Risk Management Strategies and Performance of Insurance Companies in Nyeri County, Kenya

Abstract

Insurance companies cover the uncertainty of a financial loss on a variety of risks from policy holders. Effective risk management is therefore crucial to operations of insurance companies. An appropriate risk strategy enables insurance companies take risks knowingly and manage them appropriately. Insurance companies in Kenya have over time developed mechanisms of assessing risks for the policy holders but still face challenges in effectively managing risks. It is against this background that this study sought to examine the effects of risk management strategies on the performance of insurance companies in Nyeri County. Specifically, the study focused on establishing the effects of risk retention strategies, risk avoidance strategies, risk reduction strategies and risk transfer strategies on performance of insurance companies. Enterprise Risk Management theory, Balance Score Card and Agency theories formed the theoretical focus on the variables respectively. The study’s target population consists of 66 managerial level employees made up of three employees from 22 insurance companies who are directly involved in risk management process. The study adopted descriptive census survey. Both descriptive and explanatory research design were utilized. Self-administered questionnaires were used to collect primary data. Validity and reliability of the questionnaire was ensured through a pilot study which was carried out in Real Insurance company which was excluded in the actual study. Quantitative data was analyzed using inferential and descriptive statistics with the assistance of Statistical Package for Social Sciences computer software. Qualitative data was analyzed using content validity. Construct validity was ensured by operationalization of the study’s variables while content validity was achieved expert review in the fields of insurance. Multiple regression analysis was used to establish the nature and degree of relationship between the independent and dependent variables. The study concluded that risk management strategies affect performance of insurance companies in Nyeri County. Risk retention strategies and risk avoidance strategies were found not to be statistically significant while risk reduction strategies and risk transfer strategies were found to have significant on the effect organizational performance of insurance companies in Nyeri County. The study recommend that insurers should focus more on risk reduction and risk transfer strategies with emphasis being on risk transfer strategies which had the highest level of significance. Insurance companies’ managers should focus more on insurance derivatives, risk reinsurance, partnerships on high risks and development of group insurance products to derive greater performance benefits. Further research was recommended on other risk management strategies not included in the study and how they affect performance of insurance companies