Insurance Fraud Risk Management Practices and Performance of Motor Vehicle Underwriting Companies in Kenya

Abstract

Insurance fraud is a challenge facing almost all insurance firms whether in the developing or developed world. Indeed, in most of Kenya’s motor underwriting companies, fraud has evolved over time from fake windscreen and radio/music systems to more advanced total loss of vehicles and death claims. For the motor commercial segment, cases where the numbers of claimants surpass the carrying capacity of a vehicle or involving multiple insurances has been made. The objective of this study was to determine the effect of insurance fraud risk management practices on the performance of motor vehicle underwriting firms in Kenya. The study used fraud management life cycle theory and fraud triangle theory in defining the relationship between insurance fraud risk management practices and performance of motor vehicle underwriting companies in Kenya. Motor vehicle underwriting companies are faced with the task of managing fraud risk which has been a menace to their performance. A descriptive research design was used for the study with a target population of thirty five motor vehicle underwriting companies. The study found out that there was a significant relationship between preventive, detective & responsive fraud practices and performance of motor vehicle underwriting companies in Kenya. The study concluded that all the independent variables influence firms’ performance in accordance to the regression results. From the findings and conclusions, the study recommends that motor vehicle underwriting companies should carefully deliberate the extent to which they adopt the various fraud risk management practices since the study established that they affect the firms’ performance differently. The study therefore recommends that insurance fraud risk management practices should be made fundamental business practise by motor vehicle underwriting companies in Kenya. The Rsquared was calculated at 72 percent on the four variables. The P value of 0.00 confirmed that the regression model significantly and statistically predict the dependent variable and this a good fit for the data. Preventive measure was practiced by majority of the firms and this was confirmed by the t of 2.605 and beta of 0.613. The study recommends that motor vehicle underwriting companies should carefully deliberate the extent to which they adopt the various fraud risk management practices since it has been proven from the study that they affects firms performance differently and the top management should fully support insurance fraud risk detective polices by allocating resources to the process to ensure that there is regular review.The researcher suggest that it would be worth a study if findings from this study are applicable to other industries for example manufacturing or banking in Kenya to identify how risk management practices affect them. The study further suggest for further research on the remaining 28 percent of factor that affect performance of motor vehicle under writing companies in Kenya