Risk Management Strategies and the Performance of Selected Insurance Companies in Nairobi City County, Kenya
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Date
2024-08
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Kenyatta University
Abstract
The insurance industry plays a key role in providing innovative solutions to major social, economic and environmental challenges facing the nation. Despite the insurance industry's contribution to the Kenyan economy, insurance coverage in Kenya remains low. The performance of the insurance industry has also been affected by the recent epidemic, with most insurance companies suffering losses and customer complaints still persisting. Therefore, this study sought to investigate the effect of risk management strategies on the performance of selected insurance companies in Nairobi County, Kenya. The study specifically examined the effect of diversification strategy, risk transfer strategy, risk based audit strategy and risk avoidance strategy on the performance. The study was guided by the balanced scorecard model and portfolio theory. This study adopted a descriptive research design. The target group for this study was 10 selected insurance companies in Kenya. The respondents were 856 employees from the risk management and compliance departments of these selected insurance companies. Respondents to this survey were stratified according to their respective companies. Respondents were selected from each stratum using simple random sampling techniques. There are 273 employees in the sample. A semi-structured questionnaire was used to collect primary data. A pilot study involving 28 respondents was done. The study used content validity, criterion validity, and face validity to determine the unique relationship between the test and what it was intended to measure. A Cronbach's alpha test was performed to test the reliability of the multiple choice questions on the Likert scale. The study used qualitative and quantitative data. Thematic analysis methods was used to analyze the qualitative data obtained from the open-ended questions. Descriptive statistical analysis such as mean and standard deviation were used to analyze quantitative data. The study conducted inferential analysis, including correlation analysis and regression analysis, to determine the degree of interaction between the variables. The study found that diversification strategy, risk transfer strategy, risk based audit strategy and risk transfer strategy had a positive significant effect on the performance of selected insurance companies in Nairobi County, Kenya. The study concludes that diversification is important in investing because it can be a key risk mitigation strategy against market volatility. Risk transfer helps the insurance companies in reducing financial and operational risks, improving efficiency and productivity, increasing flexibility and adaptability, and strengthening relationships with partners or suppliers. Risk-based audits are invaluable at a time of uncertainty, as they allow businesses to adapt more easily to changing conditions through a consistent and comprehensive approach to risk management. Risk avoidance strategy enables the insurance companies to eliminate any exposure to risk that poses a potential loss. The study recommends that the insurance companies should carry out a strategic asset allocation which involves setting a long-term target allocation for each asset class based on an investor's risk tolerance, financial goals, and time horizon. The insurance companies should conduct due diligence and background checks on partners or suppliers before entering into an arrangement. Effective internal auditing requires thorough planning coupled with nimble responsiveness to quickly changing risks. The insurance companies should conduct a thorough risk identification and analysis process to identify sources, causes, and effects of the risks, as well as their probability and impact.
Description
A Research Project Submitted to the School of Business, Economics and Tourism in Partial Fulfillment of the Requirements for the Award of the Degree of Master of Business (Strategic Management) of Kenyatta University, August 2024.
Supervisor
Linda Kimencu