The Effect Of Micro-Insurance On The Financial Performance Of Insurance Companies In Kenya

Abstract

Performance is paramount to any business and the insurance business is not an exception. The overall performance of the insurance industry has declined from 2014 to 2015, with poor macroeconomic conditions liked to the decline in performance (AKI, 2016). The increasing competition in the insurance sector has led to the development of micro insurance a deviation from the traditional standard insurance products. A number of insurance firms have developed agriculture micro insurance products and these include jubilee insurance, CIC insurance, Britam insurance among others. Micro insurance in Kenya has gained traction over the past few years given the fact that Kenya is an agricultural country, with the majority being small scale holders (Cytonn, 2016). This study sought to determine the effect of micro-insurance on financial performance of insurance companies in Kenya. The independent variables were total premiums, total claims and total costs all on an annual basis. Financial performance of insurance companies was the dependent variable which the study sought to explain and it was measured by annual Return on Assets (ROA). Secondary data was collected for a period of 5 years (2012 to 2016) on an annual basis. The study employed an explanatory cross-sectional research design and a multiple linear regression model was used to analyze the relationship between the variables. Statistical package for social sciences version 21 was used for data analysis purposes. The results of the study produced R-square value of 0.051 which means that about 5.1 percent of the variation in financial performance of insurance companies in Kenya can be explained by the three selected independent variables while 94.9 percent in the variation was associated with other factors not covered in this research. The study also found that the independent variables had a weak correlation with financial performance of insurance companies (R=0.227). ANOVA results show that the F statistic was insignificant at 5% level with an F statistic of 0.830. Therefore, the model was not fit to explain financial performance of insurance companies in Kenya. The results further revealed that individually, all the three selected independent variables were not statistically significant determiners of financial performance of insurance companies in Kenya as they all had p-values greater than 0.05. This study recommends that the management and policy makers in the insurance industry should come with a way of increasing total premiums collected by firms as they ultimately influence financial performance of insurance companies. Other factors that not covered in this study but positively influences financial performance of insurance firms should also be addressed.