Impact of Enterprise Risk Management Practice on the Financial Performance of Insurance Firms in Kenya

Abstract

Enterprise risk management has it role in enhancing effectiveness in an organization, improved quality of the risk reporting tools as well as enhanced business performance. Through the efforts of ERM insurance entities are offered the opportunity avoid intolerable threats as well as effective adoption of acceptable risks. There is still no absolute consensus from the studies on ERM about whether investing in ERM results in better financial performance in Insurance firms in Kenya. The research objective was to establish the relationship between Enterprise Risk Management and financial performance of insurance firms in Kenya. This research study adopted a descriptive survey research design. The target population of this study was all insurance firms in Kenya that have been in operation for the year 2012 to 2017 which are currently 51 insurance firms. A structured questionnaire was applied during data collection at primary level which included both closed and open-ended questions. The questionnaires were hand-delivered to the respondents’ offices with a request to fill in the questionnaire in one week’s time whereupon it was collected. Pilot study was done to assess the appropriateness of the questionnaire and respondents’ understanding of questionnaire and to eliminate ambiguities and errors. The descriptive statistics were applied during analysis of the collected data. Inferential statistics such as correlation together with regression analysis were done. The study established there was proportion variation of 68.9% of return on asset due to change in enterprise risk management activities which include internal environment, objectives setting, event identification, risk assessment, risk response, control activities, information & communication and monitoring. The research established enterprise risks management have a significant effect on the insurance companies return on asset as they as able to benefit increased profitability and reduce earnings volatility and meet strategic goals.