
Although insurance can significantly mitigate financial risks, many SMEs in Lagos State do not adequately incorporate it into their risk management practices. This lack of insurance coverage leaves businesses exposed to unforeseen financial challenges that can threaten their survival. The gap in knowledge regarding the role and importance of insurance for SMEs in Lagos State further complicates the situation. This study aims to investigate the role of insurance in mitigating financial risks for SMEs and propose strategies to encourage its adoption.

Objectives of the Study

  1. To evaluate the role of insurance in mitigating financial risks for SMEs in Lagos State.

  2. To identify challenges SMEs face in adopting insurance as a risk management tool.

  3. To propose strategies for improving insurance uptake among SMEs in Lagos State.

Research Questions

  1. What is the role of insurance in mitigating financial risks for SMEs in Lagos State?

  2. What challenges do SMEs face in adopting insurance as part of their risk management strategies?

  3. What strategies can improve the adoption of insurance among SMEs in Lagos State?

Research Hypotheses

  1. H₀: Insurance does not significantly mitigate financial risks for SMEs in Lagos State.

  2. H₀: Challenges in adopting insurance do not significantly affect SME risk management practices.

  3. H₀: Strategies to improve insurance uptake do not significantly enhance financial risk mitigation for SMEs.

Scope and Limitations of the Study
This study focuses on SMEs in Lagos State and examines their use of insurance in risk management. It excludes larger businesses and SMEs outside Lagos State. Limitations include potential biases in respondents’ willingness to disclose insurance details and variations in insurance policy types across industries.

Definitions of Terms

  • Insurance: A financial arrangement that provides compensation for losses or damages incurred due to specified risks.

  • Financial Risks: Risks related to the financial stability of a business, including loss of assets, revenue, or operational continuity.

  • Lagos State: A major commercial and economic hub in Nigeria with a high concentration of SMEs.





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