• Rising motor insurance losses expose cracks in Africa’s risk models
• Middle East capital seen as key to unlocking Africa’s insurance growth
• EIRS warns digital insurance expansion may outpace risk capacity in MEA

As digital insurance gains meaningful traction across Africa and the Middle East, a critical structural gap is emerging, masking a deeper structural risk and one that could potentially slow the sector’s momentum if left unaddressed.

This, analysts say, further highlights the growing need for robust, well-aligned reinsurance support to sustain growth.

According to EIRS, the real constraint is no longer demand or distribution, but access to purpose-driven reinsurance capacity, particularly in high-volume, high-volatility segments such as motor insurance.

Africa landscape

In key markets like Kenya and South Africa, motor insurance remains a cornerstone of the industry. Yet profitability is under sustained pressure.

Rising claims costs, fraud, and aggressive pricing have pushed loss ratios above sustainable levels for several insurers, forcing some to scale back underwriting or exit segments altogether.

At the same time, digital platforms are accelerating policy issuance and expanding access, often without a corresponding evolution in how risks are structured or transferred.

“Digital insurance is scaling faster than the risk frameworks that support it,” said Abhishek Jain, chief executive officer, EIRS Digital Insurance Ecosystem. “In several African markets, particularly in motor, we are seeing growth that is not adequately backed by reinsurance discipline. That creates systemic pressure. The opportunity is not just to grow, but to grow correctly.”

Across Africa, insurance penetration remains low, hovering around 3% to 3.5% of GDP, compared to a global average of 7%.

This signals significant headroom for growth, particularly as mobile-first distribution models gain traction. However, it also underscores the need for stronger risk foundations as volumes increase.

Middle East focus

Across both regions, insurance penetration has remained largely flat below 3%, not due to lack of demand, but due to structural constraints in risk capacity, distribution, and reinsurance support.

However, the Middle East, particularly hubs such as Dubai, remains a center for insurance capital and innovation.

Markets like the United Arab Emirates and Saudi Arabia have invested and continue to support digital transformation heavily, with insurers deploying AI, automation, and embedded insurance solutions to drive efficiency and scale.

Yet, despite these advancements, the link between Middle Eastern capital and Africa’s rapidly expanding risk landscape stays underdeveloped.

Bridging the gap

“Africa is often labelled high-risk, but in many cases, it is simply mispriced due to lack of local insight,” Abhishek added. “When you combine on-the-ground intelligence with structured reinsurance and access to capital from the Middle East, the risk becomes far more manageable, and far more attractive.”

Reinsurance, long viewed as a backend mechanism, is now being repositioned as a frontline enabler of growth.

Without it, insurers face limits on how much risk they can absorb, particularly in sectors exposed to volatility, such as motor, trade credit, and infrastructure.

As digital insurance continues its rapid expansion, the message is clear: technology may drive access, but reinsurance will determine sustainability.

However, industry analysts indicate that despite the positive outlook, risk literacy remains a persistent challenge.

According to risk management experts, EIRS, this represents a gap that may be holding back the very financial inclusion that promises to uplift these important engines of job creation and innovation across Africa and the Middle East.

SMEs constitute an overwhelming majority of firms in the Middle East and North Africa, about 96% of registered companies and roughly half of employment, yet they receive just 7% of total bank lending, among the lowest globally.

In sub-Saharan Africa, SMEs often find themselves starved of capital, with many reporting limited access to loans or credit lines and enduring high borrowing costs that dwarf those in more developed markets.

Digital finance growth

The digital finance revolution, powered by mobile money, e-lending, and embedded financial services, has unlocked new avenues for inclusion. Digital solutions tailored for SMEs are growing rapidly, with fintech adoption rising across the region with digital platforms designed for business invoicing recording positive uptake in 2024. However, access is only part of the puzzle.

“What we’re seeing is that SMEs can reach digital finance solutions, but many still can’t use them effectively. Risk literacy, understanding credit, insurance, cash-flow dynamics and digital finance mechanisms, is the missing bridge between access and sustainable growth,” noted Abhishek Jain, chief executive officer, EIRS.

This gap has real business impact. While digital payment adoption in some markets is high, for example, 91% of Kenyan SMEs now use digital payments, many still lack the financial and risk acumen to leverage that access into credit worthiness, scalable lending, or meaningful insurance coverage.

Risk literacy is key

Across the region, the potential of SMEs remains high but despite their significant contribution to employment in Africa, they still face a persistent financing deficit. Without risk comprehension, lenders often view these enterprises as high-risk or unbankable.

Even in markets where mobile fintech adoption is strong, understanding remains uneven. Financial literacy enhances adoption with research showing that numerically and digitally literate SME owners are substantially more likely to adopt mobile banking, which in turn, improves their financial outcomes.

This dynamic illustrates why risk literacy, not just access, is the linchpin to inclusive finance.

Financial inclusion and risk literacy aren’t merely aspirational goals; they can concretely improve macroeconomic performance. Based on the IMF analysis, closing financial inclusion gaps could boost annual growth rates by up to 1% over the medium term in SME-dependent regions.

According to Abhishek, the conversation must shift from access to competence. “Policymakers, fintechs and financial institutions need to embed education into the SME onboarding process,” he noted. “When entrepreneurs comprehend risk, and can articulate it, lenders respond with capital, insurers design appropriate products, and ecosystems flourish.”

When risk literacy is elevated to strategic priority, SMEs may finally unlock their potential. And for the millions of entrepreneurs across the MEA region, understanding risk could be the key that turns inclusion into sustainable success.